Making Real Money in REI

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Making Real Money in REI

Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes

There's an old saying in the writing business: "The only people making money in the writing business are those who are teaching people how to make money in the writing business."

As I look around the current REI landscape I see a ton of "gurus", "new concepts", "can't miss systems" and "the new wave of the industry" sales pitches, not to mention wall-to-wall informercials.

I'm fairly new to REI, but I'm making aggressive offers on solid properties, I have more than sufficient funds set aside for down payments, and my credit is good. In other words, I'm doing it the "old fashioned way."

I've also looked at all the different strategies, from wholesaling to mobile homes to quick sales to birddogging, and I've seen testimonials from students who liked the courses and "really hope" they'll "make a lot of money with this program."

So here's my question (and sorry for the long preamble): Are there really people who are following these programs, and who are making significant money with them? I can see the flipping strategy working, but what about wholesaling, tax sales, pre-foreclosures?

Is this stuff real, or are the only people in the industry making money, those who are teaching others how to make money in the industry?

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Account Closed
Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
19y
There are many strategies.

Most can result in a large check sooner or later so most courses can pay for themselves if the investor applies what they have learned.

Little is new. Most everything done today has been written about in the past. The closest think to new in the last 5 years would be short sales and TIC structures for 1031 deals. Short sales are not new if you understand banking but they were not all that common for individual RE investors. Packaging for the masses. The TIC deals are taking advantage of a newish understanding of the 1031 tax code. More or less forced upon the folks who used to run general partnership programs.

For the most part you could be very successful if you only used strategies that are 10 years old or older.

Think about a different field, the self-help industry. Think and Grow Rich is an old title yet The Secret has done rather well. It does not really matter much where someone learns the lesson. It just matters that they learn it and then they apply what they have learned.

John Corey
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Ryan Urban
OP
Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes
19y
Great points. I guess I have two conflicting opinions on what is happening in this industry:

First, having worked with many small business owners over the years, it's my opinion that the vast majority of the small businesses that fail, do so because of a lack of business/marketing planning. I cringe when I see young people trying to get into REI with no money and poor credit, just because of some infomercial they saw, book they read, or class they took. Anything can happen, but I'd guess their chances are not good.

(As an example, I just put a bid in on a fourplex that will be bank-owned next month. Young guy, bought it with no money down and an ARM. Now he's screwed. I can't say he's an infomercial sucker, but I'd say the chances are at least 50/50.)

Second, I do believe that any good system will work if it is implemented properly. The key, of course, is the "good". That's where we have to look closely and read this forum for input. Most of the time, from what I've seen, it can take thousands of dollars to get the "full" program, and there are no guarantees. For the sake of the people spending this money, I sure hope those courses have "good" information, including complete business/marketing planning.

The biggest value to business/marketing planning is that sometimes it indicates that you SHOULD NOT start the business or make a deal. Knowing BEFOREHAND is much better than allowing your excitement to control your decisions, and ending up with maxed out credit cards and ruined credit.

I'm always looking for new ideas, and in this industry, it looks like a crap shoot at times.
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Account Closed
Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
19y
Urban Investments,

You have a marketing background so a question.

Risk reversal is something that Jay Abraham advocates. Take away the risk to the buyer so that they can buy the product. Assuming the product is good then it is best to get it into as many hands as possible so that those who really want it will act.

Originally posted by "Urban Investments":

Second, I do believe that any good system will work if it is implemented properly. The key, of course, is the "good". That's where we have to look closely and read this forum for input. Most of the time, from what I've seen, it can take thousands of dollars to get the "full" program, and there are no guarantees. For the sake of the people spending this money, I sure hope those courses have "good" information, including complete business/marketing planning.

If a program or collection of different programs from different sellers all had 100% money back guarantees would more buy? If there are course to buy and there was no risk if you did not like it after review at home does it make sense to buy.

John Corey
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Ryan Urban
OP
Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes
19y
John:

Money-back guarantees are used so regularly and so extensively that they generally are not as effective as advertisers generally wish. The market has been saturated, in other words. A big caveat here, however...

