How To Avoid "Stupid" Investing - Penalty Is Severe For "Stupid"

Question

There are plenty of ways people get into trouble investing. This is just the "short list" of things to avoid:

1. Don't promise what you can't deliver

2. Always use a Title Report

3. Always close through escrow

4. Know your exit strategy

5. Never take someone's legal advice on Bigger Pockets. Ask a real, live, attorney in your area. You can start with AVVO.com which is real attorney's answering real questions (for free)

6. Walk the neighborhood you are buying in before you buy.

7. Get it in writing. (whatever agreement you agree to)

8. Know the difference between VA, FHA, Conventional, USDA, Jumbo, Hard Money, Private Money - and know when is the right one to use.

9. If you do Subject To KNOW what you are doing and have reserves! If you don't know ASK!

10. Not all Turnkeys are the same. There are HUGE differences. Ask if there is any "built in" equity. Ask if bullets are flying in the neighbor. Actually be an adult and do your due diligence. Nobody but you is looking out for your best interests.

11. Run the numbers on all real estate investments. See if it's profitable before you buy.

12. Don't think Wholesaling will solve your problems. It works in some circumstances but you have to be HONEST to the seller about what you are up to. Otherwise it is lying and fraud!

13. No, those shows on HGTV - "Reality TV" are not real. They are staged, pre-planned and programmed and no you can't do the perfect flip in 40 minutes.

14. According to the National Association of Realtors, the average flip grosses $65,000 but after subtracting the cost of the rehab, realtor fees, carrying costs, the NET (and that is the one that goes into your pocket) is $15,000 and takes 6 months. You are buying a job in the most highly taxed way.

15. Don't put 20% down to buy a property to get $100 to $200 a month cash flow. That's insane. One AC Unit, roof, water heater, trashed house or other common problem and you are in the hole for the year maybe two years. And the comment "It will appreciate over time" is crazy, maybe it will and maybe it won't. I've been through the cycles - real estate doesn't always go up. In fact in some areas like Ohio, Tennessee, Michigan, value hasn't gone up much at all.

16. Don't buy a $50,000 Turnkey and not expect problems.

17. Find a great Property Manager. Don't settle for nonsense. Some people just aren't cut out to be Property Managers. Dump them.

18. You are running a business, act like it.

19. Step back every 6 months and look at everything involved in your business as though you are starting new. Is it running smoothly? Is it producing the results you want? Are you doing enough of it?

20. Back up your records and store a copy in another location in case of fire.

21. Don't brag on whatcha got. That'll get you sued. Lawyers look to sue people who have assets.

22. Don't worry about setting up an LLC or C Corp or LLP before you buy your first property. You have nothing to protect. It's only an excuse to never get started. Buy umbrella insurance instead.

23. If you already have an LLC (or many LLCs) follow the Operating Agreement because that is what the whole protection is about. That is what protects you in a lawsuit. Nothing more, nothing less. If you got your LLC on legalzoom or fakellczoom or whatever, 1st make sure you even have an Operating Agreement, 2nd have a local attorney review the Operating Agreement, 3rd follow the Operating Agreement, 4th don't come crying to us if you didn't follow 1st,2nd,3rd

24. No, lenders won't lend to you if you can't show income.

25. Keep good records for the IRS

26. Don't do a Partnership, look into a Joint Venture instead. Talk to an attorney for why. Basically, in a partnership you are assuming all risk that partner has, inside and outside of investing in real estate. Why would you even do that?

27. Do 1031 exchanges where it fits.

28. Your IRA and 401(k) stink. They are false security and the rules could/will change against you going forward. The current crop of presidential candidates have promised your money to everyone that isn't productive. At some point someone like them will be in power. Woe unto ye who don't take note. Set yourself up to succeed, not to depend on "passing promises".

29. Never Assume. It makes an Ass out of U and Me. Get it in writing.

30. Learn to do your own comps. Others will manipulate the numbers and that alone will cost you thousands of dollars.

31. Be honest, treat the other guy fairly, build relationships.

Just ran out of steam. But, this is some of what 25 years of investing has taught me.

Scott Passman · Answer

This is solid gold. I don't know why, but it makes me think of the 12 days of Christmas song, but for investing:

"Here's the first thing for investing that Mike M taught to me....Don't promise what you can't deliver!"

"Here's the second thing for investing that Mike M taught to me...……"

Thanks for sharing Mike.

Mark S. · Answer

Account Closed, I may have violated your Rule 15.  When you say $100-$200 cash flow, you’re talking about after all expenses, reserves, etc., right?  My turnkey are mostly in that range after fresh rehab, PM fee, PITI, vacancy, cap-ex, and maintenance reserves.

Mark S. · Answer

I suppose it depends on how much you put down. People who put 20% down run out of "20% downs" pretty quickly. That is, they can do one, maybe two then they have to wait a long time to do the next one. When you are cash flowing at $100-$200 a month, just having turnover destroys any profit let alone the expenses of taking care of the property.

I cash flow mine from $500 to $1000 a month with no CapEx and No property manager. I've bought properties using Subject To, Wraps, Land Contracts, and even Lease Options for $100 down to $5,000 down on $225,000 houses. If I had to put 20% down that would have been about $45,000 per house. That is a huge difference.

Absolutely.  For busy professionals whose time is better spent in their craft and can relatively easily come up with 20% downs, I still feel like it’s a great addition to, or some would say separation from, just investing in the stock market.  I see it as buying (small) income streams now that will only grow in time when I really need them.  From a total return perspective, it blows the stock market out of the water, on average over a long period of time.

Account Closed · Answer

I suppose it depends on how much you put down. People who put 20% down run out of "20% downs" pretty quickly. That is, they can do one, maybe two then they have to wait a long time to do the next one. When you are cash flowing at $100-$200 a month, just having turnover destroys any profit let alone the expenses of taking care of the property.

I cash flow mine from $500 to $1000 a month with no CapEx and No property manager. I've bought properties using Subject To, Wraps, Land Contracts, and even Lease Options for $100 down to $5,000 down on $225,000 houses. If I had to put 20% down that would have been about $45,000 per house. That is a huge difference.

Account Closed · Answer

For personal use some people use FHA 3.5% down program. The downside is that it adds a couple of hundred dollars a month in PMI (private mortgage insurance) so your monthly is higher.

For investing If I was just starting out, I'd join a local REIA (Real Estate Investment Association) you can find them at NationalREIA.org, I'd pick a style of investing and I'd be a sponge  to learn everything I can about it. I selected Creative financing because I have sales experience, I'm great with law and contracts, I used to be a loan officer so I understand lending and underwriting, and I enjoy meeting people. All of my purchases are "off market" which saves the seller from paying realtor fees.

Other people team up with an experienced investor for their first couple of deals and learn by doing. It's called a Joint Venture. Look for some family member or someone at the REIA.  It's a much safer approach than what I did if you don't have the background.

Saravanan Saravanan · Answer

Account Closed

Well written and thanks for sharing.

Personally, I have been through and got burnt during the FOUR downturns on the market over the last many years.  So, I can agree your points

Dennis M. · Answer

number 15 is the one most folks in here break . They all think they will get big appreciation lol “ it’s a long term play” -sure whatever bro

Akuda Esin · Answer

@Mike M.

First, thanks for taking the time to post, second? What’s the optimal strategy for someone without years of experience looking to buy property without putting a lot down?

Matthew Paul · Answer

Well Said

How To Avoid "Stupid" Investing - Penalty Is Severe For "Stupid"

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