We’ve all seen ’em… the infomercials telling you that YOU can be rich by just following a few simple steps to buying real estate with no money down. Think of it – none of your money is involved and soon enough you’ll be retired, sitting on the beach with an endless supply of piña coladas being served to you day and night. Easy money… it’s that simple!!
Wait – what?! Who buys this crap anyway??
Well ok, I did once in my college years.
Since I’ve been a kid, I’ve had my mind on money and such a strong desire to be rich that I was a sucker for one of these scams. Back in those days, I used to stay up until 3 or 4 in the morning and then sleep late into the day. And late night is when those infomercials have their target audience… like me!
I bought the kit from a real estate guru on TV and was excited for my quick road to wealth. It came with a bunch of CDs and forms and only cost a few hundred dollars… but hey, that’s nothing compared to how much money I was going to make!!
The box showed up a couple of weeks later and I tore into it ready to go. I took my time and listened to each CD and I went through each of the fancy forms to make sure I was ready to go and buy real estate rentals. I was ready to go…
And then I wasn’t.
Sure, there was a lot of great information in the package, but when I was done with everything, I still felt like I had no idea what I was doing. And a lot of it had very specific circumstances that needed to be in place for this to work.
So, the kit sat there doing nothing but gathering dust and so did my pursuit to financial freedom.
You might be wondering if there was a money-back guarantee… there probably was. But I was young and stupid and just figured that I just didn’t understand it yet. I knew that if I hung onto this kit long enough, one day I would just suddenly “get it” and I could definitely make it rain.
Um, yeah, that kit never did come back out of my closet. Well at some point it did because I don’t live there anymore, but I couldn’t tell you where it is now – my guess is some garbage dump somewhere. Yup, I didn’t end up making a dime from that purchase.
I’m here to tell you that those real estate infomercials are crap. Yes, I’m sorry to burst your bubble, but there’s not a cookie-cutter way to get rich by buying into these schemes. There are too many variables involved for this to work as easily as claimed. For instance, the cost and nuances of real estate in your area can be completely different from that in my area, which means your approach to deals will likely have to differ somewhat from my approach.
The only thing that keeps me from crying myself to sleep about throwing away my hard-earned money is that I can’t be the only one who’s fallen for these. I’m sure plenty of other people are buying these get-rich-quick kits – they wouldn’t be on TV all the time if they didn’t sell.
Real Estate as an Investment
But before you throw out the “I knew real estate is a horrible investment”, know that that’s not what I’m saying. Real estate is an excellent asset class and can provide great passive income in the area of rental properties. Just be aware that it’s no easy money and you’re not just going to get instantly rich from it. And you do need to put some time and effort into it.
And when I say time, I’m not talking about fixing things. Yes, you’re welcome to take care of leaky toilets and clogged drains if you’re a hands-on guy, but know that you don’t have to. I use a property management company who takes all the phone calls and brings in all the contractors as needed. They work 24 hours a day so I don’t have to. I just collect the checks.
The time and effort I’m referring to is learning your market and figuring out costs ahead of time so the property you do buy will pay you every month after all expenses (including property management if you use them). That’s the work you need to become good at – learning the game, the numbers, and the understanding the market you’re after.
Some of this knowledge will come with experience, but you can avoid some mistakes by just getting familiar with an area of focus. Drive or walk around the neighborhood regularly and actually look up and around you. Take some notes on what you’re seeing. Become familiar with the properties – both the ones for sale and the ones that aren’t (to see if the neighborhood is being kept up with or slowly deteriorating).
Determine market rent by calling places in the neighborhood that are for rent as if you’re the possible tenant. Ask them the questions you need to know as a buyer that a tenant would also ask:
- How many bedrooms and bathrooms?
- How much is rent?
- Is there a deposit that needs to be put down?
- What utilities are included?
- What are the terms of the lease?
- Who takes care of any lawn maintenance or snow removal (if applicable)?
- Are pets allowed?
These are some questions that will help you start to figure out a realistic market rent and what other landlords allow or don’t allow.
On the properties that are up for sale, dig further into them to see how many bedrooms and bathrooms they have and what the asking price is. Run the numbers through an online rental property calculator (I like the one on the BiggerPockets site) to see what you would need to pay for a property in order to get back a good return. Walk through some of them to get a better idea of what you would get for your money.
A rule of thumb I first heard from businessman and investor Robert Kiyosaki is to analyze 100 properties, make offers on 10, and buy 1. That might sound a bit extreme, but even if you’re not ready to buy one yet, going through the motions puts you on the path to success.
Is this a lot of work? Hell yeah. But this is how you get the expertise in an area to skip some possible costly mistakes. Eventually, you’ll be able to drive down a street and rattle off details on properties like “this one’s been on the market for 8 months now because it’s got a mold issue” or “this street seems to have a hard time drawing in tenants because most of the properties have small bedrooms.”
My horrible first impression of real estate with the infomercial disaster didn’t deter me. A few years later, I became a little more serious about rental properties and bought my first rental house. And guess what – I did make some mistakes, but I also learned quite a bit. And that’s the key, because I can tell you that I didn’t make those same mistakes on the duplex I bought after that house which cash flows pretty nicely every month.
And based on what I’ve learned, I can tell you that depending on your area, there ARE some more or less systematic ways to do real estate in your area. However, those methods are different for everyone and, in time, you’ll start to figure out your own systems that work in your area.
Although there are always going to be the get-rich-quick schemes out there, there are also a lot of good ways to learn more about real estate and how to truly do it right. I actually attended a great all-day seminar in 2004 that was very valuable (unlike the late-night scam I wasted money on!). The workshop was only $225. This one happened to be out-of-town though, but throw in a flight, hotel, and transportation, and the whole thing cost less than a grand, but it was well worth every penny.
There are also frequent local get-togethers all over the country that you just need to step up and attend. Going beyond these gatherings, Real Estate Investors Association (REIA) meetings are a little more well-known and can be of great value to investors who are either new or veterans of the trade.
And then there’s BiggerPockets. I think I promote the BiggerPockets website so much, I should probably just get a job there! But they have SO MUCH INFORMATION THERE, you can’t help but learn…. podcasts, forums, webinars, and even a real estate investing course. It’s phenomenal information and it’s free!! Sure, there’s a Pro membership available, but that’s for some other different perks they offer. Additionally, they have a networking section where you can find networking events in your area to meet and learn from others in the real estate world – fantastic for real estate newbies!
So don’t waste your hard-earned money on the real estate scam like I did. If you want to grow rich, you need to GROW rich and do it methodically. Find the right avenue that works for you. Then once you’ve got that going, expand into other areas. For me, real estate rentals are the way to go as a source of passive income I’ll have for many years to come and they’re a major part of my financial independence plan.
For you, there might something you find to be a more exciting path for passive income (dividend stocks, owning a business you can step out of, etc.), but avoid the trap of not doing anything. Pick something, learn it, and then go after it. Don’t be afraid of mistakes – that’s how you learn and become good at what you do.
Remember, there’s no easy money. But if you take the time to really understand and go after something, you can make it work and develop some excellent revenue streams for yourself.
Thanks for reading!!