Suggestion For a New Forum: Dealmaking Failure Stories
Real Estate Investor · Kansas CIty, MO · Member since 2009 · 93 posts · 8 votes
I would like to see a "Dealmaking Failure Stories" to counter the "Dealmaking Success Stories" in the BP forums.
We all know that you can't achieve success by being a perfectionist and without failing. Would love to hear from some of our succsessful members on what they learned. :mrgreen:
I lost $30K on my first rehab real estate investment!
- Paid the contractor half up front.
- Went to the property and never saw any work being done.
- Left message after message
- Finally stopped by his house
- He was having a party (on my dime)
- Asked me for more money. (really?)
- Called him a thief
- He tried to defend his actions.
- I fired him and learned a very expensive lesson.
- Hired next contractor and only paid him a small fee up front
- Bought all supplies and delivered myself.
- Supplies were stolen as home was not secured properly by contractor.
- Work done was not that good
- Fired contractor #2
- Hired Contractor #3
- Spent even more money to fix #2's shoddy work
ahhhhhhh.....completed........
- Hired property manager
- Heard crickets chirp for weeks
- No return phone calls
- Fired Property Manager
- Hired Property Manager #2
- See Property Manager #1 experience
- Decided to manage myself.
- Advertised
- Many tenant prospects would make appointment and not show up?
- Frustrated, I filled the unit with the first person who came along
- They only paid 2 months rent.
- First eviction experience
- Another 60 days
- Tenants trashed unti
- Called Contractor #3 to fix issues
- Cost a few thousand dollars
- Finally rented out the place to great tenants
- Decided Real Estate was not for me and was going to sell property.
- Found a Real Estate Agent
- Listed Property
- Crickets chirped for weeks
- No Return Calls
- Fired Real Estate Agent
- Hired Real Estate Agent #2
- See Real Estate Agent Experience #1
- Decided to sell property myself
- SOLD!!!!
Profit/Loss = (-$30K)
Tough lesson
Decided to get into the business and work hard to prevent this from happening to others!
The seeds of Gladiator Real Estate Group were born..........
Success is not easy, but it comes through passion, honesty, and hard work!
Have a Profitable Day Everyone!
- Harrison
I think that is an excellent idea. What better way to learn than from mistakes!
Would also like to hear what beginners (like me) did wrong and how they changed accordingly.
Sounds like a good idea to me!!
I always get a kick out of this topic. This topic actually just came up at another investment forum, here is what I wrote there. I will share some additional stories when I have more time to post.
Years ago we purchased a property that at the time was great. We bought it at a steal, it had 100% occupancy, strong operations and above market rents. It was substantially nicer than surrounding buildings.
The tenants were great, most had been in the property for years.
Then the local manufacturing company went bust. Needless to say, almost all of our tenants worked for the company and soon our occupancy plummitted. After the plant shut, the property could never break free of 20-30% vacancy.
We learned some great lessons. 1) Be wary of a property that is dependent on a industry (this is very hard but good due diligence can uncover a lot). 2) Have a contingency plan for every situation. This is just common sense 3)In drastic situations, respond accordingly. We probably should have completely dropped our rents and started to target a new tenant profile but we were stubborn and believed that we'd still attract the highest rents around. The truth was that most of the people in the area couldn't afford the rents. The manufacturing company was by far the best gig in town. The drop off was huge.
I lost $30K on my first rehab real estate investment!
- Paid the contractor half up front.
- Went to the property and never saw any work being done.
- Left message after message
- Finally stopped by his house
- He was having a party (on my dime)
- Asked me for more money. (really?)
- Called him a thief
- He tried to defend his actions.
- I fired him and learned a very expensive lesson.
- Hired next contractor and only paid him a small fee up front
- Bought all supplies and delivered myself.
- Supplies were stolen as home was not secured properly by contractor.
- Work done was not that good
- Fired contractor #2
- Hired Contractor #3
- Spent even more money to fix #2's shoddy work
ahhhhhhh.....completed........
- Hired property manager
- Heard crickets chirp for weeks
- No return phone calls
- Fired Property Manager
- Hired Property Manager #2
- See Property Manager #1 experience
- Decided to manage myself.
- Advertised
- Many tenant prospects would make appointment and not show up?
- Frustrated, I filled the unit with the first person who came along
- They only paid 2 months rent.
- First eviction experience
- Another 60 days
- Tenants trashed unti
- Called Contractor #3 to fix issues
- Cost a few thousand dollars
- Finally rented out the place to great tenants
- Decided Real Estate was not for me and was going to sell property.
