Epic Real Estate Investing - 6 Lessons You Now Won't Have to Learn the Hard Way | Episode 154

Episode Date: April 20, 2015

The only sure thing in real estate investing is that you will make mistakes. If you want to bypass the line where you make them all yourself, you must be willing to learn from the blunders of others. Today, Matt is sharing the six lessons he learned at the school of hard-knocks that collectively cost him upwards of several hundred thousand dollars. Enjoy! ------- The free course is new and improved!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most? E ducation P roperties I ncome C oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Podcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Welcome. Welcome to the Epic Real Estate Investing podcast, the place where I show people how to escape the rat race using real estate. Just all you got to do is just one thing. Just shift your focus from making piles of money to making streams of money. Change that one thing just one time and you are on your way to financial freedom. Now, I got to warn you, it's not the most exciting path, but it is the fastest path.

There is an upside. And once you get there, life then becomes exciting. Now, if I were to start over and achieve my financial freedom even faster, knowing what I know now, what would I do differently? Well, you know, I'm asked this question frequently as this question, it cuts to the core of the education that I've gained the last five or six years of investing in. real estate. You know, in this game, you're either getting paid or you're getting educated. And here are six pieces of invaluable education that I wish I knew before I got started. Had I known, there's no doubt I would have achieved my financial freedom even sooner than I did. So, number one, one property manager is not enough. One painful lesson I learned for my years

in the music business was to eliminate your single points of failure. For example, I sold CDs, compact discs, for those of you that don't know what a CD is, because I'm aware that there are some of you now. And, you know, selling CDs, that was my only source of income. And I sold those CDs through one distributor. And when the music consumer changed the way that they purchased their music, meaning they stopped walking into music stores and opted for downloading their music online, I was out of business almost overnight.

Literally six months and it was over. I had one product and I had one channel of distribution. So I had that single point of failure. I had no other way to generate a revenue once that digital download came along and changed the whole industry and turned it completely upside down. Now, I've carried that lesson over to my real estate investing, although not soon enough, unfortunately. Not before I lost hundreds of thousands.

of dollars. There's no exaggeration there. I mean, the damage caused here, it still reverberates through our office more than two years after the fact. We're almost approaching three years, of which makes it really difficult to calculate the actual loss of what this lesson cost me again, as the losses are both directly and indirectly a result of just one property manager. Now, it's a very long story, and it wasn't my fault that it happened, but doesn't matter. I had to take responsibility for it happening. You know, I should have known better. Absolutely should have known better.

The short of it is I had found what I thought was a good property manager. My properties were performing. My client's properties were performing. And together, at that time, between my properties and my client's properties, that amounted to probably, right around 60 properties that this person had under his management. And when he passed away, tragically, I was left with 60 unsupervised properties halfway across the country. And I had to scramble.

I had to scramble to get new management for these properties. And I had to do it fast. I mean, rent was coming up. You know, I had somebody, they have to have some place to send their rent. Someone has to be there to collect it. And so I had to do this fast. And because I had to do it fast, I, I, made some hasty decisions and looking back were terrible decisions.

And actually, they were back-to-back hasty, bad decisions after my first solution didn't turn out to be a solution, nor did my second. You know, and it took me more than a year to get this headache somewhat resolved, at least stabilized. And with a year of lost time and a few hundred thousand dollars, at least down the drain, you know, this put a significant hindrance on my road to becoming the millionaire real estate investor that I'm striving to be. And I'm moving forward again now, thankfully, but now with multiple property managers in each of my markets that I'm in. So that doesn't happen to me again. My portfolio is

split up amongst at least two property managers in each market. Some of my markets, I have three, but I didn't stop there. I didn't stop diversifying there. I've diversified my contractors as well, my rehab teams. And I've diversified my property. types. I've got single family. I've got duplexes and fourplexes and I got multifamilies. I've got a 14 unit, a 44 unit. And so I've diversified my property types and I've diversified my markets. I'm in 10 different markets. Now, I've eliminated all single points of failure in my business. And I frequently ask myself this particular question. I heard it. It was actually advised by Mr. Mark Cuban, owner of the Dallas Mavericks and on the show Shark Tank and just very famous businessman.

