1. Real Estate Isn’t About Properties, or Deals, or Financing.
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.
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; 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, and 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 Rottweiler’s 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.
3. There's No One Best Way to Invest in Real Estate.
Most new investors have a "guru", a teacher to whom they look not only for advice, but for a world view that helps to direct and focus the newbie on a particular strategy. These gurus can take the form of a professional teacher/instructor, a mentor, or, as was the case in my early career, a family member. One of the major attractions of gurus is their certainty that their particular strategy is the be-all and end-all of real estate investing. My father was a good example of this: he had a cookie cutter that involved buying low-end homes for cash, lease/optioning them, and then ultimately refinancing packages of 5-10 at a time to get more cash to buy more houses. No property, no matter what type, condition, or area ever got any other treatment. And like most gurus, he was willing to defend till death the idea that other strategies were less profitable, more difficult to execute, and generally inferior to his particular favorite
4. People Are Liars.
Somehow, I grew up with the idea that lying was a bad thing to do and that getting caught lying was embarrassing and could get you into a lot of trouble. Somehow, people who apply for rentals missed this lesson growing up, or have unlearned it in adulthood. Because no one ever told me this, I spent the first four years of my real estate career checking applications only superficially, and as a result ended up giving over control of my houses to some real tenants-from-hell. I actually believed that my properties were cursed, since perfectly good applicants somehow self-destructed just weeks after moving in.
5. You Never Get to the Point Where You Know "Enough".
When I had been in real estate for about 4 years, I figured I was pretty hot stuff. I knew all the basic strategies backward and forward; I'd done over 100 deals; I'd spent maybe 1,000 hours in classrooms learning more. I honestly believed that there was nothing else that I really needed to know to be successful. Then one year 7 of my lease/option tenants refinanced in a 4-month period. Staring down the throat of a mid 5-figure income tax bill, I suddenly "discovered" the 1031 exchange, a technique that's been around for decades, but which I thought applied only to old guys who were ready to get out of the business. About that time, I also started doing a radio program, and my attorney recommended that I look into land trusts as a way of keeping my name out of the public record. Then I discovered that escrowing documents could protect iffy lease/option deals to a degree that made me comfortable. And last week, I found out that a "mortgage to secure option" was a valid way to record one's interest at the courthouse. So in case no one's told you yet, the moral is: in the real estate business, knowledge is profit. Keep learning all the time, and don't forget to pass a little of that knowledge on to the folks who are coming up behind you.