Posted by Mark (SDCA) on November 29, 2010 at 15:22:02:
Don’t feel bad. This is a VERY standard guru pitch from the high flying days. Was probably true 5-7 years ago. VERY different climate now.
GL,
Mark
Is real estate a scam? - Posted by Mort
Posted by Mort on November 24, 2010 at 20:49:31:
I have been thinking about doing real estate investing but I don’t see how
to live off of doing it full time. How do people make enough to pay their
daily bills? If you only make $200 cash-flow per house then how can you
scale the business and hire multiple people?
When I go to a dentist office the dentist isn’t trying to schedule and
answer phones while being a dentist.
If I go to a car repair / oil change place they have people that run the
business side and workers.
If I go to a lawyers or doctors office they have secretaries and office
managers.
I have never been to a real estate investors place of business and seen
more than the investor and maybe their spouse working there.
Most “investors” seem to be people who work a real job to pay their bills
and do investing part time.
The only investor I know in my area that has an office is also an architect
to help pay the bills. Most wholesalers I know also work a full-time job
because they would starve if they tried to do it full time.
If real estate is so great and lucrative and makes so much money then
why isn’t there a nationwide chain of some type of business that did it full
time and I’m not talking about a real estate agent chain.
If you can have a nationwide fast food or oil change franchise why isn’t
there lots of real estate investor franchises?
Is all the real money to be made in real estate in selling courses and
dreams of riches to other people who want to change their life?
but it ain’t get rich quick either - Posted by Tony
Posted by Tony on December 06, 2010 at 21:20:07:
I started investing in RE about 10 years ago when I bought my first house (well condo) for $112K. O.K. i was a primary residence, but it got me started. I reno’d the condo with $7K of borrowed money, and sold it 2 years later for $145K. I took my $25K profit and put it down on my second home.
2nd house was a dumpy farm house on 10 acres of ocean front about 45 minutes out of a small town. I borrowed bank money ($70K) to reno the house and sold it 5 years later for $470K. It was at this time I realized the gold potential of real estate.
Ok, so I am not a real investor yet, out all the time I was reading up on stuff, and always looking at houses.
My real investing career began about 4 years ago. With the $180K equity from my 2nd home (after it paid of our credit debt and student loans) we bought a house in an upscale area at a price that was around 30-40% below market value. It was listed at $180K. Newer houses in the area were selling for $300K. My house needed quite a bit of upgrading. I offered $130K. They shocked me with a $140K counter. My agent told me to respond with $132K final offer, and they buckled. It was a steal.
My first lesson in real esate (after reading it lots of times in books) was learned. Find the MOTIVATED SELLER. Turned out this property was listed for quite some time and it was subject of a divorce proceeding. Sellers just wanted rid of it. My TIMING (second most valuable lesson in this business) was impeccable, if not downright lucky.
I put 20% down on the house and used up some personal cash to reno the house perhaps $60K. Today, the house is worth over $300K, and I have an $86K mortgage against it.
The third most important lesson in real esatea is LEVERAGE. I took ou some HELOCS againt the property, and had decent enough income (at the time) to establish pertty good lines of credit with my banker.
In the last 3-4 years, I have bought 3 more properties.
First was an estate sale. I offered $70K for a 2 unit house listed at $100K. They laughed at me, but came back begging me to buy it 3 months later when it had not sold. I reno’d the house with about $30K, and now have it rented at $2000 per month. It cashflows $500 per month if not more. House is now appraised at $170K or higher. I am about $110K Mortgaged.
Next house was another dump. A vacant house. I knocked on the neighbours door and asked if she knew who owned it. She sure did. It was her’e. I asked if she wanted to sell it. She did. Said she wanted $58K. Today I would have kissed her for that price. Back then I gave her a stink offer of $52K nd paid her legals. She accepted. I reno’d for about 30K and today the house is appraised at $137K.
My last house was another vacatnt dump. Owner was out of town and wanted shut of it. I went to the town hall and checked the roll book. Contacted teh owner, adn spent a good 2-3 months closing the deal as he was owing on taxes and bal bla. He’d had the house listed for $99K. It never sold. I thad a bad leak and mould inthe kitchen because of it. I asked him what he would sell it for. He said he just wanted to pay out the $62K mortgage owing. Again I could have kisssed him. I put $60K into the house and today it is worth $205K.
