So I started off to make this a very funny “5 Most Common Newbie mistakes”.
Then I started to work on it and thought about various people I have known through the years who were getting started in this business (I really don’t like the name newbie) and I realized that 5 wasn’t going to be enough so I changed it to “10 Most Common Newbie mistakes” and started to outline the article (since I didn’t have a blog then it seemed like something I would write and post or publish someplace else).
Then I realized that 10 might not be enough either. . . .
So I thought I would just start posting them here at random intervals, like maybe each time I ran into that particular mistake again.
The problem, of course, is that then I don’t have a chance to reflect on the list as a whole and to weigh out which mistakes are actually the most common ones and a list of 20 or 30 common mistakes really doesn’t help that much since the point of such a list (beyond humor, of course, and humor is going to run out long before the list of available errors) is to keep it short so that people can get past the worst pitfalls without being paralyzed by fear that there are pitfalls everywhere.
So I thought I would start with the most universal mistake and then work from there.
The most common mistake that newbies make is . . . .
They forget that this is basically a very simple business.
When you first approach Real Estate Investing it seems incredibly complicated– all these new terms (which one is the mortgagor after all?), new concepts (Return on Equity. How is that different than Return on Investment?) new laws (Riparian rights? What the heck are Riparian rights?), new people (licensed mortgage loan orginator). Its just too much!
And indeed it is.
And its probably not necessary. Remember all that stuff is intended to get you out of some specific problem (or to create some opportunity) and you can probably wait until you need it to learn about most of it.
So what do you need to know?
In the end there are only 2 ways to make real money in real estate.
- You can find a bargain
- You can add value
There is a third way, of course, you can accept a moderate rate of return on your investment and put a lot of dollars into a deal but that’s not what most Newbie investors are trying to accomplish. They are trying to “make a killing” in one way or another and in the end there are only two such ways.
Finding a bargain means paying less for something than its worth and then selling it for market price. In Real estate it means finding a “distressed seller”– i.e. somebody who really wants to sell for whatever reason (illness, death, unemployment, divorce).
Adding value means doing something to the property after you “own” it which will make it worth more than you paid. The most common example, of course, is some kind of remodel but there are a lot of ways to add value that have nothing to do with the physical condition of the property.
So which kind of “investor” are you going to be — a bargain hunter or a value-adder? Well, that of course, depends on a bunch of factors we are not going to discuss here and now but it is helpful to remember that it really is this simple– that all those “techniques” the guru’s want to charge you to learn are “footnotes” on these two options.