Seeking “Biggest Mistake/Lessons Learned” Stories for BP Magazine
Melanie StephensPro Member
Investor · Tabernash, CO · Member since 2012 · 11 posts · 237 votesHello 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
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.
We've got a good one for you, our first deal (just about to close) and it's been a wild ride.
This was a flip house we found off the MLS, listed for $50k, we had a 45k offer accepted, then negotiated down to $41,500 after a termite inspection (win). MLS listed it at 1650 sf, and we estimated ARV to be 170-180k. Expected total rehab was 75k, which would put us at about 116,500 for cost. We financed this through a small local bank, which required 15% down and a 1% loan origination fee. So we were expecting to make between 35-45k on this deal (after realtor fees, etc.), assuming everything went as planned...
To keep it short I'll just highlight our lessons learned, if you would like more details, feel free to contact me!
Mistake #1: We trusted that the contractor had our best interests at heart.
--We explained to him that this was our first deal, and we were going to do more, hinting at future business. We made the mistake of using his contract, without having an attorney review it (big mistake). In addition, while we did get a detailed scope of work, we never got a cost breakout of labor, materials and our choices (paint, vanities, cabinets, etc) which led to number changes mid deal, etc. that made it very stressful and ugly.
Lesson Learned: Trust but verify: We should have had our own contract, or at the least had our attorney review it, this would have highlighted several flaws in his contract, the biggest of which was a lack of payment schedule, which put us at his whim of when he gets paid. Never assume a contractor cares about you or your project: we initially thought he would want both of us to succeed, so we could do this again. Long story short, he ran over budget and took it out on us by changing our allowances for items, e.g. vanity was originally $800 then magically changed to a $500 limit. These both led to hostilities and ultimately (in addition to quality/time of work issues-2 months behind) led to us firing him before completion.
Mistake #2: We budgeted room for surprises, but didn't do enough digging to find these before we started the job.
--I could make a laundry list of surprises, but the biggest of which included: New Septic tank required ($5500 job) Entire new plumbing required (100% new plumbing for about $3400), electrical panel needed to be replaced & grounded ($2800 job), gas line for furnace needed replacing (roughly $800), flooring beneath bathroom needed replacing (we swapped a built in shower/tub for a fiberglass insert to save $)
Lesson Learned: If something doesn't look right, it probably isn't. We trusted that because the inspector didn't say the septic needed replacing (he did caution us that he couldn't inspect inside to know for sure), that it was fine. We trusted that because the electrical worked, it was fine. We trusted that a small leak under the sink would be a minor repair. These all were signs of much bigger issues. Demo before doing a detailed scope of work. We learned this from a BP Podcast after the fact, and will implement in in future deals, contract the demo first, then go back through and do the detailed scope of work; that way there are no surprises after you have a contract to do the work which require more changes, negotiations, delays, etc.
Mistake #3 We trusted the MLS square footage
--This was the BIGGEST mistake we made. MLS listed it at 1650', when we listed it to sell with our realtor, he pointed out that it was actually not 1650, because that # included the 1 car garage. Subtract about 220' and we lost 20k in our ARV just like that.
Lesson Learned: Verify all measurements before you close on the house, we should have caught this and re-negotiated the price down lower. This eliminated nearly all of our profit, a simple mistake we should have caught on the front end.
Mistake #4: We assumed the contractor was reasonable and not confrontational
--After we fired the contractor, we hired out the items he did not finish, or did sub-par. We thought it would be easy to let him know we would give him his final check of what we felt he owed him and be done, even our attorney said that they just accept their check and move on. This was not even close to what happened. I'll skip the detail here, but again, long story short... we are currently suing him to remove a fraudulent lien on the property which he claimed the $ value at nearly 3x what was actually owed since we fired him, and almost 2x what was contractually listed at.
Lesson Learned: Always keep detailed records of everything you discuss. Luckily we did keep pretty good records, but a lot was discussed in person that was never recorded. I'd highly recommend and what we will do in the future, is if discussing items in person, write out what was agreed upon and have both parties sign it. Always use a Lien Waiver with every payment, had we done this throughout the process, this would have prevented him from ever filing a lien for anything more that what was contractually owed (legally at least) and made the process significantly easier.
