Last updated on
Let me start with a hard question: “Are you a real real estate investor or a fake?”
Wait. Don’t answer that. The truth is… time will tell.
Unfortunately, time — as it relates to real estate investing — is pretty harsh. The vast majority of real estate investors get chewed up and spit out before they even know what hit ‘em. Upwards of 87% according to some estimates.
But it’s not just real estate wholesalers and flippers.
It’s been published that upwards of 96% of businesses go out of business within the first 10 years and over half fold up their tent by the end of the first year.
But that number is even high for real estate wholesalers and flippers…
… because of the low barrier of entry to get into business. It requires hardly any capital to get rolling… and you can read a book today, register a business tomorrow, and be a “flipper” or “wholesaler” by the end of the week… which is AWESOME, but it also makes it easy for many people who haven’t fully adopted the mindset and skill-set needed to be successful in running a business.
So, wouldn’t it be nice if you could diagnose your real estate investor “realness” — your likelihood of success — prior to getting clobbered?
Wouldn’t it be nice if someone told you the brutal truth about exactly why many real-estate investors fail?
Well, “nice” might not be the best word.
After all, the brutal truth is rarely “nice.” But, profitable, career-saving, and life-changing? Absolutely!
In my 8 years working with real estate investors, I’ve seen thousands of real estate investors come and go. And the deepest irony — the cold, hard, brutal truth — is that it all comes down to five things those who fail tend to ignore (and those who succeed master).
The good news is you can overcome these common killers not only by having your eyes wide open to them but by digging into the concrete solutions and resources I’ve included throughout.
1. You’re Following Emotion vs. Knowing Your Numbers
Investors who fail tend to open up their wallet based on emotional decisions vs. actually nailing their numbers and trusting the numbers.
When emotion takes over you tend to stop investing in marketing before it has a chance to succeed… you tend to make offers based on your “gut” vs. a tried and true formula… and you tend to bounce around from one thing to another in search of that magic bullet like a pinball machine.
One way people constantly get caught up in the emotions vs. the numbers is in how much money you invest in your business.
How much money you invest in a marketing strategy.
How much money you invest in a property.
How much money you invest in your education.
As soon as emotion creeps into the equation and a mathmatical formula stops being used… you’re on the fast track to losing your butt (and not knowing why).
As a real world example, let’s say two people are doing PPC marketing.
Investor #1: Likely To Fail…
Investor #1 started with their budget rather than starting with knowing the numbers. They have set aside $1,000 for PPC marketing for motivated house sellers. Plenty to turn a profit right?
They start their PPC campaign and quickly find out that the first few weeks of a PPC campaign is all about honing the campaign and tweaking it… so they end up spending $600 in that first 3 weeks. They have 7 leads to show for it, which they’re working… but no deals yet.
By week 4 they have their campaign honed a bit more but have spent $950 of the $1k they had set aside… with a total of 10 leads.
Totally bummed they start to think, “Man, maybe PPC isn’t for me. I’ve already gone through my budget, let me stop this campaign and figure something else out”.
With that, they stop their campaign and chalk it up as a “failure” and a loss. $1k in the hole and now onto “focus” on a new strategy.
Investor #2: Likely To Succeed In A Big Way…
Investor #2 started with the numbers… not their budget.
This investor worked the numbers… and it looks something like this…
What those acronyms mean…
APD = Average Profit Per Deal
CPC = Cost Per Click (for your PPC marketing)
LPD = Leads per deal (how many leads on average until you close a deal)
MIN = The minimum you’ll need to allocate for your PPC marketing to have it work well
MAX = A number you pick that is the max you’ll invest before you close a deal
Investor #2 now knows her numbers really well and can see that based on those average numbers, they shouldn’t expect any deals until at a bare minimum $1,200 has been invested in a well ran PPC campaign.
But, she also knows that in the real world things don’t always work out like we hope they do in our calculations… so she sets a “max” that she’d invest in that marketing channel in order to close a $15k deal (her average) before she’ll seriously think about shifting focus to something else or stopping the money investment into that marketing channel.
Investor #2 launches her PPC campaign and it doesn’t go as well as she thought… she blew past the $1,200 mark without a deal… but she followed her numbers and kept investing and at $2,500 in… she closed a deal that brought in $17k gross.
Subtract out the $2,500 in PPC costs and that turned a nice $14,500 profit. BAM!
Now she has more fire power to invest into this marketing channel and work on improving those numbers even more.
The moral of the story?
Investor #1 followed emotion and started with their “budget”… Investor #2 followed the numbers and started with knowing her numbers then setting the budget that’ll lead her to success.
Investor #1 is already onto another marketing strategy and discouraged… Investor #2 is ready to scale things up and happy as a clam.
If you haven’t seen this section of our SEO vs. PPC Infographic… it maps out how PPC and SEO work as far as timelines and expectations. Remove emotion from the equation and stick with the numbers.
