Here are some phrases that would summarize my first real estate investment:
UNPROFITABLE- Yes – I lost money when you account for my time and suffering!
TIME CONSUMING- Long days and nights demoing, renovating, and stressing.
PAINFUL- Realizing all the money I had ever saved could be GONE based on 1 bad read on a person!!!!!
THE MOST IMPORTANT AND CRITICAL DEAL I HAVE EVER DONE
Lesson from deal 1: Pick your Partners wisely and Educate yourself before you jump in.
The first property I invested in was a 4 unit property. I “partnered” with a family member after they had asked me to borrow a military reenlistment bonus of $20,000 I had just received from the US NAVY. I knew nothing about real estate, never had this much money in my entire life and I was overseas and never saw the property or was even in the state it was located in, so of course I said “Hell YEAH!”
To make a long story short, I ended up getting back to the states, investing more money and time in the deal and never received a dime of return on my investment. I was able to get my initial investment back 2 years later when the property sold but I got 0% of the profits from the deal despite the property making 40K on the sale.
Why? When money is on the table people show their true colors and sometimes it’s not what they appeared to be when the partnership was born. If you’re not careful up front with correct documentation, execution of the deal upon the buy and the sell, and reading the person you are getting into business with, you could get screwed like I did. Be VERY cautious before you get into a partnership! You are marrying this person or people and one bad apple can take the entire deal down.
My advice:
Try to avoid partnerships early on unless you really know the person.
Make sure that your roles are defined in the partnership and everything is documented in the correct manner.
Your partner should be bringing something big to the table that you cannot provide. I always liked partnering with people who brought lots of money when I did not have it. DO NOT partner with people because you are friends or you both like the idea – your partner needs to bring real resources or skills that you do not have.
Make your partners put “skin” in the game i.e. their own money. It is very easy to walk away or give up when they have nothing to lose. Putting your own money into the deal brings a different level of commitment that you will need to pull through in the tough times.
Educate yourself on real info, not just the fun stuff (get rich quick BS). Learn the legal side of the deal, understand finance and why or why not people will lend you money on a deal, insurance, etc. Yeah, I get it. These are boring subjects, but you need to know them before you jump in. You do not have to be an expert, but you should have a base knowledge of multiple aspects of the deal.
Do it anyways. Even when you lose in real estate you can take away value from the lessons you learn. It is painful, but the lessons stick with you and, if you keep pushing, great things happen. So do not let a horror story keep you out of this game, jump in. Learn from others’ mistakes first, then learn from yours as they are going to happen and keep moving forward.
I took this one bad deal and turned the positive lessons from my negative experiences into my company, RE360, which is the largest buyer of single family homes in Pittsburgh and one of the largest landlords in the area. We currently own $40,000,000 of investment residential and commercial real estate in the Pittsburgh, PA area. We have been recognized by INC Magazine as one of the fastest growing companies in the US on their INC5000 list in 2016. On top of our rental portfolio, we flip or wholesale dozens of properties per year and have multiple other affiliated real estate companies including a real estate brokerage and a consulting and training organization. So keep moving and don’t let bad deals stop you.