These are the biggest mistakes, we made a personal list of lessons learned for this whole process that was nearly a mile long. We felt like we got a very difficult deal as deal #1, but at the end of the day we are going to still make some profit and get paid for all of our education that this deal gave to us. We have a huge amount of confidence going forward, as this was a full gut job gone wrong in as many ways as possible almost.
We have several pictures of before & after if desired, please let me know if you would like any more detail!
Thanks!
-Kyle & Tanya Jones
@Klye Jones wow..... I can express how grateful I am for you’re transparency thru your struggles on your first deal. I am currently in the planning and research faze and looking for a deal if one. Sorry that you had to experience it but know from a fellow BP member you have tought me so much
Absolutely, happy to share! Don't let our horror story keep you out of the game at all, end result is we are eager to keep going. They say a lot of people give up after a deal like ours, but the way we look at it, it can only get easier. We made some money at the end of the day, and gained so much knowledge that can't be learned in a book, or a $8000 seminar. Keep learning and don't wait too long to jump in!
@klye jones thank you so much for the motivational words and yes, I am eager to jump in. You can only read so many books and listen to so many podcast.cant wait to hear the comeback story !
@Vernon Watts let me get this straight: You established some kind of representative relationship with the seller and kept trying to convince the owner to sell the house for less than he knew it was worth?
And in order to accomplish your goal you lied to him outright?
Then when a (presumably licensed) buyers broker came with a legitimate and higher offer and included the normal commission you think it’s scheming on their part?
Hmmm...if I have the facts right I don’t think I want you in the “family”. My apologies if I have this wrong.
@Melanie Stephens
Not screening my tenant with a last minute decision to toss them the keys to my newly renovated 50k rehabbed SFR last year. This husband and wife divorced 6 months later. Husband and two kids move out. Wife decides to date a violent gang member, and some of his posse moves in. After not paying rent in feb, I file for eviction. In March I go to court and win my eviction case. Yay! Wrong. Eviction moratorium happens and these people get to stay three more months until they lifted the moratorium in Texas. Swat team busts in and hauls four of them off for stolen goods in the meantime (just a couple weeks after I won my eviction in court). I'm told they were dealing drugs out of there too. Drive by shootings happened a few times and two of my new windows I installed last year got blown out. Nice. Bullet holes in my new front door. Police tell me they had my house under surveillance for 9 months for all kinds of illegal activity. They said the police records showed them coming to my house 19 times in a short period of time. Somebody built a beautiful huge 6 bedroom custom built house next door to mine and listed it for sale. The real estate agent said every time he showed the house, either cops came swarming into my house or gang members were hanging out and partying in my front yard. Prospective buyers asked if this was a safe neighborhood after seeing all that. Lol. You can't make this stuff up! A week after one of the gang members they hauled off for stolen goods (who had 6 felonies according to the cop) gets out of jail (because prisons kept letting people out due to Covid outbreaks inside) he decides to steal a car and park it out front. That turns into a major high speed chase all around town. Guns drawn and tires spiked. He comes bombing back to my little "crack shack" on blown out tires and they run inside and catch him (bawling like a little baby bc he knew he had to go back to prison..according to the officer). I filed for an emergency writ of possession with the judge and sent her all the police reports. She said no dice. You'll have to wait like everyone else until the eviction moratorium is lifted. The list goes on with much more non sense to tell. $8,400 in lost rent and a completely trashed house. I mean destroyed. They even stole my new stainless steel fridge! When three deputies came to kick them out three weeks ago, 14 of them and a pit bull came out one by one with nowhere to go. They even spent the night outside in my front yard with all their junk after they got evicted. I still couldn't get them to leave! Cops said they could live in my yard for another day or so with their belongings. Huh!? I told the police they were trespassing and I didn't want them shooting up drugs and pooping in my yard until they figured out where they would go. Drug needles everywhere inside while we removed all their stuff. Lovely. Cost me 16k to renovate it last month to get it rent ready. Smelled like weed inside and every wall and door had graffiti. And every room had major holes in the sheet rock. Like 4 or 5 foot holes. Even inside closets. Weird. Front door had big writing in a black marker that said "F... off Feds." Moral of the story...screen your tenants! Not sure if my screening would have made a difference with this couple getting a divorce and her choice of new boyfriend, but I didn't screen and I blame myself 100%...even though they seemed like the all American family when I met and interviewed them. Lol
Not getting an itemized budget from the contractor.
