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Tags: real estate investing

Low-Risk Game Plan for Real Estate Investing

Low-Risk Game Plan for Real Estate Investing
Traditional Cape Cod clapboard house (Dreamstime)

By    |   Tuesday, 01 August 2023 01:47 PM EDT

When I was a little girl, I remember my mom talking to a man at a cafe about buying his house seller financing. They worked out a deal and we moved into this big beautiful house that was about 3 decades too old. It was while we were living here that we fully renovated the house top to bottom and I learned manual labor!

She did this again and again — moving all of us into a “broken” house, doing a complete turn around with her children as her labor pool.

This was one of the most significant experiences in my life because it taught me several things that dramatically transformed the trajectory of my life.

The first is that real estate investing is one of the most powerful ways to create true wealth and financial freedom. When done properly, real estate provides positive cashflow, as well as appreciation and tax write offs that other assets don’t, and it’s also an effective hedge against inflation.

The second is that you don’t need to have money to completely transform your life for the better. We had nothing, so my mother had to find properties where the seller was willing to entertain seller financing, and then we had to renovate the property ourselves because she couldn’t afford to hire a contractor. You can do this too!

And the third is that you can learn pretty much anything if you are willing to put in the effort. We certainly weren’t real estate or construction experts when my mother started, but she found a way to learn how to do whatever we needed to do, and in the process, me and my siblings learned the same lessons — and this was all before YouTube!

But it’s not all sunshine and rainbows, because despite what many of the real estate “gurus” claim, it’s neither easy nor pain free. There is no tool, course, or coach that can ensure success. Some deals will fall through, and no matter how well you plan, you will lose money on some deals. This isn’t meant to scare you away, though. It’s meant to highlight the importance of learning what you need to know to invest in real estate safely and successfully.

That’s exactly what I’m going to explain in this article. I am going to give you a complete framework, outlining the factors you need to know to get started in real estate investing, including how to identify the right asset type for you, learn the knowledge you need to be successful, and assess and mitigate risk.

So let’s go…

Be realistic (I can’t emphasize this enough!)

There is no question that real estate can change your life, as well as the lives of your family for generations to come, but that often leads to unrealistic expectations. I partially blame this on some of the coaches in the real estate industry because in an effort to sell their courses, they often make it seem easier to achieve massive results than is typical.

I’m a big fan of pursuing goals that most claim are impossible to achieve, but that can backfire if you don’t have the right knowledge and mindset. And when someone misses a goal or suffers a big and early loss as a result of going after an unrealistic goal, it can drive them away from real estate entirely. This means a massive loss of opportunities.

On this topic, Bill Gates says, “Most people overestimate what they can achieve in a year and underestimate what they can achieve in ten years,” and I think this is the perfect way to look at setting realistic goals for your real estate investing.

There is no one-size-fits-all approach in real estate though. Your goals should be based on your knowledge, experience, asset type, market, available time, and risk tolerance. If you’re not already an experienced real estate investor, you’re going to need an experienced and honest mentor to help you determine realistic goals, which is a great segue into the next factor…

Understand that you’re going to “pay” for your education one way or another

It’s not what you know that determines your success or failure — it’s what you don’t know. That’s because mistakes, which lead to losses, come from the hidden pitfalls you didn’t know about. Unfortunately, many people jump in without the appropriate education, and the outcome is almost always predictably horrible.

So you can either learn what you need to know before you get started, or learn on the fly while operating as an investor, but it’s important to know the pros and cons of those choices.

Let’s address the elephant in the room first. While this is the “cheaper” approach, you will never be able to learn enough about the industry before you get into real estate investing because:

  • There’s so much to learn, so by waiting, you’re delaying opportunities.
  • The industry changes rapidly, so the strategies that are almost guaranteed to win today could be almost guaranteed to lose tomorrow.
  • You can only learn what you already know you need to learn if you’re piecing together info yourself, and if you’re taking a more structured course, it’s going to omit lots of critical info for practicality.

