Grant Cardone On How To Avoid 6 Common Real Estate Investing Mistakes

In my 35 years buying real estate, I have developed in all kinds of markets; Buyer’s market, seller’s market, crashes, bullish markets … I’ve seen it all and I’ve done extremely well.

But that doesn’t mean I haven’t made some mistakes. Looking back, here are the top 5 mistakes I see from my experience as well as the experience of other investors. Avoid these and you will reach your real estate investment goals much faster.

1. Buying Small: Smaller items may seem easier, but when it’s easy to buy, it’s harder to make money in the business. I’ve only made this mistake once. I bought a door because it was easy to get a loan but it was impossible to keep 100% occupied. When this one tenant moved out, I was 100% empty and then had negative cash flow.

Also, one unit or just a few units will NOT generate enough income to pay a manager. The strongest number in real estate investment is the number of units. The more units you can buy, the more chances you have.

2. Buying with a small budget: Real estate is not a travel budget, but an investment. Just because a property is available at a low price or because it meets your down payment capacity doesn’t mean it is a good deal.

I bought my first deal because I had the down payment, not because it was a good deal. I then bought my next deal based on how much it was, rather than how good the units were. In my 35 year career, I’ve always made more money with better properties than with cheaper properties. If nobody wants to buy it and the price needs to be lowered to sell, there is a reason. Better locations, better assets, and better tenants always make better money.

3. Using too much leverage (debt): Too much leverage on a property always leads to problems. Charging a property with more than 70-75% leverage can and will cause you the ultimate real estate problem, which is loss of business.

At Cardone Capital, we always use outside capital, but never over-indebtedness, so our share of outside capital is around 65%. This has allowed me to weather any economic contractions and has been a key factor in never losing a property. When all my colleagues lost everything in 2010, I lost nothing. You have too much leverage and I did NOT do it.

4. Avoid Using Debt: While we have all been told “all debts is bad debt,” the truth is that debts that create more income are good debts. Consumer debt is bad debt, but debt used to buy great real estate and increase cash flow is the BEST debt in the world.

5. Selling GREAT real estate for a profit: This is probably the second biggest mistake I’ve made. I should NEVER have sold any of the $ 3 billion in real estate I bought. I’ve sold $ 400 million in assets over my career, and if I had kept them, those properties alone would be worth nearly $ 1 billion. Good real estate should not be sold, but refinanced.

6. Basing Today’s Value on Yesterday’s Prices: This phenomenon explains why locals never change the real estate market in their own backyards and miss out on the greatest benefits of real estate in their own neighborhood. For example, New York people are flocking to South Florida right now who are driving prices up because the locals are selling, and New Yorkers are seeing the value even at above average prices.

I assure you that New Yorkers are more right about future Florida prices than the Floridians who are selling. Florida home prices have doubled every ten years for the past five decades.

There is a full video here describing these investment errors.

Hope this helps and have fun investing!

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