WORST Way to Invest in Real Estate

the worst way to invest in real estate that is what you're going to discover on this video hi I'm Phil Gustav ski with freedom mentor I'm a full time real estate investor coach mentor you can learn a whole lot more about us at freedom mentor comm also check out my book how to be a real estate investor available on Amazon Barnes & Noble and all that good stuff okay the worst way to invest in real estate this video is about what not to do if you're going to be a real estate investor or if you already are investing and can't that'd be pretty helpful sometimes can it be nice to know what not to do that way you can avoid some of the bigger mistakes that's what you're going to discover and if you're first getting started be very appreciative that you watched this video because it can remove a lot of heartache and a lot of problems that could occur okay so why am I qualified to share this with you well I guess if you watched any of these other YouTube videos of mine you can probably tell that this isn't my first rodeo I I've been doing this a very long time I coach and train and mentor people all across the country I literally have hundreds of questions coming at me basically weekly whether it be comments below a YouTube video whether it be emails or messages from my students whether it be even on friends and family calling me and my own deals and so I have a lot of things coming at me all the time and I am literally seeing so many different deals I have such a unique vantage point a vantage point that most people would never have in their lifetime because I get to see what's going on all around the country and I get to see what's happening good deals bad deals everything in between now I'm also a full-time real estate investor as well and I buy properties from people who don't want their properties anymore and let me tell you when you deal with distressed real estate you hear a lot of stories you hear what goes wrong you hear the bad side so I've heard thousands of these stories over the time I've been investing so not only do I have the background to teach you this and you can check out the comments on my book you can see what other people think of my trainings and that is it's the highest quality and I get comments all the time Phil you're a true teacher but it's more than that it's the fact that I've been through the gauntlet and back with my own Beals and I've talked to so many motivated sellers over the years that have had things go wrong so all that put together to say one simple thing what I'm about to share with you can be absolute financially life-saving because I've seen a lot of deals go bad so this is the secret to avoiding investing the wrong way and here it is don't get involved in deals you don't understand I'm going to write that down don't get involved and I'm going to break this down or break this sentence down in deals you don't understand that is the secret that's how you avoid this okay now I'm going to break this down I want to break down what I mean by getting involved what I mean by deals and what I mean by don't understand I'm going to break all that down but first let's talk about real estate investing as a whole very different from other types of investments you know if you go buy a stock or a bond I want you to think about this for a second let's go see you go buy a publicly traded stock you're gonna buy Apple stock what is the absolute worst thing that could possibly happen Apple goes bankrupt kind of like Enron did many years ago and you literally lose your entire investment so you put up ten thousand dollars to buy Apple stock Apple goes out of business they go bankrupt and you make nothing right that's the worst that can happen correct all right what's the worst that can happen in real estate do you even know oh boy let me give you some examples of what can go wrong I have a friend of mine who is a developer he develops commercial real estate that's what he's always done fact he does the big-box retailer kind of shopping centers if you've ever seen him before big target shopping centers he'll do some smaller deals with groups like Walgreens but Lowe's he does these big-box retailers Walmart he'll develop them he'll move all the tenants in there once he's got the entire space developed in an all rented he'll sell the property that's been his business for a very long time well real quick story he had an opportunity to develop some land and the city planners many of which he had known from childhood and one of the major key decision-makers he actually was a good friend of in high school wanted him to develop some residential property and he said look I don't do that that's not my style I'm a commercial guy and they said but man this is a great deal we'll give you a great reduction in taxes after you develop the property we'll leave the property taxes at the same price that they were before you did development so they really enticed him and he said you know gosh what a good deal how can I go wrong so he went and developed some residential condos and long story short of the the market collapsed and since he had never done it before there's many things that he didn't recognize her at play number one a lot of pre-construction condo by arrggh came in and made offers and actually confused him and his team and they thought there was a lot more demand than there was long story short the entire development crumbled now he had put up a down payment and that's what you're doing real estate right you go get a loan which you put up a down payment and then the loan is going to take care of the rest of the project whether you're buying a rental property you're doing some big development the next thing that happened was not only did it start to fold but the city did not go along with their deal and they raised up the property taxes so he was in real trouble so while he was trying to negotiate maybe a loan modification with them with the bank the bank sold the note to a collections company and they bought that note for much less than what he owed and long story short that collections company went after him personally 4 / 4 / think ilysm in the range of 4 to 5 million dollars so not only did he lose his millions in down payment and all that time but now they're coming out for now you know he's he's dealing with that but the and hopefully you know he's able to mitigate some of that and I don't use any names or anything cuz he's in the middle of it right now but in real estate if you if something goes wrong it can go really really really really really wrong and you don't just lose the millions you put in you can even lose more does that make sense now that doesn't happen with a stock the stock holders don't I mean if the company goes bankrupt they don't come to the stock holders and ask for more money but that can happen in real estate I'm not trying to scare you by the way this video is not to frighten somebody it's to give you the right information so that you can wisely navigate this business and not get yourself in trouble that makes sense ok another good example of that let's say you own a condo and let's say you you bought it and you're renting it out so you're owning for a long-term purpose do you realize that many of these condo ho8 they can literally just tell all the condo owners hey we're going to replace the roof we need an extra X number of dollars you owe us $3,000 everybody in the condo complex owes us $3,000 there's no they can do that oh yes many of them can so in other words owning real estate is not like any other investment because there's so much more going on that you can lose your entire investment and then some the mix s okay so getting involved in a deal let me describe what that would be that really two things that's either your money or your credit does that make sense money or credit and so hopefully this doesn't get too confusing here but this is either going to be money or credit so if you put it if you get a loan for a