I'm due to close this week (fingers crossed) on my biggest dumpster fire of a deal, AND it looks like I might actually make a couple grand off it.
I found the deal marketing to foreclosures. Single mother of four that ran a daycare out of her home. She was $14,000 in the hole and couldn't lose her home and only source of income. Her story tugged at my heart strings.
She owed $120,000 on a house that I had valued at $165,000. So I proposed a "sub-to". The way I saw it, $14,000 for $45,000 in equity wasn't a terrible deal. Her mortgage payment was $1,200/month and I told her I would rent it back to her for $1,300/month for 1 year and then reevaluate.
I did the sub-to as thoroughly as I knew how. Got her to sign a POA on all things mortgage/house related. Had my attorney run an opinion of title. She had cosigners (her parents) on the loan, so we checked them out too. I also check that she had all the state required insurances/documentation to run a daycare.
As I'm sure the experienced investors can predict, she was late on her rent every month. A constant stream of phone calls and texts to get the rent from her. Finally one day she asked if she could prepay 2 months. Absolutely! Come the third month she was MIA again. After a week of zero response from her it was time for me to evict her. I typed up the letter for her door and set it on the counter to take to the house the next day. A few minutes later my wife set a letter from a lawyer on top of it.
The letter was to notify me of a potential lawsuit. An 8 month old baby girl had died in her daycare, which was in the home. Being a father, my heart broke. Being an landlord/investor, I freaked out. Honestly, I didn't have insurance to cover this sort of thing or have any clue what to do. I wanted to call the mother, send her flowers, something...but my lawyer insisted that I stay out of it to prevent any admission of guilt.
My lawyer also told me not to evict her until I got all of this figured out. Turns out the baby had died of SIDS and I nor the tenant were not liable. However, it didn't mean that lawyer was going to stop trying. After about 5 months of me paying the mortgage we finally got everything settled and it was time to evict her. Another 2 months of mortgage payments. All the while, no communication from the tenant.
When I finally got the writ of eviction, I went to serve it to her and the house was vacant and trashed. No idea for how long. And honestly I was out of cash. I had a few other deals going on and 7 months of mortgage payments and lawyer bills. A few more months went by with me scraping together the cash to keep the mortgage current.
Finally, a friend of mine that was wanting to get into real estate investing got me talking about this deal. We decided to partner up. She would bring the cash needed to rehab. Her husband is a GC so he would do the work and save us some money. We would split all funds at the end.
Naturally we finished the 2 month rehab and put it on the market about 2 days before they shut the world down due to COVID-19. And so it sat, beautifully rehabbed, for another 2 months with very few showings. 4 more months of mortgage payments.
Finally, we got a full priced offer on it. 195,000! The rehab came out great and we were able to add some sq footage. They asked for $10,000 in concessions which I was hesitant to give but I wanted this house gone. I got them hooked up with my loan originator and 24 hours later she tells me that he is on the Federal "do not loan to" list due to unpaid student loans. She says he can fix it but it is a documentation nightmare. And like clockwork I got 3 more offers with in 48 hours after this news. One for cash, one for over asking, and another similar to the one we got.
During the inspection we come to find there is a foundation slip and now we have to tack on foundation repair. Then the house appraises for $5,000 light. Then the doozie...as soon as they issued the closing disclosures the title company calls me to tell me that both of the cosigners, who have very common names, are showing up all over the place with child support and tax liens. The parents of the lady who I haven't spoken to in over a year. All I remember from the purchase is that they live 5 hours away. And of course I cannot find any contact info in my files.
After 2 days of freaking out on this note, through the grace of God, my lawyer found a 2 year old email in which I sent her the cosigners identifying documents. Title informs me that this will suffice to disprove the liens. Whoop!!!