10 years ago, I was reading stories like mine thinking it is not possible, or people make it up. Well, today, I have 4 income properties making $54K a year in net rent. The cashflow is around $25K per annum. My property is worth over $800K, and I have debts against it all of about $440K. I have access to $275K of RELOC equity to go and find my next deal.
While I am not a monster investor by any means, and really just starting out, I’d suggest to anyone reading that the main key things you can do to be successful are:
Always buy below market value by either finding distressed homes, or situations were owners just want out (moving, divorce, estate sales). Make your money when you buy, and it removes a bit of the risk. Well, that’s what worked for me. Don’t be afraid to knock on doors and ask if they want to sell. Look for deals away from normal channels. FSBO, craigslist, cheap signs on the lawn, boarded windows. And finally, don’t be afraid to low ball on an offer. You can always go up in price, but never down.
That’s my 2 bits. Last time I posted on thei forum was about 5 years ago, and that was one of my biggest problems at teh time. I never took action.
Biggest advice to get started TAKE ACTION!!! Make offers,
Re: Is real estate a scam? - Posted by Woody
Posted by Woody on December 02, 2010 at 21:57:20:
Mort
I’m coming in late but…
I would say I have been scammed and hoodwinked more by being an employee working for the man than in the business of REI. You always have to read between the lines with everything. Gurus and courses are availble to get book smart, so you have a jump start when getting experience. There are good courses and not so good. Good gurus and not so good. Real estate investing is very personal with a lot of variables. What works great for you in your market for the other guy it doesn?t. Any and all business has its up and downs, pros and cons.
What has been shared here with you in this post is golden. It really is. You have had some very experienced investors take the time and give you an eye into the future. Your road will be different, but I can tell you there are some nuggets of information here that you will be able look back and see and understand what they are talking about. Worth printing out and keeping I?d say.
Whatever you do you need to have a passion for it to make it work. Those who answered your post have a huge passion for what they do. They love it and are eager to share it. Don?t let the pie-in-the-sky gurus keep you from moving forward. There comes a time you need to leave the gurus and courses behind and stand up for yourself and go for it. No guru is going to do that for you. If you want it bad enough you?ll find your nitch. And yes you can make it full time. It?s up to you and the decisions you make for yourself. It takes time and it takes work.
If not I would keep the day J.O.B.
Re: Is real estate a scam? - Posted by Natalie-VA
Posted by Natalie-VA on November 30, 2010 at 16:31:40:
It’s really a business, not an investment. If you want short term money, rentals are not the way to go. I have made my living buying and selling houses for over 10 years now, so it’s not a scam. There are several Homevestor’s franchisees in my area that do very well.
So, you received a lot of great answers…what did you conclude?
–Natalie
Re: Is real estate a scam? - Posted by BigV
Posted by BigV on November 27, 2010 at 20:18:44:
I recommend you get a real estate license. That way, you can have access to the MLS and make money selling real estate while you look for investment properties.
It won’t be easy. They say average salary for a real estate agent is about 30-40K/year. That’s not too impressive, but I’d venture to guess that it’s a lot better than the ‘average’ investor, most of whom never purchase their first investment property.
Re: Is real estate a scam? - Posted by Bill Jacobsen
Posted by Bill Jacobsen on November 26, 2010 at 16:37:05:
Most investors in anything do not live entirely off of their investments. Although I do make enough in real estate to live I do not have to because I also draw Social Security and a pension.
Most investors do not jump into real estate full time at first but do it as a side job. It is not like some other investments that do not require any of your time. Stocks and REIT’s have returned 10%-12% of capital over time. The average stock sells at a P/E of 15 and has a ROE of about 15%. This means that you need $333,333 to $750,000 to generate cash flow of about $50,000. This is generated in businessess requiring no effort on your part. When you invest in real estate it takes your effort plus capital.
If you have that amount of capital you do not have to spend full time unless you are buying, rehabing yourself, and reselling. If you do not have the capital but have to rent it (mortgage, partners, hard money) you will probably need twice the money.
