Landlording & Rental Properties

My Worst House-Buying Experience Ever (& How I Learned From It)

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This deal happened around two years ago. I bought a distressed property in the Washington Local School District. It was the ugliest house on one of the best streets.

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Here in Toledo, the Washington Local School District is extremely desirable. I believe it was a 2-bedroom, 1-bathroom house. I bought it from a somewhat shady character here in town. I knew going into the deal that there may be stuff I’d uncover that I wasn’t expecting.

The Deal

After buying the property, we started the renovations, and I cut the first check to a “trusted” contractor. Progress was coming along great. I didn’t have time to go in and inspect the property because at the time, we were doing a lot of deals, and I stopped going out to inspect all these rehabs. Even to this day, I hate leaving the office because when I leave, I consider it a waste of time and money. I always want to stay in the office doing deals, picking up the phone, and working with my team on the nitty-gritty back-end stuff.

Again, I cut the first check, and everything seemed to be running smoothly. We cut a check to pull all the permits, then cut another check to allow the contractor to get another draw. Everything seemed to be going well. Then I got a call from the city and they shut us down because no permits were pulled. Everything started to unravel from there. Pretty much none of the work was done. I had cut checks for the work I thought was going to be done, but the permits weren’t pulled even though I cut a check for that. Then we tried to get another contractor in there to try and salvage it, and he pretty much walked off the job and said he could not salvage it. He, of course, took my money and ran with it too.

Related: The Biggest Landlording Mistake I Ever Made

Long story short, it was an absolute freaking nightmare—a disaster of a deal. The city shut me down, contractors stole my money, we found out later on that the property had foundation issues, and the previous owner that I bought the property from was somehow stealing water and electricity. It was one of those deals you just can’t salvage—which is something because I don’t think I’ve ever in my life come across a deal we could not salvage.

But Here’s the Miracle

The neighbor next door who knew how crappy this property was and how shady the seller was approached one of the contractors and offered to buy the house to knock it down so he could expand his backyard. So the guy flipped pocket change my way. I took anything I could get. Off the top of my head, I think we lost like $40,000 on this deal. It was a big hit at the time because we were just starting to grow and expand. It was tough.

This deal was located two minutes from my office. So all you guys thinking that you can renovate successfully out of state and out the country, know that you can, but again, it’s tough. I tried doing it from Australia, and I didn’t do it well, so I moved here. I’m doing it well now, but even to this day, I still lose money on deals. It’s just the nature of the beast. The game of real estate, in my opinion, is to make more than you lose. Business is easy; people make it difficult. I’ve always believed in that saying. The one thing I have not figured out is contractors.

What I Learned

The lesson that I learned from that deal two years ago is you can’t be overwhelmed with your day-to-day. There are certain things where you have to pull back, slow down, and be more diligent with how you approach it. One thing in particular is that when you’re cutting checks to contractors on work that’s been done, even if it is someone that you trust, still get eyes on sight. So you have to have a project manager in place depending on how many deals you are doing. We have a pretty big operation where we do anywhere from 10 to 20 deals per month, so we have a few project managers to get eyes on sight. When a contractor asks for a check we physically check if progress was made and if it was, then that is when we cut the check.

Another lesson that I learned is to never, ever buy properties with foundation issues. Granted, we didn’t know that this property had foundation issues, but you have to double or triple check to make sure. 

To summarize, I think it’s really hard to successfully renovate a property out of state or out of the country. Another thing that I tell everyone that I speak to is that teamwork makes the dream work. You really need to surround yourself with the right people in order to make renovating, flipping, or any kind of real estate strategy a success. Find the right team, forget about the stats and demographics, and really focus on finding people that you can trust. Have that delayed gratification mindset and plant a seed now to reap the harvest later. Do those things, and I think you’ll do well because real estate is a marriage. It’s going to take five, 10, or 15 years to get where you want to be.

