The Problem With Being A Real Estate Investor
Every day there are thousands of people who are looking for more ways to make money. One of the popular buzzwords that we hear more and more of these days is “passive income”. We all want more money and we don’t want to do anything to earn it. Typically people looking to make more money end up falling into one or more of three categories:
- Real Estate Investment
- Internet Marketing
- Multi Level Marketing
There are huge industries that are happy to sell business opportunities, education, training, information products, coaching etc. to these people and many times there is more money in the education than there is in the industries themselves.
The people entering real estate investing, internet marketing or multi level marketing are all seeking “passive income” and once they enter the real world of entrepreneurship most fail.
Why is the failure rate so high?
When I became a “real estate investor” I was obsessed with the concept of passive income. I called myself an “investor” and I was looking to make “Passive income”. The words “investor” and “passive” imply that I lie around and let cheques show up in the mail with no work and no effort. Reading into my title too much, I did what most novice investors do, I lay around and waited for the cheques to come in. Since I was lazy and ignorant, I lied around all day doing nothing day after day and of course – no cheques appeared in my mailbox.
The best marketers in the world use the 7 deadly sins to appeal to the vices of their customers rather than their virtues:
7 Deadly Sins
Marketing pitches that appeal to the 7 deadly sins:
1) “That one weird trick that will have five figure cheques showing up every month!” (Sloth and Greed)
2) “Fire your boss and quit the job you hate” (Hate)
3) “The 3 easy steps that have beautiful women begging to date you” (Lust and sloth)
4) “Why you deserve to be rich” (Pride and Sloth)
5) “Get rock hard abs and eat all the cheeseburgers you want” (Gluttony and Sloth)
6) “Why is this moron rich and you’re not” (Envy)
7) “The 4 hour work week” (Sloth)
Rather than appeal to man’s virtues, great marketers appeal to man’s vices because we tend purchase with our vices rather than our virtues. I recently made a sales pitch for a real estate course I was selling and my message was 1) Real estate is not easy 2) Real estate is hard work 3) Learn to do real estate like a pro and avoid doing it like an amateur. My pitch was a huge flop because I was selling using logic and I told the harsh reality of the real estate business. In reality, the sales for the pitch was a flop because people do not purchase with virtues like hard work, dedication, persistence, careful planning and diligence. Instead, we buy with our vices like lust, greed, envy and sloth.
With so many new people entering the real estate investing world with the premise earning money by being lazy, it’s no wonder that the failure rate is so high.
The Cold hard truth about real estate Investing
Real estate investing is a business and when you decide to become a real estate investor, you are now an entrepreneur. Entrepreneurship, like the Hunger Games, has a very low rate of success. 90% of entrepreneurs fail in the first 5 years with 90% of the remaining survivors failing in the second 5 years.
After 10 years in entrepreneurship only 1% survive and are still operating a business. Across all industries however, the real estate industry has a slightly higher success rate than more difficult industries. In real estate 58% of entrepreneurs are still operating after 4 years in the business. By those numbers, 10.5% fail per year in real estate.
Ignorance is not bliss and why knowledge is the new money
In addition to getting into business for the wrong reasons, such as the 7 deadly sins, entrepreneurs fail mostly due to incompetence, ignorance and lack of experience:
- 46% fail due to incompetence – emotional pricing, living too high for the business, non payment of taxes, no knowledge of pricing, lack of planning, no knowledge of financing, no experience in record keeping
- 30% fail due to unbalanced experience or lack of managerial experience – poor credit granting practices, expansion is too rapid, inadequate borrowing practices.
- 11% fail due to lack of experience in the line of goods or services – carry inadequate inventory, no knowledge of suppliers, wasted advertising budget.
- 1% fails due to neglect, fraud or disaster.
With so many ways to fail in entrepreneurship, survival skills are the #1 priority. Just like The Hunger Games, don’t focus on killing your opponents, focus on surviving in the jungle. Your competition will eventually go out of business on their own if you can outrun and outlast them.
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Stefan Aarnio, award winning real estate investor, entrepreneur, author and coach was recently inducted into the Rich Dad Hall of Fame. His book, “Money People Deal: The Fastest Way to Real Estate Wealth” is currently available on moneypeopledeal.com. To learn more about Stefan Aarnio please visit StefanAarnio.com