WORST Way to Invest in Real Estate
Discover the WORST way to invest in real estate. This is the other side…real estate investing gone bad.
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Mano Kamgang
Great info on the video Phil,I had a question. I’m a first time investor in rental properties, and im at a loss on which direction I want to go. Between a single family home/condo/co-op apartment, in a high property tax area as well as high HOA and maintaince fees. As this being my first time I have limited cash and wanted to start small, any insight in which avenue I should focus on more? Thanks!
My favorite horror story is from some people I know who bought a house at a foreclosure sale. It turned out to be a grow house and it was pretty messed up. So they had major reconstruction costs. They finally got it fixed up and on the day before the first open house the police did an major raid thinking it was still a grow house. The doors were all destroyed, they set off one of the sprinklers in the house and the people on site were arrested and detained until they realized what had happened. The city refused to pay for the damages so they ended up losing a significant amount after replacing the doors and fixing the water damage.
133 false police invasions in little rock in a year
Wow, crazy story.
Thanks for wonderful videos, Phil! My worst case RE scenario: we got divorced, wife got 3BR house in decree + agreed to pay mort payments. However I remained on loan + title. Mistake! She only made 2 payments in next 22 months. Went into HUD foreclosure, but she refused to sign a listing agreement to sell it. Little I could do! Finally she agreed to a short sale. Since I was on the title and mortgage, we were both liable for $50k of negative equity and penalties “forgiven” by HUD after sale. Fortunately, HUD never came after us. Lesson: 1.) Try to refinance the house in one name only. OR 2.) make sure the divorce decree spells out that if person with house falls behind on mort payments 30 days, house shall be listed for market value and sold for reasonable/ market offer.
You are a genius Phil. I’ve never heard it explained that way. I don’t think I’ll ever forget this simple but profound nugget of wisdom. Thanks F.B.
Hey Phil, I am doing as much research as I can about real estate investing and your videos are a big help! I will be able to buy my first property in July. Until then I will watch all of your videos and learn as much as I can.
This was a great video. I purchased my first tax forclosure several years ago on the court house step. When doing research at the tax office I found where I thought the property was located on the map. I drove out to see the property and found it had a mobile home that was vacant and looked to be intact. So it went real cheap at auction I paid $700. I thought i was going to be the next big investment star as i left witb my new tax deed. Turns out I purchased the property next to the property I thought I was getting. Only this property has someone living in the house and I have not had the nerve to deal with this problem of making them leave or pay me back.
What did you do next?
I really enjoy your videos! A lot of people teach business and investing and they make it really textbook and boring, almost speaking monotone. You on the other hand are passionate about this and you provided personal stories and practical scenarios that make it fun and easy to follow. Thanks!
Ps. Like that one guy said, iron your shirt! Ha
I have been doing real estate investing for 16 years…..and you are on the money. In 2008 brought a 15 unit building brand new in DC. Once the market crush I lived in landlord tenant court for about 4 months. I got them out but it was hell. I still have the building but man, it was so hard. Love the video
Yes, I started out of college. I brought a condo rented out for 5 year made 3x the price of the condo. I and brought the condo for 62k. After that I saw the real estate light. lol
I just save it. my downpayment so only 3k
Frank Chambers down payment was only 3k for a 62k property? did you get an FHA loan?
Well he paid for closing.
Great video phil. The real estate developers are the most rewarding yet the most risking . However, i know some success and failure stories and i totally agree with you. A friend’s brother bought a property on plan and paid the full amount in advance, the project started 8 years ago and still not finished, he can’t claim his money back nor selling the property. Lesson here : never pay for any property on plan the full amount in advance no matter what .
Had a friend in Iowa who had a great idea to invest in low-cost single family homes as rental and fix-N-flip. Well, that year CR had one of the worst floods and the whole SE side of that town was under water. The area was designated a flood-plain, but because that land had been dry for so long people forgot the fact that the whole neighborhood was in a low-lying area. The city deemed it a disaster area, paid home owners (including my friend), pennies on the dollar for their properties and enforced permanent abandonment of all structures. My friend lost all 5 homes and still had to pay the difference of what was owed on his original loan terms to the bank because insurance companies did not pay for any losses due to flood-plain exclusions written into the policies. Think he filed bankruptcy…Nightmare! So read….read…read…every contract, insurance policies…and especially fine print.
+Darryl Carter Here in uk the enviromental agency is very kind to provide flood maps online so you can simply look at the map what is at risk of flooding and of course cause uk is sinking, don’t buy anything near the coast.
cojut
?
In all honesty, what is he supposed to do in that case? A natural disaster can happen at any time.
Natural disasters can and do happen at any time. The moral of the story is don’t buy a personal residence or investment property in an already designated FEMA flood plain area. Then also read the disclaimers, exclusions, need for additional riders of the insurance policy you buy to cover your assets. If you do decide to buy within a flood plain area then buy separate flood coverage insurance if you can get it. If no insurance agency will offer coverage then go to higher ground. Terrible story.
insurance companies are garbage. They always find a way out of paying you. But they want you to pay them and find ways to make it law to carry insurance. BS.
I’ve watched a handful of your videos today and can’t help but click on the next one! Sitting here for just about 3hrs with a notebook and these videos I feel I now have a much higher understanding of real estate investment and it’s only the beginning! Thank you so much for doing this and I look forward to further knowledge from you.
