5 Invaluable Lessons I Learned From My Worst Real Estate Deal Disaster

by | BiggerPockets.com

Last week I told a happy-go lucky, sunshine-and-puppies story about real estate success in multifamily investing. Unfortunately, not all such stories have happy endings. So this week we will embark down the foreboding path of real estate horror, as I recount our most painful venture here in Kansas City.

And it just happened to be our first in KC to boot.

We are originally from Eugene, Oregon, where my father purchased some 300 units of mostly campus housing around the University of Oregon. After the market for campus housing got too expensive, my dad started flipping houses. This is when I joined. Eventually we got tired of that and decided to join a friend of ours on a trip to Kansas City. He had been investing in several other markets and had settled on KC as the best of them.

Immediately the prices shocked us. Eugene is no San Francisco, but the prices are still much higher than the Midwest. We went around with a real estate agent and looked at a dozen or so apartments—jaws dropped the whole time. Most of them were beautiful old, brick buildings with marble floors in the entryway and elaborate decorations over the front doors.

Along with our friend, we made a handful of offers and eventually found one 29-unit building under contract (technically a 14 and 15-unit building a block away from each other) that we decided to partner on. The neighborhood was very close to downtown and didn’t look bad (famous last words, right?). In fact, one apartment was right across the street from a mansion!


Our purchase price seemed incredible. Only $450,000 for 29 units, or $15,517/unit. It wasn’t performing at the time, but it still had 22 occupied units—which meant it was only a minor re-position, right? (Famous last… yeah, you know.) Then we met a property manager, had lunch with them, and decided to use them.

Indeed, for several months after purchasing the property, things seemed to be OK. Yes, there was more rehab to do than expected. For example, the plumbing in one unit wasn’t hooked up underneath and lead to massive amounts of human fecal matter lying underneath the floor. Good times.

Still, things seemed to be progressing. But then month after month went by, and the occupancy didn’t improve. Every month we had as many move outs as move ins and lots of new turnovers to pay for. The utilities were also out of control. The property simply would not cash flow. No, check that, the property couldn’t even get a positive operating income, let alone pay for the debt service. For example, here was the net operating income for January through April of 2011 (not including debt service or taxes):

January: -732.50

February: -520.19

March: -1,302.78

April: -1,358.47

And so on. It didn’t take us long to figure out this neighborhood was not what we had anticipated. I’ll just put it this way: It’s what our partner calls a “rent optional area.”

It took a little longer to figure our property manager wasn’t up to snuff either. So about a year after we bought it, we kicked them out and decided to manage ourselves. This was a difficult thing to do at the time because we were still very small in Kansas City and didn’t have much of an infrastructure to build on. But we absolutely had to make a change.


Things started improving until the building was just about on the edge of cash flowing. Anxious anticipation abounded. Then one month about six tenants decided to exercise their option to not pay rent. And down again this apartment sank into the abyss of real estate transactions gone awry.

Related: 7 Signs You’re Entering Into a House Flipping Disaster

At this point we tried to sell it. No luck.

So back to the drawing board we went. Eventually we found a program in Kansas City similar to Section 8, but through a non-profit organization focusing on single individuals. We developed a great relationship with them and finally began to consistently fill the apartments. We also got a lot stricter regarding our screening, and the delinquency finally became manageable.

By doing these things, we finally got the apartments to consistently perform. Albeit, it’s worth noting that this was more than three years after we originally purchased them!

So what are the lessons from this unpleasant affair? Well, here are the five most important that I hope will help you avoid what we went through.

5 Invaluable Lessons I Learned From a Real Estate Deal Disaster

1. Be Very Careful Investing Out-of-State

I’ve written about this before, but you must be very careful when investing out-of-state. If you’re from San Francisco and are used to condos starting at a million dollars, then $15,000/unit seems to good to be true. Well, you know what they say about such things, right? We bought the property about four months before I moved to Kansas City and unfortunately took a lot of assumptions from Oregon with us. (Not explicitly, of course; we’re not quite that stupid.)

If you do take the plunge and invest out-of-state, make sure to do a lot of research on the area you’re looking at. Thoroughly vet any agent, manager, and contractor you use, and make sure to ask for references. Furthermore, you should visit fairly often to make sure everything is above board.


