Where do most beginners fail?
Investor · Toledo, OH · Member since 2012 · 292 posts · 34 votes
Sometimes it's good to look at a new venture from the angle of the most common causes of failure.Let's get the non-action/motivation ones out of the way. Most people fail anything due to not starting, not studying enough to be competent or not having an initial plan.
For the few remaining who take action, what have you noticed stalls them out?
I'll post about myself a few years ago when I was underfunded and had to bail to retrain in a new profession.
1. Overestimating response rates and doing insufficient marketing to generate enough leads
2. Buyer's list too small or unreliable, causing my one potential deal to fall through.
1 - Thinking the property is the asset
2 - Focusing on the property instead of the deal
3 - Spending their seed money instead of using it to infinity
4 - Not understanding that market analysis is more important than property analysis
5 - Not having a REI plan established
6 - Focusing on one strategy only
7 - Focusing on their own market to invest in because "they know it"...even if it's a bad market to invest in
8 - Accepting negative cash flow...for any reason
9 - Not understanding the value of equity in motion
10 - Thinking you are saving money when you pay all cash
11 - Not understanding the impact of the "compounding effect" on REI
12 - Not understanding how important the number sequence "1073741824" is. and why you should apply it to every decision you make
13 - Buying one property at a time, then wondering what to do next
14 - Thinking that "flipping" refers to properties, when in fact it refers to your "cash"
15 - Negotiating against themselves
16 - Not understanding that the "total cost" isn't nearly as important than "how you pay for it"...and "who" is actually paying for it
17 - Not understanding that the "total return" isn't nearly as important as "how you receive" those returns.
18 - Thinking that you can learn enough just by doing...no matter what the cost
19 - Not understanding what makes up the "3 parts" of risk, and then not understanding what risk is to them
20 - Focusing on percentages to judge good deals from bad, instead of dollars
21 - Not understanding why you should live on the left side of the equation, when most REI live on the right
22 - Not understanding the importance of Geometry and Algebra are to REI
23 - Looking for needles in haystacks instead of stacks of needles
24 - ...and more
1 - Thinking the property is the asset
2 - Focusing on the property instead of the deal
3 - Spending their seed money instead of using it to infinity
4 - Not understanding that market analysis is more important than property analysis
5 - Not having a REI plan established
6 - Focusing on one strategy only
7 - Focusing on their own market to invest in because "they know it"...even if it's a bad market to invest in
8 - Accepting negative cash flow...for any reason
9 - Not understanding the value of equity in motion
10 - Thinking you are saving money when you pay all cash
11 - Not understanding the impact of the "compounding effect" on REI
12 - Not understanding how important the number sequence "1073741824" is. and why you should apply it to every decision you make
13 - Buying one property at a time, then wondering what to do next
14 - Thinking that "flipping" refers to properties, when in fact it refers to your "cash"
15 - Negotiating against themselves
16 - Not understanding that the "total cost" isn't nearly as important than "how you pay for it"...and "who" is actually paying for it
17 - Not understanding that the "total return" isn't nearly as important as "how you receive" those returns.
18 - Thinking that you can learn enough just by doing...no matter what the cost
19 - Not understanding what makes up the "3 parts" of risk, and then not understanding what risk is to them
20 - Focusing on percentages to judge good deals from bad, instead of dollars
21 - Not understanding why you should live on the left side of the equation, when most REI live on the right
22 - Not understanding the importance of Geometry and Algebra are to REI
23 - Looking for needles in haystacks instead of stacks of needles
24 - ...and more
@Joe Villeneuve has some wise points here. Each of the above could have their own podcast episode.
The only one I don't understand is number 12. I'm assuming it has something to do with the offer?
Best,
@Joe Villeneuve has some wise points here. Each of the above could have their own podcast episode.
The only one I don't understand is number 12. I'm assuming it has something to do with the offer?
