The Straight Dope on Why Newbie Real Estate Investors Fail

I see it all the time. Blog posts and articles online everywhere with numbered lists of why you are gonna fail in this market. The reasons given are everything from motivation to mindset and beyond. The truth is, they are just trying to sell you yet another, "pay for my secret sauce recipe for real estate success, the likes of which is only ever seen in fairy tales," program. In reality, these programs will help you by giving you some information about a specific area or general information in numerous areas of the playing field. But if you level up to their higher priced program, they will give you a bit more information and even guide you along in areas where they can. But they can't do it for you and few, if any, will let you piggyback through the entire process - from marketing to closing the end sale.

I will tell you, free of charge, the hardest thing in getting started in real estate investing is MONEY. It's not easy to get a private lender unless you have wealthy family and friends who are also business and/or money savvy and also believe enough in you to fund your first deal. In order to go the other route - hard money - you need a fat chunk of your own cash ("skin") to put up front. Catch 22: you need money to make money.

There's this one guy who says he rolled into town on his last tank of gas and no money in his pocket and turned his life around with real estate. He charges tens of thousands of dollars to tell you how you can do it too. A lot of people have an educational program you can buy. Only it's not the Full Monty. I mean, yeah, what they are telling you is true, but they're not telling you everything you need to know. Let's face it, most people starting out in this business really are on their last tank of gas or close to it. They need to go straight to the heart of the matter. Straight to the, "yeah, but how do I pay for it," part.

The gospel truth is that the reason so many newbie real estate investors fail is because everybody is trying to sell them their secret sauce: "8 Reasons Newbie RE Investors Fail - 1. Scary paperwork 2. Lazy and unmotivated 3. Their marketing sucks 4. They don't know how to talk/what to say 5. They buy like morons 6. They don't know the market 7. They trust people they shouldn't 8. they get their butts sued off. BUT if you buy my book/CD/program/etc. you will not be like the unfortunate 'them!'"

Many new investors spend all their money on the education and have nothing left to finance that ever important first deal. Or they can't afford the program nor the first deal house. At which point many realize that it was really all about the money that 1.) they can't get from a private lender because they're a newbie 2.) they can't get from a hard money lender because they don't have any "skin" to put in the game 3.) they don't have and can't get. So they take their bandit signs and go home to scroll the want ads for a job.

Now here's the straight dope. You can and should try to get a private money lender but do not count on that coming through. You need to know this from the outset because it changes what you can and cannot do as far as getting your first deal goes.

How to market: Look at a vacant house and burn that image into your mind, the tell tale signs are black windows (no blinds) a piece of 8.5 X 11 piece of paper on the door or window, high grass/weeds, overgrown and out of control bushes, a collection of free, city newspapers in the driveway, a mailbox hanging open with what looks  like a months worth of junk spilling out of it, no mailbox at all, no garbage cans, when you can see through a front window and a rear window into the back yard, from your car, notice if there are any shadow shapes of furniture inside, looks run down, deserted etc. Write down the addresses. Look up addresses in county tax assessors website. Get name of owner. Find owner phone number online (there are websites for this). Or if a phone number can't be found use the mailing address of where they live (recorded on tax assessor's site) and send them a letter with a picture of their house on it asking them to call you because you want to buy it. Call owner and get the skinny - why is it empty? Your best bet in this scenario is someone who is NOT desperate for a lump sum. Wow, that's the opposite of what everybody else has been telling you, right?

Structuring the deal: This is your first deal that you can't get a PML, HML bank loan or otherwise on, so you have to structure it creatively. If the property is inherited or owned outright, you want to get to know the owner a little as you tell them of your interest in their property. Tell them you want to fix it up but (likely) a bank will not loan on a house like this because of xy and z not being up to code (for instance if the house is 100 yrs old and the power that was run up the wall and across the ceiling (visible) that was installed in the 20's, has been turned off, the power company will not turn it back on until it is brought up to code and a bank will deem it unlivable.) So you were wondering if the owner would consider owner financing.

Owner/Seller Financing: This means the owner becomes the bank...on the receiving end. You negotiate a low sale price, work out a low down payment but as much as you can manage in order to make it clear that you are serious, and low monthly payments for a certain number of months. During that time you will make the repairs that will bring the house up to code so that a bank will lend on it (and also clean up your credit if you truly intend on getting a bank loan, or save up money for a HML) and at the end of that time period you will secure new funding which will pay off the seller. You close this deal with a contract and closing attorney. How you get the work done is you partner with a contractor who is licensed, insured and bonded who has enough operating capital that they can do the work up front and get paid when the house is sold to the end buyer. This too needs to be done with a legal and binding contract.

Subject to: Alternately, if you find a house that has a mortgage payment on it and you can swing the payments then call the owner/seller, get the skinny (how much do they owe, what are their payments, are they in arrears, have they ever had missed payments added to the end of the loan, liens, back taxes, etc.) The kind of seller you are looking for is someone who just wants to walk away. They don't need to make any money, they will just be grateful to be rid of the property so they are not asking for a down payment or very little down payment. What you want to do here is take over the owner's payments "subject to," the existing mortgage. The seller signs over the deed but not the loan. So you own the home but not the loan, although you are agreeing to make the payments on that loan.

These are 2 truly creative ways to land your first deal and I gave you that information free of charge. I am not selling secret sauce because in truth, it's really no secret. I encourage you to investigate the methods mentioned here, especially Subject to (taking over payments) because I have not given every last detail of the process but there are pages and books that do.

The sad thing is that nowadays investors are not truly talking with each other. Because there's so much sauce to be sold, they are not sharing their experiences, candidly, with other investors unless you pay them first. {{REALLY??? Like they are the only ones who have ever done this?? LOL ok}} Some other people, who are mentors or coaches, won't talk/engage with you because they're afraid you might try to pick their brain free of charge - which is silly when I already know what they are selling because I learned it the long and hard way, which is sometimes the case with people who try to engage with them and sometimes not. But because it is sometimes the case, some of them, typically will respond to no one.

In conclusion, if you go into real estate investing, knowing from the start that the likelihood  of you securing private lending is slim to none, and if you have no skin for hard money, using one of these two creative alternatives (seller/owner finance or Subject to) will help you start your journey to success.