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.
@Melanie Stephens How much time do you have? So many tenants and so many stories of why rent could not be paid, rent is due on the 1st, late on the 2nd. How hard is that? So many stories.
Basic rules of real estate:
1) If something seems too good to be true, it probably is.
2) In GOD we trust, all others CASH.
3) CONtractors - Get no money upfront, sorry, 1/2 at the 1/2 way and other 1/2 when satisfactory finished.
4) You say you can fix a home, show me your license so I can get a quote with your license on it. No time for weekend warriors.
5) Never put an evicted tenants remains on the street until the night before trash day, or you will spend days cleaning up what the pickers throw all over the yard and street.
6) Stick to your numbers, don't fudge them to make a %. Its not worth it.
7) Never use a partner, if you need to use one, make them a SILENT partner.
These scratch the surface. Great post! Thanks!
Ensure you know hte difference between what is required for zoning and code enforcement . I recently bought a two unit in Easton, and the third floor had been turned into a separate living unit with kitchen. I checked with the zoning board to ensure it was zoned correctly , so I figured it was good. Did not realize the previous owner never registered the unit with the city, so when Code enforcement did their inspection so I could rent the unit , found 4+ pages of issues needed to fix before I could rent it out Took me a while to get all the items fixed and the unti rented out
We're in the middle of a nightmare refinance right now. Our mistake was two-fold: 1) going with a new lender because their initial quote was slightly better than someone we've used before. Trying to save a little bit of money has cost us so much in time and frustration. And time IS money. They're exceedingly difficult to work with, disorganized and frankly, I'm not sure they can actually close this loan. I don't know if their company is in distress or about to go belly up, but it certainly seems that could be the case and 2) they don't have a local presence so we can't get face-to-face with anyone when we need answers. In our never ending quest to try to put together the best deal, we overlooked the most important factor: track record. Yes, the numbers - had they actually come through - were slightly better based on this lender's quote. But when you factor in the delays, the time I've spent dealing with their requests, the additional carrying costs of some expenses we financed that should have been paid off by now...we're not coming out ahead. I've learned my lesson. Work with someone you know, trust, and who has a track record. And make sure they have an office you can walk into when you need answers and your emails and texts go unanswered for days at a time! Financing is too critical a piece of the puzzle to trust just anyone.
@Melanie Stephens
I have flipped hundreds of properties all of them on the low end price so I got tired of doing 30 plus per year and I though what if I do high end flips maybe 10 high end flips will net me the same as 30 cheaper properties, well I was so wrong not because that wasn’t true but because high end properties and buyers are so different to the market I knew, so I found this older house on one of the best neighborhoods in Orlando FL, mi neighbors each side back and front where at least 1 Million dollars I had one for 3 million, I paid 420,000 for the house what could go wrong? I remember the first day one of my neighbors a contractor told me if I was going to demolish the house and I though that was ridiculous since the house was certainly livable and in decent shape, I budgeted about 80,000 on repairs and a sale price of about 800,000 still the cheapest on the block and about 250,000 in profit, so I stated the rehab and after about 150,000 on expenses and 11 months I was over 70,000 of my budget and about 6 months behind I put the house on the market and had no offers NONE, ZERO, I started reducing the price and nothing, after a year on the market I decided to hold an auction and the highest bid was 340,000 for a house that now cost me about 600,000, that was a shock so I remember my neighboor question about building a new house on the lot and now it wasn’t so ridiculous, I did my homework and I though it might work the problem now is 150,000 in new everything the house had but I figure I could dismantle the house and keep most of the materials for other projects, I took a luxury builder and he told me he couldn’t build much there because the lot wasn’t wide enough, back to selling the house, in the meantime a hurricane went thru and flooded the garage and part of the house another 20,000 to my loss, finally I got an offer for 490,000 and after holding costs commissions and taxes I lost about 140,000 so much for luxury profits.
I have flipped hundreds of properties all of them on the low end price so I got tired of doing 30 plus per year and I though what if I do high end flips maybe 10 high end flips will net me the same as 30 cheaper properties, well I was so wrong not because that wasn’t true but because high end properties and buyers are so different to the market I knew, so I found this older house on one of the best neighborhoods in Orlando FL, mi neighbors each side back and front where at least 1 Million dollars I had one for 3 million, I paid 420,000 for the house what could go wrong? I remember the first day one of my neighbors a contractor told me if I was going to demolish the house and I though that was ridiculous since the house was certainly livable and in decent shape, I budgeted about 80,000 on repairs and a sale price of about 800,000 still the cheapest on the block and about 250,000 in profit, so I stated the rehab and after about 150,000 on expenses and 11 months I was over 70,000 of my budget and about 6 months behind I put the house on the market and had no offers NONE, ZERO, I started reducing the price and nothing, after a year on the market I decided to hold an auction and the highest bid was 340,000 for a house that now cost me about 600,000, that was a shock so I remember my neighboor question about building a new house on the lot and now it wasn’t so ridiculous, I did my homework and I though it might work the problem now is 150,000 in new everything the house had but I figure I could dismantle the house and keep most of the materials for other projects, I took a luxury builder and he told me he couldn’t build much there because the lot wasn’t wide enough, back to selling the house, in the meantime a hurricane went thru and flooded the garage and part of the house another 20,000 to my loss, finally I got an offer for 490,000 and after holding costs commissions and taxes I lost about 140,000 so much for luxury profits.