Best,
#12 has to do with a combination of #'s, 1, 2, 3, 4, 8, 9, 10, 11, 13, and 22
Over my head :)
Over my head :)
I doubt it. LOL. PM me if you're interested and I'll explain it to you
Lack of hustle and lack of resourcefulness. Hustle is doing whatever it takes and resourcefulness is the ability to quickly find clever ways to overcome difficulties.
@Sean Dezoysa both of your reasons fall in these categories.
Giving up to soon, and not playing the long game. Real estate is not a get rich quick vehicle but you can get wealthy from it over time.
@Sean D not being consistent
@Joe Villeneuve Woah, Joe, I'm sensing a podcast appearance here!
@Joe Villeneuve can you explain number 12 to me? Super curious what this number refers to! Thank you Sir.
@Joe Villeneuve can you explain number 12 to me? Super curious what this number refers to! Thank you Sir.
It's a number string that if you follow the principle behind it, can lead to great success in REI.
#12 has to do with a combination of #'s, 1, 2, 3, 4, 8, 9, 10, 11, 13, and 22
1 - Thinking the property is the asset
2 - Focusing on the property instead of the deal
3 - Spending their seed money instead of using it to infinity
4 - Not understanding that market analysis is more important than property analysis
5 - Not having a REI plan established
6 - Focusing on one strategy only
7 - Focusing on their own market to invest in because "they know it"...even if it's a bad market to invest in
8 - Accepting negative cash flow...for any reason
9 - Not understanding the value of equity in motion
10 - Thinking you are saving money when you pay all cash
11 - Not understanding the impact of the "compounding effect" on REI
12 - Not understanding how important the number sequence "1073741824" is. and why you should apply it to every decision you make
13 - Buying one property at a time, then wondering what to do next
14 - Thinking that "flipping" refers to properties, when in fact it refers to your "cash"
15 - Negotiating against themselves
16 - Not understanding that the "total cost" isn't nearly as important than "how you pay for it"...and "who" is actually paying for it
17 - Not understanding that the "total return" isn't nearly as important as "how you receive" those returns.
18 - Thinking that you can learn enough just by doing...no matter what the cost
19 - Not understanding what makes up the "3 parts" of risk, and then not understanding what risk is to them
20 - Focusing on percentages to judge good deals from bad, instead of dollars
21 - Not understanding why you should live on the left side of the equation, when most REI live on the right
22 - Not understanding the importance of Geometry and Algebra are to REI
23 - Looking for needles in haystacks instead of stacks of needles
24 - ...and more
Thanks for your thoughts Joe. I have to say, though, I don't know if I understand all of your points.
I thought that using cash usually gets you a better price, and is more competitive/attractive for the seller. Is that wrong?
Do you mean that if you trap all your cash in an investment you lower your rate of return on your investment? If that's the case,if you can refinance after purchasing (as in the BRRRR strategy) would that make using cash a good way to go?
What's wrong with thinking the property is the asset? Is it the land itself instead?
How do people negotiate against themselves?
Thanks for your thoughts and time!
Joel
1 - Thinking the property is the asset
2 - Focusing on the property instead of the deal
3 - Spending their seed money instead of using it to infinity
4 - Not understanding that market analysis is more important than property analysis
5 - Not having a REI plan established
6 - Focusing on one strategy only
7 - Focusing on their own market to invest in because "they know it"...even if it's a bad market to invest in
8 - Accepting negative cash flow...for any reason
9 - Not understanding the value of equity in motion
10 - Thinking you are saving money when you pay all cash
11 - Not understanding the impact of the "compounding effect" on REI
12 - Not understanding how important the number sequence "1073741824" is. and why you should apply it to every decision you make
13 - Buying one property at a time, then wondering what to do next
14 - Thinking that "flipping" refers to properties, when in fact it refers to your "cash"
15 - Negotiating against themselves
16 - Not understanding that the "total cost" isn't nearly as important than "how you pay for it"...and "who" is actually paying for it
17 - Not understanding that the "total return" isn't nearly as important as "how you receive" those returns.
