Seeking Biggest Mistakes and Lessons Learned Stories (Again!)

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Hello BP Members! I write a regular column for BiggerPockets Wealth Magazine on people's "Biggest Mistakes" in real estate. Do you have a "mistake" story and lessons you learned from it? I'd love to hear it! (Thanks to everyone who has already sent in stories!)

If you have a story to share, please post it here in the forum, or DM me or email me at melanie @ biggerpockets.com.

Thanks in advance for taking the time to share your stories!

@Melanie Stephens

So I had a wholetail deal: buy, clean out, sell. Nice A class suburban neighborhood. Usually doing assignments or buy and hold, I had never actually sold a property I owned before this one. Well I was off on the selling fees, used hard money on the buy which had higher buy costs than I expected, didn’t close on the sale for 90 days so had several months of 4 figure interest, and had a sewer issue that cost a pretty sum to fix. I lost $15.5k on it. (Roughly 12% of the sale price.) The guy who bought it did a massive renovation on it. Conservatively made $100k, but could have been north of $150k pre-tax. I should have done the renovation. Oopsie.

@Melanie Stephens about a year ago I got a house under contract at $55k on 5 acres in KY. The house was a complete gut and upon further inspection had major foundation issues. Since I was unable to renegotiate the price and freaked out, I backed out. Next thing I knew a wholesaler contracted it and made $10k by selling it to another investor. Why didn’t I think about that? The land itself was worth it!

Always get a plumbing video inspection!  We purchased, put in 1200 square feet of wood flooring and then the sink started backing up after owning for a month. Tree roots created blockage, had to tear out flooring, jack hammer 16 inches into concrete slab to fix pipe and re-lay flooring.  Nightmare and lessons learned certainly.  :) 

In one of the first properties I bought I didn't get a home warranty. The SFH was about 15 yrs old with original appliances and HVAC. I researched more than I ever need to know about home warranties and when they make sense to purchase than I could ever use after that.

@Melanie Stephens Great topic. I am a passive investor (a limited partner) in multifamily syndications. The biggest lesson I have learned over the years is how important the general partners are AKA The Team. At the end of the day, when investing passively in other people's deals, you are mostly making a bet on the team, their track record and their ability to execute a business plan. To answer your question, I invested about 5 years ago with a group who had lots of optimism and confidence but lacked the necessary skills to properly renovate and manage a large apartment building (400-units). So many things went wrong with the project I can't even remember half of them, but some included distributions stopping, very poor transparency, delayed communication, one of the general partners suing the other, and an unexpected sale of the property years before expectations. I can't complain too much because we (the limited partners) actually ended up making some money when it was all said and done, but what a ride! This experience led me to clarify my investing criteria and taught me so much about people and the importance of teams.

I lost a lot a large chunk of money (over six figures) on a wire at closing time. I high level criminal hacked into my agents email and was able to place email filters on the agent, the closing attorney, and myself. The criminal then created a "relationship" of communication with both the agent and attorney as they thought it way me. During the wire day the criminal intercepted the wire instructions, and changed the account numbers utilizing the same company format, design and logo. This was not some low end group you would expect, with bad grammar and an account in India. This was a high level group and they paid a "mule" to open a account at a local bank branch.  I always contact the wire recipient upon sending, and ask them to notify me upon receipt, this wasn't enough.

By the time everyone realized something was weird and everyones stories didn't add up, it was 8 hours after the wire was sent. I immediately called the criminals receiving bank (Wells Fargo) and they confirmed they had received the wire from my account. I let them know what happened, but unfortunately they had to back their "client" and couldn't place a hold on the funds. I watched my money disappear within the next 48 hours as the criminal was paying "mules" again to make cash withdraws. The FBI was involved in this case and said this is now the new sophisticated "bank robber." Due to my case and a many others within a few month timeframe, new consumer protection laws have been passed. Unfortuanlty many agents/title companies/closing attorneys still do not follow best practices to this day.

Here is how I now send a wire EVERY time.

1. Receive wire instructions through email (secure source if available)

2. Print out the instructions, yes PRINT a hard copy

3. Call the recipient, ensure its the same person and phone number you have had some form of previous contact with.

4. While looking at your printed copy of instructions, have them read you the account and routing number live over the phone. Yes, THEY read to you. If you read to them they can be lazy and just say "thats correct." This has happened.

