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

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

Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes

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. 

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.

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New York City, NY · Member since 2015 · 125 posts · 48 votes
9y
Originally posted by @Anthony Gayden:

Ken Min

I lost $1000 on my first 4 plex property I had under contract.

I had an inspection and appraisal done which revealed huge problems. I backed out and lost the money I had spent on the inspection and appraisal.

It sucked but I still ended up getting started.

 I wouldn't even consider that as "losing" $1,000.  Rather, you invested $1,000 in an inspection, and that investment paid off handsomely as you were able to walk away from a potential money pit.  You spent $1,000 in order save God knows how many tens or hundreds of thousands.  Sounds like a pretty good return to me.

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  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    9y
    Ken Min I lost $1000 on my first 4 plex property I had under contract. I had an inspection and appraisal done which revealed huge problems. I backed out and lost the money I had spent on the inspection and appraisal. It sucked but I still ended up getting started.
  • New York City, NY · Member since 2015 · 125 posts · 48 votes
    9y
    Originally posted by @Anthony Gayden:

    Ken Min

    I lost $1000 on my first 4 plex property I had under contract.

    I had an inspection and appraisal done which revealed huge problems. I backed out and lost the money I had spent on the inspection and appraisal.

    It sucked but I still ended up getting started.

     I wouldn't even consider that as "losing" $1,000.  Rather, you invested $1,000 in an inspection, and that investment paid off handsomely as you were able to walk away from a potential money pit.  You spent $1,000 in order save God knows how many tens or hundreds of thousands.  Sounds like a pretty good return to me.

  • Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    @Anthony Gayden You were smart on that one. You won, you came out ahead, you did the right thing. Sorry, that one wasn't Stupid Tax. ;-)

  • Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    @Anthony Gayden @Tyler Brown

    Here is a sample of what I am talking about:

    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.)

    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.

    @Anthony Gayden

  • San Antonio, TX · Member since 2017 · 81 posts · 31 votes
    9y

    Got the REI itch over 10 years ago after reading Rich Dad, Poor Dad, and signed up for the $8K Rich Dad Coaching program that boiled down to a bunch of Kiyosaki branded books and tapes and a weekly call telling me to find a local RE investor that is doing a bunch of deals and learn from them (wait, I thought that's what I paid the $8K for, was to learn from you). Then, while I was building my professional team like the coaching program instucted and was hungry to find a deal, any deal, the mortgage broker I had met said he had an off market deal. Seemed one of those beat up houses with a motivated seller like I saw on TV, so I executed a sales contract with him and paid an earnest money deposit directly to the seller. Turns out he had signed an earlier sales contract with his next door neighbor with a specific performance clause in it, and she filed a lis pendens to enforce the sale. I was out of luck. Soured me on trying again for a long time, and I've only recently started my education back up and tried to get into the game.

  • Software Developer · Mobile, AL · Member since 2016 · 42 posts · 29 votes
    9y

    I'm in the category of "never get started" stupid tax currently. I joined a REI group recently so hoping to get some good information from there.

    I think the biggest thing I don't know is what to look for in property yet. (What structural pitfalls to avoid, what signs that tell the location will not be ideal, etc.) I'm at the stage of trying to learn the market and what houses are going for. My goal is to house hack, ideally duplex/triplex but it seems those are rare in this area so I may settle for SFH.

  • Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    @Neil Sinha I can help you through that one. You have to make multiple offers of course and get back on the horse you were bucked off of. I would recommend though that if you choose to use a real estate agent (I don't use them myself) but if you do, there truly is the 80/20 rule. Only 20% are making a living at it and that's who you want working for you. I choose to buy "off market" since it gives me more profit and more control.

    @Ashley Cote Structurally, I avoid houses that have foundation problems. I avoid properties I wouldn't want to live in the location, (crime, high power wire over head, near a toxic zone, fronting a highway) I keep to 3 bed 2 bath that are in blue collar neighborhoods with everyday people. That is the biggest market. You can get on Redfin.com and put in the zip code you are interested in to see the listings for your area. If Redfin doesn't cover your area, try Realtor.com, Zillow.Com or Trulia.com

  • Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    I've been doing this for a while. Think I know what I'm doing. I own about 1000 units and seem to be buying something new all the time I just made a blunder that'll end up costing me 7 figures. Ouch. Moral: you're never done learning.
  • Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    @Cody L. Sorry to hear that, buddy. But you make a good point.

  • Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    I had a guy recently tell me he forgot that the IRS likes to get their share. That cost him a pretty penny and a couple of properties. He has the tax owed, fines and interest. Youch!

    Lesson: Calculate IRS costs into your equation

  • Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    Above I wrote, "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." Not only was that nice of me, but terribly Stupid, 

    In addition, I bought the house using a "Quit Claim Deed".

    This it turned out, was a disaster.

    I bought the house in March 2001 - he sued in Oct 2006 claiming he never signed the Quit Claim Deed. That is over 5 years later. It started a chain of events I will outline that shows how Stupid Tax adds up.

    Lesson: Really, really understand the differences between Warranty Deeds and Quit Claim Deeds

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