18 - Thinking that you can learn enough just by doing...no matter what the cost
19 - Not understanding what makes up the "3 parts" of risk, and then not understanding what risk is to them
20 - Focusing on percentages to judge good deals from bad, instead of dollars
21 - Not understanding why you should live on the left side of the equation, when most REI live on the right
22 - Not understanding the importance of Geometry and Algebra are to REI
23 - Looking for needles in haystacks instead of stacks of needles
24 - ...and more
Thanks for your thoughts Joe. I have to say, though, I don't know if I understand all of your points.
I thought that using cash usually gets you a better price, and is more competitive/attractive for the seller. Is that wrong?
Do you mean that if you trap all your cash in an investment you lower your rate of return on your investment? If that's the case,if you can refinance after purchasing (as in the BRRRR strategy) would that make using cash a good way to go?
What's wrong with thinking the property is the asset? Is it the land itself instead?
How do people negotiate against themselves?
Thanks for your thoughts and time!
Joel
Total cost doesn't matter nearly as much as how you pay for it, and by "You" I do mean YOU...what comes out of your pocket. That's cash.
Profit comes AFTER you recover all of your cost, which means your cash. So, if you add all of the cash up that you put into the property/deal, such as DP or full cash buy, paying down your mortgage out of your pocket, rehab money from the start or after the purchase, etc..., you will get your total cash you put into the deal. This number is YOUR cost. If you have positive CF, then everything else is paid for from the rent...and is NOT a cost to you. (Thank you Mr/MRS Tenant). When you pay all cash, the total cost may be less, but YOUR cost is much higher than if you just paid 20% down. This means, you get to profitability much faster.
1 - Thinking the property is the asset
2 - Focusing on the property instead of the deal
3 - Spending their seed money instead of using it to infinity
4 - Not understanding that market analysis is more important than property analysis
5 - Not having a REI plan established
6 - Focusing on one strategy only
7 - Focusing on their own market to invest in because "they know it"...even if it's a bad market to invest in
8 - Accepting negative cash flow...for any reason
9 - Not understanding the value of equity in motion
10 - Thinking you are saving money when you pay all cash
11 - Not understanding the impact of the "compounding effect" on REI
12 - Not understanding how important the number sequence "1073741824" is. and why you should apply it to every decision you make
13 - Buying one property at a time, then wondering what to do next
14 - Thinking that "flipping" refers to properties, when in fact it refers to your "cash"
15 - Negotiating against themselves
16 - Not understanding that the "total cost" isn't nearly as important than "how you pay for it"...and "who" is actually paying for it
17 - Not understanding that the "total return" isn't nearly as important as "how you receive" those returns.
18 - Thinking that you can learn enough just by doing...no matter what the cost
19 - Not understanding what makes up the "3 parts" of risk, and then not understanding what risk is to them
20 - Focusing on percentages to judge good deals from bad, instead of dollars
21 - Not understanding why you should live on the left side of the equation, when most REI live on the right
22 - Not understanding the importance of Geometry and Algebra are to REI
23 - Looking for needles in haystacks instead of stacks of needles
24 - ...and more
Thanks for your thoughts Joe. I have to say, though, I don't know if I understand all of your points.
I thought that using cash usually gets you a better price, and is more competitive/attractive for the seller. Is that wrong?
Do you mean that if you trap all your cash in an investment you lower your rate of return on your investment? If that's the case,if you can refinance after purchasing (as in the BRRRR strategy) would that make using cash a good way to go?
What's wrong with thinking the property is the asset? Is it the land itself instead?
How do people negotiate against themselves?
Thanks for your thoughts and time!
Joel
Using the BRRRR method isn't the same thing as just starting with a mortgage. The mortgage you can get 80%, not so with a REFI...and you would need to wait 6 months before you could get any cash out higher than the original cash you put in.