- Found a Real Estate Agent
- Listed Property
- Crickets chirped for weeks
- No Return Calls
- Fired Real Estate Agent
- Hired Real Estate Agent #2
- See Real Estate Agent Experience #1
- Decided to sell property myself
- SOLD!!!!
Profit/Loss = (-$30K)
Tough lesson
Decided to get into the business and work hard to prevent this from happening to others!
The seeds of Gladiator Real Estate Group were born..........
Success is not easy, but it comes through passion, honesty, and hard work!
Have a Profitable Day Everyone!
- Harrison
Wow Harrison! This sounds like a similar scenario I'm living right now over my first rehab. Its been several years since I did it and I have been determined to hang onto it because it was my "first" lol! But I swear this house is eating me alive. Between taxes, insurance, renters trashing it and the mortgage company from hell with its alternating payment amount it has become very painful. I've named her Audrey, after the Venus Fly Ttap plant in "Little Shop of Horrors". I was just on the phone with someone discussing the "S" word :0
Got my first two-family apartment for a great deal from a don't-wanter. Then I proceeded to pour thousands and thousands of bucks into upgrades that were way beyond the low-income neighborhood.
Excuse my naivete, but when the downstairs family complained of leaking water from the ceiling, and the upstairs tenant admitted they didn't know that the shower curtain was supposed to go INSIDE the NEW SHOWER I put in -- I started learning about wasted upgrades!
Dan,
That is a great lesson. ( Did you read this, all you GM Plants towns property owners?) I guess the seller knew something that you didn't.
It is really tempting to invest where the industries are, but that the flip side of it. I do own two SFH in Round Rock, TX where Dell and Samsung have plants but I know it is risky.
As for myself, my failures are still ahead of me. I am too new in this (About a year) - I'm sure it will happen.
I do have a story similar to that of Harrison which almost cost me my marriage . Twenty years ago I hired a contractor to do major renovation in my own house. I made a real rookie mistake and hired the lowest bidder. The guy didn't know how to assess a job, I ended up paying him all the money and he didn't even finished half. In the end I had to borrow more money and hire someone else to finish the job.
I can offer a tip about the point above - tell the prospect to call one hour (or however long it takes you to get to the property) prior to their appointment to confirm. If they don't call, don't go.
It took us 2 months to learn this for our first rental, and another month to get a Section 8 tenant with good references. The tenant kept the house immaculate, but continually complained about things to be repaired. Some were legit, some were not necessary, and it took months and thousands of dollars to learn to say NO. That was the result of speaking to the Section 8 caseworker and learning what we did and didn't have to do.
Section 8 tenants can be a very different / difficult animal indeed.
A interesting (aka terrible) experience was when we launched a small distressed debt fund. We picked up some section 8 housing at pennies on the dollar. We went out of our way to treat many of the tenants far better than we needed to, making repairs and drastically improving living conditions. We thought many of the tenants would be greatful and take better care of the property. Instead we got more complaints as the tenants soon took complete advantage of our improvements. One tenant decided that we needed to upgrade the entire bathroom with new fixtures. Since the fixtures were in very good condition and only a few years old, we decided not to. The tenant ended up destroying the bathroom and upon leaving the property decided it would be a great parting gift to leave behind urine & other presents. We had to have a professional cleaning company come in 5 times to get rid of the smell.
Another tenant in the same building asked us if we would allow a cat (we had no pet policy). At first we said no. We just put in new carpet & always avoided having pets in our properties. The tenant made such a genuine plea that we eventually ok'd the cat. It was an older couple and the wife told us on several occassions that the cat helped her cope with all sorts of troubles and that she would go out of her way to make sure the unit would be spotless. Long story short, what we thought was a single cat turned out to be 3 cats & a evil small dog. There was no cat box and I doubt she ever walked the dog since there was not a single square foot that was not destroyed. When we discovered the mess due to other tenants complaining, she made a huge fuss, stopped paying rent and left. She called weeks later demanding her deposit back. When we told her about how much damage the animals caused, she replied that all the damage was there when she moved in and that she would sue us for the deposit. never a dull moment.
We shortly stopped making any improvement that was not completely necessary and we noticed the tenants complained far less and were more appreciative of having something fixed rather than improved beyond normal functionality. I still don't get it but the new strategy has been far more effective and the tenants are taking better care of the place. We decided to just donate to the community versus wasting money on the property. Wish it would have worked out differently.
Let's see- great subject for all of us who dream romantic dreams of owning rental homes...
* Had a murder in one of my homes
* One tenant left urine and feces in the refriderator, finding that only after walking the path of boxes and newspapers pile to the ceiling
* bought two homes that would have been great three blocks over, instead had looky-loos steal the air conditioner and neighbors who greeted any new potential tenant with beer, fists and verbal abuse..
