Real Estate Investing: Can We Learn from Mistakes

I've been writing a web site for a commercial real estate firm that handles multi-million dollar transactions, so forgive me if the next sentence isn't in plain English.

The allure of capitalism is leveraging your assets to make profitable moves.

In plain English, this means real estate investment infomercials thrive on television late at night or on the weekend promising you a life of sitting on Hawaiian beaches because you purchased their DVDs or books. You're attracted to make the purchase because you see others like you raking in the cash.

Capitalism also has a risk - meaning you can lose money if you don't make money. Unfortunately, hype is best used only on the positive.

I'm encouraged this week because my financial advisor offered me help in future real estate investing about 3 or 4 years down the road. He figures market conditions will be ripe. This stands in contrast to when I attended an expensive seminar of Robert Allen, the author of No Money Down. Most the workshops centered around personal experience of the presenters and it was mostly rah-rah with lots of neuro-linguistic programming.

No cohesive groups of investors formed. I feel like I've spent the first half of my adult life learning lessons the hard way.

In addition, after my wife and I invested in our first house the prices began to rise. Ours was a 1,000 square foot little bungalow in Pasadena for $140,000 in 1989. The prices in our neighborhood started moving higher and a house across the street was about 800 square feet and the seller wanted $135,000.

I had told a friend of mine about my goal of investing in one or two smaller homes in San Bernardino - 50 miles away - which I could have purchased for about $65,000. Instead, he told me to invest across the street. And then, a realtor who attended our church, was representing the buyer. As I hesitated in the deal since I felt I was going against my better judgment, the seller's agent berated me and essentially shamed me in to making the purchase.

Lesson Learned: Don't get emotionally involved in a property you're going to invest in. It's simply a tool and you have to treat it as such. Also, if you're not comfortable with a deal then walk away and don't spent any money. You have nothing to prove to anyone else.

We bought it, painted it, worked on the plumbing but not much else needed done. We rented it to a young, outgoing couple who ended up trashing it. Ugh! I would much rather have had that happen to a property about an hour's drive instead of across the street.

Our neighbors started asking us questions and each morning, I walked out embarrassed on my way to work.

We eventually got it sold and we lost a little bit of money which we were able to deduct from our taxes. But how I would have longed for the right advice at that time.

But good news, I may get it eventually.

Another lesson: if you're knowledgeable on a topic - whatever that topic may be - someone else may benefit from your knowledge. But don't play games with them or make it difficult for them to learn what you know. Offer your knowledge and skill out of respect for their need.