My First 5 Deals Went Horribly Wrong. What Next?
Let's say the quick and dirty is, I (like so many) investors had taken too many courses from national speakers in TX, FL (and everywhere NOT in New England), and had still not done a deal. I forced myself to do a deal before a shampoo bottle ran out (many know the shampoo bottle story - I'll post if need be). Every day, I'd use the bottle, and a little more would be gone. I used the bottle to hold me accountable. So when my first opportunity came about with an out of state contact that was not only going to help me get my first deal done but also teach me everything I needed to know about lease options, I forced myself to take action.
And I didn't just do ONE, I did my first FIVE, and was THRILLED I was finally a real estate investor!
The first five were out of state, and my buddy here in Boston and I were relying on this birddog / property manager to help these lease options go right... the in-state contact needed a credit partner (alarm #1). When I closed on FIVE of the deals in a week, I went out to celebrate. The big alarm #2 hit when all of a sudden, we couldn't get a hold of the guy (who got paid some of his up front money at the closing, for finding the deals).
All said and done, the tenant buyers weren't real, the only one he lined up never paid, he vanished, and the houses sat at the PEAK of the market in 2005, and the value dropped... and dropped... and eventually, I lost all my money and couldn't afford the $17K per month in mortgage payments these 5 deals were costing me.
My cell phone was ringing literally every 48 seconds with another automated collections call from the mortgage company (who I had 10 loans with!). I shut it off and put it in my drawer. Anytime I heard a phone ringtone like mine, I shook. Sometimes, I still get anxiety to this day.
My first 5 deals ended up with 4 short sales and a 5th approved short sale, but because "EMC Mortgage is moving their office, so I'm sure the Texas office has your file" , ended up getting lost and went to foreclosure. All this went down in 2005 / 2006.
Tough Start. Especially when I just signed anything and everything to sell these damn liabilities, and ended up with not only irreparable credit, but $400K in judgments and collections accounts I signed when I sold them.
Call me self-disciplined or call me an idiot, I didn't believe in bankruptcy.
[b][u]The important thing to learn was: What happened after?
Credit was the least of my worries when I was coming out of my troubles. I still had a fear of the telephone (from the collection calls coming every 48 seconds from the banks), my cash was gone, and my pride was hurt. I mean, though I would have liked to, could I really blame anyone else but me for what happened? I was in bad shape, and stuck my head in the sand for a while before I attempted to gather the courage to move forward… for the second time, with a lot less resources.
You know how they say that getting over the first deal, makes everything much easier? That’s not necessarily true when the first deals go so badly. Getting over the SECOND hump was truly harder than the first.
Here are the 9 steps I took, after I had gone through that awful experience:
1. I Took Time to Rest, and Re-evaluate.
Was real estate really for me? Obviously not. I screwed up… big time. No matter how much I wanted to blame that out of state partner, I SHOULD HAVE known what I was doing. I SHOULD HAVE done more background checks. I SHOULD HAVE listened to my friends, who all had 9-5 jobs, who told me I was crazy for doing something like this.
And at the end, I re-evaluated my situation. I started with a 790 credit score, and some decent bank reserves. I was now left with less than $10K to my name, and a score I couldn’t even bear to check (I think it went below 400 at one point). So what do I do? Lay low. I’ll keep my bank job for a while longer. Build up some cash again, save for retirement, pay down debt. Just like those smart, traditional financial planners teach us to do.
Then again… what about all those infomercials I saw on TV? They were STILL eating at me. And what about all those cashflow projections I ran? Gosh… real estate still seems to be a really great vehicle for making money if you know what you’re doing—IF you’re educated, and don’t get swindled.
And so, it began to eat at me again.
2. CHANGED my MINDSET, back to a positive one.
OK, I went through an awful place in my life. Let’s hope this is the worst thing that ever happens (as it turned out, that was only the start of my life challenges, but we grow stronger!). Does it mean that real estate itself is bad? What are the takeaways I can learn from this whole situation?
