Two Big Mistakes I Made in 2013, and the One Guy You Should Follow on BiggerPockets

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I know a lot of people talk about what happened right in the previous year.  Most of the time, to me at least, this sounds like bragging.

Instead of bragging or talking about what went right in 2013, I’m going to talk about two big mistakes I made in 2013 and the one thing I did to fix both of the mistakes.

How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties

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Mistake #1: Criticism of Hard Money Loans

For perspective, I underwrite over 1,000 loans a year.  Because of this, I meet several hundred real estate investors every year.  Not a single one of them has made money on a deal, when hard-money was involved.

Therefore, at the beginning of the year I wrote emphatically in the BP Forums about staying away from these type of loans.

J Scott was very professional in his disagreement with me saying that I was being “unjustly unfair” to hard-money lenders.

Without speaking for him, here is the summary points of what I have taken from his arguments:

  1. Hard Money Lenders allow you to buy a property without any cash up-front
  2. Hard Money Lenders don’t require an appraisal
  3. Generally, Hard Money Lenders can close faster than standard banks

The above three points should not be mitigated.  Yes, HML’s are very expensive with a very high rate and points-they charge.  However, in-fairness so is waiting on a bank and waiting for appraisals.  Additionally, as Brandon Turner has pointed out several times, if its between getting a deal with expensive financing and not getting a deal, its usually better to go ahead and get the deal done

“Time is Money” – Benjamin Franklin

Note: Be sure to the check out the BiggerPockets Hard Money Lender Directory

Mistake #2: House Flipping

Unlike real estate investors who use hard money lenders, I know a ton of people who have made money flipping houses.  Of-course I also know some people where it didn’t work out so well.

However, I’m an underwriter (read: cynic) and the majority of these house flippers that brag at cocktail parties simply “profit” by not doing accounting right.  Leaving a lot of major expenses out like mileage, closing costs, and holding cost.

This all changed of-course when I started reading J Scott’s blog and his blog posts here on BP.

I HIGHLY encourage anyone who is even thinking about flipping to buy his book on flipping houses.

He does all his accounting like a CPA would, applying fixed-overhead costs, mileage, holding costs, etc…

J Scott does all this, and yes, still manages to make a profit.

Not only does the guy make a profit, but he has built a scaleable business doing it.


In summary, I want to encourage everyone to not have so many absolutes in 2014.

Be open to not only learning about new things, but be open to the possibility that you might be wrong.  I know I was in 2013 and plan to change that in 2014.

What about you? What do you plan to do differently in 2014?

Photo Credit: ktpupp

About Author

Jimmy Moncrief is a bank underwriter and real estate investor. He blogs at where he talks about all things real estate. He also is the creater of free evernote templates for BiggerPockets members to learn how to better organize and automate their real estate investing.


  1. Great article! However, I have to disagree w/ the 2nd statement about Hard Money.. Most HML’s won’t lend 100% , 65% -75% at best..This leaves the investor having to come up w/ the difference in the form of collateral( which is non-existent if they’re a beginner) or paying the difference out of pocket which technically, is a down payment

  2. Good article Jimmy! I’m seeing, for myself anyways, that as I learn more and my perspective broadens then approaches I might not have considered using before start to seem more viable. Like you state, I believe you need to be open to possibilities. Not all will work for you, but why short change yourself by not at least considering them to begin with. Thanks for keeping it real!

  3. David Cummings on

    Interesting post. Although you seem to be backtracking somewhat on your criticism of hard money lenders, it makes me very nervous when you state that everyone you have met who uses them fails to make any money. I will go back and read your previous posts to find out why.

  4. Regarding flipping, I did know someone in the past who told me he was “profitable” flipping houses and had done 2 projects. However, I later learned that “profitable” was only with him doing all the work for almost nothing. (e.g. if you “profited” $5,000 but spent 500 hours doing the rehab work, you’re effectively “making” $10 an hour). Then you have to subtract closing costs when you sell the house, and you’re negative. This is no way to run a business.

  5. I’ve got to agree with Dawn’s statement. I’ve seen and heard of others in the same situation. They brag about how awesome the deal was but only come out with a poor paying hourly job when the numbers are crunched.

    Jimmy, way to admit your mistakes so publicly. It shows humbleness and growth as an investor and person. As I’m moving forward with my goals and plans for the new year I’ll make sure to take some time to do the necessary reflection on things that went well and things that didn’t go as well.

  6. Matt DeVincenzo on

    Great article Jimmy!

    I’ll also chime in on the HML aspect. HML’s and their benefit is/can be completely dependent on your local market. I know here in SoCal there are some investors, like Aaron Mazrillo, who have mentioned they have HMLs that they have a good relationship with that are doing 10 year term loans on rentals not just the 6-12 month traditional “rehab” loans. So for those that may not have access to other forms of financing and can get a truly great deal to support that loan it may be a great resource.

    I completely agree on your flipping comment, it can be a great business that makes money, but many don’t account for their time correctly. I think a lot of that goes to bragging and wanting to sound like they are something they’re not.