2. Don’t Buy in a Warzone

There are investors who can make a lot of money in bad areas, but they need to specialize in it. As many on BiggerPockets have warned before, newbies (and most others) should stay away from cheap properties in bad areas. A new roof costs the same in a Class A and Class D area. So the property may be cheap, but it is unlikely to actually cash flow. In addition, tenants in these areas are much more likely to not pay their rent.

It’s also important to note that some areas can be deceptive. This area didn’t actually look that bad, primarily because of the beautiful, old buildings (and the mansion). But those were built 80 years ago, and the area has changed a lot since then. A closer inspection on our part would have shown that this property was in a bad area. Indeed, had we simply gone onto CLRSearch and looked up the per capita income in that zip code, we would have found it was only $13,244/year.

In other words, pass on this one.

3. Due Diligence, Due Diligence, and Then a Little More Due Diligence

Never ever skip or skimp on due diligence. We ordered an inspection and reviewed it, but we only walked a few units. Had we walked them all, we would have found more damage (we went way over budget and ended up putting around $150,000 into it), but we would have also probably determined the tenant base was not very strong. Indeed, almost half of the people on the rent roll weren’t paying or stopped shortly after we acquired the property.

4. Property Management is the Lifeblood of Your Business

We should have gotten rid of our property manager much earlier. We asked for them to show us their Craigslist ad repeatedly, but they just said it was up and that nobody in that area used Craigslist anyways. (Pro tip: The majority of our leads for those apartments now come from Craigslist, so if any manager ever tells you this, fire them.)

Or we’d go into vacant units with them on inspections and the heat would be at 80 degrees in the middle of the winter. One time, they charged us $125 for a maintenance order that read “showed tenant how to use the thermostat.” Hell, after we replaced them, they even charged us to take down their own banner after I asked if they wanted it because we were going to put up one of our own. At least they refunded us for that.

Whether you decide to manage yourself or hire a manager, management is the cornerstone of your business. You can get away with a bad deal or rehab here or there, but you cannot get away with bad property management. It has to be a priority!


Related: How to Get Poor Quickly Real Estate Investing: A Walk Through a BAD Deal

5. Don’t Give Up Because of One Bad Deal

If real estate were easy, everyone would be doing it. Sometimes deals go sideways. Even some deals that weren’t actually poorly thought out in the first place (unlike this one) go badly. Bad deals don’t just suck up your money, they suck up your time, energy and self esteem. It’s like running to stand still. The best case scenario is that you’ll just do less badly, so why try at all?

That’s the wrong mindset, though. Grind it out and fix the problem. The good one’s will make up for the bad one’s many times over. Fixing the bad one’s is just part of the job. The best thing you can do is simply learn from your mistakes (or preferably, in your case, from my mistakes) and do it better next time. Real estate is still a great investment.

Indeed, even this property is no longer a problem for us. Last year it had a net operating income of $70,000 and was appraised for $680,000.

Now it’s your turn: What terrible, horrible, very bad, no good deals have you had the pleasure of buying?

Let’s talk in the comments section below.

About Author

Andrew Syrios

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on the BRRRR strategy—buying, rehabbing and renting out houses and apartments throughout the Kansas City area. Today, they have over 300 properties and just under 500 units. Stewardship Properties on the whole has just under 1,000 units in six states. Andrew received a Bachelor's degree in Business Administration from the University of Oregon with honors and his Masters in Entrepreneurial Real Estate from the University of Missouri in Kansas City. He has also obtained his CCIM designation (Certified Commercial Investment Member). Andrew has been a writer for BiggerPockets on real estate and business management since 2015. He has also contributed to Think Realty Magazine, REI Club, Elite Daily, Thought Catalog, The Data Driven Investor and Alley Watch.


  1. Mindy Jensen

    Point #5 is my favorite. We read success stories on BiggerPockets all the time, and I think they are important for motivating people to make that first deal. But knowing that other, successful investors have made mistakes can help someone get over the fact that they just had a big failure and be the catalyst for them to continue. There is a lot of money to be made investing in Real Estate.

    Thank you for sharing this less than sunshine and puppies story.

  2. Jean Bolger

    ” they even charged us to take down their own banner after I asked if they wanted it because we were going to put up one of our own. ”

    hahaha! I shouldn’t laugh, but omg that’s ballsy

    This a really helpful post. As someone who has bought an out of state property of the same size that needed a LOT of stabilization I agree on all points! I got lucky on some of these issues, but I am now aware that it was just that: luck. Hopefully, next time it will be experience and skill that keep me out of trouble, not luck. So glad to hear that your property was profitable eventually.