I learned / re-realized that real estate is still a great tool to build wealth, with proper education & training.
I learned that sometimes, no matter how many background checks you perform, someone can still choose to be unethical & be untrustworthy at a moment’s notice. All I can do is mitigate that possibility as best I can.
3. Realized I was the ONLY ONE responsible for my future.
My success, OR my failures, are a direct result of what actions I take. My actions are a direct result of how I think, plan, and react to things. In the end, no one else was going to look out for me. I knew that I had to look out for me and my financial future. This meant making some serious changes. The scariest, as I mentioned before, was knowing I had to get back on my feet at some point, and getting back into the real estate game.
I knew I needed to start learning again. Back to the online forums, and I still had a couple of those seminars I had paid for, left to attend. “I better damn well get something out of them”, I thought to myself. (Despite the fact all the “gurus” were from out of state, and had little clue about the Boston market).
4. Changed my strategies, & revamped my business models to be ULTRA-conservative.
Here’s where I started taking my new outlook on life into a plan, by writing down my NEW business onto a sheet of paper. Having analyzed my resources, I had little cash, and no credit to speak of. I CERTAINLY was too gun-shy to get into another partnership right away. What real estate strategy fit best with my situation?
I chose wholesaling to start. And I was determined to NOT lose money on a deal EVER again, even if that meant I had to submit 10 times as many offers. I carried this philosophy through to my wholesaling business. If I could find deals using my own new-found ultra-conservative business methods (this was back in 2006 / 2007), and built partnerships with good rehabber / buyers who would buy my deals, I knew I could learn a bit from them, and see where I could go next once I was comfortable and had some resources. My new business model was the MAO approach (60% ARV, less rehab, less $30K profit, less my fee). I OVERESTIMATED rehab, AND included a 10% fudge factor. I UNDERESTIMATED my ARV, usually by 10-15%.
5. Identified and started to set up SYSTEMS.
A guru (or two, or six) once taught me CONSISTENCY in my marketing was the key. Wholesaling was a business based almost entirely on marketing, so I knew I had to hold myself ACCOUNTABLE for doing certain things every week. Using my manuals, bootcamps & procedures I had gained from several guru courses, I started putting together what would eventually be my standard operating procedures, and flowchart for my business. My writing these down and putting these in place, I would NEVER forget any steps, and could add things as I went, to make my business better and better. For those that have seen me speak on my systems, I now SWEAR by them. This was also a key way for me to hold myself accountable – FORCING myself to stay on track and keep going.
6. EXECUTED the new business.
The hardest part was jumping back in. I now had my systems, armed with education and learning experiences I knew I would never replicate again, and the beginning of a POWER TEAM, and the only logical next step was to jump back in the marketing game, to get my wholesale business booming.
Any good wholesaler will tell you, ANY money you put into marketing, especially SMART marketing, is ALWAYS worth it. I didn’t have much money left, so I borrowed against my 401K and used my measly paycheck earnings to start my marketing machine going. I knew EXACTLY (to the penny) how much I had coming in, and how much I needed to live on, and how much it cost me to send out each round of marketing. However, I DID leave an awful lot of debts unpaid, while I convinced myself I NEEDED to make this work, in order to pay off all my bad debts and awful creditors from my “learning experience”, and finally start building my bank account again.
But first, I needed to get over my fear of the phone, especially when just a short few months before, it was ringing off the hook with collections calls.
7. FORCED myself to make calls and answer the phone.
Want a humbling experience as a real estate investor? Try calling FSBOs and For Rent ads in the local newspaper. See if you find anyone interested and motivated to sell to you. You’ll get a LOT of rejection, and maybe this rejection will make you uncomfortable. GOOD! That’s the POINT. You can ONLY SUCCEED and BREAK OUT of your current situation, when you do things that make you uncomfortable.