5. Request the contact you immediately after the funds hit their bank on a "pending" status.

Originally posted by @Justin R. :

I lost a lot a large chunk of money (over six figures) on a wire at closing time. I high level criminal hacked into my agents email and was able to place email filters on the agent, the closing attorney, and myself. The criminal then created a "relationship" of communication with both the agent and attorney as they thought it way me. During the wire day the criminal intercepted the wire instructions, and changed the account numbers utilizing the same company format, design and logo. This was not some low end group you would expect, with bad grammar and an account in India. This was a high level group and they paid a "mule" to open a account at a local bank branch.  I always contact the wire recipient upon sending, and ask them to notify me upon receipt, this wasn't enough.

By the time everyone realized something was weird and everyones stories didn't add up, it was 8 hours after the wire was sent. I immediately called the criminals receiving bank (Wells Fargo) and they confirmed they had received the wire from my account. I let them know what happened, but unfortunately they had to back their "client" and couldn't place a hold on the funds. I watched my money disappear within the next 48 hours as the criminal was paying "mules" again to make cash withdraws. The FBI was involved in this case and said this is now the new sophisticated "bank robber." Due to my case and a many others within a few month timeframe, new consumer protection laws have been passed. Unfortuanlty many agents/title companies/closing attorneys still do not follow best practices to this day.

Here is how I now send a wire EVERY time.

1. Receive wire instructions through email (secure source if available)

2. Print out the instructions, yes PRINT a hard copy

3. Call the recipient, ensure its the same person and phone number you have had some form of previous contact with.

4. While looking at your printed copy of instructions, have them read you the account and routing number live over the phone. Yes, THEY read to you. If you read to them they can be lazy and just say "thats correct." This has happened.

5. Request the contact you immediately after the funds hit their bank on a "pending" status.

Sorry this happened to you we got hacked as well.  but it looked weird so I called and sure enough the person we were wiring money confirmed it was not them.. 

So on top of your SOP for wires as we send anywhere from 2 to 10 a week.. if its a title company or attorney we have not dealt with we ask them to FAX the instructions.. I know old school but those cant be intercepted like e mails.. and when I call I just start going through some questions.. but the one that really gets them.. is I google earth their office. confirm thats the office I look for neighboring properties the best is a fast food joint.. I will say ( and no kidding now) Hey is that a Burger king on the corner next to your office when i know its a Micky Ds they should reply no its a micky Ds and a few other things I might ask them to go into the file and recite something from the HUD etc.

Anyway just cant be too careful.. and as frustrating as it is some of the smaller back east law firms simply wont wire.. they insist on sending their trust account check.. which for some would be an issue as it can take time to clear..  my bank wont hold any check.. or if its a whopper they will call the bank for verification of funds on their own.

when i started in this it was personal checks and you got all your closing docs a few weeks ahead of time to allow for checks to clear.. then it went to cashiers checks  ( then those started to get forged ) so they stopped taking those and only want wired funds..  And that is why escrow these days is so last minute.. compared to the old days when you got your docs a few weeks in advance and if there were issue you could work on them.. now its hair on fire if you have a last second issue.

Lately we have been getting phishing from FATCO  wanting us to open up our supposed escrow instructions  quick glance someone might do it.. but when you read it .. total BS the ones i am getting have FLA address and a LA phone number etc.. I turn them over to FAtco fraud and of course never open them.

But you can see how those not in the business and how folks these days just live on their e mails and text  could easily get taken advantage of. 

@Melanie Stephens

Where do I start...

1. Don’t listen to a certain financial expert who preaches “always put 20% down and have a 6 month emergency fund.”

That held me back for a few years and the opportunity cost was significant in retrospect.

2. Don’t be afraid of a chicken scratch contract on an off market duplex that would have cash flowed + appreciated at a strong clip from the get

3. Buy that freaking house. You know the one. (I’m

Talking to myself.) I had an inside scoop on an area of massive development coming and literally this purchase 5x’d in value for the actual buyers.

4. Trust but verify contractors or similar vendors. Look for nice people you can work with and begin to trust.... but permanent trust is earned not given. Always verify. Along with that: know that forgiving is healthy and positive but you don’t HAVE to trust again. Let go of that grudge for yourself, not them, but don’t trust again.

5. Always get advise and wise counsel in at least a group of 3. Aka 3 agents, 3 contractors, etc. There is a proverb that says “with a multitude of counselors your plans will succeed.”

