Top Investors Reveal Their Worst Real Estate Deals (DON’T Repeat Them!)

Rob:
Let me ask y’all something. When you started in investing, did you assume that everyone with more experience than you knew exactly what they were doing?

Henry:
<laugh>? Absolutely. I remember I sat down with an investor and I asked him to be my mentor and he chuckled at me and said, bro, I don’t know what I’m doing yet. I can’t help you. And he was wrong. He helped me a ton. But that’s when I started to realize everybody was still just kind of figuring this thing

David:
Out.

Rob:
What about you, Dave?

David:
Oh, I remember the feeling when I realized, wait, I’m the one that everybody thinks knows more, and I know how little I know this is terrible.

Rob:
And that’s exactly what we’re gonna be talking about on today’s episode. We’re gonna be airing all of our dirty, dirty laundry on deals that we’ve lost out on, lost money on, or are still recovering from. Uh, that all happened within the last six months or so.

David:
And welcome to the BiggerPockets Real Estate podcast. You might think the way the experts, but on today’s show, let me assure you, we are still figuring things out ourselves. I’m your host of the podcast, David Greene, and with me today are Henry Washington and Rob Abasolo.

Henry:
That is right. We are each going to reveal some of the biggest investing mistakes that we’ve made in the last six months, and we’re gonna talk about what happened, how much it cost us and what we learned. So hopefully you can take away some gems so that you’re not in these same positions like we were.

Rob:
Well, it’s now or never, I guess. Alright, so we’ve each come prepared with a recent investing mistake in the last, you know, six months or so. Henry, why don’t you kick us off? What’s the headline for your big l

Henry:
<laugh>? My headline is Arkansas Man buys Killer Flip in Prime location, but holding costs and time on market killed him

Rob:
<laugh>. All right, I love it. So break it down. What happened?

Henry:
Oh man. The age old story of buying a flip and running your numbers and coming up with an ARV and then realizing after you’re done renovating it that you might not get that ARV. So

Rob:
Really fast. Can you break down what is ARV in the context of a flip?

Henry:
Yeah, so this is the after repair value. So when I ran the numbers on the deal, I wanted to know what is the value of this property after I fix it up so I’d know what I’d be able to sell it for. And what happened is, as I started to market it on the market and get sellers in there, the feedback we were getting is that sellers really wanted to pay a substantially less for the property. So demand, uh, for properties at this price point in this particular neighborhood started to come down. Uh, now fortunately for me, uh, less homes are on the market now and demand has ticked up. So we actually did get a buyer to buy this property for 20 grand less than we had it listed for, which normally would be okay ’cause we estimated making about an $80,000 profit. But because it’s been listed for almost eight months now, and I used a hard money loan to buy it, if you calculate that 12% interest month over month, my profits have dwindled down to almost nothing.

Rob:
Okay, well, hey, you know, in Vegas they say a push is a win. So I think even if you’re, if you’re pretty close here, that’s not so bad. So let’s back up a little bit. You said it’s a luxury flip. Um, do you do a lot of luxury flips? What about this one? Yeah, it was even appealing.

Henry:
Yeah, I do not do a lot of luxury flips. I typically like to have two exit strategies that are going to potentially make me money when I buy a deal. So I did, I broke a couple of my rules. This would be considered a luxury flip. So the, the catch is, this is in an area of Bentonville, Arkansas that is extremely in extremely high demand. And so people want to live in this area. And so the prices are a little inflated. And so this property we bought for 3 37 and we were planning on putting about 40 to 50 into it and selling for 500,000. And we had comps to support that 500,000 sale price in this area. What really stuck me was that this house was on a cul-de-sac. And so you couldn’t really walk to the areas of Bentonville that people like to be able to walk to when they buy properties in this, in this area, they have to kind of walk out of that cul-de-sac onto a busy street and then around to get there. And I misrepresented what people would be willing to do, even though still proximity wise, it’s close to where people want to be, but because they can’t just easily walk to it. And it was one of, it’s only the second or third house on the street that has undergone a complete renovation. And so you have a lot of properties around it that are still very old and there’s a lot, there’s some dilapidated properties on that cul-de-sac. And so

Rob:
Got, so you were like one of the first movers and a lot of people Yeah, they, they don’t have the faith in that little pocket quite yet.

