The numbers are stark: Almost 95% of ‘real estate investors’ fail. They never do a single deal. Or they quit after six months, or they lose money. “Real estate is tough racket,” they say as they trudge off to their day job.
Meanwhile, I have been a successful real estate investor for 15 years. I have personally seen hundreds of aspiring investors come and go over that span. Yet I’ve done nearly 1,000 deals, and financially retired myself at 28 with roughly $22,000 per month in cash flow. What do I do that so many other investors don’t?
For me, real estate investing is simple mathematics. Here’s how I do it:
I invest in a home 20% under market value with cash.
I do $5000-$10,000 in rehab (never, ever over rehabbing)
I resell it at 100% market value with owner financing.
That’s it, friends. There is no magic formula or strategy. It is just elementary mathematics that produces excellent returns on the funds invested, such as this home in San Antonio:
Purchased for $65,000 cash.
- $10,000 in rehab.
- Resold w/owner financing @ $99,000 (FMV).
- ROI: 12.9%
But the people who fail in real estate investing don’t do that. They do silly things that lead to failure. If you want to fail in this business in three simple steps, this is a typical path:
#1 Chase the Easy Buck
Many aspiring real estate investors jump into the market when times are good. Or maybe they saw a TV flipping show or attended a ‘real estate guru’ class in their town. Real estate investing is portrayed as simple and easy, and you can be rich in a few months.
Baloney. Don’t get me wrong: My system above IS simple, but it took me YEARS of work, developing knowledge of my market and my houses, and growing a good reputation in my city so that I find those under market value deals. I had many millionaire mentors along the way that showed me how to find those great deals.
You don’t do that quickly. It takes years of work. So, take a class, read a book, make an offer, and try to get rich quick and easy. You’ll fail.
Take Away: Becoming rich in real estate is at least a 5 year process. Jump start your progress by working with a top-notch real estate investor in your city. Offer him your time and service in exchange for learning the ropes.
#2 Don’t Work Hard
As mentioned above, real estate for me is ‘easy’, but it’s largely because I worked my ass off in the early years. I’m talking 200 phone calls a week searching for money, tearing out dry wall and painting houses myself eight hours per day….it was a ton of work.
And I didn’t come into real estate with any advantages. I had $40,000 in college debt and no family money. After busting my tail for months, I found investors willing to lend me $2 million on a per project basis, and split the profits 50/50. That got me really going.
On the other hand, real estate investor failures don’t work hard and make excuses.
- ‘I’m too busy with my day job.’
- ‘I don’t have cash.’
- ‘My credit stinks.’
- ‘I don’t have any connections.’
BS! Every one of us in America has the same exact shot to succeed in real estate. The successful investors often didn’t have money or connections in the beginning. They just never gave up and worked like dogs till they got their first profitable deal done.
Take Away: Make real estate investing a full time job if you can. If you still have a day job, fine, but spend at least 15-20 hours per week on your business. And take your business seriously: Get business cards, a checking account, website and a registered business name. If you don’t take yourself seriously, no one else will.
#3 Focus on Too Many Things
I attend many real estate investing networking events (I attended 4-5 per week in my early years, looking for private cash). Last year I was at a small networking event in San Antonio with half a dozen landlords. They didn’t really know who I was. One of the attendees was a mostly real estate investing failure. I told him how I invest:
Buy distressed houses 20% under market value, resell at 100% market value, make 12-13% ROI with no maintenance costs.
Now I’ve gotten pretty wealthy by doing this for 15 years. I’m very focused on this small real estate investing niche. And what does the mostly failed investor say to me? ‘You know, it’s kinda risky to put all your eggs in one basket. I’d go buy an apartment building and a trailer park to diversify.’
Frankly, I had to stifle my laughter! Most real estate failures don’t focus on one or two areas; they focus on EVERYTHING! If you try to become an ‘expert’ on a dozen different areas of real estate, you’ll fail. You’re spread too thin, and you are never going to really learn one or two real estate areas well.
A huge factor in my cash flow success has been micro focusing on distressed real estate with owner financing in San Antonio. That’s all I do. My entire team is focused on affordable housing in my city, and my entire network is built around the same. That one small niche and being an expert in it has made me wealthy.
Take Away: Get FOCUSED. Become an expert in your niche, whether that’s trailer parks, 4 plexes or distressed single family homes. Any of those can make you wealthy if you become an expert and develop a successful team and network. Work with an expert in your desired niche and focus on nothing else.
That is a typical path to real estate investing failure. Don’t take that path! Find an expert mentor, work your butt off, and focus completely on a profitable real estate niche in your area, and you will be a success!