People who chose this path tend to make big mistakes early because they’re missing critical knowledge, so even though they don’t pay for their education up front, they’re still paying for it in the form of losses and missed opportunities. The cost in these scenarios is typically exponentially higher than simply getting the right education in the first place.

Learning on the fly is better, but it’s important to learn from a legitimate expert, and there are a few ways to do this, which we go over in the next section. But first, I want to discuss why this is a better strategy, and a few ways to approach it.

When you learn from an experienced (and currently active) real estate investor, their material will usually be structured in a way that gives you an effective plan for most of the deals you’re likely to encounter. This means you will be less likely to have any huge holes in your knowledge — the kinds of holes that lead to costly mistakes. Also, many of the top-tier coaches will collaborate on deals with their students, so they’ll be likely to help you identify and avoid mistakes due to unusual situations that didn’t make sense to include in their course material.

This will cost more up front, but will make you exponentially more money in the long term, while helping you to avoid the costly mistakes we talked about.

Real estate investing education can range from a few hundred dollars for a highly focused and fairly basic course, to tens of thousands of dollars for a more comprehensive course, and while it’s often true that you get what you pay for, that’s not always the case. Some of the biggest names in the real estate industry are selling, in my opinion, garbage courses, while there are some relatively unknown geniuses selling far superior courses, so it’s important to do your due diligence before making a decision.

You can start by doing a search on Google and Bing for their name, both business and personal. Look for a pattern of either satisfied or unsatisfied clients, and be sure to dig at least a few pages into the search results. You should also look to see if they are sharing useful info on social media, and if they’re regularly cited in traditional media as an expert in the industry.

Build a network of collaboration partners

One of the biggest mistakes I see new real estate investors make, aside from not seeking the proper education, is that they try to do everything themselves. That decision is often driven by wanting to keep all of the profits from a deal, but I want to offer a different perspective.

While you may keep more money from each deal when you do them entirely on your own, the pool of deals that you’ll be able to invest in will be significantly smaller — especially when you’re new to real estate investing. On the other hand, when you collaborate with others, you’ll earn a smaller percentage of each deal, but you’ll also be able to invest in properties you couldn’t handle on your own, giving you more opportunities.

Collaboration partners could include:

  • Experienced investors
  • Lenders
  • Contractors
  • Developers
  • Architects
  • Lawyers
  • Real estate agents
  • Mortgage brokers

The idea is to build and nurture relationships with people who you can work with to get more and bigger deals done than you could on your own. These people might bring expertise, funding, connections, or something else to the table.

Each person will approach deals differently, and will have different criteria on what types of properties they want to get involved with. In many cases, they will simply ask for a percentage of a deal on the backend rather than taking an upfront fee, but that’s not always the case. The more in demand someone is, the more valuable their time is, so some may charge an upfront fee in addition to a percentage of the deal.

It’s important to remember that everything is negotiable. That doesn’t mean that you’ll always be able to get the collaboration partners you want to collaborate on your investment properties, it just means that you probably have more options than you realize at first.

This is one of the most important factors in real estate investing, especially when you’re just getting started. But I see collaboration as a vital component no matter how experienced you become because you can achieve so much more by working with others. I’ve been investing in real estate for over three decades, with almost every property type you can imagine, and I still collaborate with others.

The idea is to identify the people who bring something to the table that you can’t, work a few deals together knowing there will probably be some hiccups along the way, and then decide if you want to keep working together. Remember, there will probably be mistakes along the way on all sides, but that’s not necessarily a deal breaker. Instead, you should treat it as an opportunity to polish the rough spots and create the kind of relationships that lead to significant wins for everyone involved.

This creates greater opportunities while minimizing risks.
Lori Greymont is a seasoned real estate investor, creator of the hit TV show, Funding Faceoff, and founder of a private mastermind community with the mission to help 5,000 real estate entrepreneurs get their real estate deals done and create true financial freedom.

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When I was a little girl, I remember my mom talking to a man at a cafe about buying his house seller financing.
real estate investing
Tuesday, 01 August 2023 01:47 PM
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