How Much Knowledge and Skills Do You Need to Prosper In Real Estate

Real Estate is often maligned for having a high barrier to entry. This complaint typically refers to the relatively larger amount of capital that it takes to traditionally purchase a property when compared to other types of investments. It is undeniable that a fifteen to twenty-five percent downpayment can be a substantial amount of money. Especially when the median house price in the United State of America is $386,000, according to Redfin.com. Even considering the 3.5% downpayment requirement of an FHA mortgage, which cannot be used to purchase investment property, it is clearly much more costly to purchase a residential property than it is to purchase stock, bonds, or some other form of investment. The numbers are even greater for commercial property.

The complaint about real estate’s high barrier to entry, however, also refers to the large amount of industry knowledge that a person must acquire to achieve a certain level of facility when executing a real estate transaction. Although the licensing of real estate professionals is typically pretty well regulated throughout the country, the actual sale and due diligence is not as regulated as other investments and consequences of poorly purchasing property typically last longer than most other investments. This is further exacerbated by real estate’s illiquid nature. There are certain practices that lead to success in real estate and failure to follow them can lead a property purchaser to financial ruin.

A real estate professional faces a similar barrier to entry when they begin their career. The rules and practices of real estate are simply not taught in most secondary schools. Most times extensive on-the-job training and the garnering of experience are the only two ways that a real estate professional can get up to speed and be effective in their role. It is for this reason that most professional real estate licenses contain components that take multiple years to complete. Upon completion of these licensure tracks, a person is left not with an extensive set of knowledge that will allow them to dominate the industry, but merely the basics necessary for them to completely function in their profession without restrictions.

Given the heavy lift that one must undergo merely to be competent as an owner of property or as a real estate professional, it is no wonder that many real estate investors and professionals err on the side of acquiring more knowledge. It should also come as no surprise that there is a robust industry of real estate education that exists merely to support those wishing to acquire knowledge about real estate and grow in the industry. With all of this in place, there is a tendency for many real estate professionals to be entrenched solely in the pursuit of acquiring knowledge about real estate. They become so focused on this goal that even buying properties, facilitating deals and analyzing the numbers comes secondary to learning some new “shiny” concept about real estate. The existence of this tendency toward no stop acquiring of knowledge begs one question: “how much knowledge is enough?”

Ultimately, the decision of what is “enough” can only be determined by each individual, but one thing is certain—the pursing skills and real estate knowledge as an end and not a means of increasing success will result in an endless search with no clear direction. Examples of this endless search are ubiquitous in the real estate market, from real estate brokers that have some many designations and certifications that they are scarcely able to use a third of them. to supposed real estate investors that have started their 53^rd real estate book on investing, but have no tangible plan for saving money, obtaining capital or looking in the local market for real estate deals. It can also be seen in the lawyer who continues to study real estate and practices real estate law, but confines themselves to a narrow set of practices, never looking beyond.

The best course of action when it comes to real estate and the acquisition of skills is to align practice and skill. Doing so in real estate provides two immediate benefits—the first is that it allows for the application of the skills required, allowing them to be sharpened, the second is that being involved in real estate transactions typically pays a significant amount of money. In fact, real estate is one of the rare professions where anyone can become wealthy while learning to master it. This is in contrast to many other professions like doctors, engineers and nurses, who are required to invest substantially in education before beginning to earn money. Although there are legitimate reasons for these required training components in these other professions, real estate does not share the same lengthy training requirements.

The counterargument to connecting training, education and practice given by many seekers of real estate knowledge is that no one real estate strategy is 100% effective and acquiring more real estate knowledge will increase the amount of real estate deals that he, she or they could transact. This point is indeed sound. A wholesaler that only targets defaulting mortgages is missing out on foreclosure sales, possible tax lien flips, distress notes and all of the other related transactions that could be generated from that same set of leads or marketing that they are using to attract defaulting mortgages. Moreover, expanding  by moving into divorce and probate listings, distressed commercial listings, distressed apartment buildings and the whole host of other lead generation methods that exist for real estate professionals could potentially benefit this wholesaler.

There is one problem with this school or thought, however—no one can employ all these strategies at once. In the case of the aforementioned wholesaler, it is far more advisable to generate a successful pipeline of mortgage default deals and learn how to take these types of deals to completion before attempting to branch out to other types of real estate investing. The fact of the matter is that the lead generation practices that this wholesaler will develop as a result of creating a pipeline of deals will serve them well as they branch out to other ways to assist their clients. The wholesaler will learn new real estate skills and will be able to put them into practice in ways that are relevant to their business. These new skills, as a result, are not merely information learned but, sets of practices put into action and are able to generate value.

The link between practice and skill acquisition is by no means a new or revolutionary concept that is revealed in this article. In fact, the world of education regularly wrestles with the best way to integrate both processes. That said, anyone who has spent substantial time in the real estate industry knows that there is always a significant faction of people who become lost in the acquisition of real estate knowledge, minimizing its application. It is for this group and those who are contemplating joining the multitude of real estate knowledge hoarders that this article offers a simple assertion—in real estate:

It is important to recognize that there may be a few people reading this article who are struggling to get started after acquiring information for some time. There are two ways to do so that will ensure that both their acquired knowledge will be put into practice and that money will be made while doing so. These methods are becoming a real estate agent or joining a local real estate investment group. Both of these options put real estate enthusiasts in an environment in which they are not only able to transact, but also hold them accountable to do so. They also both typically offer access to formalized education that is appropriate for the local real estate market. A third, but more expensive option is to go to school for a real estate certification or degree like an appraiser’s license or going to law school. Although a certification or degree program is more expensive, it is a more formal and respected way to obtain access to the real estate market. A certification or degree program will also allow access to the non-sales or commission-based jobs that exist in the real estate market.

Ultimately, knowledge is a good thing, but in real estate, its application can lead to wealth, providing the motivation to seek more knowledge. In this way the cycle will successfully continue.