Real Estate Investing Guide - 7 Traps of Real Estate Investing
Content
7 Traps Of Real Estate Investing
About the Author:
Scott Roemermann is the founder of Investing-Secrets.com; a consumer advocacy website dedicated to helping real estate investors in their search for sound investing advice from honest and experienced professionals rather than self-proclaimed ‘real estate gurus’. Scott does not claim to be a guru or advisor himself, he says he’s ‘just an average guy’ who has also experienced the bewilderment and uncertainty of trying to get started in real estate investing when there are so many alleged experts claiming to hold the secrets of the rich. To solve this problem Scott has also authored a real estate investing guide in which he compiles and reviews 17 of the leading strategies being promoted by the true gurus that he has come to respect after many years of research.
INTRODUCTION
Before we begin, let’s just revisit the process for getting started in real estate investing that we discuss on the Investing-Secrets.com website. That should help put this information into context as each of the traps relate to certain stages of this process. The 5-step process for getting started is as follows: Step 1: Get a basic education of the industry and the options available to you for making money. This is pretty obvious but even before you start to learn the how-tos of any endeavor you must get an overview of its major components so you can plan your attack. Consider this more of an orientation phase. Step 2: Set some goals. Where do you want this business to take you and how quickly? This is a very important topic but we want to stay focused here and there are plenty of resources about setting goals. Real estate success, like all success, is driven by good goal setting though and we can recommend some tools for this crucial step. Step 3: Select your preferred investing strategy based on your goals and your education of ALL the strategies available to you. Then educate yourself to a basic level for your chosen strategy. Step 4: ACT - don’t procrastinate! Go out there and do a small deal. You will make some mistakes so protect yourself against that by keeping your ‘training’ deals small. But it is critical to get some experience. You don’t need to know everything before you start. A major objective of small deals is to learn. Step 5: Continue your education and refine your process as you do more deals. The more experience and education you get, the larger your deals should get so that your profits grow as you do. The 7 traps of real estate investing relate to this process and this report should help you work your way through it. So, what’s the first trap to avoid?
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TRAP 1 – I N S U F F I C I E N T E D U C A T I O N
This trap is pretty obvious but it’s so important that it simply cannot be excluded from this list. Education is paramount to success in any endeavor but when we are speaking of investing it is most important to consider its impact on risk. Investing is widely regarded as a risky pursuit by amateurs and those who are uneducated in the field. To professional investors, a person’s education or knowledge of an investment is by far the single greatest determinant of risk. A well-educated investor can always walk away from a ‘risky’ deal. A lack of knowledge sees so-called investors get into difficulty time and time again. Whether it’s the first time investor who just bought a house in a bad location that is losing money or the guy who thinks he’s smart because he has a nice paper profit after some blind luck in a stock market boom. Chances are that if they don’t know what they are doing they are headed down a bumpy road. In fact, the second guy will likely have far lower lows because he’s on a high, feeling cocky and taking risks; as if his lack of education isn’t enough. Although, he IS about to get an education and an expensive one at that! Since he could be bothered getting educated from others’ experiences the market will give him the experience and education first hand. We’ve all heard the mantra “high risk, high return & low risk, low return”. In fact, we have had it drummed into us to the point that few of us even give it a second thought, much less question yet. The truth is that professional investors just don’t see it that way. They reduce their risk by getting educated. The risk equals return mantra may hold some truth for the amateur investor who passively buys retail investment products. But then the products that fall into the “low risk” category could also be seen as risky because the returns are virtually non-existent. If you’re betting your future on that, many would call THAT risky. So this just
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reiterates the fact that investing is most risky for those who remain uneducated. “What if I employ the services of a financial advisor?” you may ask. “Aren’t they educated?” Well, they are to a degree but you would be surprised how little confidence you have in many financial advisors after you’ve educated yourself a little. More importantly though, there would be few advisors who suggest you even look at real estate because there is no personal gain in it for them. It is critical that you consider and understand the profit model for all professionals involved in your investing activities. Professionals will only help you in the long term if there’s something in it for them. That’s perfectly okay so long as you understand it, after all why shouldn’t they benefit from helping you? But the only way to make sure your needs get top priority from your investing is to take the driver’s seat yourself. In other words, don’t outsource the ultimate responsibility of knowledge acquisition and decision making. This brings us to the next trap to avoid when getting started.
