Disclaimer: This report is not a knock
against any of the dozens of real estate experts nationwide
(also called "gurus") who provide many valuable training
programs for real estate investors. Their courses, whether
live, in print, on CD, DVD, or videotape, contain, for
the most part, excellent information. In our experience,
these courses are specific, well-researched and extremely
useful in the pursuit of profit. More importantly, they
are often inspirational -providing the user with the encouragement
and vision they need to take those first steps out on
their own.
These courses will give you the nuts and bolts of doing
deals, the operating instructions, and the techniques
you need to start your business as a real estate investor.
Once you ingest all of the materials, memorize the techniques
and master the skills, you are ready to go out and test
your wings. You have what you need to get started-the
same way that a law degree gives an attorney what he or
she needs to begin a legal career, or that a medical degree
gives new doctors what they need to begin practicing medicine.
But, taking the example of a doctor with that brand new
MD degree, is he or she really ready to go right out and
open their own medical practice? Sure, they may know all
there is to know about the human ear, eye, nose, and throat,
but what do they know about running a business? Do they
know anything about renting space, purchasing or leasing
equipment, hiring a staff, doing payroll, finding and
keeping patients, making cash flow projections, handling
the piles of government paperwork, dealing with insurance
companies, and managing their time? Most importantly,
do they really know how to make a profit at what they
do, and can they do it without working themselves to death?
These aren't the things they learn in medical school.
But let's get closer to home - what about YOU, the real
estate entrepreneur, the newly-trained expert? You may
know how to run ads to find houses and motivated sellers,
know techniques and strategies to use in making offers
and negotiating, know how to manage a rehab and more.
You may well have learned flipping techniques for fast
profits, buy and hold strategies, landlording techniques,
lease/options with multiple paydays, structuring purchase
agreements, not leaving money on the table at a closing,
and so on. So, you should pretty much be ready to go into
business, right? Perhaps.
Why Most Businesses Fail
This is a statistic you've probably seen many times -
according to the Small Business Administration over half
of all new businesses fail within the first five years.
Now, the SBA primarily measured manufacturing and retail
types of businesses, meaning "brick and mortar" businesses
where the owners had to put a significant amount of money
and effort into "starting up."
But it's still a scary number, isn't it? It makes you
wonder why so many people even try to start a business.
More than that, it makes you wonder why they fail in such
great numbers. Do you think they fail because they didn't
know anything about their product or service? That's almost
never the case. Bakers don't fail because they don't know
how to bake. Bicycle stores don't fail because they don't
know anything about bicycles. And, creative real estate
entrepreneurs usually don't fail because they know nothing
about how to do real estate.
Real estate "newbies" generally have very low initial
investment to get started, and more a romantic "be your
own boss" or "get rid of your idiot boss" vision than
a true commitment to building a solid entrepreneurship.
So to be fair, we won't count the tens of thousands who
bail out simply because of fear, or lack of discipline,
of not applying the techniques and strategies they've
learned, or just doing it in a haphazard way without any
education. Here, we're only concerned with those like
you, who are actively doing the business…or intend to.
Among this group, half will have failed or will have only
seen mediocre returns compared to the vast potential this
type of business promises and provides to those who treat
it like a real business.
So why do so many serious real estate investors who obviously
know
how to buy, rent, and sell houses end up closing
shop, or, at best, only generate "average" income? (Note:
for the purpose of this report, we will assume that anything
less than $100,000 net income per falls into the "average"
range, since moving only a few properties each year should
consistently yield at least this much income. This also
refers to investors who do more than a few deals every
year, but look at their bank account balances and wonder
where the heck it all went).
If they are reasonably competent at what they do, and
reasonably consistent in working the business, what goes
wrong? It would take a much longer report than this one
to talk about all the different reasons because there
can be as many different reasons as there are investors
out there. However, every major study shows that most
of these reasons can be summed up under one major cause
of failure for real estate entrepreneurs and other business
owners, above all other causes. The majority of real estate
investors falter, fail, or simply sputter off the radar
simply because of…
"Lack of business expertise." In
other words, they don't know how to run a company.
In reality this "simple" explanation is a very complex
one, because running a business has numerous dimensions.
Like the doctor we described above and all the aspects
involved in opening an office, each one of those items
is its own little world of information where a small mistake
can cost a lot of money or waste a lot of time. Until
a new business becomes established and profits become
predictable, the break-even margin can be very thin, usually
much thinner than the business owner imagines. Just a
very few poor decisions can turn breaking-even into breaking-the-bank
and most new businesses cannot afford to lose money for
any length of time before they have to close the doors.
OK, that's the scary part. That is not to say that it
happens to everyone. The smart people (and we hope this
includes you) go in with their eyes open. They plan ahead
and arm themselves with all the information and tools
they need to operate in a smart way. Sure, it's important
to have optimism and enthusiasm and a love of what you
do. But that alone will not sustain you when the tax auditor
is staring at you over the tops of his glasses. No, you
better have your ducks in a row and marching in unison
from the get-go, because what we are talking about here
is the difference between success and total defeat.
This is where it becomes exciting.
Instead of living in fear of what you don't know, you'd
be in control and fully aware of every aspect of your
business. Knowledge is not only powerful, it's invigorating
when you apply what you know. So, unlike so many small
business people who haven't a clue how well or poorly
they're doing, you'll be the captain of your ship and
the master of your fate. You'll be managing your time
so that you're not working yourself to death. You'll be
managing your money so that it's almost never wasted.
And you'll be managing other people so their every effort
is spent making you more successful.
So what do we mean by preparing yourself to go into business?
Does that mean you have to go to college and earn an MBA?
Do you need to go to night school in addition to trying
to get your fledgling operation up and running? Fortunately,
the answer is no. There are much easier ways to gain that
kind of business expertise.
Let's look at the main categories that business knowledge
falls into as it relates to specifically to real estate
investors. These categories are based on the experiences
of highly successful and wealthy real estate entrepreneurs,
many of whom started out the same as you. Much of this
knowledge was learned the hard way-by making mistakes
and losing large chunks of money before finding the way
out. Naturally, each of these categories is a course of
study all its own with numerous facets and sub-topics.
However, we will give you a good synopsis of what they
are all about - enough that you can pursue a course of
study with these in mind.
