First time Flop. Very Discouraged

Buying & Selling Real Estate
6yFollow

First time Flop. Very Discouraged

Renata Johnson
Member since 2019 · 36 posts · 15 votes


I'm a 32 year LPN that is just getting into real estate. Before joining Bigger Pockets, I signed a rent to own contract on what I thought I would be a great investment. We are living in it as we rehab. The landlord charged no deposit since we were doing the repairs ourselves. GREAT! We have been rehabbing and I have started using Bigger Pockets calculators. I needed numbers so I looked at my contract and it said 240 principle 240 interest 240 tax and 8% interest but no total price to buy. I looked up the tax assessment as it said 32285. When I asked him for a total price he said 79500 but if I got a loan he'll sale for 60000. I was expected about 50000 for him to make a profit but almost 80000?! I know he has to make money but the house wasn't in the best condition and still needs a lot of work. I have the option to sublet after 2 years but rent is 825 and Zillow has a estimate of 695/mo so even If I charged 900 I only make 75 a month and it maybe hard to charge that amount. I looked at comps and there is one place charging 900 on my street but it beautiful and required a lot of upgrades. Also, he makes me feel very uneducated. I've explained to him that I am using this an investment property. He proceeds to tell me about how impossible it is too get a loan and his way is the best option for me but IF I can get it, the price is 60000. Long story I know I made a bad decision. I am still able to leave the contract without penalty and haven't spent too much on rehab but Ill lose that little bit of money. I'm just a little discourage. Looking for advice, success stories, or anything to keep motivated. About to read a few forums as inspiration

0Reply
39 views

Most Popular Reply

Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
6y

How did you even get into this deal? There are so many errors I don't even know how to configure a way to explain why. Walk away and start over. Whatever you are doing here is all wrong. Was there an agent involved? Did you have an attorney? Have you done title on the property? An inexperienced off-market buyer dealing direct with a seller is a disaster. Nothing makes sense on the numbers end of what you said.

[email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
Zen and the Art of Real Estate Investing59 Reviews
WebsiteView Page
10Reply
See this reply in the discussion

44 Replies

Jump to latestLatest
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    How did you even get into this deal? There are so many errors I don't even know how to configure a way to explain why. Walk away and start over. Whatever you are doing here is all wrong. Was there an agent involved? Did you have an attorney? Have you done title on the property? An inexperienced off-market buyer dealing direct with a seller is a disaster. Nothing makes sense on the numbers end of what you said.

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
    Zen and the Art of Real Estate Investing59 Reviews
    WebsiteView Page
    10Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y

    Jonathan. Everything was wrong. Like I said, it was before really investing in bigger pockets. A friend found the listing and referred it to me so i wouldn't use my credit. Ive had problems with this man since day 2. I'm just now reaching out to an attorney and I have an agent as well. The principle only add up to 57900. Numbers are way off. If it wasnt for the calculators and this page, I would of never thought about it. I'll blame it on lack of education. Never again. Def know it was all wrong. Now just looking to restart and trying to stay motivated. I dedicate at least 2 hr a day for bigger pockets and about to upgrade to pro even though not ready to buy quite yet. Just trying to stay motivated and no one in my family or fb groups understand this stuff so venting to like minded ppl to stay positive.

    7Reply
  • Account Closed
    Investor · Columbus, OH · Member since 2017 · 861 posts · 1k+ votes
    6y
    Originally posted by @Renata Johnson:

    Jonathan. Everything was wrong. Like I said, it was before really investing in bigger pockets. A friend found the listing and referred it to me so i wouldn't use my credit. Ive had problems with this man since day 2. I'm just now reaching out to an attorney and I have an agent as well. The principle only add up to 57900. Numbers are way off. If it wasnt for the calculators and this page, I would of never thought about it. I'll blame it on lack of education. Never again. Def know it was all wrong. Now just looking to restart and trying to stay motivated. I dedicate at least 2 hr a day for bigger pockets and about to upgrade to pro even though not ready to buy quite yet. Just trying to stay motivated and no one in my family or fb groups understand this stuff so venting to like minded ppl to stay positive.

