What Is Your Biggest Obstacle to Getting Started in Real Estate?

Question

When I started out, I had two main obstacles:

1.  The internal obstacle of my belief that no one would take me seriously until I had closed at least one.  It took me a while to be able to tell people I was a real estate investor without feeling like a fraud.

2.  The inability to get a decent deal.  First brokers would not show me deals; then I went into contract on some bad deals out of desperation, which then did not close and I wound up losing a lot of money; and then I switched markets at was at zero again, with brokers not showing me deals.

I eventually hit upon strategies to get me over the hump, but getting started was hard.

What has been your biggest obstacle?

1.  Is it lack of equity capital?

2.  Inability to get mortgage debt?

3.  Inability to find deals?

4.  Are you just getting in your own way with negative self-talk?

5.  Or are you in a vicious cycle where one of the first three is reinforcing No. 4?

Or is it something completely different, like lack of support from your spouse, etc.?

Let me know in the comments!

Jonathan Twombly · Answer

Account Closed The key to doing it without your own money is to establish relationships with people who have money and would rather invest passively than actively.

Jonathan Twombly · Answer

@Cary Ogello

Analysis paralysis is a real thing, and it is caused at least in part by not feeling comfortable with the numbers and not knowing what a good deal is.

I think it's really good that you have defined criteria for what is a good deal for you.  Sticking to it is really important, but also you have to be wary about making your "good deal" a crutch to allow you NOT to invest.

I have to say that, for people who are just getting into the field now, it's really tough.  Deals are very, very scarce and good ones are even scarcer.  So many people come to me wondering what they are doing wrong.  I wish I had some "insider secret" to tell them to help them tap some hidden source of deals, but the fact remains that it is a tough market right now.

I'm in a private mastermind group with people who many of you might know - well known podcasters and personalities on this site.  And every month, when we talk, one of our topics of conversation is how hard it is to find deals right now.  So, this problem even affects the pros who had a head start when the markets were more favorable.

For people getting in right now, I say two things:

1.  Take heart.  What goes up must come down.  There has never in history been a real estate bull market that lasted forever.  I think this run up is getting really long in the tooth.  Buying opportunities are coming.

2.  Now is the time to get ready for the buying opportunities to come.  Educate yourself.  Put yourself in the best position possible.  Save up some dry powder - the people with money when the downturn comes are the ones who will get rich.  Make relationships now, with brokers and with other investors and with mortgage brokers, etc.  When the tough times ahead come, brokers and mortgage brokers will be tough on new investors, but that won't apply as much to people they have already built relationships of trust with.

Linda Labbe · Answer

Am 66 so can relate to it being late to getting started. BUT since i believe that today is the 1st day of the rest of my life it is not...hardest things was finding people to trust there are a lot of sharks  out there in them there waters... and since  I live in Canada getting the whole cross border things sorted.

Early errors cost big  but the mistakes  helped me get to where  I am today  even thought they had a huge price tag (40 000  Canadian ) I consider it a small cost to learn what i needed to know to invest for the next 40 years.

Choosing the right spot was the next hardest thing  the US is a really big place but for the last 6 months things have gone well and I  am not overjoyed with my decisions.

Right now my passion is my investing and helping others so they don't make the same errors that I did  early on

Account Closed · Answer

Just began the first step towards investing.  My parents house in MI has been placed on the market to sell... my share plus what I already have saved up will be re-invested in my first rental..

After going through all the states (virtually), we have narrowed our choices to mostly the Midwest (IL, IN, MI) and NY.   Since these states have many affordable houses.  I have found what seems to be good PM teams in these states as well. That way, when the time comes, I'll be ready.

Now, all I have to do is wait, till the house is sold. Hopefully, it won't be too long. ( I know, a house is not an asset. Don't count your chickens before they hatch!)

Account Closed · Answer

Mostly, it is age.... (63).  I wonder if it is too late to start.  Not much room for error.  Second, would be lack of capital.  (Working on that).   Thirdly, just the feeling that maybe it's too late in the game and we should have started sooner.  Last, but not least, is not being able to see myself as an investor. A would be investor, or future investor, maybe.  But not the type of investor that is referred to in BP.   I can't relate to that. Maybe everything will change once I buy my first rental.

