Newbie Stupid Tax - How Much Does It Cost? How Much Will You Pay?

Question

We were all newbies at one point. I, even I, made some Grand Stupid Mistakes (early on ;-). I wouldn't be able to add up how much "Stupid Tax" I paid getting my real estate investing career underway. Granted, we all still lived in thatched roof houses in those days and there were few people to learn from, and I had to learn a lot of it "trial and error" but things have changed.

I know there are a ton of you "lurkers" out there, gotta love ya. But, add up the cost of doing a kitchen the wrong way, or ending up holding a property months longer than planned because you don't know how to get the property sold or even worse, how much you are losing because you never get started and that is a portion of your "Stupid Tax". Everybody is going to pay some "Stupid Tax". But don't over pay. Whatever job you are doing today, you had to learn. You probably paid to get through college, to learn. Real Estate is simply learning how to do things and finding out about the things you don't even know to ask. Team up with someone. Get started. Split the profit.

Here is a sample of what I am talking about:

When I was first starting out, I bought a house from a guy who was in pre-foreclosure. I let him temporarily stay in the house because he said "he was going through cancer treatment and needed to be close to the hospital and didn't drive." I agreed to let him stay for six months while he went through treatment. (Later during the lawsuit, my attorney would tell me how Stupid that was to do.)

When I came back by a few months later to check on him, my new unwanted tenant, he was pulling out of the driveway, driving his car. I followed him a couple of miles where he stopped in front of a house. Turns out a group of family members were having a BBQ and he was yukking it up. I started watching him more closely, he never went to the doctor or the hospital. Ever. At all (I found out in the lawsuit that he never had cancer and didn't go to the hospital.)

Lesson: No matter how nice you want to be, you have to separate the seller from the property or they will play you to the hilt and the court will ask why you did that. It is *your* fault. As an investor, in some jurisdictions, you are guilty until proven innocent.

As a newbie, tell us what you don't know so we can help. No one will laugh at you. You can't ask a question that we haven't already made a mistake at.

Jacob Camhi · Answer

that's a tough lesson learned, and it really hits home how important it is to protect yourself from the start. we all pay a little 'stupid tax' in some form, but you can definitely keep it low. for new investors, i'd say the biggest piece of advice is to always get legal help for your first few deals, especially if they're creative or off-market. a local real estate attorney's fee upfront is way cheaper than a lawsuit down the road. also, always separate the seller from the property at closing, no exceptions. it avoids so many headaches. your local county recorder's office can also show you typical deed and mortgage structures. learn the paperwork inside out, and don't be afraid to walk away from a deal that feels off or has too many informal agreements.

Greg Kasmer · Answer

@Ken M. - Thanks for sharing that story! Yes, I've made my fair share of mistakes, but I always remind myself that as long as I make the mistake once and learn from it to keep moving forward you'll be ok! My biggest mistakes have been with the renovation process. I'm not an expert contractor/rehabber by trade, so there is always a lesson to be learned with almost every project I complete!