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I get this question asked a lot. “What is your biggest mistake? What’s the biggest mistake you’ve ever made as a real estate investor?”
I think that I can say without a doubt, the biggest mistake is borrowing money. Using lenders. The cost of borrowing money is very high. With the closing costs, and the points and the fees and the interest rate every month, you have to get properties that are so much under market value and you have to build in so much equity. And it also puts your name on the line. You know, when I, back in the 80’s, I started in ’86. And I got, in the first three years I bought, and I was building $17M worth of real estate in California, in southern California, and in 1991 the values dropped by 30% and the lenders, and these were all loaned, all mortgaged out, and they were mortgaged out to about, you know, 20%, within 20% of their value. So I had about 20% of equity in these properties.
And, but when the values dropped 30%, the mortgage companies came to me and said, “Well, you need to put more money into these deals.” But I didn’t have that capital. I was leveraged out. I didn’t have that money to work with so I couldn’t put that money in and they cut my loans off. And they took the properties back. And I went bankrupt. And I lost my business and everything that I owned. I lost everything at that point. And that was in 1991.
And after that, I wasn’t in a position to borrow money and I didn’t have any cash so I had to learn how to do this without using money. And that’s what that next, you know, five or eight years was all about, building my business back up, except, you know, figuring out how to do it with zero down. Because I didn’t have any other option. You know, if you have an option to buy it with a loan, it’s actually easier to buy a property with a loan than it is to do it with zero down. At least at the beginning. Because all you have to do is go out and pick a property and say, “I want that property, here’s my signature, you know, here’s my down payment. Let’s buy that property.” And the lenders will work with you because they’re making a ton of money.
And if you don’t know what you’re doing, you’re either going to lose money, you might break even by doing a lot of work, or you might make a profit as well. And sometimes you get lucky and make a profit. I did that at the beginning and I made a profit. I was in the right market, the right place, the right time, bought the right properties. I was lucky at the beginning. Not everybody is lucky. But eventually, my luck turned and that’s when everything crashed. That’s when the market dropped. That’s when I got hit with all that stuff. And there’s other things that can happen besides a market drop that can take you under like that if you’ve got loans. So, be very careful about taking loans and if there’s any way that you can avoid it all together, I would absolutely encourage you to do that.
And of course, if you use the techniques that I’m teaching, the zero down techniques that I’m teaching, the zero down structures, you’ll never have to borrow money. And all the people that ask me that are usually people that haven’t been through my course yet and learned how to do it without money. So, learn that process.
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