Seeking (More!) Biggest Mistake/Lesson Learned Stories

86 Replies

Hello BP investors!

I am looking for (more!) BP members to interview about their biggest real estate mistakes and what they learned from them for possible publication in BiggerPockets Wealth Magazine.

Stories will include details about the project, challenges it created, and lessons you learned.

If you have an interesting story to share that you think has some great lessons that others can learn from, please post here or email me directly at melanie @ biggerpockets.com with a few short details.

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

Good evening,

One of the biggest mistakes I made as a new investor was not having my legal structure in place. I was so eager to get started in real estate at the time that I actually started inquiring about purchasing rental properties off of Craigslist. Anyways, through craigslist I met a scammer little did I know at the time, it would be one of the best things that's ever happened to me. He was offering me an 18% return on my investment of $6,000 to help fund one of his rehabs. Seemed like a no brainer with me being military and strapped for time this was just the place to start making money. Long story short I never had a legal structure in place and never had his promissory note looked at prior to signing because I didn't want to spend the money on it. Please don't be cheap about legalities and legal business structure for your real estate deals, especially if you're partnering up with someone you don't know! 

 Hi Melanie.                                                                                                                                                                                                                                                                                       Have more stories then three magazines

     But I don't have a Premium or Pro account !

       So your boss won't allow the BP community to 

                            Hear them.

@Melanie Stephens

I am still growing as an investor, but the worse thing that has happened to me was our current live-in flip recent acquisitions. I purchased the property from a long distance, California to Alabama, and decided to start the REHAB work with a contractor. The price seemed fair, and at first, the work and status updates flowed in regularly. However, once it was time to move and live in the home, the contractor started to make excuses on why the home would not be completed at the agreed time. Having an M.S focusing on government contracting, I knew that I should have placed a cost, schedule, performance contract before the start. Long story short, the rehab was scheduled to be finished on 16DEC2020 but is still going on. Lesson learned, do exactly what David Greene said in Long-Distance Real Estate Investing and place an incentives-based contract on any rehab project you do.

Sincerely 

Josh 

@Melanie Stephens my lesson learned was while purchasing properties that I thought were a great deals around the economic downturn around 2008. My focus was in a neighborhood that I thought would turn around once the economy improved, so BRRRR quite a few properties. Several very bumpy years went by and the neighborhood only got worse. I have since unloaded all of the properties; some I sold for less than I paid, some I gave back to the original owners. Lesson learned, due diligence is key. Be extremely cautious with your numbers and where you run them; especially during volital recovery times. Good deals are not always sound investments!

My worst mistake was entering into a government sponsored program to delead a property. On paper it all seems like it should be great! Per the contract I got $96,000 worth of work covered by the program and I contributed about $11,000. The problem is you have no choice in the contractors they select. I ended up with the most incompetent contractor I have ever met!  He walked away finishing approximately $17,000 worth of work that the city won’t stand behind. The city refused to follow there own contract and policies during the process and overall it took approximately a year longer to finish that it should have taken costing me thousands over the original estimates and months upon months of lost rent!

Mistake: 

Early on after moving to a new market, I joined a local investment group. Had done a couple of deals and was slowly building a solid reputation with the other investors in the group. New guy came into the group who immediately gave "used-car-salesmen" vibes. He promised a one-stop-shop - Agent/PM business - that could get 2%+ cash-on-cash returns. 

I had no interest in following him into any ventures, but a couple other investors went for it. One of those investors was someone I'd already been buying properties with in a different market. At the time I thought, "Oh well, guess he'll figure it out eventually." 

Problem was, this partner I'd invested with was the cash cow of the group. He made an excellent salary and was leveraging up so that he could acquire enough buildings to retire. He eventually bought enough units with the Agent/PM that he became the largest client. That's when the Agent/PM decided to expand the operation and bring in help.

It first started with helping people earn their agent license at a discount (nothing wrong there) and then led to hiring help on the PM side. That's where I joined in. 

At the time I didn't have a job, just a stay-at-home dad trying to build a real estate investing career. I was offered a job helping with PM, and since my investing partner was a heavy customer, I thought it was a great opportunity. After all, I'm not the one risking any money with this operation. 

