Epic Real Estate Investing - Matt's 3 Biggest Mistakes in Real Estate and How He Overcame Them | Episode 218

Episode Date: August 22, 2016

Mistakes are opportunities to learn! They will come early and often, but Matt his here to help guide you through the challenges. Building a strong foundation early and continuing to refine your strategies makes all the difference. Get rid of the worry and give your business the tools to withstand the bumps in the road. Learn three mistakes Matt has made along his journey so that you can continue along your path to financial freedom with fewer headaches.  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. Broadcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. And welcome to Epic Real Estate Investing, the place where I show people how to escape the rat race using real estate. You just got to 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. It's not the most exciting path. But it is the fastest. And once you get there, life then becomes exciting. And speaking of exciting, we've got the two winners of the free tickets for the Epic Intensive.

It was a really tough decision, a lot of great entries. And it was actually so tough to the point that I had to open it up amongst my team to help me choose. I had to gather a consensus. I just, I couldn't do it myself. I was like, looked at 10 of them. I was like they all should be winners. So the winners are first winners. is Yvonne Pacheco from Orlando, Florida.

There was something about her fear expressed in her entry. Her fear of the 2016-2017 economic crash that is predicted by some other financial gurus out there. It's stopped her from taking that next step. And, you know, whenever I see the word fear, I think of a few things. I think about everything that you've ever wanted in a lot. life that you don't currently have, it's sitting right there on the other side of fear. If you weren't afraid of it, you'd have it. So that's the first thing I think of.

The second thing is I think about when fear is this particular fear, it's such a, it's a fear of such an uncertainty. And we just can't live like that of stuff we just don't know about. I mean, it's life is just way too short. And there's a saying that worrying works as 90% of what we worry about never comes about. So you can't just, you can't put everything on pause, can't put things on hold of something that you think might happen or you're worried that's going to happen. So you got to get rid of that. Life is just way too short.

You got to go after it. And then the third thing I'm thinking of, if there is a pending and imminent economic crash ahead, Yvonne, I'm speaking to you and anybody else who have heard something similar, there's no better place to be than in real estate if such a crash should occur. You know, I think I've said this here several times before. But if you look at the fall of the Russian Empire, the only people that survived were business owners and owners of real estate. So if something big and ominous is coming, if Armageddon is coming, then there's no better place to be than an owner of real estate. If you're going to do something, that's how you're going to survive. That's how you're going to pull through. It's business ownership and it's real estate.

All righty. So, Yvonne, those were the thoughts running through the office as to why you should be at the epic intensive. So congratulations. Now, the second winner, this was a tough decision as there were several entries, very close to this one. But we couldn't quite put our finger on it, why this one stood out. But there was something about this entry that spoke to the entire team. And I had a tough time with this one, as this person seems to be a Golden State Warriors fan. but popular vote it outweighed my Lakers bias. So the second winner is Damon. Damon, and I don't know how you pronounce this last name, it's N-G. There's no vowels in there.

So that's a little bit tough for me, and so I don't know how that's pronounced. But Damon N-G, I guess. Damon N-G. So congrats to you both. Melissa's going to be in contact with you to help you make your arrangements. And so now what I'm going to do is, because we had such a tough time in making this decision, I'm going to let you guys make a decision. I'm going to do this just for the podcast listeners.

I'm going to give away one more free ticket, and I'm going to let you pick the winner. And here's how that's going to work. You can go to Facebook.com forward slash epic real estate investing. That's where the contest is being held, or was held last week, but we can continue it for one more person. Go ahead and read through the entries and like the one that you think is most deserving. You'll see what my dilemma was. And if you haven't entered yourself, then this would be a good time to do that. And if you want to enter yourself and like yourself, that's fine.

And you want to start rallying for your likes and get your friends and family to come over and likes to help you get this free ticket. I don't care how you do it. But we'll go ahead and we'll pick our winners or one more winner on by Friday night or Friday at the end of the day of whoever, whichever entry has the most likes. All righty. So we picked our two winners here in the office. and now you can pick a winner in case we missed something. And it's very possibly that we did. All righty.

So Mercedes this past week, she slipped to me a note as she received a request from a listener of the show. And that request was for me to share my biggest mistakes in real estate. That person is very concerned about what I have done wrong. And we've got a lot of things we've done wrong in the past. So I'm going to share with you the three biggest mistakes from now over, I guess, more than a decade. in the business and more than 1,000 deals under my belt. I stopped counting at 1,000, but that was like several years ago when I hit 1,000. So who knows where we are now.