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TRAP 2 – T A K I N G A D V I C E B L I N D L Y
As we have just touched on, many financial advisors and educators do not act in their clients’ best interests because they need to worry about feeding their own families. Since many do not practice what they preach, they need to earn an income from the advice they are providing and very often the advice serves their best interests and not yours. There are also genuine educators and advisors who DO walk their talk, who do invest, and do exactly the sorts of things they advise you to do. So, it is important that you don’t tar everyone with the same brush and give up on your dreams just because you have decided that the industry is full of crooks. As one guru suggests, that would be like choosing not to experience the joys of swimming in the ocean simply because you are too afraid to go in, on account of dangers such as rips and undercurrents. Instead, why not use that knowledge to take precautions such as swimming on patrolled beaches and enjoy the experience to the full? So, when it comes to advisors and educators we want to make sure that you distinguish between the following two groups: 1. Those who after you’ve learned how they will profit, you still wish to do business with. 2. Those who are set to gain an unreasonable amount or the nature of the gain reflects a conflict of interests and thereby is not in your best interests. Note: the point here is not to categorize them as con artists or honest professionals. The point is simply to have a process to determine “what’s in it for them” rather than acting on blind faith that they are providing advice that is good for you. Here are a few questions to ask about your potential advisors before you hand over your hard-earned cash. Q1. Will they get a kickback or commission from the investment they are recommending? You need to think about possible sources of big money for these so-called advisors. An obvious source is commissions on the sale of real estate. And the chances that the
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properties they have available are the best for you are very slim. The first group of people I’d be very wary of is seminar presenters who try to sell you real estate during or after their seminars. You may get some useful information from such seminars but I would sooner attend a paid event where the presenters’ only gain comes from the ticket price. Not only is it the deal that you need to be wary of in this situation, but also the quality of the information. And many of them are very good at twisting facts and figures to make a very compelling sales pitch. You should actually be wary of anyone who is recommending specific investments at all. A good educator will teach you to find them yourself and this should totally prevent a conflict of interests as well. Q2. Do they practice what they preach? This must be the most important ‘tell’ of an advisor’s capacity to advise. Why would you take advice from anyone who suggests you do something that they aren’t doing themselves? Such hypocrisy should immediately raise a red flag and tip you off that there is something amiss. However, there is one disclaimer to this ‘rule of thumb’. Is the advice suitable for their circumstances? It may be that they are now at a more advanced stage in their investing and the advice they offer to a beginner is no longer relevant for them. So, if they are further down the path they are suggesting you take, they may well have followed the advice they are offering but have now moved on to subsequent steps. But that is getting rather focused on the details. Generally, if a seminar presenter or author is telling you to invest in real estate using a particular strategy you would be wise to consider their advice ONLY if they are using that strategy themselves or have done so to get where they are. Q3. How many years of experience do they have? The general boom in real estate since the stock market crash has created a lot of new wealth and success for people including many amateur investors. The trouble is
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that the success could well be temporary because they haven’t got any smarter; they just got lucky. And yet they now consider themselves experts and are out in the market offering seminars and charging excessive fees because they think they are so clever. We saw the same phenomenon with the ‘dot com’ boom and then we also saw it was those very people who were hit the hardest in the crash. And the world has seen it in many economic cycles before. I think it is important that your advice is coming from someone who has experienced all phases of the market cycle and if they have just a few years of experience then they cannot have experienced all the phases. Once we’ve done a little due diligence on our potential advisors like this, you’ll probably find you are left with the best of the real estate investing authors commonly referred to as the industry ‘gurus’. Why is it that the most likely candidates for providing sound advice are the gurus and not licensed advisors? Well the vast majority of licensed advisors out there would very quickly get filtered out using the above process because there’s nothing in it for them to suggest you invest in real estate. The way most financial advisors are set-up is to earn commissions on products they recommend rather than charge an hourly fee. I guess they do this to reduce (or hide) their fees so that the common person is not scared off. If you want truly unbiased financial advice you may want to seek out an advisor that DOES charge an hourly fee rather than promote investment products that will earn them a commission. However, in lieu of such an advisor we can turn to the industry of mass market educators that we have identified as gurus. But remember, they need to be practicing what they preach and have more than a couple of years of experience. So long as we conduct that due diligence we will be left with the true gurus who have had success with the techniques they are teaching so we can learn from that experience rather than make the same mistakes.
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TRAP 3 – G E T T I N G L O S T I N A N O C E A N OF INFORMATION
Once you’ve weeded out the con artists and those who are perhaps unintentionally giving you biased or incomplete advice you are still left with a multitude of options from the true gurus. So how do we start to absorb any of the remaining information without becoming totally overwhelmed, confused and frustrated? The key to this research phase is to get a good overview before delving into one strategy too thoroughly, too soon. In other words, you want to be well aware of all the options available to you before choosing the strategy you will pursue. Although this may seem like a shameless promotion of the handbook Investing Secrets of the Property Masters Revealed, you would have to agree that a very efficient way to achieve this goal would be through the use of resources that review the gurus and their strategies. However, if you want to have a go at it yourself, all I can suggest is that you start to figure out who some of the major players are and start checking out their material. Be warned though, that it could be a VERY slow and VERY expensive process. Just buying one entry-level program from each of five different gurus could cost anywhere from $500 to $1000 and could take you weeks or even months to work through (depending on how committed you are). And even worse, it may only give you a taste of five different strategies – or fewer if you happen to pick some gurus who cover the same material. Another risk is that you will only discover popular gurus whose material is over-used and perhaps a little tired, thereby not providing the exciting returns that professional investors enjoy. An alternative approach to avoiding this trap may be to utilize consumer guides and similar resources on the web. The problem that I’ve experienced with such resources is that they tend to be quite negative. Whilst I’m sure they have honorable intentions the authors of these types of
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resources often spiral into negativity by starting to attack the people they see as con artists. They honestly don’t want consumers to get ‘sucked in’ but after a while they are the ones creating a vortex of negative energy. They find themselves on a crusade to bring down all the crooked operators and the original goal of helping the consumer becomes of secondary importance. So, I’ll say it one more time. I believe the best way to avoid this trap and save yourself a lot of time AND money is to utilize resources which review the gurus’ strategies; resources such as Investing Secrets of the Property Masters Revealed.
