road to riches in real estate can be rough and meandering. There can be a lot of turbulence. You have to be extremely focused and know what you are doing. Any stupid mistake or misstep can be disastrous. As I have learned from my story of many failures and successes, and from other investors, I have realized that if someone stays put on the long and meandering road, they are likely to end up in the bush. Success in real estate requires a clearly defined road map with strategic benchmarks. For example, when designing a rehab project, it is necessary to first understand what you want to do, then decide who will work with you on that project, and the materials to buy. It is also necessary to have an idea of what the finished product should look like. That way, you can be in charge of decision making from the beginning, middle, and end of the rehab.
Sometimes, such knowledge is not easy to gain. In my case, I had to take various classes, like those offered by some national and local real estate organizations. In the past, these organizations taught at a designated place in a city for three days, then asked you to pay for weekly private phone coaching. It was not enough. In many cases, I ventured into various real estate projects without the necessary knowledge. I paid dearly in terms of mistreatment at the hands of contractors, and even from investors who came into my life as mentors, only to sell me their rundown houses and then disappear. I sustained heavy losses in my investments. Frustration after frustration followed.
Wow, Some Contractors Can Be Heartless
My, my. Sometimes you have gone through a lot, you think you have seen it all. As I learned earlier on in rehabbing, no two houses are the same, no matter how similar in structure they may appear. Now, I had also believed that no two contractors are the same, no matter how similar in approach they may appear to be. A friend of mine would say, there is nothing new there. No two human beings are exactly alike even if they are identical twins. Except with contractors and rehabbing, you are dealing with your hard-earned investments, so your emotions are likely to run deep. The lesson here is that every contractor is unique and your only way out is to set ground rules that you strictly go by, save for a few minor deviations depending on different circumstances.
From time to time, I experienced how merciless contractors can be. My first mistake was not knowing the specifics of my final product. I let the contractors tell me what they thought I wanted. Each of the contractors I brought in had a different take on the rehab. They probably realized they could manipulate me due to my ignorance. And manipulate they did! They gave me plans of what they believed was pleasant to hear, but not necessarily what they intended to do. When they showed up to work, they cut corners as much as possible. Since we didn’t write out specifics of the project, they left themselves wiggle room to say that what they did was what we had agreed on. They asked for additional money if I wanted to do more to fit what I had wanted from the beginning.
I learned my lesson that it is important to spend time and resources upfront to be able to control your destiny, or unscrupulous people will control you and your resources. When someone is controlling you, sometimes they put their interests first and yours last. In many cases, they put you in a losing situation or one that minimizes your gains as much as possible.
How I Did a Strategic Retreat
Some retreats are permanent and fatal. Others can be temporary and designed with the goal of bouncing back up. In this case, when I took a strategic retreat, I buckled down and started learning from scratch. My first lesson was on how to manage contractor hiring and relationships. The years 2008 to 2010 were tough for me and others in real estate. Most of the properties that people bought in the year 2006 were underwater by the time 2008 rolled around. The U.S. economy was experiencing tough times. With property values down, and the lending rules changing, it was hard to refinance or sell rehabs. I, like many people, got stuck with properties. Painful financial reorganization, including surrendering some properties, stared me right in the eye. I did both just to reduce my stock and re-group to a manageable level.
My new strategy was to buy mostly using cash deals, or in case of a mortgage, give a sizeable down payment so I would have a low monthly payment. Excessive debt was the problem from 2008 to 2010 for many investors. My experience was that an investor with excessive debt generally concentrates on debt management at the expense of sound control of his investments. He slowly descends into a survival mode instead of a thriving path. The results are mostly disastrous.
Using Consultants and Getting More Education
A business professor at one of my universities once said there is no such thing as free lunch. There’s always a price to pay somewhere. What matters is whether someone pays upfront or at the backend. But the truth of the matter is, there’s always some payment attached to different situations. The good professor was fond of finishing a business management class that way. I learned and confirmed this reality the hard way when I started in real estate. I had a tight budget that did not involve extensive initial educational expenses in real estate. I also didn’t have a budget for any form of consultancy. I was there alone, in many cases, with and among the “hyenas,” so to speak.
The hyenas were, in many cases, those who presented themselves as people who would help you, only to try to figure out if you had good credit they could use, or if you had enough resources to buy their rehabbed houses or those properties they were putting up for wholesale. Wholesale properties are those that some people purchase at a low cost, then put some markup and sell to you without doing any rehab. This is perfectly legal, except that some investors don’t tell you upfront if they want to help you as a newbie or if they just want you as their customer. The proper way is to disclose this conflict of interest before you engage each other in a business relationship.
Real estate investing is a cutthroat game. Whoever you chose as your mentor wants to sell you a house that, in many cases, has some hidden defects or issues like water in the basement. They try to sell you such houses during dry seasons when you may not detect the water problems. In a way, someone has to be aware of the vested interests of a mentor or consultant. Free advisors come, but they want to sell you something. Their services are not free. It is always a good idea to allocate a budget for education and consultancy so you don’t go for free stuff with your eyes closed because you have no resources for education or consultancy.
A preacher at a local church in Baltimore, I don’t remember who, once said, “Be careful of free stuff. In many cases, free is never free.” I was taken to the cleaners for believing that there is such a thing as something being genuinely free. The free mentors sold me their houses at exorbitant prices, and in many cases, the houses needed repairs sooner than they had made me believe. When I confronted them with these problems later, they stopped picking up my calls. Some stopped talking to me.
Soon, I realized the best way is to budget for education and consultants in the business structure. Many established and successful companies budget for Research and Development (R&D) amounts in their annual budgets. My business operation started to change once I came up with an inclusive budget that realistically gave me wiggle room for education and training. I now had a consultant and a team for every question I needed answers to. My investment life became manageable in ways I had never experienced.
Have a Plan and Work that Plan
One of the lessons I learned in my real estate educational journey was the importance of having a real estate team in place before starting a rehab. Some members of this team became my paid consultants. The team should be composed of a real estate attorney(s), realtors, mortgage and private money lenders, accountant(s), financial advisors, and contractors of all kinds like plumbers, electricians, and general contractors. In addition to having a good team, you should be a regular at different real estate association meetings, and you could be a formidable investor. The goal of having a team is to make sure there is readily available expert advice for every question
