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Residential real estate investing looks great – what’s the catch?

Residential real estate investing looks great - what's the catch? blog by Kevin GuzOn paper a single opportunity may look great, but how do we know if there’s a catch? Or what the catch is?
From my personal experience as a part-time investor and former full-time corporate employee, I do not know if I was intelligent or astute enough to identify the catch.

This question is what really caused me to think and do a lot of due diligence before I became a part-time real estate investor and ultimately a full-time real estate investor.

I had this same question on my mind constantly as I explored the world of residential real estate investment: “Boy, it looks great. It sounds great. And I see people having great results. What am I missing? Why isn’t everybody doing this if it’s so great?”

Residential real estate investing looks great - what's the catch?
Residential real estate investing looks great – what’s the catch?

Those thoughts then turn to questions like, “Gosh, when I become an investor – whether part-time or ultimately full-time – what is going to challenge me? Where am I going to struggle? Why do some people fail at this? If it is so great, and the results so wonderful, then why doesn’t everybody do it? What is it I do not know that I need to know?”

I will admit there was plenty I did not know when I entered the real estate investing business and became a part-time investor while I also held down my full-time career.

That is what I want to share: the three things I did not know, understand or acknowledge prior to becoming an investor. But I definitely know them now, based on my experience.

If I only knew then, what I know now.

Those three things are at the crux of what I did not know and what was holding me back and perhaps is holding you back today from becoming an investor.

3 things I discovered after becoming a real estate investor

No. 1 – The importance of being able to make the investment.
No. 2 – How critical it is you have the willingness and ability to act with intensity.
No. 3 – Your ability to take the initiative.

Hopefully, some of these will resonate with those individuals out there sitting on the sidelines today watching the residential real estate world around them, anxious to jump in but cautious at the same time. And, perhaps this is what is holding them back.

Making the investment

Cash is king. That is so true in the real estate investment business, whether you realize it or not. Cash is truly king and the key enabler to your being successful as a part-time real estate investor, or ultimately as full-time investor and business owner.

Residential real estate investing looks great - what's the catch? Cash is king writes Kevin Guz
Cash is king whether you realize it or not in making the investment.

To put it in perspective — and I speak from my experience as a HomeVestors franchisee and as a full-time investor
here in Dallas — there are many times when, by the end of the day, I may have spent $100,000 on a house I did not even know existed when I walked into my office that morning. That is pretty compelling when you are involved in a business where you can start your day not even being aware of a given address and have a six-figure contract on that address by the time you drive home.

And you can understand, then, how critical it is that you have access to the financial resources necessary to be a successful investor. Do not get too discouraged — this does not have to be your own cash. The point, and what I learned, is that it requires a lot of financial resources to buy, rehab and maintain properties you lease. It is very capital-intensive. It does not mean you have to have hundreds of thousands of dollars in the bank to do this. Instead, you have to line up your resources and have access to funds.

They may not be all your own funds, and for most investors, they are not. They are other people’s funds. It may be from a commercial lender like a bank, a private (or hard-money) lender, or a friend or a family member. It could be funding from somebody with whom you network who has a lot of money and is looking to invest in something other than the stock market.

There are a lot of different ways to assemble the capital necessary so you can be successful and make the investment when the opportunity arises. I underestimated that when I started. But it is very clear to me now that is one of the obstacles for many investors. And one of the reasons, to answer our earlier question, why many investors fail — because they fail to have those resources ready.

Acting with intensity

Action has got to be your obsession. Complacency is absolutely crippling in this business. It is a little ironic that a common term in the world of real estate investing is “passive” income, which implies sitting back and letting the money roll in. That is very true. That does happen when you own residential real estate as rental property and you collect rent each month and generate passive income through the cash flow.

Residential real estate investing looks great - what's the catch? blog by Kevin Guz
Act with intensity as sometimes there is not a lot of time to “think about it.”

But the irony is there is nothing passive about what it is going to take to acquire those properties. You have got to act with intensity and never give up. You are going to discover how difficult it is to find good deals. And how hard it is to identify and source those deals. And how quickly they will disappear if you fail to take action. You have to be incredibly decisive and determined to never give up as you search for properties that fit your investment criteria and will generate the returns you desire.

This may be contradictory to how you have been trained as a full-time corporate employee or in the workplace culture in which you currently thrive. Those are quite often environments where due diligence, thinking and taking your time and “analysis by paralysis” are perhaps even rewarded. I am not saying throw caution to the wind with investments. But you will find you have to act with intensity and there is not a lot of time to “think about it.” You have got to know what you want as an investor. And when it comes along, and you find it, you have to be willing and able to take action.

Taking the initiative

I will tell you I underestimated this aspect of successful real estate investing also. That is, you cannot wait for opportunity to knock. It won’t. Not when you are a real estate investor — part-time or full-time.

Real estate investing looks great - what's the catch?
Take the initiative and do not wait for opportunity to knock. It won’t.

I often hear amongst my peers, or those who once were investors and are no longer investors, that, “Gosh, there are no good deals. Gosh, this does not work.” And I will tell you 100 percent of the time as I reflect on the cause of their failure and exit as a real estate investor, it was not because this did not work. It was always because they did not work. They did not take the initiative to find good deals, generate good leads to find houses and make offers.

It all centers on the fact opportunities are created and not given to you. This truly answered the question of, “Hey, if is so easy why doesn’t everybody do it?” It is not that easy. And that is why everybody does not do it.

What is very misleading in the world of residential real estate is that at the cocktail party discussion you only hear about the success of your friend, neighbor or friend of a friend who flipped a house and made a great profit. Or, when you flip on reality TV you only see a 30-minute show where the investor laughs, jokes and in the 29th minute walks away from the house with a $30,000 profit. What you did not see was the days, weeks or months of initiative that took place prior to that purchase. And you did not hear about that from your friend or neighbor who had that successful flip. And you did not hear about the flip, or see the flip on reality TV, where they lost $5,000 or $15,000 on one house.

You do not see that and you do not hear about it and you tend to forget that and think, “These deals just come out of nowhere. They just fall into your lap. Just sit down and wait.” No, it takes incredible initiative for you to find, identify, quickly do your due diligence, get them closed and ultimately generate a profit.

In ending this post, let me remind you that you will never know all the answers. You will never uncover all the unknowns. You will never simply deserve success. Everything in real estate investing is earned.

So do not expect or wait for any of these things to happen in terms of knowing all the answers or uncovering all the unknowns or success becoming transparent and clear to you as you are evaluating your ability to become a successful investor.

What you can expect on the flip side is that when you make the investment and act with intensity and take initiative you will discover the answers and you will become comfortable with the unknowns. You will earn the success. When you accept all these realities and face up to what you do not know, it is going to inspire you rather than debilitate you. It is going to advance you rather than hold you back in your pursuits as a real estate investor.

Listen to Kevin’s podcast here.

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