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TRAP 4 – S P E N D I N G T O O M U C H M O N E Y ON EDUCATIONAL PRODUCTS
I know of some people who have become totally caught up in the euphoria of newfound knowledge and just couldn’t stop buying tape sets and attending very expensive seminars and bootcamps. So much so, that they must have spent at least $50,000 within a 12 month period and still hadn’t bought their first investment property. They were just bouncing around from one great idea to the next. I don’t know whether, in their case, it was because they were just caught up in the excitement of that environment, whether it was their way of convincing themselves they were active when they may have been too scared to get started, or they were honestly trying to find the best strategy for them. I’m guessing it was a mix of these things. I also know of an investor who took quite an opposite approach. He stumbled across a pretty good investing strategy and didn’t check out any other alternatives but went ahead and spent over $10,000 getting a good education in that one area. He went on to build a decent portfolio over a few years but then realized there were some even better strategies out there. This second story isn’t so bad because he built some success and he could afford the further education he now sought. However, he told me once that it was a little disheartening because if he wanted to pursue a different strategy he had to start the learning process all over again and it felt very much like he had his “ladder to success” leaning against the wrong wall. And even though he could now afford the education more easily it was still another $5,000 - $10,000 that he could have avoided spending. If only he had done his homework first. I won’t point out the obvious with the first story beyond reiterating that it can be a very costly exercise to get an education. You must do something with the information as you receive it so that it pays for itself. Remember that a true investor is looking for a ‘return on investment’ rather
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than speculating and that applies to the cost of education as well. The broader your education is in the early days the better off you’ll be because you’ll be more informed about where to ‘invest’ your money for the greatest return (ie. which strategy to learn more about). So once again, get your hands on any resources that review the gurus’ strategies so that you can optimize the return on your learning investment. Do broad research of your options early in the process and you’ll minimize the risk of wasting money on unnecessary or unsuitable educational products. I’m sure the people in these stories would agree with me, so please learn from their experiences.
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TRAP 5 – N O T S E T T I N G S O M E C L E A R INVESTING GOALS
The power of goal setting has been well documented and communicated so before you skip over this point because you’ve heard it all before I’d like you to consider how well you are doing it. I’m a firm believer that you don’t understand something until you are doing it. If you are an avid goal setter you will want to read this to learn some specifics associated with real estate investing. If you are not a frequent goal setter please read on and consider that setting goals really is a powerful tool, does have some magic about it, and is critical to your investing success. Consider the following example. In 1953, researchers interviewed the graduating class of Harvard University about their career goals for the future. It was found that only 3% had written goals and specific plans for achieving them. Twenty years later the researchers re-interviewed the class of '53. They discovered that while all students had shared the best education money can buy, the 3% with written plans for the future were worth more, in financial terms, than the other 97% combined. Whilst this only examined financial or career goals I think it illustrates the true power of written goals. I’m tempted to offer some goal setting basics here but for the sake of brevity all I’ll say is that your goals should be: specific, measurable, realistic, in writing and have a deadline. Know also that they will evolve over time so you don’t need to worry about getting them perfect; just start with something! With respect to real estate, you need to first figure out what your primary investing objective is: i) quick cash / equity ii) cash flow iii) capital growth Note: There is a discussion regarding the role of these different objectives in the real estate investing guide Investing Secrets of the Property Masters Revealed.
