How I Completely Lost My A$$ On This Deal
G'Day everyone,
It's your favorite Aussie and The Real Estate Dingo.
I am writing to you today with my head down and my tail between my legs as I just lost $25,000 on a recent deal.
ps. This post deserves at least 50 votes :)
Below you will find some of the lessons I learned along with pictures of this nightmare deal.
So it all started around 4 months ago when my company Ohio Cashflow had a boom in demand and we were very short on inventory. Like we would normally do, we decided to ramp up direct mailers to the thousands per week along with stalking Craigslist numerous times per day. Craigslist is a great source for inventory and we bought a ton of properties from Craigslist over the years. One day I found a very small and ugly looking 3 bed 1 bath house located in the Washington Local School District. The best school district in Toledo. A big WINNER in my eyes.
Without going into every little finer detail as I only type with 2 fingers and it would probably take me 5,000 words to cover all of the S#!@ that went on haha - Check out the bullet points below of the issues that occurred and the mistakes I made:
- The seller owned numerous properties in town and was the shadiest guy you could possibly imagine. I had a bad feeling from the start but failed to conduct further due diligence on him. I later found out that he ended up in jail for tampering with the city water on countless properties he owned.
- When we bought the property we signed a disclosure "As Is". This didn't allow us to go after the seller on the numerous items he failed to disclose. The biggest one was the water tap. The city completely switched all water off to the property and it cost us $1,250 to order a new tap to be installed.
- The property had every possible code violation you could imagine but this didn't seem like a big issue at the start as I "knew" I had "licensed" contractors that would look after the problems. Boy, was I wrong.
- Demolition started and I went about paying my guys like I always do. They get draws whenever they want and need them and they love us for it and always "complete" the job. Well, they did so for the last 12 months.
- The extras started piling up like foundation work, floor leveling, sump pump, major plumbing and electrical, etc... To this day I still don't know how I missed some of these items as you would think that they would be easily visible when I first inspected the property.
- Busy Busy Busy is not always good. You sometimes just need to STOP and smell the roses otherwise major things will go unnoticed and you will make big mistakes.
- I had to bring new contractors on board that I never worked with before to start on all of the extras. City permits needed to be pulled on all of the extra work we needed to do.
- From torrential rain and flooding delays to the city permit delays. The weeks turned into months and I still faithfully kept paying my main guys as I knew that once everything was clear they would come in and smash the job.
- The day it all went to BIG S#!@. BOOM the city inspector rocks up on site and sticks a STOP WORK ORDER, I was like "WTF is this?", "We pulled permits."
- I quickly checked on the Toledo Gov website and the new contractor I decided to hire completely scammed us out of $4,400 and never pulled the permits for the job along with other jobs. Its crazy how we got screwed as this guy was in our office and on the phone to the city inspectors asking what permit needed to be pulled and how much it would cost. Great scam I'll give him that. He was a trusted source from one of my "trusted" contractors that had been on board with us for over a year. I mean, what could go wrong, Right?
- After all of this happened I lost faith in everyone and decided to get independent advice from a very reputable GC here in town. He pretty much told me that it was a complete loss and to cut my losses quickly, salvage anything I can from the house and move on.
- $20,000+ went to contractors that never really did any work or pulled any permits and just kept begging me for draws the whole time and blaming me for the slow progress.
How about that guys?
I was fortunate enough that the neighbor wanted to buy this house for 15+ years just so he could knock it down and build a pool on the land. If I knew that from the start, I actually could have wholesaled it to him for a profit instead of loosing $25,000 lol. If the neighbor didn't want to buy it tho, it could have ended up being an even bigger loss of $50,000+.
I also had money partners in the deal that I had to payout from my pocket.
The biggest BUMMER in the whole story is not the money lost but the fact that I had a great investor on board to purchase the property once the renovations were complete and the property was tenanted. This property could have been a great Buy & Hold forever. We were literally praising this deal as the best property in the best area we have ever bought.
I ended up looking like a complete donkey to my investor and not the Dingo that I'm know for lol :)
***Lessons Learned & Tips***
"The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy." - Martin Luther King, Jr.
- Speak to the neighbors before you close on a property. Most will know the entire history of the house, the previous owner and the area.
- Don't just GO GO GO. Sometimes you just have to STOP and re-assess.
- Never give draws to contractors until you can actually see a progress of work so the draw is justified. No matter how many jobs they have done for you prior or how long you have known each other.
- Never write a check to a contractor personally to pay for city permits. Get him to pay the city himself or write a check to the city.
- Hire slowly & fire very very quickly. I did a complete in-house clean out of personnel after this deal. There were many warning signs over the past few months but I decided turn a blind eye to it.
- Always pay your debts back to money partners without excuse. They will love you for it and the true and good partners know that everyone makes mistakes.
- Be 100% honest at all times with everyone involved in the transaction. Don't leave anyone in the dark and communicate the happenings daily.
- Take full responsibility and only blame yourself.
***Photos***
I hope you enjoyed this post and found it useful.
Have a great day
