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What to Do When Things Go Wrong in Your Real Estate Business (Because They Will!)

by Mark Ferguson on August 24, 2014 · 13 comments

  
When Things are Going Bad is When You Find Out What You're Made Of!

Let me start out by saying, things are not bad for me.

Many people are in much worse situations and have had much more serious problems.  No matter where we are in life or how successful we are, we all have problems and things don’t always go as planned.  I have been writing a lot about my contractor problems on my fix and flips lately.  I think I am starting to turn the corner with my contractors and I see the light at the end of the tunnel!  However, life is never clear sailing, we all have problems and issues that we have to contend with on a daily basis.  That is what makes life interesting and fun!

Another Challenge Has Arisen!

I have a large commitment set up with a local bank to help fund my fix and flips.

That commitment is coming up for renewal on September 1st.  In the midst of getting my taxes done for 2013, I have discovered (my accountant actually) that my taxes were under estimated earlier in the year and I owe a lot more than I thought!  This comes at a time when I have 10 fix and flips going, I just bought my 11th rental property and my main source of income for the last 3 years (REO listings) are way down.  Even though things appeared dire to me this morning, I sat back and realized I am a very lucky person and I will be just fine.

Related: Why Portfolio Lenders are Important to Investors

How Did I Underestimate My Taxes?

With my fix and flips, real estate business, rental properties and a few other ventures, I have two S corps, 11 LLCs and my personal taxes.

There is no way I could keep track of my taxes so I delegated them to my staff.  I think delegation is extremely important to any successful person or business, but you can’t delegate something and then forget about it.  That is exactly what I did.  I assumed my team manager, book-keeper and accountant could handle my taxes.  They grossly underestimated what I owed and we didn’t find out until now, because my accountant has been dragging their feet getting my taxes done.

Lesson learned; if I delegate something I need to follow-up to make sure it is being done how I want it and in a timely manner.  Even though I have 10 flips going and I recently bought a rather expensive car, I never stretch myself too thin so I should be fine.  Especially when I get some flips sold!  I did some figuring this morning to send to my banker and I estimated a total profit of $349,000 for those ten flips once they are repaired and sold.  That does not include the commission I made on 9 of those when I bought them off the MLS.

Update on My Contractor Situation

I had a ton of feedback from comments on my last articles and that gave me a lot of great ideas.

I have been pursing starting my own contracting company and I even interviewed two contractors for becoming a full-time handyman.  I have not found the right person to hire on full-time yet, but I did hire one of those contractors for a small rehab job on one of my flips.  If he does well, I think there is a possibility he could become a full-time person who handles my flips.

He also has management experience and may be able to run his own team.  I now have four new contractors I have used this year alone! Then out of the blue a contractor I had used years ago called me and said he is getting back in the business.  He had quit contracting to take a very good management job.  He is working on rental property 11 to get it ready to rent.  My contractor problems appear to be working themselves out now.

My Real Estate Team

Last September I took over the real estate business and fix and flip business from my father.

It has been great, but challenging as well!  I have ten people on my team to sell houses and help me with my various activities.  Since REO listings are way down and that has been my biggest source of income, I have been working on generating income with the team.  We hired a new agent this year, who unfortunately had to quit a short while later.  We have one more new agent coming on in the next month or two and I am looking for at least one more agent.  If you know anyone in the Northern Colorado area that wants to be an agent or is an agent, let me know!

It is challenging running a team, but I have a team manager who helps with much of it.  If I can pull a team together that are able to sell houses on their own, I won’t have to rely on REO or my own sales to make money.  I can focus on training and sharing my knowledge, which I much prefer to actual selling anyway.

When Life Gets Difficult is When You Learn What You Are Made Of

I am by no means complaining my life is horrible, but we all have problems that come up and things don’t always go as planned.

Related: Why Do You Invest in Real Estate…No, Really…WHY??

It is easy for us all to be happy when things are going great.  The hard part is when things don’t go right, can you work through the mess?  While you are working through the mess can you keep a smile on your face and not take out your frustration on your family or co-workers?  Even if we don’t intend to be grumpy, we still may take out frustration on those around us.

I know when I get these challenges cleared up my business will set up better and will be more successful.  The challenging times help us improve our current systems and see new opportunities if we aren’t too busy being mad at the world.

My contractor issues have allowed me to find more great contractors, which will allow me to buy more flips and get them sold quicker.  The down turn in REO has given me time to grow my real estate team, which will provide more income.  When REO comes back I will have it even better with REO listings and the buyers agents to support the leads they generate.  The tax situation may not show much to learn from, except to improve my accountability.  When I delegate something I need to make sure the right steps are being taken to complete the task and people know what their responsibilities are.

If you think it sounds like a huge hassle running a team and this many things at once, remember the team helps run themselves.  When I see a problem like the tax situation, I can have the team work on fixing it, I don’t have to dig through my records to figure it all out.  Slowly over time the team can take over parts of the business that I used to do, freeing up more time for me to pursue more income streams or to go play golf or go to the zoo with my family.

How do you look at the problems in your life?  Are they a huge frustration that drains your energy or are they challenges that you enjoy conquering?

Be sure to leave your comments below!

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{ 13 comments… read them below or add one }

Tim Davids August 24, 2014 at 6:56 am

This hits home to me right now.

We are having a new home built and all the nightmare stories about builders have plagued us. I am considering becoming a GC just because I know I would kick arse compared to our builder. We learned so much having a stick built house made. Has amazed me how bad a builder can be and still make money. Ugg.

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mark ferguson August 26, 2014 at 9:08 am

I know many builders who have a very limited knowledge about building. They hire all the talent, which is okay if you hire the right talent. I know your frustrations!

