Let's Talk About Our Screw-Ups!
I originally started writing about real estate because I wanted to hold myself accountable for my what I was doing, because I wanted to learn from my own mistakes and because I wanted to help others keep from making the same mistakes I've already made.
Unfortunately, as time passes, I seem to spend less and less time writing about my mistakes. Perhaps it's ego (I don't like to admit when I screw up), perhaps it's perceptions (I don't like others to know how often I screw up) and perhaps I'm making fewer mistakes than I used to. Sadly, that last part probably isn't true...I still make LOTS of them... :-)
Regardless, I believe that the best way to learn is through mistakes. So, I wanted to start a thread where people could share the details of the mistakes they've made recently. It can be mistakes during purchase, rehabbing mistakes, selling mistakes or any other mistakes you think will help others.
I'll start with three mistakes I've made recently (and the lessons learned):
1. General Mistake: I always leave a lockbox on-site with keys to the house. This way, contractors can get in and out when they need to. Unfortunately, as I've learned a couple times now, if you only leave one key at the house, it *will* get lost. I was trying to get a house on the market today, but another contractor accidentally took the key to the house with him, and my punch guy couldn't get in today. It would take me too long to get the spare key and get up to the house today, so we're basically going to miss our deadline. Lesson learned: Always keep a second key hidden around the property. The main key *will* get lost/taken at some point and you're wasting both yours and your contractor's time by not having another one there.
2. Inspection Mistake: I had an inspection scheduled on a new construction foundation. I forgot to set up a ladder for the inspector to have access to the basement, so when he showed up, there was no access. He was exceptionally irritated (made a note that I "wasted his time"), which will likely hurt his impression of our project later and could make things more difficult for us. Lesson learned: Always make sure inspectors have what they need for inspections and if at all possible, BE THERE when the inspector gets there.
3. Rehabbing Mistake: When you pour a concrete foundation, if you want plumbing/sewer to come into the crawl space or basement area, you need to give the foundation guys the "sleeves" that they insert in the wall molds to create the holes for the pipes. I was running late and didn't get there in time to get the sleeves in (I actually completely forgot). My foundation guy basically laughed at me and said, "Oh well!" Now, we'll have to pay the plumber to drill the holes and will take some extra risks with waterproofing the holes where the water/sewer lines come in. Lesson learned: Write things down. Coordinate with contractors first thing in the morning on things they'll need for the day.
Okay everyone...tell us about your recent mistakes and give us some good lessons learned...
The first mistake I ever made was on my first property. Go figure. Anyways, I had someone tell me to rent to section 8 aka house authority.
I said, "Hell No!!!" That's the last thing I need. I spent my hard earned cash-back on rehabbing from the roof to the flooring. New paint, fixtures, expensive plush carpet that when you placed your face against it, it felt like a baby's butt. The house was spectacular!!!! And I was not going to take any chances with my investment.
Well dumb as I was, I thought I would get a nice young couple to rent from me and pay me what I was asking for in rent... Placed an ad and received a response from a very nice good looking couple with a cute cat. They were nicely dressed, well groomed, hard working, and had 1st month's rent, last month's rent, and full deposit.
We signed a contract and I handed them the keys within 24 hours.
Can everybody yell, "SUcKKKKAAA!!!!!"
Yup I was.
Make a long story short, they didn't pay rent for the next few month's, and what made this story worse, I communicated with them periodically and I'll be honest with you they were very convincing they were going to pay me back. As a matter of fact, they seemed to always be willing to work with my requests (not demands).
"SucKKKKAAA!!!"
To make matters worse, after being given the runaround to the 10th power, I started the eviction process with a three notice to vacate and to my surprise, they fell off the map. They had not moved out but along the way picked up some ninja-like techniques by disappearing.
Oh here's the best part. Their cat must have been eaten by what seemed to be a 180 pound Rottweiler who was running rampant throughout the house. Not to mention, the ability for that BEAST to fertilize my carpet to no end. Did I mention, it was very protective of it's territory and as a result had the ability to fire-hose his markings throughout the entire baseboards and sheet-rock of the entire house.