Problem is, the Agent/PM had the same reputation he's ever had. It finally hit me the first meetup I went to where I had to announce I was joining up with this Agent/PM. I'd previously told some of the group that I'd never invest with the Agent/PM, and here I was joining up and helping others invest with him. I was now associated with him, and we all know how guilt by association works. Overall, it felt pretty dirty.

Luckily the operation didn't last much longer and I backed out without much damage. However, I have to imagine my reputation took a hit with some of the other investors in the group. I learned a big lesson about not soiling one's Character for a paycheck. Even if I wasn't doing any of the "dirty work" I was still involved. 

Lesson: Your reputation means more than a few dollars. Avoid shady characters like the plague. 

My biggest mistake was NOT buying a property. I was 22, in the military, renting a 2 bed/2 bath condo in Kailua, Hawaii in 2011 and the owner's had it on the market to sell. It had been listed for a few months but no movement. My roommate was leaving the island and I could not afford the rent on my own but when I looked into how much the house was and would cost, I could easily afford the mortgage payments and the down payment (if I didn't use the VA loan). I was all about it, but received advice from my parents that I should not buy because I was too young. And because I was in the military, everyone said buying was not worth it since we leave every few years. I knew there were two new high-rise developments being built within the next 2 years and that the economy there was rising but I didn't understand much else and because everyone had such negative things to say, I stopped looking into it. Even though I thought it would be a great investment, I listened to everyone else...long story short, 10 years later it has more than doubled in value and the cash flow would be RIDICULOUS. I've kept my eye on it ever since and I kick my self for not trusting my own thoughts. At the time, I had no idea what real estate investing was but the lesson I learned was to trust my own opinion and to do my own research. So many people doubt the power of real estate investing because they only see the risk. Do your own research and only seek advice from those who believe in REI! I only recently discovered Bigger Pockets and the first podcast I saw was with Scott McGillivray and he talked about his biggest RE regret was not buying units in Hawaii that have now soared in value...it opened an old wound!

Never, ever use a commercial lender. That's the general rule. Sure, there are some exceptions but here's a number of things that most people don't realize about commercial lenders:

  • -RESPA doesn't apply
  • -the safety measures and protections afforded by Frank-Dodd also don't apply
  • -the interest rate charged is going to be higher
  • -there are going to be lots of extra fees and expenses which might be illegal with a residential lender, but not with a commercial lender!!!
  • -You are still personally liable. That's right, that LLC that you bought doesn't do you any good whatsoever as far as the lender is concerned. Does a global pandemic cause an economic disaster resulting in your tenants losing all of their jobs and thereby unable to pay rent? Your commercial lender doesn't care!!! So you get to pay those mortgages and if you don't, that commercial lender is going to go after your primary residence and other personal assets

    So in short, using a commercial lender costs more to close on a loan, charges a higher interest rate, affords you absolutely no protections whatsoever and you're just as personally liable as you would be with a residential loan. So what is the point of using a commercial lender in the first place then?

    The answer, there is no point!

    Unless you were buying a commercial property like a mall or a parking lot, make the deal work with a residential loan or don't do it.

    Originally posted by @Patrick Britton :

    Never, ever use a commercial lender. That's the general rule. Sure, there are some exceptions but here's a number of things that most people don't realize about commercial lenders:

    • -RESPA doesn't apply
    • -the safety measures and protections afforded by Frank-Dodd also don't apply
    • -the interest rate charged is going to be higher
    • -there are going to be lots of extra fees and expenses which might be illegal with a residential lender, but not with a commercial lender!!!
    • -You are still personally liable. That's right, that LLC that you bought doesn't do you any good whatsoever as far as the lender is concerned. Does a global pandemic cause an economic disaster resulting in your tenants losing all of their jobs and thereby unable to pay rent? Your commercial lender doesn't care!!! So you get to pay those mortgages and if you don't, that commercial lender is going to go after your primary residence and other personal assets

      So in short, using a commercial lender costs more to close on a loan, charges a higher interest rate, affords you absolutely no protections whatsoever and you're just as personally liable as you would be with a residential loan. So what is the point of using a commercial lender in the first place then?

      The answer, there is no point!

      Unless you were buying a commercial property like a mall or a parking lot, make the deal work with a residential loan or don't do it.

