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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
Originally posted by @Jesse T.:
Sorry to hear about your experience. Thanks for sharing it so that others can learn from it.
Thanks Jesse,
Happy to help :)
Have a great day.
@Engelo Rumora Done, I just gave you a well deserved vote. Here in Miami you hear this type of stories every now and then. If is not the seller or the bank or the contractor or the buyer or the city sometimes you sense they are all conspiring to get you. Agreed, we must slow down and look at the trees not just the forest. Thanks for sharing and continue expanding into the market. All the best
Originally posted by @Gordon Cuffe:
wow dishonest contractors and property managers suck. I hope you post the names of the crooks. It seems that when we want to hire a contractor we should ask to see copies of their last three bank statements and credit reports. Treat them as if they are applying for a loan. If we see financial problems, that will tell us not to hire the contractor or pay very little up front. Then pay in increments as work is completed.
Thanks Gordon,
We now do very thorough back round checks along with only paying for materials when we start.
I'm sure there will be more issues with contractors down the road and its just something that I've considered as the cost of doing business.
Thanks and have a great day.
ps. Looks like we are closing on Willamont next week so I'll send you a check. Need your mailing address? Thanks
Originally posted by @Vincent Crane:
Being able to learn from these setbacks and "mistakes" if you will, is definitely helpful to see so we hopefully don't make the same ones ourselves, thanks for sharing your story
My pleasure Vincent,
Have a great day.
Originally posted by @Steve Vaughan:
Thanks for sharing @Engelo Rumora! Glad to see this experience didn't dampen the spirits of our favorite happy Aussie!
A wise man once said - rule #1 even - is DO NOT DO BUSINESS WITH SNAKES. Ever.
Thank you for sharing your lessons learned. Concise and invaluable. Cheers!
Thanks Steve,
Nothing can dampen your favorite Aussie's spirit lol :)
I have lost hundreds of thousands of $$$ in similar fashion over the years but this was probably the biggest lump sum hit to date.
"Business is easy, people make it difficult" haha
Thanks and have a great day.
Sorry to hear about all those troubles, Engelo. Sounds very stressful, but you will learn from these mistakes, which will make you all the better suited for your next deal!
Originally posted by @Brian G.:
@Engelo Rumora Done, I just gave you a well deserved vote. Here in Miami you hear this type of stories every now and then. If is not the seller or the bank or the contractor or the buyer or the city sometimes you sense they are all conspiring to get you. Agreed, we must slow down and look at the trees not just the forest. Thanks for sharing and continue expanding into the market. All the best
Thanks Brian,
I am and always have been very fast paced and Go Go Go.
It definitely helped me to get to the level we are at now but I made a transition with myself not too long ago.
Had a great wake up call by someone who is buddies with Richard Branson and Gary Vaynerchuk.
It was a very simple question he asked as I was stressing to him about how I want to dominate the world in business
He asked me" What do you really want?".
Might not make sense or seem like a life changing question reading it on here, but it hit a cord with me in person big time.
Check out this link -
http://bemorewithless.com/the-story-of-the-mexican-fisherman/
The Fisherman Story might make that question a bit clearer ;)
Thanks
I'll see your $25,000 and raise you.
too many people are all into the "rah rah" on this housing investment stuff but you see that bad things can happen. you only hear about the good stuff on here; the truth is, there are many horror stories as well.
thx for sharing; it takes a true champion to post this.
Originally posted by @Engelo Rumora:
Originally posted by @Brian G.:@Engelo Rumora Done, I just gave you a well deserved vote. Here in Miami you hear this type of stories every now and then. If is not the seller or the bank or the contractor or the buyer or the city sometimes you sense they are all conspiring to get you. Agreed, we must slow down and look at the trees not just the forest. Thanks for sharing and continue expanding into the market. All the best
Thanks Brian,
I am and always have been very fast paced and Go Go Go.
It definitely helped me to get to the level we are at now but I made a transition with myself not too long ago.
Had a great wake up call by someone who is buddies with Richard Branson and Gary Vaynerchuk.
It was a very simple question he asked as I was stressing to him about how I want to dominate the world in business
He asked me" What do you really want?".
Might not make sense or seem like a life changing question reading it on here, but it hit a cord with me in person big time.
