Disaster For The ‘First Investor’: A Case Study

While it is true that Real State investing can be one of the most effective ways of developing wealth, like any other wealth building strategy, there is a certain ‘critical mass’ of knowledge necessary to consistently achieve the skills needed to reach our goals, whatever level that may be. A recent evaluation of a possible ‘flip’ house makes this point very clearly.

I was called out to a property at the request of a relatively new investor. He had been involved in real estate for about a year, so he was not a novice. Yet he felt more comfortable contacting a professional to assist with the needed expertise to assess the real value of the property. We met at the property and I began my investigation.

Normally, a slab foundation in this area, even if damaged due to settling, can be repaired to nearly original condition. However, this one was unique in my experience. While looking into a 2 inch wide crack at the side of the foundation from the outside, I noticed there were NO Reinforcing steel bars in the foundation! The slab was literally crumbling and there was no way to salvage it.

Here is the truly sad part. The current owner/investors bought the house several months earlier planning to ‘flip’ it fast. They did not understand the degree of damage to the foundation until after they took possession, paying twice as much as the property was worth. Now there were few options: 1) try to wholesale it to another unsuspecting investor, 2) take a huge loss and sell it at market value or 3) fix it and (hopefully) break even. They chose door #1.

I suspect the original owner (heir to the deceassed owners) had no idea about the seriousness of the problems, but he made out like a bandit. The first investor assumed the risk and, in this case, put several thousand dollars into the project before realizing the futility of the project and put it on the retail market.

Find the right professionals for your team and use them to increase your success!