These Are the Real Estate Deals You Should Absolutely Avoid

by | BiggerPockets.com

Today I’m talking to you guys about the real estate deals you should stay away from. 

I want to start by sharing a bit of background with you. I started my journey with American real estate about six years ago. I believe I bought my first property in 2011. I completely lost my butt in upstate New York because I bought a turnkey property from the wrong provider. They passed me onto property management, nickel and dimed me to death, and I lost around $20,000. Whatever. That’s where I started my journey.

Start Small

One thing I still believe to this day is when you’re looking at investing in real estate (or a particular market or region), start small. This is something I tell my investors every single day. I have a lot of investors who come to me wanting to invest large amounts of capital. And I say, “No. Start off small. Get your feet wet. Get to know the market. Get to know me and my company—and I want to get to know you before we can expand on our relationship.”

Today I own a bit of real estate in the Bahamas; I just bought a condo in Japan; I’m looking at some properties in Italy and Cuba because I want to own real estate worldwide. But I still want to invest the least amount of money possible, which equals the least amount of risk. The lower the amount, the lower the risk. That is my philosophy. It’s something that I have practiced and I am not going to change this particular method. Even if it means buying the crappiest property in the crappiest area—a D-class property—renovating it, and breaking even on it, I don’t care. I want to learn the process and the market. I want to learn who is who in that particular region. I want to build trust and relationships with people, because then I will start getting exclusive access to amazing opportunities. Once people see that I’m a player, that I’m doing deals, that I’m willing to take risks, that I’m on the ball, in your face, and getting it done, then they will want to work with me. So that is kind of my method. It’s what I do and how I started. Then once you get your feet wet, guys, the door opens. When people know that you’re doing business there, they start presenting you with all these opportunities. You kind of become one of them, and that is exactly what you want to do in a market.

Related: How to Avoid Renovation Mistakes on Your Rental Properties

Keep it Simple

Now, fast forward to what this blog post is actually about, and trust me this makes sense with what I just mentioned. The properties you should run away from and absolutely never buy are the ones that need a ton of work structural rehabs. I’m talking about properties that don’t have any margins in them unless you start doing all kind of development—those are a no. You start by extending the porch or extending on the backyard or completely revamping the entire floor plan. Or maybe you’re subdividing that land and building another property on the subdivided lot. Guys, these things are a recipe for disaster—particularly for all of you newbies out there because you can’t control the outcome. As much as you want to say, “Yes; I’m the master of my fate; I’m the captain of my soul; I call all the shots,” you don’t. Sorry, you don’t. You have to run everything you want to carry out past the city. You have to get an architect involved, and the city has to approve it. We all know the city has its own agenda and its own timeline for how it wants to go about things. It’s not in your control. Do not do that.

Related: The Worst Real Estate Deal I’ve Ever Done (And How You Can Avoid the Same Mess)

Keep Your Cash

Guys, invest the least amount of money possible in a particular deal. Just like when you are getting your feet wet, when you are actually starting in real estate or you are actually looking at expanding into a new market. I don’t care if you break even—learn the process, meet the team, get to know who’s who in that particular market, and then expand and build on that. That’s when you’ll start getting some amazing deals.

I would run away from anything that needs structural work, approval from someone else, or has a big mortgage attached to it. Buy properties that need a cosmetic rehab, spend the least amount of money possible, renovate as quickly as you can, sell it for whatever you can, cash out, and do the next deal. Learn the team, the people, and who’s who. Get to know the market, then you can always expand on that.

So that’s kind of my two cents for you. This is something that I do. It’s something I recommend you guys to do. I wish you much success with it.

Do you have any questions about this method?

Do you agree or disagree? Share your thoughts below!

About Author

Engelo Rumora

Engelo Rumora, the Real Estate Dingo and your favorite Australian, quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate all over the world and has bought, renovated, and sold over 500 properties. He is currently in the process of launching an ICO that will “Decentralize The Real Estate Industry.” He’s also known for giving houses away to people in need and his crazy videos on YouTube. His life’s mission is to be remembered as someone who gave it his all and gave it all away.