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Let’s say, for the sake of an example, that you want to focus on cash flow properties. Consider the difference in the following goal statements: I want to invest in some real estate that will supplement my income and help me retire faster. or I will acquire sufficient property in the next 12 months to produce an average of $4,000 per year of additional income. That’s much better because it is getting specific, is certainly measurable and has a deadline. It is also realistic and in writing. But when you go to see a realtor or other people who will help you acquire that property they will ask things like, “in what area?” and “what type of property?” so as you learn more you need to add those details. This is another very important point about setting goals for your real estate investing. Once you have these clear goals, people such as realtors will suddenly treat you much more seriously. Even if you don’t have all the answers; imagine walking into a realtor’s office and hitting them with those two goal statements. Which one will get you further? Even if you don’t know which area or what type of property they won’t treat you like a tire kicker. They will ask those important questions of you and you can learn from them and go away and make your goal even clearer before getting back in touch with them. And the next realtor you visit won’t even know that you hadn’t thought about that. They’ll just see someone who knows exactly what they want and will be able and willing to help out. The final point I want to make about goals is more to do with the measurement part than with setting them. I know that sounds tedious but it can be really exciting. The most successful companies in the world track their progress against their goals because it is effective to do so. Imagine putting a simple graph on your wall that has the months along the bottom axis and the cash flow you’ve developed on the vertical axis. You can draw a red line across the graph representing your target of $4,000 per year and then you can draw an angled line that adds another $333 to the
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cash flow each month. This gives you some very good feedback as to how you are progressing and motivation while there is still time to do something about it. That’s obviously much better than just seeing how you went 12 months later and finding that you only acquired property that produces $1,000 per year. It’s a very simple and powerful tool. If you are really disciplined you can take this one step further and use the same approach for the activities that produce the outcomes that we are measuring on the other graph. This really helps ensure the result. For example, if you know you need to evaluate 100 properties and make offers on 10 to acquire that amount of property then you could graph those drivers as well.
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TRAP 6 - T R Y I N G T O L E A R N EVERYTHING BEFORE YOU BEGIN
This trap is very common amongst people who are risk averse. As we mentioned earlier, knowledge does indeed reduce your risk in the world of investing. However, the undeniable truth is that the best knowledge only comes from experience and not from text books. It can be very tempting to sit at the starting line, learning and preparing, hoping the conditions will be perfect before you begin but that’s simply not how life works. You must face challenges as you come across them by learning and improving as you move forward. I certainly agree that you should spend some time reducing the risk by getting acquainted with the task at hand and acquiring some basic knowledge. It would be very risky indeed to go out and buy a property knowing nothing of the market or of the skills required to make a deal profitable; just as it would be dangerous to attempt a new activity such as mountain climbing with no prior knowledge. But at some point we must make our first climb and no amount of theory will replace the learning from that. We must strike a balance between taking action in order to learn from experience and leaping into an endeavor in a fool-hardy manner with little or no knowledge of what’s to come. So, I definitely think it’s wise to get SOME education of what you are going to do before starting but then you need to get going and TAKE ACTION!! Experience is without a doubt the best teacher of how to do something. But, just as with mountain climbing, in the world of investing you should recognize that your first climbs or deals should be treated as a learning experience and should accordingly be quite small in stature. As it’s a learning experience rather than the pinnacle of your career you should not begin with Everest. Start small so you can learn AND reduce your risk!
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TRAP 7 – T R Y I N G T O “S U C C E E D ” WITH ONE BIG DEAL
This trap is quite opposite to the previous one in that it is more common amongst people who expect to be millionaires in a week and perhaps need to be a little more grounded. The fact is that you cannot defy the laws of the universe and that’s what these people want to do. There is a process that you must go through in order to “succeed”. Why? Because you must grow and learn enough in order to do the things that make you successful. These people seem to think that the ‘stories’ of a process that you must go through are made up by boring people who just aren’t born to succeed and are quick to tell you of many a person who has enjoyed a rapid ascension to success. However, if as an example, we take a look at the many people who enjoyed some short term success on the back of the dot.com boom of the late 1990s, we’ll see that there were not too many that held onto their fortunes or whatever it was by which they measured their success. If this sounds like you; if you’re the type of person who gets flat out excited by an idea and then spends the next month, year or decade telling friends about the really big deal that you just missed out on (again) then be thankful that you did miss it. YOU ARE NOT READY FOR IT. I’ve heard many of the gurus say, “the deal of a lifetime comes along at least once a week”. And you probably know that because you’ve just missed that one big deal so many times now. You know the one – it would have set you up for life. The problem is that you have not gone through the process of learning, especially the learning from the experience of putting together the small, training deals we talked about in the last section. So stop trying to take the short cut and just do the work you need to do because it will probably get you where you want to go a lot faster anyway and then you get to keep the success as well because it is inside of you. I hope you understand. For those of you for whom this did not apply, thanks for your patience with this personal message.
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There’s one final point with respect to big deals and small deals though. Another trap (so here’s a bonus one) that people fall into is getting stuck on the small deals for too long; sometimes forever. This trap is not a ‘getting started trap’ but one to keep in the back of your mind once you’re established as a professional investor. Move on from the training deals once you are ready! They are primarily for teaching and there are greater returns available in the bigger deals once you have the skills to handle them. Remember the Monopoly® formula – four green houses and then a red hotel. So don’t stay with the small deals once they have served their purpose.
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CONCLUSION
I hope this report has helped clarify some things and has cleared the path for you so you can see where you are headed. It’s a jungle out there! Seriously though, it can be a confusing and overwhelming journey at times because there is so much information being thrown at you. And my objective is to help you filter out the junk, take the good information and go and apply it with confidence. To your success,
Scott Roemermann.