The property isn't the asset...the equity in it is. The equity represents cash that is locked up and useless until you can tap into it. That means selling the property...which is better than refinancing, since refinancing isn't getting your money out. Your money is still in the property and is being used as collateral. The refi money you get is the Bank's money. If it was your money, you wouldn't have to pay the bank for it.
The property is just the temporary resting place for your assets, until they can collect "friends" (added equity), and can be accessed again for use at a higher value than if they stayed as equity in that original property. Cash is really a verb, not a noun. You lose if you let it be a noun.
There are a lot of ways to negotiate against yourself. It all comes down to different forms of rationalization (the most expensive word in the dictionary...applied to anything). The rationalization in REI will tell the REI to bid higher than they know they should...because they think the property is the asset. They are focused on getting the property, and not the deal.
I think people expect to hit a home run the first time and when they don't, they either feel they failed or get gun shy about trying again. In reality, it's difficult to get it exactly right the first time. But that doesn't mean it's a failure, it's jut not as good a deal as it might have been. Investing is like any other skill, you have to practice it. Mitigate risk as much as possible when you get started, but keep pushing through even when the returns aren't exactly what you expected.
1 - Thinking the property is the asset
2 - Focusing on the property instead of the deal
3 - Spending their seed money instead of using it to infinity
4 - Not understanding that market analysis is more important than property analysis
5 - Not having a REI plan established
6 - Focusing on one strategy only
7 - Focusing on their own market to invest in because "they know it"...even if it's a bad market to invest in
8 - Accepting negative cash flow...for any reason
9 - Not understanding the value of equity in motion
10 - Thinking you are saving money when you pay all cash
11 - Not understanding the impact of the "compounding effect" on REI
12 - Not understanding how important the number sequence "1073741824" is. and why you should apply it to every decision you make
13 - Buying one property at a time, then wondering what to do next
14 - Thinking that "flipping" refers to properties, when in fact it refers to your "cash"
15 - Negotiating against themselves
16 - Not understanding that the "total cost" isn't nearly as important than "how you pay for it"...and "who" is actually paying for it
17 - Not understanding that the "total return" isn't nearly as important as "how you receive" those returns.
18 - Thinking that you can learn enough just by doing...no matter what the cost
19 - Not understanding what makes up the "3 parts" of risk, and then not understanding what risk is to them
20 - Focusing on percentages to judge good deals from bad, instead of dollars
21 - Not understanding why you should live on the left side of the equation, when most REI live on the right
22 - Not understanding the importance of Geometry and Algebra are to REI
23 - Looking for needles in haystacks instead of stacks of needles
24 - ...and more
Thanks for your thoughts Joe. I have to say, though, I don't know if I understand all of your points.
I thought that using cash usually gets you a better price, and is more competitive/attractive for the seller. Is that wrong?
Do you mean that if you trap all your cash in an investment you lower your rate of return on your investment? If that's the case,if you can refinance after purchasing (as in the BRRRR strategy) would that make using cash a good way to go?
What's wrong with thinking the property is the asset? Is it the land itself instead?
How do people negotiate against themselves?
Thanks for your thoughts and time!
Joel
Using the BRRRR method isn't the same thing as just starting with a mortgage. The mortgage you can get 80%, not so with a REFI...and you would need to wait 6 months before you could get any cash out higher than the original cash you put in.
The property isn't the asset...the equity in it is. The equity represents cash that is locked up and useless until you can tap into it. That means selling the property...which is better than refinancing, since refinancing isn't getting your money out. Your money is still in the property and is being used as collateral. The refi money you get is the Bank's money. If it was your money, you wouldn't have to pay the bank for it.
The property is just the temporary resting place for your assets, until they can collect "friends" (added equity), and can be accessed again for use at a higher value than if they stayed as equity in that original property. Cash is really a verb, not a noun. You lose if you let it be a noun.
There are a lot of ways to negotiate against yourself. It all comes down to different forms of rationalization (the most expensive word in the dictionary...applied to anything). The rationalization in REI will tell the REI to bid higher than they know they should...because they think the property is the asset. They are focused on getting the property, and not the deal.