You know who he is. And he said the best question a business owner can ask themselves is, if I were my competition, how would I put myself out of business? It's a very powerful question. I mean, you've got insider knowledge. You know exactly how you would do it, right? Well, just imagine your competition didn't know that weak point in your business. Well, you know what?

It's time to go ahead and bolster. that weak point. And so every time I ask that question, it's probably two, three times a year at least now. If I can come up with a viable answer, I go to work on that area and eliminate it as a possibility of failure. All right. So that's number one. One property manager is not enough. Neither is one contractor or one property type or one market for the big picture. Number two, the deal is never about the property. You know, one of the biggest misconceptions about real estate investing is that the most critical thing is the property itself and its condition and its location. And the truth is that these considerations are secondary to the motivation of the seller. You know, if the seller is not

motivated, then regardless the condition or the location of the property, you are not going to come up with a real deal. But if you have a motivated seller, then you have a great chance. You of turning a very solid profit for yourself no matter what the condition or location of the property. You know, when this really sinks in, and it will eventually, if you do this long enough, when it happens, it revolutionizes how you prioritize your search for finding good deals. You know, no longer do you waste time on the due diligence and inspecting the house up front and thinking, wow, this person is really nice. She's such a sweet little old lady. I hope I can help her out. Or they're such an adorable couple. And I bring that up right there because so many of the

emails that come to my coaching email box from my coaching clients, they begin that way. It'll be something like, so I found a deal. A really nice old lady owns it. She inherited it from her sister. You know, I had my realtor drive by and they think it's a pretty nice property. And it's in a good school district. They could probably use a new roof in a few years. But overall, it's a nice property. But she's not sure if she wants to sell or not. What should I do? Those calls are typically a waste of time. No, in fact, they're all a waste of your time until you have uncovered some real motivation,

some motivation to sell. You know, finding this motivated seller becomes the most important activity you can ever engage in. This is the best use of your time. This is where you must focus your time, efforts, and creativity. This also means that the highest leverage activity you have is to be sitting face to face with a motivated seller. Don't allow non-motivated sellers to waste a minute more of your time,

you know, listing off the wonderful features of their homes and how, you know, their sister left on the property and how pretty the yard is. You know, don't waste your time with that. You don't care about the house until you've established the seller is motivated. spend your time with motivated sellers only. And then fire off an offer or a letter of intent to the rest of them. Leave no lead behind, but only the motivated sellers get your time.

All righty? So that's number two. Number three, people lie. I wish someone would have told me that earlier. And I mean, I don't know about you, but I grew up with the understanding that lying was a bad thing. And getting caught lying was for. First, it's embarrassing when you get caught. Second, it typically made, you know, whatever you were trying to avoid by lying.

It made that situation even worse. And third, it destroys trust. It destroys relationships. It destroys the future when you lie. You know, and in industries where there's potential for a lot of money to be made, and real estate is certainly one of those industries. It certainly qualifies. People seemingly forget the ramifications of lying.

Or they don't care. Or they think they won't get caught. And I haven't quite figured this out yet because, you know, no one ever told me this. I spent the first few years of my real estate investing career believing everything, you know, realtors, contractors, wholesalers, tenants, and property managers. I believe what they all said for the most part. I gave them, always gave him the benefit of the doubt at least. And, you know, my dad, he had a saying. He said, don't believe anything you hear.

only half of what you see. Now, that's a pretty cynical way to go through life, but I've got to tell you, when it's your money on the line, or when it's your credit on the line, or when it's your name and your reputation on the line, in real estate, that's not necessarily bad advice. You know, carpenters, they have a saying as well, measure twice, cut once.

And I think this is a sound principle. It's a sound universal principle to not only, cut wood, but to conduct your due diligence by as well. You know, in most parts of our business, the most vital parts, I have a checks and balance system in place, meaning before I purchase a property, someone else on my team has probably already looked at it, perhaps more than one person. And then it's up to me to confirm what they found. That's my checks and balance system.

I've got multiple eyes on each deal. And with this podcast, you know, I listened to it mostly after I have recorded it. made any necessary edits, it then goes to a producer who listens to it and puts the polish on it, and then it goes to my content manager who gives it a final listen prior to posting it for a release. And as we continue to make strides to become more efficient here at Epic Real Estate, we create systems. And within those systems, we insert a checks and balance system whenever possible. So I guess the moral of this one is measure twice, cut once. Confirm everything.

