How to Go Broke in Real Estate, Pick Yourself Up & Try Again

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My real estate education came through a different form than a classroom, a mentor or a self-help book. I learned it on my own.

And after having owned nearly a million dollars worth of real estate before the age of 25…

We filed for bankruptcy.

No words come to mind after typing that sentence. It hurts today, even writing it. We lost everything we had, filing chapter 7 and finding our way through uncertain depths and layers of terrible that comes with it. Our bank accounts were decimated from countless properties going belly up. Any access to credit was gone. The few dollars we had left and were putting the “food on the table” and paying the attorney.

Related: How Much Debt Should You Carry?

If you haven’t ever been through bankruptcy (and I hope you haven’t), after you do all the filing, all the information about all your personal life, deal with your attorney, all the documentation and paperwork, you file and eventually go and meet in front of the trustee.  

Guess what. They are shrewd lawyers whose only job is to find everything you may or may not have included (which legally, obviously, you were supposed to include everything), how it was included, what portion for business or for personal, etc. And by the way, you are sitting in a room with a whole bunch of others who are also filing theirs, getting to listen to all your baggage, why you had to file, all your debts, everything.

Look up #horriblelifeexperiene in the dictionary. This is there.

After this process is complete, any line of credit, mortgage refinance, regular bank loan, credit card is no longer a possibility — period.  We had depleted every bit of cash we had trying to save the houses (which in hindsight wasn’t necessarily the best idea). It was a situation.

So you might be wondering at this point, how did we get there?

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3 Beginner Mistakes That Might Lead to Disaster

1. Partnering With the Wrong Person:

I literally met this guy sitting at another table in a restaurant.

I heard he was an “investor” as he was sitting there talking and went over and introduced myself. He was not only a contractor and investor, but he knew of properties that were waiting and ripe to be bought. Hello! Bazinga! Out of the heavens drops my new business partner. Smart, athletic, confident and lived in one of the best neighborhoods here in KC.  

I had my golden ticket.

We met numerous times before the two properties were actually purchased, and we had a game plan. I would work on the finance/accounting side; he would run his crew. He knew how to run the crews, and I could buy the houses, work with the realtors, set up anything with the city utilities and such. We had even gotten an office together. We talked about the matching fancy cars we would own from our successes. We went the gym together. We would complete the rehabs and split the profit.

It was a perfect match.

The first week or two after closing on the houses, there were already problems. We had our first cash outlay from the bank for renovations, and there was his hand, waiting for the cash from my hand to his pocket for the week. Soon he started not showing up at the start of the day, and then the middle of the day, and then whole days he wouldn’t show up nor answer his phone.

Mind you, I knew nothing about construction. Or real estate for that matter.

Several more weeks went by this way, and I continued to get more and more concerned. He was going through a divorce and had a lot of hard things going on at home. I began learning more of this, none of which had been discussed prior. The sob stories. The problems. Perhaps addictions. Eventually, I had paid him thousands of dollars in what should have been work — but wasn’t.

I was trusting, naive and stupid, and he at best was a broken person — and at worst, a complete psychopathic liar. The day I bought my first investment property (or any property for that matter), I bought two. With no money. A local (shark) bank. And boom; I was a “real estate investor.”

And the worst part, I didn’t fire the partner. I didn’t sell the houses. I didn’t find someone who knew what in the world to do. I just tried to do it myself, and that didn’t work either.

2. Buying More Houses — With Scarce Money, Little Knowhow & No Direction

Soon after my wife and I (at my urging, of course) bought more houses. They were rentals not in the best part of town. From another investor, off Craigslist. Craigslist is an awesome place to buy a house, but not if you don’t know what you’re doing. Or what to look for. Or if you have little money. And especially if you can’t even afford to have the inspection on the house.  

I messed up everything I could mess up on these deals.

