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3 Mistakes I’ve Made As A Real Estate Investor And How To Avoid Them
Joe: Hey, it’s Joe Crump. Three mistakes I’ve made as a real estate investor and how to avoid them. Number one. Borrowing money. Just be careful when you’re borrowing money. Especially if you’re using your own credit. If you’re borrowing money do it from the seller. Get seller financing. Seller financing is the best way to do this. You’ve got very little liability. Your responsibility is only to that seller and if you screw things up you can go to that seller and you can work something out, unlike working with a bank. They’re going to follow their rules and they’re going to kick you to the curb, they’re going to screw up your credit. They’re going to steal any equity you have in the property if you’re not able to cure it.
Joe: You don’t want to get into that situation. They’re also going to destroy your credit which is going to make it a lot more difficult to live your life. Makes it difficult to go out and buy a car. Makes it difficult to buy a house to live in. Makes it difficult for you to get credit cards. All those things that make life a lot smoother. People that have bad credit. Credit is today’s debtor’s prison. You know, used to be we had debtor’s prison. If you didn’t pay your debts they’d throw you in jail. They don’t do that today. All the do is give you a bad FICO score. And that keeps you from doing the things that you need to do in order to live your life.
Joe: So don’t put yourself into that situation. And if you’re going to borrow money for real estate, because I think that’s very attractive for a lot of people and you’re going to want to do that at some point as an investor, and it may even make sense at some point as an investor. But avoid it as long as you can. And you avoid it by learning how to structure your deals in a way that you don’t need a bank loan. You don’t need private money. You don’t need hard money loans. All you need is the sellers to work with you.
Joe: And eventually you’re going to flip enough properties where you’re going to create enough capital for yourself so that you can be your own bank. And that’s sort of the goal of this. Part of it’ll be your own money, part of it’ll be funds that you get from the seller and you’ll never have to go to banks again. And that’s where I’ve gotten in my business. It makes it a lot easier to do these transactions because I can go and I can pay cash for them or I can have them finance a part of it if it makes more sense to do that. And it almost always makes more sense to get the seller to finance it than to pay cash for it if you can do that.
Joe: Now, I know that everybody’s going to say well, if you use bank loans you can get leverage. You can go put 10% down or 20% down on a deal and you can leverage that money and you’ll have, you know, eight or ten times as much investment that’s making money for you in these deals. That’s kind of true. But make sure that you understand how to structure that deal so that it makes sense. And if you’re going to do it, I suggest that you do it with subject to deals where somebody else signed on that loan – not you.
Joe: So have somebody take over somebody else’s mortgage rather than going out there and signing on that mortgage yourself. Because when you sign on that mortgage yourself you’re putting your name on the line and all your assets are going on the line with it. When you do a subject to all you’re doing is you’re putting that other person’s credit on the line so you have to have enough responsibility to take care of it or if you can’t take care of it, if you can’t make that payment, you can give it back to them and let them deal with the problem and it won’t screw up your credit and it won’t lose you money because you won’t have a ton of money into that deal and you won’t have any of your credit in that deal.
Joe: The second biggest mistake is spending your own money before you know how to make money. I’ve said it before, they say you need money to make money. But I say that if you can’t make money with no money you probably can’t make money with money. So learn how to do it with no money first before you spend your own money. I have people come to me and say Joe I want to get into your mentor program. I’ve get you know, $300K I want to invest and I want to know how to invest it properly.
Joe: Now, I’ll say to them, that’s great. That’s wonderful that you’ve got those assets to invest. But before you start spending that money learn how to do a deal with no money. And the main reason to do that is because it’ll teach you what a good deal looks like. Because if you put together a deal with no money that doesn’t sell, then you haven’t lost anything. You haven’t screwed up your credit, you haven’t lost any money. But you’ve learned what doesn’t work. You’ve learned the kind of deal that’s not going to work or you learned a mistake that you made that you shouldn’t have made.
Joe: And you did it without spending any of your own money. And you’re not going to make that same mistake when you end up spending your own capital. What I see as the general progression for most investors as they get started they don’t have much capital to work with. They don’t have money to work with. And that’s not a bad thing necessarily.
Joe: You don’t spend your money if you don’t have it. You learn how to do it without it. You know, you’re pulling yourself up by your own bootstraps and you’re going to make this work without it. And once you’ve done that and once you’ve done a few deals like that, you may never spend your own money. It’s probably not wise. You’re going to want to spend your money eventually and you’re going to want to – but when I first started just spending my cash on properties, after I decided not to use loans again, I would usually go out and buy a property and pay 100% for that property and I owned that property free and clear.