@Melanie Stephens. There are a lot of "big time" investors on this thread. As a small investor I have learned to not take checks for payment ever, especially post dated. I use Venmo, Zelle, and Cash App. Done be afraid to say no to checks, even if it is at the last moment. Not only do you not get your money but you have to pay your bank a fee for the bad check someone else wrote. I now put into the lease and into all ads placed that checks are not acceptable.
Biggest mistake....Didn't start earlier. Started investing around 33, if that was 23, well yea.
Aloha-
*not being clear on your goals
*not adding value to people around you & people you work with
*not being LOUD about what you do!
Here is something that I would warn investors about but not a big mistake, just a hurdle. Talk to the escrow officer about the preliminary title report for a property you are interested in. Often times the preliminary title report does NOT show IRS liens or mechanical lines or garnishments on the initial title report. Here is a real-world example. We took over a property and looked at the title report ahead of time. When it came time to do the final closing statement, an IRS lien showed up. Thankfully it was not a significant amount, but it did slow the closing down as we got a payoff from the government and paperwork needed to clear the lien. Thankfully it was a relatively smooth process. The title rep said to have them do a separate search for liens that may not be on prelim. Not sure why they don't show up initially so heads up BP. Oh, and if anyone knows a shortcut to find these liens I would love to know.
I was renovating a buy and hold single family home that was a gut job. I hired a young guy with a new company that was just starting out to install impact windows and doors on the whole house. I looked him up online, called and spoke with several very happy customers. He asked for a 50% deposit, which is the norm with impact windows here and I gave it to him after signing a contract and the permit papers. After a few weeks he asked for more money to pick up the windows from the manufacturer and I got nervous so I asked to see the order with the company, which he provided so I gave him some more money. When my project was several weeks delayed because we didn't have the windows and doors he dropped off a few windows at the home when I wasn't there. The weeks after that became and odyssey of detective work trying to figure out what was happening. In the end, 1) he had never applied for the permit, 2) he had never ordered the windows/doors and sent me a fake order, 3) he disappeared. Sadly, I lost 2 months of rental income, hours of time fixing the mess, and $8,000. I gained sleepless nights and a lesson.
@Ed Moran I’m in Ohio and had this issue on a single level slab home. I probably spent $1500 to much to get the job done. I Needed to shop around a little more. I had the main drain (toilet) scoped with a camera. Just outside the front of the house there was a collapsed drain pipe. Tree roots were the cause. All the cost was on me. It is home owners responsibility from house to city main. In this instance it was under the sidewalk out front. If you suspect drainage issues it definitely pays to have a plumber camera before purchasing. Total cost to replace 6 ft pipe was $3000. Hope this helps.
@Jon Crosby I had the same issue in a slab home. Had to cutout about 5ft of ceramic tile in kitchen.
So this one is pretty embarrassing knowing what I know now, but it's kind of funny and maybe someone else can learn from my mistake. My very first post ever addressed my mistake, so I'll start by quoting that:
Many, many lessons were learned after that, but I think the biggest takeaway that I got was that acquiring on a property is only the very start of the work, and until you've stabilized the property and have the systems in place to tackle a wide variety of contingencies, it's a very bad idea to leave town (let alone the country). That property ended up becoming a massive cash cow after I came back and put in the time and money necessary, but I could've saved myself a lot of stress and thousands of dollars had I just done the work immediately after acquisition.
GET ALL AGREEMENTS IN WRITING
Relatively small learning lesson, I spent $2,500.00 to repair a driveway. The buyer requested it and I agreed. They eventually backed out during their option period. If I were to do it again, I'd either offer to lower the sales price or add it to the property repair section of the contract.
Hope that helps!
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.
I made this same same mistake, I actually let the Realtor talk me out of offering a lower price that would compensate for those extremely expensive fixes... At the time I didn't know what a home warranty was nor did my Realtor suggest I ask the buyer to offer one. 1 1/2 years in the home and the HVAC hit the hay. Ouch.