property that's your credit if you put a down payment earnest money anything that's money that's what it means to get involved so if you don't have any of your own cash or credit into a deal and there's no downside risk meaning if you lose the property it doesn't hurt your credit if you if all you do is you you lose whatever you put into it if you didn't put money into it you lose new money then you're not technically all that involved are you so the first detail would be if you're first getting started or you don't really know what you're getting into then if you don't really understand the deal then just don't get fully involved you know so many of the deals that I first got started on more deals where there is no money or credit involved so even though I didn't know exactly what I was getting myself into there wasn't much downside risk does that make sense so that's one way in which you alleviate this so getting involved is money and credit don't understand here's what this means you don't understand all of the risks okay I just mentioned to you this idea that a development that went bad you know all of a sudden the developer could be owned an extra six million he could lose his house is you know is basically a retirement everything right so if you know what the risks are you can still evaluate if you want to go take that on right but at least you understand the risk or an example I gave of a condo um and really just in general I'll say this owning a home is kind of wild there's a property I didn't deal on not too long ago where the city wanted to put in a sewer system because all of the homes were on septic tanks but every other subdivision around it was on sewer and that city said that every homeowner had to pay twenty thousand dollars to help put in the sewer system I'm not kidding 20,000 that's very rare that may not happen in your lifetime but I've seen it happen so knowing what the risks are is huge if you're going to get into a rental property you need to know the risks rental units can be very tricky tits can get in there and then not pay you and then just camp out and through legal wranglings can keep you tied up for several months if not longer and then then you may have to pay the underlying payment so if you're going to own a rental you need to know what you're getting yourself into may need to know that there is going to be a possibility that if they don't pay you for four months how are you going to cover those payments I mean I have met real estate investors that have lost two hundred homes two hundred homes all because they've bought a bunch of rental properties many of them had a really thin margin and then a lot of them went they can all at the same time and all of a sudden they couldn't fill the vacancies fast enough I can give you all sorts of wild stories stories like I there's a big subdivision where one person thought he was really smart and he bought up hundreds of home there's a huge subdivision about hundreds of homes and he wanted to be like you want to have a monopoly basically what what happened was we went to lease all these things out he ended up having a problem not being able to lease them out very easily so he started dropping the rents as he dropped the rents he brought in a different caliber of people the place turned into a ghetto it was almost a brand-new subdivision they had to bring in a new police station just for the subdivision the property values never came back up their spray paint of graffiti all over a bunch of vacant homes and it was all because he thought he was so smart that he was going to buy all these single-family homes in the same subdivision to make his management life easier didn't see that coming did he so again he didn't fully understand what he was really getting himself into okay so when you understand all the risks associated with the deal then you can make better decisions and then that way you can still take the deal on you can still decide to get involved maybe but at least you know what you're getting into I'll give you a great example a lot of people don't think of they look at tax lien investing where what you do is you you pay money because somebody else didn't pay their property taxes and you get a quote guaranteed rate of return well you've got to be careful because you've got to know exactly what your specific rules are in that County and you need to know what happens on the worst case scenario and so I want to write this down this is you know what is worst case scenario so I know in my area I'll tell you what the worst case scenario is on a tax lien you buy a tax lien they don't redeem it so you you can quote get the property back you take it to that tax deed sale you get the property back now you're stuck with it and nobody wants to buy it because of some weird sliver of land that nobody wanted to buy anyways which is why you couldn't have gotten any more money at the tax deduction and then all of a sudden the county wants you to be mowing it they want you to keep it up you decide not to do that they start fining you and all of a sudden you it goes right back into tax deed auction because you didn't pay the taxes because you don't want that thing begin with you wanted you're my guy oh okay what's all that mean if you didn't track all that what's the worst case scenario what is that that is what you get to when you dumb when you want to understand a property is understanding what the worst case scenario is okay so what is the worst way to invest in real estate it's the debt involving Beals you don't understand what's the best way to do it it's to make sure you understand the worst case scenario and you understand what it means to be getting involved in the deal you know and that is money and credit that's what the main key drivers are there okay so I hope you enjoyed this video I would like to request something from you as a big favor do you have any war stories horror stories deals that went bad they don't have to be yours by the way it can be somebody you know share with me below in the youtube comment box tell us since tonight we don't have much room because they they kind of limit it but give us a little indication of some horror stories that you've dealt with where were or you seen somebody deal with like the worst case scenarios you know I there's all sorts of examples you'll probably have about people who try to do a rehab deal and then try to hire a contractor paid the contract the contractor didn't show up didn't pick up the cell phone again next thing you know you're out the money and now the property is halfway finished and there's everyone to foreclosure so there's plenty of those and I'm sure you can point to those there's obviously the the worst case scenario where properties went down in value people bought it at the top of the market now it's at the bottom but I love hearing about these horror stories because it teaches me a whole lot there's such a great learning lesson that can be grabbed from so many bad deals and especially if they weren't your deals right it was somebody else's deal then you got to learn the lesson not having to pay the money perfect all right so that is the worst way to invest in real estate do deals you don't understand and I'm Phil pusta offski with freedom mentor.com I would appreciate you thank you for checking this video out check out our other videos as well I get a lot of great comments people tell me that that the way I share the message of real estate investing really connects gives them a lot of aha moments so if it does that for you please comment as well you'll notice that I comment back I really enjoy conversing with those that watch these videos again Phil I'll ski with Freda mentor.com thanks for tuning in

Channel: Phil Pustejovsky

Views: 516,017

Rating: 4.6373506 out of 5

Keywords: invest in real estate, real estate investing, real estate investor, phil pustejovsky, freedom mentor

Id: vOfGaWFC5Fw

Length: 16min 38sec (998 seconds)

Published: Fri Jun 14 2013