Today, Scott Carson shares 3 major mistakes that new investors make and explains how to avoid these mistakes so that you can be successful.
From looking for your deals to not efficiently networking, there’s some key areas that if done correctly, can put you ahead of the game.
Mike: Welcome back to the flipnerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s Expert Host.
Scott: Hey everybody. My name is Scott Carson. I’m known as The Note Guy. You can find more information about me at weclosenotes.com, but literally, I’m your host today on the REI Classroom with flipnerd.com. Excited to be here. Got a great topic for you and some really great tips that a lot of people struggle with.
And my focus is on note investing and helping people with distressed debt, and turning problem properties into profitable solutions. We see a lot of note investors and real estate investors make three simple mistakes when they are getting things started.
Mike: This REI Classroom real estate lesson is sponsored by uglyopportunities.com.
Scott: As a new investor, many people are looking for ways to make deals happen and often times, people are looking to wholesale, they’re looking to fix-and-flip, or turn it [inaudible 00:01:02]. It doesn’t matter what the deal type is. It doesn’t matter what type of niche of real estate you’re doing. These are basically three basic mistakes that plague everybody as a new real estate investor.
Now the first one is new real estate investors don’t develop a database. Let me say that again. They don’t develop a database. And that’s really the key. You’ve probably heard that “Your net worth is in your network,” “The Riches are in the Niches,” or “We all have a tribe.” It’s a great book by Seth Godin if you want to read a book on how expanding your tribe can really drive income into what you’re doing as an investor.
But the biggest thing is no database. And building a database isn’t really that difficult, all right? The first thing that people do is they don’t reach out to their [inaudible 00:01:51] market. They don’t take their business cards. I’m sure many of you have a stack of business cards sitting at home, I got a couple here, that you put in a shoebox, or it’s collecting or avoiding dust collecting on a two inch by three inch place on your night dresser.
That’s unfortunate because if you spent money going to an event and networking, or going to a conference, or flying across country getting checked by TSA, spending money on a hotel and a car rental, plus crappy hotel food, you really need to take the contacts that you made and put them into something that you can use to communicate with. Something you can reach out to people. So not having a database is really no excuse. Everybody should have a database and there are some simple things that you can do.
When I first started off, I simply just started putting a person’s name, their email, phone number and city, state, in an Excel spreadsheet. And every night that I came home, that was the first thing that I did, or the last thing I did before going to bed was putting their name into a spreadsheet so I could literally copy paste it via Gmail or Yahoo.
Now I would highly recommend that you use a service like a CRM tool, like MailChimp, or AWeber, ConstantContact, something that’s pretty inexpensive but use it. Use it, use it, use it. It’ll track your database. You’ll be able to see who opens an email when you send one out. Who clicked on a link. Really, really important to see how effective your marketing is. That’s the first big mistake most real estate investors do. They just don’t develop a database.
Now the second one, especially in the note business, and it happens a lot of times with fix-and-flips, is real estate investors try to DIY. They try to do everything themselves. You can get away with it but if you’re going to be in real estate long-term, if you keep trying to DIY, you’re going to end up RIP. Rest in Peace. Because you’re not going to be a) closing enough deals, you’re going to end up goofing up, you’re going to run out of income because you don’t put systems in place. And if you really want to grow your business, expand your business, you’ve got to put systems in place, and learn to delegate, all right?
You’re going to learn how to put vendors in place, or hire crews. You can’t sling the hammer on everything and paint at the same time and be effective, really truly effective, as a real estate investor if you’re trying to do it all yourself. So that’s the second thing. Quit trying to do everything. Quit being a jack-of-all-trades because if you’re a jack-of-all-trades, you’re a master of none.
Now the third thing that most note investors and real estate investors struggle with is not building private money contacts immediately. I see this extremely as a hurdle, an extreme hurdle for those investors that have put a little bit of money away in their IRA. So they have money coming from a 401(k), or they’ve got money. They don’t develop private money contacts. They’re like, “Oh, I’m going to prove concept first before I go out and talk to my database.”
You know what that says, is, “I don’t believe in what I’m doing.” If you really want to buy deals, and especially in today’s market as a fix-and-flipper, you’ve got to buy in bulk. You’ve got to buy more than one. Don’t get me wrong, yes, you’ll win one or two here, but a lot of the seasoned investors aren’t paying the top dollars that we see at the auctions and other things. They’re waiting for their systems to come in. They’re waiting to the right price because they have the systems to be able to make things happen. And if you are trying to do it all yourself, you’re not going to be able to do that.
And the same thing comes right from writing the check. It’s always better to leverage your own funds by using other people’s money whether it’s other people’s IRAs, or other people’s money. A private money database to you is worth its weight in gold, exponentially, all right? If you’re making 50% of a deal and you have none of your own money in the deal, it’s like you made an infinite return investment, okay? If you are using other people’s money, it allows for you to leverage even the money you have to buy 5 deals instead of one deal, or 10 deals instead of one deal.
And what’s unfortunate is a lot of real estate investors that use their money until they run out of money, and then they give up. Like, “Well, I’ve got to wait to buy, or I’ve got to wait until one of my other properties sells before I have the money to go buy another one.” And that’s unfortunate. You want to have money available so that when you see a really good deal, you can spring on it, close quickly, and do other thing to it.
Now, yes, use your own money to fund purchases but it’s always good to arbitrage, have somebody come in, refinance your own money out of the deal, put it back in your pocket and go out and do more deals. That’s the third and probably the biggest mistake in the long run for new note investors is the fact that a) they’re using their money versus somebody else’s money. And that’s the key.
Bernie Madoff, the banks . . . I’m sorry, not Madoff, sorry, wrong one. He was using somebody else’s money for sure. Got to love that. All the big-time investors out there are using and leveraging other people’s money to make things happen. You should do the same thing too.
That’s my lesson for today on today’s REI Classroom. We’ll see you guys at the next one. We’ll see you at the top.
Mike HomeVestors, the We Buy Ugly Houses folks, is a franchise system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level, or whether you have no experience at all but a burning passion to be successful in real estate investing, please visit flipnerd.com/ugly to learn more.
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