27 Comments

  1. Rob Cook

    Engelo, I am currently struggling with this very subject but in a different way. Not as an investor, I have made $Millions doing mostly what you advised NOT to do here! LOL. I.e., I buy the rough ones nobody else wants or can purchase or finance, etc. But, I am a 40-year veteran experienced construction remodeling contractor, real estate broker, landlord, business owner and even have a law degree. So, my struggle is determining if I can build an online education and consulting business around my particular rental investing model. My own particular “assets” I wield to make it work for my own successful and ongoing rental property business, may be too rare a combo to allow for an adequately large potential audience and consumer base of my content and guidance. This is frustrating. I KNOW how easy it is to find deals and make big money doing it my way, yet, now as I evolve into my “contribution” phase where sharing all of this to help others do the same and find the same success I have, may not be a feasible or workable business plan. This goes beyond the typical “Passive vs. Hands-on” debate. Do you think I could find a large enough audience of enthusiastic followers to create a movement based on my fixer-upper type approach to real estate investing?

    • Engelo Rumora

      Hi Rob,

      As always, thanks for reading and contributing.

      It’s a pleasure having someone as experienced and successful as you contributing to my blogs.

      Personally mate, I’m the biggest anti-guru there is.

      Courses, DVD’s, seminars, etc… is all big BULL$#@% in my opinion.

      It’s hype and buzz that 99.9% of people will never implement.

      It’s a great money making gimmick for the individual or company flogging it but it’s not an honest dollar.

      My belief is this.

      If you make so much money “doing it”. Then keep “doing it” instead of charging someone else on “how to do it”.

      If you want to give back, then give back for free via video’s, speaking engagements, etc…

      There are many ways to give back.

      Lot’s of hungry and desperate people our their that need help

      The only “guru” stuff that I believe in is one on one consulting.

      Make it expensive that no one will want to pay for it. Those that do are the ones that are serious about making a change and becoming great

      Off course, the above is just my opinion.

      I’ve pledged to NEVER sell any online products, etc…

      My book proceeds are going to my non profit, my TV show proceeds will also go to my non profit.

      I’ll maybe charge for consulting (If I’m not too busy running my companies) and I might even consider donating speaking fee’s to my non profit lol

      It stopped being about me and the $$$ a while ago

      It’s all about leaving a legacy now 🙂

      Thanks much

      • Rob Cook

        Engelo, that is a great comment and response. I appreciate your distrust of “gurus” and share that, generally.

        However, education is a huge determinant of people’s success, and I have personally helped people avoid very big mistakes, just by consulting with them about a planned deal they were about to take the plunge into. It opened my eyes, as to how many others with the too-frequent sad tales of failures and disappointments, could have been a different story had they known a few more basic fundamentals of analysis and business. And my belief is that there are a huge number of people in our space, who are flying blind and are literally a wreck waiting to happen. Your title of this Blog post acknowledges your own interest in helping others avoid disasters. Granted, you are not directly monetizing this blog as far as I can tell, and I would not hold it against you if you were. As long as you are providing valuable information to your readers, including me. And that is what it all boils down to in my opinion. If you are helping people and never betraying their trust, and continue to exceed their expectations and value, how could that be a bad thing? Scammers abound, especially on the internet, but I don’t think that means we can discount all the good the internet offers. Of course, it is a philosophical issue for each to decide for themselves, regarding making money, etc. I am driven by making money, not at any cost or in any fashion. And I am driven by wanting to share what I might have to offer, to others, in order to help them achieve the success they dream of too. And it is not against my “religion” to make money in the process of doing so. Maybe I am just a greedy bastard! LOL. But I am not ever going to sell out, or compromise my own integrity or hurt anyone to make a buck. My ego does not require me to be a Guru or a leader, but my sense of social concern for and empathy with fellow ambitious entrepreneurs does drive me to try to help them. Just like you are doing. Both the reality of the internet today and the people’s ability to spot BS from a mile away polices the space online, and weeds out the scammers pretty quickly. As it should be. If I can figure out a way to reach the most people who can benefit from whatever help I can offer, then I will do so. If the public rejects my offer, so be it, the marketplace will have worked, either way.

        You have made me think deeply about my commitment to this idea and reminded me how many will be skeptical and should be. I will try to reach them and let them decide for themselves, without pressure or hype. Thanks again, Engelo.

