The Worst Advice in Real Estate Investing

The Worst Advice in Real Estate
The Worst Advice in Real Estate

Real estate investing is a difficult field to enter.  It’s not really difficult as in “hard to comprehend”, I can teach anyone what they need to know to start with in the space of three months.  But rather, the difficulty is in terms of isolating the most viable among the many apparent options which are furthered onto a beginner by countless informational outlets.  In fact, I take calls from newbies regularly that start out “I am doing what everyone says I should do, but it’s not working…”

Yes indeed, if success were as easy as following the “survey says” advice. One of my all-time favorites, and what I think is the worst advice in real estate investing is – Go flip a few houses to start with; you can do it with little money or none at all.  And then you’ll have the down-payment for that rental house you want…  This advice is prevalent out there indeed; it’s also WRONG as hell!  Allow me to put things straight for you:

A few days back I received a call from a young guy who was very confused and in search of direction.  In the course of nine months he’d been trying to follow this advice and was no closer to getting a deal done on the day he called than the day he started.  He told me that he was seeing leads come in as part of his marketing effort, and even managed to get two houses under contract, but both of them crashed and burned.  He was simply frustrated and not sure how to proceed.

I’d like to think that after forty-five minutes on the phone with me he was able to gain some clarity.  On my part, feeling that this particular conversation held many nuggets for new investors to benefit from, without hesitation I wrote an article in which I dispel the myth of what I think is the worst advice in real estate investing. Believe me, my opinion on this is definitely in the minority, but I very much hope you take the time to read – it’ll save you a lot of headache later on.

Please continue reading at BiggerPockets.com .

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2 Comments

  • Curt Smith Reply

    Hi Ben, We’ve got a thriving buy and hold SFR (now LO with owner finance as exit) business. I want to move into MF and have been training myself and doing some weekend events with folks like Charlie Dobens/Duncan Wierman, McClatchy etc.

    You mentioned buying a 4 plex is the easiest… I’m interested in your explanation / steps? My guess guess is to call local small banks looking for a commercial loan. I don’t have the 30% to spare. Besides private lenders what tip to you have for the down payment? Commercial loans in my guess wouldn’t consider a seller carry back a part of the skin in the game so cash is needed from somewhere.

    tnx curt

    • Ben Reply

      Hey Curt,

      Thanks for your comment. I’ve got a couple of thoughts to share in response:

      1. I would encourage you to study the impact of Dodd Frank on your exit strategy. Things are going to get a whole lot more involved with holding paper for owner/occupants than they have been as of January 10, 2014…

      2. I actually prefer a triplex configuration all things being equal for a number of reasons, both structural and desirability-wise. I touch on some of this in my eBook 13 Steps to Valuing Your First Multiplex which you can find on Amazon for 3.99, but for much more in-depth discussion please refer to my Cash Flow Freedom University – tab is right above.

      3. Fannie/Freddie/FHA type of financing requires down=payment – period. Furthermore, the fees they charge often makes it a much more expensive entry out of pocket than commercial. On the commercial side, though, there are no rules. I mean there are rules of course, but since these are small portfolio lenders, everything is relationship-based and therefore your ability to get things done is a function of what they’ll do for you. In principal, yes – they could look at seller carry-back as part of your cash in. Similarly, they could look at private money this way as well. They could also blanket other equity that you may have as part of the deal. They could re-collateralize and move things around. In principal – yes it can happen. Will they do it? Last time I purchased, this was the 10-unit I closed on in February that I wrote about on BiggerPockets in an article entitles How I bought a 10-unit with 1.5% Doewn – A Case Study, as well as here in an article titled Was it Worth it to Buy Real Estate. I tried linking all this stuff but for some reason I am not able to make the links work. You should be able to find all this stuff pretty easy though… And besides, I discuss my approach to all of this creative finance stuff in CFFU.

      Thanks so much for your comment Curt. Keep in touch!

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