Expensive Lessons From 9 Professional Investors

For all its advantages, real estate comes with a risk: mistakes are expensive, because properties are expensive.

I’ve made bad stock investments for $1,000 and lost my $1,000. But the stakes are higher when you’re working with assets worth hundreds of thousands of dollars.

Fortunately, you don’t have to learn by making your own mistakes. You can learn from other investors’ expensive mistakes!

Take the easy way rather than the hard way—all for the price of simply paying attention to what they have to say.

Here are tips from nine professional real estate investors, who have earned (and lost) thousands of dollars, to help you learn faster than they did.

1. Buy for Income

Mark Moss, founder of Signal Profits, explained to me how his journey has been a jagged one.

“At first, I started fixing and flipping homes, and my first property made me more than I was making in a full-time job,” he said.

“Over time, I realized that holding onto the rental properties for income was my ticket to retiring at a young age and so I started collecting rental properties. At the time, finding properties I could make $1,000 per month net was pretty easy and I knew if I got just 10, I would be set for life.”

But then he grew interested in developing multi-million-dollar commercial projects.

“I sold and refinanced all my rental properties to get the capital I needed to do these larger projects. And in 2008, when the financial markets crashed, I was wiped out,” he continued.

Mark didn’t let it scare him away from real estate. But he did learn firsthand the risk of liquidating his entire portfolio to pursue high-risk, high-reward investments.

His parting advice: “Only buy properties that produce income, so you can carry and hold them through any market cycle.”

2. Learn How to Fire Contractors Quickly

Jerryll Noorden is a real estate investor in Connecticut and the owner of We Buy Houses In Connecticut.

“It is always hard to fire a contractor, especially when they are knee-deep in the renovation. That’s because if you fire them, you have to start over; good luck finding a contractor willing to take over someone else’s work,” Jerryll explained.

“Still, if you do not, things will not get back on track simply because you wish it so. Fire, cut your losses, and move on.”

3. Look at Future Trends, Not Just Past Performance

Brian Ma is a real estate investor and owner of Flushing.com. He explains why investors need to look both at the past and the future when making investment decisions.

“As a commercial and residential real estate owner in the Flushing, N.Y. area during the last 15 years, I didn’t appreciate the unpredictable nature of development trends,” he said.

“When I first began buying properties, I only was interested in what the past had revealed to have been the best buys, namely properties in the downtown area. I wholly missed out on the larger trend that manifested in the surrounding suburb areas where the development returns were greater, because I failed to look beyond the past as evidence of the future trend.

“Granted, I did very well on almost all my deals, but that was due to the generally rising trend of real estate in the area. But had I been more risk-seeking and open-minded in my investment approach, I would have been able to buy for pennies on the dollar properties that increased exponentially in value as the downtown trend expanded outwards.”

4. Trust Your Gut About Red Flags

Stefano Grottoli owns Orange Sun Investments, LLC, and shares this story about trusting your gut.

“The first event that I ever went to was an event organized by a local real estate investor, and believe it or not, I learned so much in that event, and it actually led to my first ever deal. The guy offered to joint venture with me on a fix-and-flip project, and I was so excited about finally landing my first deal! It wasn’t that hard after all,” he said.

“I started talking with this investor about our JV, and then the first signs appeared: I was dealing directly with one of his employees, and the guy took days to reply to my text messages, didn’t answer my phone calls, didn’t reply to my emails, and thereon. I started to get upset about it, but I wanted to land my first deal so bad that I didn’t trust my gut and did a JV with the guy anyway.

“Don’t get me wrong. He is an honest person and a good guy, and so is his boss. But he was extremely disorganized and unresponsive,” Stefano explained.

“After a couple of months, he finally came up with the deal that we were going to JV: a single family, 4 bedrooms, 2.5 bathrooms, 2,100 square feet, that needed mainly a cosmetic rehab. Wow! It seemed to good to be true.

“So I went to take a look at the house. The first bad sign? Dirt road to get to the house. The house was in a rural area. And then, I started to do a little research about it on Zillow, Trulia and Realtor, and I learned that the house was not connected to the city water and sewer system, and instead had a water well and a septic system.

“I also learned that the house had an underground oil tank. I sent an email to the guy, asking him about the septic tank and water well, if we had an inspection, and if we were sure about the house. Never got an answer. But still, I wanted to close my first deal so bad that I didn’t trust my gut for the second time! Every inch of my gut would tell me to run away from the house, but I decided to move forward anyway,” he said regretfully.

“Well, it turns out that everything went sideways as I imagined. We had to replace the whole septic system, which was around $29K. We also had issues with the water well, which cost around $2K for remediation, and we were LUCKY that the underground oil tank didn’t have any leaks and the soil under it was fine. The project also went sideways on the management side of it because of disorganization and lack of priority. A rehab that should’ve taken around four to five months to be completed took almost a year to be completed.”

Stefano wrapped by telling me that the house miraculously broke even, but what it didn’t cost him in dollars, it cost in sleepless nights.

5. Do Regular Inspections

Nichole Stohler and her husband are multifamily, single family and hotel investors with 19 years’ experience. She was emphatic about the importance of regular inspections.

“Save yourself from expensive repairs and clean up down the line. You may find out that the resident’s apartment/home isn’t even as clean as a convenience store bathroom.

