Dan Borrero, Jr has been investing in real estate in New York City and beyond for the past 32 years. He started by buying only properties within walking distance of his video store and eventually branched out to New Jersey and Florida. His model is one that even new investors can use, and his tips for success are spot on.
Holding Properties Brings in Wealth
Dan didn’t have a mentor in real estate investing, but he had a keen eye and made note of something very important in his community as he grew up. The more successful small business owners always purchased the property that housed their store. But, just as importantly, they began buying the properties next to and across from their store. The lesson he learned was to leverage his job to create wealth.
While running his video store business, Dan began buying properties. His method looked like this:
- Buy fix and flips to make cash.
- Use that cash to buy properties to hold and rent.
- Use the cash flow to buy more properties.
He believes that when an investor uses fix and flips as their sole strategy, they are essentially buying themselves a job. The real wealth comes from asset appreciation and cash flow.
One great example comes from his very first purchase. He bought a 2-family structure for $72,000 in 1989 and spent $30,000 in renovations. Since that time, he has rented out these two units creating a cash flow of $7,500/month, and on top of that, the property is now worth $2.6 million.
Finding the Right Property
In order to make money from appreciation and cash flow, an investor needs to find the right property. Finding the right property isn’t difficult as long as you keep a few things in mind:
- Numbers: The numbers have to make sense. Dan typically won’t buy a property unless he can get it for 60 to 65% of ARV. If the numbers don’t work, then he walks away.
- Property Type: The property type doesn’t matter. Dan will buy residential, commercial, retail, industrial, or even vacant property as long as the numbers make sense. He says that if the numbers make sense, don’t worry about the type, just buy it.
- Look for Problems: Dan always starts by looking at why he should NOT buy the property. If after looking at a property this way, he still feels good about it, then he starts to look at why he should.
- Emotions: Leave emotions at the door. If you find yourself changing your parameters or reworking numbers to try to make it work, then you are probably too emotionally involved. You always need to be able to walk away.
His sage advice is to “never chase the deal.” The harder you chase, the worse the deal will be for you.
Success Tips for Beginning Investors
Real estate investing success doesn’t come because you were born with a silver spoon in your mouth. Nor does it come simply because of luck. Dan believes that success is due to the following 9 elements.
- Work Hard and Sacrifice: Be willing to put in a lot of hard work and understand that the sacrifice you make today will be the wealth you have tomorrow.
- No Excuses: If you are asked to do something or you say you are going to do something, find a way to do it, even when problems arise. Rather than make excuses, find solutions. Those who find a way to get the job done will find success.
- Be Upfront With Your Significant Other: You both have to be on the same voyage. If your spouse expects you to be home for dinner every evening and sitting in bed watching the 11 o’clock news every night, there will be problems. If both partners aren’t pulling in the same direction, either the marriage, the family, or the business will suffer – and often, it is all three.
- Don’t Be Too Competitive: You have to be willing to lose the bid on a house and walk away. If you must win every bid, you will end up losing money on the deal because you will be willing to overpay. Always remember what is bigger – your ego or your bank account?
- Base Decisions on the Market: Buying properties in 2009 was scary because of the market. However, with the right plan and the right parameters, investors made money. If you are worried about the market, adjust your numbers to reflect that concern. For instance, rather than purchase at 65% ARV, reduce the number to 55%. You may not find as many deals, but you will be able to withstand a market downturn. In many instances, Dan suggests that you watch what the majority of investors are doing and do the opposite.
- Get Out of Your Comfort Zone: Sometimes, what you’ve been doing is no longer going to bring in the wealth you seek. If that happens, stretch yourself and find new opportunities that require you to learn and grow.
- Network: Go to local meetups (you can find them at REIA.org), city council meetings, community block meetings, and more. You want to learn what is happening in the area and become that person that others know and trust. When this happens, the deals will start coming to you, allowing you to cherry-pick the right ones for your investing strategy.
- Leverage Other People’s Info: As you network, you will begin to hear about changes in the neighborhood. For instance, if a developer is trying to change the zoning or variance of an area, that may be a great area to begin purchasing property. Or, use the market research of incoming stores like Starbucks or Walmart. They spend millions determining where to locate and they don’t get it wrong.
- Be Willing to Start at the Beginning: Many new investors begin with a list of things they will not do. For instance, I will not work with a partner or I will not use a lender that doesn’t offer me the best deal. When you make that decision, you close doors. Early deals may not have the best terms. You may have to work harder for less money. However, you will be learning the ropes. Getting some money from a deal is better than not getting a deal, so be willing to pay too much interest or give away some of your profit in order to get started. Once you have a few deals under your belt, you can get picky.
By following Dan’s real estate investing method and listening to his tips, new investors have the opportunity to find success. It’s just a matter of getting started, working the plan, and being willing to wait for the results.
Buying properties in 2009 was scary because of the market. However, with the right plan and the right parameters, investors made money. If you are worried about the market, adjust your numbers to reflect that concern. For instance, rather than purchase at 65% ARV, reduce the number to 55%. You may not find as many deals, but you will be able to withstand a market downturn. In many instances, Dan suggests that you watch what the majority of investors are doing and do the opposite.
Listen to the full episode on Spotify or iTunes.
Spotify | https://open.spotify.com/show/6yXy5S5wTyACtghts0RPKz
iTunes | https://podcasts.apple.com/us/podcast/truth-or-comfort/id1445917669
Learn more | https://realestateki.com
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