Investment Info:
Single-family residence buy & hold investment.
Purchase price: $55,000
Cash invested: $155,000
I just recently came across a post on the BP forum "Seeking Biggest Mistakes" and figured I'd share mine. Biggest mistakes is a great topic for a story and I'm sure many will learn a great deal from it. Honestly, I've learned so much from the mistakes that I've made. In a way I'm grateful for what I've gained through the difficulties brought on by those mistakes. Though, I'm definitely trying to navigate them differently from here on out.
A story of mistakes? Have I got a story of mistakes for you!
It starts off with a young male nurse, who when chatting about life with his patients often shares his dreams of owning 10 rental properties free and clear by the time he retires. Not far into starting work on those dreams, tragedy strikes. His life is changed forever, and things were never the same.
I made a video that summaries most of the story pretty well. It's on Instagram.
I'll stick to bullet points with the "hopes" of keeping things short and concise.
Part 1.
- Purchased my first Property/Investment in 2014, I was 25 y/o at the time. The home was a short sale: 2bed / 1bath, 1000 sqft. Purchase Price 55k.
- I was working as an RN, but LOVED the idea of owning rentals. I was saving what I could and had 27k Invest. - - My Dad/best friend partnered with me to help make up the difference in the purchase price.
- We bought the short sale with Cash.
- For about a month and a Half he and I spent our spare time doing renovations on the home - it needed some work and I had a grand vision.
- In the middle of the renovations I got a call while I was at work in the Burn Center. A neighbor was on the phone. He called because the home was on Fire!
- After going through the debris, we noticed that the tools we had in the home were missing. So, someone broke into the home to steal our tools and then set it ablaze on their way out - crazy.
- What makes this all so much worse is that because we purchased the home cash, insurance wasn't required for us to close the deal.
- Our thoughts were to get insurance a little later down the line. Considering that there weren't tenants or lives to insure and that the property needed a complete overhaul - what's the worst that could happen? We certainly found out. (Mistake 1)
- Lots of heart ache followed.
- I wasn't too sure what to do. But, I knew that I could clean up the mess.
- I spent seemingly countless Phoenix Summer Day filling the bag and bags of trash. So much time and energy spent on this. (Mistake 2, but also maybe a form of penance for mistake 1)
- After cleaning things up. I listed the Property for sale with the same agent that helped with the purchase. We had a Cash offer for 99k!
- Double your money and it's burnt down! SOLD, right?
- I couldn't do it. The value was there and I didn't want to give up or let this nightmare beat me.
- There it sat for a while....
- In November 2016, My Dad was killed in a motorcycle accident. This was life changing for me. He was my oldest and bestest friend. The passing of a loved one is trying and affect different people differently. What I walked away with was a montra to live a life that would make my Dad proud.
Part 2
- I met a nice gentleman named Niko, who was flipping the home just to the left of mine. He said that I had two options: sell my fire house to him or get working on it.
- Telling him that I wanted to go with the latter, he gave me the contact info for a draftsman to get plans drawn up.
- After having the plans drawn up and pulling the permit, I search for a contractor. I got bids from 3 contractors. One of those individuals had just finished a flip on the right side of the property (the cudisac was getting much nicer as my home sat). I decided to go with the contractor who had just finished up the flip to the right of me.
- This contractor has the lowest price which excited me. (Mistake 3)
- I got a little creative with him and we struck up a deal. If he contributed the last 20K of the Job, which had a bid of 92K total. I would give him an additional 8K on the back end when the project was finished.
My thought there was this he'd have a vested interest in seeing the job done with speed and quality. I'd only have to bring 72k, which was awesome.
- I agreed to pay him half of the 72k upfront. So I wrote a check for 36k (Mistake 4).
My contractor could see that I was into deals and looking for a partner. So a short while after the demo was completed, he approached me with a flip opportunity.
- We struck up a deal to buy the flip. The arrangement was that I'd buy the home for Cash. We would split the cost of the Renovations and He would manage all of that work. Then when it sold we'd each be reimbursed for our respective monetary contributions and split the remaining total 50/50.
It worked well. I made about 15k on my first fip and didn't have to lift a hammer.
- This flip leads to another flip opportunity, which lead to another flip opportunity. We ended up doing 3 flips together. Making about 45k in profit.
- But all the while the original project only saw incremental progress. The original bid was for a 4 month completion time frame. And I wasn't holding him to it (Mistake 5).
- To wrap this up a bit quicker... project was over 2 years behind schedule. I never got him to contribute any of his own funds like we had originally agreed. Once we reached the agreed upon sum for the job (92k).. there was still lots to be done and work that had been completed was lackluster at best. The contractor bailed on the job.
- I had lawyers helping me out with a different matter, so I then turned their attention on the contractor. Come to find out he wasn't ever a registered contractor! He was using a different company's ROC#. (Mistake 6)
- I ended up taking the project over and hiring all of the needed subs. Along with spending 5/6 days a week during the first quarter of 2020 redoing pretty much everything (that's when I shot the IG video in the link).
- Finally, I called my own inspections and eventually got the final Green tag!
This was my first ever deal. About three months ago I found a tenant and they signed a lease. The home is finally fulfilling its original intention of being a rental, 6 years later! I'm happy to say that even in the midst of the Covid pandemic I was able to find a renter for $1,900 per month - breaking records for the neighborhood. I'm currently in the process of refinancing the cost of the build and renovations out of the property, approximately 155k. If the home sold today it would fetch a sales price of around 300k.
During those six years of frustration, headache, and heartache I kept pushing and didn't stop. In that time I've acquired 7 other doors, for a total of 8 rentals.
Those doors net just over 5k per month.