Check out this link -
http://bemorewithless.com/the-story-of-the-mexican-fisherman/
The Fisherman Story might make that question a bit clearer ;)
Thanks
Ha... :-) great reading and it makes complete sense. I am starting to pick a tone from other individuals here in BP that drive and desire to conquer a market only answers part of the acclaimed question "What do you really want?". Its amazing how well some of them have built their RE empires surrounded by systems to reduce their participation. Take for example Podcast #133 with Jason Cohen towards the end around 57 minutes. Josh asked Jason "So how do you build a successful business?" to what Jason replied "Keep errors to a minimum because you will make a lot of them. If you make a mistake, create a system to where you can't make that mistake again". Now this is coming from a guy that amassed $50M worth of real estate in one decade. So if you were to ask me today "Brian what do really want?". I want to do what I am doing now with systems and methods in place that allows me to: 1. spend more time with family 2. reduce errors/risks and 3. stay competitive in the market.
Great learning today from your story... Too bad I could only vote once. All the best
Hey Engelo,
Great story, thanks for sharing. It is good for us small guys to know that bad stuff happens even to the big guys.
Also, I loved the story about the fisherman, good stuff.
David
Hello and thank you for sharing. Believe me when I say that I feel your pain. My first and only flip so far had very similar results. Long story short, a "6 week flip" turned into 3.5 years and losing $30K. Oh, and we went through 4 contractors, theft, and issues from the City as well.
Lots of lessons learned. Lots of stress. But after all of it, I still want to invest in Real Estate :)
That's great you failed!!! That's awesome, way to go!!! --> I know this doesn't seem like the typical response to this situation, but this is a good thing. Failures are bound to happen and the sooner you endure them, the closer you are to your major successes. You also learn so much more from a failure than a successful transaction (because you tend to evaluate the errors during failures, whereas when successful, the success is only praised and no evaluation takes place). Be happy when you fail, hold your head up high, and evaluate your errors. You can be sure you'll be more careful the next time, that better steps are taken, and that systems are aligned for a transaction that's most likely to be successful. Look at the patterns and hear the stories of the major real estate investors, or even the richest entrepreneurs: they've endured robberies, evictions, failed projects, thousands of dollars in losses (yay you've conquered this), and even being poor themselves (not broke, but literally living on the street). They've grown and some have learned how to manage money better than those that were born into a wealthy family and were surrounded by money their entire lives (typically those that have fallen harder than most)! Change your outlook: this is great! You are closer to being the investor you want to be, so though people may disagree with what I'm saying, congratulations! I look forward to enduring more failures that will lead to substantial successes and thank you for sharing your moment of failing.
Originally posted by @Rick C.:
Sorry to hear about all those troubles, Engelo. Sounds very stressful, but you will learn from these mistakes, which will make you all the better suited for your next deal!
Thanks Rick,
I love this quote - "Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better."
Have a great day.
Originally posted by @David Krulac:
I'll see your $25,000 and raise you.
Double or nothing David?
haha
Originally posted by @Scott W.:
too many people are all into the "rah rah" on this housing investment stuff but you see that bad things can happen. you only hear about the good stuff on here; the truth is, there are many horror stories as well.
thx for sharing; it takes a true champion to post this.
Thanks Scott,
S#!@ happens and there is no better way to go about it than sharing it with Bigger Pockets and 300,000+ members haha
Don't ya reckon my mates @Joshua Dorkin, @Brandon Turner? haha
Thanks
Originally posted by @Brian G.:
Originally posted by @Engelo Rumora:Originally posted by @Brian G.:
@Engelo Rumora Done, I just gave you a well deserved vote. Here in Miami you hear this type of stories every now and then. If is not the seller or the bank or the contractor or the buyer or the city sometimes you sense they are all conspiring to get you. Agreed, we must slow down and look at the trees not just the forest. Thanks for sharing and continue expanding into the market. All the best
Thanks Brian,
I am and always have been very fast paced and Go Go Go.
It definitely helped me to get to the level we are at now but I made a transition with myself not too long ago.
Had a great wake up call by someone who is buddies with Richard Branson and Gary Vaynerchuk.
It was a very simple question he asked as I was stressing to him about how I want to dominate the world in business
He asked me" What do you really want?".
Might not make sense or seem like a life changing question reading it on here, but it hit a cord with me in person big time.
Check out this link -
http://bemorewithless.com/the-story-of-the-mexican-fisherman/
The Fisherman Story might make that question a bit clearer ;)
Thanks
Ha... :-) great reading and it makes complete sense. I am starting to pick a tone from other individuals here in BP that drive and desire to conquer a market only answers part of the acclaimed question "What do you really want?". Its amazing how well some of them have built their RE empires surrounded by systems to reduce their participation. Take for example Podcast #133 with Jason Cohen towards the end around 57 minutes. Josh asked Jason "So how do you build a successful business?" to what Jason replied "Keep errors to a minimum because you will make a lot of them. If you make a mistake, create a system to where you can't make that mistake again". Now this is coming from a guy that amassed $50M worth of real estate in one decade. So if you were to ask me today "Brian what do really want?". I want to do what I am doing now with systems and methods in place that allows me to: 1. spend more time with family 2. reduce errors/risks and 3. stay competitive in the market.
