Is big better?

At one point in my life, I was buying 7 or 8 houses a month, fixing them up, and then reselling them. I then had the brilliant idea that if I can buy and sell 7 or 8 a month, I can buy and sell 80. This was a decision that eventually bankrupted me. This hasn’t been that long ago. Twice in my life I made a lot of money and then had great growth and had a great learning experience in business failure. The last one resulted in bankruptcy.

It is difficult when things are going well not to be seduced by more is better. When you have something that works for you, it’s easy to get too confident and start thinking about multiplying it. As with most things in life, you want to make sure that when you take on something, you complete it. Increasing the volume puts you at risk of not having the structures and set up to deliver what you promised. Naturally, you run into problems that were not present on a smaller scale.

It is difficult when things are going well not to be seduced by more is better. I had to personally learn that pride goes before the fall. The bottom line is that there are always good deals in Real Estate! I say measure your success one house at a time. Buy an investor property, fix it up, resell it, rent it, make a lease option, but do it one house at a time.

Multiple purchases?

One of the most common mistakes I see in business is when investors come into the business and think they need to do multiple houses at once. Try this: Try doubling the cost you think it will take to repair the property, double the time you think it will take to rehab the property, and figure your owning costs have doubled (insurance, mortgage payments, taxes, lights, gas, rehab cost). ) ).

The great deals in Real Estate don’t come on homes that are fixed up and ready to sell. The big purchases come from houses that need work. If you’re just starting out, stick to cosmetic rehabs (paint and carpeting), don’t agree to major rehabs. It will take time to develop the rehabilitation team. The most successful people I see in Real Estate do one house at a time. Failures are great, if you look at them and ask what action was missing that would have made the difference.

Hard money lenders?

One trap is to use very expensive money. For years I ran a business financed with money from real estate investors called hard money lenders. They look at collateral and loan money based on receipt of interest which can be 18% or more when closing costs are calculated. When you get multiple properties in this condition, you will have interest payments that are double and triple what conventional Real Estate financing is.

Now combine this with the common lie we tell ourselves that we can repair the house and get it back on the market for sale or rent in no time. Your overhead will increase because you will need staff to manage and rehab everything. Can you see that this is a recipe for disaster for everyone? Now, if you’re doing one house at a time, your overhead will probably stay very low, with very few staff. Thus, you have limited your expenditure of time, money, and hassle.

At one point, my overhead was over $50,000.00 per month. I had to rely on other people to do everything, including checking work. One hundred percent of the money I earned went to pay my debts and I told myself that I would change it tomorrow. I came across houses that weren’t finished and houses that were lost to foreclosures and taxes. That left me a very motivated salesperson and bankruptcy was looming. With my overhead still there, I tried doing wholesale deals. I decided that I would no longer search, repair, or resell houses. Instead, he would look for big buys and sell them to other investors.

Basically, I started my business again. It takes a great deal of time to cultivate a list of investors interested in buying deals. This business is built on the concept that you can borrow to get out of debt, but it just doesn’t work. You have family, friends, and business partners who can be hurt or destroyed. I’m not saying this to tell you a sad story, but in the hope that by sharing it, someone else can avoid the pain of my mistakes. Take from this what you can learn for yourself. I’m 53 years old and I’m starting over. Now I have the knowledge to build a business with the right foundation. I teach a real estate investing class now looking at pitfalls and what it takes to make a successful deal one at a time.

My advice to you on handling real estate transactions is:

Using title companies

What can happen to you when you don’t get title insurance? We had a participant in one of our seminars, who bought a house to fix it up. He invested over $40,000 in the house for both repairs and the purchase price. When he went to refinance, he discovered that the person he bought the house from was not in the chain of ownership. In other words, he didn’t have a clear title. Whenever you buy a home, always close through a title company with title insurance on the property. Title insurance is protection that insures the borrower or lender who obtains property with a marketable title. They will only insure the property for the purchase price or the amount of the mortgage.

Use a reputable lender

Interview the lenders. Go to Real Estate Investor Clubs to find out from other investors which companies are doing the best job. Are you at risk when using a lender who wants to cross-collateralize loans or wants personal guarantees? One lender I know will get one or two year mortgages and will demand the right to tie all the property you own to the loan you are getting. Just be careful, if you’re buying the property to fix it up and resell it, there are things you don’t always plan for like: double the cost of rehab than you planned for, longer time to market than you initially thought, resulting in an additional hold costs, or maybe the market is moving in the wrong direction and you can’t sell the property, so you rent it out.

Now one of your other properties or even your personal residence needs to be refinanced. You now have a link displayed against the property. What are you doing now? Think before you jump. If you have purchased the right to property, you should be able to borrow money based on the equity in that property, not your home and other property.

This same lender will ask you for a personal guarantee signed by you, your wife and your partner. This personal guarantee allows your mortgage company to bind any property owned by the partner and the spouse. Not only that, but this particular lender requires you to use a title company of theirs. Now, when you want to sell another of your homes, this same cross-collateralized loan will show up on whatever property you’re selling. Now you are faced with using your title company or they will not release your loan. Be careful putting yourself in a situation where you are using a person who controls the loans, the title, the appraiser, and the Real Estate Company.

Think if your title job was placed with a company the lender owned, you might have trouble releasing the documents or getting a clean closing with the same title company? Why risk letting human emotions influence your deals? Keep an arms length distance in your dealings. If you are selling houses or wholesale property, let the buyer find their own lender and be sure to get an independent title company. Make sure there is no conflict of interest between the title company, the mortgage company, and the real estate company. Maintain integrity in the deal. I’m sure there are title companies, real estate companies, and mortgage companies, where there is common ownership that runs very good businesses and can separate conflicts of interest and profit centers. However, to protect yourself, make sure you receive the proper information about common property. You can always see the volume of business they are doing at each business and check with the State of Michigan Department of Licensing. for any complaint against the company.