Many people are often surprised when they hear that within two years of investing in real estate, I was able to acquire roughly 12 units. How did I do it? It was all done through leverage. Leverage is like a seesaw, and you definitely want to be on the right end of it .
The Biggest Hurdle: Flawed Cash Flow Calculation
Where many investors go broke is not necessarily due to over-leveraging but because they fail to properly calculate their profits and losses. From my personal experience, losses can accumulate slowly and unexpectedly, draining your resources over time.
My Biggest Mistake: Not Accounting for Turnover
My biggest mistake during that initial two-year period was not accurately accounting for turnover in my investment properties. I was dealing with a market that experienced high tenant turnover every other year.
Within less than two years, I found myself covering many expenses (from repairs to marketing for new tenants) and, in most cases, breaking even or losing money. My paper profits looked great, but my cash flow was suffering due to constant vacancy and repair costs.
The Stabilization Point
Luckily, I have finally stabilized thanks to strong market rent increases and appreciation in the past year or two. I’ve also been able to sell a couple of properties to rebalance my portfolio.
The key takeaway is this: When investing, make sure you accurately account for all factors affecting cash flow, especially variable and unavoidable costs like turnover and capital expenditures.
The “How” of acquiring properties is easy (leverage); the “Who” (your team) and the “What” (your accurate cash flow model) are what determine long-term success.
