Failure stories and lessons learned

[Joshua Feit]

Hi friends!

One aspect of real estate investing that has always troubled me is how everyone seems quick to talk about their successes, but we can be a little embarrassed to share the failures. I have had some good successes since I started four years ago, but I also have had a couple of big missteps. So I thought I would share one with everyone, and I want to challenge you to do the same.

I think it is important for new investors to know that these failures happen, so let's share a story about an investment that went off the rails. Not only will we be encouraged that we're not alone, but we will also see that we're able to move past these failures to become better investors. So share the story and the lesson!

Here's mine:

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The story:

A year ago, I came across an RV park for sale in a tiny town in Kansas. I reviewed three years of financials pored over the expenses. The place seemed to generate at least $2K a month net after all debt and expenses consistently, and though the market seemed very small and unexciting, I was drawn to the promise of big cash flow. I purchased the park for $125K, putting 25K down and financing the rest with a local bank.

When I put it under contract, there were 15 trailers in the park, each paying monthly while they worked energy and construction jobs in the area. The day we closed, the park had seven trailers, and about two months later (and ever since) there has been just one. Break-even on expenses is four trailers, so I have been consistently losing about 1K per month on the property. And to make the matter worse, there are no projects forthcoming, which makes the prospect of selling nearly impossible.

The lesson:

When we invest, we are buying into a market, not just acquiring a property. As good as a property may seem, it can only ever be as strong as the market in which it sits. A healthy market means there will likely be options for that property if it ever goes off the rails. But an unhealthy market may very well tie the investor's hands.

Expensive lesson learned!