Is it true the faster you make money in REI the higher the risk of losing it all?
If so, what are causes this “big fall”?
As an advance investors everyone here is, what would you personal do to make 3.2 mil in 4 years? Fliping? Commercial REI? What type of REI route would you take?
You can’t worry about get rich quick schemes, because you can’t get rich unless you do it quickly. But the danger is probably that you don’t really understand what you are doing (no exit strategy) and you do a lot of it before you realize it doesn’t work. For instance, I am a buy and hold type of guy. I buy properties and rent them out. I don’t buy a new house until the ones I have are rented. I could, however, buy 5 houses at a time for 3 months in a row and show $1.5 million on my books. But if I don’t get them rented and the notes start being due, I can loose everything rapidly. The only reliable governor on how fast you should make money is your strict adherence to your business plan and strategy. If not you will be in danger of losing your money slowly or rapidly.
you can’t get rich unless you do it quickly.
Wow, that’s a new one on me.
Is it true the faster you make money in REI the higher the risk of losing it all?
Well, it’s probably true for some, false for others. As Blue mentioned above, the main factor of how fast you make money and/or how fast you lose money is YOU. If you have a strong business plan and follow that plan, then it’s doubtful that you fail simply because you did it too fast?
What normally brings on a downfall is some combination of factors. New investors doing things before they really know what they’re suppose to be doing, not having a good plan, and/or not saving/reinvesting the profits into the business. Someone who overborrows on property, spends the money on junk, and then doesn’t have a plan to repay the loan is just one example of gaining alot of cash and crashing big.
A similiar question about “making x amount in y time” has already come up here recently. The answer is the same. It’s not the method that you pursue that matters, it’s YOU. Your drive, determination, skill, and experience all matter more than which avenue you take to obtain your goal. The size of the deals (skill and experience) makes a difference, too. It could take 2000 deals to get $3 million, or it could take one $3 million deal.
Raj
Raj,
That is so true. You can just have one deal that makes 3.2 mil. Thank you.
Bluemoon06,
Thank you for your input. It makes a lot of sense to always have an “exit strategy”. I think a lot of people forget about it when they get so hyped up on the whole REI glamour.
i dont know anyone who made 3mill on their first deal. after putting in due effort and working on several deals, its possible and probably easy too. i’ve seen a few deals where you make 10 times
you’re investment within 12 months. how many of those do you need before you reach a million?
but in general, if you get rich quickly, its because you’re overleveraged. leverage works both
ways. eventually you’re on the losing side and get wiped out. so there’s some truth to it.
you’re overleveraged. leverage works both
ways. eventually you’re on the losing side and get wiped out.
What do you mean?
leverage is when you put down 5% and borrow the remaining 95%.
if the property goes up 25% you just made 5 times your investment.
however if you dont have enough money into the deal you’re probably
breakeven on the cashflow. one or two months of vacancy can kill
your cashflow for the year.
but with leverage you make 500% return on investment. more if you
do 100% financing. my best deal i made 16000% return over 24 month
period. the worst i made was 27% in 6 months.
many investors see the 500% return on investment and buy as many
as they can without considering the downside. if you have 3 properties
vacant for 3 months [like i did in spring] you could easily be out 15,000.
for some investors that means they start missing mortgage payments and
pretty soon the whole house of cards comes crashing down.
this is how leverage gets you on the downside.
if you can’t stay solvent until you make a profit, you’ll go bankrupt!
but with leverage you make 500% return on investment. more if you
do 100% financing. my best deal i made 16000% return over 24 month
period. the worst i made was 27% in 6 months.
I’m sorry…I am not familiar with the lingual. Can you please put it in simplier terms on how can one make 500% return in an example? How did you make 16000%?
on a 100k house, assume you put 5k down.
suppose it appreciates 25% and is not worth 25k
thats a 500% return on your investment.
now suppose you only put down 1k and it appreciates
only 10%. thats 10k in appreciation or 1000% return.
supposing you don’t put down any money. thats
an infinite rate of return!!!
I have worked with investors from every walk of life. I have watched people turn into millionaires on paper and I have watched people that have never had money blow 200k in a month you never know how people react when it comes to money the main thing is if you have no discipline chances are you will loose on the flip side of the coin I have had investors that have never had money always paid bills made them great money and they are scared to spend it! So it is hard to say I honestly think Greed causes the big fall!
Robb
I agree with REO.
Just look at all the lottery winners, something like 80 percent are worse off now. Why because they did not know how to manage money (that is why they bought the ticket in the first place). Financial Discipline will determine if you are a success or failure. Remember Champagne tastes on beer budgest is the fastest way to spend it all.
look at Pro athletes who are making millions but crying poor. It is all about budgeting money and being smart with it!
i think official stats are 95% are worse off after 5 yrs.