You're familiar with the scenario, right? The young couple in Southern California who buys a single family fixer-upper for (gasp!) $426,000, spends the next 12 weeks of their lives fixing it up, spending gobs of money on Italian marble and Travertine Tile, and re-sells the house to the very first family that calls.
Net profit after all expenses? A whopping $138,000. Heck, a chimp could do that, right?
So, with your calculator in your right hand and the MLS listing in your left, off you go to look at the fixer-uppers in your town. Your search yields fruit... a vacant, overgrown single family needing only "cosmetics" and listed for $124,000. Wow, you think. Is this ever a diamond in the rough!
You make your offer, agreeing to pay the asking price because there were 3 other investors right behind you when you walked through the house, and you dont want to miss your opportunity. Voila! Offer accepted, and you're ecstatic... until the rehab fun begins.
Now that the project has started you realize you're in way over you're head, both in time and expertise, and you definitely paid far too much for the house. The project is going to go over budget... well over. You're budget breaks quicker than you can say, "Needs a new kitchen, too."
Cowed by defeat, you lick your wounds, take a huge loss, and throw in the real estate towel for good, happy just to go back to your 9-5. Let those other suckers lose their shirts, youll stick with safer investments like the stock market and pork belly futures, thank you very much.
Real estate investing is dead. or is it?
The reality is that if real estate investing is dead for many people, people who have lived through experiences just like the one I described above, its not really their fault. Yes, I know that they bear the ultimate responsibility for their own mistakes, and they should have done their homework before taking the leap. But I blame the media, primarily TV, but also the internet.
I believe its irresponsible to promote any investing philosophy, be it buying stocks or flipping houses, without spending an equal amount of time educating people on the risks and the proper way to avoid them. Yet what do the one hour "flipping houses" shows give us? They give you a healthy dose of five and six-figure profits, but not much in the way of nitty-gritty real life.
Therefore, I offer a word of caution. Do not base your investing decision making, or your real estate philosophy, on anything you see on TV. Markets vary wildly from town to town, and even WITHIN the same town. The investors on television have different skills than you do, and different resources. The business of investing can't be viewed as a game. It's hard work, but it can provide you with a wonderful life.
If you educate yourself properly, and develop the right attitude, you will be able to succeed at a level many folks can only dream about. In addition, when you do it right investing in real estate can be a lot of fun. If you're thinking about investing in real estate as a business, understand that it can take you to some wonderful places.
Or eat you alive.
You wouldnt decide to become a doctor based on an episode of ER, would you?
Now, go make more offers!
For more on beginning real estate investing try http://www.dealfiles.com. Tom Dunn is a successful real estate investor and author of the popular DealFiles Real Estate Investor Stories free newsletter. You may not remove this text. © 2007 by Tom Dunn.