But wait, there is more....while we're trying to get to bottom of the lein sitation the mortgage company sells the mortgage. 2 more days of getting a new pay off.
As I write this we are due to close Tuesday (and I'm probably jinxing myself writing this). And it looks like I'm going to make around $2,000 profit when this is all said and done.
Lessons learned:
1. Don't let tenants stay. This is said all over BP. They're behind for a reason and are unlikely to change their behavior.
2. Get more insurance. Crazy things happen, be prepared. I thankfully didn't need it here but I would have felt a lot better with it.
3. Keep better records of the people you buy from. You never know when you'll need it.
4. My wife has informed me that I'm never buying another house with a business in it. There is additional liability when a business is in the home.
5. Communication is king. With everyone! My partner in the deal was freaking out but knew I was going to take care of her and figure it all out.
6. Don't give up. This was without a doubt an exercise in persistence. And I passed the test, barely.
Man this story grabbed me, what an absolute nightmare
I believe the biggest investment mistake that I've made involved a duplex that I made as my second purchase.
I hate to admit it now, but at the time I was desperate to have my second property. I really just wanted to get the deal done and I ignored much advice and many red flags. The property was listed at $115,000.00. I had a realtor at the time working the deal for me and I knew the seller would do seller finance. I asked for the deal to be done at $105,000.00 and a 5% interest only payment. The property was bringing in $1000.00 per month gross. That's basically all that I paid attention to in my analysis. I figured that if it matched the 1% rule that I was golden. The seller came back at $110,000.00 and we had a deal.
I didn't really do much else at this point to evaluate the deal. I also was going to spend everything that I had to make the deal work. I had nothing in reserves, but wanted to get this deal done. I didn't pay attention to the fact that I was going to have to pay the water bill and the electric bill. There were also repairs that needed to be done.
A few days before closing my realtor informed me that her and the seller agent had worked out that I was paying my buyer's agent portion of the sale. Therefore, there was an additional 3% that I was paying. As I said earlier, I was already down to my last few dollars. However, I pushed through just to make this deal work. I felt that I had no leverage and wanted to get it done.
We closed the deal and I was elated. I finally had my second property and I had it under seller financing. Things were awesome until I received the first electric and water bills. I was paying $343 for the mortgage, $110 for property management, $200 for insurance, $158 for water, and another $150 for electric. This alone added up to $961. This didn't include that I needed someone to handle yard work, maintenance, etc. Basically, even with interest only, I was breaking even if not losing money every month.
All of the above sounded bad enough. Then the worst case scenario for someone with no reserves available. I ended up about a foot of water in the basement portion of the duplex. Yes, there was a tenant in there. The poor tenant moved out almost immediately. I had to pay for someone to come in and basically gut the area. The then put in a B-Dry system. After that they had to redo all of the work and put in new cabinets, flooring, walls, etc. The final bill for everything ended up being about $25,000.00. It was a very hard lesson, but one that I feel blessed to have happened early for me. I've learned to have reserves and put away plenty in capex now. I have also pushed the electric and water bills back to the tenants for this property. Every time that I start to get overzealous on a property, I look back to this moment and remember to bring myself back and be patient. After all, I'm in this to make a better life, not to go bankrupt.
Two lessons learned as they pertain to BRRRR investing which compromises nearly 100% of my buy and hold portfolio. #1 Always try to negotiate a vacant property, even if you have to compromise on price. Inheriting tenants is hard enough, holding a property in which time is of the essence to refinance and dealing with inherited tenants is even more difficult. There have been amazing deals on paper that I've turned down because it was occupied. #2 while renovating during a BRRRR, be sure to renovate what you need to renovate. Meaning, don't leave anything that needs renovated left original. Why? These renovations after the refinance kill your cash flow and can create the nuisance calls from tenants that something isn't working. Example, I renovated an entire 4 unit building and left about 10 windows out of 25 original. They looked in "good enough" condition. Eventually after tenant complaints they needed replaced. I could have easily fit that into the refinance initially, but it ended up killing a month and a half worth of cashflow. If you leave a lot of these seemingly small items left undone during your BRRRR renovation, it will come back to eat up a lot more of your projected dollars.
