Oh, that’s an easy one. I can answer that in one word. FEAR.
Real estate investment is a great way to change just about everything in your life, but it’s one of those things where doing it for the FIRST time is the toughest. In fact, the second is exponentially easier!
It’s fear folks, plain and simple! And why doesn’t make much sense to me. Consider that:
- “Everyone knows that the surest path from low income to millionaire is through real estate.” This appears to be a well-documented truism. I’ve seen a similar statement in some of the most prestigious financial resources on the planet.
- I rarely hear of someone losing it all from real estate. I might be living in la-la land, but for the most part I only hear of folks prospering from real estate investing. Sure, occasionally I hear of deal going bad or growing complicated, but not to the point of ruining folks.
- There are a lot of properties available. Folks are still divorcing, dying, or just not paying the bills and getting foreclosed on. Much of the foreclosure activity is not SEEN by the public, but most of it is available to the public.
- There are a lot of properties available at below market prices. That’s been my experience anyway. Of course, I have folks right here in my area that tell me they can’t find properties. I just smile and nod my head.
- Rental demand is strong and rents never go down!
So with all this common knowledge and raw opportunity out there, why isn’t everyone investing in real estate?
Here’s my theory.
* Real estate transactions are more involved than going to Wal-mart for a pair of undies, so that scares people. You have to learn a little bit. Mind you, this isn’t a lot of learning, but it is apparently enough to keep some on the sidelines.
* The numbers are big. I’ve seen folks nearly CEASE UP mentally talking about large amounts of money. Merely talking about a $100,000 mortgage causes some people break out in a sweat.
* Horror stories. Everyone’s heard about some scam, sink hole, meteor or something else on the fringes of believability that has happened somewhere at sometime. I mean, there is SOME risk involved.
* Fear of taking action! It’s hard to do something you’ve never done, and harder to do something you’ve never done before in a subject matter on which you aren’t an expert! People fear something, which makes facing that fear hard. What I’m referring to is what I call, “IT’S EASIER NOT TO.”
So what does one do to face fear and make a change in their life,
Ah, that’s just as easy as the last question. I can also answer that in one word…KNOWLEDGE.
Once properly armed with the knowledge they need, most folks can overcome their fears to the point of taking action.
So if you are contemplating taking your financial future into your own hands by investing in real estate, FOCUS on one thing for the next 3-6 months. Buy books or courses, got to real estate investing club meetings, visit websites and get on discussion groups. Let those things be your action steps for awhile. I suspect you’ll be ready to dive into the market with the knowledge you’ll gain.
I have a motto.
“Knowledge Always Precedes the Money.”
About the Author
Bruce W. Ford is the editor of Rehab-Real-Estate.com. Get his important Special Report entitled “12 Things Real Estate Investment Gurus Won’t Tell You” at Rehab-Real-Estate.com.
6 responses so far ↓
1 Alexander Kintis // Oct 28, 2005 at 3:21 pm
Great motto.
I would like to get into real estate however, like you said, I have a few fears.
One of the fears are tenants paying. I’ve heard landlords can do background checks and credit checks on potential tenants, however I have to do more research on that. This leads to the second fear of foreclosure. If I or anyone would have a problem with foreclosing on their property, doesn’t this look REALLY bad on your credit? I’ve heard that it makes you unable to do many things for a long time - upwards from two to five and up years. The ‘things’ that I refer to are, take out a mortgage on a home, or second home, or other types of loans and or lines of credit.
But, like you said, I need to do a lot more research before I invest in something that involves more risk than me, or someone, having a steady job with one piece of property, of which they live in, where they can cover and maintain the bills somewhat safely.
2 Ray // Oct 28, 2005 at 7:10 pm
Alexander: Fear to me is not doing something even though you are equipped to do so. I don’t think you are fearful, I think you are just being smart. Lots of people get into investing and buying properties and don’t have any money should a tenant not pay, or something breaks, or to start the eviction process.
If you are foreclosed on, yes, it will negatively impact your credit. You need to be prepared for such things.
You are right on target. Have working capital so you can weather the storm, if it hits. Do your homework and learn. Above all don’t be taken in by the “Gurus” who say you can by no money down and you’ll make millions.
It takes just one bad tenant and zero money in your bank account to really mess things up.
Regards
3 jim // Oct 29, 2005 at 3:45 pm
One other reason why people won’t do it is bad timing. I would have invested my money in rental real estate except I wanted to get my own home first. Yes, the other reasons you give are very valid (esp. the high dollar reason and the complexity reason) but for a lot of folks the timing is the major issue.
It doesn’t make financial sense to buy an investment property when you haven’t bought the most important investment property - your home - first.
4 Alexander Kintis // Oct 29, 2005 at 9:11 pm
Jim,
Agreed.
5 Bruce W. Ford // Nov 8, 2005 at 12:59 am
I appreciate you publishing this article!
I fully understand the fear of tenants who don’t pay. While I’m no guru, I buy property with none of my own money all the time, but in the event a tenant doesn’t pay, yes that comes out of my pocket. It pays to have a little saved up.
In the early days, this was more of a worry. So, I looked for deals where I have enough in the original hard money mortgage to
- buy it (including closing costs)
- rehab it
- pay the mortgage while finding a tenant
When a tenant moves in using the rent-to-own model, they are paying between $2-3,000. That covers months of mortgages for me in the event they stop paying. That’s time enough to get them out and someone new in.
Bruce
——————
http://www.Rehab-Real-Estate.com
Special Report entitled “12 Things Real Estate Investment Gurus Won’t Tell You” at Rehab-Real-Estate.com.
6 Mike-UT // Dec 27, 2005 at 3:52 pm
“Great spirits have always encountered violent opposition from mediocre minds.”
– Albert Einstein
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