      • Charles Bellanfante

        Hey guys. I want to respond to you both. I am new to real estate investing so i truly believe that there is a great need for guru’s to teach newbies how to master small details when entering real estate investing. Rob the fact that Engelo have a person like me reading his article here shows that there definitely a need and market for you as a experienced investor with multiple levels of knowledge to embark upon newbies. Yet, I also agree with Engelo about outrageous charges for knowledge that has come to be near free with a little searching and assertiveness. There is a so-called guru in my area charging people 8k-10k to learn how to flip houses. Unfortunately for them, I am a CPA so i truly understand the value of a dollar, and education that i cant take a tax write off for. This 8k-10k can be your down payment into your first property. Turned out for me that it actually was. So i think there is room for new experienced educators to give knowledge on real estate investing, but you have to ask are you doing it to truly help others, or are you just trying to create another revenue stream off people inexperience. And one last note – I actually spend about 2 hours reading real estate investing stories everyday, thus why im reading Engelo right now. Im supposed to be doing a 5 tax return that on extention right now, but im sure if you had info to share Rob, I would be reading yours right now…..

  2. Melvin Plummer on

    Rob,
    Your business model is absolutely wonderful! You’re going through a natural progression that will take you exactly where you need to be. There is a mind-blowing market that is waiting for people like you who have the ability to help others. Your problem is that you are suffering from some form of self doubt. Drop the doubt and proceed. You will be an asset to the world!
    Respectfully,
    Melvin

  3. Angel Gutierrez

    Engelo has some very valid points…. but there’s so much more to it than that. Here’s one important tip:
    NEVER get involved in a deal that requires someone else to explain it to you. There’s a rule of thumb in poker: “if you can’t spot the sucker at the table, then the sucker is you!”
    I can honestly say that I have never lost money on a r.e. deal… but I have come VERY close several times.
    I learned early(before I got in the house business ) that the garbage men(the ones that collect and take your trash away) are paid quite well because they are solving someone else’s problem.
    I look at fixer properties the same way… I’m solving someone else’s problem and I’m to be compensated accordingly. If they don’t want to pay me… “adios!” I put them on my calendar and return in a month. I call it “the last man standing” philosophy. I wrote a book about it and to anyone reading this… I suggest you write your own book as well… it’s incredibly liberating !
    The house business is a wonderful business to grow and prosper in but it is a business that is riddled with anxiety . You should compound the problem by getting involved in “skinny” deal and complicated transactions. You won’t survive.

    Don’t be the sucker at the table…

    And to Mr. Rob, if you want to “give back”, start by get involved with the girls and boys club type of organizations and teach the kids how to earn a great living out there getting dirty and making a positive impact on their communities. Do that and your name will live in infamy and they will love you for it!
    Don’t bother with the adults, it’s the kids that need the help and direction…

    Sincerely… you’ll see…

    • Rob Cook

      Melvin, you are too kind! Yes, the whole Online Biz learning process is intimidating, but very exciting too. About worked my way thru most of that part. One thing the online marketing trainers point out applies. The internet is so vast, and so expands anyone’s potential market audience, that nowadays, it is actually advantageous, rather than a limitation, to narrow one’s audience in the extreme. In other words, the more particular and specific your chosen niche audience base is, the MORE successful you can be, for all the psychological reasons of attraction marketing. In fact, “repulsion marketing” can work, literally and intentionally polarizing your message and turning off those in the audience who disagree with you! And by doing so, cement all the stronger, the bond of your loyal followers. Anyway, you are one of the first to respond to my “poll” on this idea, and your encouragement is welcome. I am very extroverted, love public speaking and teaching, and have been a salesman all of my life, so it should be a comfortable and appropriate fit for me. I think I am just a little unconfident about the size of the potential pool out there, for my brand of BS, and am trying to determine the exact voice to use. Thanks!

      • Melvin Plummer on

        Rob,
        You are overthinking this. You say that you are a little unconfident about the size of your potential pool of prospects. There are approximately 8 billion people on earth and not one of them can tell you the size of your potential pool of clients. Did you hear that Rob? Not one! So forget about that, you have 40 years of experience which equals a of wealth of knowledge. That’s your platform. Use it!
        Continued success,
        Melvin

    • Rob Cook

      Angel, you are thinking and working exactly like me, brother! This is encouraging to hear. And exactly the type of attitude and process I not only live by daily but want to share with others.