Our biggest mistake was purchasing our first property as a group venture with my parents and husband. We are a super tight family and it almost destroyed us. I very much do believe in family businesses, but we learned SO many lessons from the experience, not only for future business ventures but in how to communicate as a family as well.
Not getting a survey immediately after closing on a foreclosure my wife and I had purchased to fix and resell. At my attorney's advice, I waited until I had it under contract (when I was selling) to order the survey. The property was about 8 acres, so the survey was a tad pricey, but not too bad. Attorney didn't want me to order one when we bought and then when we sold since it would effectively expire in between, and I'd have to pay for it twice. When we finally got the survey done we had a buildable lot-sized chunk showing as not being ours! We legally didn't own where the driveway came in, and we had done some extensive landscaping there, including huge boulders, etc. Naturally, the legal owner was deceased so we had to get, at first 4, but eventually 5 next of kin signatures to have legal possession and be able to close our sale! This just happened last Fall. Initial closing date was 10/19, but got pushed all the way back to 2/20! Gratefully, we were $20k over our asking price, were all cash into it and taxes were low so holding costs weren't too bad. Even better, none of the next of kin asked for a dime to sign off on the survey!
Get that search and survey done before you go to work on any place you buy without them!!!
Paying a contractor for a bid...$500 lesson learned. If someone wants to do the work they won’t charge you to inspect it.
Yeah, on my first buy and hold I called a few electricians. I believe this particular one came up on HomeAdvisor. He quoted over the phone a price to wire somewhat in line with what the other contractors had quoted over the phone but was obviously cheaper. His pitch was $500 to inspect the electrical and that money would roll into the price to do the work.
Apparently, I wasn’t thinking clearly at the time because that actually sounded reasonable.
He came out and looked at the wiring on a 1000 sq foot house. Jotted some notes on a yellow pad - which my friend who opened the house took a picture of. He then sent me a 1 sentence quote to rewire the house and the price - no details whatsoever. When I pressed for details the price went up via another 1 sentence quote. On the day he was supposed to show, he cancelled due to a ‘scheduling conflict’ and he rescheduled. I sent a message to him and tried to call him several days before the next appointment asking him to confirm that the items on my list matched what he was planning to do. The night before he was scheduled to show, he cancelled the work completed and said he thought it was best that we just go our separate ways.
Wow.... thank you for sharing you situation.
The greatest and most educational mistake I have learned in my real estate investing career would be on a property that I found driving neighborhoods, I had some cash and found the owner in another part of the state, I made contact with the owner via phone, at the personal meeting I made a offer for the purchase of the property, we wrote it out on a notebook paper, both signed and had a witness, the owner of the diner to sign, legal binding contract at this point. a mortgage person that I have worked with before was brought on board and was all set to do the deal, i was all ready to go and I asked if we could close in less than 30 days, he said no problems and asked why so fast, I proceeded to share information with him about the property and how it could be divided and was already zoned for multifamily buildings, ie 4, 4 plex's.and that the contract would expire after 30 days because the deal I put together was, 5k down, close in 30. the guy turned around and started dragging his feet, until the point I lost the deal. a week after I lost the contract I went by the property and found out that he and his father inlaw purchased the property right after I lost my money.
@Melanie Stephens I still have a flip property that I have owned for three years. It's not complete to this day. My partner and I got involved with the wrong partner. I ignored the obvious signs that the 3rd partner was and is a crook. Worst yet, I didn't do a background check. It dawned on me to do that after the money was spent. It's still a painful experience, but it's real; it's happening, and I still have this 3,000 sq ft property to this day, and it's unfinished.