No,(in my opinion) real estate is not a scam but is a legitimate investment or business. The sad thing is that some so-called guru’s dispense wrong information, such as, “you can make good money with no effort,” or provide courses that don’t provide value for the price they charge.
Good Luck,
Bill
franchise - Posted by ken in sc
Posted by ken in sc on November 26, 2010 at 12:01:52:
You asked:
If you can have a nationwide fast food or oil change franchise why isn’t there lots of real estate investor franchises?
It’s because RE Investing is so local…values, remts etc. There was Homevestors that tried to do it, provided training etc, but most of the ones I saw went broke. They didnt have the local knowledge of values, rents and repair costs. It just cant be nationalized and have some “Hamburger University” type place to learn it. If it could, there would be a great national REI franchise. But is just cant be done.
Most RE Investors choose the life just so they can work alone. Most I think that are successful make 100-300K. Without building a huge business with employees etc and running lots and lots of deals, thats where a RE Investor winds up income wise. Most are OK with this as their goal was a decent living and freedom from a boss.
You have to differentiate between Investing and running a business. Most REI run a RE busines that feeds them, and also invest in rentals or paper with their extra money because that’s something they understand (as compared to say stocks) and due to their understanding they can make a better than avegae return. It appears that you want investing (rentals) to cover the income you need to live right off the bat. That doesnt work. You have to flip or rehab or some other type business aspect of RE to get income today. Rentals are more and investment for future.
Real estate itself is not a scam but… - Posted by Rick the Probate Guy
Posted by Rick the Probate Guy on November 25, 2010 at 23:29:54:
…like most everything else involving money, there are lots of ways to spend it, loose it and give it away to liars, cheats, and thieves.
In the early 1980’s, I was just getting going in R.E. investing (if you could call it investing). I knew one play: find an owner in foreclosure and buy it subject to the existing loan(s), fix it up (mostly my labor!) and then I was supposed to do something else with it…rent it out (my early deals rarely cashflowed positively) or sell at retail to what few buyers existed.
It helped (read that it was essential) that I had a daytime job. It didn’t help that I traveled a lot.
I bought a number of RE courses, books, tapes and attended seminars taught by educators in ther “pre-prison” days. I had a knack for picking them, I guess.
However, several other were very helpful: Ken Roberts, Fred Crane (1st Tuesday) Bob Bruss, and John Beck. Especially John! He walked me through my first deal when I was an emotional mess in the beginning.
Now, I no doubt wasted a lot of time and money on some of the dream merchants however, I did make money despite making a number of mistakes along the way. When I got fired from that daytime job in 1989 with the employer’s harsh rules (show up to work once in a while!) I had a strong need to grow up, get serious about my life and focus on what I really wanted to do…and stop blaming my failures on other people and institutions.
What I did was find a real estate niche that suits me just fine, studied obsessively about, looked at literally tens of thousands of potential deals did many hundreds, invested many of the profits and gave back what I could.
When some health problems prevented me from working, it was my real estate investments that paid the bills…and my friends who looked after me. They don’t teach the latter in most books on creating R E wealth.
Mort, I won’t argue about there being scam artists in real estate. However, I still can’t think of any better area to make a career and to invest. Maybe you’re at a turning point in your life and you’ll benefit from reading more and working on yourself first. I certainly could not have expected R E to work for me during the last 20+ years unless I’d taken stock of my strengths and weaknesses.
Whether you chose to stay the course right now or not, I hope you are not too quick to ‘leave before the miracle’ as some have pointed out who’ve walked this road ahead of me.
Maybe you’ll see a way to make R E investing part of your life while you work another job. I will tell you that, while I’ve put in much more effort in this career than the previous one, I’ve never had it so good because I don’t work anymore…
…I get to do real estate!
Re: Is real estate a scam? - Posted by Frank Chin
Posted by Frank Chin on November 25, 2010 at 07:53:44:
Mort:
Maybe, maybe not. Read on.
I grew up with my dad owning a business, bought the buildings where the store was located, then retired years later as a commercial landlord on the rental income.
I myself invested in residential real estate, ran a one man software consulting business, then bought an established business with 8 employees, and finally semi retired on my rental properties. I got bored with it, and I’m handling finances for a local non-profit.
Along the way, I looked into franchises, get rich quick schemes, etc. I can definitely say “buy and holding real estate” is NOT a scam.
