Non-success Story

Non-success Story

Bill S.Pro Member
Moderator
Rental Property Investor 路 Denver, CO 路 Member since 2013 路 4k+ posts 路 2k+ votes

So there ought to be a forum section for mistakes. A place where we can post our defeats, where we can process what went wrong and share with others so they can avoid the pain. Since that doesn't exist. I'll post here.

My out of state (Cheyenne Wyoming) real estate venture has wrapped up. I lost money despite selling for more than I purchased it for. I had holding costs plus some work I did. It was an updown duplex that had an ARV of about $150K but just couldn't get it done. I was under capitalized and under staffed.

Bought for $27,000 held for 2.5 years sold for $42,500. Paid heat, lights, water, sewer, garbage, taxes, and insurance. Adds up over time. Also did about $7k of work plus closing costs on both ends. Still had about $50K to go. Just couldn't get up there to get the work done or dedicate the funds to pay someone local to get 'er done. Someone offered me money to walk away and I took it. I now know how don't wanters feel. Very glad to sell and be done. All in I probably lost about $5K not to mention the amount of my own time I sunk into trying to get stuff done. I planned to do the work myself since I couldn't make myself pay the local contractors their outrageous prices. Huge mistake. Time is probably the biggest loss. I'm sure had I used that time to work my deals down here in Denver I could have actually made money.

Lots of issues with the cost of local contractors. I was getting quotes about 3x-5x what I could get the work done locally. None of the plumbers had heard of PEX and the list goes on. Huge local prejudice against carpetbaggers like myself. I know the bids they gave me included a non-local markup. They could do that because the local oil field market had sucked up all available labor talent.

Moral of the story for me, stay close to home and do what I know. Plan to hire the work done, get bids for work I don't know what it will actually cost and allocate the funds to pay someone to do the work.

Learn from my mistakes fellow BPers.

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Joel OwensBusiness Member
Moderator
Real Estate Broker 路 Canton, GA 路 Member since 2010 路 15k+ posts 路 11k+ votes
10y

What I looked at years ago was just the RETURN. I quickly learned it's about how much time and energy it takes to create that return. 

Today I think long and hard about the whole process and what the possible exits will be A,B,C etc. I begin with the end in mind for acquisition and disposition. It's very important how the potential investment will affect my life and overall investment strategy.

I love a mostly passive 15% where I can sit on the beach versus a 21% that takes up every second of my life constantly putting out fires (problems) for extra perceived yield. Those kinds of properties it's hard to scale efficiently. 

High intensity investments I was buying myself a job. I no longer do those investments today. I have a job transacting commercial real estate that pays extremely well with nothing to match the returns. I am all about quality these days versus (cash for trash) type properties. There are many ways to increase overall yield without buying dumpy properties in so,so locations.     

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  • Investor 路 Jonesboro, AR 路 Member since 2015 路 241 posts 路 132 votes
    10y
    Bill S. Thanks for sharing. Your story is probably more common than its told, people tend to glamorize real estate, but it's a tough business. I hear and see people talk about all these amazing deals, how much money they've made and how awesome long distance inserting is. I've been in this game long enough to realize most of that is false information. I appreciate your honesty, you probably just saved some people from losing everything.
  • Investor/Realtor 路 Wentzville, MO 路 Member since 2014 路 846 posts 路 431 votes
    10y

    @Bill S.

    Stories like these should be shared.  These are the lessons learned from real life investors.  It does not always work out perfect!  Thank you for sharing.  Most people that lose money on a deal don't share the details.

  • Miami, FL 路 Member since 2015 路 100 posts 路 34 votes
    10y

    @Bill S. I love reading these more than anything. Not saying I enjoy that you lost money, but I follow a quote by Warren Buffett where he says:

    "Everyone learns from mistakes, but there is no rule in life saying that those mistakes have to be your own."

    Sorry to hear of your misfortune, but as someone who plans to begin rehab flips early 2016, I originally planned to do the majority of the rehab myself other than things that need licenses and the more I read, the more I keep realizing that contracting the work by professionals may really be the way to go and will help relieve some spare time for more important investment strategies.

    Thanks for sharing your story with us, I could read "failed" attempts all day because those are by far my favorite learning strategy.

    Good luck on your future endevours!

  • Denver, CO 路 Member since 2012 路 268 posts 路 164 votes
    10y

    Yes, I think this is one of the most valuable reasons to be on BP. To learn what people did wrong, did right, and to be able to go out and not make those mistakes. Fantastic post. 

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker 路 Canton, GA 路 Member since 2010 路 15k+ posts 路 11k+ votes
    10y

    What I looked at years ago was just the RETURN. I quickly learned it's about how much time and energy it takes to create that return. 

    Today I think long and hard about the whole process and what the possible exits will be A,B,C etc. I begin with the end in mind for acquisition and disposition. It's very important how the potential investment will affect my life and overall investment strategy.

    I love a mostly passive 15% where I can sit on the beach versus a 21% that takes up every second of my life constantly putting out fires (problems) for extra perceived yield. Those kinds of properties it's hard to scale efficiently. 