@Melanie Stephens
Not screening my tenant with a last minute decision to toss them the keys to my newly renovated 50k rehabbed SFR last year. This husband and wife divorced 6 months later. Husband and two kids move out. Wife decides to date a violent gang member, and some of his posse moves in. After not paying rent in feb, I file for eviction. In March I go to court and win my eviction case. Yay! Wrong. Eviction moratorium happens and these people get to stay three more months until they lifted the moratorium in Texas. Swat team busts in and hauls four of them off for stolen goods in the meantime (just a couple weeks after I won my eviction in court). I'm told they were dealing drugs out of there too. Drive by shootings happened a few times and two of my new windows I installed last year got blown out. Nice. Bullet holes in my new front door. Police tell me they had my house under surveillance for 9 months for all kinds of illegal activity. They said the police records showed them coming to my house 19 times in a short period of time. Somebody built a beautiful huge 6 bedroom custom built house next door to mine and listed it for sale. The real estate agent said every time he showed the house, either cops came swarming into my house or gang members were hanging out and partying in my front yard. Prospective buyers asked if this was a safe neighborhood after seeing all that. Lol. You can't make this stuff up! A week after one of the gang members they hauled off for stolen goods (who had 6 felonies according to the cop) gets out of jail (because prisons kept letting people out due to Covid outbreaks inside) he decides to steal a car and park it out front. That turns into a major high speed chase all around town. Guns drawn and tires spiked. He comes bombing back to my little "crack shack" on blown out tires and they run inside and catch him (bawling like a little baby bc he knew he had to go back to prison..according to the officer). I filed for an emergency writ of possession with the judge and sent her all the police reports. She said no dice. You'll have to wait like everyone else until the eviction moratorium is lifted. The list goes on with much more non sense to tell. $8,400 in lost rent and a completely trashed house. I mean destroyed. They even stole my new stainless steel fridge! When three deputies came to kick them out three weeks ago, 14 of them and a pit bull came out one by one with nowhere to go. They even spent the night outside in my front yard with all their junk after they got evicted. I still couldn't get them to leave! Cops said they could live in my yard for another day or so with their belongings. Huh!? I told the police they were trespassing and I didn't want them shooting up drugs and pooping in my yard until they figured out where they would go. Drug needles everywhere inside while we removed all their stuff. Lovely. Cost me 16k to renovate it last month to get it rent ready. Smelled like weed inside and every wall and door had graffiti. And every room had major holes in the sheet rock. Like 4 or 5 foot holes. Even inside closets. Weird. Front door had big writing in a black marker that said "F... off Feds." Moral of the story...screen your tenants! Not sure if my screening would have made a difference with this couple getting a divorce and her choice of new boyfriend, but I didn't screen and I blame myself 100%...even though they seemed like the all American family when I met and interviewed them. Lol
I have an absolutely insane story, but would want to discuss offline. Essentially got stuck working with a bad owner, dealt with city of Mpls…and was left with 200K in payable when bad owner left unpaid bills after closing. Was on the news, paper(s) etc. Came out just fine....but was something I couldn't of ever dreamed up in my worst nightmare.
Bought an out of state single family rental with a tenant in place from an investor who needed the sale money for another venture. Since he had bought it less than a year ago and had recently done upgrades, I didn't have an inspection. However had difficulty with the tenants allowing the appraiser in. The tenant's boyfriend moved out and she couldn't make rent. Offered keys for cash. Found out from the property manager the tenants were drug addicts. First red flag: when they asked to have a light bulb changed. The tenant locked the boyfriend out of the house and he kicked both exterior doors in, breaking apart the door jambs. The balcony is only decorative. The door to the balcony had been locked for safety to keep the tenants off the balcony. The tenants took apart the door hardware to access the balcony. Now the balcony needs repair. as well as new hardware for the door. They painted the fireplace. They removed all the caulking around the bathtub (like what??). They stained the front porch, had a dog when pets weren't allowed. They broke the garage door, and left a pile of junk in the garage that I have to pay the city to remove. I'm still in the midst of repairs, but luckily I didn't have to give cash for keys and was able to use that money towards rehab. Lesson is inheriting tenants.
