When I started out as a real estate investor, I had no money, no credit, and was unemployed a lot. I had no money because all the money I did bring in was for my wife and my six kids, who were all selfish enough to want to eat three meals a day.
I got into real estate in that environment with no training, and I learned many lessons the HARD way. I want to share some of these lessons with you today, because many of you might be struggling with these same issues today.
When I started in real estate, I felt completely out of my depth. I had no idea how to make an offer, analyze a property, or even understood the process. I just knew I wanted to buy houses! Over the years I managed to put together some amazing deals, even without formal training, because I HAD to. Every investor is going to make mistakes, but it is helpful to learn from someone who has already made quite a few so you can learn from them and avoid them yourself.
Here are some of the lessons I learned the hard way:
- Not all sellers want cash for their property
Some sellers want checks coming in every month instead of cash, like another social security check to help them in their old age. That check could mean the difference between three meals a day or crucial medication for many people.
Others don’t want cash because they know they’ll burn through it; some people just can’t handle large lumps of sums of cash. You also don’t need a large down payment for many properties. Don’t assume every seller wants cash; they have to use the cash for SOMETHING, so find out what it is.
- You HAVE to know your numbers before you buy
Back in the 1990s, I bought a convenience store. I asked the seller for the numbers: income, expenses, etc. He gave me numbers but they were WAY off, and it ended up being a real struggle to keep that store going.
Bottom line: don’t take anyone’s word for it, DO YOUR RESEARCH.
- You need to know what your repairs are going to cost
When I came to Florida, I started working with a real estate agent, because I didn’t understand this new market. He convinced me to only look at lower price properties and to make offers on every property in that price range at 50% of the asking price. I didn’t buy many properties with this strategy, but one I did ended up costing me quite a bit. It had a lot of problems, including a $5,000 assessment for hooking up the residents to the city sewer line. In the end, I lost money on that house.
Just because you buy at a discount, it doesn’t guarantee you’ll make a profit.
Here’s a secret: instead of a down payment, use that money to pre-pay several months of mortgage payments. If I don’t have to make a payment for months and get a tenant in there, I can build that money back up pretty quick.
If you don’t have the property, ask for a moratorium on the payments or defer the first payment so you have time to fix up the property first.
- If you get in trouble making payments to a seller, stay in touch with the people you owe money to
Let them know that you’re working on getting things straightened out; don’t avoid them. Keep in contact so they know you’re not blowing them off.
- Partnerships aren’t always the best idea
If you don’t know what you’re doing and the other person is in the same boat, then you just have two people who don’t know what they’re doing. Most likely, you’ll end up doing all the work and the other person will still want half of the profits. All three of my partnerships didn’t work out, and now I know I could have done it by myself because that’s what I ended up doing anyway!
- If you’re short of cash, think about using items instead of cash
You can use things like cars, boats, or anything else instead of cash in a deal. If the seller will accept it, it’s fair play. Find out what the seller wants instead of cash and trade it to make an amazing deal. Bartering is still alive and well in today’s market, so use it to your advantage.
Don’t be a fool; be a THINKER.
Make sure to visit my website, LarryHarbolt.com, for all your real estate investing education needs.
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Good Luck and Happy Investing!