Great learning today from your story... Too bad I could only vote once. All the best
Thanks B,
Great words mate :)
Love that stuff and hits home 100% with what you're saying.
My answer to the question was very similar to yours. I added a "house in the Bahamas" tho haha
Thanks and see you around the forum.
Have a great weekend.
Originally posted by @David Rupp:
Hey Engelo,
Great story, thanks for sharing. It is good for us small guys to know that bad stuff happens even to the big guys.
Also, I loved the story about the fisherman, good stuff.
David
Thanks David,
I'm still a small guy mate.
Big heart tho and a great right leg high kick haha :)
Have a great weekend and keep the dream alive.
Originally posted by @Mike J.:
Hello and thank you for sharing. Believe me when I say that I feel your pain. My first and only flip so far had very similar results. Long story short, a "6 week flip" turned into 3.5 years and losing $30K. Oh, and we went through 4 contractors, theft, and issues from the City as well.
Lots of lessons learned. Lots of stress. But after all of it, I still want to invest in Real Estate :)
Awesome Mike,
This deal was easily over the 300th I have been involved in.
Things like this will always happen.
One of my mentors does 1,000 per year and recently lost $250,000 to contractors he trusted for over the last 5 years.
Just roll with the punches and keep pushing forward no matter what.
Thanks and have a great weekend.
Originally posted by @Stephanie Dobbs:
That's great you failed!!! That's awesome, way to go!!! --> I know this doesn't seem like the typical response to this situation, but this is a good thing. Failures are bound to happen and the sooner you endure them, the closer you are to your major successes. You also learn so much more from a failure than a successful transaction (because you tend to evaluate the errors during failures, whereas when successful, the success is only praised and no evaluation takes place). Be happy when you fail, hold your head up high, and evaluate your errors. You can be sure you'll be more careful the next time, that better steps are taken, and that systems are aligned for a transaction that's most likely to be successful. Look at the patterns and hear the stories of the major real estate investors, or even the richest entrepreneurs: they've endured robberies, evictions, failed projects, thousands of dollars in losses (yay you've conquered this), and even being poor themselves (not broke, but literally living on the street). They've grown and some have learned how to manage money better than those that were born into a wealthy family and were surrounded by money their entire lives (typically those that have fallen harder than most)! Change your outlook: this is great! You are closer to being the investor you want to be, so though people may disagree with what I'm saying, congratulations! I look forward to enduring more failures that will lead to substantial successes and thank you for sharing your moment of failing.
Thanks Stephanie,
That was a bloody fabulous post and 100% agreed.
Here is the quote again that I posted in a previous comment -
"Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better."
Lets do this.
Thanks and keep the dream alive ;)
Exactly!!! Love the quote - I will have to share on Facebook, and possibly another post...hmmm
I have heard SOOOO many horror stories about permits. I literally check every step of the way.
Originally posted by @Ryan Dossey:
I have heard SOOOO many horror stories about permits. I literally check every step of the way.
Yep you don't want the city snooping on anything lol
Otherwise its game over haha
Thanks
Originally posted by @Engelo Rumora:
Originally posted by @Ryan Dossey:I have heard SOOOO many horror stories about permits. I literally check every step of the way.
Yep you don't want the city snooping on anything lol
Otherwise its game over haha
Thanks
I just got my first court date as a landlord. One of my tenants didn't file his occupancy permit. In MO we pay an inspection. It passes and then they have to pay like 35 when they move in as well.
Tenant forgot. So they want to dig back through the home.... Yay...... Again. Serves me right for not following up to make sure he got it done!
Originally posted by @Ryan Dossey:
Originally posted by @Engelo Rumora:Originally posted by @Ryan Dossey:
I have heard SOOOO many horror stories about permits. I literally check every step of the way.
Yep you don't want the city snooping on anything lol
Otherwise its game over haha
Thanks
I just got my first court date as a landlord. One of my tenants didn't file his occupancy permit. In MO we pay an inspection. It passes and then they have to pay like 35 when they move in as well.
Tenant forgot. So they want to dig back through the home.... Yay...... Again. Serves me right for not following up to make sure he got it done!
WOW,
Always something lol
Stick with it ;)