My biggest mistake could fill a book with details, but I will summarize it here. For everyone wanting to renovate properties - either single family homes, apartments, commercial, does not matter. Here is the lesson - Either hire a QUALIFIED PROJECT MANAGER, or dedicated the time and money to learn project management yourself. Part B of that lesson, project management is a job (not an investment activity) and most often is a full time job. For anything larger that very light rehabs, take heed of this lesson. Here is a brief synapsis of the story
I bought a triplex that needed a major renovation. It was pretty much a full gut, needed a roof, pool filled in, and had hoarders, drug addicts and plenty of rats as tenants. I estimated the rehab would take about $80,000, and 4 months. Lesson number 1 for rehabbers - unless you have a full dedicated staff of contractors working directly for you, an $80,000 rehab almost always takes more than 4 months.
Since I had completed several smaller renovations with success previously, I decided I could contract this out myself. I had a few contractors I had used before and felt confident I could vet others to get the job done. At the time, I was working 60-80 hours a week at my day job, and traveling at least 2 weeks a month. I also had a 1 year old baby and another due in 6 months. (Do I need to spell out lesson number 2 here?)
That was my plan, here is how events unfolded
Since I was using an FHA loan, closing took 2 months longer than expected.
Step one was replace the roof - turns out roofing contractors in Florida (Destin, FL) are in high demand. I had a quote before closing that was double what it should have been. After closing, I tried another who said he could do it. After six weeks I realized he was putting me off since mine was tied to the FHA loan and "guaranteed money".
In the interim, I got sent to a training course out of state for 2 months. I had no ability to check email or take phone calls during the day.
At this point, much of the interior drywall was finished, as I could not afford further delays. I found a 3rd contractor who said he could get it done. He said he pulled the permit, the proceeded to remove the old roof. Two days later, Hurricane Michael hit. I had no roof, and the contractor had $7,000 in money to buy roofing supplies. Long story short, he ran off to chase hurricane work, never returned my money, had never pulled a permit, and left my property in shambles. ( Lesson 3: what the lawsuit process is like - long and arduous. I eventually did receive a settlement, no where near the cost of the damage but better than nothing. )
At this point, the project was nearly 4 months behind schedule, and $20,000 over budget. I spent the next 7 months working myself every single night and weekend to complete the project, because I had no money left to pay contractors. I finished somewhere around $130,000.
This is the abbreviated story. Am I turned off of real estate? Absolutely not. This was a costly education, and I learned many lessons that I don't think I would have learned otherwise. That project caused me to take pause and evaluate my life, my business and its systems, and my future. I spent the next 6 months creating a project management system that I can use to train people to management my projects. Even if I didn't work a full time job outside of real estate, I never again want to miss key events in my kids life because I HAVE to work on a project.
One last point from that project: I could have hired a top end General Contractor in the area to do the project, and probably spend lest money in the long run, and certainly had less head ache. That brings me back to my point. Renovations require project management. Either pay a GOOD general contractor, find/train a qualified project manager, or have the knowledge/time to be at the project EVERY DAY and watch over the contractors yourself. Even good contractors require oversight.
And yes, I am still digging out of that hole, but the property does cash flow enough to cover all expenses of top of the extra debt payments I had to take on to finish the project. It may take a while, but eventually it will be a great property.
@Melanie Stephens I’m almost embarrassed to tell my story, lol! About 7 years ago when I first started investing, I purchased my 2nd multi-family property which was a 6 unit. I stole this building for 20k which was back taxes due to the family just wanting to move on after their loved one had been shot in the building during rehab. This building had 4 of 6 units completely rehabbed and they were done well beyond what the neighborhood called for. So, I was walking on clouds knowing I was going to be in at around 50k with fully rehabbed building that at the time would have appraised at about 175k and rented at $695 per unit! We closed at 6pm on a Friday night...............wait, what did I forget to do????? Yup, forgot to bind insurance on it, so I said to myself I would do it Monday morning. Monday morning, 6:30am drinking my coffee and watching the news, I saw a building on fire completely engulfed! That’s right, it was my building I did not have insurance on. Someone had thrown a Molotov cocktail inside. This building had set vacant for two years without any vandalism. Complete loss and required asbestos removal (55k). So from an immediate 125k equity and cash flowing like crazy, to 75k loss in split moment.
