Been Feeling a Bit Discouraged

Rental Property Investor · Overland Park, KS · Member since 2018 · 49 posts · 30 votes

We recently had a deal go south, which was disappointing enough itself, but as I’ve been reading the forums and listening to the podcasts, I feel like a big ignoramous when it comes to REI. It’s made me realize that the properties we have probably weren’t good investments, and it’s got me feeling a little discouraged. Any tips or words of wisdom from the seasoned professionals out there?

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

Originally posted by @Erin Auman:

@Joe Villeneuve

Long story short, right now they are turning into money pits. There’s not much equity, and I’m not sure how to go about funding the rehab that needs done. I feel like I might be at a point where it’s best to just dump them and start new.

...and there's your answer.

Do you know the similarity between Poker and REI (not gambling)? The secret to success in both is the same.

The answer: Stay in the game.

If you continue to hold a property that is taking your cash (negative cash flow), you will be out of the game just as fast as if you were to keep putting chips in the pot of a really bad hand.

You haven't lost any money when you lose hands in poker, just like you haven't lost any money when you have negative cash flow...as long as you still have money left, and you get out of those bad "deals". In poker, the chips from lost hands, are just in differents pile on the table...and can be recovered as long as you have chips left to stay in the game. Money from negative CF, or properties with less value than cost, are not lost unless you let those properties bleed you dry.

In both cases, you can always recover those funds...on the next "deal". The secret, is to get out of the current ones first...before they take away all your chips/cash, and eliminates you from playing in either game.

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Amanda G.
Rental Property Investor · Augusta, GA · Member since 2017 · 825 posts · 278 votes
8y
Hi Erin,
Pretty new person here, so take this for what it is worth.
1. There is always another deal.
2. Are your properties cash flow positive? if so, good job. If not, how can you change the situation?
3. Consider comparing backward and planning forward. What do you have and know that you didn't a year ago? 3 years ago? How valuable is that?

