Investing "Rules" and Times You Violated them and Made Money!

[Michael Ealy]

There are so many real estate investing "rules" that seem to work a lot of times but following them "blindly" will make you lose out and overlook a ton of investing opportunities.

For example, I've heard of the rule that says "Buy only based on actuals" which means you calculate the current or actual NOI, divide that by the market cap rate and you buy only up to that number.

If I followed that rule, I probably won't be a multi millionaire today because I would have missed out on a ton of million dollar profit deals. Deals like this:

...96-unit building that made me over $1.2 Million profit in just 3 years

This building was non-performing with low occupancy (60%) when I acquired it. If I bought it based on actual NOI, I should have paid less than $1M for it. Instead I acquired it for $1.45M. In fact, someone else has offered $1.5M or $50,000 more than me but because of my reputation, the seller preferred to deal with me.

I put in $700,000 in renovation and increased the rents from $500-$550/unit to an average of $679 per unit.

I sold the building 3 years later for $3.5 Million.

Another "rule" that I violated and made money anyway is "Properties in bad areas don't appreciate". I bought a 20-unit apartment once in Over the Rhine and paid $200,000 for it. A few years later I sold it for $400,000.

What about you?

What Investing Rules have you violated and yet you made money?

[Erik W.]

I routinely break the rule that you can't make money in Class C houses.

My typical purchase is $20K-$30K "all in" (purchase + closing + rehab + holding costs) and I rent for $600+ month.  They are nice at that point, with updated heat/air, roof, and flooring, so the dreaded "maintenance will eat you alive" is false.  I run between 12-17% on maintenance, but that includes capital improvements, so really the year to year stuff is only 8-10%.  I hire it all done, almost no DIY any more.

I also break the rule that you must accompany a prospect while showing a property.  I give out lock box codes after a quick pre-screening.  5 years...never had a theft, vandal or squatter.  Worst thing was someone left me a #2 in a toilet because I always shut off the water at vacant units.  Oh well...  My vacancy rate is below 3% for the year because I show property when people want to see it...which is usually RIGHT NOW vs. making them wait for me to find a time to get over there.

My favorite rule breaker is I do in-home inspections of applicants as the last step before we approve an application.  "Oh but that's INTRUSIVE or CREEPY....NO tenant will allow THAT!"  Uh-huh...a surprising number do, and it's saved my bacon from hoarders, junkies, and "cat people" (50+ strays) several times.  I can't believe so many land lords "trust" people with $50,000-$250,000 assets having never seen their current home!  Out of town?  No worries...call the local real estate office and see if a hungry floor duty agent would like $50 to stop by and fill out a checklist I email them.  PayPal or Zelle to settle up.