Several weeks later, they moved out in one evening, which was the last night before their things would be left on the sidewalk. Just like a thief in the night.
My white walls to ceiling fans were yellow to brown from the tar build up from their smoking habits and my baby butt carpet was now sticky, brown, smelly, and hard :.c...
(Sigh) I still feel the pain of it.
After that dramatic experience (Baptism by Fire) as a newbie, I proceeded to rent to Section 8 for the next dozen or so years without much incident.
I have many more (at least a dozen or so) but this is enough to make me take some Rolaids.
Lol.
It was a very painful lesson of a mistake... That's my story and I hate sticking to it.
Big Henry
Bought a mobile home in a senior park with $800 space rent during the collapsing economy. I was told not to do the deal by another much more experienced investor who just got out of a horrible mobile home deal. I did it anyway thinking "I'll show him." All I showed him was how me and my partner each paid $10,000 to get rid of the mobile home.
We then bought another house out in Palm Springs. Didn't understand the market out there. Six months later we netted a whopping $2,500 each... on paper. That doesn't account that Palm Springs is 1.5 hours one-way from my house and I spent a lot of days out at that job.
I used my IRA to buy a second mortgage on a mobile home. After a year, the borrower stopped paying on the first loan. The first foreclosed, but failed to notify me. I called them up and notified them they now owe me as I'm in first position. I should have shut my mouth because they hadn't yet recorded their deed so they just did the foreclosure all over again and wiped me off. Luckily I salvaged the note out of my IRA with another deal, but that is $10K I'll never see again.
I refinanced one of my high equity rentals to a 10 year I/O just before the economy collapsed and used the money to pay way too much for two rehab/flip houses from wholesalers. The economy stalled and started collapsing before I could sell them for a profit. Should have just gotten rid of them and been done with the loss. I still own both of them today and that house is still upside down! LOL
I put $18,000 into an out of state apartment deal. Never saw a dime returned. The guy who put the deal together disappeared along with $2.7M in other investor's money, the woman involved is claiming mental illness and I've been told the building went to foreclosure. You can't make that one up!
Once bought a house subject to another investor's hard money loan. I then sold the house to yet another investor, but I gave him the deed before he gave me my money or paid off the first investor's hard money loan. (I don't recall exactly how I was ever that dumb, but it happened.) I found out he wasn't paying on the loan so I had to make the payments and I weekly begged him to deed me the house back even emailing him grant deeds. Although, I did eventually come out whole on that deal and with a very good profit when he finally got his refinance through, there were MANY months of waiting that didn't feel too good in my tummy while writing checks to cover one investor's loan on another investor's house.
I've got so many more... It's only money! Let the education continue....
Good topic.
One of my mistake was to negotiate a further discount on a property even when numbers looked excellent. Another investor who was happy with return snatched it.
In the initial days, I was hesitant to network with others.
More later.
Thanks
Atchut
One of my mistakes was walking a property with one of my GC's contractors and Project Manager. All items were discussed verbally while we walked the property in regards to landscaping. When i saw the scope of work and pricing I thought that what we discussed would be a part of that landscaping. I should have made a detailed scope on the landscaping and get that signed off by the General Contractor before the work began. The General Contractor did not honor his Contractors and Project Managers word and left me with finding another contractor to do the work the 1st contractor agreed to do. Since the General Contractor would not honor his word, I would not pay them for additional work that they had originally agreed to do. Lesson Learned.
J, I am so glad to see this thread because after reading Brandon's article about investors who go bankrupt, I was thinking about coming here to ask about mistakes. Open and honest conversations about the bad things that happen are important for learning. I'm very curious to know what people have gotten themselves into and how they survived their own problems. I'm still figuring out whether real estate is something I will be successful with, and enjoy, and enhance rather than add stress to our family life. Thanks for starting the topic!
**MISTAKE**
Getting close to closing a APT complex and in my budgeting I used the current sellers insurance expense as my actual expense. As we are closing in a few weeks, I had to line up the insurance for teh property. Got in touch with the current owners insurnace agent and found out that instead of the insurance being $5300..its almost $10,000 annually!!
