The distinction between simple and easy is critical for real estate investors. I’ll admit, I didn’t understand the distinction myself until I had been investing for quite some time. Your ability to recognize and differentiate between the two could be a strong indicator of your future success. That’s why I think it’s relevant to share with you.
Real estate investing is simple in nature. I’m sure you’ve heard the phrase, “buy low and sell high.” This phrase definitely applies to the concept of residential real estate investing just as it does with stocks and bonds or in other businesses.
When you decide to begin to invest in real estate, you will understand why we are very concerned about buying low. This is the key for real estate investors. Real estate investors make money on the buy. The real estate market indicates what the property sells for. As investors, we seek out opportunities to purchase real estate to fix distressed sellers’ problems. We don’t always have to worry about the back end of the transaction as much as we do the sale of the property. So, in some ways real estate as a concept is simple: buy low and sell high. I will even venture to say, you don’t have to worry about selling high, if you buy correctly. And that makes it even simpler.
Keeping this in mind, you might think, “If residential real estate investing is so elementary and lacks complexities, why doesn’t everyone do it?” Here is where the differentiation between simple and easy comes into play. Yes, the concept of real estate investing is simple, but what so many investors don’t recognize is the level of effort (the ease—or unease) it takes to achieve success.
Sometimes people think ease is implied, based on our acknowledgement real estate investing is basically simple. But in more than 10 years investing in Dallas, Texas, I have learned that the ease of real estate investing is not guaranteed.
Simplicity and ease are two very distinct and different contexts.
Simple in concept, but how easy?
Let’s talk about the ease of real estate investing, and help you understand the difference between the two terms.
I am sure you have heard or seen the phrase, “as seen on TV.” This is typically used for products that are marketed on TV. The boxes on store shelves have a red and white logo proclaiming, “As Seen on TV.”
With real estate investing, I can tell you, it’s not what you see on TV. In 30 minutes, you see a house purchased, transformed or rehabbed, then sold for a healthy profit. It looks easy, but it’s not. The people involved in those property transformations you see condensed into 30 minutes actually have had to spend an incredible amount of time, doing an incredible amount of work that the viewers never even see.
What you don’t see is all the time they spent searching for that house, finding the right deal and negotiating, purchasing the home and buying low. It takes a lot of time, money, resources, skill and effort.
You don’t see the work they did on the purchase. They might have used their own money or sought out other investors or lenders. You don’t see the work it took to close on the purchase, the title work, working through errors, clouds on titles, and all those different things that are unexpected when transferring real estate correctly. You also don’t see the effort of the rehabbers who transformed the property into a marketable home. There are other aspects, too, such as the negotiations involved in selling, repair requests, appraisals, surveys … all the ups and downs.
But even though it is harder than what you see on TV, it’s not impossible. Do not let the reality of the effort it takes be the thing that discourages you from being a real estate investor.
Now, let’s look at the phrase, “buyer, beware,” as we distinguish between simplicity and ease of real estate investing. This is inherent in the life of a residential real estate investor, part-time or full-time. There are tremendous risks, and you as a buyer, must beware. You can quickly, and sometimes unfortunately, learn real estate investing may not be as easy as you thought.
Financial Risk—The market can go up or down. You don’t have control, and you can’t influence it. A house can easily take more repairs than you anticipated and could cost more than you can afford. At times, there is very little you can do about unplanned repairs once you discover them.
Legal Risk—Real estate can be quite complicated, which is why there are real estate attorneys. This is also why there are title companies and licensed Realtors.
Liability Risk—As a real estate investor, you are accepting a lot of liabilities by owning properties and having contractors working on those properties.
Personal Risk—Your time, money and sometimes your own credit rating are at stake. And you as a real estate investor have to accept those risks and learn how to mitigate them. Once those risks are overcome, you can ultimately accept the returns your residential real estate investing produced for you.
Remember though, you shouldn’t walk away from investing as a result of the risk. Simply be aware of the risks involved. Recognize them and be prepared to overcome them.
‘Results May Vary’
Another phrase we have all heard is, “results may vary.” This is so true in real estate investing, and is directly related to the fact it isn’t easy. If it were easy, then everybody’s results would be the same. Real estate can be unpredictable and inconsistent.
There will be times that it’s very challenging to buy properties. Market supplies may have dwindled, prices may have gone up and in that situation, sellers have a lot of options. So, your results will vary during times like that. Right now, in Dallas, that’s definitely the case; it is a challenging time to buy. And on the other hand, it could a challenge to sell. Your results will definitely vary, depending upon the market you are in.
The market can be affected by a lot of different factors, and they can happen over a long or short period of time. Just be prepared that your results will vary. You have to able to endure the inconsistencies and variability in real estate investing.
It’s no different from other businesses. Take a car dealership, for example. You see auto sales dwindle in the month of December because people are focused on holidays, travel and family. Or for lanscapers, business softens in the winter months depending on where the company operates. Real estate investing is no different.
Real estate investing is simple in concept, but not necessarily easy. It takes effort, diligence and persistence. But the good news is, you can do it, and you can succeed as long as you commit to it.
Listen to Kevin Guz’s podcast by clicking here.
About the Author
Kevin Guz is a Dallas, Texas-based residential real estate investor with more than 10 years of investing experience. He owns a HomeVestors (or “We Buy Ugly Houses”) franchise as well as the Clear Key companies, which focus on residential real estate wholesaling, rental property management and self-storage leasing. He also is a licensed real estate agent in the state of Texas. He enjoys sharing his ongoing personal experiences, perspectives, and learnings from his start as a part-time or “weekend investor” and full-time corporate professional through his ultimate transition to a full-time real estate investor and business owner. You can listen to his podcasts at http://www.blogtalkradio.com/kevinguz.