Did you make any rookie mistakes? (Plus, NEW BOOK!)

72 Replies

@Max Maysonet . Can you explain COC ROI

This is what I’ve come up with, does this Make sense?

Property 250,000

25% down 62500

Mortgage 1332

Vac $100

Repairs $100

Unit 1 1400

Unit 2 1400

Rent $2800

Expenses 1532

Cash flow 1268

Cash flow x 12

1268x 12 months =15216 annually

Down pay 62500

Closing 5000

15216 \. 67500 = 0.225 x 100 =

22.55% ROI first year

These are approx expenses I just added $200 to the mortgage of $1332

My biggest rookie mistakes have been using the first realtor to contact me through realtor.com instead of utilizing BP to find an investor friendly realtor. And using a home inspector I found through google instead of finding a verified one from the American association of home inspectors. Those mistakes alone have cost me thousands.

  

I bought my first house from a friend. With the transaction being a little less than arms-length, I was more lenient (and trusting) in issues that I would have been otherwise. Not having an agent to represent me in a transaction type I had never been through before meant I realized my blind spots after signing instead of before. Luckily my home inspector was very good. While I did get a reasonable deal, I have had to put a bit of work into it to really shore up a few of the issues with it.

What mistake didn't we make! I think the biggest one was buying a property with no utilities on. Because of this, we weren't really able to do proper inspections and were just going based off of how everything "looked". This, of course, led to having to replace all the electrical and plumbing... total nightmare and budget buster! We would have either asked for the utilities to be turned on just for the day or asked for a lower price to include the potential of having to replace all plumbing and electrical. 

I bought my first house straight out of college in Seattle around 2004 with absolutely no experience and a had a partner who was convinced we could pull off a major overhaul on a 1920's house near the University of Washington.  Location was, and still is, great.  The initial plan was live in the house and house hack the remaining rooms to grad students.  We came up with a grand plan of taking the roof completely off the top of the house to make the dormer style roof into a full third story.  In order to avoid a bunch of pesky setback rules we also had a deck system that was over the top of some living space on the second floor.  Did I mention we were going to do this all on our own to save money?  

With our grand plan in place and permits in hand, we started our bold journey into construction.  We promptly ripped out the interior cabinets and kitchen, and began the process of knocking out the top of the chimney to remove the roof.  If you have never seen a person being dangled down a chimney to dangerously remove the chimney piece by piece, you are really missing out.  The roof was removed and replaced with the best tarp money could buy.  The neighbor's call at 2am during a snow storm should not have been a surprise...but somehow it was to these two idealistic laborers that decided to rip the roof off of a house at the tail end of fall.  At 3am we were on top of our roofless house with shovels and buckets literally removing snow from (what should have been) the inside of our house because the tarp was somewhere on the other side of the property.  After hours of removal, we did our best to visquine the interior of the house to prevent further damage.  Upon our return the next day, the snow had melted and turned our giant visqueen into a "stairwell water balloon" which was threatening to burst.  Out came the buckets again.  We did the best we could before the visqueen gave way and sent a wave of water cascading through the house.  (Think The Shining when the elevator doors open.)  For those that have not had the pleasure of working in a 1920's house...the drywall is actually strips of wood with plaster over the top.  Well, the water took care of a lot of the plaster for us, and our project expanded to replacing the lathe and plaster with drywall.  Since the walls were open, we opted to replace the knob and tube while we were at it. Despite numerous other incidents like almost losing an eye to a flying hammer, nearly losing a member of our trusty team to a fall off the second story while attempting to hand lift a 20 foot steel I-beam, and failing relations with my partner over the next year, we finally got the place dried in.  Our project continued for a total of almost 2 years, and lives moved on...as they do. The day before I got married I finally received a pay out from my former partner for just the money i put into the project as I sold him my interest in the house. My sanity was worth it, as was avoiding another 2 years of poor decision making from my partner.  The 2 years of work I put in was an Master's Degree experience in construction, real estate, psychology, and hard work.  

All was not lost though. After licking my wounds, my wife and I did a complete (well planned) remodel of another 1920's house which made a nice profit. We moved on to BRRRR process remodels in Pittsburgh and are now involved with multiple Syndication and partnerships in apartment complexes around the country.

For all those newbies...you may make mistakes but they make for some good stories you can eventually tell down the road when your ego has recovered.  But if I hadn't jumped in, I would never have earned that Master's Degree though.  If only I had Bigger Pockets in 2004!!

My rookie 'mistake'  occurred when my first purchase was a rental property out of state.  I didn't know about BP back then (and though I did register 5 years back, think my account was inactive for a period and only recently activated)  and so flying blind.  I wouldn't call this a mistake but more of a learning point:

Circumstances - First time buyer, out of state purchase. realtor was introduced by my very good friend (both locals in that state) who praised that realtor's experience and considered him to be a very good friend. 

So, I blindly assumed that realtor was the expert and had my best interest in mind.  The realtor was a nice person no doubt and smooth in marketing.  

I naively didn't probe too much into his assumptions; he gave a simple spreadsheet that calculated the 'ROI" touting 21% overall return for that property and that was enough for me to get it done. In the hurry - and given the many steps involved - I just went with what he recommended.

It was only later I realized that his #s provided for a very low maintenance (think $50 a month), no vacancy, and conveniently forgot to include the rental commission I had to pay for him for finding a tenant (which is one-month rent).  And then the expenses that followed once the first tenant vacated.  Gosh! It was tight slap in the face when I thought it will take a few hundreds whereas it stretched to a few thousands because of re-carpeting, full painting etc.