But a lot of experience, a lot of water under the bridge, a lot of mistakes. So we'll look back at the biggest mistakes. The ones that actually came first to mine were the ones that were tied to the biggest losses of money. And I think that can be kind of agreed to that, you know, nobody wants to get into real estate to lose money. And so I'll share that. And then I also think about the biggest losses of time. There's been losses of relationships. Plenty of other mistakes. I make them daily. Not perfect by any means. But we'll go over the three biggest. And I'm going to start from smallest to biggest. So my biggest mistake,

that's going to be number three. Right. So let's start with number one. Number one, I would call poor delegation. You know, I've cost myself some serious money in this department, some serious time and some really good relationships with with poor delegation. When I was in the music business, I was very much a control freak and I wore every single hat in my business and I can look back and see how that really cost me. And so when I started a new business and a new industry, a new venture, just recreated my whole life inside a real estate, I was like, okay, I'm not going to make that same mistake. I wanted to bring that lesson that I learned in one industry and apply it over here into

this new industry, this new business. And so that would be, yeah, poor delegation. But I knew I needed to delegate. I can't be the one person that does everything. I need to be able to delegate. I need to look at people that are smarter than me or better at me or more skilled to something than me and have them as a part of the team and do those things that they do best.

And, you know, sometimes, and I know I was thinking. about these mistakes that I'm going to share with you, these aren't the first time I've made them. I've made some of them multiple times. And, you know, sometimes it's just not so clear whether a mistake was a fluke or not. And in real estate, I think with so many variables at play, sometimes it's not so clear as to why a mistake was a mistake. So I know I have repeated some of these mistakes. And so this poor delegation, I've delegated poorly a few times.

And that has just to do as much with the people that work here in my office as it does with my virtual assistant team. And yeah, I should have known better. But here's why. This is why I should know better is that every person on my team is required to take a wealth profile test. It's a personality test. But it's more of a personality test that has to do with you specifically as an entrepreneur

and how you deal with money. And this profile test, it tells you exactly who you are around entrepreneurship and wealth creation. And it's spot on. It's yet to be even remotely off. It's been spot on with every person on my team that has taken it. I mean, it reveals your strengths. It reveals your weaknesses.

And it informs you how to manage yourself and who you need on your team to make you a complete and successful entrepreneur and wealth builder. If you'd like to take the test, you can at get my wealth profile.com. Get my wealth profile.com. Anyway, this test, it gives you like a title. And I'm what's called a creator. And one of my biggest weaknesses is that as soon as I create something, I move on to the next thing. I have to keep on creating. That's the inner fuel for me.

And that comes into play with the delegating. So I give someone instruction and I give them a little bit of guidance. So I've created this thing there to give this project. I gave it to them. And then I move on to the next thing. And in this context of delegating, I then get upset, commonly unfairly upset, when the person stumbles or when they fail. You see, I've got these unfair expectations of the person because I believe I've given them everything that they needed. And then I never checked in to see if everything was cool, never provided any sort of constructive criticism or any sort of praise. And basically, their

relationship would eventually implode. And now it was time for me to find a new person to delegate to. And this was really apparent with virtual assistance. You know, after I read the book, the four-hour work week, I was all excited about hiring VAs and just outsourcing my entire life. And I didn't look at my virtual assistance as people. I looked at it as, wow, a cool little trick I learned in a book and look at this cool little technology.

Through the computer, I can hire someone in some far off land to do this task for a really low price and that's how I viewed it. I didn't view them as people. And once I had that shift of starting to, and I have taken this wealth profile test, I know, I know who I am and how I work. And I was like, oh, that makes total sense. So now I can move forward with this newly found information about myself, this new insight. And now when I delegate, I create a project and I go ahead and I check in. We have regularly scheduled meetings to make sure everything is going well. I started treating my virtual assistants like team members, like people, as if they were just

right here in the office sitting next to me. And that's where everything really turned for me. But it took me a long time to really get that lesson. So then to take that a step further to fix this and take all this information forward, I've surrounded myself with a supporter. that's another designation side of that wealth profile and a mechanic which is another designation so that we've got me being a creator I need to surround myself with the support with supporters and mechanics of which together makes the ideal management team makes the ideal execution team

so what we do now is each Monday we meet we meet on Mondays and I reveal the vision for the week essentially and the steps that we need and who's going to be responsible for what and then it all gets carried out in that manner. So what I've done is I've matched up my strengths with theirs to make a really strong team or a really strong delegation system, if you will. So the lesson here for you is when you start building your team, whether it's an in-house or virtual team, provide constant support and training to your team,

provide constructive criticism and provide praise where they're appropriate. Because, you know, your team's success is going to, equate to your success. So be just as invested in their success as you are your own. Because they go hand in hand and most of the time they just can't exist without the other. So definitely you've got to learn to be a really good delegator. And if you do it poorly, it can cost you money and cost you time. And it can cost you relationships.

