How I Lose $20,000 a Year in Real Estate Investments

Photo Credit: Mike Poresky

Losing $20,000 annually is obviously nothing to brag about, or be proud of, but sharing with the BP community is a way that I can help out and pay it forward early in my REI journey. This post will briefly describe how I managed to make this financially disastrous mistake, layout the numbers for you, and discuss what I should have done different.

The Root of the Problem

In 2005, my wife and I were newly married and all we could think about is that we needed to be like every other married couple and buy a home. Young and uneducated (at least in real estate) we purchased our first home near the top of the market based on two decision factors. We liked the home and the bank would lend us the money. A few years later we purchased our second home based on these same factors. This time the market had already toppled, so the result was not as bad, not great, but not as bad. Both of these homes turned into rentals. One became a rental because the home was worth half of what we still owed on it and the other because of our agents recommendation. To learn more about our story, check out How I Became a Real Estate Investor: This is not a great story. Now let us move on to the numbers.

The Numbers

Because we purchased these homes with a lack of financial literacy, real estate literacy, and without the help of the Bigger Pockets community, our purchasing decisions cost us $20,000 annually. The numbers tell the story.

2BR/2BA, 969 SqFt. Condominium.

3BR/2.5BA, 2,436 SqFt Condominium

As you can clearly see, the loss for both of these properties combined is $20,913.60 a year. This loss is enough to make me sick to my stomach as I write this post. Being financially illiterate, not understanding real estate, and not looking at these properties as investments has cost us years of financial stress, and most likely several more unless we can figure a way out.

It Could Have Been Different

Hindsight is often crystal clear. Simply educating ourselves in real estate and looking at properties from an investor’s point of view could have not only saved us thousands, if not hundreds of thousands of dollars, but could have even made us money. This incredible loss has set us back years. The only thing that stops me from crying myself to sleep every night is the fact that I have learned from this expensive lesson and we are young enough to make a comeback.

Some simple rules I will use for my next purchase:

1. 1. Look at properties from an investor’s perspective
2. 2. Analyze the numbers so they make financial sense
3. 3. Make my money when I buy, not when I sell
4. 4. Trust the numbers, not my emotions

I will analyze my next home purchase the same as I would a business purchase. Using my newly acquired financial and real estate education, I will make better decisions. No matter if I live in it, rent it, or flip it, it will have to pass my financial sanity test.

Please comment below. I would love to have a discussion with you.