It does depend upon the product/industry. You don't see any 30-day money back guarantees on cars or SUV's. But you will see it on products and services that overall do not cost the business a great deal. Circuit City once suspended its 30-day guarantee on big screens during Super Bowl/College Bowl season. As I bet you've already guessed, people would "buy" the big screen, then have Circuit City pick it back up after the games/parties and get their money back.

Indeed, a money-back guarantee is most effective when the product/industry has a less than stellar reputation. You think Ford & GM would sell more cars with a 30-day money back guarantee? Of course, and they'd be bankrupt in a year. And even a money-back guarantee can't be trusted -- I constantly read that people have nightmare situations getting their money back from these TV RE gurus. A guarantee is only as good as the company offering it.

I read that people like John Beck and the other gurus have phone staffs that harass you without mercy after you buy the "starter" kit. A $40 purchase can turn into a $5,000 purchase by the time they're done with you.

My personal opinion is, hell, I'll pay a couple of thousand dollars for a program if it gives me strategies and information that make the investment worth it, and that the information I get can't be found online or in the library.

In this particular case, yes, I'd be more interested if there were a money-back guarantee that I could depend on. I'm just not convinced I can.
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Don Mack
Real Estate Consultant · Charlotte, NC · Member since 2008 · 50 posts · 2 votes
19y
You said Ford doesn't offer a 30 day guarantee, you are right about the guarantee. They offer a hundred thousand mile warranty. But do you think a warranty is just a guarantee? :goofy: I mean lets be honest here, if the car doesn't perform within the warranty, you can get yours fixed for free or get a new car.

On investment courses, which would you like to have a warranty or a guarantee. Plus if you are that skeptical, you shouldn't even think about buying the course. You need to trust your own gut, as with any business. Do your research and if things don't check out, then don't buy into it.
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Ryan Urban
OP
Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes
19y
There's a big difference between a warranty and a money-back guarantee. If you go to Ford and ask them for your money back after a few days you're in for disappointment. They'll try to fix the car under the terms of the warranty, but money back ain't gonna happen.

You're right, I'm definitely cynical. I'm new to REI, but my business/marketing background goes back a long way. I've seen too many business owners fail even when they were somewhat prepared, and I have a strong gut feeling that many people are jumping into REI based on what they see on infomercials alone, without cash and/or good credit. Failing doesn't just mean not succeeding; it can mean financial ruin, wrecked marriages and great emotional pain.

Interestingly, when I read posts from people who have purchased this guru's or that guru's program and complained, most of the complaints were about how difficult it was to get their money back, and not about the quality of the plan itself. It makes me wonder how many people really followed the plan from A to Z, and how many just gave up when they realized that they actually had to put out some effort. I know from experience that only a tiny minority of small business owners follow their business/marketing plans to the letter.

I guess what I'm trying to determine is this: If you bite the bullet and pay $2000, $3000, $4000 for the "full" package from one of these gurus, which of these programs are truly fundamentally, strategically and legally sound? Or is it possible to even know?
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N/A N/A
Member since 2008 · 34 posts · 0 votes
19y
Originally posted by "REI":
There are many strategies.
Most can result in a large check sooner or later so most courses can pay for themselves if the investor applies what they have learned.

Little is new. Most everything done today has been written about in the past. The closest think to new in the last 5 years would be short sales and TIC structures for 1031 deals. Short sales are not new if you understand banking but they were not all that common for individual RE investors. Packaging for the masses. The TIC deals are taking advantage of a newish understanding of the 1031 tax code. More or less forced upon the folks who used to run general partnership programs.

For the most part you could be very successful if you only used strategies that are 10 years old or older.

Think about a different field, the self-help industry. Think and Grow Rich is an old title yet The Secret has done rather well. It does not really matter much where someone learns the lesson. It just matters that they learn it and then they apply what they have learned.

John Corey

I agree with John completely. What are you doing currently as your plan?
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Ryan Urban
OP
Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes
19y
Well, that's a two-part answer.