The current owner had years of "credit" so it gave him significant discount. The current owner also had a policy which valued each building far less than acutally replacement costs to save on annual premium..!!
More money out my pockets.... I should have done my research BEFORE hand.. End of the world or deal breaker...NO.... but I should have known better, it sucks!!!
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#2 All Forums Contributor
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Not keeping my first house I bought in Palo Alto for 180k because I was worried that I would be 250.00 a month negative.. And I did not need to sell it to buy the new place in the Napa Valley... Well 250 negative would have over the preceeding 20 years would have been 2 to 3k a month positive on that one house. and today its worth 1.5 mil.
Not understanding that there are TWO values in the mid west as south east.. There is appraised value and WHAT someone will actually pay for a home.
coming from West coast were our houses generally ( fixed up ) sell within a few % of appraised value... Out east is a whole nother kettle of fish.
Not buying ski in ski out condo's at Silverstar BC for 29k Canadian when the exchange rate was almost 60/40 to our favor... those things sky rocketed in value.
To many F ups with mom and pop contractors to talk about... Just don't pay in advance is good advice.
Best thing I did was hire a single mom of 3 to manage my tenants and take the calls. I was a push over I believed every sob story and was terrible at being a landlord.. my gal she took no crap from tenants or got sucked into their sob stories.
A recent one..
Got a house for practically free. Spent $2k removing all trash and another $2k ordering windows for the whole house. We go to building department to pull permits and found out that the house is on the demo list..Supposed to have been demoed last year in March, but the city never got to it. So now dealing with the city to remove it from demo list. That's a fun process :-)
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to follow up on your demo house..on a few hard money loans I made in the day ( areas I would not touch today as I learned my lesson) when driving by to inspect my collateral is was bulldozed... Oh well wrote that one off... and we know the lots are worthless so total loss.
Paying before work is done. Need to be reminded from time to time.
Paid $300 to have a kitchen and surrounding area cleaned up (fire mess) only to end up gutting the kitchen.
Forgetting to get stuff ahead of time for workers.
Forgetting masks going to the dump and disposing carpet and sheetrock with burnt up insulation all over it. Hate breathing in that stuff.
Spent $700 replacing broken windows only to replace all of them.
Trying to salvage trim then buying all new after spending lots of time cleaning and painting it with worker cutting and fitting it.
Personally need lots of margin to cushion my screw ups. It's a daily thing!
Following this thread closely...
So far, my biggest mistake is that I have yet to sit down and write out my 15 year goals (to retire) and then work backwards to figure out how to get there. I have been consuming a lot of information on BP and the BP podcasts and I'm starting to narrow in on my first specialty area.
I did do something I never would have done before... I walked up to the lender in my local bank and just chatted with her for about 15 minutes on the types of properties and people they work with. Thanks to the 4 hour work week, I got over my fear of rejection and just figured why not! And we had a great conversation. I don't know what will happen, but I can tell that I am no longer worried about getting out there and doing something.
So my biggest mistake is it's taken me two months to get to this point. But I do like having a firm understanding of what I am getting into.
My biggest mistake was renting my first property to family members without an appropriate leasing contract. Just because a tenant is family doesn't mean they will respect you as landlord, unless you act like one! Take care of business at all times-with everyone! I won't make that mistake again!
First rehab:
1) Under estimating the scope of work. Entire rooms needing to be rebuilt from the studs up. All new electrical. All new plumbing. All unexpected.
2) Not having a very clear, defined plan/schedule for rehab. I wasted time by adding renovations as I went.
3) Trying to do it all myself (ok 90% of it) while working a full time job. 90 hour weeks between my job and the house for 6 straight months are not fun.
All these mistakes led to a MUCH longer holding time than was expected. My market seems to be improving, which lessens the effects. If the market was declining, it could have killed my profits.
Should still make a nice profit on this one but it has definitely changed my mindset as to how I will handle deals going forward. The plan for the next deal is to buy it cash to avoid the holding costs/transaction fees and get a better discount on the house. I would also like to hire out 90% of the rehab and only spend my time on the planning/decision making.
