Seeking “Biggest Mistake/Lessons Learned” Stories for BP Magazine

64 Replies

Hello BP Investors!

I am looking for stories about your biggest real estate mistake, and what you learned from it, for BiggerPockets Wealth Magazine. If selected, your story, name and company will be featured in the magazine.

Stories will include details about the property and project, the types of challenges it created and (knowing what you know now), what you would do differently. Stories will be accompanied by high-quality images (of the investor and/or project).

If you have an interesting story to share that has some great lessons for other investors, please post a few short details here on the forum, PM me, or email me directly at melanie @ biggerpockets.com. If it looks like it could work for the magazine, I’ll contact you for more information and then possibly a more in-depth interview.

Looking forward to hearing your stories!

Melanie Stephens

melanie @ biggerpockets.com

@Melanie Stephens

One of my recent investments. I purchased a house in Hampton Virginia, an out of state deal. My goal (was/is) to build a Investment business investing across the Country. I connected with a fellow BP member. House details, I purchased in 426 Chapel St Hampton Virginia, 23669. Purchase price was $65,000. Was planning on reselling at $160,000. I met the realtor that I hired and he showed me properties in January. I did my due diligence as far as area, and type of house and got a good feel of it, so I decided to move forward. Looking back, my due diligence worked, I purchased for $65,000 and sold for $159,900. My budget according to the contractor that I hired sent me a bid of $45,000 which in my experience where I have successfully invest seemed correct. Timeline, 60 days for rehab. Fast forward to the first day of work, contractor requested $10,000 for labor and material for a roof. I gave him $5,000. He finished the roof and started demo on the interior, so I sent another $5,000. My confidence in him was quickly growing with how fast they were moving. He requested another $10,000 so I sent him more money, there he started some framing, electrical, plumbing and drywall. He asked for another $5,000 for kitchen cabinets but and windows. (I bought the material, he mentioned he would deduct from what I owed him). I asked him to send me photos and updates, he rarely sent any photos and it took 3 days at times for him to get back with me. I knew in my head I gave him close to $10,000 to much already. At this point of the project we were hitting 3 months. I grew nervous and he kept asking for more money. I told him to work on the flooring before I send more, he acknowledged and said okay. Two days later he asks for money to pay his guys so I requested photos, again it took about a week to receive any. At this point we hit 5 months and my loan fees were growing. Fast forward I called for a construction draw, my lender gave me a lot less than requested. I then asked for photos of my project because my contractor rarely sent me any. Once I received the photos, I saw that only 30% of the work that I had paid for was completed. The contractor was getting further behind and decided to quit taking my phone calls. For about a month my project was sitting trying to find another contractor. Fast forward from this point, I hired another contractor who ended up more expensive than their original bid to me of $40,000 to finish the job. A lot of add ons and so called issues that came up. Job was finally complete and it took a total of 8 full months to complete (well over my 60 day timeline). The house due to horrible workmanship according to a lot of realtors in the area, the house took 3 months to sell. All in all I lost a little over $30,000 with extra time that wasn't anticipated and well over budget. What I learned was first get a home inspection not matter the cost so I know exactly the issues so that I do not have a contractor telling more issues came up. Hire the right contractor, interview interview interview. DO NOT PAY FOR WORK just because the contractor has to pay his guys. So many things I would change. Looking at the deal now, if everything went smooth with my contractor, the deal itself would have made money. I'm planning on moving forward in the future however I would like to organize and plan a lot better than I did.

Apologies if the story is confusing or choppy.

my biggest mistake was buying off the MLS, also had a lender that switched my loan program at the last minute and tried to raise my interest rate 2%+

ultimately, I am responsible

@Vincent Morales this is actually VERY helpful. Moral of the story: be careful with your contractor. I am getting ready to buy a duplex to turn into a triplex. I thought any ol' contractor would do because they seem like they know what to do before they start. Now I know to do my research before hiring. Thank you! Your story probably just saved me a bunch of time and money!