I could keep going. And going. And going. Sadly. I’ve had a rough middle stretch in my investing and am ready to bounce back again! Ramping back up after these lessons I’ve learned. Thanks for asking, made me take a look at myself.

Originally posted by @Gregory Schwartz :

I didn't file taxes for my LLC for 2 years. Between fees and the cost of my CPA that was a 5k mistake.

You or your CPA should have spoke with the IRS and asked them to waive the penalties for late filing. I am surprised your CPA did not suggest this.

I took on some clients who filed their partnership returns late. Aslong as the partners would be compliant and timely file their returns, the IRS would waive the penalties as a one time courtesy.

In a recent flip we did, we hired a contractor to install granite countertops who stated he had never done it before but thought he would be ok. We decided to let him give it a go. 

When he went to adhere the slabs of granite together, he paced them on the floor on top of cardboard when applying the resin. It bled through to the top of the granite and adhered the cardboard to the granite. 

Him and his friends installed the countertop and left the cardboard stuck to it and we never heard from him since. 

This resulted in us having to purchase a whole new granite countertop.

Lesson learned!

In a recent flip we did, we hired a contractor to install granite countertops who stated he had never done it before but thought he would be ok. We decided to let him give it a go. 

When he went to adhere the slabs of granite together, he paced them on the floor on top of cardboard when applying the resin. It bled through to the top of the granite and adhered the cardboard to the granite. 

Him and his friends installed the countertop and left the cardboard stuck to it and we never heard from him since. 

This resulted in us having to purchase a whole new granite countertop.

Lesson learned!

I've got a lot of them and have written a few articles about them:

"The best of" https://www.biggerpockets.com/...

Bad acquisition: https://www.biggerpockets.com/...

Due diligence: https://www.biggerpockets.com/...

Property management: https://www.biggerpockets.com/...

Yeah, there have been quite a few of them.

I’m from Florida. In my early real estate journey, I didn’t realize that practicing real estate without a license was a felony. I learned the hard way. Back in 2018, I received a letter from the Florida DBPR for a possible violation due to someone taking a screenshot of a post of Biggerpockets actually. Irony! The person wrote an anonymous complaint on me because I was asking about fees and getting paid on a potentially profitable deal for me because I brought the buyer. Nothing ever closed, I never made money, and so I was never found guilty or anything. It took a year for the state attorney’s office to send me a letter saying there was no case and I’m free to go. I realized I needed to get my license and it has been the best experience for me since. I warn other wanna be wholesalers etc to learn the state laws first because there are several unscrupulous people in the world of real estate investing that take advantage of newbies and have them marker their “daisychained” deals on social media etc... the law might be getting broken and can cost you greatly. I’d like to share this story in greater detail to help other do things legally and ethically. (Im not a lawyer but a licensed FL realtor). I suggest anyone wholesaling to get legal advice from a local Real estate attorney first and team up with a licensed agent that is experience first too. 

@Melanie Stephens

My name is Boone Tyson. I'm an agent/flipper/rental owner in McAllen, Texas. I just posted this in the deal diary and thought it was a cool story to share.

In February, we bought a fixer upper from a wholesaler at about 80K. Assumed ARV would be about 140K and knew it was a good deal, but when the market heated up, it got even better.

Our county went into a lockdown and mandatory shelter in place for everyone not deemed "essential personnel" because of Covid. We lost about 30 days of rehab time because our subs weren't "essential." We finally finished after about 3.5 months and had it set to close on June 25. It was under contract at 165K to a cash buyer who was buying it for their family member. Inspection came back with minor issues that we took care of. We were looking at about 30-35K in net proceeds.

On June 23, we went to the property and the city had posted a notice that our certificate of occupancy had been revoked because there had been an enclosed garage in 1997 that wasn't permitted. In McAllen, you can only get a roll-off dumpster by ordering it through the city, so when they came to pick it up, thats when they flagged the house. With the certificate of occupancy taken away, it couldn't be sold. It took us about 2.5 weeks to get the permit done without losing the square footage which was a major education in and of itself.

We go to closing day which was July 17th. The buyer signed first and wired money to title. I cam in at 2 PM, signed, and went to the city to pick up the occupancy certificate to drop off with the buyers agent. We had been given permission by the buyer to spend an extra day touching up after closing. One touch up item was replacing a leaky spigot on the front porch. When our handyman tried to replace it, the old copper broke, so he had to solder on a new valve.