Henry:
Correct.

Rob:
So, all right, let me, let me ask you something, because this seems like a totally understandable mistake in my mind. I’ve always thought that cul-de-sacs were very desirable. Me as a father, right, of two and a son of a mother, um, I, I see <laugh>, I think of cul-de-sacs as nice because you don’t have to worry about kids like in cars and traffic and all that stuff, but that’s not the demo or that’s not the, the, the avatar of your, of your street.

Henry:
It normally would be in a more suburban neighborhood. But this is a neighborhood where people are willing to pay the higher prices so they can be close to the downtown amenities. But because the cul-de-sac kind of blocked their access to be able to easily walk or bike ride, now they have to go all the way. It’s a long cul-de-sac. So they have to go all the way down the cul-de-sac around a busy street and then down another road. In my mind, I didn’t think that was that big of a deal, but to the buyers, they would just rather buy something else at a, at the same price point on a street that gave them more access.

Rob:
All right, so now walk us through the profits on this. You said you’re gonna sell for 500 K. Uh, you total all in, what were you on this renovation, purchase price, all that stuff?

Henry:
Yep. We did, we paid 3 37 when we bought it. We ended up being closer to about $50,000, $55,000 on the renovation. We were, we were eight months on the market at a 12% interest rate, and we’re selling for 20 grand less. So we’re under contract at four 80. So when you calculate closing costs, commissions, holding costs, we if, if it closes next week like it’s supposed to, then we will make about five to $10,000, which

Rob:
Is still five to 10,000. But,

Henry:
But taking on the risk of a $500,000 flip for five to 10 grand is extremely risky. But if the, the closing gets delayed and I have to make another mortgage payment and utility payment, uh, that’s gonna drop down to about half of what it is.

Rob:
Right. And that could be, that could really, I mean, if the seller, or let’s say if the buyer is buying, let’s say their financing falls out last second, no fault to your own, that’s a $5,000 mistake not, or a $5,000 I guess, loss at that point.

Henry:
Absolutely. So we we’re barely gonna make it through by the skin of our chin, chin, chin. If it closes. If it doesn’t close, then our backup plan is to make it a midterm rental. Um, and hopefully that will allow us to, uh, sustain the property. I don’t know that we’ll make a ton of money, but it should cover the mortgage and some of the expenses.

Rob:
So obviously you’re, you, you do this a lot, um, you’ve just released a book, uh, called the Deal, uh, real Estate Deal Maker, and, uh, you’re no, you’re no newbie here. I’m, I’m sure that you have calculated or you usually calculate, um, the worst case scenario here. What was that worst case scenario previous to this in your mind?

Henry:
Yeah, worst case scenario was always to turn around and make this a short-term rental if we needed to. Um, because it is still a desirable neighborhood. Uh, it is still, the values are still high there. I just think we’re a little bit too early on this street and we mis risk misunderstood what conveniences people are willing to make. But the worst case scenario was that we would have to pay the money to furnish it in order to make it a midterm rental so that we can hold it until this neighborhood absolutely turns because this neighborhood will turn and it will be much more desirable than it is now. It is just too closely located to the amenities that people are looking for. We’re just a little ahead of our time, I think.

Rob:
Sure. Well, here, here’s the good news. If you hold onto it for 30 years, 30 years from now, you’re gonna look like a genius <laugh>. They’re gonna be for much. So there’s always that <laugh>. But if you, if you cash out refi and do do this plan, you’ll be leaving a, a pretty good amount of equity in the home.

Henry:
Yeah, I don’t know. I wouldn’t be able to pull much out, uh, on a refi. So we are re are refining it. I’m not gonna pull anything out. Uh, and I think I’m, I’m barely gonna make the cut to be able to do that in terms of, uh, of equity in the deal because of the holding costs. The holding costs are what absolutely ate this deal up.

Rob:
Yeah. So let, let’s break this down at one kind of easy headline. What’s like, one thing, if you could give advice to everyone listening right now to avoid this type of thing happening to them, what’s your advice?

