How I Completely Lost My A$$ On This Deal

[Engelo Rumora]

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

[Engelo Rumora]

Originally posted by @George Allen:

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. 

Thanks for your comment and tips George,

They are taken on board and I'll share the with my team in our Monday morning meeting.

We love discussing topics such as this as to how be can better everything we do.

We have also already decided to go down the route if paying a few extra $$$ to get the job done quicker.

Thanks again and have a great day.

[John Jack R.]

Wow. The nugget here is that you did do the right thing with all concerned although you took a hit. I think the bigger issue here (apart from the due diligence component) is "contractors" After multiple flips with independent contractors, I decided to start our own crew in the third week of June. So instead of relying on others, we now carry the load ourselves. It means more work managing and digging through finding the right guys but at the end of the day I believe it is worth it. Payroll versus paying a contractor is a wash some savings not much. But we get our projects done in a timely manner the way we want them in terms of finish and attention to detail. Does anyone else run their own crew?

[Carl Devitt]

Engelo.  

1.  Thanks for the informative post as well as the added detail with the photos.
2.  Your BP podcast was one of the funniest and most motivating ever.  You rocked it.

[Engelo Rumora]

Originally posted by @John Jack R.:

Wow. The nugget here is that you did do the right thing with all concerned although you took a hit. I think the bigger issue here (apart from the due diligence component) is "contractors" After multiple flips with independent contractors, I decided to start our own crew in the third week of June. So instead of relying on others, we now carry the load ourselves. It means more work managing and digging through finding the right guys but at the end of the day I believe it is worth it. Payroll versus paying a contractor is a wash some savings not much. But we get our projects done in a timely manner the way we want them in terms of finish and attention to detail. Does anyone else run their own crew?

Thanks Jack,

I actually started looking into that a while back even before S#!@ hit the fan haha

I have one great all round maintenance guy, if I could find another I would seriously consider putting both on payroll as I'm sure they could smash out a full blown rehab within 2 weeks.

Besides them I do have a few decent contractors that I haven't fired yet haha

Between the payroll guys and the contractors we could easily tackle 5+ full blown rehab deals per month.

Thanks and have a great weekend.

[Engelo Rumora]

Originally posted by @Carl Devitt:

Engelo.  

1.  Thanks for the informative post as well as the added detail with the photos.
2.  Your BP podcast was one of the funniest and most motivating ever.  You rocked it.

Hi Carl,

Thanks for your kind words.

I always try to stay true to myself no mater what. Most find it humorous lol

Have a great day.

[Seth Carlone-Hanson]

I am US military educating myself on RE investing. In the military, the most respectable folks are those who can put ego aside and share their missteps for the benefit of others, especially considering the way you did right by your investors/partners. Thank you for posting.

[Lari A.]

Originally posted by @Engelo Rumora:

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.

I don't have any deals under my belt yet, but I come to BP to learn what I can from those who have been doing for years what I want to also do for years.  Very rarely do I come upon a post where an experienced investor admits to making mistakes, and even though I'm sorry that you were taken advantage of, I appreciate how thorough you were in laying out how and why you were. Thank you so much for your honesty and transparency, and all the best to you going forward!

P.S.:  I know that this business is about profit, but with tongue firmly planted in cheek, I look forward to the day when I can lose $25k on a deal, because that will mean that I actually had it to lose!!!  ;-)

[David White]

@Engelo Rumora It takes a lot of strength and courage for a person to admit their mistakes. Especially on a public forum. Thanks for sharing your experience and your lessons learned. 

[James Wise]

@Engelo Rumora

Tough break. Good post. A learning moment for yourself and the many members who follow you.

Keeping up with rapid growth can be difficult at times. At the end of the day I think you will have no problem bouncing back. Just keep doing what you do and this will be a distant memory.

[Ramon Jenkins]

“ Don't just GO GO GO. Sometimes you just have to STOP and re-assess. “

-> I would totally agree.

    I personally sit down ever few months and replay interactions with 

    clients/contractors to determine if it worth moving forward.

[Engelo Rumora]

Originally posted by @Seth Carlone-Hanson:

I am US military educating myself on RE investing. In the military, the most respectable folks are those who can put ego aside and share their missteps for the benefit of others, especially considering the way you did right by your investors/partners. Thank you for posting.

Thanks for your comment Seth,

Much appreciated.

Have a great day.

[Engelo Rumora]

Originally posted by @Lari A.:

Originally posted by @Engelo Rumora:

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.

I don't have any deals under my belt yet, but I come to BP to learn what I can from those who have been doing for years what I want to also do for years.  Very rarely do I come upon a post where an experienced investor admits to making mistakes, and even though I'm sorry that you were taken advantage of, I appreciate how thorough you were in laying out how and why you were. Thank you so much for your honesty and transparency, and all the best to you going forward!

