Lessons Learned As a Newbie Real Estate Investor

August 31, 2010 in Getting Started, Investing In Real Estate

I was having lunch recently with a fellow real estate investor that is just starting out. She was feeling like quite the failure as she was relating to me a story about an event that happened solely because she was inexperienced.  It was really a very funny story, but of course she didn’t think so because she was the one in the story.  My message to her was that if we are honest, as investors we all have a few stories we could tell.

Having this conversation with her reminded me of something that happened to me a few years back. I had been mailing absentee owners for a while, when I had a fellow call me several times wanting me to buy his house. The house was in a bad area of town and I really wasn’t interested. After calling me several times he finally said, “I will sell you the house for $3000.00. I am in California and I just need to get rid of it.” Well, that got my attention. I figured I could always sell a 4 bedroom, $3000.00 house even if it was in a less than desirable neighborhood so I agreed to take a look at it. The seller told me that he didn’t have a key, so I called a locksmith to go to the house and make a key. He called the seller for payment and told me where he had hidden the key.

I arranged to have a rather large male friend to with me to the house just so I would feel secure going into this particular neighborhood. His wife wanted to go on this adventure so we set a time where she could also make it. As it turned out we were running a little later than planned when we arrived at the property, and it was going to be dark in about an hour or so. I just wanted to take a quick look at the house and get out of there.

When we pulled up to the property, one of the first things we noticed was that all of the neighbors were sitting on their front porches. It was summer time and not many houses in this area had air conditioning so I didn’t think too much about that.  We walked to the right side of the house, looked under the appointed concrete block, and there was no key to be found. After looking in the general area, we determined that the key had already been stolen. All eyes were on us as we walked back to the front door of the house. Some of the folks were actually standing up looking at us by this time.

We walked up a couple steps to the front door. There was a large sheet of plywood just leaned up against the door. My big, strong friend leaned the piece of plywood back and we determined that the door was still locked. After having come all this way, we were determined to get in so we didn’t have to come all the way back down to this house. It was at that point that we decided to take a credit card to and try to open the door.  After carefully sliding the card in the crack by the door lock, the door popped open.  We noticed that the folks on the porches were all still watching us and chatting, and I was wondering if possibly one of them had called the police by now. You could tell this house, a big frame 2 story, had been vacant for a long time and needed a lot of work. I figured if the police pulled up, I could convince them that I had gotten into my Acura and driven to this area for the sole purpose of looking at this piece of run down investment property without too much effort. So, we went into the property.  I have to admit it was pretty scary in there. It was obvious someone had been living on a mattress on the floor at one time. There were clothes, papers, food wrappers and other trash everywhere.

Intent on looking at the house after going through all or this, I started toward the kitchen at the rear of the house. It was at this time that I saw the hole in the wall. There was a hole in one side of the house big enough to drive a car through.  I also realized why the neighbors were all looking at us trying so hard to get into the house. I have no idea why the locksmith didn’t bother to tell me about the side of the house that was missing.  The neighbors were probably laughing hysterically when we finally got the door open.

I have to admit, there were several lessons learned here as a newbie real estate investor.

-Always walk around the outside of the house before going into a run down property. One time the seller told me there had been a small fire in the house. He didn’t tell me the whole back of the house was destroyed and the house was scheduled to be torn down.

-This brings me to the second thing I learned that day. Always check for building code violations before buying a house such as this one. This house had over 20 building code violations and had incurred fines totaling over $13,000 that needed to be paid.

The folks at the building code office told me that it costs a homeowner somewhere between $10,000 and $15,000 typically to have a house torn down and hauled away. My advice to this seller was to donate the house either to Habitat or to the Fuller Center. Both of these organizations should be able to have the fines waived and the seller should be able to take a tax deduction instead of paying out a large sum of money.

I have learned that as a real estate investor these experiences are just part of the “learning experience” and that remembering these times can actually put a smile on our face when we are having a bad day or a ‘rough patch” in our investing business.

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