What was your worst deal? How much did you lose?
Beacon, NY · Member since 2016 · 35 posts · 24 votes
What was your worst deal? How much did you lose?
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Member since 2018 · 44 posts · 47 votes
7y2 Worst Deals:
1. Bought a house at the coast, numbers worked all day on comps, but ended up dragging out and selling eventually for a $100,000 loss. That one hurt.
2. Basic flip on a pretty rough house in Seattle area, the city caught wind and everything went to hell. Everything bad that could happen happened. I even paid a down payment to an electrician of $4k and he literally had a heart attack and died 3 days later. That one ended up losing $65,000.
I've flipped about 200-250 houses at this point. I've maybe lost money (the above 2 examples being very extreme) on 10 of them. My advice to you or anyone whos had a bad deal would be the following:
1- Doing 1-3 flips a year and losing money on one is a lot worse than doing 30+ a year and losing money on 1 of them, so go big if you can
2- Don't do any deals that aren't pretty for sure unless you have a contingency plan. If you've got a 'maybe' deal and you're guaranteeing all your personal assets with some blood money lender thats not a good idea. Find lending partners that will split profits with you on riskier deals. On the large 100k loss one, I did a 50/50 split with the investor. Because if something goes wrong, like it did in this case, I didn't go out of business, but if it goes right, they get more than their typical interest. Obviously, these types of deals go right more than wrong otherwise you lose the investor.
3- Don't do any deals you can't pay for the worst case scenario. If you've got 5k in the bank and worst case scenario you can lose 50k, dont do that deal.
4- Always do your own evaluation on rehab and resale numbers. It blows my mind how many people listen to agents on what a flip will sell for when its done. Most agents don't really know anything. They use average price per foot, and CMA's. These, in my opinion, mean absolutely zero. Learn to run comps for yourself and always verifiy resale. The other people giving you their opinion aren't on the hook when things go wrong, so don't put too much weight on what they say.
5- ALWAYS ALWAYS ALWAYS ***LEARN**** something from each bad deal. On both of the deals above, I learned some valuable lessons and it changed my business for the best. This business certainly isn't a guaranteed series of consecutive wins. You're going to get your teeth kicked in once in a while, so use that to better yourself and your business and be an exercise in improving your grit and move FORWARD.
Just remember, most of the battle is outworking and outlasting your competition. Never quit.
Hope this helps. Happy investing!
-CW
33 Replies
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
I could write A book just imagine being a Hard moneh lender circa 08 and having 600 loans out.. take your issue times 100 and thats what i lived through
- Beacon, NY · Member since 2016 · 35 posts · 24 votes7y
@Jay Hinrichs and where are you now? And how did you climb out? Tell me the good stuff too! (Please).
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Nicole Romano:
@Jay Hinrichs and where are you now? And how did you climb out? Tell me the good stuff too! (Please).
well took 10 years but back in a good place
top 30 builder in the Portland Metro in new construction # 24 to be exact.. so not bad.. building new construction infill in Charleston SC one of the top 5 in that market..
And quite a few other deals in 14 states.. came roaring back but it was not good for a few years.. it was a humbling experience and I am the first to admit it.. so work for 30 some years have a 50 million dollar portfolio only to see it evaporate in 3 years was not something I ever want to relive.. but U cant take experience so I used what I knew leveraged contacts etc and well not back to that level but close.
- Beacon, NY · Member since 2016 · 35 posts · 24 votes7y
@Jay Hinrichs You don’t need to be at that level again. You know why? Bc your humbling experience has made you appreciate things even more now. I love Charleston, btw! 💗 It’s such a great town.
What is “new construction infill?”
@Jay Hinrichs Wow I'd have a heart attack and I'm 27 lol
@Nicole Romano I got fooled into buying a property for twice what it's worth. It was my first property and I didn't know the area because I am an out of state investor. Purchase amount included money to fix up the property but they never did that. I don't laugh at it yet because I still actually still own the property. I don't want to sell it for 20k+ loss but don't have the money to property fix it up. The good thing is I actually have a tenant in there. Management constantly need to go there once in a while to fix some problem. Probably won't sell it until tenant leaves and i can't find another. I'm trying to collect as much rent as I can before selling it in an attempt to minimize the loss.
- Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes7y@Nicole Ashey I just bought a house that has a $45,000 dollar foundation issue. I checked every corner but that corner! Oops! Code Enforcement wants me to take the whole wall down and replace it. Hopefully, I can get it done before winter.
- Galva, IL · Member since 2017 · 37 posts · 26 votes7yMy worst one purchased a nice flip house with a partner, we easily Could have sold within a month and make 10,000 without even turning the power on or stepping foot on the property. We renovated it pretty extensively held it for 3 years and sold it for a 15,000 loss! And obviously a heck of a lot of time we did all the work ourselves.
- Member since 2018 · 18 posts · 1 vote7y@Jay Hinrichs hey jay are you or where you a hard money lender?
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @William Dolinko:
@Jay Hinrichs hey jay are you or where you a hard money lender?yes I was .. I had over 450 loans out in 07... just like any other bank we were hammered during the GFC.. and all of mine were on rentals.. people lost the rentals in droves as well.
