You better believe with the billion dollars of real estate under my belt that I have made my share of mistakes. So, I’m dipping into my past today. And in today’s article, I’m going to share with you the top 5 mistakes that I’ve made that I’ve seen other people make so that you don’t have to. Really having success in a real estate investment business, it’s a formula. Which means there are ingredients and they got to be put in at the right time. So, I’m not just going to share with you the 5 biggest mistakes. I’m also going to share with you the3 most important things that you should do. School might be in session for my kids. But school is in session for you. And as I share my 5 biggest mistakes in real estate and then the 3 things that will save you. So, today, I’m inviting an authentic Italian man chef Raphael into my home to actually do our private school lesson which is teaching my children the ingredients of making a really fantastic Italian meal. And the reality is I don’t really know how to make the focaccia bread just right. I want to know how he makes the pasta. What I do know is that I rush it. I botched the recipe. And if you watch the recipe in real estate, you’re going to pay for it, the school might be in session for my kids but school is in session for you as I share my 5 biggest mistakes in real estate.
And then the three things that will save your bacon and get you making real money. Check it out. Pitfall number 1, you’ve got to actually buy real estate with the intention of profits –actually making money. You know, there’s a lot of people that I meet that actually just buy a home to say, “I’m an investor. Look, I’m in the game. ” And this is a mistake that I actually fortunately have not made. But today, I got to tell you. I have met so many people down the line that literally have a problem property and it’s because they bought it without any criteria. They just thought that if you buy a property and rent it out, you’re an investor and automatically you’re going to make money. If it was that easy, we would have way more success out there. People would be making way more money. But that is not the case. Never buy a property just to say that you own it. Pitfall number 2, never buy a property unless you know that it’s projected toat least produce a 20-percent annual ROI. ROI stands out for return on investment. And in real estate, there are several ways to actually factor in how much money am I going to make on this. It can be number one, though actually getting the house at a discount. Because when you sell, that’s actually going to be a part of your profit. But number 2, you’re going to earn cash flow on the thing.
So, every month that cheque is coming into you, that factors into the overall return or the money that has returned to you for the money that you put out or somebody put out. Certainly doesn’t have to be yours. Of course, properties appreciate. We know from the US Census Bureau since 1963, real estate goes up 4. 58% year after year after year after year after year. So, you’re going to get some appreciation on it, There’s also things like tax savings and depreciation. But when you take it all into account, it ultimately comes up with an ROI or a return on investment. One of the things that is overlooked is the fact that if you get like a 30-year mortgage, guess what’s going to happen? In time, every time you make a payment you’re actually paying down that house. So, that’s actually money or a principal reduction that will also come back to you. If you take all of that into account, you want to see that you’re getting 20% back on your money. And here’s what that means: Let’s say that I bought a property and a 20% down payment was $30,000. What is 20% of 30 grand? 20 percent of 30 grand. . . Well, 10% of 30 grand is 3grand. So, 20% double that is $6,000.
I’ve got to actually pull in $6,000 a year that I keep saying I actually have a 20% ROI. Now, does that 6 grand need to all be cash in hand or can it also be appreciation growth or money that I’m going to get down the road? I’ll also count that as well. The biggest mistake people make in real estate is they buy it and they can’t even tell you what they hope the ROI will be. And there are too many known variables for you to actually do the math and figure it out. By the way, if you’re reading this article saying, “John, that went so far over my head. ” Or “It’s complicated” or “I’m afraid I’ll do it wrong.”
We’ll actually help you crunch the numbers and make sure that you’re making smart, intelligent decisions. Pitfall number 3, never fix up a property to your liking. As in like, “Oh, my gosh. I would love this tile and I would love this granite. And I would like to put in froze a carpenter I would like to put this in. ” I would like 3 Tom pay. And I would like crown molding. In the game of real estate, you always fix up a property to the market standard. Or in other words, what are the other homes in the neighborhood, what is their condition that is currently selling in the market that you’re in. A lot of people just make the mistake of putting money in and they’re never gonna get it back out. For example, if you’re dealing with an entry-level single-family home and you decide to put 10 more thousand or20 more thousand dollars into it because it’s what you would want if you were living there.
You’re not going to get that money. You’re not going to see it. All it does is increase the perceived value. You might sell the house a lot faster. You’re not going to sell the house for more. So, that’s just the third thing mistake that I’ve seen people make is they’ll lose money because they’ve overbuilt or they put too much into making the house the way they want it versus what the market is actually asking for it. Number 4 pitfall, never buy a rental property that can’t cash flow at least with the 5% return on your investment. That should encourage a really strong cash flow in the hundreds of dollars a month. And this is a problem that a lot of people make in real estate. A lot of markets can’t support that 5% number. For me, my average lies between 6 and 10percent. Like we’re killing it. We’re crushing it.
Reality is there’s just not a lot of people that actually understand how you do it and how you do it right. So, this number is pretty easy to calculate. If I do put 30grand out, 5% of that is $1,500. I should have$1. 500 coming back to me and that’s just a really important part of the equation. If you mess that part up, you are buying the wrong real estate or you’re buying it the wrong way. You should be doing like my Lease Option program that can freaking double Jackyour cash flow. Or you should be buying in the markets that have the strongest cash flow. And it’s not as hard as it used to be to buy out of state real estate the right way. In fact, if you’re like “Man, John are you telling me that I can make 2 or 3 times as much money if I went out of state? But that’s scary. ” I’ll actually share with you how simple stupid and easy that it actually is. And number 5, never buy real estate without the clear exit strategy.
If I’m flipping a home, the goal is to exit in a few months. If it’s a buy and hold, how long? Is it a 30-year old, is it a 5-year old? If you don’t really know, then that just means you’rebuying it the wrong way. You’re buying it hoping with time that it’s actually all going to work out. Always know exactly what you’re doing and how you’re going to exit. Now, that you know the 5 things that you should never do, here are 3things that you should always do: Number 1, always make sure that you’refollowing a system with a track record. And where you find those is usually with some kind of mentor, a guru. Someone with a lot of experience that knows exactly what they’re doing. And if you follow a system that has a track record, it’ll basically tell you all the pitfalls that they figured out upfront so that you can have a shortcut to success. Always vet multiple deals. Most people will find a deal and then they’ll jump on it and they haven’t compared it to anything. I go through thousands of deals every week to find like 7 to 10 winners that I’m taking action on.
You should be vetting many deals so that by comparison, you might find something you love. But just hang tight. You’ll probably find something you love a whole lot more. The amount of winning you do in real estate at the end of the day really does come down to how many deals you vet to find that needle in the haystack, that winner that you’re going to kill it on. And the last piece of the formula, the third thing to make sure that you’re always doing is when everything lines up, when you’ve got the right deal in front of you when the numbers make sense; you take action.
Hey, thank you for reading today’s article about successful ingredients. If you’d like to get a copy of my book for free, I’m going to send it right to you literally no questions asked. It delivers the entire formula of how you can do real estate in your backyard step-by-step and make yourself the money that you deserve in your life.