First, I've decided on multi-family, buy & hold, maybe pyramid strategy. Not sure about the pyramiding, but we'll see. Standard 10% to 20% down payments, one to three properties depending on costs, offering 70% to 75% (based on appraisal) to begin, will buy nothing over 80%. I have a pretty strong nibble on a pre-foreclosure fourplex at 79.6%, I'll know in a couple of weeks from the bank.

Second, I'm always looking for other ideas. I've looked at (and purchased books on) mobile homes, tax liens, flipping, wholesaling, you name it. That's why I've asked about gurus and their programs. I'm just curious what's out there, and researching the different strategies has been great fun.

As I mentioned earlier in this thread, I'll spend the money on a program if it's legitimate. With so many hucksters out there, though, it's tough to tell.
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N/A N/A
Member since 2008 · 34 posts · 0 votes
19y
I have to agree with you there are a lot of hack jobs out there. Always check references before starting anything. Make some phone calls. Its always best to speak with people that have tried the program first. Goos luck to you.

Do you have a CPA and a Estate planner? I am a proud cheerleader for professionals. They can always help you make sure that you don't miss anything that you may not have been thinking about tax wise.
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Ryan Urban
OP
Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes
19y
I have a CPA and I know I should get my hands on a good estate planner soon. I have a cursory knowledge of estate planning, and I know enough to know that I'd better get to it!
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Michael Rossi
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
19y
Urban Investments,

I've never heard of a pyramid strategy as it relates to buy and hold investing? What is that?

I also sense that you're looking for the "SECRET" that so many of the gurus promise. THERE IS NO SECRET. Whether you spend $1,000 on a course or $25,000, you won't find the "SECRET", because it doesn't exist. Many (most) of the gurus make their living selling and upselling their courses, not in real estate. They all promise the same thing, instant riches without work. That doesn't exist.

What's important is that you learn the fundamentals of the business (and yes, it is a business). What have you done to accomplish that? Have you joined your REIA? Have you made friends with the SUCCESSFUL investors in your area? Have you told everyone you know that you buy houses or small apartment buildings? The question the others were asking is what have YOU done?

It is also important to have a business plan. Have you written a specific plan to get you from where you are now to where you want to be. You should start with the destination and work backwards.

Good Luck,

Mike
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Ryan Urban
OP
Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes
19y
Mike, great input.

When I mentioned pyramiding, I was referring to the practice of using equity from one property to buy another. At least I think that's what it means - I've read so many books, posts and articles I may be losing track!!

I agree with you completely, and that's why I'm doing things the "old fashioned" way - find a good property, get it at a good price, down payment, regular loan, positive cash flow, buy & hold - instead of following all the gurus and "no down payment" schemes. As John mentions above, there really isn't that much "new".

I'm just curious as to whether any of the "guru" programs are legitimate. Otherwise, I'm perfectly happy and comfortable doing the "get rich slow and careful" routine. As a matter of fact, if there is a SECRET, that may be it. It's just not as exciting, and that's fine with me.
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Michael Rossi
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
19y

You realize of course that if you borrow the equity from one property to buy another that the first one loses its cash flow. If you then borrow the equity from the second to buy a third, the second will not cash flow. This pyramid scheme sounds like it means that you end up with a bunch of losers and only one property that cash flows.

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N/A N/A
Member since 2008 · 34 posts · 0 votes
19y
Originally posted by "Urban Investments":
I have a CPA and I know I should get my hands on a good estate planner soon. I have a cursory knowledge of estate planning, and I know enough to know that I'd better get to it!

Good thinking! Make sure to check references. Make phone calls to people that are currently clients. I will look through my database and see if we have anyone good I can send you to in your area. Good luck hunting for a prefessional!
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Ryan Urban
OP
Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes
19y
Originally posted by "MikeOH":

The question is how many rentals can you afford to buy if you put down a traditional 20%? Buying properties with no down payment is not a scheme. It does work. I have bought almost all of my properties no money down, including via owner financing, subject 2, and lease option. The key with buying rental properties is to buy at a BIG discount. If you don't buy at a big discount, you won't make money. It's just as simple as that.