At 3:30 PM on closing day, after all parties had signed and the money was en route to our account, our handyman called me and told me the house was on fire. I dropped a few swear words, told my brother/business partner, and we jumped in the truck and sped over.

On the way over, we thought to call the attorney that closed with to see if the money had cleared in the account yet. Because the wire went out late in the afternoon and hadn't posted, we were able to have him cancel it before hitting our account and not record the deed. If we hadn't done that, we would've just burned someone else's house down.

The fire was mostly contained to the attic with damage to the roof, decking, AC, electrical, water lines, rafters, and some walls in about 35% of the house with smoke and water damage in many other areas. We were probably looking at minimum 50-60K in damages.

After it was all said and done, the insurance denied the claim and we discovered that we had been sold a rental policy on a flip house and therefore the vacancy was grounds for denial. We are in the process of litigation right now with our insurance company to try and collect as much as possible for damages.

The experience honestly took the wind out of our sails for a month or so. We didn't know what to do. After multiple discussions, I was driving down the road, thinking about this deal, and a question came to my mind:

“Can I flip 2 in the time it will take to finish this one?”

The answer was an absolute yes. So that’s when we elected to sell because we knew it would be a long project to break even at best and our crews would be tied up rather than somewhere making us money.

We have picked up 1 great deal since then and have our guys working on a 2nd that is looking like our best flip yet. And we have a 3rd under contract that should close in a week or so. The profit from those, if things go even halfway correct, will be 2x the loss and way more hopefully.

Lessons Learned:

1. Sometimes its better to take a loss in the short-term to move closer to your long-term goal.

2. Get the right insurance and ask more questions.

3. Permitting garage enclosures in fairly simple and we now have an awesome way to add square footage to smaller houses.

Hope this is something you think might be a good story to share

I did a 50/50 joint venture deal with a partner who brought a property purchase opportunity to the table. Given that he was employed full time in a different industry and I was the person with the extensive investment and construction experience I was task to run point on this deal. As a seasoned investor I have the temperament and patients that it takes to get the investment to make to enjoy the beautiful gains. 

Well boy did I learn a big lesson, just like vetting a good deal is important the same applies for vetting your partners. I failed to ask the most basic question prior to partnering that would have completely changed the terms of our agreement if we would have had one at all after receiving the answer. If I would have just asked HAVE YOU EVER DONE/ EXPERIENCED A RENOVATION OF THIS SCALE EVER IN YOUR LIFE PERSONALLY OR PROFESSIONALLY?............. That simple question would have saved me a tone of grief, gray hairs and most importantly wasted time. 

This deal was such a sweet deal with loads of profit to be made. 350k+ profits to be made on this investment to be exact. But my partners in ability to stomach the investment game of spending money to make money to realize those amazing profits. If I would have just asked that simple question our partnership would have been 70/30 or at a minimum 51/49. 

The fact that we were 50/50 my partner wasted loads of time second guessing everything, getting way to emotion about everything that the project took a year longer then it should have and the cost of all that wasted time killed our profits leaving us with less then 200k on the deal. 

Now I know some may say/ think that its great that you still made a great profit. As a experienced investor I see it the exact opposite. I see it that me being as experience as I am I made a serious error in not asking that one question and that question cost me personally 80k+.

It was a tough one to swallow but a investment lesson I will never "EVER" make again hahahaha

Always do work under contracts with sub contractors. Put fair payment terms for both parties and contingencies to protect yourself. Contractors will try to pull a lot of moves to get more money out of you. "Oh I didn't see that line item in there" under services delivered. Well you signed it. Having everything in writing will really protect you from a tough conversation down the line when you have many people working on a project.

Important lesson learned; Don't trip over dollars to pick up pennies! 

I tried to save money by turning a unit on my own and thought I'd save on cost by not paying a professional, in hindsight I lost many months of rent as turning the unit took longer than expected with a worse quality (big surprise). Leave the the handy work to the professionals and remember the opportunity cost of doing things on your own!  

My husband (very conservative) and I (impulsive, sees opportunity everywhere) had the opportunity about 20 years ago to buy a beach house on Ocean Isle Beach, NC, for $150,000.  The house needed some fixing up, we were newly married and didn't have much money, and the lot the house was on was valued (tax value) at $150,000.

I couldn't convince hubby (with facts) that we should buy the property, so we passed.  A week later, someone else bought it...fixed it up...and now has a really nice beach property.

Whenever my husband and I disagree on whether we should buy a property, if appropriate, I remind him that "this could be our beach house".

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