Dose of Reality, please... I need to read the Bad and Ugly..

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Hi Bigger Pockets, I need to read about both sides of the real estate investment coin. The overwhelming majority of posts appear to illustrate that investors are making the right moves all the time: every property is flipped for profit, rented with good tenants, or refinanced with a pocket full of cash at closing. I hardly ever read about the horror stories. I met an investor from BP. Her partner hired crummy contractors and their group have no money to continue. I'm trying to refinance out of a HML but my credit suddenly dropped. I'm sure we will figure it out. We can't be the only one with issues... But, what are the other horror stories people on here have experienced or are experiencing? How are you getting back on track? How did you get achieve your goals? What is/was your solution to your problem? This is what I want to hear a read about. I want to hear about the setback, the struggle, the hustle, the plan, and the path to success...
lol ! Its not real if it is all perfect. Had a Double wide mobile home crushed on me ast closing 2 yrs ago. Today a news one sits there and cashflows $400 a month. Just keep pushing forward. Have to go on my way looking for my next deal (Driving for Dollars).

I used to house hack my way through investing, elevating the property slightly each time, either by selecting a bigger property, or a nicer area.  Once, I jumped a few steps ahead to get a really nice house in a really nice area.  I was worried about being priced out of the area if I waited, so that's why I jumped ahead a bit.  Sure enough, the market crashed, and I was sitting on a property that was worth $200K less than I bought it for, and wasn't cash flowing enough to support itself because the rental market crashed also.  That was a huge loss in which I learned that you establish a plan and/or a strategy for a reason.  It is okay to re-evaluate your plan/strategy and throw other options into the mix for consideration, but should always move forward with an exit strategy in mind.

As another example (and lesson learned put into practice), I purchased a property at trustee sale with the intent to flip it. However, after rehab costs and surprise expenses, the numbers were not going to be as profitable as expected, and hoped for. However, because we had made a good exit strategy for the property before purchasing it, we ended up keeping it as a rental. Now, it is our 2nd highest cash flowing property. Because there were all these unknowns about the property (since we couldn't look inside before the trustee sale) we decided that we were only going to buy in neighborhoods that I knew very well (floorplans, rental rates, values, etc), and that we were going to run the numbers as both a flip, and a BRRRR, and whichever one would bring us the best result, that is the exit strategy we would employ.

So, having that first lesson learned, I could put it into practice years later, and avoid yet another big loss if I had put all of my eggs in that "flip" basket.

It’s Biggerpockets so everyone is overly optimistic but also it’s a sign of the times. You’ll probably see the same thing over on any stock investing boards. Everyone is making money right now because everything has been going up steadily for 10 years now. 

I bet if interest rates suddenly rise a couple percent on those people with adjustables, the bottom falls out the rental market, or the housing market  in general tanks again you’ll see all these flippers and people leverage to their eyeballs losing everything, but until that happens... 

There is a whole group of investors, I’d bet 70%+ on here that started after 2008, myself included. 

The bad thing is a meltdown probably won’t happen for another 5 years so lenders will get that much more loose and people will get that much more wreckless. Can’t have a crisis without the carnage. 

They're definitely out there. A couple of months ago, all the REI clubs in my area picked people to showcase their flips-gone-wrong. I was one of them. However, I was the only one who apparently lost money ($60k). Other presenters were more like "The project took longer and cost more than I had planned, but because the market had appreciated I came out positive" and "We lost $8k on the flip, but we were able to subdivide and got a free lot of land out of it." These were not true loss stories.

When my partners and I first started, we bought our first flip at the auction, and we got so much confidence when it sold that we bought 7 more houses within a 4-month period. Long story short, one of our partners (who was a GC) screwed us over (stole money, liened a house, etc) and left us with 7 houses with under-estimated rehabs (because it was at his cost) and all taking longer than we had planned for. It took us two years to recover from that mess, and our average holding time of those properties was 11 months with 4 months being the shortest and 2.5 years the longest.  We haven't recouped our monetary losses yet though.

I don't know if BP likes it if I posted a link to one of my own posts, but if you go into my profile and look at the 3rd most recent discussion that I started, you'll see the horror that I went through on that 2.5 year flip.

I also use this story to warn people about buying the auctions:

https://www.biggerpockets.com/forums/12/topics/496...

@Tyler Herman   hit the nail on the head.. rising tide floats all boats...

but I can tell after a 40 plus year of lending to flippers and landlords.. there are lots of failure out there.  Your just hard pressed to find anyone to acknowledge or admit it.

we had one ( one of my clients here in PDX) were he was doing a pop top and full gut underneath house fell in on itself.. no chance to recoup.. 80k loss.. gave it back to the first lender. who was loaning illegally in Oregon @Nghi Le probably knows the company.

and in Tyler's home town I personally foreclosed on over 200 SFR's that out of state folks bought prior to 08 could not make a go of it and lost it all... rentals are not immune.

@Cara Lonsdale in Cara's neck of the woods a bunch of my clients bought 4 plex's from linda Gercheck only to lose them in 08 to 09 as they went 100% vacant.. and stayed that way for an extended time .. they could not pay the negative cash flow and walked.. Thereby losing all their equity and ruining their credit.

Mistakes at trustee sales are common.. we were one of the top 5 buyers for years in pdx market and I would say I lost money on 1 out of 10 to 15.. if your doing volume and buying at courthouse steps its not if you will lose its when.. where people get hammered is they try one and lose 50k and never do it again.. you have to income average..

At the end of the day I have gotten many payoffs were I was the only one who made money. but like you said people just don't get on message boards and say hey look what I did today.. I just lost 40k on a real estate deal.. lets talk about it.. LOL..