- Member since 2018 · 18 posts · 1 vote7y
I’m in the process of buying my first rental investment and I am using a hard money lender I had a question for you. He said he will finance 90% of the loan hundred % of the rehab with four points I would have to come up with my closing cost and pay the full points upfront. Have you ever done or herd of anyone negotiating that as far as may be giving another point to do the hard money lender if they agree to pay 95% or hundred percent of the loan?
- China, ME · Member since 2014 · 3k+ posts · 4k+ votes7y
@Nicole Romano Not real estate, but in 2004, I bought a retail store - a "pack & ship" store similar to a "The UPS Store" - but not a franchise.
After buying it, I added Western Union services and was running about $4.5M/year through my little operation. You can see where this is going...
I ended up with 4 employees who figured out some devious ways to embezzle a TON of money. I ended up selling it in 2015 at a $58,000 loss and was $150,000 in credit card debt from trying to keep it afloat.
Lesson learned - just because you are personally close to your employees, doesn't mean you can trust them. I refused to even consider that people I liked so much would stab me in the back - and keep on stabbing until I was dead.
Getting my real estate license and working my butt off, combined with a lot of prayer pulled me out of the fire. Being that broke is phenomenally motivating!
Things are better theses days, but I will never again own a cash business. Not unless I'm the only one handling the cash.
- Member since 2018 · 44 posts · 47 votes7y
2 Worst Deals:
1. Bought a house at the coast, numbers worked all day on comps, but ended up dragging out and selling eventually for a $100,000 loss. That one hurt.
2. Basic flip on a pretty rough house in Seattle area, the city caught wind and everything went to hell. Everything bad that could happen happened. I even paid a down payment to an electrician of $4k and he literally had a heart attack and died 3 days later. That one ended up losing $65,000.
I've flipped about 200-250 houses at this point. I've maybe lost money (the above 2 examples being very extreme) on 10 of them. My advice to you or anyone whos had a bad deal would be the following:
1- Doing 1-3 flips a year and losing money on one is a lot worse than doing 30+ a year and losing money on 1 of them, so go big if you can
2- Don't do any deals that aren't pretty for sure unless you have a contingency plan. If you've got a 'maybe' deal and you're guaranteeing all your personal assets with some blood money lender thats not a good idea. Find lending partners that will split profits with you on riskier deals. On the large 100k loss one, I did a 50/50 split with the investor. Because if something goes wrong, like it did in this case, I didn't go out of business, but if it goes right, they get more than their typical interest. Obviously, these types of deals go right more than wrong otherwise you lose the investor.
3- Don't do any deals you can't pay for the worst case scenario. If you've got 5k in the bank and worst case scenario you can lose 50k, dont do that deal.
4- Always do your own evaluation on rehab and resale numbers. It blows my mind how many people listen to agents on what a flip will sell for when its done. Most agents don't really know anything. They use average price per foot, and CMA's. These, in my opinion, mean absolutely zero. Learn to run comps for yourself and always verifiy resale. The other people giving you their opinion aren't on the hook when things go wrong, so don't put too much weight on what they say.
5- ALWAYS ALWAYS ALWAYS ***LEARN**** something from each bad deal. On both of the deals above, I learned some valuable lessons and it changed my business for the best. This business certainly isn't a guaranteed series of consecutive wins. You're going to get your teeth kicked in once in a while, so use that to better yourself and your business and be an exercise in improving your grit and move FORWARD.
Just remember, most of the battle is outworking and outlasting your competition. Never quit.
Hope this helps. Happy investing!
-CW
- Chicago, IL · Member since 2015 · 61 posts · 12 votes7y@Rich Nordstrom What town was this?
- Investor · Austin · Member since 2016 · 13 posts · 4 votes7y@Nicole Ashey Hey Nicole, am 27 now, i bought a preowned car to being minimalist and it broke down in first week even though i had warranty the dealer was not ready to refund or repair, luckily i paid in credit card but dispute did not worked so i Lost 4000k. At the same time i bought my second property with 35k in equity and it brings 1200 per month in profit.i was feeling bad because i lost 4000k then my mentor helped me to see the bigger picture in life rather than seeing what i lost, i am still in 31k in profit. Now it feels good. My point is let's focus on things that we have and greatful to.
- Well, Nicole, I personally flipped one apartment for 100% profit and then did another one as well. Did I see any of that profit? No. The girl I was working for told me that yes, she would definitely come with me when I left the country. I flipped those apartments so that she could sell them, as I was selling mine, and have some financial security in the States. And then she told me she had reconsidered and wanted to stay for "a while," and that she wanted me to stay with her. Just a short while, she insisted. Until she felt "comfortable." Understanding she had gotten all that work out of me and had no intention of ever leaving, I boarded a plane to the States and sent her a text message just before it took off. This was in 2007 and the country I left was Greece. I haven't spoken to this girl since. I'm sure she's been VERY comfortable in the years since. The skills I started learning overseas, on the other hand, have been very, very good to me.
- Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes7y
For the young investors on BP - My wife and I were smart and bought a $60K house in 1983. Then we were stupid and built a $350K house in 1995. If we had simply upgraded to a $150K house and invested $200K in RE, I would have retired at 47 instead of 67. But hey, all our friends were doing it, so it had to be right. Lesson learned - Live in the lowest cost house you can be happy in and invest the remainder. You'll be much better off 20 years later.
- Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes7y@Nicole Ashey sorry to hear about your situation. My losses are several “stock tips” that have amounted to $100,000 or more in losses! Turned to RE and feel more solid there but got hit by surprise with Sheriff auction sale with $26,000 in back state deferred taxes! Worked hard to rehab and then found this out and I got burned! So we all have some bad stories! Dont loose heart
- @Nicole Ashey Good post! You always hear about people’s successes but you never hear about the failures that got them there! My worst deal is my only deal. I started educating myself, reading books, listening to podcasts, reading blogs etc. in December of last year and finally landed my first deal in July. It was a cute 2 bd 1 ba bungalow that needed no more than $4000 worth of work to get it rent ready. I HIRED A HIGHLY QUALIFIED INSPECTOR. Repeat - I HAD AN INSPECTION. The numbers looked good on this property - 13.1% COC with $213 cash flow/month after vacancy, repairs, CapEx etc. I hired a general contractor to take care of a leaking toilet that had ruined a couple of floor joists and that’s when things blew up. He discovered that the floor joists were not done properly, the floors were sagging and the house needed to be jacked up, the bathroom plumbing was done by a clown, the kitchen wall was floating, as in, there was no 2x4 on the floor anchoring the kitchen wall, the kitchen cabinets weren’t screwed into the studs, the floor under the furnace was sagging, and the pipes for the washer had been cut, which was not disclosed on the seller’s disclosure. Basically 50% of the house had to be gutted down to the crawl space with walls completely removed. I also had to replace the roof. The same roof that my inspector said had 5-6 years of life left. I had 4 people come out to look at the roof, one being third party who owed my realtor a favor, and every one of them said the roof was at end of life and had hail damage. I called my inspector to ask him what went wrong the day of the inspection. He went back out to look at the roof again and stood by his original assessment on everything. He said the roof had a few years left. He said he saw the floors/joists during the inspection but he said they were fine for a house built in 1957. He said I was taken advantage of but I’m confident I had a good, honest contractor. My contractor took pictutes of everything and once I pulled up the carpet there were obvious issues with the floors that absolutely needed to be addressed. I never expected recommended professionals to be on such opposite ends of the spectrum on everything. I had no clue who to believe but the dollar signs kept adding up. Everything was finally finished last week and I ended putting $29,500 into a $61,500 home that wouldn’t sell for more than $70,000 right now. I love real estate. It’s my passion and I’m not going to give up but it definitely gives me anxiety when I think about buying another property. @David Greene talks about expectations for beginning investors in one of the podcasts and it really hit home for me. My expectations were set too high. I thought I was going to knock it out of the park with my first deal but I was so wrong. David says to expect nothing more than a dog fight for the first deal and that’s pretty right on from my experience so far.
- Detroit, MI · Member since 2018 · 148 posts · 38 votes7y@Ashley Bieniek Lmao I feel this a lot. Also a beginner, wanted to get my feet wet so I bought a house in a C class neighborhood for 75,050. House was in good condition but my relative said he’d do the repair labor for free, there weren’t many anyways. Ended up doing foundation, plumbing, ceramic tile on basement, patio with cement which costed like 12,000 but I don’t think that cost is for material only and it has been 5 months already, when it should only take like 1 month tops! So I lost on all that money i could have earned if I rented it, spent an extra 12,000 (some things I didn’t even need but since he would do it for free i went for it anyways) and now what I thought was a good deal with 10% ROI may seem like a not so good deal because my relative took forever to finish, it’s winter time so less rent Income and I need about 1 more week to finish, and I was definitely charged some labor in there, which makes me regret doing stuff the home didn’t even need in the first place. So in those 5 months, I’ve spent a lot of time learning and reading so this hiccup won’t stop me, but I think the home now won’t rent for more than 1050 and I was hoping for 1200 for the summer and it’s probably worth about 85,000 which is a bit less than what I paid for it. Also bought it all cash, which I shouldn’t have done but my family let me borrow at 0% interest so that was nice. I am 100% sure my next deal will be better.
- @Sergio Aguinaga I had the same worry about renting it out in Nov/Dec. I just started advertising last week and will probably drop rent slightly since I’m not getting much interest from quality tenants. I might consider doing a 6 month lease to start out so my leases end in May/June. Good luck with finishing your rehab! I, too, hope my next deal will be 100% better!
- Flipper/Rehabber · Hager City, WI · Member since 2018 · 22 posts · 10 votes7y@Chris Wolfe Great advice! Thanks!
- Flipper/Rehabber · Hager City, WI · Member since 2018 · 22 posts · 10 votes7y@Terrell Garren Love this. Well said!
- Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes7y
Love this thread! I've had too man bad deal galore :/. Bought a condo in '07 that is still bleeding. Bought some 4-plexes in St. Louis that are mx / tenent turnover nightmares. I know I should sell, but the pride won't let me.
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