Mistake: Losing a qualified tenant because I was too slow to sign her.
Last week a very qualified applicant for my rental called me 2 hours before the lease signing and informed me she was bailing out. Initially I was very frustrated with her...we'd both spent many hours over the course of 7 days on the application and the due diligence. I'd even held the house for her over a long weekend so that we could find a time when our schedules matched for the lease signing. Now I'd lost precious rental days because she'd waited until the last minute to tell me about her change of heart. But I soon realized that it was my fault for not having the systems in place to sign her quickly.
Lessons Learned:
1) When self-managing, develop a system to sign tenants even when you are busy. For me, this meant hiring a trusted friend to conduct lease signings when I am out of town.
2) Collect a partial security deposit if the applicant is not able to sign immediately...even if the delay is only 2-3 days. (I still need to check with an attorney on the legalities of collecting a security deposit when there is no lease in place...my state can be very strict on this.)
3) With enough time, a shopper will ALWAYS find a house they like more than yours. Sign them as soon as they are willing.
4) Just as landlords feel intense pressure to fill vacancies, applicants feel pressure to find a home! An applicant may interpret a landlord's delays as a lack of commitment in offering a lease. They may not be willing to take you at your word. Applicants can and will walk.
@Jared K. hey just wanted you to know it is a really bad idea to ever say you won't tell the cops if they will settle. Tell your friend that technically that is extortion. It may actually work, but may land you in trouble with the law. Demanding compensation for not giving information on a crime to the police can get you in serious trouble. Thanks for sharing your story. Sometimes short cuts work, but many times they blow up and actually make things worse.
I evicted a tenant once, and after he left I found a couple power tools in the garage he'd left behind. One of them was a Milwaukee Hole Hawg heavy duty drill, they cost about $350 new. It had the name of a construction company imprinted on the side. I called up the owner and asked if by chance he'd had some tools like that stolen. He said "yes." Apparently the evicted tenant used to work for this contractor and had stolen the tools. I offered to return them to the contractor,, but he said, "No, I've already received reimbursement from my insurance company." I didn't want my tenant coming back and accusing me of keeping "his" tools, so I turned them in to the Sheriff and explained where they came from. A few months later, and not having heard from the tenant, I called the Sheriff's office to see if they could release the tools back to me. "Sorry, we can only hold things like that a limited about of time. We disposed of those tools last week at the landfill."
Stupid me! I should have just kept the tools, but informed the sheriff what I was doing, and told them that if the former tenant every contacted them to claim the tools, , THEN I would release the tools to the Sheriff and let them release them to the tenant, if they chose to. Would have saved some good and valuable tools from being needlessly discarded. Sometimes it's better not to go with your first instinct, but instead try to think through the problems to determine possible alternatives.
@Jerry W. Yes I agree he could have got in big trouble. He took a cat to a shelter they wasn't feeding too, forgot to mention earlier. He told them to forget the compensation, damage, storage bill, stuff he seen that was inappropriate and that he was going to have them sign a contract releasing both parties from any liability or ability to prosecute to release their stuff back to them, the legal stuff anyway, and forget the matter. Then he could rent his place to someone else and move on. Yes it worked to get them out but I agree it could have gotten him in trouble for sure. He was mad at these people by this point so he didn't use good judgement in the first place. I am not sure if the people signed the paper and this is finished but he gave their stuff back anyway to prevent the storage bill. Once he found out he was legally wrong to seize their stuff he done all he could to be nice about the situation in case he did go to court. I will probably ask him today if he has heard anything back form them b/c this was a recent matter.