    High intensity investments I was buying myself a job. I no longer do those investments today. I have a job transacting commercial real estate that pays extremely well with nothing to match the returns. I am all about quality these days versus (cash for trash) type properties. There are many ways to increase overall yield without buying dumpy properties in so,so locations.     

  • Investor 路 Houston, TX 路 Member since 2015 路 97 posts 路 25 votes
    10y

    I feel your pain Mr. Bill. Thank you SO MUCH for sharing. Like someone else posted earlier it's great to hear these stories even though I can only imagine how hard it is for you to share,but greatly appreciate your humility for posting the truth. Currently I'm on the same boat. Bought a tax lien down here in Houston only to find out the whole foundation was rotted out. The outside looked decent but since you cant go inside I didn't realize the terrible condition it was in. Got burned by my first contractor but things are moving along. I sometimes feel like cutting my loses like yourself but really want to finish it. Let's look at this as attending Real Estate U. The experience for me has been worth it. Might even try to do the BRRRR method. But please keep us posted as you go along this journey. And we hope for the best in all of your endeavors.

  • Rental Property Investor 路 East Wenatchee, WA 路 Member since 2014 路 10k+ posts 路 16k+ votes
    10y

    Thank you for sharing @Bill S.  I completely agree there should be a 'seemed like a good idea at the time' forum.  It's from lessons in non-success that we learn the most!  "It is in the valley that the soil is most fertile."

    I've had a couple of these as well.  The holding time was longer than expected, the workers work was less than expected and costs were more than expected.   If I also factored in my time and labor, it would have been too depressing.  

    At least you were only out about $5k in hard costs.  It is no fun being a don't-wanter.   In this market of new folks coming in everyday into a market harder to find value, stories like yours need to be heard.  Thank you for your lessons!  

  • Charlottesville, VA 路 Member since 2015 路 22 posts 路 5 votes
    10y

    @Bill S. Thank you for sharing and I agree with you and others comments, its important to people to supply real stories that are both good and bad experiences.  People don't know the power of transparency. When you tell and show your authentic experience it not only helps others but while you are writing this you can clearly see what went wrong. 馃槉

  • South Jersey, NJ 路 Member since 2014 路 154 posts 路 50 votes
    10y

    Wanting to break into real estate investing in the next 1-2 years I'm going to regularly check this posting.  Learning from other's mistakes is a great way to prevent your own.  I often flip items with motors (boats, cars, motorcycles) They're almost always good for a minimum of 50% return, sometimes 200%+ Problem is those 50%-200% returns are usually only $500-$1500.. But I stay within my comfort zone and If it doesn't 100% meet my guideline, I pass.. something will always come along.  As someone above me mentioned its better to make 15% on something that requires almost no time than 20% on something that requires all your time.  

  • Rental Property Investor 路 Rockford, IL 路 Member since 2014 路 4k+ posts 路 2k+ votes
    10y

    @Bill S.,

    Don't rip plumbers a new one if they don't know about PEX. It may not be code in their area.

  • Investor 路 Houston, TX 路 Member since 2014 路 128 posts 路 87 votes
    10y

    I posted on one of our situations that went wildly wrong.  It got a lot of attention.  I feel like we have a responsibility to share the tough stories.  Hopefully it helps someone else.  Thanks for your sharing!

  • Bill S.Pro Member
    Moderator
    OP
    Rental Property Investor 路 Denver, CO 路 Member since 2013 路 4k+ posts 路 2k+ votes
    10y

    @David Dachtera I checked before requesting it. PEX is allowed it's just has about 1/4 the labor as copper. I would think they were busy enough that doing more faster would be better but that didn't appear to be the case.

  • Turlock, CA 路 Member since 2015 路 3 posts 路 4 votes
    10y

    @Bill S.

    Thanks for your humility and honesty in sharing your disappointment with us. Both new and seasoned investors can gain wisdom from the harsh experiences of others. I appreciate you starting a post on this aspect of the investing arena. 

  • Investor 路 Juneau, AK 路 Member since 2015 路 980 posts 路 741 votes
    10y

    Totally agree with the sentiment here on the learning value of the stumble... Could make a great blog post, photos and all! 

    We see some bias to the success stories in what is posted, and as Steve and others mention, there is just as much or more to learn in those low points..Errors in strategies, facts, and even larger economic trends can make us miss...

    Fun real estate aside from the region....would have been late 1980's, in Casper, I mowed lawns for a guy with the hud contract for all vacant foreclosed homes in the area, and we did hundreds, not exaggerating, entire neighborhoods, one next to the others all empty,,dead grass (which was easy to mow btw).. And imagine the stories those could tell of the promising strategy gone awry... A downturn that caught even the brightest and best (and truth be told, BilI, while have not been back to Wyoming in decades, 40 dollar oil could not have helped you; granted sounds like you have the self awareness to see the flaws on the ground I your approach, but frankly I bet appreciation on the property may have bailed you out if we still had 100 plus dollar oil and a hot resource economy in that region).....

