Have you heard it said that 8 out 10 small businesses fail within the first 18 months? I have, and I just thought it was true. As a matter of fact, I went looking for it the other day and was kind of surprised as to what I found.
I found that statistic was stated in a Forbes article from 2013. But they gave no data or references to back their findings up.
As it turns it out, there is a mixture of data coming from the US Bureau for Labor Statistics, The Harvard Business School, and The Small Business Administration. But the general consensus is that 20% of small business fail in the first year, 50% drop off at the five-year mark and then 25% or fewer make it to the 10-year mark.
This is something to consider when starting a small business, especially if it’s a real estate investing endeavor. That’s because real estate investing must have a long-term plan if you expect to be successful — you know, because mortgages last a long time.
Now, I couldn’t find any concrete data on the failure and success rates in the real estate investing industry. But from personal experience, I can tell you the failure rate of people going full-time is high, and the true success rate is low. Most of the people that Ashley and I started out with either became sales agents or left the industry altogether. I only know of a handful of people from that time who are still investing full time.
Why is that?
I think it’s because real estate investing is alluring. When you go to REIAs or other places that are selling classes on how to become a real estate investor, they show you these awesome deals that happened quickly, flawlessly and made a huge profit — often with no money out of pocket for the person doing the deal.
Making money using none of your own money appeals to the masses.
Next, they will connect that quick cash scenario with the idea of passive income. They’ll show “investors” at exotic destinations having the times of their lives. And the allure of that freedom becomes the carrot that steers people into the real estate investing world.
Before we go on, let me say this — I believe in that freedom. I believe it is attainable. I just know now, like I did back when we started, that it takes time and effort to achieve.
The desire for quick success hurts newbies. They get discouraged if they don’t achieve it. Or, if they do achieve short term success, they get cocky and start buying deals with thin margins. And before long, they’re borrowing from Peter to pay Paul’s mortgage, and then they go under.
In order to land in the 25% that makes it past 10 years, you really have to dig in and evaluate what you are willing to buy. And you have to understand that it’s OK to say no to a deal.
I realize that those awesome deals at the REIAs look great. But if you look back, you’ll see some of the best deals you ever do are the ones you never did.
I was driving down Peter Street in Calhoun yesterday when I was reminded of that. I had bought two houses from a nice gentleman earlier in the year, and he had a third he wanted to sell. I went over to look at it, and it needed a ton of work. It had been sitting vacant for years. But that was only part of it. You see, the house was older and had some pretty big issues — like the foundation was leaning — and I just got the feeling it was going to be too much of a rehab.
But not wanting to harm the relationship with the seller, I contacted him to make an offer. He said he had already accepted one for around the price I was be willing to offer. And in a couple of weeks, I saw people working on the house, and I was glad the gentleman had gotten it sold.
But when I drove by yesterday, the house was completely gone. The buyers had had to bulldoze it. I stopped and stared at that scene, realizing that had I bought that property, I would have lost a ton of money.
Deals like that are important. As a matter of fact, I present deals where I messed up when I teach at REIAs so that others can learn from my mistakes. Of course, I bring up the juicy money makers too. Those stories get attendees excited. But I feel like a person needs to hear both sides of real estate investing so that they don’t just become another statistic.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.