Related: The Worst Real Estate Deal I’ve Ever Done (And How You Can Avoid the Same Mess)

Last but not least, I’ve never lost money because the numbers in the deal didn’t make sense or because of the area. I have always lost money because someone ended up screwing me. It’s always the people factor, not the actual business itself or the numbers in that particular deal.

So that concludes my absolute horror story of a deal. I’m sure that a lot of you guys out there have your own horror stories. Let me say this: Please don’t let it set you back. It’s an emotional drag, I get it. But the sooner you can get out of that emotional drag, learn from it, and move forward, the better you’ll be. Get back on the horse and keep pushing forward. I really think it’s a game of making more money than you lose, but you will lose. Don’t forget that.

I want to hear your stories. What do you think of my story?

Comment below.

Engelo Rumora, a.k.a.”the Real Estate Dingo,” quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate all over the world and has bought, renovated, and sold over 500 properties. He runs runs Ohio Cashflow, a turnkey real estate investment company in the country (Inc 5000 2017 & 2018) and is currently in the process of launching a real estate brokerage called List’n Sell Realty. He is also known for giving houses away to people in need and his crazy videos on YouTube. His mission in life is to be remembered as someone that gave it his all and gave it all away.

    Rob Cook Real Estate Entrepreneur & Coach from Powell, Wyoming
    Replied over 1 year ago
    Engelo, That was a bad one sounds like. Usually missed construction items and issues are the reason for losses, but in your case, it was a host of bad actors, including the seller and contractors. Like you said, it happens if you play long enough and in as many deals as you. Thanks for sharing honestly. I have heard similar stories from BP folks who tried rehabbing long distance. Just not a good idea.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks for your comment Rob, Such deals happen from time to time and I’m sure that other much bigger and better investors than myself have similar horror stories One that comes to mind is Mark Cuban’s secretary stealing $100,000 from him lol Have a great day and see you at the next blog
    Melvin
    Replied over 1 year ago
    I was contracted to rehab a six unit apartment building. The owner used practically all of his savings to pay $75,000 cash for the building, which was an exceptional deal. He then got a home equity line of credit for $225,000 to complete the rehab. That ARV was pretty close to $500,000. Two apartments were occupied, the other four were vacant. The owner wanted the two tenants out of the building right away. He went to the first tenant and asked him to leave. The tenant agreed and a couple of days later vacated apartment one. That worked out very well so he went to the next tenant and asked him to leave. I was standing outside and I heard the owner and the tenant arguing loudly. The owner came out and I asked him what was he going to do. He said he was going to call the FBI. Eight or nine minutes later the FBI arrived at the apartment, went inside and brought out the tenant who was so angry that they had to restrain him physically. He was taken to jail. A few days later, we went back to begin the rehab work. We went inside and inspected all six apartments and the basement and here is what we found: 1. Concrete was flushed in all six toilets and bathtubs as well as the main drain in the basement. 2. Floor tile cement was spread around every window in the building. 3. A hammer was used to destroy every wall and ceiling as well as all hardwood flooring in every apartment. 4. The main boiler in the basement was completely destroyed. The owner panicked and called a company to install a temporary fence around the premises. He being hired 24 hour security to watch over the building. After a while, mounting expenses caused the owner to lose the building. His wife filed for divorce.
    Yafei Tang from Castle Rock, Colorado
    Replied over 1 year ago
    Oh my! What a horrible situation! Thank you for sharing it!
    GARY MOBERLY Investor from Hinsdale, Illinois
    Replied over 1 year ago
