Very bumpy first deal, hard earned lessons

[Ira Hayes]

Investment Info:

50% equity owner carry Single-family residence buy & hold investment in Cave Junction.

Purchase price: $65,000, $6,000 down

Cash invested: $8,500

Sale price for 50% equity: $10,000

Profit: $1,500

Partner paid mortgage.
Total investment in the property: 6,000 down payment; 500 in lawyers fees to draw up documents for an eviction/offer of equity to tenants, and for the sale of my equity to my investment partner; 2,000 in my time and materials cleaning up the property and doing research and footwork to sell my equity.

What made you interested in investing in this type of deal?

I had no knowledge and little interest in real estate beforehand. I got into this deal because the partner asked me to invest.

How did you find this deal and how did you negotiate it?

The deal was found on Craigslist. It was negotiated directly with the seller and the owner carry was done through a title agency and deed holding company.
I relied entirely on my partners knowledge and expertise to find and close the deal, and he also made the terms of our agreement. We never made a contract to determine how the rental income would be split, which could've saved me from losing the rental income. We had a verbal agreement for 50/50 split of income after mortgage/expenses.

How did you finance this deal?

Both of us put down 6,000 for a total down payment of 12,000. Partner paid the mortgage. The partner was receiving the rent under the table and not reporting it on taxes.

How did you add value to the deal?

Other than funding half the down payment and cleaning up trash, I didn't. I was very passive in the deal until I finally woke up and had to fight just to sell my equity. A lot of mistakes were made that made me lose out on value I was supposed to receive, particularly not making a contract to split up the rental income.

What was the outcome?

I got stiffed and learned a lot in the process. I went into this deal completely naive about real estate. The partner ended up not being reliable and not paying out a dime until I forced him to buy my equity by offering to sell to the tenants or evict them. He took advantage of me because he assumed my lack of experience would let him cut me out of the equation.

Lessons learned? Challenges?

Overall, I gained invaluable knowledge about the importance of making legally binding contracts to back up the details of business deals, how to work with a lawyer, and how to negotiate. The money gained was minimal and not worth it, but the knowledge gained will help me avoid the same pitfalls in the future.
Also, dont jump into a deal with a person you don't know without doing research and checking references.