I’ll mention my dad as a good example.
He owned a laundry-dry cleaners, and bought the building where the store was located in 1963 for $25,000, assuming a $15,000 mortgage. In 1980, he retired, and rented out both stores, the apartment upstairs, and the 4 garages in the back. Oh, in 1980, the mortgage to the property was paid in full as well.
Currently, stores in his area rents for $2,000 each, the apartments another $2,000, and about $500/month for the garages. So with the stores covering the heat and the taxes, do their own repairs, if you consider $6,500/month good net incomes, with almost no work, then real estate did very well for him.
Now. someone netting over $70,000/year in rent like my dad, pay no FICA, unemployment, having to worry about workman’s comp etc, he is not doing too bad.
How does this compare this to franchises??
First, forget about the high end Burger King and McDonalds, as it takes half a million to a million to buy into one. Take the Quiznos and Subway franchises that goes in the $100,000 or below range around here. If you check into it, the best the owner can do with these is make $100,000/year. There’s even been lawsuits over these businesses that alleges that may if these business make even less than $50,000/year.
Lets compare my dad and these Franchise owners.
Most of the time, to make it, the franchise owner has to WORK at the place 50 hours or more a week, else he has to hire help, and make even less. My dad, on the other hand does NO WORK at all on his rentals, except to walk the rent checks to the bank, twice a month. He doesn’t drive.
And why don’t you see real estate investors with vast crews working in there offices??
Take my dad as an example, if he owned ten properties like the one he has, he can get a property manager to bank the money for him, that is if he even needs one, and the nice thing about commercial properties, is maintenance is left to the tenants. Why do you want an army of workers looking busy.
Now, if you want to manage businesses with workers, I done that too, and I’ll comment on it.
First, I ran a one man consulting company, did it for a while, and figures I do better buying a business where I “run the business side”. I bought one wholesaling tires, car repairs. I can tell you the pluses and minuses.
With my software consulting business, I control the quality of my work, and I know what my customers want. But I have to work at it 50 hours a week, often more.
With the active business, I don’t do the car repairs myself, sell the tires myself, so I can get customers yelling at me for something my employee messes up on. While i have a manager, everyone want to talk to the BOSS. Playing boss can be fun, but often can be a drag.
Furthermore, I’ll find a good employee sooner or later working at a competitor. The bad ones hang around forever, wants raises every other month, calls in sick whenever the place is backed up with work.
Then, I have to come up with the money to pay 'workman’s comp", unemeployment etc., beside paying for the employers part of FICA. Now, if you think having an army of employees is a bed of roses, where I go in and snooze, you have another thing coming.
All in all, comparing “one man” businesses, small businesses with workers (boss manages), real estate with NO WORKERS (such as my dad), I go for the later.
OK, if you say collecting over $70,000 a year, with NO WORK, you have a point of it being a scam. If you want to buy a Quizno’s work 50 to 80 hours a week, then sue the franchisor because you’re only making $50,000, or even LOSE MONEY it’s your choice.
In fact, I’d say a lot of the Franchises are a scam.
What is the difference?? Real estate investing is “investing”, it takes time to bear fruit. Franchies may put food on the table right away, but you are taking a risk, and for most people without a solid business mentality, would be better getting a job.
Finally, managing a small business is a JOB, and a 50 plus hour/week job to boot with no overtime.
Re: Is real estate a scam? - Posted by ari
Posted by ari on November 25, 2010 at 24:39:01:
First of all, there are several dimensions of real estate besides cash flow. We all know that rents will always go up. There may be spots where rents go down, but for the most part they will always increase. So over time, your cash flow will increase while your mortgage gets paid down and rents go up.
Second, you build up equity over time in your property. Even in a depressed market, you will build up equity as long as you have a renter in the property.
Third, there are huge tax benefits to owning real estate, if you qualify. This is the most overlooked dimension of real estate. Talk with a tax expert to learn more.
Overall, you have to have patience if you buy and hold property. Let time be on your side, and before you know it, your portfolio will grow. Don’t expect to buy a few houses and be able to quit your day job right away though. Most of the investors I know have started with a few properties, and then exchanged over and over into bigger properties over time. It just takes time.