  7. LOL Jimmy – your use of J Scott to back the argument on flipping completely destroys the premise. J Scott is likely the smartest investor I’ve had the pleasure of ever to communicate. This guy is extraordinary in so many ways. Yes – do flip houses by all means if your name is J Scott. All the rest – stay the hell away. hahaha

  8. I’d like to toss out there that I’ve been using a local HML for many deals over the past 3 years. I’ve ended up with some great profits and some rough losses. In the end, using an HML has allowed me to get into the business much more quickly and build up an investing background that I wouldn’t have if I were just going the traditional routes.

    The key to using HML’s is a quick exit. I typically only borrow hard money for 3-6 months. The one property that I lost a lot of money on was mainly due to 10 months of holding costs. The longer you’re stuck paying for money at 12-20%, the less likely you’re going to come out ahead. But I’m still using this lender and will continue to do so on deals where it makes sense.

    To emphatically state that nobody using HMLs makes any profit means you’re not talking to the right people 🙂

  9. I can only speak for my market here in DC, but many of the savvy, profitable investors I know use hard money for their flips, including small- and large-scale companies. I personally have used hard money on all my flips and they all have made a nice profit. I model them carefully ahead of time to include all possible costs including holding, utilities, and transaction costs and don’t execute unless there is a good spread. These are typically 4-6 month projects.

  10. Jimmy,

    I spent a lot of time flipping houses in the 1990’s. I did little of the physical work but did handle the real estate brokerage side. I made about 11% profit on gross sales which I paid to myself as a real estate commission. All my expenses were included in the 89% of cost except my time. I was making 6 figures at the time doing something I enjoyed. The key IMO is to buy right. You make your money at the purchase.

    Mark Creason

  11. Jimmy, it’s eye-opening to see you write: “…I meet several hundred real estate investors every year. Not a single one of them has made money on a deal, when hard-money was involved.”

    That’s very sobering. J. Scott and others may disagree with you, have they forgotten that the obfjective is to make a profit? It matters zilch that a hard money lender can move faster, may not require any up front cash, nor an appraisal. If the deal is a turkey from day one, where’s the “benefit” to a lender giving you the money just so you can fall flat on your face? Brandon Turner’s advice to take hard money if the alternative is to lose the deal is not always a sure thing. Nobody can predict the future, and there are probably tons of investors who lost their shirt on a “sure thing” deal that really just cost them a lot of money, for which at the time they erroneously thought the hard money terms were just a cost of doing business.

    People, I suggest we all pay attention when someone tells you that he has seen not one or a few, but hundreds of investors fail to profit when they used hard money lenders. Do you really think you are smart enough to not have the same fate? Maybe so, but I don’t like the odds.

  12. Jimmy, great article, and I completely agree. Absolutes can really be blinders, in many cases, though they tend to require modification rather than just being thrown out. Being open is, as you say, a great starting point for all of us in the learning game. Thanks for the perspective!

    I’m not certain what Jimmy meant in saying that “no” profit was made using hard money, but it strikes me that if that were the case, the deal and the accounting/projections may be at issue, rather than the hard money itself. We’re working on our first rehab/resale, and are looking at approximately 75% ROI even with our hard money loan if the property sells for even close to the comped list price. Beyond that, any reduced return we make will be based upon (hugely) longer than expected holding times or HORRIBLE comp errors, rather than HML issues. That’s based on projections as well as our actual costs and expenditures, including closing costs on both ends, fees, etc. I believe it was best said by another member recently: a deal is a deal; just have to look hard at those numbers up front, because if you commit and THEN find out about those fees, etc, that deal may no longer be a deal. Happy investing, and have a great new year!

  13. I will say that hard money was the only reason I was able purchase my rental for soooo many reasons. The purchase was in Aug of ’10 (remember the robo-signing fiasco/ BofA lending freeze?). The house is manf (on a foundation, on a city lot, but forevermore a manufactured home regardless). I did a longer-term hard money loan from someone who does longer term/lower interest loans (5 year, 8%). High for a conventional property, but comparable to a bank loan for a manufactured home.

  14. It is always good to be able to step back and admit you might have made a mistake.

    Some thoughts on some of these specific issues.
    – On hard money. It is expensive and it is great to be able to find other funding sources to help amplify your profits. That being said it is a great resource when you are getting started or if you don’t have enough funds to get a deal. My basic premise is if the deal can not support a hard money loan for 6 months then it isn’t really a good deal. There really is no problem with hard money there are only problems with the deals it is used on.
    – Flipping profits can be a little hard to nail down. I do think some people are sloppy and therefore do overstate things. Also some people will brag about much smaller profits (with or without stating an actual number) then others. If you talk about how you are making 10K all the time on a flip then some of those little expenses are probably making a big difference and if you think about the wage you are earning at that profit then it isn’t going to be nearly as impressive.

    • Sorry I did want to call out mileage specifically.
      Good rule of thumb is if clocking your mileage (Which you should by all means do and do it diligently) is making a big dent in your profits then your deals are WAY to thin!

      I’ll rescind that if people start saying that are putting 40K+ miles on their car per project…

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