Henry:
Yeah, so, so for me in this scenario, I, I fell in love with having the property in this desirable part of town and overlooked some of the normal dynamics you would look at when looking at a property. And that is, you gotta take a look at your neighbors and see how is that gonna impact your potential buyer. I needed to put on my buyer’s hat here and think, would I want to pay half a million dollars for a house on a street where all of the other houses aren’t in that price range yet? And, uh, I think if I would’ve asked myself that question on the front side, I would’ve been, I, it’s not that I wouldn’t have bought the property, it’s that I would’ve made an offer less ’cause I would’ve anticipated the ARV, the after repair value to be lower based on what the rest of the neighborhood looked like, even though the comps supported 500,000. It’s just local real estate analytics.

Rob:
Yeah. Which, uh, you know, is a good segue into mine and, uh, the issue that I had with, with my property. Should we get into it?

Henry:
Let’s hear it. No, leave me out here feeling like I’m the only one that screwed up.

David:
Well, yeah, Rob and I actually are sharing amazing deals that we did that went way better than we possibly could have dreamed. We, we checked with Henry and we

Rob:
Call it the Good Deal sandwich, uh, except we started with, with the, uh, the bad part first

Henry:
<laugh>.

Rob:
So David, you recently made $7 million on your, on your real estate deal, right? Well,

David:
I was expecting to make six, but yeah, it turned out a little better than I thought. And I ended up with seven.

Rob:
You lost a potential profit of a million, but you still made six, so Yeah, same. Same here. Uh, all right everybody, thanks for listening. I’m just kidding. <laugh>,

David:
Our producer called it the Bad Deal Tostada instead of the Good Deal sandwich. That’s right. <laugh>,

Rob:
That’s good. But for real, we are just kidding. We, we definitely have some bad deals here and Henry’s out of the hot seat, but rest assured that David and I will spill our guts on our worst deals right after the break.

Henry:
Welcome back investors, David, Rob and I are here talking about our biggest mistakes. Let’s get back into it.

David:
So Rob, tell me, what is the headline of your Bad deal?

Rob:
Yes. Okay. Uh, the headline is Area Newbie Flipper Trust Wholesalers Comps on a quote unquote Quick Whole Tale Deal. Alright, so here’s, here’s what I have. I’ve kind of talked about it on the show in bits and pieces, but here’s, here’s the whole story. So the whole, I i I, I was looking for, uh, I wanted to foray into a new niche within the real estate world. I said, why, why I try something new? You know, I like to learn, uh, sometimes that learning is a very costly education for me, and that’s okay. Um, so a wholesaler slash contractor sent me a deal on Instagram and he was like, Hey dude, um, I’ve got this insane deal. Uh, it’s a wholesale that I’m working on, and it is basically a two week deal. And if you go in, clean it up, fix some of the framing, yada yada, take this off.

Rob:
Do add about $25,000 of work on it. Um, I’ll do the contracting at cost and you’ll make $20,000 in two weeks. And so what was really appealing to me was I was like, okay, well hey, if I’ve already got the contractor in place, that’s honestly the biggest battle for this type of thing. And he’s basically gonna do it at his cost because he was making, I think, $25,000 on the, on the wholesale fee or something like that. I didn’t, I didn’t know it at that time, but for me, I was like, oh yeah, that’s, I don’t care. As long as I make my 2020 $5,000 in two weeks, I’m good to go. That’s like a hundred percent return in two weeks, blah, blah, blah. Well, I’ll break it down. Uh, the deal costs $75,000. It needed $25,000 of work, so I was gonna be all in about a hundred thousand dollars.

Rob:
And it was a pretty guaranteed bid from him. There wasn’t really like much question on what needed to be done. Well, then I got like one change order and two change orders that resulted in about an extra $5,000. So all in on the deal I was at about $105,000. Now the reason this was really appealing to me though, was again, trusted contractor. I, I still like him. There’s no, there’s no hard feelings here. This is all my, this is on, on Papa Rob here, but I had the contractor and so I was thinking, okay, he’s gonna fix it. But the other thing that he really brought to the table was like, oh dude, because I do this so much, I’ve actually got an amazing buyer’s list of investors that will buy this deal. He’s like, I’m already talking to them. They’re ready to go. They say, Hey, do these things and then I’ll come in and finish out the property.