Thanks so much for your replies everyone. I am learning a lot from these posts and the stories that others have emailed to me, and it looks others are, as well!

Please keep the stories coming - would love to hear more! Feel free to post a few details here, PM me, or you can email me directly at melanie @ biggerpockets.com.

On my first multi-family deal I didn't walk the property prior to the closing and when I got the keys to the property after closing I realized a few things weren't done the seller had agreed to do that were listed in the final contract. 

A few things weren't done: windows were supposed to be caulked, the front hand rail was supposed to be secured so it didn't wobble, the two vacant rentals were not broom ready and were a gross mess, etc.

I was ignorant to the fact that I needed to verify repairs were completed properly prior to closing. I thought my RE attorney would tell me these things and I learned the hard way. 

I called my RE attorney and he told me since the closing had already occurred I was pretty much out of luck.

He said I could attempt to sue the seller but I likely wouldn't win.

I took it as an important lesson learned and now I ALWAYS view a property a few days prior to closing to make certain all work has been correctly completed. I didn't use that RE attorney again and took it as a lesson learned.

My biggest mistake was representing myself in the purchase of my first 2-family! I am an agent in St. Louis and decided to represent myself in the negotiations with the sellers. I had too many emotions attached to this purchase. It was my first deal, but in the past have represented 20+ clients in their investment acquisitions. I thought I had it under control. But, each time the seller countered the price I increased my offer accordingly, to match their counter. They raised it again... GO FIGURE! I made it too easy for them. In the end, I should have contracted another realtor who could keep the emotions out of the deal, like I do each time I represent a client. I still acquired the property at a significant discount, but the discount could have been so much better! Lesson learned!

@Melanie Stephens

Purchasing a massive 115 year old brick building with poor maintenance and going over my budget by almost double.

Back story: I house hacked a 2 flat 4 years ago and it's cashflowing over $1500. I pulled savings and a HELOC out to buy a new building. We fell in love (first mistake) with a beautiful 2 flat with an unfinished basement on the Northside of Chicago. The numbers worked at a $70k budget. Most of the money was set aside for improvements including a new unit in the basement and new HVAC throughout. We knew we had some repairs to do but I only set aside 10-15% of the budget.

1 month in and I am already $40k over budget. The brick on the front of the house needed to be replaced and the plumbing was rotting apart.

To make matters worse I got over confident and rented out my current unit for the first of July. Just under 2 weeks left to get one unit inhabitable and we still have walls opened up, the HVAC half way done and the front of the house in pieces. I still believe we can get through it but we made a lot of mistakes on the way.

Biggest lessons learned:

Get the trades people out here to take a look and quote. The GC and inspector can identify issues but we're not accurate on their pricing.

When dealing with older buildings set aside more for major issues. On my last place we got really lucky and didn't hit anything. This time we were not.

Stick with it when things go south. Even with the added budget I still think I can get most of the money out in a brrrr and our ROI will be okay

My biggest mistake wasn't a property, but an attempt at becoming a full-time agent that failed miserably about two years ago. If you're interested in that sort of story, I'de be happy to provide details.

$1200 Dollar Mistake....My first deal... I don't know how I ran the #'s so wrong but I was off by $100k on comps after giving $1k EMD and $200 to the seller... I sent this "Deal" to multiple buyers only to have another eay more experienced Wholesaler run the #'s and find my mistake 15 days After signing the contract...I was WAY OFF and locked into the deal way overpriced.. I'm sure the realtor knew but also knew I was inexperienced, probably why she added the $1k EMD paid within 3days... I failed myself but learnt to not only run the #'s multiple times but to use my own contracts that are less confusing...



@Melanie Stephens We had a good sized portfolio in 2006. When the market crashed we realized a few of our properties were in towns where the local economy had only 1-2 sources of employment. When those businesses closed up shop, the (very) local economy crashed and there was no need for housing.  We learned a lot about investing in areas with diverse businesses, consistent demand for housing and strong underlying economic factors!  