Somehow I worked the deal with the seller to pay all the closing costs. We had an 80/20 mortgage, a we-could-care-less bank and a scumbag mortgage guy who helped seal the deal. I know this now looking back; I thought the mortgage guy making it work was amazing then. The truth is, I should have never bought them, and they should have never lent to me. In the end, I am not blaming it on anyone but myself. I didn’t know how to run my business.

3. Having Bad Luck

The week before Christmas, a main water line to one of the houses broke.

Another one was broken into the day before the tenant was to move in. They kicked the back door in and proceeded to cut out every bit of copper pipe in the basement, cut out the coil in the HVAC, cut out the hot water heater, pissed on the floor and left the gas on in the house in the process.

That day I could have died. Like, literally. Died.

We walked into the house and realized, quickly, obviously, the house was a ticking time bomb. I happened to have a buddy with me and we ran to the garage door, opened it, and ran outside as fast as we could. Two or three hours later, with two fire trucks, firefighters, and the battalion chief, my house was now safe to re-enter. But I had to put thousands of dollars back into it and wait another 6 weeks to get the inspector back out from section 8, and I had to get the tenant placed.

There was mold throughout the basement of a house. Had I done the smart thing and had an inspection BEFORE buying, it would have come up, and I’d like to think I would have had the wits to back out of the deal. I spent more than a year trying to fix the problems on that house, and eventually it didn’t pass inspection with section 8.

At that point we were starting to see the writing on the wall. That house we lost to foreclosure.

Then we lost the little red brick ranch house my wife and I bought as our first home together. We had turned it into a rental. It was perfect. Old hard woods. Beautiful treed street. It sold for pennies on the dollar in a short sale.

You see, we literally lost everything. Bankruptcy is no joke. And real estate investing is no joke either.

In Hindsight

Through these events, we had a decision to make. Did we move on from real estate forever, or did we double down, so to speak, and get back into the real estate business? For me it was clear — out of the horror and destruction emerged an intense desire to rebuild our business…and to do it right. Having learned the “hard way” also gave me a great insight on how to approach new deals, new partners, new projects.

It gave me a confidence that I hadn’t had before, even though life during that time was very difficult.

And, you know what, I’ve shared this story with every single parter, banker or private money person I have had since. Because I wanted them to know we have been through the fire. And until you have been in the fire, you don’t know how you will react — and not only did we react, but we made a conscience choice to rebuild.

Looking back, there were a few key things that helped us move forward.

4 Tips to Safeguard Against Real Estate Nightmares

1. Move More Slowly

You don’t have to buy that much, that fast. Leave some room to learn. Leave some room for failure that you can survive. If you are growing, awesome. Make sure you grow in education, experience and capital with the growth of your real estate portfolio.

2. Have Someone You Trust to Ask the Hard Questions

You must have someone around you who you trust to tell you you’re being stupid, but who also understands the real estate business (not Dad saying you should buy mutual funds, but rather a business or real estate mentor) and can apprise deals as they come up — with the knowhow to analyze them and most importantly, a strategy to get out of them (hopefully with a great profit).

3. Don’t Be Afraid to Say No

I just wrote a whole blog post on this recently.  But the point is, there is a deal for everyone, and not every deal is for you. Don’t be afraid to say no and find one that works for you.

Related: 3 Reasons Why You MUST Fail At Real Estate Investing

4. Learn from your mistakes

Believe me.  We did.  We do almost everything differently now. And you know what, although I could have never said this at the time, we are now better off because of what happened.

We were forced to decide what we wanted to really do. There’s nothing more compelling than an empty bank account and a family to feed.

The Moral of the Story

Real estate investing is an amazing business. One that I am passionate about, a lifelong student of, and something that has fundamentally changed my life for the better. But — listen — it’s not all roses and sunshine. It’s lessons. It’s heartache. It’s mountaintop awesomeness, but can also bring you to the depths of despair if you’re not careful.  