Sure. And in general, the approach to REI depends on one's goals. I'm getting into REI for diversification & long term appreciation purposes only, not to make a living. I work about 50 hours a week at a job I enjoy very much, so I don't have the time or the interest to do this as a business.

At the same time, my eyes are always open for opportunity. I guess the bottom line is that I don't have time to waste on phony REI programs, and that's why I brought the topic up.

One opinion I've seen on these boards is that the place to start is this website. I agree completely with those who say that a newbie should read and participate in these forums before they commit to spending money on a "guru".

...
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Account Closed
Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
19y
UM,

1. Using the equity from one to buy a later property is a fine idea. Done correctly the old property will cash flow and you can grow the portfolio. I know a multi-family commercial investor who has been doing this for years. He can buy choice properties and then let time work its magic.

When you have a few properties you want the portfolio to cash flow even if each property does not. Expect that when you take a property out of service to refurbish it the cash flow will pull back yet the excess cash from the others keeps everything in balance.

Similar to when you buy a property that needs work before you can get it fully rented. The cash invested can be cash produced from the other properties.

2. I have sent you an email concerning where you can buy some great courses with a money back guarantee. Even when the vendor stands behind the product the ultimate success is up to the student. You clearly understand this given your business success in other aspects of your life. Others reading the thread really need to look in the mirror when they wonder why something has not worked as well as they would have liked.

As Mike-OH so rightfully pointed out, The Secret is the mind of the student. Much can happen in the gray matter than will dictate the ultimate success. Many courses have very useful information. Like schools and universities. You learn many things that you might not need right away. The Secret is to learn the information so that when the opportunity is there you recognize it and take action.

3. I have found that there is a strong overlap between what a tax attorney does for RE investment clients and estate planning. Hence if you find a good RE attorney who works on the tax aspects of complex commercial deals they will either offer estate planning services or have someone in their office that handles the tasks. At least that has been my experience. Otherwise estate planners tend to be lawyers who are used to people who have a J.O.B. and pretty boring estates.

Consider reading some of Bronchick's materials on wealth protection and estate planning as applied to RE investors. He is a practicing attorney (CO and NY) plus active RE investor.

John Corey
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Don Mack
Real Estate Consultant · Charlotte, NC · Member since 2008 · 50 posts · 2 votes
19y
REI,

are you investing in the UK or in the US of A?

If both, how has investing internationally helped you as an investor and would you recommend investing abroad.
0 Reply
Ryan Urban
OP
Real Estate Investor · Colorado Springs, CO · Member since 2008 · 96 posts · 4 votes
19y
Originally posted by "REI":

Using the equity from one to buy a later property is a fine idea. Done correctly the old property will cash flow and you can grow the portfolio. I know a multi-family commercial investor who has been doing this for years. He can buy choice properties and then let time work its magic.

When you have a few properties you want the portfolio to cash flow even if each property does not. Expect that when you take a property out of service to refurbish it the cash flow will pull back yet the excess cash from the others keeps everything in balance.

Wow, wow, wow, great point. It's about the portfolio as a whole, not its individual parts. Personally John, I'm waiting for a book from YOU.

I also agree that leveraging equity is a great strategy -- as long as you're careful and the numbers work.
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Account Closed
Real Estate Investor · London · Member since 2008 · 3k+ posts · 74 votes
19y
Originally posted by "GetSmart":
REI,
are you investing in the UK or in the US of A?

If both, how has investing internationally helped you as an investor and would you recommend investing abroad.

I invest in both. It has to do with personal preferences as I have income and assets in both. I have desires to continue having homes in both.

I have looked at deals or started down the path to completing deals in Bali, Prague, France, the Costa de Sol in Spain and other locations.

Investing internationally is fun and interesting. The full logic is not clear if you are thinking about what is best for diversification. I would not recommend doing deals internationally as a foreign exchange play.

John Corey
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