My Worst House-Buying Experience Ever (& How I Learned From It)

by | BiggerPockets.com

This deal happened around two years ago. I bought a distressed property in the Washington Local School District. It was the ugliest house on one of the best streets. Here in Toledo, the Washington Local School District is extremely desirable. I believe it was a 2-bedroom, 1-bathroom house. I bought it from a somewhat shady character here in town. I knew going into the deal that there may be stuff I’d uncover that I wasn’t expecting.

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The Deal

After buying the property, we started the renovations, and I cut the first check to a “trusted” contractor. Progress was coming along great. I didn’t have time to go in and inspect the property because at the time, we were doing a lot of deals, and I stopped going out to inspect all these rehabs. Even to this day, I hate leaving the office because when I leave, I consider it a waste of time and money. I always want to stay in the office doing deals, picking up the phone, and working with my team on the nitty-gritty back-end stuff.

Again, I cut the first check, and everything seemed to be running smoothly. We cut a check to pull all the permits, then cut another check to allow the contractor to get another draw. Everything seemed to be going well. Then I got a call from the city and they shut us down because no permits were pulled. Everything started to unravel from there. Pretty much none of the work was done. I had cut checks for the work I thought was going to be done, but the permits weren’t pulled even though I cut a check for that. Then we tried to get another contractor in there to try and salvage it, and he pretty much walked off the job and said he could not salvage it. He, of course, took my money and ran with it too.

Related: The Biggest Landlording Mistake I Ever Made

Long story short, it was an absolute freaking nightmare—a disaster of a deal. The city shut me down, contractors stole my money, we found out later on that the property had foundation issues, and the previous owner that I bought the property from was somehow stealing water and electricity. It was one of those deals you just can’t salvage—which is something because I don’t think I’ve ever in my life come across a deal we could not salvage.

But Here’s the Miracle

The neighbor next door who knew how crappy this property was and how shady the seller was approached one of the contractors and offered to buy the house to knock it down so he could expand his backyard. So the guy flipped pocket change my way. I took anything I could get. Off the top of my head, I think we lost like $40,000 on this deal. It was a big hit at the time because we were just starting to grow and expand. It was tough.

This deal was located two minutes from my office. So all you guys thinking that you can renovate successfully out of state and out the country, know that you can, but again, it’s tough. I tried doing it from Australia, and I didn’t do it well, so I moved here. I’m doing it well now, but even to this day, I still lose money on deals. It’s just the nature of the beast. The game of real estate, in my opinion, is to make more than you lose. Business is easy; people make it difficult. I’ve always believed in that saying. The one thing I have not figured out is contractors.

What I Learned

The lesson that I learned from that deal two years ago is you can’t be overwhelmed with your day-to-day. There are certain things where you have to pull back, slow down, and be more diligent with how you approach it. One thing in particular is that when you’re cutting checks to contractors on work that’s been done, even if it is someone that you trust, still get eyes on sight. So you have to have a project manager in place depending on how many deals you are doing. We have a pretty big operation where we do anywhere from 10 to 20 deals per month, so we have a few project managers to get eyes on sight. When a contractor asks for a check we physically check if progress was made and if it was, then that is when we cut the check.

Another lesson that I learned is to never, ever buy properties with foundation issues. Granted, we didn’t know that this property had foundation issues, but you have to double or triple check to make sure. 

To summarize, I think it’s really hard to successfully renovate a property out of state or out of the country. Another thing that I tell everyone that I speak to is that teamwork makes the dream work. You really need to surround yourself with the right people in order to make renovating, flipping, or any kind of real estate strategy a success. Find the right team, forget about the stats and demographics, and really focus on finding people that you can trust. Have that delayed gratification mindset and plant a seed now to reap the harvest later. Do those things, and I think you’ll do well because real estate is a marriage. It’s going to take five, 10, or 15 years to get where you want to be.

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

Last but not least, I’ve never lost money because the numbers in the deal didn’t make sense or because of the area. I have always lost money because someone ended up screwing me. It’s always the people factor, not the actual business itself or the numbers in that particular deal.

So that concludes my absolute horror story of a deal. I’m sure that a lot of you guys out there have your own horror stories. Let me say this: Please don’t let it set you back. It’s an emotional drag, I get it. But the sooner you can get out of that emotional drag, learn from it, and move forward, the better you’ll be. Get back on the horse and keep pushing forward. I really think it’s a game of making more money than you lose, but you will lose. Don’t forget that.

I want to hear your stories. What do you think of my story?

Comment 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.

22 Comments

  1. Rob Cook

    Engelo,

    That was a bad one sounds like. Usually missed construction items and issues are the reason for losses, but in your case, it was a host of bad actors, including the seller and contractors. Like you said, it happens if you play long enough and in as many deals as you. Thanks for sharing honestly. I have heard similar stories from BP folks who tried rehabbing long distance. Just not a good idea.