Joe: These days, one of my favorite techniques is buying a property on land contract with a zero interest loan from the seller, so it’s not something I had to qualify for. I’m making payments to them and each payment that I make goes 100% towards principal so it pays off in a third of the time of a standard mortgage would pay off.
Joe: So I’m buying these properties in, you know, seven or eight years with principal only payments that are being made by my tenants. What I’ll use my money for is to go in and fix up these properties and we’ll make them really sweet properties. So we’ll find a property, and I’ve been doing it with really cheap properties in rural areas and in urban areas, low priced areas where average price range in some of those areas is $75K. And the cities themselves, like Indianapolis, we’ll buy them in Indianapolis but we’ll look at areas that have $75K properties even though Indianapolis has got a $200K median price range on their properties.
Joe: There’s still areas in the urban areas that I can do that. Or areas outside the city, like in Southern Illinois or in Arkansas, or in Texas or some places like that where I can find properties that are very, very cheap. And they’re all across the Midwest, all across the Sun Belt. There’s all sorts of communities that you can do this in. You don’t have to buy next door. So then we’ll go in and we’ll fix up that property. Maybe we’ll buy a property for $25K and we’ll put $20K worth of work into that property. Now we’ve got $45K in that property, but it’s worth $85K, $90K, $100K when that work is done. Plus we put a tenant in there and we’ll get $900 a month on a least option plus we’ll get another $7,000 or $8,000 in lease option fees, maybe $4,000 or $5,000 in cash and then maybe $2,000 or $3,000 or $4,000 in promissory note so we’d be able to get another $150 a month on our income on top of that $900 a month income that we’re getting.
Joe: So it gives us a really nice cash to income spread. So what I’ve done essentially is bring in that type of income that’s going to pay off that property entirely within 6 or 7 years. I’m going to get all my cash back within just a couple of years even with just the cash flow on top of the payments that we have. So I’ll get my $20K or $30K that I’ve put into the property back and you know, then I’ll own a property free and clear within a very short period of time.
Joe: And that’s how you build wealth. And if you do that a lot of times it starts getting really interesting. And so that’s a one way to avoid the mistake of using your cash.
Joe: The third biggest mistake that I see my students make is giving up before they learn how to actually do it, or jumping off onto some other technique. They think well this, there’s always, the grass is always greener and they always jump to the next technique from the next guy that they heard, hey, here’s a great idea. Here’s a great idea. You know, and they’ll get it in their mailbox, in their email every day with different ideas and different things that they can try and they won’t focus on one that they think has value and then actually learn how to do it. Because it does require skill.
Joe: And no matter which of these techniques you choose, whether it’s one of the ones I teach or whether it’s something that somebody else is out there teaching what matters is that you have the skill to be able to implement that technique. So take the time to learn that technique fully and don’t give up. And it’s going to be harder than you think at first. You think, well, I’m good on the phone. I’m nice with people. I’ve worked in sales all my life. But you need to learn the language of what we’re doing and you need to look at the business that you’re doing and learn how to make an optimal amount of money on each deal that you do and have a consistent set of leads coming in all the time, a constant funnel, a marketing funnel that’s happening all the time that’s bringing you more business. You need to learn those things over time.
Joe: So give yourself the time to be successful and don’t give up even though it seems like it’s a journey that you’re never going to get there. Honestly, though, it only takes 3 or 4 months if you do it diligently to learn how to talk to a seller. And that’s the most important lesson you’ll learn. And once you learn it it’s like riding a bike. You’ll never forget it and you’ll be able to use it for the rest of your life. So spend the time to do it. You know, a lot of people have gone into you know, gone to college for four years but you haven’t learned the things you need to learn to actually make money.
Joe: They give you a degree that might help you get a job, but if you want to learn how to make money you need to learn how to put a deal together. And being able to make deals will help you in real estate, it’ll help you in any other business that you create. So learn how to talk to people. Learn how to speak competently and confidently and you’ll be successful as a real estate investor.
Joe: All right. If you like this video hit the subscribe button. Go to ZeroDownInvesting.com for my mentor program information. Go to PushButtonAutmarketer.com for my automation program and then of course you can get free information from JoeCrumpBlog.com.
Joe: All right. Take care.