Re: but it ain’t get rich quick either - Posted by Natalie-VA
Posted by Natalie-VA on December 07, 2010 at 08:40:00:
Good post, thanks for sharing.
–Natalie
Re: Is real estate a scam? - Posted by Mort
Posted by Mort on December 01, 2010 at 04:57:47:
I would say that what many of the gurus teach doesn’t show the whole picture. What they do is minimize the risks and maximize the gains in order to sell a product.
Overall It seems more like a business that should be considered a long term investment.
working alone - Posted by Kristine-CA
Posted by Kristine-CA on November 27, 2010 at 11:19:02:
Hi Ken. I think your comment about RE investors choosing this
business they want to work alone is spot on. I know I like working
alone. By alone I mean minimal or no employee issues and minimal or
no partner issues. RE that involves marketing and buying and selling
to principals obviously doesn’t mean I’m alone all day. It just means
that I get to make all the business decisions, for better and worse, and
work it on my schedule. I already have plenty of other relationships
that involve the cooperation necessary to a partnership: children, a
man, an extended family, friends and community members.
I also think you called it right on the income of running a small RE
investment business. Depending on where one lives, lifestyle choices
and goals, $100-300K is “adequate” for many.
In my markets I still don’t see creating passive rental income as very
lucrative since it’s still possible, (but more difficult!) to produce the
income through buying and selling. The chunks of change from a
decent deal outweigh rental income (which isn’t really passive) by
exponential amounts. I don’t want this to be true because I still hold
out that providing rental housing is a valuable service and is somehow
more honorable than buying and selling. Maybe it’s market specific. If
I spend minimal overhead and time on a $50K deal…owning a 100K
rental in my market is just not that exciting. That being said I have
some note payments coming in and I do like money that arrives in the
mail.
Happy Holiday and hope all is well with you and yours in SC. Kristine
Re: franchise - Posted by Mort
Posted by Mort on November 26, 2010 at 12:27:27:
We had 4 Homevestor franchises in my area in 2004 and
they were all out of business by 2007. They all went
out of business during the height of the market. This
was when investors could get lines of credit and
mortgage loans and they still went out of business.
Now wholesaling is almost dead because lots of the
investors that could get lines of credit cannot any
longer. Mortgage money is very tight and banks are even
selling off nice homes at bargain prices. I don’t think
that the HomeVestors business model would work very
good in this environment.
Re: Real estate itself is not a scam but… - Posted by Mort
Posted by Mort on November 26, 2010 at 05:26:33:
I am at a turning point and I have seen that I lacked some basic
skills that are required to run a business.
I have had to become aware of time management, cash flow
management, project management, salesmanship, advertising,
negotiating, and perseverance.
I don’t plan to give up just yet but I am retrenching and digging in
for a long fight. I have learned some things from the gurus like how
to sell dreams to people namely buyers and sellers. I always have
my buyers prescreened to make sure that it is realistic for them to
own but in reality I know many will not end up buying because of
divorce, job move, or something happens in their life.
I am convinced that I am helping buyers because if they had bought
the property and 3 years later they had to sell then they would have
to pay all the sales costs to get out of the property.
It may cost a tenant-buyer 5k to try out ownership and decide it is
not for them instead of them putting down 10k and 3 years later
having to pay a Realtor and closing cost to get out of a house.
Look how many people want to sell right now but can’t but if they
were a tenant-buyer they just call the owner and tell them they have
decided not to exercise and walk away with no damage to their
credit.
Re: Is real estate a scam? - Posted by Mort
Posted by Mort on November 25, 2010 at 10:17:55:
Thanks for the info but it kinda proves what I suspected. Since both
you and your dad ran other businesses while the real estate assets
grew. When I started in the field I had been led to believe that I
could have a 5k / month cash flow up and running in 6 -12 months.
In return I got a -5k / month cash flow by using lines of credit to live
on while trying to run a real estate business and I am about to lose
a house to foreclosure and the person on the loan gets screwed (I
took it over sub2). I have asked other professional investors for
help but they just tell me that they are struggling also.
I don’t think that real estate is a business to just jump into.
It seems that one of the best ways to get cash-flow is by owning
rentals in low income areas…but I often hear from those landlords
and they wish they had white collar homes to rent out because they
talk about tenants not paying rent.