Okay. Number four, you got to ask to get. You know, when I got started investing in real estate, I was scared to death to actually make offers to sellers. Yeah, seriously, I had no problem doing it as a realtor on other people's behalf, but as a real estate investor, there was newly found apprehend. about this process, about writing an offer and essentially signing my name and putting my butt on the line. And I think the root of my fear was, you know, not only did I fear my offer might be rejected, but it also felt as if they were rejecting me. And in my mind, the two were kind of, they're one of the same.

So over time, I came to realize that this one mistake, this one hesitation, it kept me from making offers that in retrospect, I feel the sellers would have accepted or I would have had more acceptances in there. And this cost me hundreds of thousands of dollars and lost profits over the years, especially the early years, maybe even millions. It's why now I'm so big on always submitting an offer. You know, you and I, we spend a lot of money to generate that lead. We spend a lot of energy to generate that lead.

We listen to a lot of podcasts to learn how to do it right. And it's now more painful for me to think that I've missed out on an opportunity than it is to get an offer rejected. That's where the pain is now. It's, oh my gosh, did I miss out on that opportunity? Would they have said yes if I just submitted an offer? That's more painful me wondering about that than actually submitting the offer and getting it rejected. In fact, now I keep track of my rejected offers. We talked about this a few episodes ago because I know the more I get rejected,

I know that there's a direct correlation to how many get accepted. So if I go for the rejections and that's my goal is to get offers rejected, I actually win, in my mind, when an offer gets rejected. Because I know the more that I send out there that get rejected, that means that will translate to the more that get accepted. And just about every investor I've coached falls into this trap, to some extent, most of them deeply into this trap. And sometimes it's the disbelief that a seller would ever accept a no money down offer or a principal only seller finance carryback. Or they walk away with a promise to get back with them and never actually get back to them. Regardless of why you don't write the offer, why you don't ask, the cost is the same.

The most important lesson I learned is that not asking is an automatic no. Right? If you don't ask, it's already a no. They're not going to volunteer to give you more money. They're not going to volunteer to give you a deal. Not asking, it's an automatic no. And over the years, I've asked for and gotten everything from extensions on the term of a seller carryback. I get extensions on the contract. People ask, well, what happens when the 14 days passes up in my contract and I haven't found a buyer yet? Ask for an extension. That's what you do. Okay. And I've gotten maintenance credits, money for repairs. and I've gotten free appliances. I've gotten all kinds of stuff to stick with the house,

like ceiling fans and stuff. So if you don't ask, you don't get. And I've got two more lessons that I wish I would have learned prior to doing my first deal, two of which can save you thousands of dollars today. We'll be back in 30 seconds. Right after this. Contrary to popular belief, a lack of funding is not the biggest barrier to stop.

starting a business. It's excuses. But don't let a lack of funding be your excuse. We are Epic Fast Funding and we'd like to fund your business with up to $150,000 in revolving credit lines. If you've got 60 seconds on a solid credit score, you could have access to your funds in as little as seven days. Go to Epicfastfunding.com to fill out our 60 second application. It's fast, it's simple, up to $150,000 in as little as seven days. Go to Epic Fast Funding.com. Go to Epic Fast Funding. Number five, detach yourself from the outcome. In other words, don't be afraid to walk away. You know, the common denominator for all the borderline deals that I've bought, that I've

flipped, or that I've held is that at some point in the negotiation, I crossed over to the point where I had felt I had to do the deal. You know, if you ever hear yourself saying these words, even if it is merely just to yourself, and I want you to pause. Pause, push back your chair, get up from the negotiating table, and walk away. I'm really serious about this. If the deal is that good, a small break while you take a moment by yourself is not going to stop the deal. And by taking this time, you just might keep your ego and your emotions in check and stop them from pushing you to make a deal that means a lot of work, a lot of risk for very little profit.

