The amazing returns you can achieve with REI seem sometimes almost to good to be true. When I first started working with real estate investors as a Realtor, and my mentor sat me down to show me how to analyze a property to fix and flip, and the potential return it could achieve, I remember
looking at the number and thinking to myself, that just can't be. It was so high, and then he shared with me that the return wasn't even annualized, I almost fell over. Of course, these were just projections, but its not as if they were far off from what the property would return if someone were to buy it, renovate it, and sell it.
When I finally had enough of sitting on the sidelines, watching other people buy properties, but mostly people passing on potential investments, I bought my first property. It was a property that no one I showed it too would buy, so I did, and ended up making over a 120% ROI. When I purchased my second property, which I did almost out of spite because every person I showed it to kept telling me "no way", "its priced to high|, and "once its fixed up it won't be worth more then what you put into it", it was mainly to prove them wrong. That property today has doubled in value in just 4 years.
In fact, almost all the properties I ever purchased were properties that people told me they couldn't make money on. Most of them are still in my portfolio today, these were the ones that I took a chance on, had the guts to buy, that no one else did, and as you'll see below, I'm pretty much laughing now. I remember one client of mine, I must've shown him 50 properties over a year span, and in that year I went on and bought I believe 8 or 9 properties, ones I showed him that he said weren't worth it. Then
after I had won the 2015 CREW Magazine Investor of the Year Award, I sent out my monthly newsletter sharing the news, and he instantly unsubscribed from it. He then emailed me asking how I had I bought all these properties and why I didn't show them to him. He thought I was keeping the good ones that were hitting the market for myself. I told him that it was the exact opposite, these were properties I shared with you and everyone and they were properties that had been sitting on the markets for months and no one would buy them, usually because they needed too much work, or they were priced too high or you couldn't flip them or refinance them for a profit or you won't be able to rent them for enough to cover the mortgage. Well, as you can see, they didn't need too much work and they weren't priced to high and once fixed up, they did rent for much more, because the returns I am getting on the properties I own are doing amazing based on what the properties are worth today:
But what I was really curious to know was what if my properties didn't appreciate at all, and each year they broke even, meaning after all rental income collected and all debts and expenses paid, I had zero dollars in income. Below were the results:
The reason the numbers are all over the place, is because some properties I applied the Buy, Renovate, Rent, Refinance (BRRR) method, which allowed me to pull out most, if not all my money (the negative ROI, property 4, is because I refinanced the property and received more back then what I invested). Properties 3, 5, 7 and 8 were ones I didn't refinance, and on average have a nice return, all from just having the mortgage paid down. Now you're probably wondering why property 7 has a much higher return then 3, 5, and 8, even though I didn't refinance the property, and that is because I used vendor credits to reduce my investment (downpayment).
So what I'm trying to show you is a worst case scenario, in that even if you break even every year, and the property your purchased doesn't even appreciate $1, you will still make on average 5-10% on your investment all from having the tenant pay down your mortgage.
What I'm also trying to say is don't just hmmm and haaaa when your thinking of buying real estate. I'm sure the people whom passed on these properties are kicking themselves in the butt for not buying them now!