If you don’t know your numbers and then create your marketing budget… you’ll stop investing your money too early and quit before it has a chance to work.
I know that sounds obvious but stick with me. On the real estate front, I hear this all the time:
“PPC doesn’t work.”
“Facebook doesn’t work.”
“Craigslist doesn’t work.”
“Blogging doesn’t work.”
“Video marketing doesn’t work.”
However, every time I dig a little bit deeper, “doesn’t work” really ends up meaning, “Well, I tried it for two weeks. Dropped $500. But didn’t see any results.”
You see the problem, right?
While it might be cliche, the old truism is — well — true: “It takes money to make money.” Simply “trying out” one so-called success method at a time, dipping your toes in but not actually investing in it — i.e., putting your money where your mouth is — is a sure way to sign your own real estate investor death warrant.
Ironically, this same fatal mistake kills even more real-estate investors when it comes to the act of investing itself.
It’s strange to think but many people still expect to get something out of nothing. That’s one of the reasons a lot of folks get involved in real estate investing. As BiggerPocket’s points out, “How can I get started in Real Estate Investing if I don’t have any money?” is one of the most common questions they get asked.
And their answer?
That’s it — it’s that simple. You cannot invest in real estate with no money down. It is impossible; in fact, it is antithetical (big word) to the definition of “investment.”
Need a little motivational push? Consider the words of veteran wholesaler and coach, Tom Krol in Getting Your First Deal Done + Scaling Up To 5+ Deals Per Month:
I really want to encourage everybody…that when you are having things come up against you, you’ve got to make it happen. It’s right at that moment when you’re so close. You’ve got to double down. You gotta punch the gas and not pump the brake…
2. You’re Not Putting In The Time
This second failure is so similar to the first that I almost left it off my list. But there are subtle differences between the two that add up fast.
Putting in the time doesn’t mean you physically “being there” doing busy work. Putting in the time means you purposefully cutting out the crap in your life that is between you and your goals…
… so you have so much ample focus time that there’s no way you won’t succeed.
Putting in the time doesn’t mean…
- Carving out 30 mins here and there when you can fit it in
- Hopping on the forums and endlessly reading and “learning” stuff you may need to know someday
- Going through 3 training courses before you actually get off your duff and start doing the business (making offers, looking at properties, etc.)
- Saying “I’ll give this a try for a couple months and if it doesn’t work I’ll move on”
Putting in the time means you’re getting serious with yourself and saying…
“I know this works. Others have done it before me. I’ll work it until it works and relentlessly hack out anything that doesn’t help me reach my goals. It’s not a matter of ‘if’… but a matter of ‘when’ it’ll happen. The only variable is time, not my effort or ability to make it happen”.
If you feel you don’t have enough time to invest into yourself and your business, you’re likely thinking too short-term and not long-term.
You’re thinking about how you can make a quick buck and have that instant gratification vs. building something that’ll truly last, make an impact, and leave a legacy.
If you’re not willing to bust your ass for the next 18 months…
… (even if 12 months of it is utterly failing at every step), you may do yourself a favor and find something else you can invest 18 months into full bore and switch to that.
Every day when I walk into my office here at theLoft where Carrot is based I see this at the top of my stairs.
3. You’re Quitting Too Soon
I know what you’re thinking, “How is perseverance different from time?”
The short answer is that not only does success regularly take longer than we expect… it also takes a lot more blood, sweat, and tears.
In other words, the reason real estate investors fail when it comes to perseverance is the same reason why 95% of dieters fail to lose weight and keep it off, why people always say they’re going to start exercising and then give up after a few days, and why so many people make new year’s resolutions that never see the light of day.
Are You Closer Than You Realize?
Psychology Today puts the blame for much of this failure to persevere onto our brain chemistry:
“Neuroscientific research shows that higher levels of dopamine might separate the internal drive some people have to persevere while lower dopamine levels cause others to give up.”
So does that mean some people are just built to take the hard knocks necessary for success… and other people aren’t?
The brain is an amazing organ and — thanks to what’s known as “neuroplasticity” — if you haven’t been the kind of person who perseveres up to now, you have the power to change that.
The keys to becoming a person of perseverance is to increase dopamine levels by:
- Achieving at least one goal or mini achievements each day, no matter how small.
- Be methodical and create self-imposed deadlines.
- Increasing expectation and belief through positive self-talk.
- Be your own best cheerleader. When you achieve something, be intentional about celebrating.
And just in case all that feels a bit too touchy-feely for you, consider the words of Ben Horowitz in The Hard Thing About Hard Things:
Great CEOs face the pain.
They deal with the sleepless nights, the cold sweats, and what my friend the great Alfred Chuang (legendary cofounder and CEO of BEA Systems) calls “the torture.”