Things happen in life, some good and some bad. We have great deals and we have ones that lose or don’t make much money. In the end we learn, we grow and we make a decision about whether these things will hold us back. Ultimately, we have the choice to use what we have learned as fuel to make a better deal the next time, or we give up.

I didn’t want the loss of our business at first to be our defining moment. Rather, we turned it into a temporary setback on the pursuit of what was most important — growing a real estate business that fit us, that we understood, that was built to grow, that was sustainable and that we could ultimately succeed at.

And within just over 18 months after filing that bankruptcy, we bought our first investment property and have gone on to doing millions of dollars of real estate deals.

What I’m saying is: Find your passion. Learn it. Follow it. Fight for it. And it will happen. It might not end up being the journey you anticipated, but if you want it badly enough, it will absolutely be worth it.

Did you ever fall flat on your face starting out in real estate investment? How did you rebuild your business (and life) afterwards?

We’d love to hear your stories. Please share below!

About Author

Nathan Brooks

Nathan Brooks is a dad, husband, worship leader, and real estate investor in the Kansas City market. Foodie. Coffee addict. Crossfit junkie.

30 Comments

    • Nathan Brooks

      Hi Ann, thanks for taking time to read my post … and to reply. It was interesting trying to get it into a form that seemed to make sense, so thanks for the compliment!

  1. THANK YOU for your blog experience. I have not fallen as badly as you have, but i can relate to bad experience and vandalism with our first property. As you know the first property is the scariest but we definitely learned from the experience of diving in and purchasing the property. Luckily we scraped funds together to fix the home that had been vacant and had only had cosmetic repair. The true inward parts of the home, all needed repair in order for the home to be rent ready. We would have know this if we had not opted out of an inspection. This part sounds like your experience. We also double paid for the repairs for we were so desperate to have the home repaired from vandalism. We went with the first guy that called, and will never do that again either. How were you able to get back on your feet with investing just 18 months after a bankruptcy? For if you were able to get back in business just 18 months after something so devastating, then we all should be able to succeed. thank you for this story we all can gleam ideas and encouragement from. I hope you keep growing and hopefully never have to repeat those bad past experiences.

    • Nathan Brooks

      HI Dorothy, thanks for taking time not only to read the post but then to share your experiences. It sounds like we had some of the same for sure! It’s tough learning, but I bet you won’t make that mistake again.

      As far as the properties after 18 months, we saved like crazy. And we found a private money lender who believed in what we were doing. Just have to keep after it.

      Good luck!

  2. Now that is a blog post. Not the usual “3 weird tricks to whatever” post.

    I have been there, not bankruptcy, but buried and strung out. The point of this post is that second half. I spent the next 18 months or so after a loss reading about 50 real estate books, because I couldn’t risk or afford to make another move. But, then I made one. And that one wasn’t perfect either.

    The point is if you quit, that is the defining moment. You did this thing, got nailed and quit. I decided at that time that this incident was going to be an afterthought in five years.

    If real estate investing seems cool or you think it might be a good investment, but don’t like it, get out while you are ahead. But if you are really into it, considered “passion” in this article, just keep going. One failure on one attempt is a 100% failure rate. Go again and do okay, and you can be at 50%. Just keep adding successes to the bottom of that 1 out of 2 ratio and this one loss will be a rounding error in 15 years.

    It is hard to remove the emotion from situations like losing an investment property, but you will recover as time passes, which it absolutely will.

    • Nathan Brooks

      Hi Ryan,
      Thanks so much for taking the time to respond. Yep, it’s a pretty crazy story, and I can still get emotional about it. But I try my best to harness that emotion to drive me to do a better job on the next deal. And understand and learn our craft so that I DON’T have to experience that (at least to this degree) ever again.

      Thank you for sharing your story to, and that you did find a way to get yourself back out there too … it’s amazing what we can learn and grow and then do well at when we put our minds to them. Awesome!