Originally posted by @Vincent Morales :

@Melanie Stephens

One of my recent investments. I purchased a house in Hampton Virginia, an out of state deal. My goal (was/is) to build a Investment business investing across the Country. I connected with a fellow BP member. House details, I purchased in 426 Chapel St Hampton Virginia, 23669. Purchase price was $65,000. Was planning on reselling at $160,000. I met the realtor that I hired and he showed me properties in January. I did my due diligence as far as area, and type of house and got a good feel of it, so I decided to move forward. Looking back, my due diligence worked, I purchased for $65,000 and sold for $159,900. My budget according to the contractor that I hired sent me a bid of $45,000 which in my experience where I have successfully invest seemed correct. Timeline, 60 days for rehab. Fast forward to the first day of work, contractor requested $10,000 for labor and material for a roof. I gave him $5,000. He finished the roof and started demo on the interior, so I sent another $5,000. My confidence in him was quickly growing with how fast they were moving. He requested another $10,000 so I sent him more money, there he started some framing, electrical, plumbing and drywall. He asked for another $5,000 for kitchen cabinets but and windows. (I bought the material, he mentioned he would deduct from what I owed him). I asked him to send me photos and updates, he rarely sent any photos and it took 3 days at times for him to get back with me. I knew in my head I gave him close to $10,000 to much already. At this point of the project we were hitting 3 months. I grew nervous and he kept asking for more money. I told him to work on the flooring before I send more, he acknowledged and said okay. Two days later he asks for money to pay his guys so I requested photos, again it took about a week to receive any. At this point we hit 5 months and my loan fees were growing. Fast forward I called for a construction draw, my lender gave me a lot less than requested. I then asked for photos of my project because my contractor rarely sent me any. Once I received the photos, I saw that only 30% of the work that I had paid for was completed. The contractor was getting further behind and decided to quit taking my phone calls. For about a month my project was sitting trying to find another contractor. Fast forward from this point, I hired another contractor who ended up more expensive than their original bid to me of $40,000 to finish the job. A lot of add ons and so called issues that came up. Job was finally complete and it took a total of 8 full months to complete (well over my 60 day timeline). The house due to horrible workmanship according to a lot of realtors in the area, the house took 3 months to sell. All in all I lost a little over $30,000 with extra time that wasn't anticipated and well over budget. What I learned was first get a home inspection not matter the cost so I know exactly the issues so that I do not have a contractor telling more issues came up. Hire the right contractor, interview interview interview. DO NOT PAY FOR WORK just because the contractor has to pay his guys. So many things I would change. Looking at the deal now, if everything went smooth with my contractor, the deal itself would have made money. I'm planning on moving forward in the future however I would like to organize and plan a lot better than I did.

Apologies if the story is confusing or choppy.

@Shea Knox

 

Not my mistake, but a rehabber client's disaster.

I helped him to buy a dilapidated 2,000 sq ft ranch in a very upscale town.  It was a borderline tear down, but the bones seemed good.  I ran the ARV comps and so did he.  We both kept coming up with a $600,000 ARV.

The huge mistake was that he let his carpenter (!!!!) decide on the floor plan.  The house had 4 small beds and an enormous 750 sq ft great room in the middle, which was an incredible waste of space.

The master bed was too small for a king size bed and even a queen would be tight.  

The only closets were the tiny, original 1920's design from when the house was built.  Maybe 20" deep and 4 feet wide.  There was no other storage in the house.

The basement wasn't full height, so couldn't be finished.  The interior access was through a hatch in the kitchen - and it was as steep as those you see in a submarine.  It was damn near vertical. 

The attic space had blown-in cellulose that was deeper than the rafters, so you couldn't put a floor in without compressing the insulation and losing R value.

What he should have done was to go out to look at other $600K homes in the area to get an idea of floor plans, finishes and materials.  What we got in the end was a functionally obsolete floor plan, with un-level floors and $300K finishes.  He should have paid more attention to detail and leveled the new hardwood floors - you could actually see gaps between the floor and mop boards.

