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How I Completely Lost My A$$ On This Deal
G'Day everyone,
It's your favorite Aussie and The Real Estate Dingo.
I am writing to you today with my head down and my tail between my legs as I just lost $25,000 on a recent deal.
ps. This post deserves at least 50 votes :)
Below you will find some of the lessons I learned along with pictures of this nightmare deal.
So it all started around 4 months ago when my company Ohio Cashflow had a boom in demand and we were very short on inventory. Like we would normally do, we decided to ramp up direct mailers to the thousands per week along with stalking Craigslist numerous times per day. Craigslist is a great source for inventory and we bought a ton of properties from Craigslist over the years. One day I found a very small and ugly looking 3 bed 1 bath house located in the Washington Local School District. The best school district in Toledo. A big WINNER in my eyes.
Without going into every little finer detail as I only type with 2 fingers and it would probably take me 5,000 words to cover all of the S#!@ that went on haha - Check out the bullet points below of the issues that occurred and the mistakes I made:
- The seller owned numerous properties in town and was the shadiest guy you could possibly imagine. I had a bad feeling from the start but failed to conduct further due diligence on him. I later found out that he ended up in jail for tampering with the city water on countless properties he owned.
- When we bought the property we signed a disclosure "As Is". This didn't allow us to go after the seller on the numerous items he failed to disclose. The biggest one was the water tap. The city completely switched all water off to the property and it cost us $1,250 to order a new tap to be installed.
- The property had every possible code violation you could imagine but this didn't seem like a big issue at the start as I "knew" I had "licensed" contractors that would look after the problems. Boy, was I wrong.
- Demolition started and I went about paying my guys like I always do. They get draws whenever they want and need them and they love us for it and always "complete" the job. Well, they did so for the last 12 months.
- The extras started piling up like foundation work, floor leveling, sump pump, major plumbing and electrical, etc... To this day I still don't know how I missed some of these items as you would think that they would be easily visible when I first inspected the property.
- Busy Busy Busy is not always good. You sometimes just need to STOP and smell the roses otherwise major things will go unnoticed and you will make big mistakes.
- I had to bring new contractors on board that I never worked with before to start on all of the extras. City permits needed to be pulled on all of the extra work we needed to do.
- From torrential rain and flooding delays to the city permit delays. The weeks turned into months and I still faithfully kept paying my main guys as I knew that once everything was clear they would come in and smash the job.
- The day it all went to BIG S#!@. BOOM the city inspector rocks up on site and sticks a STOP WORK ORDER, I was like "WTF is this?", "We pulled permits."
- I quickly checked on the Toledo Gov website and the new contractor I decided to hire completely scammed us out of $4,400 and never pulled the permits for the job along with other jobs. Its crazy how we got screwed as this guy was in our office and on the phone to the city inspectors asking what permit needed to be pulled and how much it would cost. Great scam I'll give him that. He was a trusted source from one of my "trusted" contractors that had been on board with us for over a year. I mean, what could go wrong, Right?
- After all of this happened I lost faith in everyone and decided to get independent advice from a very reputable GC here in town. He pretty much told me that it was a complete loss and to cut my losses quickly, salvage anything I can from the house and move on.
- $20,000+ went to contractors that never really did any work or pulled any permits and just kept begging me for draws the whole time and blaming me for the slow progress.
How about that guys?
I was fortunate enough that the neighbor wanted to buy this house for 15+ years just so he could knock it down and build a pool on the land. If I knew that from the start, I actually could have wholesaled it to him for a profit instead of loosing $25,000 lol. If the neighbor didn't want to buy it tho, it could have ended up being an even bigger loss of $50,000+.
I also had money partners in the deal that I had to payout from my pocket.
The biggest BUMMER in the whole story is not the money lost but the fact that I had a great investor on board to purchase the property once the renovations were complete and the property was tenanted. This property could have been a great Buy & Hold forever. We were literally praising this deal as the best property in the best area we have ever bought.
I ended up looking like a complete donkey to my investor and not the Dingo that I'm know for lol :)
***Lessons Learned & Tips***
"The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy." - Martin Luther King, Jr.
- Speak to the neighbors before you close on a property. Most will know the entire history of the house, the previous owner and the area.
- Don't just GO GO GO. Sometimes you just have to STOP and re-assess.
- Never give draws to contractors until you can actually see a progress of work so the draw is justified. No matter how many jobs they have done for you prior or how long you have known each other.
