Tales from the Real Estate Investing Trenches: The Good, Bad and Ugly
A wise man once told me I would rather learn from someone that has already made all the mistakes instead of learning from someone who professes not to have made any.
With that being said I’ve compiled a huge list of our Flop’s while Wholesaling,Commercial Real Estate Investing, Development, Short Sales, Lease-Options, Rehabbing and Buying & Holding Rental property that I’ve attempted or completed over the last 16 years.
One FLOP that stands out was a huge house in Northeast Baltimore that my company purchased in 2007. This property was a total mess when we acquired it. Using the Cruising for Cash method we came across this 2300 square feet vacant house in a decent homeowners neighborhood. After doing some research on the absentee property owner we discovered they acquired the property during a tax sale auction for only five thousand dollars. After finally tracking this real estate and tax lien investor down I negotiated a twenty-nine thousand dollars discount from a eighty thousand dollar asking price to a $51,000 dollar sales price in a neighborhood where houses were selling for up to $300k. After getting the real estate sales contract signed and ratified I scheduled my general contractor to do a walk-through and put together estimates for rehab. Well that did not go as planned as soon as he peeled back the board on the front of this vacant house he was greeted with a big surprise.
He discovered over five feet of trash literally on the first and second floors. Little did he know there was even a bigger surprise waiting for him in one of the bedrooms. After navigating his way to the second floor and walking through several of the bedrooms he comes across about 200 issues of Playboy magazines dated back to the 1970’s, a skeleton of what appeared to be a cat laying on a bed next to its owner who seemed to look mummified. Yep my contractor came across a corpse. When he called me it really felt like a scene off of the HBO series the WIRE.
This story actually made the Baltimore Sun and local news. I also got offer$1k for an interview from a Washington, DC news station but declined. After the police and medical examiner finished their investigation they discovered William Soul who was in the bed was actually the original owner. He died in bed no family around just him. Check out the screen shot from this article below and remember you can’t always believe what’s in the newspapers the Baltimore Sun’s account was not accurate at all.
This house was just one of the seven properties our contractor happened to be managing. After loading up six 20 yard dumpsters with trash from the original owners being hoarders during the clean out we discovered half of the property was infested with termites. This was an unforeseen expense that I was not expecting not to mention our real estate market was on the brink of a housing collapse.
On top of that I purchased this house with Hard Money Financing and my lenders always made me put some type of skin in the game. The skin in this case was twenty thousand dollars to get the project started. I also took out a line of credit on one of my properties to fund six other projects. It made sense when I did it before the recession.
I purchased the house for $51,500 dollars the construction quote was $90,000 dollars and houses were selling for 300k in this area it looks great on paper right. After being in this monster of a house for almost 60 days the only things that had been completed was demolition, siding, windows, new roof, tree cutting, framing, electrical and plumbing I had already kicked out a little over $45,000 dollars.
Because I purchased this property for pennies on the dollar I was able to get 6 months of interest payments rolled into the loan which means I did not have to pay the interest payments on the loan for the first 6 months. Those were the good ol’ days! Time waits for no one as the clock kept ticking those six months flew bye and I started making $1700 interest payments on top of 6 other houses all funded with hard money loans. And here comes another surprise my contractor who was running several projects disappeared. It was very hard to sleep at night during this time. I made sacrifices at the same time sought out new contractors, continued educate myself, and raised private money from friends and family members. The bills were literally over 13k a month and that’s not including my personal bills.
This house sat vacant and stagnant for over 9 months I did not get the project rolling again for almost a year. After using all of my extensions up with the hard-money lender the ballon on the loan was coming due in 2008 and if I did not sell this property quick we the lender could take the property back. That totally scared the crap out of me so I scrambled to get the entire house completed and sold. After the property was completed I decided to hold one our famous 9 day sales and ended up selling the property for $259,000 dollars a fraction of what I would have sold it for in 2007.
The valuable lesson you can take from this case study is don’t take on more than you can chew. My company took on way more than we could handle from a managerial and financial point in 2007 with seven projects going on at once. On the positive side you can also take away the importance of perseverance, resourcefulness, staying POWER and the sacrifices I made to stay in the GAME. No matter how bad the situation is NEVER GIVE UP!
I”ll see you at the closing table,
Marcel Umphery the “R.E.I. Successmaker”