For example, I'm in the midst of negotiating a few buy and holds with a friend. And he's in a bind, and I want to help him out of it. But I can't help him to my own detriment. You know, I'm emotionally involved because I want to help a friend. But I got to remember my role as an investor. I got to take on, I have to find deals. I have to find an ROI for myself. And this can really be a slippery slow.

because you can spend a lot of time negotiating with the sellers and you know you might you might guys might click and you might actually start to like that person and want to help them out and and maybe feel that you could have over might have over promised or you said something or something came up in the in the property inspection that's like a deal killer so it can be a very slippery slope and also the other another side of that is if you've already say you've already done the deal you've closed the deal it's your deal now and say you have planned you made an account for $5,000 in the rehab. But then you find out during that rehab,

unexpectedly, of course, I mean, shit happens, right? And you find out you're going to need another $3,000 to complete the thing. So do you put the $3,000 more in to save, or at least to not lose the first $5,000 you put in and potentially to only find out that something else may happen? I mean, you get the idea. Don't get attached to any deal emotionally. and be okay with cutting your losses.

You know, don't hang on too long. Don't keep throwing money at a bad situation. If you work this business enough, you're going to, you'll have this experience. You'll have to cut some losses every once in a while. You know, Fernando and I, we just dumped three multi-unit properties. We had to sell them and we sold them, you know, probably for a lot less than what we should have. Two of them because they were just going to take way too much to get them up and running. from many different respects, not just in money,

but the effort that was going to take to fill up those properties and get those properties properly managed. So we had to let them go. We just did not see that turning out well for us in the future. And the third one was because the job was just way too big and we didn't have the time. It was probably going to be a 12 to 18 month project.

And it seemed like, I mean, it was a killer deal when we got it and it's still a killer deal on hindsight. We just don't have the time for it. And it's just, you know, tying up a lot of funds for a very long time for, you know, still a potential return. And so we've held all three of these buildings for more than a year. And gosh, I mean, when you take into account the carrying costs involved, we lost. We lost on these deals.

We had to cut our losses. And fortunately, we walked away. We did walk away with minimal impact, but we did lose. But you see, looking forward, it just wasn't going to happen. And I have to admit, I was a little sad. I was little emotionally attached to these three deals and I was a little disappointed about having to let these go because I was really excited about the way that we acquired them and how we were able to acquire them. But as I coach people, deals, kind of like buses. If you happen to miss one, don't sweat it.

There'll be another one along shortly. All right. Number six, you'll never know at all, but you can learn enough. Now, I know this one can certainly save you thousands of dollars today. You know, when I got started and still to some extent today, sometimes, I kept learning more and more and more, but never felt like I knew enough. Particularly like right now, like in the beginning it was, you know, the basics. Like, oh my gosh, how do I write an offer and how do I do this and not break the law? And how do I talk to a seller?

Like all that kind of stuff. I needed to learn all that. But now it's like, you know, as I look at new markets, I look at new types of investments. I still kind of catch myself every once in a while, but I'm aware of it so I can stop myself. You know, the one day I realize when a person really knows enough, you know, when do you know enough to get started? Whether it's your first deal, a new market, a new strategy, it's not when you know it all because you'll never know it all. It's not when you know all the legalities. That's not your job.

It's not when you know all the tax ramifications, no. You know enough when you step out and take action, acknowledging that you'll never know it all. I mean, there are different levels of learning. You know, you can follow a book or a program and just kind of learn at your own pace. Or you can connect with a mentor and a coach and you can learn that way. Or you can immerse yourself in a positive environment of others who are doing what you want to do. And or you can take a leap of faith and just start doing yourself. And that's where experience comes from.

You know, you stand to benefit from everything that I just mentioned here. You can benefit from all different ways of those learning, and I've embraced every single one of them. But don't stand on the sidelines indefinitely. Sooner or later, you've got to get in the game. You've got to get on the field, and you've got to start making plays. Attention, attention. Shocking website reveals that shocking websites aren't really that shocking.

All kidding aside. Go to find motivated sellers ASAP.com to get the inside scoop on how the nation's most successful real estate investors really find their deeply discounted properties. Go to find motivated sellers ASAP.com. Deeper discounts, less secrets. Find motivated sellers ASAP.com. That's it for today. See you next week or catch me tomorrow on turnkey real estate investing.

I'm Matt Terrio, living the dream. You've been listening to Epic Real Estate Investing, the world. It holds foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic Real Estate Investing with Matt Terrio. This podcast is a part of the C-Suite Radio Network. For more top business podcasts, visit c-sweetradio.com.