Why do so many people fail to get started?

Lender · Nationwide · Member since 2024 · 3 posts · 1 vote

I am just curious. With so many resources available, 100% financing programs, down payment assistance programs, urban development programs, places where sellers are begging you to buy their homes, and platforms like this for free training and guidance why do so many people who want to get in REI fail to actually get their first home under contract. Does it have something to do with location, fear of failure, or something else?

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Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

@Dave Ivery

I actually think it's pretty tough to get started right now

Low inventory, higher interest rates, and lots of competition for properties

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
2y
@Dave Ivery
I actually think it's pretty tough to get started right now
Low inventory, higher interest rates, and lots of competition for properties
6 Reply
Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
2y
It's harder to get started right now and people are unwilling to control there personal finances.

If they can't control there spending (or pay them self first) it's unlikely they will find success as a REI. This goes for all forms of investing in my opinion. They have the fundamentals or it hasn't "clicked" for them yet.
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Dave Ivery
OP
Lender · Nationwide · Member since 2024 · 3 posts · 1 vote
2y
So do you think we are past the stage where new guys could try and get in with limited resources and grow a portfolio or are we waiting on the bubble to burst before they could get in the race?
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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
2y
Quote from @Dave Ivery:

So do you think we are past the stage where new guys could try and get in with limited resources and grow a portfolio or are we waiting on the bubble to burst before they could get in the race?

@Dave Ivery New people can and should buy RE but the ROI is less. Plan for it, budget it, or don't get into REI in 2024. As a first buyer not looking for a strategy or return? Yes, buy because you get to drive the car and stopping renting.

The FED is not reducing rates (maybe 1-2 times in the fall) but it's going to be 0.25%.That changes nothing. Doesn't matter if you talking cash-flow or profitable flips. It's a sellers market with limited supply so I rarely see anything that sticks out. When I do it's over priced $70k... hard to negotiate down $70k in this market. Can't buy the ugly duck in a good location when it's priced like that.

I'm finding price confusion. Distressed properties listed on market for $195k, price reduced to $179k, getting an email from a wholesaler who has it listed for $158k... so clearly it's worth a lot less. Seller was in La La land to begin with.

We're not actively buying but when we jump in the river the current is strong in the wrong direction (like described above). It's frustrating so we're focusing on other things.
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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
2y
@Dave Ivery

Wait on the bubble to burst? No. But you said something interesting - "get in with limited resources." That could potentially be risky.

Can you house hack? That is one of the few ways for folks with limited resources to get started. You're taking your housing payment, which most of us have, and making it count toward investing as well.

I was going to say something similar to @Jaron Walling - set your expectations differently. RE has always been very long term... and for the next few years I think that is going to be especially obvious.
I'm still looking for deals but it's much tougher than 2 or 5 years ago.
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G. Brian DavisPro Member
Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 842 votes
2y
Buying properties directly takes both a lot of skill and a lot of work, at least if you're going to minimize risk and consistently earn strong returns. Anyone who says otherwise is selling a course on how to do it :-)
Most people aren't prepared to start a side hustle in real estate investing, which is what active real estate investing is. It's why I invest passively nowadays.
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Alan F.
Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes
2y
Starting out when it's more challenging creates resilience. When things are "easier" it puts you in an even better position. When the going gets tough, the tough get going. It may require more capital and harder work, it all depends on how bad you want it.
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Dave Ivery
OP
Lender · Nationwide · Member since 2024 · 3 posts · 1 vote
2y
Thanks for all the feedback. I talk to a lot of people looking to test the waters. I appreciate getting the point of view those that are actually active and having success.
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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
2y
@Dave Ivery Lots of simple but powerful advice given already. I started in 2018 with $25k cash. That included my personal emergency fund. That's not a lot money! The only goal I had was to find/buy/create a deal... something other local investors would jump on. Market research, getting pre-qualified, and walking properties gets you there. You'll either save money, do the research, walk properties, or you won't and someone else will. Happens everyday and yesterday was the best day to buy RE.