White collar homes that cost 150k are also difficult and when
tenants leave there you are stuck doing $5k in repairs and losing
$1000/mo. Even rented you are lucky to get $150/mo cash flow
because the mortgage payments are so high.
In the nice neighborhoods you rarely can get a house for about 90%
of appraised value. I also don’t believe there will be any
appreciation for about 5 - 10 years.
If you were starting out now with no income or money then what
would you start doing to bring in 5-10k / month on a consistent
basis? Would the best thing be to write a course on investing in
real estate and sell it to new people?
Re: Is real estate a scam? - Posted by Mort
Posted by Mort on November 25, 2010 at 01:01:32:
But I have learned in courses that I could just wish myself into
overnight riches (The Secret) and make money while I sleep
(Carleton Sheets) with nothing down (Robert Allen) and only work 4
hours a week (Tim Ferris).
I know real estate is a good way to build and store wealth but what
is the best way to make cash so you can put food on the table?
Re: Is real estate a scam? - Posted by Frank Chin
Posted by Frank Chin on November 26, 2010 at 05:11:02:
Mort:
You’re totally right it’s not something to “jump into”.
First, there’s two basic types of RE investing. One is what I call “transactional real estate”. This is when you can pick up something dirt cheap, do nothing with it, and wholesale it to the next guy. And RE gurus love to teach this nice and easy way of doing RE because it seems so easy, and NO MONEY or CREDIT in some cases. no work, and two deals like this a year, and can sit in a vacation resort doing nothing.
Anything wrong with this picture??
First, real estate is local, and the value of RE has a lot to do with the local economy, jobs, convenience to shopping, schools etc. I have a buy and hold rental in a nice area, and in the beginning, people who came to look asked me what I liked about the local schools, which I found out was important to most families with kids, my target market. I have no clue as I don’t live in the area and I had no kids then. I told them I had to find out about it.
Then, other renters wanted to know how easy it would be to get to this that and the other place. That was before Google and I wasn’t sure about that either. How close is the shopping, Walmart etc.
Now, I was only doing a rental, but I figured that these issues are important to someone you might flip a house to also.
Oh, selling as an investor?? Some people come by, see an investor selling it, and already figured they’re being ripped off, because after all, the investor got it cheap (must be something wrong) and have to mark it up, so the place really isn’t that cheap. Right??
What I found useful in this, and many other businesses is a great SALES PERSONALITY, which gurus don’t often go into. If and when you have a place to flip, you either have an unbeatable deal, or you can really SELL YOUR DEAL.
Let me go into other aspect of RE investing.
I find many people, especially foreigners who just got here a few years, saved up a bundle, and drop it into a property. Often, they drop in enough so they won’t have any negative cash flow. Pay it off, and you have yourself a retirement fund.
Why this attraction??
Money talks, so if you can’t speak English, or have a horrible personality, but if you have $100K or $200K to drop on a property somewhere, and if you don’t overcharge, keep the place up, you’ll have many a happy customer. There is no need for you to SELL YOURSELF as a landlord.
My dad is a minority, and 50 years ago, folks wouldn’t give him the time of day if he tried to flip real estate, or do wholesale deals. With his stores though, no one has to know who the owner is if he wanted to keep it that way. As long as the location and rent is right, there is no need for him to sell anything.
So, this is how I look at RE investing. If you look at it as an investment, have cash to put down, then invest in a good area, start with cash flow from day one, and you’re good to go. You’ll still need a day job and wait a while. My wife was able to quit her job after we did RE for six years.
On the other hand, if you understand the economics and dynamics of an area, have a great sales personality, I would feel safe dabbling in wholesale deals. Unfortunately, I never thought I have a great sales personality, and “buy and hold” rentals suit me better.
Re: Is real estate a scam? - Posted by Nick
Posted by Nick on November 25, 2010 at 16:35:40:
“When I started in the field I had been led to believe
that I could have a 5k / month cash flow up and running
in 6 -12 months.”
And you fell for that?
How could you possibly run the numbers so badly on
these properties to get into such a poor cash flow
situation? Reading even the worst real estate investing
book should have led you away from that kind of
situation.