Why does one newbie break through while the other falls flat on his face?
During the first three weeks of August, I had initial tax planning consultations with a dozen of new investors. Two of them had remarkably similar stories, with one glaring difference: the results! Can we learn something by comparing? I say yes.
Andy (not his real name, but his real story) lost his corporate job at the Medical Center in late 2014. Fortunately, his wife Tina had a decent job that could pay most of their bills for a little bit, but not forever. Andy was no longer in his 30s, and he wanted to control his future.
His search brought him to one of the local real estate conventions. Of course, there were gurus selling their pricey coaching. They will partner on the first few deals, and then the coach will continue helping, and so on – I’m sure you heard the pitch. Tina and Andy agreed to give it one year as a test and then, if it does not work, back to sending resumes.
Andy and his coach set financial goals for 2015. It is now August 2015. Andy already reached his 2015 goal. His new revised goal for 2015 equals double his former corporate salary. Tina can breathe again.
Rob, too, was downsized from his long-time managerial job in a major oil company in early 2014. Rob is divorced and is approaching a retirement age. Forget about finding a new high-level job in oil during this economy. While Rob did not have a wife’s salary to fall back on, he received a lump sum of one year worth of severance pay. That was almost $200k cash, but it was also his last payoff, with nothing else on the horizon.
His search brought him to one of the local real estate conventions. Of course, there were gurus selling their pricey coaching. They will partner on the first few deals, and then the coach will continue helping, and so on – I’m sure you heard the pitch. Yes, I did copy and paste this last paragraph from Andy’s story. Because it was Rob’s story, too.
Rob paid his coach $2k for the Houston warm-up seminar. Then he traveled to Orlando on a $45k “platinum package” that provided all the training, and the website, and the software, and the mentor’s “exclusive support” and so much more. And did I mention all meals included? Now that’s a big deal, my friends.
Robs’ next stop was a refresher (as he was getting stale, apparently) course in San Francisco where his new sponsors/mentors would line him up with their exclusive (always!) professional (but of course!) vendor network. They set up Rob with a couple of bullet-proof (no doubt!) Nevada corporations for a very reasonable (wow!) $8k. Rob was all set and ready to flip. Houses, not burgers.
As promised, his guru helped him buy a couple of Houston flips (for a fee, of course, but who counts?), arranged for lenders and contractors and everything else. Very convenient. The two flips were bought in late 2014. It is August 2015, and one of them is still unsold. I cautiously asked Rob how much money he made on the first flip he sold. He did not. How much did he lose, then? About $25k. Ouch. And when this second one, the one still on the market, is closed, what will be the story? Well, about the same as the first one, Rob guessed. Oops, I did it again.
Between you and me, I suspect Rob was sugar-coating it, as most newbies do. When he brings me his real numbers next year for tax preparation, I expect them to be significantly worse than his current guess. But even at his current estimate, he parted with almost $150k of his severance windfall by now. And since his mortgage and all his other bills went nowhere, he already had to tap into his 401(k). Houston, we have a problem.
Now, let’s put the two guys side-by-side.
Quite a few things in common!
- Strong incentive to make a living in REI
- Limited funds
- Zero experience
- Seduced by guru sales presentations
- Paid a lot of money for education and coaching
- Did not sit on the coach and actually completed deals
Yet, their results are day and night. Why?
I know a few people who will presume that, unlike Rob, Andy must have read Napoleon Hill or Robert Kiyosaki and acquired “millionaire mindset” or whatever populist mantra they believe in. This is not my explanation, though.
Here is mine, based on my 20 years of watching hundreds of entrepreneurs succeed or fail in business.
- Rob went out of town. Andy stayed local.
- Rob tried the generic approach. Andy chose a niche. (I did not tell you this critical part of Andy’s story.)
- Rob used his own money, all of it in fact. Andy used other people’s money. (Another biggie!)
- Rob assumed the deal will be profitable because it is supposed to be. Andy did his homework.
- Rob did his numbers after the fact. Andy ran his numbers beforehand.
Does not it sound like common sense? Not so common, according to my experience. The difference between Andy and Rob. Which one do you want to be?