- Never write a check to a contractor personally to pay for city permits. Get him to pay the city himself or write a check to the city.
- Hire slowly & fire very very quickly. I did a complete in-house clean out of personnel after this deal. There were many warning signs over the past few months but I decided turn a blind eye to it.
- Always pay your debts back to money partners without excuse. They will love you for it and the true and good partners know that everyone makes mistakes.
- Be 100% honest at all times with everyone involved in the transaction. Don't leave anyone in the dark and communicate the happenings daily.
- Take full responsibility and only blame yourself.
***Photos***
I hope you enjoyed this post and found it useful.
Have a great day
Good to see someone sharing the bad with the good so people know its not all gravy and sunshine.
Curious if you don't mind sharing was the investor you had to payout debt or equity?
House is bowed from the roof that would have done it for me. I guess you were really busy. Sometimes its good to follow your instinct to wholesale. Looks like more than I would want to get into. I didn't see the acquisition price. Some deals are worth passing by.
Great sharing. Thank you for taking a bad experience and turning it into an opportunity to learn.
I wish you the best in your next RE investment :)
I'll see your $50,000, and raise you another $25,000!
In the Bigger Pockets book, "Real Estate Rewind", of which I was honored to be one of the co-authors, I wrote a deal where I lost $80,000.00 I would like to forget it, but just can't shake the memory.
Don't feel bad, I lost a total of over $100,000, on two separate deals, back in 1990. It's the cost of learning!
Thanks for posting your experience. Contractors are just the worst, even when you've used them a few times some of them take advantage. Which is counterintuitive to me, if they know you are an investor, they should bend over backwards to keep you happy, because you can keep them in business.
I know that other including me can feel your pain...and rather has experienced it. It makes us a better person for it...though I know we all wish it never happened in the first place
..lol
But as it turns out we are better people for it, as we stand to live and prosper another day. And most importantly we are not shy to tell others our fails just as much as our successes.
Great post....Rise again!
@Engelo Rumora:
Bums me out to hear this. I know you won't let this hold you back though. Give me a call when you are up Detroit way. I still have some stuff to show you up here!
Originally posted by @Charles Worth:
Good to see someone sharing the bad with the good so people know its not all gravy and sunshine.
Curious if you don't mind sharing was the investor you had to payout debt or equity?
Thanks Charlie,
It was debt :)
Have a great day.
Originally posted by @David Krulac:
I'll see your $50,000, and raise you another $25,000!
In the Bigger Pockets book, "Real Estate Rewind", of which I was honored to be one of the co-authors, I wrote a deal where I lost $80,000.00 I would like to forget it, but just can't shake the memory.
WOW mate,
Crazy figures.
Unfortunately I can't match that one lol
I'll make sure to submit another post when I lose my A$$ even bigger than this time haha.
Have a great weekend.
Originally posted by @Troy W.:
I know that other including me can feel your pain...and rather has experienced it. It makes us a better person for it...though I know we all wish it never happened in the first place
..lol
But as it turns out we are better people for it, as we stand to live and prosper another day. And most importantly we are not shy to tell others our fails just as much as our successes.
Great post....Rise again!
Thanks Troy,
When the going gets tough, the tough get going.
It was just one of those deals.
We have already put that one behind us with 2 news closings happening this week and another 2 coming up within the next 2 weeks.
Plenty of good opportunities out there.
I got some great advice a while back.
It went like this - "When business is booming, don't spend it all and when business is glooming, just make sure to stay afloat"
Have a great weekend.
Thanks for the perspective. Not all deals work out as planned, and when they don't it is important to use the loss as education. You just paid $25,000 in tuition for an advanced degree in project management.
Congratulation for posting your experience.
Originally posted by @Joshua Woolls:
@Engelo Rumora:
Bums me out to hear this. I know you won't let this hold you back though. Give me a call when you are up Detroit way. I still have some stuff to show you up here!
Thanks Joshua,
I'll do my best to make it out asap.
We have been hectic with everything in Toledo.
I let go of like 7 people in the last 6 weeks haha
Interviewing like 5 new people every day for positions.
Do you know of any good PM closer to my region? lol
Thanks and chat soon.
Originally posted by @Mike Jury:
Thanks for the perspective. Not all deals work out as planned, and when they don't it is important to use the loss as education. You just paid $25,000 in tuition for an advanced degree in project management.
Congratulation for posting your experience.
My pleasure Mike,
I have already paid over $300,000 in mistakes for my Harvard Degree in real estate investing over the last 4 years haha
Thanks and have a great weekend.
