We've beaten to death the idea that real estate investing is best left to the pros. Time and time again we've listed, bought and appraised homes that are lost by rookie "investors". Usually this is due to the "investor" watching an infomercial or one of the many HGTV shows that completely misrepresent the downside to gambling on "flipping" property. Lucky for most amateurs, they never make it to actually purchasing a home for any number of reasons. For those that do, even if they get to the point of completion on the project, few will enjoy any real success with it as a rental or a flip. And "real" success, means a tangible after expense, after tax profit.
A financial columnist with real estate experience wrote a short article for the NY Times that's worth reading. Key point:
The few, very successful real estate investors I know share three things that make them exceptions. First, they’ve developed the unique skill of identifying undervalued properties. It requires many years of painful trial and error. A three-day course on “How to Become a Successful Real Estate Investor” won’t cut it.
Second, they’ve invested the time to understand the category. Their experience includes connecting and often working with other established real estate investors. And again, the time required to develop that knowledge and translate it into positive returns is measured in terms of years, not days or months.
Finally, they have relationships. With stocks, bonds and other investments, it’s mainly a matter of hitting the buy button. With real estate, it can come down to connections. Who you know matters a lot in real estate, and it can be the difference between getting the deal or leaving empty-handed.
Of course there are exceptions, but given the multiple layers that have to be conquered to be a successful real estate investor, those that make a worthwhile profit know that much of it depends on factors they have little control over - in a sense, luck. Over the last year we've seen institutional investors begin to float packages of investment homes, this is picking up as we enter late 14' - early '15. We expect there to be a increase of offerings, to the point that when the major players begin dumping, most will follow so as not to be the last to the dance. This flood of inventory will result in two things; an increased supply that will likely send prices down and novice investors jumping in to "get rich in real estate".
Someone long ago coined the phrase that real estate is an alligator; you have to keep it well fed and even then, don't be surprised when - not if - it takes a bite out of you. Read the NY Times article here.
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