Best wishes.
4 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Can't answer the question without knowing specifics on why you think your current props aren't so hot
1 Reply
Erin Auman
OP
Rental Property Investor · Overland Park, KS · Member since 2018 · 49 posts · 30 votes
8y
@Joe Villeneuve Long story short, right now they are turning into money pits. There’s not much equity, and I’m not sure how to go about funding the rehab that needs done. I feel like I might be at a point where it’s best to just dump them and start new.
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Originally posted by @Erin Auman:
@Joe Villeneuve
Long story short, right now they are turning into money pits. There’s not much equity, and I’m not sure how to go about funding the rehab that needs done. I feel like I might be at a point where it’s best to just dump them and start new.
...and there's your answer.
Do you know the similarity between Poker and REI (not gambling)? The secret to success in both is the same.
The answer: Stay in the game.
If you continue to hold a property that is taking your cash (negative cash flow), you will be out of the game just as fast as if you were to keep putting chips in the pot of a really bad hand.
You haven't lost any money when you lose hands in poker, just like you haven't lost any money when you have negative cash flow...as long as you still have money left, and you get out of those bad "deals". In poker, the chips from lost hands, are just in differents pile on the table...and can be recovered as long as you have chips left to stay in the game. Money from negative CF, or properties with less value than cost, are not lost unless you let those properties bleed you dry.
In both cases, you can always recover those funds...on the next "deal". The secret, is to get out of the current ones first...before they take away all your chips/cash, and eliminates you from playing in either game.
12 Reply
Ken NyczajPro Member
Investor · Grasonville, MD · Member since 2017 · 453 posts · 415 votes
8y
@Erin Auman Sometimes failure is the only way to learn.
2 Reply
Erin Auman
OP
Rental Property Investor · Overland Park, KS · Member since 2018 · 49 posts · 30 votes
8y
@Jehoha Lewis We assumed the loan on it when we purchased it, for about $26,000. We have about $22,000 remaining. It was recently appraised for roughly $28,000. Conservative ARV is $100,000--comps for it are hard to find. I have no idea how to estimate the rehab costs. It’s a six bed, three bath, two story built in 1920. We currently rent it to family for $600 a month. We could probably rent it for $1000-$1200 if we did a full rehab.
0 Reply
Josane Cumandala
Appraiser · Brooklyn, NY · Member since 2018 · 106 posts · 118 votes
8y
You have already come farther than most people who express an interest in real estate. You got over your fear and took action. That alone is huge and I applaud you. Mistakes are part of learning and with real estate things tend to right themselves in the end.
I would look for mentors in your market who can help set you on a better path. A good real estate agent might also be able to help you unload your inventory so you can buy a better property. When the going gets tough having a good team around you is so important.
Stay strong! :)
6 Reply
Adam Mittermeier
Specialist · Little Rock, AR · Member since 2018 · 148 posts · 71 votes
8y
I see it like this, everything is a learning experience.....as long as you learn from it!
Try to find ways to get out and put yourself back on the right track. Don't ponder on what has happened, ponder on what you can do to get out and to move forward!!
3 Reply
Terre B.
Aurora, CO · Member since 2018 · 180 posts · 166 votes
8y
What about offering it as a lease option? Give someone a 2 year lease, at $800 a month, with an option to buy at say $60K i 24 months with a credit of part rent towards down?
It's on them to ensure it appraises at $60K.
Its how I bought my first house.
0 Reply
Kai Van Leuven
Investor · USA · Member since 2015 · 325 posts · 447 votes
8y
@Erin Auman I have had my ups and downs with buying/renovating/renting property. It has not all been a bed of roses. Last year I hit a HUGE hurdle that I thought I would never recover from financially. Every day I showed up at the property angry with the guy that sold me the property or the agent or myself or the tenants. One day I showed up earlier than anyone working there. I looked at the property and said to myself “you own this now, the only choice you have is to make the best of it.” From that point on I was laser focused and it actually turned out better than I anticipated. Also, who are you surrounding yourself with? The folks who are there for you in a hard time make a difference. My mom and wife always were there for me. My mom would come and sweep the floors for an hour and say “wow this place looks amazing. You are almost done!” Even if it was down to bare studs. You need those people, I do.
3 Reply
Erin Auman
OP
Rental Property Investor · Overland Park, KS · Member since 2018 · 49 posts · 30 votes
8y
@Jehoha Lewis No, it’s not a low income neighborhood, it’s in a small rural town in Kansas where property is cheap, especially if it’s old like this one is.
0 Reply
Rubin Thomas
Rental Property Investor · TX · Member since 2017 · 42 posts · 26 votes
8y
@Erin Auman keep your head up and keep churning! have you thought about seller financing?
0 Reply
Erin Auman
OP
Rental Property Investor · Overland Park, KS · Member since 2018 · 49 posts · 30 votes
8y
@Terre B. I hadn’t thought of something like that. How can I make it so that they ensure it appraises for that amount? Just write it into the contract? I’d be interested in hearing more about your experience with this.
0 Reply
Erin Auman
OP
Rental Property Investor · Overland Park, KS · Member since 2018 · 49 posts · 30 votes
8y
@Rubin Thomas You mean to sell this house? I’m not sure our arrangement with the bank would allow that. It will be paid off in eight years, so we might consider it then.
0 Reply
Terre B.
Aurora, CO · Member since 2018 · 180 posts · 166 votes
8y
@Erin Auman You'd be better off searching on this site for lease option information. What I did was back in the 90s, and I don't know if you can structure a deal to give them credit for rent paid, which is part of what I had.

