Over the course of 2023, I’ve made some major strides in the direction I want to go with my real estate investing. The first half of the year I spent taking massive action in terms of building my portfolio of holdings. I borrowed a lot of money from private lenders and bought a lot of great deals. I also did some not so great deals that have set me back and caused me to learn some painful lessons. We touched on one of these large mistakes in depth in my previous blog post about emotional decision making. There are a few more to add to the mix there that fall under the same category even though they haven’t been as extreme in nature. I have spent a lot of the second half of 2023 correcting some of the mistakes I’ve made from the first half. These corrections have really helped me solidify my processes moving forward so I can continue to grow in the most efficient way possible. The lessons I’ve learned from my mistakes are plentiful and the process of going through the corrections has been extremely rewarding thus far as stressful as it is.
Lesson #1
Never buy a deal using purely emotion and speculation.
I went into this lesson at length in my previous blog post. To reiterate, one of the deals I bought in 2023 I did so based solely off the word of the wholesaler selling me the deal combined with an emotional itch to buy something in that area. I paid dearly for this mistake, racking up thousands of dollars in private money costs and dealing with extreme scenarios such as breaking and entering from locals. Eventually, after months of struggle, we were able to come to a solution to at least break even on the property and stop the bleeding. Correcting this mistake has been extremely painful. It has taught me to never buy based on my emotions as they are the enemy of sound decision making. This lesson has caused me to become extremely picky about what I’m buying for my own portfolio and wholesale the rest so I can maximize my revenue from every opportunity while keeping my risk as minimal as possible.
Lesson #2
Have backup options you are okay with before buying a deal.
I made two other purchasing miscalculations in 2023 that has bled me money so far with no solution yet completed. I bought two homes in San Antonio that I thought I would be able to perform a wrap on. They are both in great areas, but they didn’t have any other viable options to cash flow except the one strategy I was intending on pursuing from the gate. This strategy ending up costing us a lot of time, effort, and money across our holding period. We have now decided to put long term renters in there to try and break even and stop the bleeding. We have had to come to an agreement with our private money lender to cover their interest as well as take proceeds from other deals to float these ones. On the bright side, we will be able to use these properties to write off our income and save come tax time. We also get the benefits of appreciation and loan paydown over time which is nice to have in our portfolio especially in the areas these homes are in. The lesson here for me is to stay away from deals where I don’t feel comfortable with the worst case scenario. This applies to anything. If you’re about to attempt something where you aren’t okay with the worst possible outcome, you’ll need to gauge if this opportunity is a risk worth taking because there is a chance the worst case scenario will become reality as in my instance. Not everything is as forgiving as buying real estate so make sure you weigh out your options carefully based on your own scenario.
Lesson #3
Use your own money for smaller deals when possible.
Being that 2023 was the beginning of my first real plunge into real estate investing, I didn’t have much financial backing prior to this year. I had no choice but to borrow money to build my portfolio. I am now in a position where I have a strategy where I can recycle my own capital and grow my cash flow. Borrowing money can get extremely expensive and stressful, especially during economic downturns. More than once has private money made my deals much more difficult and less profitable than they needed to be. As an investor who is still looking at mostly single family homes and is using a strategy that my capital can be recycled, it is probably better at this point for me to use my own money to do this. I now have a good financial backing due to my active income from wholesaling and relationships with people who I can partner with to do deals. In order to reach financial freedom the most efficient way possible, the best thing I now think in retrospect for me to do is to keep the deals I buy to a minimum, use my own capital when possible, and wholesale anything else to build my reserves. It is not about doing more deals for me right now in terms of acquisitions, it’s about doing more deals right. The more cash flow I can keep, the better position I’ll be putting myself in long term.
Analyze and learn from your mistakes
Mistakes are a vital part of our growth and progress. Without them, we don’t stand to learn or grow. We should not be afraid of making them, however, we do want to limit making the same ones again as we progress down our journey. Analyzing your mistakes in retrospect like I have and mapping out lessons and a plan moving forward based on that analysis is a great way to head into 2024 with a well put together plan and a strong mindset.