Saturday, December 20th, 2014

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3 Things I Wish I’d Known When I First Started Investing

This one goes out to…the noobs I love…  (Queue weepy REM music here)

And by “noobs” I mean newbies.  I.E. anyone who’s been at this real estate investing thing for a couple years or less. If that’s you, then this post’s for you. ;-)

Truth be told, there’s is there’s a heap of things I wish someone had shot straight with me about when I first got started in this game back in Y2K.  And ah boy, the headache and heartache it could have saved me.  Oh, and money.  And the TIME.  I sure as heck would have gone a lot further a lot faster if I’d had a clue on some things.

So if you’re a little green – God love ya – let me do you a solid and share with you a few things I wish I’d have known. I can think of a bunch more, but I’ll start with three things for now and go from there…

Thing #1 - Avoid First Deal Desperation

Here’s something I’ve heard from new investors over and over through the years…

“Heck, I just want to do a deal!  Even if it’s only for the experience and to show myself I can get one done.  I’d even be OK just breaking even on it – it would be worth it to have the experience of doing a deal!”

Nope.  (BUZZ!)  Sorry, wrong answer.

Man, I remember all to well the wonder years of being a green, wet behind the ears investor. So eager…so hungry to get out there and slay my first dragon.

That hunger is awesome.  Embrace it.  Be motivated by it.  Let it drive you to taking action.  But watch out, because it’ll also totally mess with your head and cloud your judgment if you let it.

Let’s be crystal clear about something: You’re not in this business to do deals, you’re in this to make money.  

Don’t let your hunger to “just get a deal done” fool you into stepping into a marginal (or even bad) deal just for experience’s sake.  Over the last decade plus, I’ve been friends with, mentored, partnered with and otherwise crossed paths with many, many new investors.  And trust me, this is a mistake and will almost always end up biting you in the butt.

Moral of the Story:   Yes, work hard to get that first deal done.  Notching that baby into your belt feels super, and it’s a huge milestone.  But make sure you have a clear picture of what a good deal is, stick to that picture, and keep “making money” top on your list of priorities, second only to “maintaining integrity”.  Learn your market and the fundamentals of analyzing profitable deals, and then stick to the wisdom of good, common sense numbers, even on your first deal.

I’m not saying don’t take risk…but don’t let hunger make you fool-hearty.  Trust me, you want to feed yourself some wins early on, and that means making money, and not just breaking even for the sake of “experience”.

Thing #2 – Choose Your Local Mentors Very Cautiously

If you’ve been around here for a while, you may have heard from me before about my first local mentor, and how he took me “under his wing” to the cleaners.

Understand, I take full responsibility for my own actions; I’m not looking to blame others for my mistakes.  But also the fact of the matter is, I was so green that I just didn’t know what I didn’t know.  And that makes for a fairly easy target.

Yes, I learned a lot from him.  And for this, I’m earnestly grateful. But I also got taken to the cleaners……

  • As it turns out, those patch-n-paint rehabs he was letting me “steal” from him at 80% of appraisal – well they weren’t rehabbed all that well after all, attested by how they started falling apart within a few months of buying them.
  • And all those second mortgages he took back and assured me he’d simply forgive?  Turns out that was loan fraud.  Yeah, OK, wow.
  • It also turns out $600/month rent minus $400/month PITI does NOT really equal $200/month “positive cash flow”.  Go figure. Repairs? Maintenance? Reserves?  Nah, who needs ‘em…
  • Turns out buying his poorly rehabbed houses all over God’s creation was not actually the overall best investment or property management strategy.

I could go on and on.  Long story short, I cozied up to the first real investor I met who fogged a mirror and seemed to genuinely take an interest in helping me.  And in the end he saw me for exactly what I was to him: A naive noob he could “take under his wing” and sell a bunch of his crap to under questionable (sometimes illegal) terms, until I finally one day figured out the difference between my butt and a hole in the ground.

It took me literally years to recover from this one, seriously tough class in the school of hard knocks.