Cary O. · Answer

@ Jonathan Twombly

As a relatively new real estate investor (and yes, it does sound strange to call myself one), my most challenging hurdle was the fear of the unknown. I've head it preached on BP, "you don't know what you don't know". Fortunately, with all of the resources on the BP website and podcasts, I am less fearful of the unknown as the tools on the site help you be able to better predict/project the future. Being able to analyze the deal and knowing how to analyze it truly helps take some of the fear out of the equation. Whenever I see a potential rental property, I have started running through the numbers for ROI, COC, NOI, CF, etc. It is solidifying the knowledge so that I can better recognize a good deal quickly and screen those out for closer analysis. I know I'll be better prepared when the right deal comes along.

Jonathon, you are absolutely right on target that you as an investor needs to be laser focused on what type of deal that you are looking for. It also helps to write down what a good deal looks like for you and what criteria that includes.  For example, looking for a SFH 3/2/2 less than 1800 sq ft and newer than 1970 with minimum CF of $200/mo, COC >8%, CR >6%, Total ROI >20%.  I would just caution that you don't get stuck in the "paralysis by analysis" phase and just take the jump if the numbers make sense for you.

Brandon Smith · Answer

For me personally, I am definitely carrying too much existing debt, so traditional lenders likely will not approve me, plus it's been tricky finding deals as well. Plus I'm new to my current city, so it's been tricky making connections in a very "cliquey" town, however, I've recently started making some connections, just need to continue to widdle down the debt.

Jonathan Twombly · Answer

@Larry T.

Not being able to identify a good deal is definitely an obstacle to getting started.  I find that this is probably the biggest reason behind analysis paralysis.  People don't really understand when to stop the analysis and what is a risk worth taking.  So they go out and try to find a perfect deal with no risk, which even they know does not exist.  And since there are no such deals, they never get out of the starting gate.  The "perfect deal" becomes a crutch that allows them to avoid getting out of their comfort zone.

Finding deals is as much about volume as anything else.  You need deal flow, so that you can cherry-pick the ones that work for you.  To generate deal flow, you need to cultivate relationships with brokers and, if possible, with other owners as well.  Cultivating broker relationships requires you to demonstrate to the brokers that it is worth them taking a risk on you.  So you need to de-risk the process for them by demonstrating that you have experience, a team in place, access to capital, and that you know what you are doing.

I think in your case, you also need to get a very fixed idea of the kind of deals you are looking for an set out some metrics for decision-making.  Once you have your metrics set out, you should put them into a document that you give to brokers that also includes the information I mentioned in the previous paragraph.  New investors often think that they should cast a wide net.  This is misguided.   You want to focus like a laser on the kinds of deals you want to do, and you should be communicating this to brokers and other people with access to these deals.  To increase your deal flow, talk to more people rather than casting a wider net in terms of the deals you will look at.

Being focused has an additional benefit, which is that it makes a broker's job far easier, and they will like you in return for it.  The pros are focused on particular types of deals, and brokers like this, because they know they won't be wasting their time showing them deals they are not interested in.  Be very specific, so that a broker knows right away whether the deals they have now, or deals they get in the future, fit your parameters.

I go into more detail on these things in resources I give away for free.  If you (or anyone reading this) wants them, message me privately.

Larry Turowski · Answer

@Jonathan Twombly Good question and thanks for sharing.  Once I was finally mentally ready to pull the trigger my obstacle was #3.  Inability to find deals.

I would elaborate on that, that it was also not knowing what a deal was.  My goal was to buy a rental that wasn't performing, rehab, place a tenant, and then sell.  I knew I could do alright just renting it and that was my fall-back (and what ultimately happened), but I didn't know if it would be a good enough deal to interest turn-key buyers.  I guess I finally just decided the rental would work for me if not for others and did it.

And I totally agree with feeling silly calling myself a real estate investor.  Now I am one and am confident in that label.  Fake 'til you make it, I guess.

Interesting, I'm a newbie again.  I want to a small apartment complex.  And I'm in the same boat of not knowing what a deal is.  I have a broker sending me deals but I don't think they are anything typical deals, and that won't work for me.  How do I find value-add deals?  That's your area!

What Is Your Biggest Obstacle to Getting Started in Real Estate?

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