It sounds crazy to say that, but yes, it is true.
I bought a drug house.
I’ll share the story in just a minute, but first, here’s how this even came up.
I was having dinner with my business partner, we were doing some strategic planning and he asked me what some of my biggest mistakes were in real estate over the past 10 years.
I’ve made so many mistakes (too many to count), but I knew that nothing could top this one story, so I said…
“Well I accidentally bought a crack house once, which seemed like a huge mistake at the time.”
The look on his face…
Obviously he wanted to know more.
So, I had to tell him the story of how this happened, and especially how it all turned out in the end. This story has a plot twist!
I actually ended up making a killing from this property. Plus, I learned a lot about how to build wealth with real estate in the process, and I think you’ll appreciate the lesson, too.
So, here’s the story…
I had always heard you could pick up some great deals buying foreclosures, so one time I gave it a go.
I found a property that had potential. But the problem with buying foreclosed houses at an auction is that you aren’t allowed to see the inside of the property before buying it, you’re flying blind.
So, my real estate agent and I talked about the best approach, and we decided to put in a “low ball” offer for the property. That way, even if the inside was a complete disaster, it would still make sense to buy it.
We made the offer, but I was secretly hoping I wouldn’t win.
This was the third property I’ve bought, I knew this project would take me outside of my comfort zone and I wasn’t sure if I was ready for it.
Of course, I ended up being the winning bidder and buying the property for $182,000.
I was like, Great…I think?
When I finally went inside, I couldn’t believe my eyes. To say it was a dump would be an understatement. The paint was peeling like an onion, there were holes in the walls, it smelled like an ashtray, and there were even a few suspicious (blood?) stains on the carpet.
It seriously felt like I walked into a crime scene, all that was missing was the yellow tape. And well…that’s because it kind of was. I found out later, after talking to the neighbors that this property used to be a drug house.
But here’s what I’ve learned about mistakes…
If you are building a real estate portfolio, things like this are going to happen. It’s part of the cost of doing business. You can’t let unexpected surprises derail you from your goals.
You have to expect a few bumps along the way.
Most people quit at the first sign of adversity, and miss out on some of their greatest opportunities as a result.
Not only are my mistakes some of my greatest teachers, which have helped me become a better investor and entrepreneur…but in most cases, these mistakes have turned out to be my biggest opportunities.
For example, this “crack house,” although it looked terrible, the foundation of the property was in great shape. The roof, the pipes, the electrical and the foundation (all the expensive stuff) were all solid. It was just the cosmetic stuff that needed some work.
It skill kinda’ freaked me out though.
But since I now owned this property, I had no choice but to make the best of it, and fast. It’s amazing what you can do when your back is against the wall, isn’t it?
Once I started digging into this project, I realized all it needed was light cosmetic renovations.
I started to do some of the renovations myself, and here’s what I did:
I filled in all the holes in the wall with putty, then painted everything.
I fixed the broken windows.
I put in some new appliances.
I tore up the stained carpet, went to the hardware store, and bought some new flooring and installed it myself.
NOTE: I’ve never installed a floor, but it turns out it’s way easier than I thought. Flooring these days is just like Lego’s – the pieces basically click together, anybody can do it.
I slaved away at this project on the weekends and it took me a couple months total. I probably spent around $15,000 on the repairs, total.
The key thing to note here is that everything I did was cosmetic. This is where I learned you can really create value with real estate.
Once everything was done, this property looked totally different. I was surprised at how easily I found some tenants who were thrilled to move in and call this property their home.
It’s amazing what a fresh coat of paint and some putty will do.
So was it worth it?
Later, I got this property appraised by the bank, and guess what it came back as?
Yes, that’s right.
I bought this house for $182K, put in around $15K, and after the closing costs and such which were around $5K… plus my time to fix everything…
The equity I created was around $75,000!
Plus, I now had a passive cash flow producing asset that made me a few hundred dollars each month.
Looking back on it now, I realize it was after this property I understood how people can get rich and create wealth with real estate.
This was way more than I was making in my full time job at the time. So, not bad for a few month’s work if you ask me.
I also realized, no matter how good of a job you get, you just can’t create the same results trading time for money. If you want to build real wealth, you need to learn how to make your money work FOR you.
So, guess what I did with the $75K in equity I created?
I used it to buy my next property, and I repeated this process over and over. This is what I have been doing for the past 10 years. I now have a diversified multi-million-dollar international real estate portfolio.
So you can see how things can really start to compound, and this is why I always tell my students that real estate is the ultimate elevator to wealth.
The problem is most of us aren’t taught to think like this. We don’t have mentors guiding us along the way. Trust me, it’s so much easier if you do!
All my best,