Moral of the Story: Don’t get starstruck by the first real-deal successful investor you meet.  Just because someone’s a successful investor and is willing to “take you under their wing” doesn’t mean they’re a good mentor or even have your best interested at heart.  Don’t get in bed too quickly and if something seems unclear or even a little off to you, don’t be embarrassed press into it until you really understand it.

No , I’m not saying “trust no one.”  What I’m saying is, “Trust cautiously, and verify well.”

Thing #3 – Don’t Be an Education Junkie

We’ve all heard it a thousand times by now: “Smart investors invest in their education.”  And it’s true.  As the great Brian Tracy aptly said, “If you think the cost of education is expensive, try the cost of ignorance.”

But sadly it’s also become the enchanting mantra of everyone who’s got the latest and greatest course or bootcamp to sell you.

Here’s another important truth to consider:

There’s a big stinkin’ difference between wisely investing in your education and buying, BUYING, BUYING whatever the latest bright shiny object happens to be in front of your REIA group or on your computer screen.

Yes, investing in solid educational products can absolutely slash your learning curve and hand you the keys to the castle.  But it can also totally overwhelm you, suck your life away and drain you dry of thousands and thousands of dollars if you let it.

Ah, bright shiny object syndrome…

As hard-wired entrepreneurs, we’re all prone to it.  And oh, the horror stories I’ve heard from far too many who’ve been to a “free seminar” only to be convinced to drop $25,000, $35,000 or more on “education” they can realistically pick up at their local library.  It’s a crying shame.

My advice here is simple: Yes, be willing to invest in your education, but have a plan, set a specific education budget and have some self-control.  Know that most REI product are expertly marketed (and nothing’s wrong with that) and that they’ll most likely hit every greed gland and pain button you’ve got.  But even still, resolve to resist the endless temptation of the next bright shiny object.

My general rules of thumb are… 

  • Watch out for the “free seminars” held in hotels:  They’re almost always following the same formula, designed to lead you down the same type of sales funnel…one that gives you as little as they can get away with, while extracting as much as possible from your wallet, for as long as they can keep you hoping and dreaming.
  • Watch out for the credit limit scam:  Don’t ever buy something from someone who shared with you the secret of how to raise your credit limits as part of their presentation (hint: they’re going to be asking you to pull that freshly raised credit limit out for them a little later)
  • Watch out for obscenely high priced education:  Never give in to the guys who price their stuff in the $10,000 and up range.  I mean seriously… that’s just too much.
  • Start cheap and slowly move up: Start with books you can get the library or Barnes and Noble/Amazon.  That’s where I started, and you’d be surprised how much you can learn there.  Then gently move up to courses in the $97 to $497 range.  Then, once you’ve found your niche to focus on, go ahead and invest a few thousand into something you’re really going to commit to focusing on (i.e. bootcamps, large courses, etc.)
  • Consume quickly, then give yourself 90 days:Once you’ve made a noteworthy investment into a piece of core or continuing education (in the hundreds or thousands), DO NOT let it sit on the shelf.  Don’t procrastinate.  MAKE YOURSELF GO ALL THE WAY THROUGH IT AS QUICKLY AS POSSIBLE. Then (next) give yourself 90 days to actually give it a fair shake…meaning actually give the concepts you’ve learned a try and see how they suit you.  Then you’ll be in a much better place to judge whether or not you need to invest in more education yet, or hunker down with blinders on for a while.

Moral of the Story: Again, I’m 100% in favor of investors paying for quality industry education.  But I’m also tired of seeing so many of us addicted to buying courses and endlessly pulled along by the ring in our noses to whatever today’s hot offer happens to be.  There IS a better, wiser way, and it involves some self discipline, common sense and frankly, putting on blinders when it makes sense to do so.

Anything You’d Like to Add?

Heck, I could go on and on, but I’d love to hear what you think.  Leave a comment and let me know your thoughts, and if you want me to follow up with more things like this I wish I’d known early on.