Big lesson learned.
Had a commercial tenant pour concrete down the water drainage of the property costing me about $30,000 to repair in total. Took him to court only to find out later he had 23 judgments already out on him some in six figure amounts. Lesson learned here is to have a thorough background screening along with judgements as well. Always be sure to manage the property manager!
Follow my investments on my YouTube channel. Search by my name: William Dauria
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,
Here is an interesting one for you:
Biggest Mistake: Buying a home in an area with an expensive HOA. I usually buy houses in developments with cheap HOAs, but this particular house was too good to pass up. The problem is after purchasing the home, the HOA was so far up my A$$ that it was a weekly occurrence. An Expensive HOA = They bother you for every little thing you do. Eventually, they started telling me what to do INSIDE my house in addition to the outside. This is not okay.
Lessons Learned:
1. I learned how to say no. While the HOA can bother you on whatever they want, the bark is much worse than the bite. At the end of the day its your house and what you do with it on the inside is your business. I eventually just started telling the HOA "No". I explained to them that this is my house and I am going to do what I want with it (Within Reason) on the inside.
Thanks for reaching out to the community Melanie. There are 2 lessons that come to mind.
1. When I bought my 4-plex last year I needed to renovate one of the units. I thought I should do it myself so I can see what it takes to do something like that. I quickly learned that I was not a handy guy. It probably took me 3 months do rehab the 2/1. About 6 months later I had the opportunity to do the same to the unit next door. I hired someone to do that one and they finished in 2 weeks. I saved the heartache and the money in lost rent. And it was done better. I learned that I will fire out labor to someone else.
2. I recently got my first flip and I consider myself a good networker. I had my coach, his wife, down payment partner, the lender, GC and the wholesaler all there for the final walk through to see what we had got before it closed. Long story short it was just too many people. I quickly learned that you can have too many advisors on certain things. I need to have one person that is giving the advice and sticking to that. Otherwise someone might have a different opinion and you will feel like you are going in circles because someone is telling to turn right but someone else will tell you left.
Hope you find some good stories in this forum. Thank you in advance. -Caleb
@Nate Sanow would you have any advice on how to start wholesaling, networking, or finding investors. I am 19 and just out of highschool I know I can’t work a 9-5 for the rest of my life and ache to be financially independent. I have been doing research on how to accomplish this and have been trying to follow the steps outlined within various books I have been reading. I feel like I have been wasting my time and energy on people that aren’t going where I want to be and am trying to surrounded myself with a like minded community. Given COVID this has been a challenge to meet people face to face and build relationships. If you or anyone else could share some advise with an aspiring investor it would be highly welcome.
@Greg Stetz I am just starting and in the rea search phase currently. I am trying to connect with people and start wholesaling. I would love any information you might have thank you!
Purchased a house I was planning to tear down and build a multi unit on. Made the mistake of letting the tenant know (it kind of slipped out) and the ended up moving out a few months later and we were not ready to break ground for another 8 months or so costing me over 20k in rental income
I had a deal that I wouldn’t call a “mistake” but a $40,000 seminar. I bought a house in a golf course community to fix-n-flip. The community was very well maintained but it was an older community that was isolated from the rest of the world. Over the years the area around the community had transitioned into a low income / high crime area and this nice community seemed to be an island to itself. I had one comp to use that had recently sold inside the community and I thought that my house would be a home run based on that information. When it was said and done, I ended up with a fantastic house that I just couldn’t sell. After about a year on the market and a lot of lost opportunity I decided to let it go and take my beating. Lesson learned.
@Melanie Stephens
The biggest mistake I have ever made was not starting investing in real estate 30 years ago. You young people out there, don't stop yourself from doing something you know is the best thing for you but you listen to family, friends and ego (what if I fail). I got my real estate license in Ga and Al when I was 21, I knew then what I know now about real estate and I changed course and bought a convenience store. I ran the store for 5 long years, even purchased 3 SFH back then. Sold the store. And listen to family and purchased a motel and also sold the houses. Lost my shirt in the motel after 10 years, sold it I did one of the most stupid things in my life I opened a restaurant (because of ego). During all this I would look at houses duplexes and multi family properties but never pull the trigger on one. I am 54 now, I am now finally building a portfolio of real estate properties. YOU CAN START ANYTIME, JUST DO IT, WHATS THE WORST THAT CAN HAPPEN!!
My mistake was about getting too comfortable and thinking I was better than I really was. After doing 3 great deals to start my career I bought 2 properties where the numbers were tight. Things didn't work out as well and it took me about a year to get out of that hole. Stay prudent on your numbers as your confidence gets higher with every successful deal.
Just keep in mind that nobody, in any situation, will respect your property as much as you do.