“We had a nice family in one of our rental houses. They talked about folks coming over from church to help them move in, and the daughters were excited to plant a garden in the back yard. Fast-forward to when they moved out and the house could have been on an episode of House Hoarders,” Nichole recounted.

“Yes, you should expect to clean, repaint, and do some repairs when turning over units, but you shouldn’t have to rent 40-yard dumpsters to haul out the trash and junk.”

Personally, I recommend semi-annual inspections. Beyond helping you catch problems early, it also demonstrates your seriousness and respect for the property, and sets expectations for tenants to treat it with similar respect.

6. Finding Good Deals Takes Patience and Work

Don Wede is the president of Heartland Funding Inc. and emphasizes that real estate investing takes work.

“New investors imagine that there is a magical deal tree and you can just go up to it and pluck a good deal right off. They need to learn that finding good deals is hard work and one must be persistent and patient that the deals will come,” Don pointed out.

“Of course, it also requires that you are using proven lead generating tactics. To piggyback on this problem is the lack of dedication to education in real estate investing. Learning real estate investing is like jumping into a whole new industry, and education is paramount if one is going to succeed and thrive.”

7. Check Properties at Different Times of Day

Vivian Young with Website Greenlight shares this story of a near disaster.

“Go see the property at different times of the day and week. Check the traffic during peak morning and evening rush hours. The property might be on a street that Waze is directing traffic through! Drive by the neighborhood on a Friday and Saturday night to see if your neighbors like to party hearty. You’ll either want an invite or end up picking a fight!” she warned.

“We averted what would have been a real estate fiasco. We only saw the house twice, both times at 10 a.m. The street was quiet with only a few cars. We opened escrow and spent more time there as we went through the inspection process,” Vivian continued.

“One morning, we noticed the contents of the garbage cans on trash day along the street. They were full of empty pizza boxes, beer cans, and junk food bags. And the neighbor had left the headlights on in their car in the driveway. We did the neighborly deed and rang the doorbell to alert them. Who opened the door? A young man in his boxers, bleary-eyed with a strong stench of beer about him. Mystery solved. That house and another up the street were frat houses!

“In the end, the house didn’t pass inspection for other reasons, but we were lucky to avoid reliving our youth—been there, done that!”

8. Show Your Good Tenants That You Appreciate Them

Domenick Tiziano, founder of AccidentalRental, shares this story of good faith and good will.

“You’d be surprised how far a small gift will go in creating goodwill with your tenants. A tankless water heater broke on a Friday night, and after calling around I realized I couldn’t get a technician out to work on it until Monday. Fortunately, the tenant was understanding about it and could shower at the gym to get by, but they were very anxious about getting it fixed.

“When it was fixed, I sent the tenant an Amazon gift card for their troubles and to thank them for their patience. They weren’t expecting anything, so they were shocked and delighted. I never had any other complaints or issues with them, not once,” Domenick recalled.

“It pays to be fair and show your tenants that you understand when they have been inconvenienced—even when it’s ‘not your fault.’”

9. See Opportunity Where Others See Difficulty

Doug Brien, CEO of Mynd Property Management, offered the example of rent control for looking deeper where other investors are afraid to go.

“My fear of rent control caused me to miss out on decades of great Bay Area real estate investing. For instance, I own a property in Uptown Oakland near Lake Merritt, in a city with some of the highest rents in the country. If I would have acquired that building just one year earlier, my monthly returns would have been in the thousands. That was a hard lesson to learn,” he recounted.

“If I would have hired a local advisor or property management expert to help me navigate rent-control laws, I would have been better off. After consulting with a local expert who helped me explain the benefits of owning rent-controlled properties, I started acquiring them in Oakland and Berkeley. Now, I have 12 buildings throughout California, and I am a firm believer in holding these assets for long-term appreciation. I don’t believe in flipping. Instead, I believe in investing in communities and providing people with shelter.

“Furthermore, I have learned that rental appreciation in these highly populated markets outweighs the complexities of rent-control laws. But perhaps equally important is the steady rental income one can rely on for decades by acquiring rent-controlled properties,” Doug went on.

“Since rents are capped at a certain level each year by the cities of Oakland, Berkeley, and San Francisco, for instance, residents living in rent-controlled units in these areas tend to be happy with their living situation. Since they’re paying under-market rents, they tend to lease the same unit for as long as they possibly can. Rarely have I seen a resident vacate one of my rent-controlled buildings. As a result, rent-controlled units are virtually 100 percent occupied. So I don’t have to spend any money on advertising or turning over vacant units.

“In addition, rent control leads to fewer available units on the market, thus driving rental rates up on a broader basis. High demand leads to increased rents in non-rent-controlled buildings located in nearby submarkets.”

Final Word

I’ve lost hundreds of thousands of dollars from real estate. I’m far poorer than I should be today because of my mistakes.

I made those mistakes because I was cavalier when I first started investing. I thought I knew what I was doing, because I had worked with a few investors on loans. I didn’t read any books, and I only casually read blogs and articles about real estate investing.

I learned my lessons the hard way. Don’t do what I did.

What do you wish you’d learned earlier as a real estate investor?

Let me know in a comment below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.