“I have made so many mistakes in real estate. The one mistake I have not made is losing money.” Grant Cardone (GC), Real Estate Mogul
As they say, if you want to be great at something, just learn from the pros. So, I had picked up the book “How To Create Wealth investing In Real Estate” by Grant Cardone (Uncle G; aka GC). I have learnt a whole lot about real estate investing from him through the book where he covered topics
ranging from the different ways to invest in real estate, mistakes to avoid, where to find deals, and some other hot topics worth knowing for real estate investors.
After, perusing through the book, I’ve decided to share GC’s mistakes to avoid when investing in apartments (lots of factors to watch out for):
1. Not investing
According to GC, apartments are his best asset class of real estate investing as they’re a great way to generate cash flow and enjoy insane returns on investment.
2. Buying too small
For GC, anything less than 16 units are considered small deals and won’t generate enough cash flow to make a very profitable deal. The
more units you invest in, the higher your potential returns; hence, his formula.
Cash Flow X Units + Time = Appreciation
3. Single-Family Home Rentals
Since single-family rentals house a single tenant (meaning dependence on just one source), they’re not great investment at least when compared to apartments (the 2008 market crash revealed this). Although, single-family homes may be easy to buy and hard to keep, they may not be supercars in the real estate investing race.
“Never invest in one door. Live where there is one door…” GC
4. Using too much debt
Lots of people lost money in the market crash in 2008 because they over-leveraged (i.e. took on more debt than they could handle). To that end GC recommends using 50% – 75% debt for deals. Putting too much as down payment could be an indication of an over-priced deal.
5. Buying on price and cap rate
The best deals are not usually the cheapest but the ones with a premium cost attached to it. GC says that the deals he’s paid the most for have been his best. In order words, it’s not necessarily how much you pay but the potential returns they tell whether or not a deal is a great one.
“A great deal is not determined by the price you pay …” GC
6. Not using a broker
GC calls this a pure rookie mistake. The brokers are your friends and will have access to deals that may not even be listed in the market.
7. Not looking at enough deals
Investing in real estate is a full-time job according to GC and requires energy,cash,relationship-building, and diligence to get the best deals.
“I look at 100 deals to buy 1…” GC
8. Unable to move to other markets
Investing locally where you live is a good place to start. It can also be profitable to explore others areas (especially those potentially doing
better than where you stay) by connecting with a team to help find and manage deals in other markets.
9. Not knowing the market
There’re a number of things to know about before investing in a market; these include deal sales, rentals, under-rated / over-rated properties,
insurance, utilities, management fees, operation costs, advertising cost, etc. As much intel that’ll give you enough confidence to part away with your hard-earned money in a deal.
10. Financing
Here’s where debt can be quite useful as it enables you to get great deals and make significant returns on your investment.
“Buying apartments without using debt makes no sense.” GC
11. Not buying through all cycles
Waiting to invest only at the bottom of the economic cycle, when things are smooth, may lead to indefinite waiting. According to GC, so long as you’re
investing in the right market and property and are producing a enough positive cash flow, that should take you through the economic cycles.
I found these to be very useful for thosee looking to jump into the game of real estate investing (especially in rental apartments). For more insights on real estate investing from GC, you can get a copy of his book “How To Create Wealth investing In Real Estate”.
To your success in real estate investing!!