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
I have an interesting one. I develop large multifamily properties in NYC and do a random residential flip on the side with some friends.
Developments went great, flip ended up loosing money even though numbers were solid (I think any flipper would pick that deal up in a heart beat even now).
Basically, I focused so much on the development, raising capital and new larger deals that the flip took a back seat. The deal had so much margin that I was convinced I could be slightly relaxed with this and still make a ton.
Contractors ended up taking advantage, overbilled, underperformed, finishings were horrible and no offer went through. I also got stuck with maturity default interest because the hard money loan had matured, even though it was never late. Now I paid out most of the investors and hold it as a rental.
Lessons:
1. Multiple exit strategies
2. Flips are time sensitive - do NOT wait on anything
3. Be on top of your contractors if you’re not building it yourself
When renting out an NYC room in a co-op, I got a strange vibe from an applicant, but their employment checked out and they had good credit, so I moved forward with them. Within a month of their move-in, they were calling to complain about "white noise" from another apartment, cigar smoke coming up from the street and the fact that their new roommate used plastic forks and knives, which made him "sad". Two weeks later, he called 311, the NYC hotline, to report our super for smoking cigarettes in the elevator, which called attention to the fact that I was renting out a coop, without the board's permission. This prompted threatening letters of forced sale from the board and damaged an already tenuous relationship. He lived there a total of six weeks and nearly put us in a position that could have cost us a ton. Should have listened to my gut. And asked for references.
@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.
Learn how to work well with others. Read How to Win Friends and Influence People. I can't believe I'm about to write this phrase, but here we go - When I was your age I really could have used that information.
@Justin R. This is an old post, but wow...that is a crazy story! Sorry to hear it happened to you, but I'll be sure to use your advice for wires.
@Travis Watts Yes, this is something not too many talk about, but I was involved in a syndication that didn't go well too. This actually taught me to do my own deals, so that have more control (not total control) over the outcome. Lesson learned.
@Elijah Vo Thank you for sharing. Part of becoming a professional investor is understanding risk and that not every deal will be a winner. I did house flips back in the day and some were very profitable; others were not so profitable. I have invested passively in multifamily syndications that were amazing 39%+ IRR and others that were not so great. One primary objective is to have the winners outpace the losers. If you seek to have more control, active investing can certainly be a good approach (to your point). I seek to free up my time, so passive investing is the right strategy for me.
@Travis Watts Agreed on winners vs losers...just that hard lesson pushed me into what I'm doing now, which I enjoy. Not sure about the passive, but who knows; a lot can change over the years. Eventually, I think I'd like to hit a level where I can cherry pick 1 or 2 interesting projects a year to work on.