Keep going.
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Justin Fox
Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes
2y
You can make ~$200/month for every $43,636.36 - $55,813.95 in a HYSA right now.
1 Reply
Mose Gebremeskel
Investor · Member since 2022 · 233 posts · 142 votes
2y
Quote from @Nicholas L.:

@Dave Ivery
I actually think it's pretty tough to get started right now
Low inventory, higher interest rates, and lots of competition for properties

agreed!
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
2y
I have seen 2 recent studies comparing the initial cost of renting versus owning. One indicated it was cheaper to rent in 97 out of 100 large cities and the other stated 95 out of 100. Both studies concluded that virtually everywhere it is cheaper to rent than buy.

In my market the average monthly LTR rent on a MLS SFR is less than 0.5% of the purchase price. On residential MF (4 units and less) purchased from MLS you can achieve just a bit better than 0.5% ratio. At high LTV, you need a ~1% ratio in my market with the current rates to be cash neutral if properly allocating for expenses. This means that these purchases are negative thousands of dollars per month.

Going off market there is a lot of offerings that are not better than the MLS listings, there is often risk items, and they virtually always require work.

S&P has lifetime return of ~10% and a recent long term return of ~12%. Preferred money market is over 5%. These are passive. No tenants or properties to manage.

So what is the RE play in my market? I believe it is 1) patience. Rents and prices go up over the long term. The cash flow will improve due to the typically fixed rate loan. How long? In my view too long. 2) value add. One of my last 2 purchases is worth over $700k more than purchase price. This $700k was achieved via purchase below value, value add, and market appreciation. By the way this purchase has some negative cash flow (at market rent it would have very small positive cash flow). Note in the short term, market appreciation cannot be relied upon, but the other 2 do not rely on appreciation. Note value adds are the opposite of the passive S&P. 3) alternate rent models. STR, MTR, rent by room. There is a company that will take common space and convert to BR to maximize rent by room space. These options in my opinion have increased revenue in the current market that just compensates for their increased effort (I have 4 STRs in my market). If you have the hustle, you can get better cash flow using alternate rent models, but they require more effort to do well than managing rent ready LTRs.

It is a tough market. The rates make achieving positive cash flow challenging. In the past I think analysis paralysis kept people on the sidelines. In the current market the numbers are keeping many from purchasing. Why invest in non passive RE for a return less than you can achieve via passive means?

I am still making offers, but they are not getting accepted. The offers I am making are with margins that I would not have pondered 2.5 years ago. The primary reason I make offers is RE is like my hobby. I am on a long dry spell on purchases, so I have the itch. Even with these offers having protected worse returns than any of my purchases in the last dozen years, they are still being rejected.

Better to have no purchase than a bad purchase. The goal is to make money not own units.

good luck
2 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
Most people don’t start because of potential failure versus success. Calculate failure on the project versus letting your mind come up with a million ways to fail.
Overload. To many options. How much money do you have? What is your finance downpayment or mechanism? This defines the size of the deal for you. Disregard what other people are doing.
Get Started. First time out. Don't go for a home run. Do a flip that is just paint, landscaping, flooring, reroof, etc. Dont knock din walls or do an ADU. Learn a little bit at a time. Not all at once.

In your project range go for nasty. Not necessarily dirty. Buy a church and convert. Buy the worst house in a great neighborhood. Look at properties that have been listed the longest that fit your buy box. Everyone worse is looking for a nice 3/2 home. Don’t do that.
Dont get hung up on your real estate approach. You might do some to generate cash short term and others as long term investments.
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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
2y
@Henry Clark The fear of the unknown is stopping one of my co-workers from becoming a homeowner. I'm coaching them how to buy distressed RE but it's not getting through. Can lead a horse to water but you can't make it drink. Her husband worked construction for a few years (carpenter and plumbing jobs) yet they continue to rent. Instead of taking advantage of those skills they let the unknowns creep in and continue to rent.

