Failures and mistakes?

Question

Any weathered investors have any stories they could share for us newbies? Any cautionary tales? Any flips that cost 3 times as much as originally thought or more? Any properties that couldn't be rented after remodel? Any liens found after property was purchased?

Bobby Beard · Answer

great info Ursula B. that's why BP is such an important tool for us new guys! Imagine if you would have had this kind of information back in 2006!

Ursula B. · Answer

I bought at retail not once, but TWICE in 2006.  I didn't know anything about ROI, cap rates, cash-on-cash, nor the difference between speculating and true investing. Needless to say, it's been a tough financial lesson, but once I got my head out of the sand and started taking action, I've stopped the bleeding and can now focus on true investments.

Bobby Beard · Answer

didn't get the rent you thought you could? or is the property falling apart?

Bryan L. · Answer

I have some multi-families that are eating me alive.  One thing to know in this business.  Whenever you think you have something figured out, that's about the time that it (or something else) will change.

Bobby Beard · Answer

wow what a story! And great information!

Anthony Conway · Answer

Started going to the foreclosure auction in 2007. I was bidding on around 10 properties every monday morning and not getting any because the banks where there covering there ass. Finally after a month or so of bidding and learning the process i found one that was a family member foreclosing on a family member. I am thinking score in my mind, went and did a drive by of the property and it was occupied at the time so i could not get inside at all, curtains where closed so i could not see inside. So that monday comes around and i go to the auction and BAM! i get the property for minimum bid ($112,000) which was 60% of the appraised value. I figured ok there is no way that this house can take up 40% overall value in rehab cost, so i should be good to go. Finally get the tenants evicted out of the house and get to do a inside inspection. Well the 400 sqft addition on the back of the property was in shambles and had to be torn down and replaced, wood floors where wasted and kitchen and bathrooms where wasted. During the whole due diligence period before hand i was thinking well people are living there so it can not be to bad inside, well that is not the best way of thinking either. So i rebuild the addition from the foundation up, kitchen, bathrooms, roof, landscape. By the time i was ready to sell it was 2009 and the housing market was bottoming out. I had a overpriced house in a underpriced market and the house was not selling. Finally decide to take the house off the market and wait it out, well the market took a long time to rebound and it took me even longer to lower my price.In 2011 i lowered the price and re listed it and sold it the first week. Luckily i was able to turn this flip into a primary residents and live in it for 3 years, but the time i lost during this holding process was worth more then the money i saved from holding the property. Hope that makes sense.

Mistakes

Do not assume anything about a house.

-just because someone is living in it does not make it livable.

-just because there is a addition on the house does not mean you have to rebuild that addition. I would have been better tearing the addition off the back of the house and leaving it off. The time and money it took to rebuild blew my budget by around $ 35,000 and time by a year.

-Know when to hold em, know when to fold em. I would have been better lowering my price to begin with then holding it for years to come. I had almost all my money tied up in this property and was unable to buy more properties until i finally refinanced my money out of this property.

Purchase price $112,000

Rehab cost $42,000

All in price $156,000

Sold for $170,000

6% commission -$ 10,200

Profit   $3,800

= Bad deal

Bad deal on my books, but i never look at anything as a failure because i learned a lot  from this deal. Got to build my first complete addition from the ground up, i did everything from digging the foundation,electrical, roofing, plumbing to the finishing touches on the bathrooms and laundry room. Did not hire a single contractor for this project. Dealt with city inspections and city codes.

If knowledge is worth money, it was a great deal. But it is not