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About the Author:
Scott Roemermann is the founder of Investing-Secrets.com; a consumer advocacy website dedicated to helping real estate investors in their search for sound investing advice from honest and experienced professionals rather than self-proclaimed ‘real estate gurus’. Scott does not claim to be a guru or advisor himself, he says he’s ‘just an average guy’ who has also experienced the bewilderment and uncertainty of trying to get started in real estate investing when there are so many alleged experts claiming to hold the secrets of the rich. To solve this problem Scott has also authored a real estate investing guide in which he compiles and reviews 17 of the leading strategies being promoted by the true gurus that he has come to respect after many years of research.
INTRODUCTION
Before we begin, let’s just revisit the process for getting started in real estate investing that we discuss on the Investing-Secrets.com website. That should help put this information into context as each of the traps relate to certain stages of this process. The 5-step process for getting started is as follows: Step 1: Get a basic education of the industry and the options available to you for making money. This is pretty obvious but even before you start to learn the how-tos of any endeavor you must get an overview of its major components so you can plan your attack. Consider this more of an orientation phase. Step 2: Set some goals. Where do you want this business to take you and how quickly? This is a very important topic but we want to stay focused here and there are plenty of resources about setting goals. Real estate success, like all success, is driven by good goal setting though and we can recommend some tools for this crucial step. Step 3: Select your preferred investing strategy based on your goals and your education of ALL the strategies available to you. Then educate yourself to a basic level for your chosen strategy. Step 4: ACT - don’t procrastinate! Go out there and do a small deal. You will make some mistakes so protect yourself against that by keeping your ‘training’ deals small. But it is critical to get some experience. You don’t need to know everything before you start. A major objective of small deals is to learn. Step 5: Continue your education and refine your process as you do more deals. The more experience and education you get, the larger your deals should get so that your profits grow as you do. The 7 traps of real estate investing relate to this process and this report should help you work your way through it. So, what’s the first trap to avoid?
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TRAP 1 – I N S U F F I C I E N T E D U C A T I O N
This trap is pretty obvious but it’s so important that it simply cannot be excluded from this list. Education is paramount to success in any endeavor but when we are speaking of investing it is most important to consider its impact on risk. Investing is widely regarded as a risky pursuit by amateurs and those who are uneducated in the field. To professional investors, a person’s education or knowledge of an investment is by far the single greatest determinant of risk. A well-educated investor can always walk away from a ‘risky’ deal. A lack of knowledge sees so-called investors get into difficulty time and time again. Whether it’s the first time investor who just bought a house in a bad location that is losing money or the guy who thinks he’s smart because he has a nice paper profit after some blind luck in a stock market boom. Chances are that if they don’t know what they are doing they are headed down a bumpy road. In fact, the second guy will likely have far lower lows because he’s on a high, feeling cocky and taking risks; as if his lack of education isn’t enough. Although, he IS about to get an education and an expensive one at that! Since he could be bothered getting educated from others’ experiences the market will give him the experience and education first hand. We’ve all heard the mantra “high risk, high return & low risk, low return”. In fact, we have had it drummed into us to the point that few of us even give it a second thought, much less question yet. The truth is that professional investors just don’t see it that way. They reduce their risk by getting educated. The risk equals return mantra may hold some truth for the amateur investor who passively buys retail investment products. But then the products that fall into the “low risk” category could also be seen as risky because the returns are virtually non-existent. If you’re betting your future on that, many would call THAT risky. So this just
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reiterates the fact that investing is most risky for those who remain uneducated. “What if I employ the services of a financial advisor?” you may ask. “Aren’t they educated?” Well, they are to a degree but you would be surprised how little confidence you have in many financial advisors after you’ve educated yourself a little. More importantly though, there would be few advisors who suggest you even look at real estate because there is no personal gain in it for them. It is critical that you consider and understand the profit model for all professionals involved in your investing activities. Professionals will only help you in the long term if there’s something in it for them. That’s perfectly okay so long as you understand it, after all why shouldn’t they benefit from helping you? But the only way to make sure your needs get top priority from your investing is to take the driver’s seat yourself. In other words, don’t outsource the ultimate responsibility of knowledge acquisition and decision making. This brings us to the next trap to avoid when getting started.