    You'll see other posters here saying they just spent 30k on an education from a "guru"...  Not sure what all this will cost you but I suspect this deal will teach you more lessons than they will ever learn, hopefully for cheaper! 

    Save the money on the "pro" subscription and spend it on books, there are a bunch of good ones. I admit I can't understand the numbers in your post, but this may still be a good deal. A seller-financed no-money-down deal may be something you can BRRRR out of, but you also may realize you need to walk away before you lose any more money. Either way this is going to be a good hands-on lesson you won't forget!

    Sometimes in real estate its all about the hustle, and you're already ahead of the people who get analysis paralysis. Maybe a little too far ahead! Now you just have to get a better grasp on the analysis part and honestly that's not that difficult.  

    Otherwise, ignore tax assessment numbers, they are almost always too low.  Zillow valuations are automated and basically a computerized guess. Manually running comps (another learned skill) is a better way to estimate market value, or can spend $350 or so on an appraiser.  Rental amounts are also not always apples-to-apples, make sure you are comparing accurately, as per square feet, bedrooms/bathrooms, driveways, storage space, etc. 

    8Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y
    Nicky Reader, Thank you so much for the advice! I actually thought about the BRRR method after posting so I will definitely be researching into it. Ive been using here, YouTube, Pinterest , anything I can get my hands on. The numbers I gave are exactly whats in my contract other than the total price and Zillow. But I will be sitting down re-reviewing the information. Thank you for taking the time out to respond. I was getting slightly frustrated but I'm starting to see there MAY be a silver lining.
    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    Talk to a bank and find out if you can get a loan-that is your best bet.

    0Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y
    Originally posted by @Theresa Harris:

    Talk to a bank and find out if you can get a loan-that is your best bet. 

    Thank you! I've already been researching it. That's just confirmation I should explore the option more. Thank you for taking the time to respond.

    0Reply
  • Joe Cassandra
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y

    Sounds like you're not out much money, especially since he didn't take a deposit. He basically was private-lending to you while you got together the rehab and selling it. 

    Never heard anyone do that...but I guess it's not completely unfair. But weird he didn't disclose that to you...andn weird you wouldn't ask for the what the option price is when you're ready to exercise it. 

    But, I'd just chalk it up to learning and get out.

    2Reply
  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    6y

    Experience is the best teacher isn't it? I would cut your loses and start over, accepting what you did was a learning lesson and that unfortunately is the cost of doing business in the circumstance. Dont be so quick to jump into a deal without having thorough knowledge, unfortunately you didnt know what you didnt know but it's not too late for a restart. 

    [email protected]
    The Elle Group5154 Reviews
    WebsiteView Page
    0Reply
  • Ken Hobbick
    Investor · Parker, CO · Member since 2014 · 42 posts · 44 votes
    6y

    @Renata Johnson Great news is your first investment experiences is usually the worst, If you can still get out of this with little loss, that would be the best bet. What state are you in? He is right about the difficulty of finding a lender who would give you a loan on it. You mentioned this was a rent to own contract and not a contract for deed? You would be wanting a CFD which grants more rights such as ability to rehab the property and spells all sales figures in contract. Hit the reset button, find a CFD and have a lawyer look it over, there is significant variations in CFD depending on state, the lawyer would be well worth the money to look it over.

    0Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y
    Originally posted by @Joe Cassandra:

    Sounds like you're not out much money, especially since he didn't take a deposit. He basically was private-lending to you while you got together the rehab and selling it. 

    Never heard anyone do that...but I guess it's not completely unfair. But weird he didn't disclose that to you...andn weird you wouldn't ask for the what the option price is when you're ready to exercise it. 

    But, I'd just chalk it up to learning and get out. 

