80/20 Rule, Real Estate, and the great thing about America

80/20 Rule, Real Estate, and the great thing about America

Well I was scanning the forum I post on frequently and read a thread stating a question that asks things like what is the

  1. Amount of net cash flow of debt free income properties [units] nationally divided by number of individual private investors=what amount? That number would be ROI or cap rate.
  2. Do the similar math for total residential real estate commissions earned nationally divided by the number of licensed agents = what amount? Again, either some assumptions or raw data might be used.
  3. Take the ‘average profit/gain’  from residential sales nationally  by investors both seasoned and newbies  who either do wholesale flips or forced appreciation thru retailing. The ‘newbies’ would include those who have not done any deals yet.
Pareto Principle

Pareto Principle

At a later post another person commented on the 80/20 rule (Pareto principle) which in summary states that, for many events, roughly 80% of the effects come from 20% of the causes. Personally I like this rule, whether it is exact or not the principal is good. 80% comes from the 20% which helps keep me focused on the 20%.

Another posted that they read 95% of would be real estate investors lose money on their first deal then quit, how many small businesses go out of business in the within 1, 2, 5 years

So after some more bantering about exact numbers and the 80/20 rule really being a 96/4 rule or a 60/40 rule my response was this.

Whatever % you want to use, the great thing about America is that it is possible to be in that top 20% or 2% or…

For me some important things I take into account when looking at a venture

  1. Can someone else do it and how did they do it?
  2. Can I duplicate what they are doing through hard work, perseverance and a little luck sprinkled in?
  3. In what time period can this happen?
  4. What is wrong with it and why WONT it work? (I keep on looking for this and until I find it I keep going. If I do find it I see if there is a solution and if not I move on)
  5. I don’t want it to be easy because things that are easy that everyone can do get compensated less. i.e. digging ditches vs. finish carpenter.

One of the things that got me interested in Real Estate (I also did some MLM when I was younger and was able to make enough to make payments on the first new car I ever bought) is that the potential is so broad.

You can be a mom & pop investor who buys a house here or there while working and have a great retirement. Or you can become Sam Zell who started buying student housing in Chicago while going to college who then was brave enough to acquire lot’s of property during a downturn while others were selling.

Real Estate can be your business, or just an investment vehicle. I would say the ratio of success and failure really depends on how soon and quick you try to make it your business.

People who try to immediately make it there business without any other means of income I believe exponentially increase there chances of failure. They fail like the majority of business’s they become under-capitalized and can not meet their overhead obligations.

They usually have no experience and lack of money. 2 things that are probably the cause of failures for most business.

Real Estate really is a simple business but it takes a tremendous amount of effort and hard work (like most business). What I find happens is everyone wants to be a millionaire…. Until 5pm hit’s and they want to go home or the alarm goes off at 4am and they decide to show up at 9am, or until it doesn’t work out exactly how they plan (hint – it NEVER does).

You get all these gurus and infomercials talking about how easy it is and you need NO money and NO credit to succeed. Well that may be true just like you can start a company that then becomes Google (obviously the odds are better than starting a Google but you should get the point).

Well there is my rant that really gave no answers to your numbers. The reasons for many of the failures are stated above.

p.s. Here is a question for your question… Do you fail when you do not accomplish your goal or when you give up and stop trying?


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