1 In 3 Investor Deals Lose Money...

Few things in America are as sexy as real estate investing. Everywhere you turn there is someone making millions with zero cash and zero credit. It is the path to generational wealth that everyone should get into... right? Well according to a Redfin report up to 30% of investor deals lose money. The saddest part of this is that the vast majority of these are first or second time investors. These are not massive hedge funds with unlimited cash, these are every day people that pull their savings together to flip that home with the hopes of a good return.

The more time I spend in the real estate industry the more I realize that it is a highly specialized game. No matter how many gurus out there tell you it's not. Whether you want to flip or rent it's not as simple as the gurus make it seem.

If we talk about flips there is so much that could go wrong during a flip process that could wipe out any hopes of a return. From contractor delays to unforeseen work that adds to the costs. Not to mention the market dynamics dictating whether or not that house actually sells for what you think it will sell for. I have heard of young investor after young investor be taken advantage of by contractors. However it's not always the case that someone did you wrong, simply the market or the house itself turned out to not be as cooperative as you had hoped.

Rentals are a whole different beast! The trap with rentals is that we are told that we can "house hack", get in with 3.5% down and live off of cashflow. In most US markets that simply is not true. If you buy a property with the intention to rent it you will need a substantial downpayment in most cases to make it work. Especially with rates being above 5%! If you compound a high loan amount with mortgage insurance, management fees, utility fees and vacancies any chance of cash flow is quickly swept away.

The question then becomes how can we do this with as little risk as possible. First of all when it comes to flips only use money you are comfortable losing. Sound a bit like gambling? In many cases it becomes just that... Find an advisor that has flipped homes in the area you want to flip homes before. It is worth splitting profits to get that expertise and insight. Find the best contractors you can. This can take some trial and error which in turn increases risk. Make sure you get referrals from others who have worked with them in the past. Do not hire a contractor that is a complete stranger. Last of all find an investor friendly real estate agent. One that will work with you on fees should the numbers crunch at the end. Some realtors are totally comfortable watching you lose money while they charge 6% on the sale.

When it comes to rentals, if you can't put enough money down to generate a consistent cashflow just make sure you are in a good enough financial standing to be able to cover the gap every month. There are other benefits besides cash flow that come with buying property but if you can't make your payment every month they won't mean much. Always have a home warranty in place and have reserves for unforeseen expenses.

Is it possible to win big in real estate? Yes.

Is it a slam dunk? No.