Making Mistakes in Real Estate – We All Do It

 

Sometimes I feel like the world‘s worst real estate investor. Even with all the books, podcasts, and knowledge I’ve consumed over the years, I still regularly screw up, waste time, lose money, and make rookie mistakes.

I’m not alone…

 

Perfect Investors:
– don’t lose money,
– don’t make mistakes
– don’t need help
– don’t get emotional
– and don’t exist!

 

I’m sharing some of my best screw-ups in hopes that maybe reading them will help you avoid the same mistakes. Or, at the very least, you might feel better about some of the stupid stuff that you’ve done in the past!

 

Emotional attachment

As soon as I stepped off the plane in Honolulu, Hawaii, I fell in love. The people, the culture, the weather, the lifestyle. Living in paradise wasn’t enough for me – I wanted to own a piece of it.

Within six months living in Hawaii I was the proud owner of a 525 ft.² bachelor pad. I lived inside at first, but transitioned it to a rental property shortly afterwards. The longer I lived in Hawaii, the more memories I made, and the more emotionally attached I became to the place.

After two years of ownership I realized the property was losing money. It wasn’t a good investment at all. Instead of selling, I convinced myself that if I just held on long enough I would eventually make money. All real estate goes up in value, right? Wrong. I was booty blind!

Six years in, I was still losing money. Did I sell? No… I invested more money to try and buy myself out of the hole I dug. Throwing good money after bad, this was a classic case of the sunken cost fallacy.

Finally, after 10 years of ownership, I got rid of this loser investment. My total financial loss for that apartment was around $50,000 over a ten-year period. Ouch!

The golden rule of real estate investing: Never ever ever ever ever fall in love with an investment property. Your emotions lead you to make incorrect and expensive decisions.

 

I absolutely SUCK at managing tenants:

My first ever tenant was Oscar. Since he had a reputable job at a large bank, I thought it would be fine to skip the background check on him. What a horrible decision… 92 days later and $1300 in missing rent, I finally got rid of him.

Did I kick him out on his ass and chase up the money he owed me? Nope. I felt so bad for him that I drove him to a nearby motel and even paid for his first few nights stay out of my own pocket. I think I bought him dinner at Jack In The Box that night, too. I am way too nice.

 

I Suck at leases and collecting rents too:

Belinda was a great tenant. She had been there 12 months and it was time to renew her lease. She rented for $800/m, and it needed to be increased (fair market rent at that time for the area was over $1000/m).

How did my rent negotiations turn out? Somehow I left the discussion agreeing to decrease her rent to $650/m for a full year. Why, you may ask? Still to this day, I have no idea. I just somehow let people walk all over me.

 

Years later, I still don’t learn:

Even though I currently have professionals in place to manage all my rentals, I still find ways to intervene and mess up the very tasks that I hire them for…

Just the other day my property manager emailed me and advised that one of my units’ lease was coming up for renewal. She said we should raise the rent by $25 per month.

For some stupid reason I asked, “Who lives in the unit and what do they do for a living?”. My heart sunk when I learned it was a struggling single mother with three young boys lived there. She was a school nurse.

Since I didn’t want to seem like a greedy landlord raising the rents, I just told my manager to keep the rent as is. I am such a softy.

 

Real Estate Mistakes - Duplex

 

Set and Forget = Regret

Sometimes when things are smooth sailing, I tend to get a little complacent. I’ve written about this once before… When I discovered that one of my tenants was using my property to run a brothel!

Another time I turned my back was when I stopped reviewing my monthly property management reports. Since the previous 18 months of reports were all perfect, I got lazy and didn’t see a need to double-checking my PM’s accounting anymore.

This went on for quite a while until one day my incoming rent payment looked odd. It was much less than expected. After going through the month-end statement in detail I found a fat-finger error from one of their staff members.

But also, after finding that error, I went back and reviewed all previous monthly reports. I found multiple mistakes where I was overcharged, undercharged, or paid incorrectly. It was an accounting nightmare. If only I stayed on top of my business in the first place I would have avoided that complex mess!

 

“When everything is going great, that’s the time to be suspicious!”

 

And many, many more…

I’m just scratching the surface with these stories. I’ve accumulated countless failures in my life and will continue to do so. But I will ALWAYS get back up, and become a stronger person (and investor) afterwards.

 

Now, tell me: What crappy things have you done as an investor?

 

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