    This was not a bad deal. This was just plain laziness and stupidity. The property is two miles from your office and you never inspected it, visited it, or checked up on your contractors????? So you could do what back in the office? What could possibly be so important that you would not check your rehab a couple of times per week. If for nothing else, to make sure your contractors were on the job, doing quality work, and had their permits. How many billions did you make sitting at the office at the same time your contractors were toasting their good fortune of having a moron investor for a boss? Contractors can smell stupidity a mile away. Your posts are long on platitudes and generic advice. It really doesn’t seem like you know what you are doing. Remind me never to buy one of your turnkey houses, because they are probably really shoddy.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks for your comment Gary, It’s a tough gig running 3 companies and managing around 50 people and at any given moment. The companies I run are involved in: acquisitions, sales, marketing, project management, property management, real estate brokerage, software development, etc… As you can imagine, there are many things to get done in a day that require hands on attention in an “office type environment.” It’s amazing how time flies and I rarely leave the office nowadays. Even to this day, I’m still pulling 14-16 hrs days I didn’t make billions yet but will get there 🙂 I don’t need to you remind you as I would never sell to an individual like yourself. You should feel ashamed for attacking a blogger like you did in your comment above I wish you much success
    Rob Cook Real Estate Entrepreneur & Coach from Powell, Wyoming
    Replied over 1 year ago
    Engelo, That is what you get for being vulnerable and sharing your info. The internet is an ugly place because of people like Gary above. Really makes us want to share and help.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks for you support Rob, Over the years I have learnt to take such comments as “compliments” I actually thrive on them as they make me better. Thanks again
    Wenecio Godfrey Flipper/Rehabber from Jacksonville, FL
    Replied over 1 year ago
    Engelo, Thanks for sharing and hats off to you for the way you handled that rude comment. It takes a small man to insult someone and a big one to take it with grace.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks for your kind words Wenecio, Much success
    Robert Antonie from Nesbit, MS
    Replied over 1 year ago
    Engelo, It takes guts to share your mistakes. I applaud you for taking the high road in your response. We will all make mistakes along our journey – the key, as you mentioned, is to pull yourself back up and keep moving forward. Thanks for sharing your story and I wish you the best of success!
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks Robert, I hope that folks can learn from my mistake and not make the same ones. Much success to you also
    Ali Hashemi Investor from Southern Indiana, IN
    Replied over 1 year ago
    Hind sight is always much clearer, but simply checking to make sure the permits were pulled might’ve mitigated disaster without even having to leave the office. It’s an unfortunately hard lesson to learn, but thank you for sharing so the rest of us can learn a little bit from it!
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks Ali, Unfortunately we missed it and it’s something you stop doing once a contractor has worked for you for a while like this fellow has for us Thanks again and much success
    tim
    Replied over 1 year ago
    Just curious, why would you never do a deal w/ any foundation issues? investors do those all the time. maybe this one was in disrepair?
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks Tim, Too much uncertainty and long/expensive process. Plus, there are so many deals in Ohio that we get to pick and choose which ones we want Much success
    AJ S. Investor from San Diego, CA
    Replied over 1 year ago
    States like OH, MI, IN experience a high degree of humidity in summer, rain, snow, ice in winter etc… That constant expansion and contraction can cause foundation issues are difficult to fix or repair if that is even an option. Especially if house was vacant, distressed, it’s best to stay away house with foundation issue. Thanks for your honest story Angelo.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks AJ, We prefer to stay away from any foundation issues because we don’t need to do the job We just move on the “property next door” While the whole world is complaining about a lack of inventory, deals are falling of trees in Ohio lol Thanks again
    Brent M. Investor from Hayward, California
    Replied over 1 year ago
    A wise man once said, “Trust, but verify.” I like my contractors to send me smartphone pics. Couple that with occasional 3rd party verification and done.
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks Brent, We got screwed so many times by a contractor angling a camera a certain way so we wouldn’t see certain things lol Definitely need eyes on site Thanks again
    Brian Bandas Real Estate Agent from Nashville, Tennessee
    Replied over 1 year ago