Nice video, Phil. You are very thorough and well-spoken. The lessons you’re conveying can actually be applied to many aspects of life, but most definitely real estate.
A cautionary warning about property managers: I bought this 18 unit apartment building in 2002 (about the lowest part of the RE cycle here in California). Naturally, I didn’t want to deal with tenants, so I hired “the best” property manager here in town. Let me tell you that (some) property managers have perfected the art of stealing to a high degree. Keep a tight rein on them and have a clause in the management contract to consult with the owner on any expense over, say $1000. Some property managers will hire their brother-in-law to do minor work and charge you twice or three times what a regular contractor would. My manager went to “seminars” (in the Bahamas, or Hawaii, or Hong Kong), and charged each property owner $300 to $800 per “training session” (“so we can manage your property better”) I could go on and on. Choose wisely when hiring a property manager.
+Brian Richards Thanks for the advice. Will keep a sharper eye on my property manager.
Thanks for the advice
You sound like a prize mug mate.
Brian Richards (
😵
I remember reading that first story in your book, that was one of the main ones that stuck out in my mind. That and also the one about your apprentice who who thought she was going to be sued, but the agent for the property was married to the lender i believe,and they were just trying to get her out of the deal, but you guys walked her through it and she was able to close.
We were flipping homes & had a house we couldn’t sell for what we owed. Things went south with our business partner & we moved out of state & found renters for the house that seemed good on paper. After we moved & had 2 homes we couldn’t sell & were renting out, my husband lost his job & both renters walked away from their leases. The ones out of state were unreachable so husby had to fly to WA (horrible state for being a landlord, BTW). Our remodeled home was trashed inside and out. Even heaters & light fixtures were gone & we discovered they were in jail! We quickly burned through our emergency fund w/2 mortgages & no job & $50k in out of state repairs on a property. The market crashed & we were over $100k upside down which led to bankruptcy. How quick things can turn ugly with real estate..We never intended to even be landlords.
+The Independent They submitted credit reports w/the application, had references, & deposits. Deposits didn’t even come close to covering the damage. Our fully remodeled house (that suddenly went down about $90k overnight) almost needed to be gutted again. There were all kinds of issues w/the state as well. Apparently they wanted to widen the alley our home sat up against & they kept trying to condemn the property so they could knock it down. It wasn’t in condemnable condition at the time so it made no sense to us. We just gave up eventually & let them have it. Nightmare.
Phil I’m a season real estate investors, I pretty much know just about everything about real estate investing from houses to multi units, lately I have been doing buy and hold for me and some friends. I’m focusing more now on building marketing funnels with my marketing company, I appreciate your video teaching and I like to think that you are one of the best if not the best in helping people understand real estate investing the right way. Thank you for that..
My parents bought two houses here in Chicago, one is a two floor family house and the other is a two flat. Both houses were really good deals. One was bought from a neighbor who’s wife just died in the house so he was eager to leave the house and neighborhood and just get the house off his hands. The two flat was bought right after the market crashed so my parents were able to erbuy it for $26k, which is crazy considering we’re in Chicago.
They’re plans were to renovate both houses and rent them – they did a good job of BEGINNING renovations on their own but a decade later and no one has lived in either house. They realized along the way how much work was ahead of them and that they couldn’t do it themselves, they were being unrealistic.
Now they’re just sitting on two houses that just became big expensive burdens.
While this video’s pretty old, I recently heard a pretty bad real estate horror story.
So, I have a relative who has done some stuff with real estate in the past, so they decided it would be a good idea to get a vacation rental on the north shore of Kauai. For the first six months or so, things went fine. Since it’s Hawaii, people were consistently renting the property year-round and giving him a stable cash flow to help pay for the property. However, in April of this past year, things went really badly. A once-in-a-thousand-years flood came in and washed out all road access to Kauai’s north shore. The roads are still only one-lane and open to property owners only and will probably stay that way until October. So, he can’t rent out this property for 6 months. Normally, renter’s insurance (which is about $2000 a month due to the flood and tsunami risk in the area) should kick in and cover for the lost income. However, his insurance policy had managed to sneak in a clause where they would only cover lost income IF the house itself was damaged. Since the house itself was on 26-foot posts to protect it against flooding, the property only had minimal flood damage. Consequently, the insurance company wouldn’t cover the lost income for the 6 months where renters couldn’t even access the property, while my relative still had to pay all the costs associated with the property, even the $2000/month for the useless renter’s insurance. In total, this whole ordeal is likely to cost him around $50K in lost revenue. The moral of the story: always read the fine print when dealing with insurance.
TL;DR: Relative buys rental house in Kauai, massive flood cuts off road access to the property for 6 months. His renter’s insurance didn’t cover the damages, leaving him $50K in the hole.
Oh, Phil. I bought a home in an unfamiliar neighborhood in Minneapolis to fix up and rent out. House was decent, some neighbors were decent. My problem? I bought it in the winter. When spring hit, all the gang-bangers in the neighborhood came out of hibernation, and it became a different hood overnight. I finished fixing it up and sold it. Fortunately, I broke even. Lesson learned.
Damn 😭but Did u buy it outright ? or did u sell it while it u was still paying off
@Danny Green we bought it with a bank loan, sold it after owning for only a few months. Never rented it out. Fix and flip. I was very ignorant at the time. I’m still not too bright sometimes!
This is great Phil, specially for beginners. Thanks for sharing your experience and dedicating time to this audience.