No complaints as these were expenses that went into the upkeep of the home, and tax deductible.  I just wish that I had been more prepared and not go by projections given by others.  Though he might not have intended to mislead, he might have forgotten to be more practical.  So, learnt never to assume that the 'experts' are always right. :)  

 

Originally posted by @Leon F. :

I bought my first investment property from the foreclosure sale and I did not evict the previous owner like I was advised.

It's been problems ever since.

 That's awesome. Where did you find your deals?

Originally posted by @Kaylee Walterbach :

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@Mindy Jensen  and @Scott Trench  have been buying and selling houses for a collective thirty years. In First-Time Home Buyer, they’ll give you a comprehensive overview of the home-buying process so you can consider all of your options and avoid pitfalls while jumping into the big, bad role of homeowner. You can get the book, along with some stellar bonus content, on the BiggerPockets Bookstore!

We've all made some rookie mistakes... So if you could travel back in time, what’s the ONE tip you would give yourself before you bought your first property?

 Mistakes? Hahahahhahahahahahahhahahahahaha, I invented the mistakes that didn't exist before. You name the mistakes, I've made them and a few mistakes I made up on my own. 

But, I'm still investing, still showing great profit and I don't care what others think about how I got to where I am. I'm here and they're not. I took action before taking action was "cool". I just feel sorry for those poor souls who don't take any action because they're concerned about making "mistakes" and looking foolish to their family & friends. Try eating "sentiment" from your friends. Why do you care? They are the ones who will never "make" it. Cut loose man. Make a life for yourself. It isn't about the money, it's about what you can do with your time if you didn't have to worry about money. 

Originally posted by @Guy Primo :

@Max Maysonet. Can you explain COC ROI

This is what I’ve come up with, does this Make sense?

Property 250,000

25% down 62500

Mortgage 1332

Vac $100

Repairs $100

Unit 1 1400

Unit 2 1400

Rent $2800

Expenses 1532

Cash flow 1268

Cash flow x 12

1268x 12 months =15216 annually

Down pay 62500

Closing 5000

15216 \. 67500 = 0.225 x 100 =

22.55% ROI first year

These are approx expenses I just added $200 to the mortgage of $1332

Of course it makes sense, These are actually good numbers! (I'm assuming that there is no PMI due to the fact that you put down 25%).

These are numbers that can allow someone to sleep at night as long as you rent to financially solid tenants.

A 22.55% ROI or COC (whichever you'd rather go by) is a beautiful deal and is hard to find for some!

That's a complete 100% ROI in under 5 years, impressive.

 

Originally posted by @Guy Primo :

@Max Maysonet. Can you explain COC ROI

This is what I’ve come up with, does this Make sense?

Property 250,000

25% down 62500

Mortgage 1332

Vac $100

Repairs $100

Unit 1 1400

Unit 2 1400

Rent $2800

Expenses 1532

Cash flow 1268

Cash flow x 12

1268x 12 months =15216 annually

Down pay 62500

Closing 5000

15216 \. 67500 = 0.225 x 100 =

22.55% ROI first year

These are approx expenses I just added $200 to the mortgage of $1332

You may have the wrong person, I didn't ask what is COC nor ROI, But I do like these numbers!

For the most part, the first house I bought went incredibly well. I'm fortunate enough to have had the guidance of many people before taking the plunge. BUT the first INVESTMENT property I purchase was an absolute nightmare. I was rushed into the situation and put too much trust in the wholesaler that I didn't do enough of my own due diligence. I bought it way too high, the rehab was significantly more than what he quoted me and I barely made out breaking even. (Which is better than most in this situation). Most would quit real estate altogether after an enormous loss. But from this experience, I learned that I needed to run my own comps, run my own rehab estimate and use GC that would be completely honest with their estimate rather than just taking the cheapest bid. BUILD A TEAM. I never go into a deal scrambling to find the right people now. 

My advice: 
-Find an agent you fully trust who isn't just trying to make money off of you / get your license. 
-Find a lender(s). One for hard money, and one for a conventional loan SO that you can approach a deal with confidence without worrying about funding.
-Find a GC that is honest and is willing to walk the property with you. And make sure they have sub-contractors that are trustworthy aswell.
-There is always another deal, don't get wrapped up in a bidding war because you're desperate. On the other hand, don't be so thorough that you suffer from analysis paralysis. 
-Make sure the first one, you don't lose money! 

I've never used an agent and do not follow any official RE investing "process". I've been burned before but have never made any serious personal mistakes in RE (aside from occasionally working with bad consultants). 96% of my problems have been caused by other parties. Yes, I've learned to occasionally change approaches and take more precautions in certain areas. It's definitely a learning process!

@Kaylee Walterbach

Ah, what I would tell a younger me if there was a time machine? Never hire GC's or contractors out of desparation, put remote cameras on every jobsite & stop laying awake at night worrying if you've bit off more than you can chew. It will be worth the ride!

My first property was a SFR with a septic system. I had a general inspection done but did not know to get a septic inspection performed. The old system was not working, and it cost me later down the road for the installation of a new system.

My first house was thirty years ago but I remember it well. It was owner finance and we did it on a handshake. Then she drew up some papers later and I signed then without reading them. She added a clause that said I had to cough up the rest at any time at her discretion. 

FF 2 years later and she got a job offer out of state. She enacted the clause and I had 30 days to come up with the money. 

Sometimes a handshake can cost you your hand.

The other thing I would say it's learn from your mistakes. I did the same thing last November lol. Not a big deal on that one though as a can cover that one in less than a month. These are the only 2 O/F I have ever done. Good thing too. I have no hands left.