What about failure stories?

Question

I don't want to go into REI with a thought that I will plug into a windfall of money off the bat - i know there are several failure stories.  Please help educate me in what not to do! :)

thanks!

Jaime Kosofsky · Answer

THINGS YOU CAN DO TO BOTCH UP AN REO PURCHASE:

1. NOT READING :crying:  THE CONTRACT BEFORE SCHEDULING THE CONTRACT-
Many of the contracts control place of closing. I have seen many people get charged for having to cancel a closing and scheduling with sellers attorney. (BTW RESPA DOES NOT PREVENT THIS!)

2. NOT USING AN ATTORNEY NOT WELL VERSED IN FORECLOSURE= I have seen hundreds of closings where the buyer was utilizing an attorney or settlement agent who did not understand the concept of Insurable Title, or that Time is of the essence when it comes to deadlines. Those buyers got charged hundreds of dollars in late fees and perdiems. Ihave also seen buyers lose a deal because their attorney did not understand how the REO industry works.

3. TRYING TO MOVE INTO THE PROPERTY THE DAY OF CLOSING

The seller will not allow you to move in until the deal has funded. Depending on your state this can take minutes, to days.... I have seen many people unable to move in right away because their agent failed to warn them about this custom, or they did not read the contract.

Just remember to read your contract, and understand that if you want the property, you will surrender your rights and power in closing to the whims of the seller.... and the seller has good reason to control...

If you want some horror stories... drop me a line... I have seen just about everything! ---- REO practice can be very interesting!

Philip Rowe · Answer

I met a guy at the gym, and through a friend, who knew I was about to become a Realtor.  He was building a Hard Equity company and said if there was a case for foreclosures he would need a good Realtor to market the properties.  If I got in early at his company he would teach me everything about Real Estate and would help me get my feet wet closing deals.  
He talked about all the things he was a part of so I liked the experience he brought to the table.  He knows a lot about different businesses and I consider myself an entrepenuar so I liked the other avenues we could explore outside of Real Estate.  I had a customer whom I had a 5 year relationship that wanted to buy a $10 million house on Golden Beach.  Since I discussed EVERYTHING with my mentor I told him about the deal.  He offered to come when I showed the houses and I told him it wasn't necessary since the guy was an old friend.  Then he told me that if the guy needed financing he wanted to be there to answer those questions so unsuspectingly I brought him along.  Before I even had a contract on the house He had told my Broker that he wanted 1/3 of my commission.  Thats $100 K, and I thought it was rediculous, not to mention Illegal in FL to share commissions with someone who is not a licensed Realtor.  My customer had other business ventures to look at and after the disagreement with my "Mentor" about how much money he thought he "deserved" there was a lot of turmoil between us.

After a 2 year relationship as Mentor/Apprentice there wasn't a whole lot that he had done for me other than help me understand how to analyze a deal.   He ended up doing business behind my back with my customer, and somehow managed to Kill my Sale on top of that.  Mainly out of Spite he talked the guy out of buying the house saying "now is not the Time".  Now I am upset with my customer for not being Loyal and dispise my EX-Mentor for Stabbing me in the back.  He is doing $250 K a month in transactions as a Factoring company for this guy and is receiveing 5% per transaction.  This guy has paid most everyone who has brought him a deal and I would have at least expected a "finders Fee", or being able to invest in the Factoring because the ROI is so nice.  He took it all for himself and thus we have no relationship anymore.

Now I can credit him for teaching me the single most important lesson I have learned in this business...DON'T TRUST ANYONE.  And Put Everything on PAPER.

David Arney · Answer

Friend of mine read a few books and got really into real estate investing and wanted to flip a home. I naturally stayed close contact with him to see how things were going, then I drove to where he lived (4 hours away) to actually have a look at things, mainly b/c he wanted me to lend him the money to fix up a place.