  • Real Estate Broker 路 Redwood City, CA 路 Member since 2014 路 679 posts 路 888 votes
    10y
    Thanks for sharing the experience. Great post.
  • Attorney 路 Attleboro, MA 路 Member since 2015 路 412 posts 路 165 votes
    10y

    Thanks for sharing. I think the important take away is that you did something realized it was turning wrong and got out.

    That and sharing it with us.

  • Investor 路 Roanoke, VA 路 Member since 2012 路 1k+ posts 路 374 votes
    10y

    thanks for this @Bill S.
    great story

  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y

    @Bill S.  I would bet dollars to donuts for everyone who comes on BP with success stories with very low value assets ( like this one your talking about) there are 5 or 10 who failed and just slink away never to be heard of again.

    There is a reason you can go into almost any major mid west northeast deep south city on any day of the week and buy 5 to 50 homes without even trying all for 10 to 30k each..

    I always say to folks were do you think they came from... they came from in many cases well over 50% anyway from failed landlords and flippers.. Granted you have older folks who move on as the neighborhood deteriorates  but the majority is tough to manage and handle assets.  and I am the poster child for those.. losing hundreds of thousands and probably over a million in the asset class and first to acknowledge it.. was not fun and I could live to fight another day.. But when  you have folks recommending these assets to people with limited capital I think that is very poor advice for folks that can't afford to lose money.

  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y

    @Joel Owens  there is no reason for a high producing commercial or resi agent to get bogged down with low value assets... For one they are too busy knocking down 500 to a million or more a year in commissions... why bother really.

  • Rental Property Investor 路 Phoenix/Lima, Arizona/OH 路 Member since 2012 路 4k+ posts 路 4k+ votes
    10y

    @Bill S. - it's those damn PIGS :)

    Good of you to post!

  • Investor 路 Palmyra, MO 路 Member since 2014 路 6 posts 路 9 votes
    10y

    @Bill S.

    The BP family would acknowledge that it takes a quality individual like yourself to admit and share your experience that did not go as planned. A large percentage of our group has considered to invest outside of our immediate market. Hopefully, we can all learn from your story. Am confident that you will make up the $5,000 on your next purchase Bill. Wish you the best pertaining to your investments.  

  • Real Estate Lender and Broker 路 Dallas, TX 路 Member since 2013 路 966 posts 路 500 votes
    10y
    Originally posted by @Jay Hinrichs:

    @Joel Owens  there is no reason for a high producing commercial or resi agent to get bogged down with low value assets... For one they are too busy knocking down 500 to a million or more a year in commissions... why bother really.

    I love these stories.  "I bought a house for 500 dollars and sold it for 1500 and made a 200% return."  Those guys then become gurus.

    Mark 

  • Rental Property Investor 路 Indianapolis, IN 路 Member since 2014 路 354 posts 路 167 votes
    10y

    @Bill S. - thank you for sharing.  Sometimes we pay a heavy price to learn.  Thank you for saving us $ through your experience. 

    My biggest lesson was a $7000 unplanned expense when I learned that the entire sewer system under the house was filled with roots so thick that I had to pay for complete replacement from underneath the house to the street.  I now pay someone to inspect every sewer line prior to a purchase.  I now pay $50 to prevent repeating the $7000 problem.  Sometimes you have to pay to learn and to earn. 

  • Mifflinburg, PA 路 Member since 2015 路 65 posts 路 12 votes
    10y
    Bill S. Thanks for sharing! Great lesson learned.
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker 路 Canton, GA 路 Member since 2010 路 15k+ posts 路 11k+ votes
    10y

    Hey Jay,

    Your not off in my returns. This next year is going to be really,really great. 

    I am going to do some syndicate commercial deals. One this year and multiple next year along with my direct client transactions and buying investments myself.

    I think a lot of people buy lower quality assets because that is where they have to start. Most that I know once they hit a certain point move into higher quality assets that are more passive in nature. You might have less cash flow but generally if you buy in the right market cycle you have a lot of equity growth. 

    I stay away from bad areas and I do not care what the expected returns are or if it is up and coming. Just to risky to capital once you have it.

    We all have made mistakes as investors. The goal is to maximum learning from them and minimize the actual losses. 

    The clients I see with the smaller properties when they hit retirement might have 2 to 3 million. The people taking down bigger deals with more upside have tens of millions or higher. That is just what I see. Low quality assets in okay locations throw off cash flow (sometimes) but generally do not have long term appreciation or high quality dirt value for redevelopment in future years.

    Some areas do have massive transformations but those are big gambles over time. Hit it big or lose everything. Those types of areas I wouldn't be all in. Instead if you have mad money to throw 5% of your worth at it and see what happens then no big deal if the area goes belly up. You other higher quality assets can then regenerate past that 5% loss and then some in a quick manner.

    My goal long term is to own high quality assets that present almost zero headache with quality of the area and demographics.  

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