      Also, your idea about teaching young folks is spot on. I actually do that, with a number of people in the 22 age range. It is not only fun and rewarding for me but the best gift a young person can get – few have parents or teachers who are entrepreneurial, let alone house renovators and rental property operators.

      Very nice words, Angel.

      Thanks

  4. Rob Cook

    Agreed Melvin! Thanks again for the support. I am on it. Trying to define my niche so I can roll out my content products soon. My probably online business name will be RentalRich.com. About to launch the website today probably, but will not be promoting anything till I complete some more content. Thanks!

  5. “Buy properties that need a cosmetic rehab, spend the least amount of money possible, renovate as quickly as you can, sell it for whatever you can, cash out, and do the next deal.” The spend the least amount of money possible sentence scares me. A cheap fix that breaks will give you a bad name. I would say fix it right (and spend the least possible). Create a quality product.

  6. Ryan Schroeder

    I have a somewhat different philosophy but am not quibbling with anything stated here. First, I am a long term buy and hold investor so that is the qualifier. In the old days I got it done as quickly and inexpensively as I could, As a result, I have had to come back and fix those past sins, and some just can’t get fixed cost effectively and could have been done much more easily/cheaply had I done it right the first time. As a result, now I “do it right” the first time. Translation: I typically will totally upgrade wiring and plumbing and make sure things that aren’t level become level and are structurally sound…better than originally constructed and much better than I find them. The result is that I don’t typically ever have to think about systems again, but I’ve invested more time and money than folks on here would typically see as prudent… but whoever buys or inherits my properties will not be buying a problem hidden behind freshly painted walls

  7. John Teachout

    I definitely think there’s a niche market for those properties that most aren’t interested in. Most anyone can go into a property and replace the flooring, kitchen counters, appliances and paint everything. The properties where termites have damaged the foundation, leaks in the roof have caused the livingroom ceiling to collapse and so forth are beyond the scope and imagination of many fixer up types. We have passed on some of these types of properties but the buyer’s for them are limited to cash only investors.
    One important factor for us is “proximity” to where we live as we’ll be commuting to it for some time while renovating. We did a 1000 sq foot house recently that took us nearly 5 months to complete. It’s a buy and hold and cash flows nicely. I think there’s lots of people that would be interested in this type of investment. And the internet is just the venue to find and collect them together.

    • Rob Cook

      Thanks for that John. I agree, there must be a lot of folks out there interested in making money renovating real estate, but not yet doing it for one or many reasons, which my method might alleviate. I am able to find more super deals than I can handle, constantly, and have a sick backlog of projects stacked up waiting due to lack of bandwidth! All because I am often the ONLY buyer willing and able to buy these ugly properties at any given time. It is almost like taking candy from a baby, as I say. I learned the business in huge metro areas like Northern Virginia, by Washington D.C. There are thousands of competing investors there with $Million dollar credit lines ready to pounce. Yet I still made $Millions there, in that shark infested red ocean marketplace. Out here in Wyoming, it is just, easy frankly. Which is why I am out of retirement here now and buying lots of rentals again in the last years. If people realized how big money can be made, doing this, it could and would change their lives. I can buy an old house which rents for $850 without any significant renovation required, for less than HALF what a new house would cost that would rent for the same amount. I think a deeper CAPEX allowance expense for the old house is worth that enormous financial edge of simply being willing to work on older houses gives me. Almost double the rental income per dollar invested. People whine about not being able to find deals that can satisfy my strict analysis requirments (Like the 50% rule, etc) – but I caAn literally find one every day using my hands-dirty approach. Thanks for your vote of confidence, that there should be a huge audience out there for my brand of rental house investing – taught via the internet!

      • Adam Britt

        Well I can tell you this: I have zero of the skills you are talking about, but your sales pitch is awesome. I wish I could come work for you and learn!

        Maybe that is an idea. Do an internship type thing. Find and train would-be investors like me, but also pay/allow them to make enough money to survive. I’m stuck in a very unfortunate high interest debt cycle that I married into. It takes every penny I can make just to not go under, which makes real estate a distant dream (or so it feels). But if I could work a year or two with somebody like you and continue to make enough to keep from drowning … I might could really springboard from that.

        • Rob Cook

          #Adam Britt, you are cracking me up, “married into…” lol.

