Part 1 – You need Money to Make Money.
So you see those advertisements on Social Media etc., concerning making easy money in real estate, retiring early, cashing in while on vacation. They often are selling the idea of working from your yacht while money flows in from rental properties! We have all seen these advertisements and they make it look so easy!
Well here comes the reality kick that you may and or may not want to hear from someone that has spent over 20 years buying, managing, rehabbing, and selling rental and commercial properties. It is not easy. It is not quick. It is a lot of work and can be stressful. Should I just end it there? Of course not, let me point out a couple of things that can make real estate investing difficult so that you understand the truths of this industry.
1.) You need money and if you have cash that will make things even easier! Most people don’t have the cash to buy an investment so then you need a downpayment and a loan. Depending on your finances along with the state of the economy will decide if you can get a loan or not. And if you are higher risk, say your credit score is 600 and below, that loan percentage is going to be more then the average rate. Cash will push people to sell, cash means no real debt and cash means a fast close, which buyers always prefer. But how do you get cash? I saved and invested my money in other ways before going the cash method. That took years….and in the meantime, I worked on having excellent credit so that loans were easy to attain when needed.
2.) Now you purchased your investment property, here is what they don’t show you on the flipping television shows. You need to turn on the power and water so you can do work on your investment. You need insurance on the investment. You will have taxes on the investment. And don’t forget the closing costs too. These add up fast and when you are ready to upgrade your investment, which you want to do to attract the highest paying renters, the longer it takes to rehab the more the costs add up monthly.
3.) Permits cost time and money. Depending on where you are buying the property, you may need permits for construction. Not only do you have to pay for permits, but you also have to wait for inspectors throughout the building process, and waiting for them costs money. You see inspectors work on their schedule, not yours and I have had experiences waiting weeks for a permit sign off before we could continue work. I know what you are thinking…I can get around the permits. Well yes at times…but if caught it really will cost you even more time and money. Also, you better do everything to spec. If your investment catches fire because of faulty wiring or something you are really going to pay!!
4.) Finding a good contractor can be a crapshoot. I have had really good contractors (KEEP those relationships) and I have had some bad ones. I lost $40k once to one contractor who basically disappeared. Finding the right people, that you can trust and will say what they do is extremely important. The thing is with contractors/builders, they are usually really good at building things but terrible at running a business. That means they over-schedule, over-promise, and give ETA’s that usually never its target date. Again, this can cause time and money.
5.) Everything will cost more then you think it will. When walking around an investment property you point out knocking that wall down, moving the bathroom over there, etc, etc. That fact is whatever work you are going to do will almost always run over schedule and over budget. The saying goes “Once you open up a wall you never know what’s behind it.” Dry rot, old electrical, leaks….heck one time we found a hidden hornet’s nest. You name it I have seen it and you have to fix it.
I am not trying to talk you out of investing in real estate but I am telling you it is not as easy as the TV shows and advertisements make it sound. Most people that open a small business fail within the first three years. If you are going to be a real estate owner/investor, which is a small business, you have to start slow and build up to what you can and will handle. It takes time, patience, and a little luck when working on properties, especially if you want to flip it or find good-paying renters. It can be done but I wanted to share with you some of this information so that you can make a sound decision.
More to come…….. If you have questions, please feel free to post or email direct at firstname.lastname@example.org.