    You are right. It was weird of me not to ask. My husband dealt with it d\t at the time i was dealing with the death of my brother so i wasnt focused but we didnt want to miss out. I actually expressed the same concerns to him. We scheduled to talk today about some better options. He let me know he didnt think I was genuinely serious. Now that he sees progress on the house and I'm researching the property, He's helping me learn how-to maximize on the rent and possibly revisiting the contract so I wouldn't get a loan. Im in georgia.

    2Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y

    I learned 2 lessons. Even if I don't do this deal, it is technically my first house. So I need to refer to myself as a real estate investor. And that you have to make people take you seriously. Thank you everyone for all the input!

    1Reply
  • Mike McCarthy
    Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    6y

    I didn’t quite follow all the details, but remember to never trust Zillow estimate. they are good for certain things, but can be wildly off too. It’s important to know your market.

    Same with tax assessments. Important for the taxes you pay, but usually unimportant for the actual value of the house.

    Regardless, good luck!

    0Reply
  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    6y

    Cheap lesson if you didn’t spend to much money. Take the nearest exit out of that deal. 

    0Reply
  • Mark Cruse
    Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    I'm not exactly sure what the 240, 230,240 is. Either way, it just looks like a bad deal. There are very few instances of anyone in here who has never been in a bad deal. It happens all the time. Really, if one project going wrong will bring you down it may not be the business for you. If it is, regroup and start over. There are dozens of ways to get experience and win in this business. 

    0Reply
  • Quincy Lockett
    South Holland, IL · Member since 2017 · 374 posts · 432 votes
    6y

    @Renata Johnson

    Investors like him are actually doing you a favor by getting you into a home because you would ordinarily not get that opportunity. Obviously your credit is not in a condition to get you a mortgage from a bank. Lease to Owns are good products for people with bad credit to get in the game but you should know all of the options before signing such a deal.

    The great thing about this is you can walk away and find another Lease to Own deal but be thorough with the contract wording. And like the previous commenter said, do thorough comps on sales and rent numbers.

    0Reply
  • Patricia Steiner
    Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
    6y

    Win some. Learn some.

    And, referring to yourself as an investor will not make others take you seriously. A whole lot of people throw that around and when they do, I know right off that they're "all hat, no cattle" - as they say in Texas. If you want to be taken seriously, KNOW the business. Know the numbers - don't ever trust someone to "give" you the numbers or tell you "it's a great deal."  You'll decide those.

    I hope you'll look at this first deal as a learning experience and actually learn from it. Then you'll be ready for the next deal - the real one, the one that will make you proud.  And, give yourself credit for actually taking the risk.  How many people post on BP that they've been "thinking" about buying their first property for years but can't get over their anxiety?  I would rather take a chance and lose than to not take a risk at all.

    To next time...

    4Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y
    Originally posted by @Quincy Lockett:

    @Renata Johnson

    Investors like him are actually doing you a favor by getting you into a home because you would ordinarily not get that opportunity. Obviously your credit is not in a condition to get you a mortgage from a bank. Lease to Owns are good products for people with bad credit to get in the game but you should know all of the options before signing such a deal.

    The great thing about this is you can walk away and find another Lease to Own deal but be thorough with the contract wording. And like the previous commenter said, do thorough comps on sales and rent numbers.

    That's exactly why I got it. Because I thought it was a great opportunity. But This house is no where near 80000 even after upgrades. The details I gave were just quick details but comps in this area is low. Many people gave me some ideas how I may still make it work. Even if its only a very small profit, I learned a very valuable lesson. 

    0Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y
    Originally posted by @Patricia Steiner:

    Win some. Learn some.

    And, referring to yourself as an investor will not make others take you seriously. A whole lot of people throw that around and when they do, I know right off that they're "all hat, no cattle" - as they say in Texas. If you want to be taken seriously, KNOW the business. Know the numbers - don't ever trust someone to "give" you the numbers or tell you "it's a great deal."  You'll decide those.

