Seeking Biggest Mistakes and Lessons Learned Stories (Again!)
Melanie StephensPro Member
Investor · Tabernash, CO · Member since 2012 · 11 posts · 237 votesHello 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!
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.
@Andrew Syrios I like your post because its clear you have a lot of experience, but it just shows we all make mistakes and not to quit if you mess up
@Justin R. WOW! I haven’t heard of that type of wire fraud before (where they intercept the wire instructions and change the account #). SCARY.
@Jon Crosby
Hi, a plumbing video inspection from the inspector? Or ?
Is it something common to have a plumbing video inspection?
Thanks
I video inspection of the sewer lines by a qualified plumber is what I'm referring to, this would be on your own dime as part of your due diligence costs.
Thanks
@Terri Haley
If it wasn't for the 4 new investment properties, the rest would have been fine?
I deviated from investing in real estate and invested in a bar instead. I will not be doing that again...
@Melanie Stephens I found out yesterday that the duplex I bought a couple of weeks ago was illegal. It was zoned for SFR. I had a realtor, we got an inspection and a appraisal. On the appraisal it does say that it is legal non conforming (grandfathered in) so I am going to call the appraiser tomorrow to find out more details. How I found out was I had an electrician come out to put a second meter on. They called the city out to get a permit, when she arrived she discovered that it was not zoned to be a multifamily. She called and much to my surprise she informed me it was illegal and I could not have a second meter on it. Also, there is nothing I can do to have it zoned for a multifamily due to the lot size being too small.
I'm kind of stuck between a rock and a hard place. I live in an area in the Northeast where real estate is very expensive, but I really want to buy somewhere. Although my work schedule is pretty flexible and I get travel discounts, I'm not sure if it is a good idea to buy my first property in an area I do not live in. Although I would be paid more if I stay where I am, I do not like where I live and may be able to move to another city for work by the end of next year.
I feel like I made a mistake by signing a lease on my apartment that expires next October.
@Sarah Nelson: when you buy the unit, is it having two-unit SFR but only has one meter ?? do you know when the duplex is built? are there two doors in front? do you check old google maps and the latest one?
I think the biggest lesson I've learned is that trying to make the numbers work on a deal when they no longer work because you are in a bidding war is an enormous mistake many people make. Fall in love with the deal, not the house. It is easy, especially in this market, to feel like if you miss the opportunity you wont find another deal. That is simply not true. There will always be another deal no matter how hot the market is. Patience is everything.
@Carlos Ptriawan we knew from the beginning that it was a SFR that was converted into a duplex but never knew to ask the question if it was legal. On realtor.com it was listed as a multiplex. It has two front doors but yeah only one meter. It was build in the 50's and don't know when it was converted.
We found out today that the appraiser is no longer in business so there is that.
My biggest mistake is making the wrong assumption :
- Assuming there's no city/county that will have property tax greater than 5 percent. In fact, a county where the house I'm purchasing has a tax rate of 10% per year!
- Assuming all referral is good including one property management in the Bay Area. I'm focusing too much on low fees. Found out they actually working remotely from the Philippines and have nobody local. Can't find a tenant after 2 months !! Keep lying to me. I know they are lying because I keep visiting the houses. It almost costs me failed to refinance deals and month's rent. After I took over the management myself, I had a tenant on the same day.
Not dealing with a bad inherited tenant early on. I should have terminated the month-to-month lease right out of the gate when I got the property. Entertained their request to stay until the school year ends and turned out they are just nasty people. It ended up costing me around 6 months of hell, lawyer fee's trying to get them evicted, and eventually paying them to leave ($15k) just right before the COVID related city lockdown. I would definitely avoid inherited tenants or get better dealing with them, definitely a lesson learned.
Hey Sarah,
Just read your post and wondering what happened with the duplex, it ended being legal because was grandfathered in? ,
Cheers
Plumbing inspection! Inspections are already very important, but when purchasing a SFH make sure to do more than just the typical home inspection recommended. We've always done full inspections and depending on the age of the roof and HVAC sometimes had a specialist come out and check out those specifically. We learned to add plumbing to that list! Shortly after purchasing one of our first SFRs the water was coming up through just about every drain in the left side of the house. Not a pretty sight and neither was the fix. $8000 later after we had JUST purchased the house needless to say our CoC wasn't looking as pretty. What inspectors are going to do is run some water down the drains make sure all the water is flowing and doesn't back up immediately or drain slowly. But if the pipes are old, rusty and have jagged interiors they can catch things and build up over time. Easy inspection done by the plumber for an extra $80 during DD can save you thousands! We have definitely added it to our pre-purchase list!
