| | 5 Things I Wish Someone Had Told Me Earlier - Part I
It is a major regret of my youth that no one ever bothered to tell me that working for a living was a drag, or that depending on a job to make you rich was a fantasy. I guess I was aware on some unconscious level that my dad's real estate investor friends were able to go to Europe for months on end while my friends' parents—even the ones with great jobs— were lucky to put 2 weeks of vacation time together each year, but I always assumed that my dad's friends had so much spare time because they were unemployable, never having been told that, despite their paint-spattered overalls and 15-year old pickups, they were multimillionaires. In short, when I entered the “real” world after college, my education was sadly lacking in some very important areas.
In the ensuing years, I've learned some lessons about the world of real estate—some painful (never give a big earnest money check to a seller until you know he actually owns the property), some pleasant (it IS possible to hire other people to do the jobs you hate). Each time real estate investing teaches me something new, I wonder why somebody didn't just sit me down and tell me about it years ago. How much easier my life would have been if only someone had told me these things early on...
1. Real Estate Isn’t About Properties. Or Deals. Or Financing.. About 4 weeks into my real estate career, I made my first deal on a house.
In one of the most obvious examples of karmic retribution I've ever experienced, the seller of this house was one of the little old ladies that I'd once accused my parents of taking horrible advantage of. However, this particular little old lady surprised me by telling me right up front that all she wanted for her home was the loan balance plus $1,000 to move, despite the fact that the property was worth about $15,000 more than that. It seems that her husband had recently died, and that she was moving out of state to live with her daughter and grandchildren. In short, she wanted to be gone by the end of the month.
Now, while this was my first actual deal, I had made approximately 100 offers up to that point that went nowhere. Like many first-time investors, I hadn't fully absorbed the lesson that real estate was about people, not properties; as a result, I had made all of my offers on houses where I THOUGHT the seller should be motivated to sell for some reason. I never once ASKED whether or why the seller wanted to sell cheap, because, hey, the house was ugly right? Who WOULDN'T be ready to sell cheap?
It was this lady that taught me the all-important lesson that people don't necessarily want what you think they should want. Her house was in pretty good shape; she could have sold it for full value in 60 days or so. But what she wanted wasn't top price, it was speed. She wasn't motivated by money, but by a desire to put the property behind her. As a result, she was pleased as punch to take about 2/3rds of the value of the property at the closing a week later.
And if someone had bothered to tell me right from the beginning that not every owner of a junker house or a house in a questionable neighborhood automatically wanted to sell cheap (even though it was the logical thing to do!) perhaps I could have saved my time in making the previous 99 offers. People are funny, and the only way to really know what they want out of a deal is to ask them. So if you're making offer after offer and getting rejection after rejection, you might want to think about talking to sellers about what they want, instead of assuming you know.
2. Never, EVER rent to anyone you know.
It's inevitable: someday your buddy (or brother) Joe is going to need a place to live at exactly the same time that you have a vacancy. It's going to go through your mind that this might be the perfect solution for both of you. Joe's a nice guy, and with his carpentry skills (he was the one who drilled through the fridge door in your college apartment to invent—the Keg-A-Rator!), you know he'll fix your place up real nice. So, in a gesture that you will NEVER cease to regret, you offer Joe your vacant property. He gets a discounted rent, you get a tenant you can trust, everybody wins.
Everybody, that is, except anybody who's even remotely involved in this situation. The thing about renting to people you know (and this also encompasses lease/optioning, carrying financing etc) is that you and your friend/family member enter the agreement with opposing viewpoints in terms of the benefits of the situation. You go in happy because you know your buddy will treat you fairly—meaning that the rent will be on time, the repairs you agreed on will be made in a timely fashion, and he won't turn your new refrigerator into a Keg-a-rator. HE goes in happy because he knows you'll treat him fairly—meaning that you'll let him slide on the rent at Christmas, take his time on the repairs, and indulge his longtime dream of raising Rottweilers in the basement. You think he'll be the perfect tenant; he thinks you'll be the perfect landlord. It's a conflict of outlooks that can't be resolved without lawyers or fisticuffs.
Remember, when you become a housing provider, your outlook on life undergoes a major change. Your friends who are still tenants probably haven't had the benefit of experiencing that kind of entrepreneurship, and more than likely have no idea what it's like to invest huge chunks of time and money in a property. My partner once lost not one but an entire group of college friends when he evicted one for nonpayment of rent; suddenly he'd become "The Man" and was no longer welcome at the poker games. I have a brother who can't see me at family gatherings without eventually coming around to the subject of how shabbily I treated HIS best friend by forcing him to pay late fees every month. I have never, ever seen a situation like this work out to the satisfaction of both parties. If you have, I'd like to hear about it.
On the bright side, since no one ever tells people that renting to friends and relatives is a Very Bad Thing, there are an awful lot of buying opportunities out there generated when owners realize they're never going to see a dime out of Joe. Keep your eyes open for these situations; they can become some of your best deals.
Last edited by admin : 02-26-2006 at 12:19 PM.