    I hope you'll look at this first deal as a learning experience and actually learn from it. Then you'll be ready for the next deal - the real one, the one that will make you proud.  And, give yourself credit for actually taking the risk.  How many people post on BP that they've been "thinking" about buying their first property for years but can't get over their anxiety?  I would rather take a chance and lose than to not take a risk at all.

    To next time...

     Thank you for the words of encouragement. Referring as investor allow will not make people take me seriously. What I did learn is that being prepared with numbers and education does. I still have a lot more education and experience to go. But I love your statement about taking risk. I was just thinking about it. Even if it doesn't profit, it gives me shows me that I've decided this is what to do and took action. Now, I just need to refine and change what I did wrong and put into action.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    if your not in too deep just walk away.. its a very common for investors to Jack up the price of homes in exchange for easy owner financing.. so it could be just a cheap lesson at this point...
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
  • Todd Groom
    Rental Property Investor · Tampa, FL · Member since 2020 · 77 posts · 42 votes
    6y

    @Renata Johnson I may have some disagree but Zillow is the worst when it comes to anything numbers. There's two things you can do to check real rental value. Go to Rentometer's website run a rent search for that address. Second is goto HUD and search the zip code and see what their numbers are. That's your expected rent. Or what Zillow usually says.

    And as far as loosing out I don’t see it. You said you could possible turn a $75 profit per unit. Keyword there is profit not loss. I’m sure others will add more to this but as long as someone else is making that house payment and nothing out of your pocket I see it as a win.

    0Reply
  • Steven Ko
    Sunnyvale, CA · Member since 2018 · 191 posts · 178 votes
    6y

    @Renata Johnson this sounds like a scam. Your much better off using a local bank or just saving up the money your self. I feel like they rent to own to people who they know won’t be able to make payments long term. You just paid him an inflated rent rate. The best thing to do is walk away as soon as possible. It sucks but he expects you to not be able to make the payments in a year or two, or he sells the house at an expensive price. It’s a win win for him and a lose lose for you.

    2Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y
    Originally posted by @Todd Groom:

    @Renata Johnson I may have some disagree but Zillow is the worst when it comes to anything numbers. There's two things you can do to check real rental value. Go to Rentometer's website run a rent search for that address. Second is goto HUD and search the zip code and see what their numbers are. That's your expected rent. Or what Zillow usually says.

    And as far as loosing out I don’t see it. You said you could possible turn a $75 profit per unit. Keyword there is profit not loss. I’m sure others will add more to this but as long as someone else is making that house payment and nothing out of your pocket I see it as a win.

     Awesome information! Thank you!

    0Reply
  • Renata Johnson
    OP
    Member since 2019 · 36 posts · 15 votes
    6y
    Originally posted by @Steven Ko:

    @Renata Johnson this sounds like a scam. Your much better off using a local bank or just saving up the money your self. I feel like they rent to own to people who they know won’t be able to make payments long term. You just paid him an inflated rent rate. The best thing to do is walk away as soon as possible. It sucks but he expects you to not be able to make the payments in a year or two, or he sells the house at an expensive price. It’s a win win for him and a lose lose for you.

     That's what I was thinking.

    0Reply
  • Mark Cruse
    Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    In so many instances they rent to own person after person, waiting for a default so they can keep all the money and start over. In this case, if you paid for months, made thousands of dollars with repairs it would be a great deal for him if he foreclosed on the agreement. 

    0Reply
  • Todd Groom
    Rental Property Investor · Tampa, FL · Member since 2020 · 77 posts · 42 votes
    6y

    I agree with how this scam works. I just purchased a rent to own home but paid cash. the seller was done doing the rent to own. Each person came in paid their down payment plus the rent and fixed up the house little by little. All of them defaulting and turning the house back over each time. I can only imagine how much money he made. This is a way to make money outside of renting it and a lot of people do well. Personally I have a conscious and wouldn't be able to take advantage f people like that.  

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free