All right. So that's number one. Mistake number one. Mistake number two is going wide with my business before going deep. in the business, trying to expand and get big before it was really time, before the business could support it. And again, that's the creator in me, per my wealth profile results. I've done this with the markets that I've operated in, and I've done this with the people

of which I worked in those markets with. And, you know, the analogy that works for me here is it's like the skill of laying bricks, being a mason. When you start with that first brick, you have to lay it perfectly. You have to have just the right enough mortar on there. And because if you've moved too fast in building your brick wall, how you lay that very first brick is going to affect your final result. And when that wall gets to a certain size or the bigger that it gets,

the more difficult it gets to go back and correct the position of that very first brick. So you want to go deep with that first brick. You want to make sure it's absolutely perfectly laid. Another way to look at it is like a car. You know, when you're assembling a car, if the engine was built with precision and it was tested and it was proven before adding the axle, before adding the drive train and adding the wheels, before even adding the body, the car, regardless of how good it looks, if that engine wasn't built with precision and tested and proven,

that car regardless of how good it looks, it's not going to run very well. And to go fix it, now you've got to take the car apart and you've got to go back and go all the beginning and fix that engine. And it's such a waste of time and it's expensive. So your business is very much like a bunch of bricks or it's like a car. And you've got to make sure each piece is working before, before adding another piece. and when you start adding pieces before that you've confirmed that that first piece is in order, boy, you really are asking for trouble.

And trouble found me in this sense, trying to get too big, too fast. So we have cut off so many different opportunities that we were pursuing and really focused on three core strengths of ours and are going deeply focused inside of our business with just those three. and now we're really slowly monitoring our growth. It's not that we're intentionally growing slow. We're just making sure everything is in place before we take that next step. So going wide before going deep,

that was a big mistake of ours in the business in the last decade. Mistake number three. And so going from smallest to biggest, I would say this one, mistake number three, absolutely the biggest, far and away the leader. It was the first one that came to my mind, as I've said there,

You know, they're really just two places where investors lose money, right? I mean, real estate investors. If you get these two areas down, though, it's really tough to lose money in real estate. I mean, if you get these two areas down and you get these two areas locked in, real estate becomes hands down the safest investment anyone could ever make, the safest. And also the highest rewarding. Like, usually risk and reward go hand in hand. but if you get these two things, you can have the best of both worlds.

You can have the highest reward with the least amount of risk. And my biggest mistake here is, and you probably already know if you've been here more than a few episodes, it's hiring bad property management and contractors. And even the contractors, as bad as they can be. And I guess if you have a fix and flip business, they're a little bit more of an issue. But I can, in my business of a buy and hold business, I can let that slide. it a little bit just because if they mess up, if the contractors mess up, typically it's just a one-time fee of cleaning up their mess.

I might even if I had to do it all over again, it's kind of one-time thing in it and is done, typically, all right? But property managers, oh my goodness, they can cause damage each and every month, year after year after year. I mean, if you're going to be a cash flow investor, if you ever want the benefits of passive income, if you ever want to escape the rat race, a large portion of your success is going to be in the hands

of your property management team or your property management system. That's the name of the game. And here's what I mean. Here's two, like, these are extreme examples. But it'll give you an idea of what I'm really talking about. Because of bad property management, I have lost more money in Cleveland than I've made.

and we've done a ton of transactions in Cleveland. Cleveland has taken more money from me than I've ever taken out of Cleveland because of bad property management, multiple property managers, not just one. I think we went through four property managers in Cleveland. And because of them specifically, not even indirectly. I'm talking directly because of property management. Cleveland has taken more money out of my pocket than it has ever put in or will ever put in. I don't even know if I'll ever go back there to try in, you know, get back what I feel is mine.

