Investing Mistake: Borrowing from Equity
A HUGE mistake that a lot of real estate investors make, whether they’re beginning or seasoned investors is they borrow money from the equity in their properties to pay the bills, and think that that money is profit. Well, listen up friends because I’m the guy to tell you and burst your bubble right now that that money is NOT profit. Borrowed money is not income.
If you’re robbing Peter to pay Paul, then you better fix what’s broken before this problem gets worse. Borrowed money is not your money. Profits only come from the sale.
Friends, this is a dangerous trap that a lot of people fall into because they think that they can pull a big chunk of money out and use that money as income and cash flow for their business, but it doesn’t work that way. You have to be smart about it. You can’t expect to grow your business with refinanced properties. It doesn’t work that way.
Now, don’t get me wrong. I’m not against refinancing a property and pulling money out of it, if the property can support you doing that. One of the first couple of deals I did when I got started was actually a property where I did a refinance on it, and I did pull out some cash. But I obviously did not stupidly spend that money on stuff that wasn’t going to give me a return.
That money was for business purposes only, and I used that money to reinvest back into some of my education and some of my other investments, and that money has grown substantially since then.
I have not done anything like that since that one occasion, but I thought I needed to tell you that because I’m not against refinancing a property to pull money out, but the property has to be able to sustain what you’re doing.
All I’m saying, and the message I want to convey to you in this post is, just don’t get into the habit of borrowing money from the equity in your properties on a continual basis because borrowed money is exactly what is says: borrowed money. It’s not your money.
Don’t consider that money as profit for your business. Simply strive to run your business on the profit, which comes from the sale of your properties.
As I’m talking about property sales, here’s another tip: when you are selling properties, make sure you attract attention to your properties and market them to death. If your marketing isn’t annoying at least a few people then your marketing isn’t doing what it’s suppose to do which is get attention. A perfect example is the media, just watch the news and see how many horrid reports you will see about all the bad stuff going on - robberies, murders, and scandals. Unfortunately, the entire negative stories garner the most attention. Don’t get me wrong, your marketing shouldn’t endanger anyone, but you need to get attention and you will get negative feedback.
Just recently, I got calls about some ugly yellow signs in the yard of one of our properties. The person really thought the signs looked junky. Well, those signs accomplished exactly what I wanted them to accomplish. It made people look at the property. Don’t be afraid to stand out with your marketing, even if it’s uglier than most. You need to capture the attention and then sell the house!