          Thanks for your comment. It really resonates with me. Before I discuss anything else, have faith that you will overcome your current situation if you want to. It will be a growth experience for you! Look PAST now or you will never reach a dream.

          What you are desiring and recognizing the need for, is a Mentor.

          Your suggestion of having internships is an awesome idea, and I wish I could actually do that. Of course, that would necessarily serve only a very limited amount of people like yourself whom I could help, in person. Hundreds of thousands ? of others just like you, would be left out. That would make me sad.

          Which is EXACTLY what I am going to try to do, virtually, online with RentalRich.com. I am working on it right now, in the early startup phase, so participating in a discussion like this one, with you and others, is literally helping me create my program.

          If you had been with me today, for example, you would have been involved with a ton of educational activities, including but not limited to: cleaning out an apartment of abandoned furnishings, negotiating a rent increase with an existing tenant face to face, lining out an employee (Mentee!) on another unit’s paint prep for turnover in a triplex, spoke with 7 prospective tenants responding to an ad listing for a basement apartment, arranged settlement date and approved the Settlement sheet numbers for a HUD house I bought a week ago, sat down with one of my property managers for a half hour in her office to discuss several units and ask her advice on how to handle a sticky prospect with 4 “therapy” animals who wants to apply for a NO PETS listing, did an in-person unannounced unit inspection visit with a psycho drunk terror of a woman tenant I inherited with a recent 4 plex purchase, visited the police department to discuss the history of same above-mentioned terror tenant, policed up garbage on two lots of a triplx and a 4-plex, visited a 7 unit apartment building to empty out the coin op laundry coffers and check in with my “resident mgr” tennant, drove by 9 other of my properties along the way to check on them as a drive by, delivered a hard copy of a lease to a new tenant, wrote a 40 pages of content for my RentalRich Program while driving (on a voice recorder), picked up some materials at the building supply, listened to 2 hours of a business audio book while driving, Negotiated a new lease deal with an out of state tenant prospect- received her payment online and will e-sign a lease tonight, had a nice lunch with my bride of 37 years who was with me all day, as usual, and got home and checked my emails and FB and Blogs, which resulted in my writing this response to you here. And it is only 8 pm! So lot’s of time left to accomplish more tonight. This is a typical day for me, in my 20th year of “retirement.” I LOVE it.

          You are hitting on a few very important points Adam. First, you know yourself – both your skills and weaknesses AND your ambition. Eyes wide open is KEY to becoming a success in anything. Second, you are acknowledging that knowledge and education matters. It is hard to develop a belief that will carry you to your dreams if you do not have the vision, and to have the vision, you have to understand the game and all its components. Third, you appear both motivated (by a frustrating financial situation you feel trapped in) and hopeful that there MUST be a better way, a solution, a path to success. Bravo! That is essentially a recipe for change, brother! Awareness of situation, dissatisfaction with the situation, and the belief that there has to be a better way.

          Like most of us, the surest, quickest and most efficient path to success, is to walk in the footprints of those who have already done what you want to do. You recognize that you would most likely benefit from education, training, and coaching. Again, BRAVO! People will not change until the pain of remaining the same, outweighs the pain of change. You seem to be at that inflection point.

          Now, you have MANY choices as to how to proceed, and many of them will work and actually result in you achieving the success you desire. Many will not. We all have to find our own path in life, and in business.

          However, you apparently have an interest in real estate investing. I believe that is probably the most promising, and realistically doable way for most of us to become Millionaires. I do not know everything, even about narrow segments within the big RE Investment Space. But it is what I chose and have spent my whole life studying and practicing. And I believe it is probably the BEST “get-rich-for-sure” lifestyle business opportunity out there, period. You chose your time horizon for making a $Million, and I can help you clearly see a very achievable pathway to achieving that in Rental Real Estate, or other strategies as well. You want to do it in 5 year? 10 Years? 15 year? 20 Years? All are very doable, depending on your own level of effort and the resources you can bring to bear. No BS. And THAT, is what I intend to do with my planned, online coaching and education business. No hype, no scam.

          I would be happy to discuss your particular, personal situation with you at no charge, and see if I can help. PM me and we can chat.

        • Rob Cook

          Engelo, it is ironic. I am so busy DOING real estate investing, I cannot get around to teaching it like I want to! First world problems…

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