Originally posted by @George Allen:
House is bowed from the roof that would have done it for me. I guess you were really busy. Sometimes its good to follow your instinct to wholesale. Looks like more than I would want to get into. I didn't see the acquisition price. Some deals are worth passing by.
Thanks George,
The roof was an easy fix.
Very small sq ft wise. Could have had a new one on there for less than $2,000.
Have a great day.
Originally posted by @Ingrid J.:
Great sharing. Thank you for taking a bad experience and turning it into an opportunity to learn.
I wish you the best in your next RE investment :)
Thanks Ingrid,
Have a great weekend.
Originally posted by @Mike McKinzie:
Don't feel bad, I lost a total of over $100,000, on two separate deals, back in 1990. It's the cost of learning!
Thanks Mike,
Sure is.
Failure is the best way to learn IMO.
Have a great weekend.
Originally posted by @Alex Applebee:
Thanks for posting your experience. Contractors are just the worst, even when you've used them a few times some of them take advantage. Which is counterintuitive to me, if they know you are an investor, they should bend over backwards to keep you happy, because you can keep them in business.
Thanks Alex,
I have figured out many things in real estate expect how to find good contractors lol
Its always been a process of hiring and firing with those guys lol
I do have a few good ones that have been with us for a while but we shall see how that ends up going longer term.
Have a great weekend.
Sounds like you had quite the experience!
Thank you for sharing your story though I'm sorry it was so bad for you. Well what doesn't kill us makes us stronger as the saying goes.
Mistakes may have been made, but you had a huge success in proving what kind of man you are. We all like to believe we are honest and fair to others, the question is whether we will be that person when it is tested. When the market turned in 2006, I saw many people that I had utmost respect for throw their integrity out the window in a heartbeat when their own treasure chest was threatened.
As years go by the sting over your financial loss will lessen, overtaken by the pride you feel when you can look an investor in the eye and promise to take care of their money. Now you have the battle scars to prove that you will.
Originally posted by @Alex Applebee:Thanks for posting your experience. Contractors are just the worst, even when you've used them a few times some of them take advantage. Which is counterintuitive to me, if they know you are an investor, they should bend over backwards to keep you happy, because you can keep them in business.
A really good practice. Which the gentleman did here is to get a referral. It's good on a project where your doing something new. Is with the Reia's find out how long they have been in business who is happy and not and network a little. Networking can leave you with more than one opinion so you can make a decision. Also the guys that advertise (I like radio they usually are very conscious of their reputation). They do volume and run a successful large operation. Sometimes it costs a little more. Sometimes not. Usually your going to get a really honest answer. Any referral from a company that advertises should be fairly good. Your not going to get left in the lurch. It costs a little more with guaranteed work in many cases and a warranty (which may be transferable). More than likely your going to get an upfront estimate with no surprises from very professional people. Your recourse to a high profile company is much greater. In addition they are going to compete. One more note on people that advertise on high profile stations is your work is going to get done very quickly. They come in with crews to get the job needed to get done quickly and professionally. That has been my experience anyway.
Originally posted by @Joshua Diaz:
Sounds like you had quite the experience!
Thank you for sharing your story though I'm sorry it was so bad for you. Well what doesn't kill us makes us stronger as the saying goes.
Thanks Joshua and it sure does.
Great saying.
Have an awesome weekend.
This is a great post. I'll remember the lessons that you learned so that they're free for me.
I appreciate your transparency. Thanks!
Originally posted by @Cindy Meyer:
Mistakes may have been made, but you had a huge success in proving what kind of man you are. We all like to believe we are honest and fair to others, the question is whether we will be that person when it is tested. When the market turned in 2006, I saw many people that I had utmost respect for throw their integrity out the window in a heartbeat when their own treasure chest was threatened.
As years go by the sting over your financial loss will lessen, overtaken by the pride you feel when you can look an investor in the eye and promise to take care of their money. Now you have the battle scars to prove that you will.
Thanks Cindy and great words.
I have also seen it too many times decent folks crumble when they get tested under similar circumstances to mine.
I am very proud to have paid back my investor and paying back someone's dues is never even a question on my mind.
My word is my honor :)
Thanks again and have a great weekend.
Originally posted by @Scot Howat:
This is a great post. I'll remember the lessons that you learned so that they're free for me.
I appreciate your transparency. Thanks!
Thanks Scot,
Much success with your endeavors.