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TRAP 2 – T A K I N G A D V I C E B L I N D L Y
As we have just touched on, many financial advisors and educators do not act in their clients’ best interests because they need to worry about feeding their own families. Since many do not practice what they preach, they need to earn an income from the advice they are providing and very often the advice serves their best interests and not yours. There are also genuine educators and advisors who DO walk their talk, who do invest, and do exactly the sorts of things they advise you to do. So, it is important that you don’t tar everyone with the same brush and give up on your dreams just because you have decided that the industry is full of crooks. As one guru suggests, that would be like choosing not to experience the joys of swimming in the ocean simply because you are too afraid to go in, on account of dangers such as rips and undercurrents. Instead, why not use that knowledge to take precautions such as swimming on patrolled beaches and enjoy the experience to the full? So, when it comes to advisors and educators we want to make sure that you distinguish between the following two groups: 1. Those who after you’ve learned how they will profit, you still wish to do business with. 2. Those who are set to gain an unreasonable amount or the nature of the gain reflects a conflict of interests and thereby is not in your best interests. Note: the point here is not to categorize them as con artists or honest professionals. The point is simply to have a process to determine “what’s in it for them” rather than acting on blind faith that they are providing advice that is good for you. Here are a few questions to ask about your potential advisors before you hand over your hard-earned cash. Q1. Will they get a kickback or commission from the investment they are recommending? You need to think about possible sources of big money for these so-called advisors. An obvious source is commissions on the sale of real estate. And the chances that the
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properties they have available are the best for you are very slim. The first group of people I’d be very wary of is seminar presenters who try to sell you real estate during or after their seminars. You may get some useful information from such seminars but I would sooner attend a paid event where the presenters’ only gain comes from the ticket price. Not only is it the deal that you need to be wary of in this situation, but also the quality of the information. And many of them are very good at twisting facts and figures to make a very compelling sales pitch. You should actually be wary of anyone who is recommending specific investments at all. A good educator will teach you to find them yourself and this should totally prevent a conflict of interests as well. Q2. Do they practice what they preach? This must be the most important ‘tell’ of an advisor’s capacity to advise. Why would you take advice from anyone who suggests you do something that they aren’t doing themselves? Such hypocrisy should immediately raise a red flag and tip you off that there is something amiss. However, there is one disclaimer to this ‘rule of thumb’. Is the advice suitable for their circumstances? It may be that they are now at a more advanced stage in their investing and the advice they offer to a beginner is no longer relevant for them. So, if they are further down the path they are suggesting you take, they may well have followed the advice they are offering but have now moved on to subsequent steps. But that is getting rather focused on the details. Generally, if a seminar presenter or author is telling you to invest in real estate using a particular strategy you would be wise to consider their advice ONLY if they are using that strategy themselves or have done so to get where they are. Q3. How many years of experience do they have? The general boom in real estate since the stock market crash has created a lot of new wealth and success for people including many amateur investors. The trouble is
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that the success could well be temporary because they haven’t got any smarter; they just got lucky. And yet they now consider themselves experts and are out in the market offering seminars and charging excessive fees because they think they are so clever. We saw the same phenomenon with the ‘dot com’ boom and then we also saw it was those very people who were hit the hardest in the crash. And the world has seen it in many economic cycles before. I think it is important that your advice is coming from someone who has experienced all phases of the market cycle and if they have just a few years of experience then they cannot have experienced all the phases. Once we’ve done a little due diligence on our potential advisors like this, you’ll probably find you are left with the best of the real estate investing authors commonly referred to as the industry ‘gurus’. Why is it that the most likely candidates for providing sound advice are the gurus and not licensed advisors? Well the vast majority of licensed advisors out there would very quickly get filtered out using the above process because there’s nothing in it for them to suggest you invest in real estate. The way most financial advisors are set-up is to earn commissions on products they recommend rather than charge an hourly fee. I guess they do this to reduce (or hide) their fees so that the common person is not scared off. If you want truly unbiased financial advice you may want to seek out an advisor that DOES charge an hourly fee rather than promote investment products that will earn them a commission. However, in lieu of such an advisor we can turn to the industry of mass market educators that we have identified as gurus. But remember, they need to be practicing what they preach and have more than a couple of years of experience. So long as we conduct that due diligence we will be left with the true gurus who have had success with the techniques they are teaching so we can learn from that experience rather than make the same mistakes.
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TRAP 3 – G E T T I N G L O S T I N A N O C E A N OF INFORMATION
Once you’ve weeded out the con artists and those who are perhaps unintentionally giving you biased or incomplete advice you are still left with a multitude of options from the true gurus. So how do we start to absorb any of the remaining information without becoming totally overwhelmed, confused and frustrated? The key to this research phase is to get a good overview before delving into one strategy too thoroughly, too soon. In other words, you want to be well aware of all the options available to you before choosing the strategy you will pursue. Although this may seem like a shameless promotion of the handbook Investing Secrets of the Property Masters Revealed, you would have to agree that a very efficient way to achieve this goal would be through the use of resources that review the gurus and their strategies. However, if you want to have a go at it yourself, all I can suggest is that you start to figure out who some of the major players are and start checking out their material. Be warned though, that it could be a VERY slow and VERY expensive process. Just buying one entry-level program from each of five different gurus could cost anywhere from $500 to $1000 and could take you weeks or even months to work through (depending on how committed you are). And even worse, it may only give you a taste of five different strategies – or fewer if you happen to pick some gurus who cover the same material. Another risk is that you will only discover popular gurus whose material is over-used and perhaps a little tired, thereby not providing the exciting returns that professional investors enjoy. An alternative approach to avoiding this trap may be to utilize consumer guides and similar resources on the web. The problem that I’ve experienced with such resources is that they tend to be quite negative. Whilst I’m sure they have honorable intentions the authors of these types of
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resources often spiral into negativity by starting to attack the people they see as con artists. They honestly don’t want consumers to get ‘sucked in’ but after a while they are the ones creating a vortex of negative energy. They find themselves on a crusade to bring down all the crooked operators and the original goal of helping the consumer becomes of secondary importance. So, I’ll say it one more time. I believe the best way to avoid this trap and save yourself a lot of time AND money is to utilize resources which review the gurus’ strategies; resources such as Investing Secrets of the Property Masters Revealed.