But because of good property management, I've never lost a dime in Birmingham. In fact, Birmingham has been an absolute breeze, Birmingham, Alabama, because of good property management, because of being aligned with good people. Same types of houses, same types of tenants, same type of market. Just management is the only difference. and one was it been an absolute disaster. The other has been an absolute joy. So here's the problem with property management. And it's something that you're just going to have to deal with.

But here's the real issue that lies at the center of everyone having bad experiences with property management. And they're not all bad. They're not all bad. And I don't even think they all start bad. The ones that are bad, they didn't start that way. Because here's what happens. It's that their revenue incentives are not in alignment with an owner's revenue. the new incentives. You know, property managers, they make the majority of their money when they

placing new tenants, because they get a bonus when they place a new tenant, and when they're repairing properties, because that's, they mark up their work. They, they mark up for labor. They mark up for parts. And the more often that they can do that, the more money that they make. So they make their money when they have to put in a new tenant and they make money when they're repairing property. So they make money when there's turnover. So every time a lease is up or even before a lease is up, they get to go find a new tenant where they get a bonus and now they probably have to rehab and repair that property to get rent ready for the next tenant and they get money that way as well. So that's how property managers make their money, the majority of it.

Owners make their money when their tenants stay and they make their money when nothing breaks in the property. That's when owners are making their money. So do you see how those two things conflict? So one person is making money and the other isn't in that relationship. Unless, you know, there's an operation of 300, 400, 500 properties for that property manager to go ahead and take that 10%. But really, that 10%, you've got to have a lot of properties under management for that to really support a business. And also, property management, it's a rather thankless business. As the only real interaction with your customers, whether that's the tenants or the owners, your only interaction comes about when something is wrong, when someone's unhappy.

and over time that wears on a property manager. I mean, they're human, right? We're all human. And when your only interaction with people is when they're pissed off about something, that can really wear on you. And it can bring out the worst in people. I mean, those types of conditions and that type of business model, that can turn good intending people into desperate people,

into resentful people, into entitled people. So moving forward, what's the way? the solution. I mean, because there has to be a solution or you'll forever be in a rat race if you don't get this figured out. So I've tried many things, many, many things. And I'll just promise you sticking your head in the sand, that ain't a solution. Hoping it's going to go away, that's not a solution. Giving people the benefit of the doubt over and over and over again because you might like them personally, that ain't a solution. I've tried a lot of different things. And And believe me, I tried all the easy ones first.

So here's what we've done to stabilize our income portfolio. First, we check and double check everything. Every piece of correspondence, invoice, work order, whatever, every tenant application, everything that comes from our property management, we check and double check everything ourselves. It's not fun. I hate it. But we now, I mean, we've now micromanaged.

property managers right from the beginning until they prove they don't need to be micromanaged. We do not give them the benefit of the doubt from the beginning anymore. They got to prove to us that they don't need to be micromanaged. And if they don't like it, so what? I've lost too much money to really care about your feelings right now. So let's go ahead and start this relationship off micromanaging. And once things start going well, then I have no problem backing off. But no one gets the benefit of the doubt from us anymore when it comes to property management.

It doesn't matter where they were referred from. It doesn't matter. How we found them doesn't matter how much I like them. Doesn't matter what they say their history is or how great they are. I don't care what their BBB rating is or anything. No more benefit for the doubt. So that's first. Second, we always have at least two property managers to divide the portfolio up amongst.

Okay? You've heard me say that before. You've got to eliminate all your single points of failure in your business. business specifically when it comes to property management. If you're going to start eliminating single points of failing your business, start with the property manager. You need two of them. All right?

If you only got one house, then, okay, you don't need two. But I would know of a second one for sure just in case you have to make a switch. All right? So I would go with two property management managers. Even if you've got two, three properties, you don't need to divide that up. But it will keep in mind as you get up, as your portfolio. grow, and you start hitting the point where just about that point, like, wow, what if this property manager, something were to happen to this property manager, what would that mean for me?

And if your answer is like, ouch, that would really hurt. Okay, now it's time to start thinking about diversifying. If you're in a position to where, oh, well, I'd just go out and find another one. Then maybe it's not so dire that you do find another one. But when you get to a point where that's going to be painful if something were to happen of that property manager, now it's time to start looking for a second one. So we always have two property managers. And then third, even when things are going good, because things are going good for us right now for the most part in most of our markets, things are going good.