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About 

JP Moses is a roughly-hewn man-child who first got into REI after reading Rich Dad, Poor Dad back in Y2K and went full time in 2002. He's tinkered in everything from landlording to short sales to rehabs to Realtoring to REOs to notes to owner financing, blah, blah, blah...Till he finally stuck his flag deep into wholesaling and has since flipped somewhere north of a couple hundred deals.

JP's not a “guru” but also doesn't think it's a bad word. Among his core values are authenticity, creativity, big honkin' value, general fun-ness and being unshaven. He's super proud to be chief blogger guy at REItips.com and host of the free REIology podcast. He also thoroughly enjoys sharing his 53 best real estate investing forms with anyone who wants them. You should totally check that out. :-)

  • Daniel

    That expensive stuff sounds exactly like the Rich Dad Education thing I went to a while back.

  • Pingback: REI Tips » Online Property Management

  • Frank

    Nice article.  With regards to education, I would add two things.

    1) Find out if the investors selling the education are actively doing deals.  This is a big one.  Many of these gurus are but many are not.  Obviously the ones that do are worth looking harder at.

    2) Don’t be afraid to spend money on education if it comes with a ton of value.  I have spent over 10k but it has been well worth it.  Also got mentors and new found friendships because of it.  The value is priceless.

    It’s all about balance.  Only take the plunge on spending for education when ready but you have to be active and do deals.  In this market, it is not hard to do a good deal to get going.  Define your goals, study hard, take action and make it happen.

    And get a solid mentor yes!  

    Great read!

  • Anonymous

    A trustworthy mentor is crucial!  They can teach you everything you need to know.  Find someone who you aspire to be like!

  • Malendaz Coleman

    Real Estate can make you or break you. However if you have the right tools and mentor. Things fall in place. Great post  keep up the great writing.

  • Kmott_1

    Yes! Enjoyed reading this post…Im beginning to realize that wholesaleing is about stepping out of your comfort zone. You need to educate yourself….but make sure you don’t get paralyzed by over analyzing yourself into inaction….get out there!

  • http://REItips.com/ jp moses

    Good stuff, Frank – thanks for commenting!  About the $10K on education thing…yeah, I’m not saying folks should never be willing to invest that much.  I just haven’t found anyone offering a single $10k or higher product/event that I felt couldn’t be equaled or surpassed for much less.  I’ve spent a lot more than $10k cumulatively also…but the folks who try to get $10k…$20k…$30k out of you at once…they’re leading you down a marketing funnel designed specifically to get you addicted to the next big dream they offer you and extract as much from you along the way as possible.  I’m not saying it’s worthless…it’s just a bad model that leaves most everyone dead in it’s wake.

    Anyways thanks again for commenting and adding to the discussion!

    …jp 

  • http://REItips.com/ jp moses

    Well said indeed.  It took me and many others far too long to discover this.  You’re ahead of the curve.

  • http://REItips.com/ jp moses

    Thanks, Malendaz!  Always great to know my efforts are appreciated!  Thanks for taking the time to comment!

  • http://REItips.com/ jp moses

    Yeah, Rich Dad and Russ Whitney group…Whitney actually runs these shows for other folks like Rich Dad…same formula, just tweaked a little year to year.  It’s sad how many folks fall for it, but the dream is a big one to follow, and it’s easy to get duped unfortunately.

  • Randy

    Great info guys, still looking for that first deal and I want it to be right. You are an inspiration JP and I’ve absorbed a lot through your generosity and knowledge.

  • http://REItips.com/ jp moses

    Awesome, Randy. Resolve to be a tough-minded optimist, and don’t let anything stand in your way, man. Thanks for commenting and for your kind words. They are warmly received.

  • Bob the Brit

    Cannot fault anything yousay here,great advice. Still waiting to do the first deal.

  • seminarjunkie

    I wish I have known these 3 before! They are true. I have spent close to 100,000.00 in my RE education from those BIG and EXPENSIVE gurus out there. And still back haven’t made any single deal yet. This is a great article. TY.

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    Very well written post. It will be valuable to anybody who utilizes it,
    as well as myself. Keep doing what you are doing – for sure i will check
    out more posts.