You have a discerning way of viewing all this, Joe. Thanks for the insights!
Quitting.
Incorrect strategy choice is the absolute, #1 most common failure for new RE investors.
Example 1: there are hundreds of new investors out there who are in coaching programs to become deal sponsors (aka - GPs or General Parkers) for apartment buildings right now. They are doing this because they see it as a way to ‘escape the rat race.’ The vast majority won’t make the jump. Some will even realize they don’t enjoy it, by the time they’ve dropped thousands of dollars and hours into it.
Example 2: Flippers and BRRRR-ers who don't like managing projects and thought it would be easy. They got into it because they want a ‘new way to make money and get financial freedom' - but they picked some of the most ACTIVE forms of investing as a strategy, and now they're in the hurt locker.
Example 3: overzealous self-managers of rentals who aren’t willing to “waste money on the property manager.” Of course, there are scenarios where someone can/should self-manage… but that’s typically when the person knows what they’re getting into. The majority of new rental owners out there who say they want to ‘self manage’ their rental because they want to get the most ‘passive income’... are signing up for a semi-passive (borderline active strategy).
New investors would do well to slow down. Way down. And dial in your goals first, so you can select the right strategy to save yourself years of frustration and thousands of dollars in capital.
1 - Thinking the property is the asset
2 - Focusing on the property instead of the deal
3 - Spending their seed money instead of using it to infinity
4 - Not understanding that market analysis is more important than property analysis
5 - Not having a REI plan established
6 - Focusing on one strategy only
7 - Focusing on their own market to invest in because "they know it"...even if it's a bad market to invest in
8 - Accepting negative cash flow...for any reason
9 - Not understanding the value of equity in motion
10 - Thinking you are saving money when you pay all cash
11 - Not understanding the impact of the "compounding effect" on REI
12 - Not understanding how important the number sequence "1073741824" is. and why you should apply it to every decision you make
13 - Buying one property at a time, then wondering what to do next
14 - Thinking that "flipping" refers to properties, when in fact it refers to your "cash"
15 - Negotiating against themselves
16 - Not understanding that the "total cost" isn't nearly as important than "how you pay for it"...and "who" is actually paying for it
17 - Not understanding that the "total return" isn't nearly as important as "how you receive" those returns.
18 - Thinking that you can learn enough just by doing...no matter what the cost
19 - Not understanding what makes up the "3 parts" of risk, and then not understanding what risk is to them
20 - Focusing on percentages to judge good deals from bad, instead of dollars
21 - Not understanding why you should live on the left side of the equation, when most REI live on the right
22 - Not understanding the importance of Geometry and Algebra are to REI
23 - Looking for needles in haystacks instead of stacks of needles
24 - ...and more
And that is why I keep telling people this dude is sexy!
As an investors the ones that I have seen fail:
The ones that think that since they have listened to 10 episodes of bigger pockets or went to a REI seminar, they now are equipped with all the knowledge needed to invest. When that is not the case. This industry requires a vast spectrum of knowledge and understanding of not only the market but also rehab costs, ARVs, Comping, lending, and most importantly CRUNCHING THE NUMBERS, to do really well. There is not one size fits all. Every market is different. There are always deals. Do your own due diligence and do it well. Have a strict investing criteria and do not waver. Know the difference from a deal and a money pit. And lastly have a strategy.
As an Agent the ones that I have seen fail:
The people that lack confidence in their knowledge. If you aren't equipped with the tools, the knowledge and especially confidence in yourself and what you have to offer, who else is going to have the confidence in you. Lastly, your time is just as valuable as an investors. You are offering an expertise and that knowledge is valuable.... Don't let an investor take your time for granted.
I would add underestimating repair costs. That's especially for new flippers/buy and holder investors, but is true for wholesalers to a lesser degree as well. But the biggest reason for failure is never getting started. Too much procrastination or paralysis by analysis.