Real Estate Investing Offers Only One Likely Outcome: a Low Return, Part II

Dawn Griffin Posted by
Investment Spotlight, Market Conditions Oct 2014

Yesterday, spurred by some of the interesting data in the Carl Richards article, I went on a tangent about timing as it relates to the value of your real estate.

But the real meat of the argument in the article, Real Estate Investing Offers Only One Likely Outcome: A Low Return,  can be summed up in this excerpt:

“And between who you know and what you hear on the news, it may be tempting to believe you can experience the same success. But as with most things, there’s a difference between professionals who’ve paid their dues and people who are just pretending.

The few, very successful real estate investors I know share three things that make them exceptions. First, they’ve developed the unique skill of identifying undervalued properties. It requires many years of painful trial and error. A three-day course on “How to Become a Successful Real Estate Investor” won’t cut it.”

Just in case you missed it: A Three day course on “How to Become a Successful Real Estate Investor” won’t cut it.

I couldn’t agree more! Every couple weeks I get a call from an out of town “investor” who has a “system.” They almost always start the conversation by saying something like “With your help, I can make us a lot of money.” (EEW!?!?!?)

I can usually tell within the first couple exchanges, that the person on the other end of the line has just “graduated” from one of the seminars going around the country. I find it especially irksome when the caller reveals that s/he has no intention of improving the home or the neighborhood. Their goal is to find under-valued properties. (Which they intend to do by having me submit 50-100/per week on homes I haven’t seen at half or less than half the list price). Buy them quickly with cash and re-list them at an inflated value.

Despite what the seminar taught, this is NOT a system. It’s one strategy and ultimately not a good one. When the property is listed at a higher value without any change in condition, the buyer pool is severely decreased. Rather than pricing according to market value you are just looking for that “one dumb fish” and thankfully (for the overall health of the real estate market) there are a lot fewer dumb fish out there. So you just might get stuck holding that property.

Beware of the seminar curriculum that leads you to believe you can get something for nothing. But don’t write off real estate investing all together. Despite what the title of the Richard’s article implies, real estate can be a good investment vehicle. But as he outlines in the article it takes experience, knowledge and connections.

Over the last ten years, I have worked with several experienced investors. I have learned much from each one of them. While each had their own unique strategy, there were a couple unifying threads. First, while real estate investment may not have been their full-time job, they treated it as though it was a job. Second, most were in it for the long-term. And finally, they knew they weren’t getting something for nothing. If they bought low, they invested an additional amount in the asset in order to sell high.

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