He got a home for $30k, comps in the area were going for 80k, he said, and he made the deal as quickly as possible because his whole mentality was getting things as done as fast as lightning. I was worried he wasn't thinking about unexpected setbacks, dealing with contractors, and also, how to balance money vs. time. His loan on the house obv wasn't large, so I was afraid he would wind up spending thousands on contractors to try and get things done in a few weeks when he could take his time a little with fewer contractors and just pay out a few hundred in mortgage payments and save himself some money, i.e. make himself some money. Well I told him let's see how he does on his first home and if he does ok and learns a lot, i'll jump in on the next project.

Few weeks go by and the guy won't return my calls, won't contact me about the home or anything. I'm not stupid and started to guess maybe he was in over his head and was too embarrased to tell me he was making a lot of mistakes. Yep.

Nothing was going the way he wanted it too, starting from day 1. 3hrs before closing the lender tells him to double down on payment because he was risky. Well that cuts out cash he could have used fixing up the home. He already borrowed the max he could from the bank, given his credit (not good). The contractor didnt' do what he wanted him to do, I still don't even know exactly what went on, whether he was going slow or did poor work or what, but my friend said he physically threatened the contractor, and the guy walked out on him after that. So there he was, with a POS home and nobody willing to do the work for him and out of money to do anything anyways.

He ended up selling the home to another investor. I have no clue how much he lost on the home, but he certainly learned a lot, for instance he has no patience dealing with people.

He has since vowed not to return to real estate. I told him I'd be here when he wants to come back. Poor guy

Timothy W. · Answer

Don't feel too bad.  9 grand on advertising is a drop in the bucket.....  I once spent 3 grand in a week on full color newspaper advertising....lol  Got 1 call.

Will Barnett · Answer

The first deal I did was a huge mistake.  I bought 5 houses for 20k that were in the ghetto.  They already had tenants paying 400 monthly rent.  I thought at the time man what a deal the cash flow is sweet.

Of course most of the tenants never paid on time and some got months behind.  I had no property management experience at all so things got really out of hand.  I finally learned how to properly evict them and decided now I can put in good tenants that have been screened.

What I found out is that good tenants don't want to rent there.  I reduced rents siginificantly but still no go.  They sat vacant for months and were broken into and vandalized.  I got rid of them and lost about 10k overall.

The lesson learned is that while low end properties seem like cash flow gold, the management headache dealing with that type of tenant wasn't worth it, at least for me.

Account Closed · Answer

Neither did I!!  LOL!!  I sent out 16,000 postcards, had a ton of WE BUY HOUSES signs made up, car magnets, answering service, had somebody build me a website ($800 at the time!!), and a few other things I'm sure I wasted money on.

I read Ron Legrand's How to be a quick turn real estate millionaire, got fired up that I was going to be a millionaire overnight, convinced my step dad to front me the money, and then proceeded to have NO CLUE what the hell I was doing.  It's embarassing to think about it now, but that's what happened.  I actually wrote an e book about it that is free so pm me your email if you want me to send it to you!  :)

Jason Schmidt · Answer

whoa - $9k in advertsing?  Advertising what?  I don't understand :)

Account Closed · Answer

I'm following up Tim again with a "Nice post Tim!".  I jumped in too early, I believed I was going to get rich quick, I spent $9,000 in advertising, got plenty of leads and had no idea what to do with them, I could go on.  All those "failures" taught me a lot...

Timothy W. · Answer

Don't fail.   :wink:

Seriously - uhh....how did I fail....well, which one?  lol  One of them was marrying the wrong person.  F&*#ed things up big time for about a decade.  Second, I believed a REIA leader who had claims of deca-millionairedom...when in fact he was nothing more than a real estate agent who was full of shhhhh....  Third, I didn't research a town well enough and bought some property too high - luckily it was on lease options and I just gave it back to the seller.  Yeah, lost the option fee but it was much less than I would have lost actually buying it.  Then there's the big real estate conference I tried to do.  The event was an overall success though I failed in a partnership I made with a company that did not fulfill their end of the marketing agreement.  Taught me the value of enforcing j.v. arrangements.

Yeah, I figure I have anywhere from 300k-400k invested in my failures which is actually a pretty low figure.  A good friend of mine who's a much more successful investor than me has about 4 million invested in his failures.

Tim