  • http://www.obatalamiuntukpenyakit.com/2011/12/obat-alami-untuk-asam-urat Obat Alami Untuk Asam Urat

    Great post however I was wondering if you could write a litte more on
    this topic? I’d be very grateful if you could elaborate a little bit
    further. Cheers!

  • Kd5zxh

    Good all around advice. I was wondering…I’ve heard the term, “understand your market” and wondered if you would expound on that; how do you do that, what is it you are looking for, and wouldn’t help the problem with focus or bouncing around?
    Like Sacha, what if you’re not sure of the slice of REI you want to work in? Where do you start to “know your market”?
    What if you’re thinking mobile homes, or tri-plexes, or Notes, and those strategies are really bad for your area? How does one weed thru all of that to figure out the best combination of local market and your personality or temperment and skills?

  • Kd5zxh

    One more comment/question: I live in the Albuquerque area. I have read so many REI posts at a plethora of web sites over the years, and I can count on one hand the number of posts from this area or even the state. Why is that? Is this a tough state for independent investors to work? The reia here is kind of small, but steady, and the notes group says it is almost impossible to find any notes to buy anymore. For a noob, this is confusing and discouraging. It’s difficult to know who to believe.

  • Skipper

    Great info JP….I have been caught in noob-land too long now and can see how easy it would be to just jump on the first deal that I can at this point! Hopefully, I will make the move when the time is right and more importantly, the deal is right!
    PS- Enjoyed and appreciate your witness in your Faith Corner! I am also a follower <

  • http://REItips.com/ jp moses

    Awesome, Skipper! Thanks for commenting, brother! And please say high to Gilligan for me. ;-)

    …jp

  • kim

    Seriously, i say it over and over again, thank you thank you for the free valuable info. not that im complaining, why are you giving all your knowledge for free when others are charging? hope you dont start charging now lol

  • http://REItips.com/ jp moses

    Thanks, Kim. I do charge sometimes. For some stuff. But I like to give first and earn your respect before asking you to invest your money into anything. And when I do, it’s the very best I can offer.

    Thanks for the kind note. Warmly received.

    …jp

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    { REItips.com }

    { REIology.com }

  • http://realestateadventurer.com/ Don

    This is an excellent post.
     
    Number 1 was never a problem for me, because of number 3.  I waited and studied for over 15 years trying to find the perfect deal.  Finally, I was ‘helped’ by a mentor to invest in my first property and feel victim to number 2 on your list.
     
    I would tell beginners to make sure the numbers work with a large margin for safety if things go wrong (they will).  Avoid buying from a mentor or wholesaler until you have some experience.  And finally, just do it and stop the analysis paralysis.
     
    I have been investing for about 5 years.  I have 13 rentals, and just started branching out into flipping.  I just got a contract to sale my first flip at a $50k+ profit (which is not typical).  I am documenting this at my blog.  If you are a newbie, read this blog, my blog, and many other free resources on the web then ‘do a deal that works’.
     
    realestateadventurer.com
     
     

  • http://REItips.com/ jp moses

    Thanks for the comment, Don. And I checked out your blog – awesome. Love the transparency. Keep it up!

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    { REItips.com }

    { REIology.com }

  • terrenos enelperu

    Good article, I like your blog, keep writing this way.

  • Crooms51

    Thank you.  I am starting out.  This is great information to know.  Please keep going.  Buying the courses is really expensive.  And yes, they will ask you to up your limit, and then ask you to spend that increased amount.  No, I did not fall into the trap.  I listened to the little voice inside.  The Holy Spirit.   It stops me from getting into a lot of trouble – if I just listen.  

    I will look forward to other posts.

  • http://www.hipsterinvestments.com/ Ali Boone

    You totally rocked this one out! I completely agree. Especially about the education. Education is great, and required to be successful, but at some point enough is enough. There is no better learning environment than jumping in and doing it. Don’t dive into the shallow end by any means, use good mentors and resources, but you eventually just have to do it to learn it.