How to Avoid Investment Mistakes
In the many years that I’ve lived and breathed real estate, the number one problem I see investors make when they’re starting out is that they don’t buy a house with enough equity. They don’t have a FORMULA for what a good deal is. A lot of them would say:
“Oh! The house is a $150,000 and I can get it for a 140,000. That’s $10,000! To me, 10,000 is a lot of money so THAT’S A GOOD DEAL!”.
Truth is, I would NEVER buy that house. That house is NOT a good deal.
In the video above, I show a briefcase that contains $54,000 which is the money
I made on the very first house I bought and sold in Provo.
Let’s talk about why this house was a good deal.
On my left hand, I held a stack of money I got from the briefcase. This stack represents the cash that I walked into when I bought the house. When I sold the house, this is what I technically got. But the moment I signed my papers, the moment I finished my last signature on that closing with the bank, this is how much net worth I walked into.
Then in the course of holding the property, I did my lease option. I had a tenant come in to the house. This other stack of money represents my downpayment that I collected from the family that moved in. They had to give this to me just to get into the home. This is more than a security deposit that you’d find on a straight rental.
Again, I took another stack from the briefcase which represents the CASH FLOW. This is the money that I would get after the mortgage was paid every month, there was ALWAYS leftover. On this house, there was over $500 a month of leftover money.
Buying the house always comes if you do it correctly with tax advantages. Let’s take another stack which will represent the money that I saved on – money that I should’ve paid the government but I didn’t have to, because I bought this house.
And then the last stack I took from the briefcase – this represents all the money that I made after I sell it based on the market appreciating in, I might add, one of the worst economies that we’ve had since The Great Depression.
So, buying this house below the median and having it targeted at the right price range is what made THIS MONEY POSSIBLE, because even if the economy is tanking, if you’re following the right formula, it doesn’t matter.
Now ALL OF THAT COMBINED represents my winnings on that one particular deal. And so, I would say, make sure at the end of the day that you have a house that follows a specific formula. That is how to avoid investment mistakes!