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Realistic Expectations in Real Estate Investing
by Ron D. Pate

Recent economic events, especially the stock market decline, have created a ripe environment for people to turn to real estate investing as a viable way to increase yields. Indeed, real estate investing can provide significant opportunity to the investor if the investor is willing to put forth the effort and time to learn how to invest in real estate, and to build a profitable business and long term portfolio. Unfortunately, this shift in focus to real estate investing has caused many trainers out there to begin promoting “get rich quick” programs to people that are looking for a quick, no pain way to solve their financial problems. Real estate investing is challenging, and is anything but a get rich quick way to wealth. Having realistic expectations about real estate investing is very important. Unrealistic expectations have led many to realize unfortunate disappointment in their real estate investing ventures.

The initial learning curve in real estate investing, if done properly, is intense and will take some time to climb. Much of the learning will be “in the trenches” and will require patience, some funds to pay for mistakes, and the ability to weather the challenges that are sure to come. One of the reasons the curve takes time is that real estate investing is a diverse field. It is important to understand all phases of investing. This includes how to buy, finance, renovate, manage, and sell real estate and how to avoid or defer paying income taxes in the process, so that your money can work as fast as possible. Many training programs out there tell you how to buy and finance real estate only, and do not cover the entire set of skills you need to be successful in this business. They build a false sense of ease and lead you to believe that motivation and desire is enough to succeed. It is a critical component, but it is not enough. Knowledge and experience need to be gained, and a total commitment is necessary, if long term success is to be realized.

To obtain wealth in real estate investing takes time. To increase the speed of wealth creation, you need to learn a few solid ways to predictably produce profitable outcomes, and then you need to create a system that allows maximum efficiency in doing just that. For example, your system might be to buy residential rental properties in need of renovation, renovate them economically, raise their rents, hold them with positive cash flow for a period of time, and then exchange tax-free to the next property and do it over again.

Property management is another complex issue that must receive attention if you are going to be a successful long term investor. Those that focus on just “flipping” houses are not investors in the true sense of the word, but are rather using real estate as just another job. Although a combination of short and long term investments makes a lot of sense, focusing just on quick turns is not the route to long term wealth. If you begin to build a portfolio, you are going to need to either manage the portfolio yourself or eventually hire a property manager. Good property managers that charge a percentage of gross rents are very difficult to find. The problem with property-management companies, in general, is that they may neglect your property and may use high-cost suppliers or may not watch the pennies” as they need to in order to ensure profitability for your company. Once you reach a certain level, you may need to hire a salaried, in-house person to manage your inventory. This is not a trivial matter.

Indeed, much of the material out there is focused on the beginning real estate investor, and as such tends to generally overstate the rewards, understates the effort, risk, and time required, and gives advice which is incorrect, inadequate, or even dangerous. This is because many that might buy the materials and courses would shy away from it if they knew the commitment required to become successful in this arena. It is important to find quality information, information that creates realistic expectations.

No matter what the get-rich-quick trainers tell you, making an extraordinary amount of money takes an extraordinary amount of work. It takes intelligence, diligence, and persistence. This applies in real estate investing, just as it does in any other business. Does real estate investing have unique aspects that allow the intelligent, well educated, and responsible investor to achieve outstanding levels of wealth over time? Yes, without a doubt. But real estate investing is not an easy, care free ride. Begin with realistic expectations and you will be a step ahead of the crowd.


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Copyright 2004 by Ron D. Pate, All rights reserved.