  3. Great post Nathan,
    Your story gives me hope that people can get up after falling so hard. I have a similar story but up to losing big because I am not up and running yet. I met a mortgage broker and a real estate agent in 2005 and got in to real estate without any prior knowledge or expertise. I had good credit and had saving to put down 20% and purchased 10 properties but the market tanked. I did not file the bankruptcy but let the properties foreclose. I settled with banks because of recourse mortgages and made payment plans. Last payment was in June of this year. I am back in market again because I am hooked to the real estate but still struggling because of ineffective marketing techniques and not finding good deals. I have been to many seminars where “Gurus” give you home study courses and try to sell you more seminars and boot camps. I am still trying to learn but without “Gurus”. Any suggestion?
    Hopefully someday I’ll be able to write my story with flying colors.

    • Nathan Brooks

      Kay,

      Thanks so much for reading and sharing your story. That must feel AWESOME to have that last payment paid. And I bet you have a very different direction in starting your business this time!!! I can only imagine. (well, I guess I CAN imagine 🙂

      My best advice is to find a local mentor. And work with them, grow with them in education, trust, understanding, and you will learn and do business organically and you learn from them. Plus you have another built in set of eyes to look at your potential deals.

      Keep after it, i can’t wait to hear your “flying colors” story … good luck!

  4. Nathan,

    Thank you for your story, it’s shown me that i’m not the only one that is going/ has gone through hard times. Although i didn’t fall as hard as you did, i’m pretty close and fell for almost all the same reasons you outlined in your article, amazing how the root causes are pretty finite. Floating 3 hard money mortgages while attempting to clean up poor workmanship on your flips and you houses sitting on the market for over 6 months all while unemployed for a portion of that time is not fun! I understand the financial aspect of cleaning up, paying off your debts and preparing to start over, but what about the mental aspects? Were you gun shy? Did you go back and network with different people? Did you change your financing strategy (Private vs Institutional, etc)? I know i have a hard road ahead for the next 12-18 months, but like in your article, this experience has pointed out my strengths and weaknesses and forced me to really evaluate what i was doing and how to improve. I appreciate you insight to your experinces, as it has greatly helped me. Thanks.

    -Islam

    • Nathan Brooks

      Islam,

      Thank you for your honesty, and I am sorry to hear of your troubles. That does sound like a tough situation.

      At first I was gun shy. Trusting myself on the decision to move forward was a hard one. But its a decision you have to make, and have to own, feel it in your gut and your head and your heart. And you have to be okay with it.

      I did change pretty much all my strategies … but it was also because I couldn’t get traditional financing … and I had to have more cash to put down. So it’s ok to question … question what your business model is, and let the fire of the moment help refine your model, your goals, and your path.

      Keep the faith … it will work out. Don’t be afraid to sell, get out, and be able to start over. The faster the weight is off your shoulders the faster you will be able to move forward.

    • Nathan Brooks

      Thanks Jonna …

      Thanks for the kind words, and affirmation, and it was my hope that people did hear the struggle but also hear that we can turn those into successes. Take care and thanks for reading my post!

  5. Thank you for sharing your story. I know that must have been hard to recount and bittersweet to remember you past triumphs. It is a sobering reality to remain conservative. I struggle with thinking that I am too conservative in my investing but at the same time it is important to remember what can happen. I know much success waits for you again.

    • Nathan Brooks

      Richelle,

      Thanks for taking time to respond … it’s one of those stories I hopes helps others in their own life, struggles, and successes. It’s okay to go with your gut … take care!

  6. That’s one heck of a story. For your next article, I think you should talk a little about how you managed to buy that next property 18 months after a chapter 7. The failure of your first attempt is obviously good for people to read… but the success on your second should be at least as interesting!

  7. Nathan, it’s in the hard times that we find out what we are made of. I know sharing a story of falling down (not failing) and getting back up and going again is tough. I too wrote a similar story for the Community Book entitled Out of the Ashes. However; as you can see from the response that you’ve received here, there are many people that are looking for that hope to hang on to, that need to see someone else has been where they are, and there’s a way out.

