Market News Update: Are You A REI Pionee...

Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

My Dad had a couple of sayings about leadership.

The first one was: What’s the difference between a leader and a pioneer?

Answer: The pioneer is the one lying face down in the mud with arrows in his back.

His second saying was simpler: The difference between a leader and a pioneer is that a leader can see the people that are following him.

So are you a leading real estate investor? Or are you a follower?

There’s a big difference.

I found a pretty interesting article that talked about those differences and attempted to quantify them.

I didn’t agree 100% with their assessment since they chose to paint with a pretty broad brush, but I think the piece makes for some interesting conversation at a minimum. (My comments follow at the end.)

In the article, the results of their study concluded that:

The 5% of real estate investors (The Leaders) “at the top of their game have largely walked away from banks, and now rely on private lenders or their own capital.”

The rest of the 95% “are still working with banks as well as hard money lenders, to augment funds they may not be able to access through private lenders or their own capital. The challenge for the 95% will be in breaking the cycle that continues their reliance on banks and hard money lenders.”

2. Age

48% of The Leaders fall into the 31-50 age range.
44% fall into the 50+ category.
A whopping 93% of everyone else is 31 and over.

Age “These numbers show us that real estate investing is much more a marathon than a sprint. Those looking for a get rich quick scheme may do better trying to design the next Flappy Bird app. While success can be achieved rapidly (months) true long term wealth often takes years to create.”

3. Rehabbing clocks is at the top spot for both The Leaders (53%) and The Pack (39%).

"Rehabbing offers, perhaps, the best opportunity to add value to a property and, therefore, net the most profit.”

4. Lead Sources

Real estate agents and word-of-mouth referrals still occupy the number one and two positions, remaining in line with investor tactics for generating seller leads

For buyer leads, 3rd party websites have pushed out direct mail to assume third place.

"Based on survey responses, generating buyer leads didn’t seem to represent a large constraint in their business. Investors are, however, looking for newer, cheaper ways to market their properties, including social media.”

Some of this makes sense.

Here’s my take on these results…

Point #1 is spot on – in that the leaders, or really anyone who’s successful in REI, is using private money to fund their deals. In fact, I do a weekly interview podcast in my local market, and one of the questions I ask is how they’re funding their deals. Every single investor whom I have had on was using private money exclusively. As am I.

Point #2 – I can take or leave.

Let’s face it, I’m in the upper age range. I got into REI not because I liked it. Or because I wanted to be around it, or because I yearned to own apartment buildings…

I got involved in REI for one reason – to create a safety net for my family if anything were to happen to my corporate day job. And I know a ton of other people my age that did the same thing.

So the fact that the survey skews older doesn’t mean jack. The bottom line is that I know a couple of people younger than me that have more experience in REI than I do. So age is irrelevant in my book.

Point #3 is just plain stupid.

Rehabbing is #1? On what planet? Did someone forget to tell the author that it’s not “investing” if you have to keep doing the work over and over again like you do with rehabbing?

Do you know of any other “investing” strategy on the planet where you have to keep working it to get your returns like that? Gold? Currencies? The stock market? Bonds? Art collecting?

Not a single one.

So while I’ll certainly give some leeway and grant rehabbing and wholesaling “investment” status, passive income real estate far outweighs transactional REI in terms of both ROI and Return on Time.

Look it up sparky.

And finally, with point #4, I have to say that either the author or the survey person was smoking crack.

Why?

realtor Because there’s no possible way on God’s green earth that I will ever believe that real estate agents are the #1 source of property leads for the leaders. Sorry I’m just not buying it. In fact I would say that it’s just the opposite.