A Real Estate Investing Disaster: Learn From these Mistakes
In 2005, against my strong demand that he not buy 2 investment mobile homes, my friend Brian purchased 2 of the ugliest rundown P.O.S. mobile homes I have ever seen. “How can I lose?!” he explained to me.
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Brian was a newbie real estate investor at the time that did not seem to need or want my solicited advice. Brian had made a deal with a local mobile home park to buy 2 ‘fixer-upper’ mobile homes for $1 each. The park was happy just to sell these homes to begin charging Brian a monthly lot fee. The real money he would have to invest would soon become apparent.
Brian ended up investing close to all his life saving trying to fix these 2 mobile homes. New interior walls, floor repairs, new carpets, termite damage, new “used” appliances, electrical updates, window a/c units, and more set Brain back $21,000 over the period of 5 weeks. Upset that both homes had required so many repairs, time, and money, Brian was extremely eager to begin making a profit with his first 2 investment homes.
Brian marketed them and quickly filled both of the homes with less than qualified tenant-buyers. Brian choose to take my advice to sell his 2 mobile homes via seller financing; however he completely ignored his own gut and my strong council to pass on these potential buyers.
The park that Brian bought his homes in was in less than the finest part in town. In fact it was known for allowing just about anyone to live and own a mobile home inside it’s walls. While this was great for getting your buyers approved, if you are planning to accept monthly payments, these ‘park qualified’ buyers should also pass your background screening tests.
Both pairs of tenant-buyers had a slew of past evictions, credit collections, and one buyer even had a recent violent felony conviction. What was Brian thinking!? Any rational investor would have chosen to wait for a better tenant-buyer to apply. However Brian was too emotionally invested into the deal that he could not see clearly. He had spent far more money (in his opinion) than he thought he would have to, and now was desperate to begin producing some fruits from his labor.
Mobile Home 1: The roof collapsed after 3 months and was destroyed. No one was home at the time.
Mobile Home 2: The tenant-buyers spent 6 months paying on time then stopped paying completely. Brian never used the correct paperwork when transferring the property into his ownership which caused his eviction process to be delayed.
After 90 days of fighting with his tenants (and coughing up lot rent) Brian was days from removing the tenants. It was sad to see the strain and toll these ‘bad’ deals had taken on Brian over the past 10 months. He then did the unthinkable; Brian asked me if I wanted to purchase his last mobile home.
At this point the mobile home was almost vacant, lot rent was current, and recently renovated. I knew all about the deal and at this time it was a ‘good’ deal to buy. I let Brian know he should wait this out and simply sell the home to a more qualified buyer (one who had money for a down payment). Of course he would not listen so I told him $3,000 would be the top price I would pay for the mobile home; and frankly even that was being generous!
I wound up selling the home for $7,500 (all cash) less than 30 days later. I didn’t even have to make one single lot rent payment.
This “2 Mobile Steal” deal was flawed from the beginning. The mobile homes where too old, needed too many repairs, and even at a purchase price of practically $FREE Brian’s end vision was not realistic. Brian rushed into this deal chasing the “housing boom,” and like many investors was not ready to dive into real estate investing without performing his due diligence. Once Brian emotionally committed to these deals he wore vision blinders that clouded his logical judgment. These ‘blinders’ only let him see his predetermined idea for the future; even when the real world wasn’t agreeing with his vision Brian never admitted his error.
The disaster part of this whole story is not that Brian lost money. Of course Brian was going to lose money, the deals sucked and never should have been purchased. The real disaster was that Brian, to this day (nearly 5 years later) has never invested in another piece of real estate.
Below is a list of 3 mental notes I took at this time in my life. Promising myself I would never make the same mistakes as Brian.
Listen to the Advice of Seasoned Investors: Swallow your pride and begin to realize that others are trying to help by offering advice. Don’t just hear the wise words of others but really listen and learn from their words and past experiences.
Step Outside Yourself: Look at the deal through the eyes of a rational person. If you are so excited to be getting a “cheap” deal and have grand plans of making 6 figures in the next 30 days then I’m talking to you. Again use the advice of others’ past experiences to gain a better view of your deal’s possible future outcome.
Do Not Speculate: Speculating is going into a deal believing with your whole heart that you will make a serious profit either by the raising economy and/or by increasing the home’s value through repairs. Do not buy thinking you’re in for a profit. Only purchase invest properties knowing you have a deal others will gladly buy from you for a huge markup! This is only done with due diligence, patience, and common sense.