    Thank you for having the humility to share your story, and I hope all goes good for you in the future! Blessings!

    • Nathan Brooks

      Thank you Karen, and thanks for being willing to share your story too. Hopefully someone out there is inspired to keep going because of stories like yours. You take care, and thanks for taking the time to respond. It means a lot …

  8. Thanks for sharing, it must have taken a lot to tell everyone your mishaps. The one thing i’m taking away is that you can be successful after a bad start. I have been afraid to try the hard money lenders to get started because of all the stories of the high interest you would have to pay back. But you just showed me it can be done.

  9. Nathan,

    Thanks for the post and congratulations on the great podcast. Quite the story. Your story isn’t why I have chosen my path of learning first then executing, but it does help to reiterate why I chose to take this route in the first place.

    I’ve been putting together my business plan and working on my business right now. I haven’t yet made a deal, but I have been looking and practicing in anticipation of it.

    You and Ben Leybovich (https://www.biggerpockets.com/renewsblog/author/benleybovich/) wrote about very similar things this week.

    When I started this process in earnest back in May, I asked myself who I’d have to convince this was a good idea. Of course, my spouse was the first person I thought of. Then I read some articles and listened to every podcast and realized I would also have to convince lenders, friends, and family. And they will be much tougher critics than I.

    So I have my mission, my Primary AIM, my Strategic Objectives, my Organizational Structure and my Business Model Rules completed. I’m currently vetting my farm areas and am also working on my Operations Manual.

    I wouldn’t expect my children to drive a car before they learned how to ride a bike, a big wheel, or had instruction time behind the wheel. The Air Force doesn’t put pilots in the cockpit without a lot of time in a simulator. I am not going to invest money without getting my education first.

    Thanks for helping to provide some of that education. I’m sorry you had to go through it, but I appreciate you sharing so I could learn from it and hopefully avoid some of the same mistakes.

    • Nathan Brooks

      Ron,

      Thanks for sharing where you are … so glad to hear you have all the “ducks in a row” here. Once you have your model, and the start of a team around you, then go for it. And start looking at houses, driving them, doing your numbers, … I do that to this day. It’s great practice (and fun too) … would I buy this in 5 minutes or less. Make a decision… move on.

      Good luck!

  10. Patrick McMahon on

    Wow. Makes me feel better about an investment house I lost to FC.
    Bought it at the end of 2007 and the value went down ever since. Rents crashed and was soon upside down, losing over $1,000 a month. Couldn’t short sale it and BoA wouldn’t do a Deed in Lieu, so we let it go. Ouch. Like you said, it’s hurts to write that.

    It took guts to share your story!

    • Nathan Brooks

      Patrick,

      That’s tough my man … I am sorry to hear that. Watching the values, the rents, and the cash flowing out instead of in … it’s such a hard thing. Your story connects for me for sure. But keep your head up, and just learn from the past and make it better for the future.

      Good luck!

  11. Nathan,
    Thank you for sharing your story. Your post definitely hit home for me, as I went through a BK a little over 20 years ago due to a divorce. I wasn’t into REI at the time but I am now and I think I am pretty conservative in my investing because of it. You never forget something like that. Your post brought back those memories of sitting in that room with everyone else who was filing that day, I remember it like it was yesterday. Thankfully, my world today is completely different from those many years ago. I am so happy for you that you didn’t give up and that you are successful today. I think this was the best quote for me “And within just over 18 months after filing that bankruptcy, we bought our first investment property and have gone on to doing millions of dollars of real estate deals.” Congratulations!!!

  12. Genuinely inspiring.

    I am still a student in Singapore currently but I am planning to be a real estate investor in future. Seems like I have a lot to learn. Hope I get to find a good mentor soon.

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