IC Elesson: How the Real Estate Education System is Stacked Against You (and what you can do about it)
Some people learn by reading, some by listening, some by doing. And some learn by teaching.
If you’re wondering if “learning by teaching” is really a thing, and not just what your REIA program director says when he’s trying to get you to teach a class, I assure you that it is. I definitely learn by teaching, and the main way in which teaching forces me to learn is that it makes me (at least attempt to) boil down concepts that can be complex into simple (but still complete enough to be useful) rules, formulae, and comparisons.
And doing THAT forces me to think in terms of the most basic, most important elements of the thing, which often leads to me having insights into strategies I’ve been doing for years that later help me do it better, explain it to a seller or buyer better, or add a new twist to it that no one taught me. Until you really understand a strategy, you can’t innovate, at least on purpose, and if you do, you’re likely to be making it better, not worse.
Anyway, I’ve been thinking lately about the Goldilocks syndrome as it applies to new real estate investors.
Some want to dive in and start doing deals before they have any real idea what they’re doing, to the detriment of their pocketbooks, their sellers, their buyers or tenants, and the people who might have loaned them money. Some want to get hundreds of hours and tens of thousands of dollars in education before they make an offer, to the detriment of their pocketbook and their confidence. And some get it just right, getting educated enough and connected enough to not make any major mistakes while understanding that a big part of the education process is actually DOING the things you’re taught to do.
It seems to me that the ‘just right’ moment has to be the same for every investor, no matter what their ‘feelings’ about that moment. Yes, some will be impatient to pull the trigger before then. Some will not feel ready no matter how well they ‘know their stuff’. But the feeling of being ready is, very clearly in my observation, different than that objective reality of being ready.
And there’s more: there are a lot of folks out in the world that have a vested interest in telling you that you’re NOT ready when you are, or ARE ready when you’re not.
Take, for instance, the 2 dozen or so huge education companies that provide ‘one stop shopping’ for everything from education to asset protection setup to mentoring to marketing mailing to answering services. It’s to their benefit to convince you that if you don’t have a broad-based, $40,000-$70,000 education consisting of half a dozen out of town bootcamps, PLUS a complex asset protection setup that includes an out of state corporation at a cost of $6,000-$10,000, PLUS the help of a mentor who’ll come to your town for 3 days for $10,000 more dollars, that you’re likely to make a huge, life-ending mistakes.
And on the other side of the spectrum, there are folks who want your money for a different reason—they sell turnkey rentals, or private loans, or JV opportunities, or other investments—and they push you to do it NOW, based on numbers and evaluations and due diligence that THEY provide. In most cases, they’re not bad guys (although there are enough of those out there that you should be VERY careful about giving your money to anyone without thoroughly understanding the investment and who you’re doing business with), but it’s a lot easier and faster for them if you don’t ask a lot of questions, don’t delay things by running your own numbers, and so on.
And then there’s everyone else—your colleagues, group leaders, and fellow association members—who don’t tell you when the time is right because they’ve never really thought about it, or because they have their own subjective feelings and experiences to deal with when thinking about it.
So I set out a few weeks ago to try to come up with a ‘right time’ model that you could use to SELF-assess whether you were, objectively, ready to start getting some real experience. This, of course, doesn’t mean you STOP also getting educated. It means that you go out into the real world and get faced with some questions, ‘stuck points’, uncomfortable moments, and challenges that tell you what else you need to know, and who else you need to add to your team. And ultimately, your experience will lead you to wanting and needing more formal education about the NEXT thing you need to know: a new strategy, asset protection, book keeping, how to hire an assistant…all those things that you don’t need to know to make an offer, but will need to know once you really have a business.
In thinking this information through, I did keep in mind that different new investors have different goals, resources, and strategies, so this is not a list of things you need to know before you make an offer on a wholesale deal, or on a rental, or on a single family or multi family, but rather what you need to know before you’re ready to make AN OFFER, regardless of the type of property, or your proposed exit strategy, or of who you are.
In fact, if there’s a group of people most likely to blow off or underestimate the value of this basic education, it’s the folks who want to be more passive investors: buyers of turnkey rentals, private lenders making loans to other investors, note buyers, and the like. There’s a strong inclination among these still-new investors to rely on information that’s provided to them by the very people who are trying to convince them to invest money. Letting a seller provide comps, or a borrower tell you what needs to be done to a property, or a note seller provide a BPO is all fine—but if you don’t have the same basic knowledge, as outlined below, that an active investor has…well, it’s your hard-earned money, and you have every right to fritter it away as you see fit.
Next week, I’ll share what I’ve come up with in my thinking about exactly what those things you need to know are.