Be mindfull who you turn the keys of your business over to , my best friend a contractor buddy of mine had one of the best construction business in the Dc area which I will name nameless a few people on this site I am sure he has did work for very nice guy. He went on vacation for two weeks and set it up with his head carpenter that worked with him for years to run everything for two weeks into he gets back. he gave him 15 checks to pay the subs and 15 checks to pay the crew and gave him the contact #of all the jobs and for people to call him if they have a problem that he would be in charge for two weeks. The head carpenter went on a drug binge all the checks for pay role were blank he put in his name and cashed them two weeks of payroll for 15 guys and 15 subs,on top of that he called all the jobs that they were doing and told the clients that they bills were due now if they did not pay them that all work would stop they did and they paid it out to him. He also got more money out of the clients when they asked for extra work he told them no problem to give them half and he would get the work done. He went to the supply house and had his name and max out all the material and sold it for 50% and 30% on the dollar.My nameless contractor friend came back home two weeks later voice mail and office mail phone full with workers,subs asking for their check and home owner asking why no one was on the job site for about two weeks. He had no phone service were he was at and when he did call back the two times lead forman told him everything was great.The more he looks around his house he notice his wife jewelry his watches were gone he call the police. Once the police were there he went in the garage and notice that his new BMW 735 was gone as well as his wife car. The next day he goes to the job site and find out what happened and wants to kill the carpenter.Long story short he could not press criminal charges against the carpenter due to him give the ok to act on his behalf and items at his house they could not prove who did it. True story every time I see him working a normal job I think of who you turn your keys over to.He closed his doors sold his trucks laid off all the workers a week later and lost his house six months latter. Sad but true
Great thread. I don't have any mistakes, just lessons with fee:
- Lesson 1: rent the house to unqualified tenant. This is our first rental house and we agreed to lease to a tenant that does not have income matching three times of rent. The tenant was a single mom with 2 kids. Even though she tried her best, she could not pay rent on time for so many months. More over, she failed to upkeep the house, she turned off air conditioner and leave the window open to save money. She did not dare calling me to repair things since she was afraid of me kicking her out, etc. Although she paid all her rents, I had to spent around 5k to fix up the house when she moved out.
- Lesson 2: pay handyman before he does the work. Fee: 300$
- Lesson 3: doing a lot things myself. I saved money doing things myself but it takes longer to put the house on the market --> lost of rent, lost of opportunity. i still do a lot of maintenance myself to save money since I still could not figure out how to apply a popular advice form BP to my business : "you can use that time to look for new deals, to develop your business, don't work minimum wage, etc". I believe I will take up that advice some time in the future when my business gets to some level of expansion, but for now, I just keep doing handyman's job to keep cost down.
- Lesson 4: under rehab the properties. Low quality properties only can attract low quality tenants.
- Lesson 5: get into legal fight with tenant. Although I have good insurance, I have good reserve of funds, I can afford to hire lawyer, I should try to avoid getting into dispute with tenants, since legal disputes cost time, money and stress. At this point, I strongly believe it is best to avoid dispute with tenant by having good management skill, inter-personal skills, leadership skill, good ethic, good judgment.
I'm sure I will learn more lessons in the future. Thanks J Scott for starting this thread.
Kevin
Not to dwell on J Scott's keys, but all our pm subs have 1 key. We rekey the lock (or change them) to match the contractor key during flips and turnovers. Works very well.
I always get bitten by renting out properties with unfinished business. Whether it's cleaning or a picture hole in the wall. There are almost always SD disputes at move out. Rentals should be mint prior to move-in. The problem is I still do it sometimes.
Good topic!
@Ed B. if something was to ever happen those serial numbers are reported stolen. You did the right thing, last thing you want is to be accused of receiving stolen property, even if you weren't the one that stole it, it could haunt you.
This is a great thread. Unless someone is "perfect" everyone will make a mistake.
I've gotten swindled by a contractor once who had done a few jobs for me then asked for a small deposit on the next job. Of course he ran away with it and suddenly his phone was disconnected. I lost $250 which isn't the end of the world but it does feel bad. It was really bad for the contractor -- if he would have kept doing good work, he would have made tens of thousands of dollars with me in the coming couple of years. So to throw away that much money for a quick $250 -- shows how short-sighted he was.
I told a contractor to paint the shed red. He told me he could get the paint for cheap. I trusted his judgement and showed up a few days later to a pink shed.. Never go multiple days not checking in on contractors.