As I recall, we rented for $1200 a month (in 1997) and $200 a month would go towards down payment/closing. I had an option to buy at $135K. I knew nothing whatsoever about buying a house, but this place was a white elephant oddity...bottom floor concrete block, upper floor double wide modular..on a flag pole lot, with no landscaping whatsoever, 6 bedrooms, 4 baths, bad subflooring, one bedroom had been "converted" to a ...spa? with a hot tub and this huge 8x8 cedar sauna... ( I could go on, but...) In the 12 months, we fixed the landscaping, ripped out the subfloor, replaced it and carpeted, ripped out the hot tub and sauna. (sold on craigslist, which paid for the used carpet).
Our work combined with a roughly 10% appreciation at that time, and it appraised for $175K and somehow our "lease option" allowed us to buy it as a refinance, and the appreciation counted as our down. As I recall it was a $135K mortgage at 11.5% (again it was 1997!) and I had to suck it up and pay that for the two years I had a prepayment penalty. I don't think you can do that kind of loan now.
You would have to select a tenant capable of making the renovations, sweat equity. You'd need to work the numbers as a win for you and them. You'd have to be sure they were going to qualify for the property at the amount you want for it at the end of the lease. They would have a vested interest in making the value of the property increase, and it sounds like there is room for it. I see it as a win/win. You get out from under the property, at a profit, they get a property that they can put sweat equity in, and still get a bargain that they can continue to improve even after. For a young family with more energy and muscle than money, it's a good deal.
1 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
8y
Real estate is like a roller coaster. Soaring highs in the sky and lowest of lows into pitch black darkness. The mental toughness to keep going no matter what is thrown at you is a big key to success. Many cannot handle it or quit too soon.
With my commercial real estate one day I can get a new client with 10 million to invest and the other a flake with 500k who doesn't know what they want and is driving you nuts. In my early years I worked assembling commercial land projects for developers some for a few years only for the economy to tank and the project was halted. I had 500k in commissions I did not make for parcels under contract but I learned a TON.
Just remember to have FUN and keep learning. With some clients we may put offers on 3 to 4 different commercial properties before finding the one that closes and works out. I make most of the time 6 figures per deal. Each deal can be like a marathon but you learn little tricks and tips each time the more you do them. That feeling when you finally close a deal and make a great check and then you look at how the other 95% of the population lives in the rat race can be very freeing.
It's not easy. When I started out over 15 years ago there were many times I would search where I was living for anything to pawn for a quick 15 bucks just so I could eat that day. I did that over and over and over. Get item out of pawn and then have to do it again to eat. What I did was go to Barnes and Noble and read the books for free in the sofa, go to libraries etc. I mentally told myself I will do whatever it takes and will not quit no matter what. The feeling you get when you are financially free is amazing because YOU get to decide the life you want and it is no longer dictated by debt and bills.
So get back out there as tomorrow is a brand new day and there are more new properties hitting markets across the country to review and look at.
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4 Reply
Aaron Taylor
Olathe, KS · Member since 2018 · 148 posts · 207 votes
8y
I don't know where your particular property is in Kansas, but small towns are fine IF one of these things is happening:
1) You're close enough to a major city where they're pulling your values up with them. So you're getting appreciation along with cash flow, although the appreciation may make finding cash flow harder.
2) You're getting major cash flow that well exceeds all repairs, huge cash on cash return. Appreciation is zero. Possibly even slightly negative.
My guess is that the house you're renting is one of the biggest in town, which means it also has big repairs to go along with it. I would think it would start getting better after a while. Doesn't sound like the rehab would be worth it, pretty hard to flip houses in a small town unless you buy them for next to nothing and they're small.
I'd stick with it. Your investment in that house is super small but the knowledge you will gain will be very large.
2 Reply
Joseph Crespo
Chicago, IL · Member since 2018 · 17 posts · 10 votes
8y
@Joe Villeneuve From one Joe to another, that's just about the most encouraging thing I've heard. And I used to play poker for a living!
0 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
1. I don't know what ignoramous means and I refuse to Google it.
2. Try not to be discouraged. There are a lot of ups and downs in this game. When you say you didn't buy right, what do you mean? If you own properties too high, can you sell them and start buying low enough?
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Ian Walsh:

1. I don't know what ignoramous means and I refuse to Google it.
2. Try not to be discouraged. There are a lot of ups and downs in this game. When you say you didn't buy right, what do you mean? If you own properties too high, can you sell them and start buying low enough?
means kind of like a dummie or there abouts.
at least she is not in the thing 100k .. this will work out over time.
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Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
There is something ironic that I don't know what that means and what the definition is. I still refuse to Google it.

Originally posted by @Jay Hinrichs:

Originally posted by @Ian Walsh:
1. I don't know what ignoramous means and I refuse to Google it.
2. Try not to be discouraged. There are a lot of ups and downs in this game. When you say you didn't buy right, what do you mean? If you own properties too high, can you sell them and start buying low enough?
means kind of like a dummie or there abouts.
at least she is not in the thing 100k .. this will work out over time.
1 Reply
Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
8y
@Erin Auman It’s kinda like a roller coaster there’s up and downs but the only people who get hurt are the ones who try to get off ! Stay the coarse ,Hold on long enough . Real estate can be brutal but surprisingly forgiving in the sense that even a mediocre otherwise lousy deal can work out good in the end if you hold it long enough .
0 Reply
Erin Auman
OP
Rental Property Investor · Overland Park, KS · Member since 2018 · 49 posts · 30 votes
8y
@Ian Walsh Are you being ironic in your first statement? :-)
0 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
Oh man. Now I am lost in the conversation. Yes....nooo?...

Originally posted by @Erin Auman:
@Ian Walsh Are you being ironic in your first statement? :-)
0 Reply
Courtney M.
Lake Elsinore, CA · Member since 2018 · 235 posts · 300 votes
8y
@Erin Auman, you said you listened to the BP podcast. Many of the guests they spoke to had stories where they had truly terrible starts or bad circumstances. As a few other people here said, they didn't throw in the towel. They kept persisting to get where they are today.
There's no shame in not knowing everything. I know I'm dumb enough in this business to ask a lot of questions (and probably annoy my realtor in the process). I'm trying to learn as much as I can while still taking action. I think that's how a lot of people continue to learn and grow.
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