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TRAP 4 – S P E N D I N G T O O M U C H M O N E Y ON EDUCATIONAL PRODUCTS
I know of some people who have become totally caught up in the euphoria of newfound knowledge and just couldn’t stop buying tape sets and attending very expensive seminars and bootcamps. So much so, that they must have spent at least $50,000 within a 12 month period and still hadn’t bought their first investment property. They were just bouncing around from one great idea to the next. I don’t know whether, in their case, it was because they were just caught up in the excitement of that environment, whether it was their way of convincing themselves they were active when they may have been too scared to get started, or they were honestly trying to find the best strategy for them. I’m guessing it was a mix of these things. I also know of an investor who took quite an opposite approach. He stumbled across a pretty good investing strategy and didn’t check out any other alternatives but went ahead and spent over $10,000 getting a good education in that one area. He went on to build a decent portfolio over a few years but then realized there were some even better strategies out there. This second story isn’t so bad because he built some success and he could afford the further education he now sought. However, he told me once that it was a little disheartening because if he wanted to pursue a different strategy he had to start the learning process all over again and it felt very much like he had his “ladder to success” leaning against the wrong wall. And even though he could now afford the education more easily it was still another $5,000 - $10,000 that he could have avoided spending. If only he had done his homework first. I won’t point out the obvious with the first story beyond reiterating that it can be a very costly exercise to get an education. You must do something with the information as you receive it so that it pays for itself. Remember that a true investor is looking for a ‘return on investment’ rather
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than speculating and that applies to the cost of education as well. The broader your education is in the early days the better off you’ll be because you’ll be more informed about where to ‘invest’ your money for the greatest return (ie. which strategy to learn more about). So once again, get your hands on any resources that review the gurus’ strategies so that you can optimize the return on your learning investment. Do broad research of your options early in the process and you’ll minimize the risk of wasting money on unnecessary or unsuitable educational products. I’m sure the people in these stories would agree with me, so please learn from their experiences.
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TRAP 5 – N O T S E T T I N G S O M E C L E A R INVESTING GOALS
The power of goal setting has been well documented and communicated so before you skip over this point because you’ve heard it all before I’d like you to consider how well you are doing it. I’m a firm believer that you don’t understand something until you are doing it. If you are an avid goal setter you will want to read this to learn some specifics associated with real estate investing. If you are not a frequent goal setter please read on and consider that setting goals really is a powerful tool, does have some magic about it, and is critical to your investing success. Consider the following example. In 1953, researchers interviewed the graduating class of Harvard University about their career goals for the future. It was found that only 3% had written goals and specific plans for achieving them. Twenty years later the researchers re-interviewed the class of '53. They discovered that while all students had shared the best education money can buy, the 3% with written plans for the future were worth more, in financial terms, than the other 97% combined. Whilst this only examined financial or career goals I think it illustrates the true power of written goals. I’m tempted to offer some goal setting basics here but for the sake of brevity all I’ll say is that your goals should be: specific, measurable, realistic, in writing and have a deadline. Know also that they will evolve over time so you don’t need to worry about getting them perfect; just start with something! With respect to real estate, you need to first figure out what your primary investing objective is: i) quick cash / equity ii) cash flow iii) capital growth Note: There is a discussion regarding the role of these different objectives in the real estate investing guide Investing Secrets of the Property Masters Revealed.