I still remember the day I took my phone out of my drawer, and plugged it in, and turned it on. I had SERIOUS issues, thinking it would still be ringing and ringing and ringing with the banks, on their auto-callers, trying to get me for what I had left them with. To my SHOCK, it had stopped ringing. But I knew I’d have issues again once homeowners started to call me, from my marketing.
I needed to go back into changing my mindset, and start thinking of the POSITIVES. Imagine how I would be HELPING those homeowners out of a troubling situation, like mine. Imagine how I would be structuring a win-win-win for all parties involved, using my marketing expertise and negotiation alone. Imagine the CASH coming back into my account, again… these thoughts, over and over again, and me FORCING myself (literally) to answer my phone and call people back, finally started to pay off.
As a side note… this is also where I learned to FOCUS, and NOT procrastinate with my uncomfortable actions. I knew each night I needed to spend at LEAST 1 hour on the phone talking to homeowners.
This meant: STOP over-checking e-mail, STOP reading online, STOP “gathering materials I would need before I could make the calls”, and NOT put down the phone until I had made my calls.
My motto at that time which I said to myself over and over again was, “Nick, SHUT UP and DO IT.” Sometimes, when you think about it really hard, your whole entire life can change with these words, if you say them, and MEAN them.
8. Ramped up my Networking, Finalized my POWER TEAM.
A GREAT way for me to stay motivated was to surround myself with like-minded people. I found them at the REIAs, or real estate investment clubs. We’re lucky in Massachusetts, as we have a ton now. At the time, I joined one and started forming new relationships, and using referrals, I started to rebuild my team of professionals (real estate agents, attorneys, accountants, contractors, local successful mentors, hard money lenders, etc).
9. Began MAKING OFFERS
As I stayed CONSISTENT in my marketing, all of a sudden, the IMPOSSIBLE happened – I started getting calls!! And then – the SECOND impossible thing happened… after a bunch of screw ups, I managed to get a DEAL!! AND I even managed to sell it to an investor-buyer I had met at the REIA!!
The very first paycheck I made in my NEW business, was SO much more rewarding than the paycheck I had made the first time around… and it was less than 100 times the size. But, I knew I was finally doing it right.
Where I Went From There
Over the long term, after my credit was damaged, I started wholesaling to build up some cash again, and to pay down the bad debt that had formed as a result of my experience. Having learned to be ultra conservative in my structuring of deals and in analyzing the numbers, I then brought that into the rehabbing & condo conversion arena just a short 10 months later, using the cash I had built up, to test all what I had learned. After a few successful rehabs, and through my networking efforts, I then was approached by a few individuals looking for me to put their money & credit to work, and the rest, is history.
Now, I find myself looking to do 45 rehabs this year, with a TREMENDOUS team behind me – a real estate brokerage with some GREAT investor-friendly agents, a coaching program with incredibly motivated & deserving students, a short sale company that specializes in helping homeowners go through the tough change in their lives (that I went through only a short 5 years ago), a tight in-house property management company that oversees my out of state acquisitions, a full-service investment servicing company for my fantastic investors & partners, and even a couple Edible Arrangements stores, for differentiation and to keep my Mom happy. (Love you, Mom!)
Looking back on it, believe it or not, I would NOT have changed ANYTHING. Everything I went through led me to where I am today – I wake up every morning never knowing what to expect. I LOVE not working 9-5 (or, 7 to 7, as it was in my case). I LOVE running through potential rehabs, and seeing the vision of a beautiful home. I LOVE structuring the win-win situations with homeowners & sellers. I have come into contact and made some GREAT personal & professional relationships over the last few years, many of which would not be possible were it not for what I learned and went through.
If you’re going through some challenges now, or have in the past, know that YOU have this same ability to dramatically change your life.
Make your own steps, and feel free to use these steps here as a guide. Refocus, plan, and then go for it. Set up systems, and hold yourself accountable.
No excuses. “Shut up, and DO IT.”
Your partner & coach,