Hi everyone! My biggest mistake so far was not buying my first property on the VA loan. I had the cash at the time to put 20% down on a conventional loan (198k purchase price), and I wasn't sure if I would be moving to a higher cost of living area in the future where I would benefit more from the low/no down payment benefit of the VA loan.
I think it was the correct decision at the time based on the information I had, but if I could do it again I would have used the VA loan.
@Melanie Stephens
I purchased a two story mixed use building that was brought to me by an experienced realtor that I had bought flip properties with previously. I this instance I didn’t walk the property and I used her contractor to renovate the property.
I had purchased properties unseen but walked by experienced contractors that I trusted and had them do the work in the pass and had been successful.
In this instance I found after purchasing the home and renovating it that it had settlement issues. On top of that the contractor she hired was horrible. He dragged the project out and didn’t finish it. It took me a year to repair the mistakes and offload the property. Fortunately I still managed to squeeze out a small profit while learning a valuable lesson.
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.
Hey Justin, what was the outcome?
Did the FBI ever find the crooks? Did you somehow recuperate your money?
@Melanie Stephens my biggest mistakes have always been choosing cheap contractors and paying them ahead of the work or getting out of balance in what's been paid versus what work has been completed. I am now very firm in dealing with contractors and it works well.
@Claudio Salvatorelli I tried to call the appraiser, turns out the appriser went out of business since doing our appraisal. Also the same day I called the appraiser I found out that the city had condemned our house until we turn it into a sing family residence. I asked the person from the city about it being grandfathered in and she acted as if she had never heard of such thing. She just said that someone messed up. My realtor said she would list it for free if we want to sell it. We tried to call a lawyer but he hasn’t returned our call yet. Lesson learned- always call the city to have them tell you if your house is legal before purchasing.
@Nate Sanow This is great advice! Especially just starting and what you said in #1. "20% down and 6month emergency savings is good advice, to an extent. That advice plays a little too safe. And I also don't feel like that particular advice applies to all situations.
My mistake is survivable, but recently we bought our first house from out of state. We were living in Minnesota and the Army was transferring us to Nebraska. We met our realtor on BiggerPockets, who wound up being amazing and did virtual walkthroughs of many properties, writing up a bunch of offers before we got one accepted. We found one that needed a lot of upgrades, and had an unfinished basement. This house was in a nice neighborhood and was significantly cheaper than all the other houses around. We figured by upgrading flooring, kitchen bathrooms and finishing the basement as an air BnB we could get some equity out of it, to continue investing in the area. During the closing process we found out that even though the dwelling is not in the flood zone, the backyard is which required us to get additional $1300 in flood insurance on the property on top of the $1200 policy we already had taken out. Also, to use the basement as an Air BnB we would have to get a secondary use permit which was subject to much higher taxes. We then found out that we are on the county line and were considered inside a different county than we anticipated, which has much higher building permit fees. All these costs completely cut down our margins and ultimately would bring us to negative cashflow if we choose to rent it out in the future.
We pivoted and instead decided to value add and try and get a HELOC on the house so we can focus on our next investment and work on getting the property surveyed to try and get our insurance cost down.
Ultimately, we got a very good house with closing costs covered and zero down, with a lot of upside potential. Completely survivable but we learned important lessons about the importance of diligent research prior to purchase.
One mistake I made early on was buying turnkey built in 1910 expecting it to be as good as new construction. The property was still profitable, but it definitely had more issues than I expected.
My personal worst experience was buying a condemned home for renovation, for next to nothing.
While dealing with the city and rebuilding the home to current code was frustrating enough but least of our problems little did we know.
4 months into the renovation, and close to $55,000 expense the Local Health Department posted a vacate immediately sign.
Property had a child poisoning case 7 years prior, and while records for Lead clearance were going from owner to owner, they were never disclosed.
*Valuable lesson - "it's easier and more cost friendly to build a new home vs. renovating an old dwelling with unknown problems that can pop up any minute. "
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.