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Let’s say, for the sake of an example, that you want to focus on cash flow properties. Consider the difference in the following goal statements: I want to invest in some real estate that will supplement my income and help me retire faster. or I will acquire sufficient property in the next 12 months to produce an average of $4,000 per year of additional income. That’s much better because it is getting specific, is certainly measurable and has a deadline. It is also realistic and in writing. But when you go to see a realtor or other people who will help you acquire that property they will ask things like, “in what area?” and “what type of property?” so as you learn more you need to add those details. This is another very important point about setting goals for your real estate investing. Once you have these clear goals, people such as realtors will suddenly treat you much more seriously. Even if you don’t have all the answers; imagine walking into a realtor’s office and hitting them with those two goal statements. Which one will get you further? Even if you don’t know which area or what type of property they won’t treat you like a tire kicker. They will ask those important questions of you and you can learn from them and go away and make your goal even clearer before getting back in touch with them. And the next realtor you visit won’t even know that you hadn’t thought about that. They’ll just see someone who knows exactly what they want and will be able and willing to help out. The final point I want to make about goals is more to do with the measurement part than with setting them. I know that sounds tedious but it can be really exciting. The most successful companies in the world track their progress against their goals because it is effective to do so. Imagine putting a simple graph on your wall that has the months along the bottom axis and the cash flow you’ve developed on the vertical axis. You can draw a red line across the graph representing your target of $4,000 per year and then you can draw an angled line that adds another $333 to the
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cash flow each month. This gives you some very good feedback as to how you are progressing and motivation while there is still time to do something about it. That’s obviously much better than just seeing how you went 12 months later and finding that you only acquired property that produces $1,000 per year. It’s a very simple and powerful tool. If you are really disciplined you can take this one step further and use the same approach for the activities that produce the outcomes that we are measuring on the other graph. This really helps ensure the result. For example, if you know you need to evaluate 100 properties and make offers on 10 to acquire that amount of property then you could graph those drivers as well.
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TRAP 6 - T R Y I N G T O L E A R N EVERYTHING BEFORE YOU BEGIN
This trap is very common amongst people who are risk averse. As we mentioned earlier, knowledge does indeed reduce your risk in the world of investing. However, the undeniable truth is that the best knowledge only comes from experience and not from text books. It can be very tempting to sit at the starting line, learning and preparing, hoping the conditions will be perfect before you begin but that’s simply not how life works. You must face challenges as you come across them by learning and improving as you move forward. I certainly agree that you should spend some time reducing the risk by getting acquainted with the task at hand and acquiring some basic knowledge. It would be very risky indeed to go out and buy a property knowing nothing of the market or of the skills required to make a deal profitable; just as it would be dangerous to attempt a new activity such as mountain climbing with no prior knowledge. But at some point we must make our first climb and no amount of theory will replace the learning from that. We must strike a balance between taking action in order to learn from experience and leaping into an endeavor in a fool-hardy manner with little or no knowledge of what’s to come. So, I definitely think it’s wise to get SOME education of what you are going to do before starting but then you need to get going and TAKE ACTION!! Experience is without a doubt the best teacher of how to do something. But, just as with mountain climbing, in the world of investing you should recognize that your first climbs or deals should be treated as a learning experience and should accordingly be quite small in stature. As it’s a learning experience rather than the pinnacle of your career you should not begin with Everest. Start small so you can learn AND reduce your risk!
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TRAP 7 – T R Y I N G T O “S U C C E E D ” WITH ONE BIG DEAL
This trap is quite opposite to the previous one in that it is more common amongst people who expect to be millionaires in a week and perhaps need to be a little more grounded. The fact is that you cannot defy the laws of the universe and that’s what these people want to do. There is a process that you must go through in order to “succeed”. Why? Because you must grow and learn enough in order to do the things that make you successful. These people seem to think that the ‘stories’ of a process that you must go through are made up by boring people who just aren’t born to succeed and are quick to tell you of many a person who has enjoyed a rapid ascension to success. However, if as an example, we take a look at the many people who enjoyed some short term success on the back of the dot.com boom of the late 1990s, we’ll see that there were not too many that held onto their fortunes or whatever it was by which they measured their success. If this sounds like you; if you’re the type of person who gets flat out excited by an idea and then spends the next month, year or decade telling friends about the really big deal that you just missed out on (again) then be thankful that you did miss it. YOU ARE NOT READY FOR IT. I’ve heard many of the gurus say, “the deal of a lifetime comes along at least once a week”. And you probably know that because you’ve just missed that one big deal so many times now. You know the one – it would have set you up for life. The problem is that you have not gone through the process of learning, especially the learning from the experience of putting together the small, training deals we talked about in the last section. So stop trying to take the short cut and just do the work you need to do because it will probably get you where you want to go a lot faster anyway and then you get to keep the success as well because it is inside of you. I hope you understand. For those of you for whom this did not apply, thanks for your patience with this personal message.
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There’s one final point with respect to big deals and small deals though. Another trap (so here’s a bonus one) that people fall into is getting stuck on the small deals for too long; sometimes forever. This trap is not a ‘getting started trap’ but one to keep in the back of your mind once you’re established as a professional investor. Move on from the training deals once you are ready! They are primarily for teaching and there are greater returns available in the bigger deals once you have the skills to handle them. Remember the Monopoly® formula – four green houses and then a red hotel. So don’t stay with the small deals once they have served their purpose.
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CONCLUSION
I hope this report has helped clarify some things and has cleared the path for you so you can see where you are headed. It’s a jungle out there! Seriously though, it can be a confusing and overwhelming journey at times because there is so much information being thrown at you. And my objective is to help you filter out the junk, take the good information and go and apply it with confidence. To your success,
Scott Roemermann.
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