I remodeled and lived in three different SFH since knowing her, and prices more than doubled in there neighborhood during that time.
1 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
Quote from @Jaron Walling:

@Henry Clark The fear of the unknown is stopping one of my co-workers from becoming a homeowner. I'm coaching them how to buy distressed RE but it's not getting through. Can lead a horse to water but you can't make it drink. Her husband worked construction for a few years (carpenter and plumbing jobs) yet they continue to rent. Instead of taking advantage of those skills they let the unknowns creep in and continue to rent.

I remodeled and lived in three different SFH since knowing her, and prices more than doubled in there neighborhood during that time.

Dont talk with your family or friends about Real Estate investing. Most people will never jump off the cliff and dive in or you are a Snob trying to tell me how wealthy you are. Real estate is a lonely subject. Don’t try to help anyone unless they approach you and out skin in the game. Most BP will never become RE investors.
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Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
2y
@Dave Ivery
Real estate investment (REI) can be challenging due to factors like fears of failing, not knowing enough, money limits, surprise bills, tough competition, personal limits, problems in doing things, and fear of being turned down. To beat these hurdles, wannabe investors should learn more, find mentors, begin with small investments, make work connections, have plans for action, and grow a strong mind.

Good luck!
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Eric Gerakos
Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes
2y
Quote from @Justin Fox:

You can make ~$200/month for every $43,636.36 - $55,813.95 in a HYSA right now.
Or make $375/month with $50,000 at 9% in a first trust deed with a conservative LTV.
2 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
2y
Lots of reasons. They may not have the money needed for a down payment, the numbers may not work where they live, they may be afraid, may not have the time or interest. Also the idea of buying real estate and the reality are quite different. Most real estate earns you money over a longer period of time and people don't want to wait, plus with the current interest rates, you can park the money in a savings account and do pretty good with no headaches.
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Jeremiah Dunakin
Member since 2022 · 186 posts · 192 votes
2y
I think a couple things. The fear of intrest rates definitely takes some error out.when I started out a couple years ago. Rates were at 5% and I had some wiggle room in the case of things going sour(and they did).
I also think what is holding people back is same thing that held me back.
1. Scared of just not knowing, regardless of info and podcast flowing.
2. I was petrified of getting sued. Got umbrella coverage and I sleep easier.
Analysis paralysis. I thought I had to find perfect house in perfect neighborhood with perfect terms. I heard on BiggerPockets podcast. Someone found a 400k property for 125k and didn’t put no money into it got 4K and a chicken sandwich back at closing. They then found out the basement was rental that all they had to do was paint it red and they had another rental.
That didn’t happen to me. I ain’t mad at anyone who does get that. I’m pretty happy for them. The vast majority of us get a decent deal at best I assume. I ain’t sayin buy whatever. I just think the ultra sweet deals for first time is not to prevalent.
4. Scared of failure/what others will say. I know a million real estate investors with no real estate at my work. I hear the same things from them. Always first thing I hear do you an LLC? Get a heavy vehicle for tax right off. I also hear how they would do things how they wouldn't change this or that. A bunch of know it alls with no skin in the game.
5. Getting spouse on board. My wife and I didn’t see eye to eye on it. Eventually she said do it cause she trusted me. She didn’t want headaches from it. Now she sends me houses and is totally on board.
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John Mason
Member since 2024 · 1k+ posts · 351 votes
2y
Lack of a known mentor to give courage and steps to succeed
So many different thoughts and strategies in the forum which make people hesitant as to which is best path for success
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John Mason
Member since 2024 · 1k+ posts · 351 votes
2y
I guess people need to make notes and read books and see Youtube videos and then target a few markets and then use zillow etc to see long term appreciation etc and then formulate who they want to team up with to start the journey.. needs time to digest all the information !!
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