What was your biggest mistake investing?
Real Estate Investor · New York, NY · Member since 2008 · 139 posts · 5 votes
Thought some of us could learn from others mistakes here. Are you all willing to cop to your mistakes? Let us learn from your small misfortunes.
So: What was your biggest mistake investing?
Some extra two cents;
txboy, I drive neighborhoods that interest me all the time, at all hours of the day. In a market as big as the metroplex you need to really narrow focus. Does the neighborhood feel "comfortable", not too many cars parked on the streets overnight, not ANY cars parked in yards, lawns mowed and not messy, they don't have to all look like yard of the month, but "pride of ownership" shows through in all socio-economic classes!
When I lived in Houston I knew 5 subdivisions in my "farm" area, smallest had 500 houses, biggest had 1800, that I actually submitted offers on 3 houses WITHOUT EVER SEEING THEM.
Which leads to a huge mistake that hurts anyone, in any industry, and that is PROCRASTINATION. I believe it was in Robt Allen's "Nothing Down" that when you see a potential deal you should not; go and ask a bunch of people's advice, get a haircut, THINK about it, pray about it or anything else, just go DO IT. Or at least tie it up.
About 20 years ago I saw an ad in the local Greensheet, 3/2/2 discount for cash, and a phone number. I called the number and left a message. I then used the reverse directory to get the name and address for that number, the address was on the other side of town from the subdivision listed in the ad, so I looked at the tax records to get other addresses for that name and found one in that sub. I went the address, vacant, found an "open" window and gave the inside a quick once over and talked to the neighbors.
By the time the seller called me back at 5:30 I already had a contract filled out except for price, at 6:30 we had both signed.
The next day I was sitting in the RE office where I had my license (part timer, strictly for working the foreclosure market) and one of the other agents saw the ad in the Greensheet. "Hey, this subdiv. is close by, maybe I'll call tonight and see about it". I told him I had had it under contract for 24 hours already. He didn't believe me so I told him to call the ad and ask the guy.
Price of all my time to track down and check out, about $25-$50
Knowing that you're FIRST on a slam dunk, priceless!
all cash
I spent way too much time dealing with unmotivated sellers. I was told, "you will know a motivated seller when you see one." That turned out to be SO true. They are the folks that hardly ask any questions (if they ask any at all) and will practically give you their house just to be rid of it.
Okay my biggest mistake was the second rehab I bought. It was and hopefully will continue to be the only house I've lost money on.
1933 Aspen.
My partner and I don't even talk about it anymore. It still actually makes me nauseated when I drive down that street.
Here's what I did wrong. I paid $58K for it when it should have been more like $45K. I made it way too nice for the neighborhood and I mean WAY TOO nice. I put almost $30K (that includes my own labor) into it when it should have been more like $15K. My calculation of ARV was factored off the tax appraisal and general price per square foot comps for the area. The tax office and I didn't understand what overbuilt for the neighborhood did to an ARV. It decreases the value per foot if you didn't already know. The actual ARV was 10% less than what I originally factored. And to top it all off we took over a year to fix it up and resell it. A year at 12% interest with taxes and insurance means OUCH.
When it was all said and done, I had to sell it for $17,000 less than what we had put into it to fix it up and on top of that I had spent $12,000 in holding costs over the course of the year. Grand total of almost $30,000 in the hole. By the time it was over it had eaten all of our start up capital and the company still owed my partner and his construction company $17,000.
My partner and I seriously discussed quitting real estate investments. We evidently did not know what we were doing, and it was painfully clear that our ignorance was costing us dearly.
Somehow we stuck through it and managed to scape up enough funds to buy, fix up, and sell our next rehab deal. A deal that thankfully made us a decent profit and put us back into the game.
My biggest mistake was not starting sooner in life.
......... Let us all be......... patient. :beer:
I'd like to second the "be patient" and "do your homework" themes in contrast to the "just do it" posts. I'll only name one since I try to block out most of my biggest mistakes.
While working for a developer, I was able to purchase a residential lot for $30,000 below market value. I got greedy and decided that I could make more money if I built a new house on the lot to sell. After almost 8 months of learning that I knew nothing about the construction business and another year of being too stubborn to cut my losses I sold the house at breakeven.
If I had just sold the lot and taken profits I'd have made at least $30,000 and I'd have been able to focus on the job I was doing for the developer which would have meant at least another $30,000 in commissions.
Lessons learned: Do what you know, if you want to do something new, start on a small scale that will prevent you from losing your *** if you make mistakes, because you will make mistakes.
OK OK here is a few.
1. Tried to be a landlord, I now have a PM taking care of everything. So nice just getting a check once a month.
2. Bought a house for a rental at rental value. It needed work. Lost my job and decided to relocate and also decided to sell that house at wholesale to break even turns out wholesale is causing me to take a $8,000 lose do to the fact I didn't think a retaining wall needed replaced. A few other things needed to be taken care of and I thought the rent would be $100 more a month. Makes me sick just thinking of it. The funny part is I just made $170,000 on a property that I lived in and fixed up, you think I would just cut my loses and move on. But no I will make it work even If I have to do owner financing. That way I get the full experience. The more I fail the more I learn :mrgreen: That part the gets me the most is I thought I did my home work. I now have an S.O.P. sheet that I sign off on to make sure this won't happen again. Stupid $8,000 lose.
3. Tell my family what I'm doing, I'm single so I won't recommend not telling your wife. she won't like the fact you lost $8,000. It was pretty cool to show my dad my check for $170,000. he is the only one that knows what I made. its better to show what you did than tell everyone what your going to do.
I hope someone reading this learns from me. It's to much to tell if I told you everything I done to prevent another lose like this. HAVE A PLAN.
Get this, I've almost always made money when buying properties. Only a few times I broke even when I first started but I gained experience so I made up for it in that department.
But my biggest mistake was buying some paper assets. And they were suppose to be "First Mortgages". So you'd think they're secure right? Wrong! I lost several hundred thousand. The most costly learning mistake of my life.
So my advice....just buy properties. The worst that could probably ever happen is you end up "breaking even". That way you'll never get burnt. Learn from a guy who felt the pain already rather than having to feel it yourself. But if you really want to feel pain then just pay me $100 bucks and I'll give you a swift kick between the legs.
I overpriced my rental by $175. I fixed the place up really nice, but the local market wasn't going for it at that price. Additional rehabs eventually took off in the neighborhood, and things are looking up. The city (Indianapolis) is doing a redevelopment study in the area.
lack of focus. it's great to be a "transaction engineer" as they say and be able to make money on any transaction that comes your way but it doesn't happen overnight. i would have been better off to define more specific goals (ie. preforeclosures only) and then stick with them until i got really good at it. otherwise you'll end up knowing a little about a lot of ways to make money in real estate but won't really be an expert at any of them.