Even when everything's going good, our eyes and ears are always open looking to improve. We're always looking for new property management relationships. That's how devastating our history has been. I was talking to Mercedes the other day, just two or three days ago, actually. And I was like, gosh, if we just had perfect property management from the time we started to right now, we would have, this would be a multi, multi, multi, multi million dollar empire, no doubt in my mind. So having that history to where we are, we're doing very well for ourselves, don't feel

sorry for us. That's not what I'm looking for. Our portfolio is worth well over a million dollars. but looking back, I just like, I look at how much money was spent, how much, how many checks were written to fix problems, how much, just how much angst we've experienced just because we didn't realize how important property management was. It's everything. It's not even like 75% or 85%.

I would say it's 99.9%. If you're going to be an income investor, a cashful investor, property management. You need to investigate your property management in the exact same manner, maybe even more so than you're investing or investigating the property itself. Okay. So we've always got our eyes and ears open knowing that we might need to improve. There is no resting and no one's job is safe. That sounds crazy, but your personal financial freedom is worth it. I'd rather manage property managers than be governed and managed by a boss for the rest of my life.

That's the trade-off. So I have one person here in my office, and 75% of their daily responsibility is managing property managers. At least 75%. There's weeks where that's all that they do. And when I share this with people, the most common question I get is, because, boy, I can stand on my pulpit all day long and talk about this.

That's how important it is. And the most common question I get is when I find myself on my podium, is how do you find a good property manager then? And I'd have to say you work with a lot of bad ones. You work with a lot of bad ones first and you keep trading up. And the recommendation that I could give you is you just don't want to start with the worst and work your way up. So start with a referral from an investor friend or an associate that you trust, someone that's got a portfolio, someone that's experiencing some passive income.

Try and get a referral from them. And then that can be your starting point. but then go from there with the mindset that you're looking to trade up at a moment's notice. You don't have to trade up at a moment's notice, but it should be your mindset that you're willing to do so. That's how important property management is. So those are my three biggest mistakes and how I've overcome them. That was poor delegation, then going wide before going deep, and then hiring bad property management. Those are the three biggest mistakes that I've got that I can just chalk up all of my

uncomfortable situations in real estate. I can chalk them all up to those three things, probably. And so much of my challenges of the past, though, they can be traced and tied directly to my wealth profile. And that's really just, it's been an invaluable tool for me understanding myself and for understanding my team. And again, if you'd like to take the test, go to get my wealth profile.com. I think it's $97.

But it's $97 that will return at least a hundred times. to you, at least a hundred times return, return on that investment. There's another cool thing that they give you all your strengths and your weaknesses and how you work with people, how you work with yourself. But then they also give you, I think mine had three different biographies, like a two, three page biography of successful, uber successful entrepreneurs that have your same profile. And one of mine was, what's his name, the virgin guy, Richard Branson. He's a creator like me.

He's got the same profile as me. And I read through his story and all the moments of his life that where he was experiencing the utmost adversity and the most stressful times of his life, you know, they came like a day before his biggest successes. Like there was a story of like where he was struggling and struggling and struggling and went right down to the wire where he couldn't make payroll. And this was after he was a household name. This was like nobody had any idea what was going on behind the scenes.

This is when Richard Branson was already super, super, Uber successful. And there was a day where he wasn't going to be able to make payroll for his company. And then the next day, he did like a $600 million deal. And he's had like six or seven of those exact instances or very similar scenarios in his progression. And I just look at mine. I was like, oh my gosh, I don't know how many times I've experienced that myself. And it was really inspiring, very comforting, eliminate a lot of worry and stress out of what I go through and what I've gone through

and what I'll probably continue to go through just because this is me. And wherever I go, there I am. And, you know, I've got my strengths and weaknesses that come right along with me. But it was very comforting to go ahead and identify with someone super successful that's just like you. So I recommend it. Get MyWealth Profile.com. All righty.

So go to also the Facebook.com forward slash epic real estate investing. That's our Facebook page. Epic real estate investing. Get the investing in there. And go there to enter for one last time for a free ticket to the Epic Intensive. Enter if you haven't entered and or like your favorite entries. And the entry with the most likes by the close of business on Friday is going to win a free ticket to the Epic Intensive. And that's on September 22nd, 23rd right here in Redondo Beach, California.

So until next week, to your success, I'm Matt Terrio, living the dream. You've been listening to Epic Real Estate Investing, the world's 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.