P.S.:  I know that this business is about profit, but with tongue firmly planted in cheek, I look forward to the day when I can lose $25k on a deal, because that will mean that I actually had it to lose!!!  ;-)

Hi Lari,

Thanks for your comment.

Although loosing $$$ on a deal can set you back quite a bit, it really does open your mind to re-evaluate your entire strategy and approach to investing.

The losses I incurred over the years have made me become a much better investor and person in general.

Thanks again and keep the dream alive :)

[Engelo Rumora]

Originally posted by @David White:

@Engelo Rumora It takes a lot of strength and courage for a person to admit their mistakes. Especially on a public forum. Thanks for sharing your experience and your lessons learned. 

Thanks for your kind words David,

Have a great day and much success with your investing.

[Engelo Rumora]

Originally posted by @James Wise:

@Engelo Rumora

Tough break. Good post. A learning moment for yourself and the many members who follow you.

Keeping up with rapid growth can be difficult at times. At the end of the day I think you will have no problem bouncing back. Just keep doing what you do and this will be a distant memory.

Thanks James,

It sure can mate.

Its like a circus at times.

Only 2 hands but trying to keep 100 balls in the air haha.

Thanks and have a great day.

[Engelo Rumora]

Originally posted by @Ramon Jenkins:

“ Don't just GO GO GO. Sometimes you just have to STOP and re-assess. “

-> I would totally agree.

    I personally sit down ever few months and replay interactions with 

    clients/contractors to determine if it worth moving forward.

Thanks Jenkins,

Its hard to pull back with so much noise going on.

Something I need to work on.

"Measure twice at cut once" as the saying goes.

I wasn't even measuring when I lost out on this deal haha

Thanks again and have a great day.

[John Weidner]

@Engelo Rumora

I won't be so kind.   The whole scenario is so bad it almost sounds staged.  

How do you lose control this bad when this is not your first deal and your running a company specializing in Turn Key properties?  Wow

[Engelo Rumora]

Originally posted by @John Weidner:

@Engelo Rumora

I won't be so kind.   The whole scenario is so bad it almost sounds staged.  

How do you lose control this bad when this is not your first deal and your running a company specializing in Turn Key properties?  Wow

Thanks form you comment John,

My answer is as simple as this - S#!@ Happens! haha

Have a great day

[Engelo Rumora]

Here is a live video for those of you that are interested in seeing how your favorite Aussie lost his A$$ to the sum of $25,000 on this nightmare property.

[Paul Grgurich]

Great stuff Engelo - as a nubie that is still in the "learning" stages this kind of information is priceless...thanks!

[Engelo Rumora]

Originally posted by @Paul Grgurich:

Great stuff Engelo - as a nubie that is still in the "learning" stages this kind of information is priceless...thanks!

My pleasure Paul.

I'm glad you found it useful.

Have a great day and much success.

[Cedric Corpuz]

Engelo 

Thanks for the share and as the "would be" investor on that property I have a much closer appreciation for your challenges. Also thanks for the humility to show that even the most experienced don't have 100% deals go down positively.

All the best! 

cc

[Engelo Rumora]

Originally posted by @Cedric Corpuz:

Engelo 

Thanks for the share and as the "would be" investor on that property I have a much closer appreciation for your challenges. Also thanks for the humility to show that even the most experienced don't have 100% deals go down positively.

All the best! 

cc

Hi Cedric,

Thanks for your comment :)

Have a great weekend mate

[Mike Moreken]

Good lessons.  Very hard when your not the first to make error!

Who can you trust?  If one cannot trust, get working on protection.
I was guilty of GO GO GO though though not my usual modus operadi.  Time will tell if I get burned.  I knew this was dangerous and kept saying slow down!

I had my GC hire locals to paint my rental.  Today I can see where the rollers stopped near ceiling and they should have touched up.  So now I see a light blue band around the white painted walls.

Ask myself am I in a rush, then maybe stop and reevaluate the situation.

[Vincent Crane]

"Pay your contractors for each part of the job once they complete it. If the whole project is $20k, break it into increments for each part and only pay them once they finish that part and you've seen it." One of the best quotes I've heard from someone else

[Engelo Rumora]

Originally posted by @Mike Moreken:

Good lessons.  Very hard when your not the first to make error!

Who can you trust?  If one cannot trust, get working on protection.
I was guilty of GO GO GO though though not my usual modus operadi.  Time will tell if I get burned.  I knew this was dangerous and kept saying slow down!

I had my GC hire locals to paint my rental.  Today I can see where the rollers stopped near ceiling and they should have touched up.  So now I see a light blue band around the white painted walls.

Ask myself am I in a rush, then maybe stop and reevaluate the situation.

Thanks for your comment Mike

Have a great day.