  3. Nancy Allen

    Thank you Andrew! We are preparing to make some more offers here in Colorado Springs on sfh. I have prepared my mind set to be that problems will come up and my job is to come up with the best solutions possible. When I first started looking into REI, I thought I will prepare myself in a way that would avoid problems, which I now know is unrealistic. From all the great information on this site, I now know that I should continue to learn all that I can, because no one really arrives in this game. That is one of the reason I love this site..such humbleness in the community here.

    Our market is fairly expensive. We are having such a difficult time wrapping our minds around being able to buy properties for under $70,000 like some of the folks on the podcasts talk about. I can understand how that apartment building seemed so appealing to you. Way to turn that deal around!

    Great, informative article. Thank you for taking the time to write it! …..Nancy

  4. Gianni Laverde

    Thanks for sharing your experience with this out of state investment and how you managed to turn it from a bad deal to a profitable one. Definitely, due diligence will help an investor avoid major unforeseeable headaches.

    • Maggie Tasseron

      In the past, I’ve had quite a bit of contact with property management companies and found that they were mostly run by a staff of young women, who had no clue about repairs, what they should entail and how much they should cost. They simply had a list of vendors who they would call and just let it happen however it did. When I heard some of the prices they charged and worse yet, some of the bogus “repairs” they charged these prices for, I was shocked. No matter what your capacity as a real estate investor is, in my opinion you need to have a fairly good knowledge of what is involved in maintaining and repairing property. Even if you aren’t prepared to do any of the work yourself, you need to at least be educated enough so you can communicate with whomever is doing it in such a way that they know better than to try to rip you off. I think this is good advice even for people who just own their own home, but especially for people who have rental properties.

    • Andrew Syrios

      To be fair, I would note that property management is not an easy business to do right. My brother, who is our property manager, thinks it is very underpaid. And you get what you pay for. But generally speaking, I would recommend trying to manage yourself, or at least vetting in property manager very thoroughly.

  5. “After the market for campus housing got too expensive, my dad started flipping houses. ” What happened to the 300 units you owned? Can’t imagine that wouldn’t cash flow with the lack of multi family in that area. How come you guys went from Apartments to Houses? Kinda curious.

    I think to add to your list I would tell people to study the hell out of Demographics and get to know top brokers in the area. They will tell you what’s being built, where things are going in the area. Also, one of the best resources I found is simply going to the Housing Authority and asking them what the market rents are, occupancy, etc.. They have all that information and they can give you Real Market Rates, i.e. where I live the vacancy is 3% and rents are $900 for a two bedroom according to the Housing Authority Director.

    • Andrew Syrios

      Great point! I must have been smoking crack to forget to add that! Always check the demographics and stay out of warzones.

      As far as the 300 units go, they’re still there and doing fine, we just arent expanding much in Oregon.

  6. Mario Mormile


    Thank you for sharing this experience. I can relate to this… not fully doing my due diligence. I was so excited to get in the property and start rehabbing it that I did but spend much time analyzing the costs and time it would take to complete the work. A great reminder to learn from our mistakes- but strive to learn from others! Glad to hear that things have turned around!


  7. Andrew, I see this time and again. Out of state investors get taken in by the shinny pitch of a cheap house with great rents with a manager that will do it all for you. However, the manager is not licensed, the house is not as rehabbed, the tenants are just warm bodies and after the check clears the investor is left with a property they paid too much for. It pays to pay close attention to your 5 things and as well to come to the local and talk to a lot of live people and to actually drive by the house. No you would not want to live in some really great rentals, but then again do you want to buy a really great houses where the rest of the block is boarded up, over grown and just a disaster.

    Keep the great articles coming.

  8. JJ Harris

    This seems earily familiar.. I’ve just purchased 36 units in South Mississippi for nearly identical cost per unit. It’s the second such property I’ve purchased and so far, the NOIs are positive, but aren’t quite matching the cap rates I had projected. Im not going to go so far as to consider these two deals wins or losses, because I think there should be a reasonable amount of look back (18 months?) from which to pull data. The operating costs are far higher for these “D” cat properties and “potential income” has to be adjusted for the cost of frequent turnovers. Frequent relative to sfh in the middle of the name scale perhaps. Nice those numbers are factored into my projections, there seems to be no benefit to playing in the lower end of the income spectrum.

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