      What if you are foreigner who can't get conventional loans? What if you are after 10 conventional loans? Then you need to take that hml or move to private money... 

      Worst mistake in my short few years investing.  I bought a house to rehab for a buy and hold. The 79 year old owner moved out and a few days prior to closing she moved back in! - the agent explained that she had lived in the house for 25+years and didn’t feel at home in her new assisted living arrangement and wanted to be my tenant. I offered to not continue with the purchase the property but she wanted me to buy it. My property manager said it probably was not a good idea and he was indeed correct! I felt bad for the old woman since I have an 83 yr old mom and figured that she would keep to herself and not be a problem. Anyway, it was explained to her  that there were safety issues that needed repair immediately as well as other non-cosmetic repairs such as the plumbing. She was ok with that at the time. Anyway, I schedule for electrical and plumbing work to be done. At first, she wouldnt answer the phone and the property manager had to go over and bang on the door to talk to her. Ok, she finally let the electrician in but he only fixed a couple of items and left. I have not gotten a return call about finishing the job a month later. 
      while waiting for the electrician to get back with me after several calls,I hired a reputable plumber to replace every pipe in the house bc in the past, the 60+ yr old pipes have been the highest costs for all of my properties and for 3k and no headaches, it was well worth it. Well, she let him in, and as a good gesture, he even gave her a new toilet bc the old one was 60+ yrs old. She thanked him and was very pleased with the work and the lovely new toilet UNTIL the next day. She complained about everything he did and said he was replacing perfectly good pipes (not the case) and doesn’t want him in HER house or working on the scheduled Well work on HER property. I still had to do the Well repairs, new pipes and new filters to replace so she can have the great drinking water she deserves. I told the plumber not to notify her and just do the work. Long story short, she was obviously going into the assisted living for a good reason (maybe some dementia issues) and she still thinks my property is here! I  guess I’m going to have to ride this one out until lease is up or if she will cooperate at some point maybe I’ll let her stay. I even knocked off a couple of hundred dollars off her rent to help her out.  
      Never, never again will I go against the property manager’s recommendations or lease back to an owner no matter their age. Lesson learned! 

      @Melanie Stephens

      Buying a deal in the snow belt with negative migration and boarded up properties on the same street despite rosy talk from all the real estate agents on BP from the same market regarding great cash flow etc.

      It doesn’t matter what the BP calculator or your own spreadsheet says about the deal.

      YOU WILL LOSE MONEY.

      Mistake:

      Managing contractors out of town. I bought a property about two hours away. I got a great deal on it, needed a lot of work. I didn't have any contractors out there, and I found a guy to clean it up and he said he also did remodel work and gave me a business card. I saw that he had a crew with him, so I rushed into it and gave him the job because I was in a rush and wanted to get people working on it. My first mistake was being lazy there, but my bigger mistake was seeing the progression of his work turn into a nightmare and not taking assertive action to get him off the job. Long story short, after I had paid him 10K over 3 months (he said he would be done in 1 month) he ghosted me and I brought in a guy from where I am at that I have used on many jobs and he basically had to redo everything the guy did and more. Rehab ended up costing at least 15K more because of contractor management. So the moral of the story is to always maintain control of your contractors and thoroughly vet them before giving them any big jobs.

      As a professional that handles renovations full time, the biggest lesson learned I have had is managing projects to stay on budget.  I find it to be a disservice to my clients to underbid to stay competitive to get work under my belt.

      100% of the projects I have done go over budget.  Either at the homeowner's request or because of unforeseen situations that arise.  Here are my top lessons learned

      1. Account for the unexpected.  I typically like to account for a 15% overage on my overall bid for contingencies.  This may be mold, it may be additional work needed, it may be upgrades, either way, the money is there and pre-budgeted.  

      2. You need plans.  Period.

      3. Don't start work immediately.  HAVE A PLAN!

      4. Set milestones on work being completed.

      5. Communication.  Constant communication through projects is essential.  Even if a project is not going as expected, keep it professional on both ends.  It's in both the contractor's and client's best interest to finish the project.

      6. If something is unclear about the project ASK QUESTIONS.  Will this cost X?  Why do I need this?  Is this a suggestion/upsell or a must-do?

      OHH I have so much more!

