How is it possible, you can make a mistake and still make money?  Yes, you can.

The difference between failing successfully and failing  unsuccessfully is one thing: education.   All cards on the table, I’m biased and not ashamed about it.  I am, in fact, an educator.  However, I am also educated.  And it has helped me dodge many a bullet.

Real world examples are more valuable than fictional numbers.  The following in a real world example of something I screwed up.  I’m using real numbers from a property I held for almost 3 years.  It was my first real revenue property.  The first one I bought specifically for investing.  And, it was the wrong property.

So here’s the real numbers:

purchase price: $139,500

mortgage: $111,600.00

downpayment: $27,900.00 (HELOC)

monthly HELOC interest payment: $82.00

mortgage costs: $632.67 monthly (though this was on bi-weekly accelerated @ $292)

insurance costs: $67.50  monthly

taxes monthly: $64.00

maintenance:  $1,134.78 (total for the duration) – most significant was the water heater. Some painting. Some further minor repairs were required at move out – deducted from DD

advertising:  $0.00 – at this location, kijiji is the best source to advertize = FREE.

agent fees:  $8,800.00 (including taxes)

income: 32 months x $1,095.00 = $35,040 (2 months of mortgage costs were carried by myself. 1 month reno’s, 1 month sale)

Sale price: $150,000.00

Total cash to me at close was $42,659.18

From this cash I paid off the original HELOC amount (see above)

Netting me $14,759.18

But what was my innitial investment?  Was it $27,900 or was it less?  Considering I used a HELOC (interest only payments) my total downpayment cost was actually $82.00 x 32 months. Or, with the math worked out: $2,624.00

So what`s my ROI?

Well, $14,759.18 (payout) plus the cash flow.  Working out the cash flow numbers we get a monthly carrying cost of $248.96 inslcuding insurance, HELOC payment, taxes, and maintenance (broken down into 32 equal payments to cover the duration).  Add to that mortgage payment of  $632.67 and we get a monthly cash flow of :  $213.37  Certainly not going to retire on that anytime soon, but it’s respectable for a mistake!

Total cash flow for the duration:  $6,827.84

Add to that net from payout of:  $14,759.18

total: $21,587.02

ROI = return / total buying costs  or  $21,587.02  /  $2,624.00

My return on this property was 822.7%  To simplify the math we can divide that by 32/12 (almost 3 years) and we get 309%/year. This is annualized and does not account for the compounding factor.   I find it easiest to avoid factoring in compounding inflation but if you want to, grab a financial calculator app off itunes and make it so.  What you need to know if you use numbers like this is that the compounding effect will actually lower your annualized return numbers (see above) slightly.  So, in math class, if the teacher was a stickler, actual annualized return if accounting for compounding interest is probably around 300%.

Now, that’s a lot of numbers for anyone who doesn’t dig numbers like I do.  But the summation is this:  I screwed up. I bought the wrong property, at the right time, in the right place.  I was able to do this because I had invested in education prior to purchasing this property.  Probably a few hundred hours worth of research in total. And I still screwed up. BUT, I did a few things right while I was at it.  I managed to read the real estate cycle very well, and I bought in a good area for appreciation (this effect was neutralized slightly because I paid roughly $15,000 too much at purchase).  If I hadn’t spent some serious time getting educated on real estate investing I would have dug myself one deep hole right at the begining of my investing carreer.  As it was, I was digging, but I was “digging up”!  Now, go dig up stupid.