Originally posted by :

@Jay Hinrichs 

@Cara Lonsdale in Cara's neck of the woods a bunch of my clients bought 4 plex's from linda Gercheck only to lose them in 08 to 09 as they went 100% vacant.. and stayed that way for an extended time .. they could not pay the negative cash flow and walked.. Thereby losing all their equity and ruining their credit.

Mistakes at trustee sales are common.. we were one of the top 5 buyers for years in pdx market and I would say I lost money on 1 out of 10 to 15.. if your doing volume and buying at courthouse steps its not if you will lose its when.. where people get hammered is they try one and lose 50k and never do it again.. you have to income average..

At the end of the day I have gotten many payoffs were I was the only one who made money. but like you said people just don't get on message boards and say hey look what I did today.. I just lost 40k on a real estate deal.. lets talk about it.. LOL..

 Ah yes, Linda and I worked together on multi-family briefly in the late 90s when she was with KW.

I am reminded of the importance of doing your own due diligence as an investor.  So many investors lose their shirts because they trust the "pro porforma" numbers that agents like to attach to listings in order to make them look more appealing and/or improve their cap rate.  You will find agents like this everywhere, and in AZ we have a few of these that almost make you laugh when you read their porforma of a property in the pit of the city that "can bring in $750 per unit in rent".....yeah ok, right!  To unsuspecting out of town investors who don't do their homework, these properties are easily sold by agents like that.

It is SO important that investors still go through the process of doing a proper analysis with REAL figures.  In the absence of real figures, using Michael Blank's 50% rule has proven to be a good way of estimating expenses.

@Lee Lockhart Just as a side note, almost all “horror stories” will have an element of “not enough reserves”. If you have a ton of reserves, a nice bank account, you can ride out ~5 years of suboptimal rents. Just looking at my “accidental landlord” experience it was a money loser for a few years until we were able to sell. It ended up at break-even-ish but if we weren’t able to eat a little negative cash-flow each month it would have been much worse.

Net result: Having reserves turned a “horror story” into a “that kinda sucked”.

Not a financial horror story, but a rehab one... TERMITES! 

I bought a foreclosed 3/1 with a little mold in the basement, from some water damage from gutters that didn't get cleaned in a long time.  

Started demo of the basement ceiling drywall, first place I went was to where the water damage was, pulled down the drywall, and sawdust and little white worms rained down upon me!  

The damage was so bad that while I was sweeping up the mess, I accidentally lifted the broom too high and the broom handle punched right through a joist like it was made of rice paper. 

Had to remove all the drywall down to the studs in the whole 1st floor, and replaced like 30 joists in the basement, some of the sill plate, skirting, subfloor under the kitchen, and a bunch of studs and whatnot around a door on the 1st floor. 

Was a very expensive lesson in what mud tubes look like! I saw one at the time of inspection but just didn't know what it was. Also, the life cycle of termites.. If you have clogged gutters that soak your yard, and a house with wet wood right next to that soaked yard, you just created a termite breeding heaven. Clean those gutters!

@Lee Lockhart   One of the quickest losses I have heard of happened to a friend of mine.  He bought a vacant home for cash at a foreclosure auction.  Based on the square footage from the central appraisal district it seemed to a great deal.  Two hours later he figured out it had been appraised wrong by the central appraisal district for the last 19 years.  It had 500 square feet less than the central appraisal district said it had.

A family member of mine had five completed flips when the mortgage lockup that triggered the great recession happened.  They ended up taking less money than they had paid at the court house steps and ate all the rehab costs.

Also a word of warning... if you try to pull something often it will be you that gets burned.  The bank that financed my sister's home ended up with more than a total loss on the mortgage.  Because the bank did a predatory mortgage and then would not fix the problem they ended up giving my sister her home completely free plus more money.  They also had to pay about $250,000 in her legal fees.

@Lee Lockhart ,

Bad stuff happens all the time, it's a matter of learning to roll with it.    There's no time for freaking out.   Whenever I meet anyone local, I always invite them to come work, see what it's actually like!   It's not glamorous if you're doing rehabs, it's hard physical work.  

Personally,  the worst  experience I've had thus far, is when we rented to this couple that didn't have any pets.. then they got 2 dogs and a cat, within a week of moving in.. they purposely clogged the tub, so we went in there to fix it..  the fumes of cat urine were the worst I've ever experienced, I think we actually needed masks, literately the air was thick... we evicted them.    The laminate floors were brand new, but the we couldn't find the smell/source.. putting your nose to the floor, trying to find the spot of cat urine (b/c you can't see it), that's what I think of, it's horrible, humbling,   and not to mention just flat out disgusting... after that, we only do tile-- no exceptions.

We also had another tenant move out.. he never complained about roaches, 1x he said "there's an ant issue"... and when he moved out, it was DISGUSTING-- horrible roach infestation,... seriously, I wish I did a better job taking pics, but just gross... this guys wasn't a druggy -- nope, clean cut military guy, so you just never know... seeing a beautifully redone place, infested with roaches, is humbling.. but you clean them up, call the exterminator, and move on!    Less you complain and the more you act, the better.. . 

Another one.. we got a house from auction.com for dirt cheap ($5K), our contractor told us the house was just straight up garbage,  it'd be easier to just tear it and and rebuild.. we resold it for $10K, but it was scary at the time! 

Copper pipes got stolen....  replacing a roof cost us double the estimate one time... stuff happens, all the time!     We're working on a house now that isn't a traditional house, I think it was actually a storage container put on a slab, but ya know what.. you work with what you got!   I think part of being an investor is learning just how to roll with it! 

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