    I appreciate you sharing this. More than the nuts and bolts, the notes on mindset and moving forward are helpful to me. It sounds like your company is where I want mine to be: doing multiple deal each month. I’m working toward that, and yet I find myself with a house that I’m likely to lose about $20-30k on by the time it closes. I’ve considered holding it but that would be an even bigger setback to moving my company forward. The point is, it has been “an emotional drag” to say the least, and I’ve had those “maybe I should quit” moments, but I know that isn’t the answer. Reading this encourages me: one busted deal doesn’t mean I’m not cut out for this or that I will fail–it’s what I signed up for if I want to build this, and it’s part of the process. Thanks for the good read!
    Engelo Rumora Specialist from Toledo, OH
    Replied over 1 year ago
    Thanks Brian and stick with it mate, I’m going through a $100,000 loss right now on 2 multifamily deals Do the right thing by your partners and investors, take the hit, learn from it and get out as quickly as possible. The “emotional drag” prevents you from thinking ahead and doing more deals which in itself is an even bigger loss than just the monetary one I wish you much success
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied 12 days ago
    $40,000... ouch. I think you've got us beat on that one (just barely though). Wouldn't it be nice if we could learn those important lessons without such losses?
    Engelo Rumora Specialist from Toledo, OH
    Replied 10 days ago
    I agree mate, The best lessons are usually on the biggest losses Much success
    Gabrielle Frazier
    Replied 12 days ago
    I follow this motto “trust but verify.” Always verify before payment is sent out that things the contractor says is done is actually done. I would require the contractors to submit a schedule of values for each job that you have. It requires them to break down their job. For example, paint, framing, electrical etc. they then put a cost to it. Then every month they basically submit a pay app and bill according to how much progress has been made based on percentage. Before the pay app is signed and approved you could have your pm review the work. I would also keep retainage.
    Robert G DeBease
    Replied 12 days ago
    Thanks so much for sharing! As a new investor that just started this past June, this info is very helpful.....I'm sorry you had to go through what you did, but thanks for sharing!
    Engelo Rumora Specialist from Toledo, OH
    Replied 10 days ago
    No worries Robert and I'm glad that you found my blog useful. I wish you much success with your investing
    Bill Wilson
    Replied 12 days ago
    You don't give money to contractors until they do something. Contractors that have a viable business can get short term loans to cover expenses if they have a signed contract to show their lending agent. Sounds like you got stiffed by two Chucks with a truck.
    Engelo Rumora Specialist from Toledo, OH
    Replied 10 days ago
    Every market is different when it comes to contractors. It's hard to catch everything when you rehab 10 properties per month. Much success
    Brian McGrogan from Brooksville, Florida
    Replied 12 days ago
    if you can get the electric turned on while doing the work, as well as internet, i try to put smart cameras up in the building and on the doors to make sure the workers are being honest. When I first started doing it, one group took the cameras down -- huge red flag -- you should tell them if they touch the cameras they are off the job.
    Fran Zepeda
    Replied 12 days ago
    Thanks for sharing! I'm new to this so I really appreciate hearing about the challenges, broken deals, sneaky contractors, and outright failures. And most of all, the persistence to keep learning and keep going. Wish you continued success!
    William Bowen
    Replied 12 days ago
    Thanks so much for sharing. This definitely reminds me to perform my due diligence when screening contractors for work. In my experience I have also learned that although I may save a dollar in the short team by accepting the lowest quote, it can cost me in the long run. Unfortunately for me, my worst experience was with a licensed plumber that was a relative. Kind of turned me away from doing business with family members.
    Wilson Churchill from Madison Heights, Michigan
    Replied 12 days ago
    Sounds like a rough deal. Foundation issues aren't always that bad. Crawlspaces are easy to remedy.
    Anne Jenkins
    Replied 6 days ago
    I am a buy and hold investor. I mostly have tales of woe involving tenants ....)))smile((( In the past my husband and I did the rehab or fix up work ourselves on new acquisitions, but the last 4 properties were bought under Self Directed IRA's so we are now learning the in's and out's of hiring contractors, which, I find to be a bigger challenge than tenants. Whatever happened to integrity and honesty I have no idea. But I have learned to get it in writing clearly and completely, to check references and only give out the least amount possible to start. Being much smaller than you....I oversee it all before more money goes out and trust no one's word until the job is done. Gotta say....it's a hard way to do business and robs a lot of joy from it.