Just to name a few
That's a very interesting spin on how to deal with tenant relations. I like your donation strategy too. And it's very true! I was told that some tenants, whether Section 8 or market rate, are "professional" tenants and have a remarkable sense of entitlement. When my tenant threatened to call Section 8 a few times, I called the caseworker myself, who had never gotten a call from her. The caseworker was sympathetic and told me my rights. She said their inspection of my house was more thorough than the city's, and since it passed, I didn't need to do anything further. Both properties were rehabbed before the tenants moved in.
When I told the tenant about it, and gave her the option of releasing her from the Section 8 contract in 30 days, she decided to put up and shut up. I haven't heard a peep from her since February. My other Section 8 tenant hasn't complained or asked for anything. You just never know. But I do know that unless it's heat/water/leak related, nothing additional will be done to the properties until the annual Section 8 inspection.
If there is one thing I have learned in this business, "Never bite off more than you can chew"
Over leveraging yourself is financial suicide. Been there and done that, especially when I was starting out. I took on 12 properties at the same time,as a rank newbie. Some Major rehabs,a few of them were with hard money. A few of them were funded from my IRA(which was wiped out as a result). Every single house had issues. A lot wiser now, albeit a head full of grey hairs.lol.
Thankfully I haven't had these experiences - knock on wood :) Has it discouraged you from pursuing additional rental properties?
Sam, I give you a lot of credit for jumping in and actually doing what you did. Even if it didn't work out quite as you expected, at least you did it. No analysis paralysis.
I'm trying to be careful to not over leverage. I bought my first rental with a conventional mortgage, then took a HELOC on my own condo to pay cash for the second rental. Once it was rented, I took out a HELOC on that and have several offers on the table for the third rental. Both properties needed much more work than anticipated (as always).
Now I think I'm over cautious.
Leverage is certainly a two faced beast. Leverage will multiply returns during the good times but like we are seeing today, it will aslo multiply the ugly.
Some of my biggest mistakes in life have also been my best blessings. Thanks for sharing these stories! What better way to learn than from another man's mistake? It kinda takes the sting out of the whole deal :)- Hard knocks-wish I had the time here to go into them/ let alone pick my biggest failure!!! Sure do feel better after reading this thread though. Great stuff......
what a wonderful thread. I have been feeling pretty miserable today, with my all of my rentals having serious issues and problems. It helps a little to hear that successful, experienced investors have also had difficulties. I'm not sure I have what it takes to be a real estate investor, at this point I'm just trying to prevent total disaster from what I already have. thanks for sharing everyone
love this topic...my first tentants were snobby college students in the hood...whoops!! got calls from neighbors about parties, kids peeing outside, cops were called...neighbors finally had enough and broke into the house, stealing the tenant's ipod, computer, and car...when i asked her to leave, she had no problems, knowing she trashed the place...however...daddy soon called demanding the deposit back...i don't think he knew what a partygirl his daughter was...the kicker was the next week she moved into an apartment complex and was kicked out for parties as well...long story short..apologized to neighbors and assured them i cared about their community..have a nice family in there now..it's nice driving by to check in and seeing them outside planting flowers or doing something good for the neighborhood!!
I'm pretty new to all of this still, but one lesson that I've learned the hard way so far is to not let people waste my time. I've had a lot of other wholesalers sending me properties to help them move. Most of the time the properties are complete duds. One property in an especially dangerous looking area, I actually went, snuck into the place at 6 in the morning (the safest time to go), took pictures, did a whole write-up, and the guy never even returned my emails after that. So no unless I get a contract signed FIRST with these characters, I won't spend even a minute on a deal.
Same thing with sellers. I was dealing with a potential short sale a couple weeks back. Everything looked great. I was at this lady's house twice, on the phone with her at least 5 times. I was as professional as could be, answered all of her questions (with 5 yapping dogs biting my ankles), took it all the way to the contract signing, and suddenly when I told her she'd actually have to leave the property before it closed (duh) she decided to have her "lawyer friend" look at the contracts. When I finally got ahold of her 2 days later to set an appt, she said that her "loan modification" went through. After that conversation, I gleaned that she just didn't want to move in the winter, though she was a whopping $19,862 behind on her cheap mortgage payments.
So long story short, if you're a nice guy, it's easy to let people waste your time. If you don't learn to not let that happen, you won't have time to make any money, and will probably give up before you do. I almost did :)
Lucky for me I heard tons of contractor horror stories prior to my first deal. So when the time came for me to hire a contractor I decided not to hire one.
I hire a handyman refereed to me by a fellow investor. I still was very much "hands on" but overall it turned out to be a good choice.