    • Engelo Rumora

      Thanks for your comment Rob,

      Such deals happen from time to time and I’m sure that other much bigger and better investors than myself have similar horror stories

      One that comes to mind is Mark Cuban’s secretary stealing $100,000 from him lol

      Have a great day and see you at the next blog

  2. I was contracted to rehab a six unit apartment building. The owner used practically all of his savings to pay $75,000 cash for the building, which was an exceptional deal. He then got a home equity line of credit for $225,000 to complete the rehab. That ARV was pretty close to $500,000. Two apartments were occupied, the other four were vacant.

    The owner wanted the two tenants out of the building right away. He went to the first tenant and asked him to leave. The tenant agreed and a couple of days later vacated apartment one. That worked out very well so he went to the next tenant and asked him to leave. I was standing outside and I heard the owner and the tenant arguing loudly.
    The owner came out and I asked him what was he going to do. He said he was going to call the FBI. Eight or nine minutes later the FBI arrived at the apartment, went inside and brought out the tenant who was so angry that they had to restrain him physically. He was taken to jail.

    A few days later, we went back to begin the rehab work. We went inside and inspected all six apartments and the basement and here is what we found:
    1. Concrete was flushed in all six toilets and bathtubs as well as the main drain in the basement.
    2. Floor tile cement was spread around every window in the building.
    3. A hammer was used to destroy every wall and ceiling as well as all hardwood flooring in every apartment.
    4. The main boiler in the basement was completely destroyed.
    The owner panicked and called a company to install a temporary fence around the premises. He being hired 24 hour security to watch over the building.
    After a while, mounting expenses caused the owner to lose the building. His wife filed for divorce.

  3. GARY MOBERLY

    This was not a bad deal. This was just plain laziness and stupidity. The property is two miles from your office and you never inspected it, visited it, or checked up on your contractors????? So you could do what back in the office? What could possibly be so important that you would not check your rehab a couple of times per week. If for nothing else, to make sure your contractors were on the job, doing quality work, and had their permits. How many billions did you make sitting at the office at the same time your contractors were toasting their good fortune of having a moron investor for a boss?

    Contractors can smell stupidity a mile away.

    Your posts are long on platitudes and generic advice. It really doesn’t seem like you know what you are doing. Remind me never to buy one of your turnkey houses, because they are probably really shoddy.

    • Engelo Rumora

      Thanks for your comment Gary,

      It’s a tough gig running 3 companies and managing around 50 people and at any given moment.

      The companies I run are involved in: acquisitions, sales, marketing, project management, property management, real estate brokerage, software development, etc…

      As you can imagine, there are many things to get done in a day that require hands on attention in an “office type environment.”

      It’s amazing how time flies and I rarely leave the office nowadays.

      Even to this day, I’m still pulling 14-16 hrs days

      I didn’t make billions yet but will get there 🙂

      I don’t need to you remind you as I would never sell to an individual like yourself.

      You should feel ashamed for attacking a blogger like you did in your comment above

      I wish you much success

  4. Robert Antonie

    Engelo,

    It takes guts to share your mistakes. I applaud you for taking the high road in your response. We will all make mistakes along our journey – the key, as you mentioned, is to pull yourself back up and keep moving forward. Thanks for sharing your story and I wish you the best of success!

  5. Ali Hashemi

    Hind sight is always much clearer, but simply checking to make sure the permits were pulled might’ve mitigated disaster without even having to leave the office. It’s an unfortunately hard lesson to learn, but thank you for sharing so the rest of us can learn a little bit from it!

  6. AJ S.

    States like OH, MI, IN experience a high degree of humidity in summer, rain, snow, ice in winter etc… That constant expansion and contraction can cause foundation issues are difficult to fix or repair if that is even an option. Especially if house was vacant, distressed, it’s best to stay away house with foundation issue. Thanks for your honest story Angelo.

    • Engelo Rumora

      Thanks AJ,

      We prefer to stay away from any foundation issues because we don’t need to do the job

      We just move on the “property next door”

      While the whole world is complaining about a lack of inventory, deals are falling of trees in Ohio lol

      Thanks again

  7. Brian Bandas

    I appreciate you sharing this. More than the nuts and bolts, the notes on mindset and moving forward are helpful to me. It sounds like your company is where I want mine to be: doing multiple deal each month. I’m working toward that, and yet I find myself with a house that I’m likely to lose about $20-30k on by the time it closes. I’ve considered holding it but that would be an even bigger setback to moving my company forward. The point is, it has been “an emotional drag” to say the least, and I’ve had those “maybe I should quit” moments, but I know that isn’t the answer. Reading this encourages me: one busted deal doesn’t mean I’m not cut out for this or that I will fail–it’s what I signed up for if I want to build this, and it’s part of the process. Thanks for the good read!

    • Engelo Rumora

      Thanks Brian and stick with it mate,

      I’m going through a $100,000 loss right now on 2 multifamily deals

      Do the right thing by your partners and investors, take the hit, learn from it and get out as quickly as possible.

      The “emotional drag” prevents you from thinking ahead and doing more deals which in itself is an even bigger loss than just the monetary one

      I wish you much success

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