Over my 35 years of buying real estate I have flourished through every type of market; buyer’s market, seller’s market, crashes, bullish markets... I have seen it all and I have done extraordinarily well.
That doesn’t mean that I haven’t made some mistakes, though. Looking back, here are the top 6 mistakes I see from my experience as well as the experience of other investors. Avoid these and you will attain your property investing goals much faster.
1. Buying Small: Smaller may seem easier but if it’s easy to buy it’s harder to make money on the deal. I made this mistake once and only once. I bought one door because it was easy to get a loan, but it was impossible to keep 100% occupied. When that one tenant moved out I was 100% vacant and then had negative cash flow.
Plus, one unit or only a few units will NOT produce enough income to afford to pay a manager. The most powerful number in real estate investing is the number of units. The more units you can buy the more opportunity you have for upside.
2. Buying on a Budget: Real estate is not like a travel budget, this is an investment. Just because a property is available at a low price or it fits your down payment capacity doesn’t mean it’s a good deal.
I bought my first deal because I had the down payment, not because it was a good deal. I then bought my next deal based on how much it was rather than how good the units were. Over my thirty-five-year career I have always made more money on better real estate than cheaper real estate. If no one wants to buy it and the price has to be lowered to sell, there is a reason. Better locations, better assets and better tenants always make better money.
3. Using Too Much Leverage (debt): Putting too much leverage on a property will always result in problems. Encumbering a property with more than 70-75% leverage can, and will, cause you the ultimate problem in real estate, which is losing the deal.
At Cardone Capital we always use debt but never over leverage, keeping our debt leverage in the 65% range. This has allowed me to weather all economic contractions and has been a key factor in me never losing a property. When all my peers lost everything in 2010, I lost nothing. They over leveraged and I did NOT.
4. Not Using Debt: While we have all been told “all debt is bad debt” the truth is debt that creates more income is good debt. Consumer debt IS bad debt, however debt used to buy great real estate and increase cash flow is the BEST debt in the world.
5. Selling GREAT Properties to Make a Profit: This is probably the second biggest mistake I have made. I should NEVER have sold any of the $3 billion in real estate I have bought. I have sold $400M in assets over my career and had I kept them, those properties would be worth almost $1B by themselves. Good real estate should not be sold, it should be refinanced.
6. Basing The Value Today on Prices From Yesterday: This phenomenon explains why the locals never change the real estate market in their own backyards and miss the biggest benefits of real estate sitting in their own neighborhoods. For example, people from New York are pouring into South Florida right now driving prices up because the locals are selling, and the New Yorkers see the value even at higher-than-normal prices.
I assure you the New Yorkers are more right about the pricing in Florida going forward than the Floridians who are selling. Apartment prices in Florida have doubled every ten years for the last five decades.
There is a full video here in which I cover these investment mistakes.
Hope this helps and happy investing!
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