Whenever I meet a successful CEO, I ask them how they did it. Mediocre CEOs point to their brilliant strategic moves or their intuitive business sense or a variety of other self-congratulatory explanations. The great CEOs tend to be remarkably consistent in their answers.
They all say, “I didn’t quit.”
4. You’re “Focusing” On Too Many Opportunities
I got an email from a former customer of ours who was one of the few who chose to cancel.
His email said…
“InvestorCarrot seems like good product, but I just have been focusing on too many marketing strategies.
In case you missed that… the word “focus” and “too many” are exact opposites.
The official definition of “focus” is…
This client led himself to a sure and swift “business death” by “focusing on too many things”.
As long as we’re quoting brilliant thinkers, Confucius once said…
When real estate investors — or any entrepreneur for that matter — focus on doing too many things — i.e., chasing too many rabbits — they end up sucking at pretty much all of it.
And, ironically, early success is often the biggest hindrance to future focus.
For instance, when I first started my business, I had some big early wins. This meant lots of people wanted to do business with me. However, most of the propositions were in areas not core to the business I had created.
As a real estate investor, you may experience the same thing. At times, I found it hard to give a resounding “no,” but I knew that if I didn’t, I would spend a lot of time on things that were not a priority, and which didn’t fit into my long-term plan.
Today, I am glad I was so hard-assed about my priorities. And that’s exactly why a laser-focused, long-term vision is a must; otherwise, you are likely to sway this way and that, every time something else comes along, or you get distracted.
In addition to learning to say “no” to opportunities that don’t align with your focus, the other ingredient needed is discipline. When talking about getting rich, Afford Anything puts it plainly by saying, “Focus on what’s important. Ignore everything else.”
To overcome this lack of focus, grab our free Real Estate Investor Business Plan. Inside you’ll find everything you need to build a solid foundation to sustain your business over the long-term and zero in on what truly matters.
5. You’re Just Learning Real Estate Skills, NOT Business Skills
We’ve found that newer real estate entrepreneurs are under the impression that to be successful, all they need to do is understand things related to real estate.
But any seasoned entrepreneur will tell you that to succeed, you need other business skills like communication, persuasion, team building, marketing, etc. Real estate investors who don’t have the right business skills are far more likely to fail than their counterparts who invest across the board.
For example, you may be brilliant at what you do, but if you can’t market yourself, you’ll never make money.
From these statistics, you can see that most businesses fail due to lack of business skill
Chris Ducker says it like this:
“Most people seem to think that being a successful internet marketer is as easy as getting a website built and getting their own domain name and they could not be farther from reality.”
This mindset is developed from hearing how “easy it is to make money on the Internet” by scaly online entrepreneurs whose sole aim it is to line their own wallets by the profits of gullible opportunity seekers.
The reality is that no real estate agent just closes sales… and no website just gets traffic. Both need to be marketed. From a real estate investor point of view, Inman reports that physical brick and mortar walk-ins now account for less leads than websites. Now, you should know that in their findings, a dismal 3% leads were generated via walk-ins, and 4% via online methods.
But what you need to understand about this finding is that the numbers for online lead generation are so low because although most real estate investors agree that a website is essential to their business, they don’t fully realize what an online presence entails, nor how to generate leads online.
For the sake of clarity: if real estate investors knew how to market their website, their website would generate a lot more leads than the 4% they currently are.
Bigger Pockets confirms this finding and adds, “Only if you create that awesome, SEO-friendly website, along with citations, profiles, and videos, and start producing awesome blog posts centered around your community will you benefit from this form [online] of marketing.”
As an antidote, take a look at our 90 Day Action Plan, designed to “break down exactly what to do to get your first 100 cash buyer leads and your first 30 seller leads.”
So, What Path Are You Headed Down?
One thing I want everyone to know is that it’s OK to fail.
Failure is good. I’ve learned the most when I’ve failed… not when I’ve won.
So failure is part of the process.
Failure shouldn’t be a door closing but it should be a shortcut to the next door that’ll open very soon that will get you closer to the success you’re going after in your life.
Yes, failure is OK but what isn’t OK is choosing to ignore these 5 sure business killers that will lead you to failure over and over and over again.
So right now, take stock of yourself and where you are.
- Leading with emotion or with knowing your numbers?
- Putting the time in?
- Persevering even when you feel like you should stop?
- Focusing on one path or chasing multiple rabbits?
- Learning how to build a business or just learning tactical “deal making” skills?
Oh, if none of those are quite describing you and the reason you’re not reaching your goals… here’s a bonus #6 that is often the most confusing and toughest one to own up to.
Brian Buffini, Chairman and founder of Buffini & Company — America’s largest real estate training and coaching company — nails it on the head:
“Strangely enough, the majority of people we encounter have a fear of success rather than a fear of failure.”
I couldn’t agree more.
Of course, there’s always a chance I missed one of the killer pitfalls you’ve seen in your career. If I did, share it in the comments below.