Succeeding in Real Estate Investing is not rocket science!
But you need to know where to start in real estate investing, where to go from there and what to avoid.
A few weeks ago I wrote, Real Estate Investing: The Most Important Lesson, and it was a about how failure is OK.
Jim and I bought our first rental property in 1991…and it was a flop. However, the lessons learned from that first “flop” have made us successful in our efforts today. Fast forward to now and we have over 100 single-family homes, 5 commercial buildings, 2 multi-family structures and 11 vacation rental properties.
And while failure IS good if you treat it as a lesson. Failure IS NOT good if you just fail, and quit.
But what if we could avoid failure altogether??
Now, avoiding failure and still succeeding is not going to happen for most. But maybe I can shed some light on a few lessons learned, things I’ve seen over the year, and maybe you can avoid some of the mistakes I’ve seen.
What’s the biggest mistake I’ve seen??
Don’t get over-leveraged!
I repeat, don’t ever get over-leveraged.
Anybody who has loses money in real estate, is probably more of a speculator rather than an investor.
I want to be an investor and mitigate risk, I don’t want to guess or speculate about the market, so Jim and I don’t get over-leveraged. In other words, it needs to cash flow the day you buy it, even if it’s a dollar.
Furthermore, our loan-to-value ratio that we feel comfortable with is about a 70-30 loan-to-value ratio so, depending on the market, we may have to put more or less money down to make that happen.
All of the people I see losing money in real estate are speculating and buying in the hopes that it will appreciate. In other words, the property wasn’t a good deal when they bought it. They bought based on what they thought the market was going to do and then the market didn’t do that and now they are in a tight spot.
The key: it’s a good deal when you buy it, you make your money on the buy, and you never want to be over-leveraged in a property.
In that way, no matter how far the market drops down, we’ve never had one drop below what our loan value was on the property. This is possible with a good loan-to-value ratio and making sure it makes money from cash flow on day one.
Never bet on some kind of appreciation or what you think the market will do! Even the “experts” get that wrong. Instead, reduce your risk on the front-end.
I hope that helps!
Until next time,
photo credit: photosteve101