In the end, it was utter disaster and it absolutely broke my heart.  The best offer we got was $425,000 and he was so upside down that he had to walk away and declare bankruptcy.  I can't describe how badly I felt for him.

For me, I ran SIXTEEN open houses for him, spent a ton of marketing money on it and put over 3,000 miles on my car trying to get it sold, so I felt badly for me too - but he lost his shirt.  It was just awful.

Lessons learned?  Encourage first-time flippers to do their homework.  Look at what a similar home should look like in the price range you're aiming for.  Look at every aspect - fit and finish.  Appliances, flooring and the little features, like a pot filler by the stove and a glassed in shower with a fancy rain shower head in the master bath (instead of a tub and shower you would see in a Ramada Inn).  And above all, take the responsibility to make your own decisions. 

Carpenters are good at carpentry, not interior design.

Biggest mistake? That's easy. I used commercial lenders far too willingly simply because "they are easier." I should have kept each property in my personal name, loaded up on insurance, and used a normal residential lender. Sure, the process and underwriting takes longer, but the total interest payment over the course of the loan is a huge amount more. Plus, most commercial lenders are morons, so the process is actually quite difficult, and then of course there are the mortgage servicers to deal with. These geniuses can't count the number of fingers on their own hands.

Fortunately this is a mistake that's going through rectification.  


Bought an historic building in a great area. Great purchase, great price. That's where the good ends. Big 3 bedroom, side by side duplex. A few of the walls looked pretty rough. I decided to have all the plaster and lathe ripped out. Whoa momma, big mistake. The price of repair just went through the roof. I definitely should have just had the rough looking walls repaired. That was a huge learning experience. To this day it still sits vacant with a stop work order hanging in the window. I had to pay a 6k fine for not pulling permits. I don't sweat it though, cuz I could easy sell it as is for about 5 times what I bought it for. One of these days I'll decide to remodel it, and it will be a gem. Someday.

My first investment biggest mistake: buying a place with an inherited tenant. Bought a SFH with a separate carriage house in back then asked the tenant to move out because I had plans to move in and renovate that unit while renting out the SFH. Turned out to be a huge hassle, the tenant did pay for the two months they were there but the stress of having them leave was not something I would do again without more info on the tenant especially during the COVID19 pandemic.

Like @Patrick Britton , I didn't know when we started that HUD allowed each person to have 11 Freddie/Fannie loans. We started as investors as flippers and wholesalers using bank credit lines. The banks made it FAR too easy to roll a rental off the credit line, onto a commercial 5 year note with 20 year amortization. By the time we learned the Freddie Fannie rule, we had too many properties to qualify. Now I tell all new investors to start financing with their 30 year fixed loans until they max out, and then move to other loan types.

@Melanie Stephens

That one time I didn’t scope the sewer...

1950’s house and I knew there was potential for orangburg pipe or something, but decided to skip the scope. After all it was only 20’ of line to the street to replace if need... factored that into my my budget and moved on with the sale. when it was time to connect the adu to the sewer the neighbor saw and said, “hey you can’t connect anything else because that line goes to my house and we have issues with clogs already” She contacted the city immediately, red carded the job. We got in touch to discuss what on Earth she was talking about and turns out our sewer line simply connected to hers...

Long story short - after discovering there was no sewer line even close to our house to connect to we got an easement from another Neighbor - paid her about 5k plus a yard makeover... took an extra 6 months to sort it all out. Could have been much worse. Could have ended up with a house with no sewer connection. Got lucky.

Just scope the damn sewer line EVERY time.

I made the mistake of trusting a contractor in San Antonio, TX. Paid him several thousands of dollars for work completed that was done subpar. I lost my entire investment and my livelihood. I will now obtain contracts for all vendors and vett those vendors extensively. I now am trying to start fresh from the beginning after being forced to file BK.

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