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Antonio Coleman August 24, 2014 at 7:20 am

Mark,

Taxes, is a killers and Mr. Uncle Sam don’t care who you are they just want their money. Just have to get the right people on your team that know what the heck they’re doing.

Hope you get through it Mark

Antonio Coleman “Signing Off”

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mark ferguson August 26, 2014 at 9:11 am

Thanks Antonio, It will all be fine, but it is a challenge

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Kyle Hipp August 24, 2014 at 7:38 am

I feel your pain although you have a lot more balls in the but also more help which can be a double sided sword. This business is a roller coaster for sure. I still have a day job and overtime is plentiful. When I am caught up on my rental business I can put in more hours at work which also allows me time to develop my systems and implement tweeks and updates. The rental business never is steady, it can be a couple good months then 4 things at once. The summer months are always busy for me as I can get outdoor stuff done a lot easier and usually take on a ton of projects.
At the beginning of july I had a tenant get behind and we worked out a amicable moveout, however I knew I had a lot of work for turnover on the interior. A couple days later I get a call at 2:45am that there is a fire on the porch of another duplex. I do a majority of work myself so I had 2 large projects going on at the same time with 2 small ones at two other properties. This was also the time to coordinate another large project at another property. I am always amazed how much easier it is to work crazy hours when it is on your own business. I work shift work and work around that schedule and often get called crazy for working 20-30+ hours straight but it is only possible on my own projects. I don’t think I could end a 30+ hour day at my work. I have done 20 straight with 4 off then 16 more but that is mentally much more difficult. I have found that I am not alone in this, folks I hire for contracting jobs won’t put in the long hours because they are not doing it for themselves but a paycheck.
Lastly I have learned that growth and stability is a fine balance and it only gets truer with time. It is hard to let off the gas when everything is running full steam ahead. At the same time it can be difficult to jump to the next step when developing new systems and preparing. The beauty for me has always been that whatever it is, when I jump in, the task IS going to be accomplished and that drive has lead to things being done in amazing ways. This builds confidence and more importantly experience to tackle the next step.

Great post!!!

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mark ferguson August 26, 2014 at 9:14 am

Thank you Kyle! I would not ever want to work that much, even on my own stuff. Do you ever worried about getting burned out? I know my wife would divorce me as well. lol

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John Soforic August 25, 2014 at 6:29 am

Mark,

I have a full time job outside of real estate, and for 15 years have flipped and grown rentals. I always feel like a juggler with five balls in the air but I can only watch two of them.

For me taxes have been simple if I do one thing only- when I sell a flip I have to reconcile the sale on Quickbooks. I add it all up for my accountant per his instructions, and then have a final GAIN ON SALE number. I always figure 25 percent of this number, and send that amount FAR AWAY to a Vanguard money market account. In other words, I set it aside and don’t even want to see it (for fear of re-investing tax money).

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mark ferguson August 26, 2014 at 9:16 am

Hi John, the flip side of taxes is not too difficult. Calculate profit and your tax rate. The problem was with my real estate business and all the expenses that come in to play that are not always cut and dry and I had income coming in from multiple sources plus I bought a business in the middle of the year and completely changed all the accounting systems.

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Cheryl Mesher August 25, 2014 at 10:29 pm

In my business, when I write my tenants notices, I make sure that they are professional looking to reinforce that this is a business, not a charity, the government, or a family refuge. With modern technology, this is easier than ever. One aspect that is both a help and a hindrance is “spell check”. All of the words will be spelled rightly, but whether it is the correct word to begin with is another matter. Example: “When Things are Going Bad is When You Find Out What What Your Made Of!”. The word “your” is spelled correctly, but since it is meant to be the contraction of “you are”, it is actually spelled incorrectly. The correct spelling is “you’re”. And “spell check” doesn’t care if you use a word once, twice or a 100 times such as with “what what”.

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mark ferguson August 26, 2014 at 9:18 am

Hi Cheryl, I am very bad at spell checking and proof reading my posts, I will be the first to admit it. However, my priority is on getting information out there and if I spend the hours it took to make sure it was all perfect I would never write anything! Thank you for the comment.

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Shaun August 26, 2014 at 12:16 am

1st world problems huh Mark? :)

The tax stuff is definitely one of the biggest PITA for an agent, a rehabber and a landlord so I know what you are talking about there. Never fun to find out there is a big unexpected bill to pay.

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mark ferguson August 26, 2014 at 9:19 am

Hi Shaun, yes I am very clear that my problems are minuscule compared to many out there! But it is all relative I suppose. Life would not be as much fun without problems and consequently solving those problems.

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Sara Cunningham August 27, 2014 at 2:31 pm

Mark,

This really hits home for me right now.

Firstly I ended up owing the tax man for 2013 for the first time in about 4 years.

Then I bought a triplex that needed a lot more work than I anticipated. Don’t even mention contractors next year is soon enough for them to be finished and in the meantime my revolving line is costing me money till I can refi..

While this is going on another 2 houses needed new HVAC, 2 more needed sewer and plumbing work and another a new roof.

Lastly while all this is going on I am relocating back to the USA from Italy after 3 years. I was planning on investing in the area we moved to but haven’t had a chance to run around. I started just saying that I wish this year would hurry up and end!

What have I learned to help me to stay positive. Well with all these major repairs and rehabs I shouldn’t owe the tax man anything next year. I am almost ready to refi the triplex and already have 2 tenants occupying. As for all the major repairs they have improved the properties and should last for a while now. So on to new adventures and more buy and hold. It’ll take more than this to make me bow out.

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