Response to Jonathan R McLaughlin Sorry for the delay, it's so many media outlets, that it takes me a while to get around to each of them. Yes sir, you are lost in translation about the Hard Sale I experienced. If you go back and read again you'll find that the house wasn't worth what I actually sold it for. The value of that property was 65k no more than 70k in that neighborhood. My client got 97.5k I got 4.8k
I'm a property Wholesaler. The people who hire me to sale their homes, agree contractually, for me to work on their behalf to get them what the market value is for homes in what ever neighborhood I'm working in. So, I don't need a License to help someone sell a house. No schemes, no getting over on clients, just every day business. As far as being in YOUR FAMILY sir. You keep your family and I'll keep mine. I think we both we do just fine.
Hi Melanie -- thought I would drop in with my story. Bought a duplex in NJ in August 2018 -- it was very close to the 2% rule (103k purchase price/$1900 per month in rent), so I thought I did my due diligence and I was ready to go.
The one thing I would tell every new investor is to prepare for $5,000 to $10,000 of reserves being eaten up in year 1, especially if you plan on hitting the ground running. No matter how good it looks, likely from the point of the seller deciding they will sell, to putting it on market, to waiting for a deal and closing it, they are likely doing NOTHING to that property (and who knows how absentee they are prior to that).
So my rule of thumb is if you can't afford the DP and at least $5,000 in reserves before you purchase, you aren't ready. And prepare for those reserves to be eaten up pretty quickly, especially if you think you're getting a turnkey property. You are not.
Hi Melanie -- thought I would drop in with my story. Bought a duplex in NJ in August 2018 -- it was very close to the 2% rule (103k purchase price/$1900 per month in rent), so I thought I did my due diligence and I was ready to go.
The one thing I would tell every new investor is to prepare for $5,000 to $10,000 of reserves being eaten up in year 1, especially if you plan on hitting the ground running. No matter how good it looks, likely from the point of the seller deciding they will sell, to putting it on market, to waiting for a deal and closing it, they are likely doing NOTHING to that property (and who knows how absentee they are prior to that).
So my rule of thumb is if you can't afford the DP and at least $5,000 in reserves before you purchase, you aren't ready. And prepare for those reserves to be eaten up pretty quickly, especially if you think you're getting a turnkey property. You are not.
Say it louder so they can hear you in the back. I've spent just under $7k on my duplex in the first 6 months and it was in great condition! Only reason that number is low is I do a lot of work myself. But that was factoring a small rehab in one of the units. The place is still great but like you know, NJ properties are old. I've learned, even with a property that looks fine, budget $10k since I won't be doing all the work myself forever. Luckily I'm saving so much money house hacking, even with the money I'm dumping in to the property, that I don't even feel it.
DP plus $10k in reserves for your first place is a must, especially if you're not handy.
Wow, so many to pick from 35 years in business. Hahaha:) One thing I would have done differently is swallow my pride and somehow find a mentor that I respected and liked right from the start. God knows where I might be now (probably for better or possibly worse). Also, huge mistake for me anyway was not buying as much as I possibly could in 1991-1994 around where I live. I am assuming I would have if I had a mentor. People were buying garden style condos for $2500 each and putting them on their credit cards. Hello! Today they are worth $125K!
I might be A LOT wealthier if I had a mentor whispering in my ear at that time and didn't WASTE $50,000 ($100,000 in todays money) on an MBA from Boston University instead of buying up some of those condos etc. And yes I worked my butt off/paid my way through school so I did have the money to do this just at that time not the guts. I was one year too early with buying my first piece of JUNK 3-family (1988) and I was at times physically sick with the MASSIVE loss of equity and the tenant nightmares as only the worst of the worst would live in this place. Ugh! . I paid 128K and two years later in 1990 it was worth around 20K. Listen to the guru's, timing really can really be the MOST important thing.(But yes that is a necessary part of my journey) And no I did not allow my 3-family to be foreclosed on and sold it two years ago for around $335K. I have so many stories from just that place alone!
I did it my way (Frank Sinatra):) But anyway I survived and I made multi-millionaire many years ago through real-estate. Right now living comfortably from a portfolio of condos and commercial property.