      We tried to self-manage our first property with no knowledge of how to do it.  We rented to a friend's daughter (1st mistake), no background check, no references, no questions asked (2nd mistkae). After no payments & threats from the tenant (waiting too long to take action was our 3rd mistake), we ended up saying get out in 5 days & you won't owe us anything - or, we'll start the evection process which will go on your record.  She left. Best learning experience of our investing careers.   We brought in a PM company and it's been smooth sailing ever since.

      My worst mistake was not getting to know people who were doing what I wanted to do for a long time. This isn't the case for real estate since when I started looking into real estate, I learned my lesson and got a coach, started attending meetups, and got educational programs. However before when pursued entrepreneurship, affiliate marketing, etc. I would just read the material and not make the social connection. I wasted so much time, energy, and a small bit of money on dreams that never got realized since it's a game of who and not how. Like most people say on the Bigger Pockets podcast their favorite book, which is Rich Dad, Poor Dad, it's a game of mentorship.

      My worst mistake is taking the genius advice on here about getting an agent and trying to find deals on the MLS . What a joke ! If it's on the market the deal already sucks and most agents can't organize the time and resources to pick their own nose ! Resulted in a lot of wasted time and money making multiple offers waiting around and all the games played by these hucksters

      -investing in too many condos -it was ok early on when that was just about all I could afford but I should have moved to SFH much sooner instead of buying a rental condo for my first 4 investments... the HOA assessments kill the ROI compared to SFHs

      -not vetting people I work with a little better.  Got burned by a property manager and repair contractor who ran off with my money.  There were plenty of red flags to be found if I spent a little more time researching their info online.

      One of my biggest mistakes was when I took something for just assuming somebody else would take care of something without my daily update phone call.  I was ultimately responsible for it's completion.  You need to check up and motivate others regularly and never assume anything will get done by others on anything you are ultimately responsible for.  Be in control.

      Good luck on your article. The story you should be telling is for every one of these I took a loss and came back stories there are hundred's more of one and done folks who lost way more. They for the most part dont circle back to recap what went wrong. My entire portfolio was built on the backs of dreamy Bigger Pocket types who got in over their heads. 

      Maybe tell that story that most in investment real estate fail. 

      @Patrick Britton

      I had 2 great experiences with commercial loans last year.

      Yes, the interest rate was a tad higher, but I only had to put down 20% instead of typical 25% for investment properties. The second loan was getting a mortgage on a paid off property.. cost me a total of $885 to take out $60k.

      Small 3 branch local bank.

      How about thinking that you are so smart, that you can create your own Grant Deed and sign title to your home over to your boyfriend.  My taxes went up because we were not married.  Oh boy, I could have lost my home.  The good news is that my boyfriend did sign the title back to me when we broke up.  But my taxes went up again.  Don't ever sign over the title to your home to anybody.  I wish that my mother had mentioned this to me.  I do not know what I was thinking when I was only 24 years old.  

      If my boyfriend refused to sign over title, then I would have to spent more money suing him.  Things could have gone bad.  I could have been homeless but still liable for the loan payments.  This was not too smart.  Don't sign over title.  I asked my lender what to do and she said that the Loan always goes with the title.  When my boyfriend wanted me off title on the second home, I had to find my voice and suggest that he also get his own loan in order to get me off the title.  It took a lot of support from my loan broker but thank you, this sage advice helped me understand more about real estate and responsibility and ownership.

      @Shari M Port

      I had a similar experience with an elderly lady I bought a home from. One thing that ended up helping quite a bit it's that I was able to locate and speak with her family who eventually got more involved. They ended up moving her to a home which turned out to be extremely necessary as she was becoming a danger to herself.

      Biggest mistake was walking away.


      Sold rental condo in 2017 as our tenant was leaving and we thought it needed significant updates. Didn’t want to pour money into it, deal with contractors, or find a new tenant. So we sold, paid down some other debt and built savings up. Keep in mind that it was cash flowing and had a near zero vacancy rate due to being in a desirable area. Also very few headaches being a condo with few maintenance issues.

      Three years later... Just recently saw our old condo get listed and sell for about $20k more than what we sold it for. The new owner had made no major updates to it. Also, rents in that complex are going for about $200 more per month now. We’re getting ready to close on a new investment property and my biggest regret is walking away from the last one.

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