Rob:
So, uh, all in 105 K, he does everything and then he shoots it out to the buyer’s list. And well, basically we were gonna list it for $130,000 and kind of see how it went. All the offers he was getting, uh, for this quote unquote quick hotel deal was basically $80,000, $60,000, $90,000. Uh, so way below the $130,000, uh, <laugh> price point that we thought we were gonna get. And so basically I was like, well, dang dude, now what? And he was like, well, I guess you have to list it traditionally, you know, good luck. And I was like, all right, luckily I’ve got a, my cousin Bridget, thank you, Bridget, she’s an amazing realtor in Houston. And she’s like, I’ll list this thing for you at a 1% commission so that you don’t have to take a huge haircut on this. And so she’s been listing it for me for the past, I don’t know at this point, five months.

Rob:
All these offers are still coming in at like 60 to $90,000. And if I were to sell it at the highest offer I’ve gotten, which I think is 105,000, which is seems like a break even, I would lose five to $7,000 on this deal. Uh, and that’s, yeah, that’s kind of where I’m at. I, uh, you know, I trusted the, the contractor, I listed it, it didn’t sell, now I gotta sell it traditionally and all those, you know, I don’t have holding costs ’cause I bought it cash, but um, you know, the realtor fees, commissions, brokerage, all that stuff, it’s gonna cost me quite a bit.

David:
It sounds like, if I am hearing you correctly, your biggest regret is trusting this contractor. Is that fair?

Rob:
Uh, no. Well, maybe I’m a very trusting person. I think the biggest regret was not corroborating his comps more because I did a quick scan on it and he was kind of like, Hey, here are the comps. They looked good. But the problem is, and obviously I, I’d say this feeling like an idiot as I broadcast this to hundreds of thousands of people, but he’s the one selling me the deal. So obviously whatever comps he’s bringing to the table or, but they were truthfully the only comps. There weren’t that many comps to pull from, but I didn’t like get deep into it. I didn’t corroborate it with other people in the area because then I went to like a conference and there was a flipper in that exact neighborhood. He goes, bro, he’s like, I live two houses from there growing up. He’s like, I’ll buy that right now. And I told him the deal and he is like, oh no dude. He is like, I’d give you 85,000 for that max. He’s like, I can’t sell it for more than he knew his numbers like that, like every down to the T. And if had I talked to him, I would never have bought the deal.

David:
That is not uncommon though. I think every piece of information we get came from somebody else at some point. Everything you hear on the news, even a comp, right? Like a realtor could send you comps. They’re picking the comps that they’re going to send you. It always comes from somewhere. So don’t beat yourself too much because, uh, I think a lot of people in today’s market are having these things go wrong, but we’re doing the same things that we were doing the last five years and they were working out just fine. It’s just kind of the nature of the beast. You never know exactly what you can trust. What would you do differently if you could go back? Would you have sought out people like the guy that said, oh, I wouldn’t have paid more than 85,000. Just a little bit more experience.

Rob:
Definitely I would’ve found a local flipper in the area and actually talk to them. Um, and again, like not wholesaler, not all wholesalers are out to just make a buck and like, you know, me mess with you kind of thing. I, I don’t think that was his intention, but his job was a wholesaler contractor. His job was not on the exit. Right? That ultimately falls on me, which means I need to talk to people who make their living on the exits on flips, right? So I should have found multiple flippers in this South Houston area and said, Hey, check this out. What do you think? It’s not like I don’t have the network, right? I know a lot of people that do it, but it seemed like such a clear cut deal that contractor has done so many whole tales in that area. And granted, I mean, you know, I did trust him quite a bit, so I was like, okay, yeah, let’s do it.

Rob:
Like, I was like, worst comes to worst. I was like, what? What’s gonna happen here? He was like, well, worst comes to worst. You have to do the full on flip and you’ll just have to put in another $65,000 and you’ll make, you know, 30 or $40,000 at that time. And I was like, all right, yeah, that’s not so bad. So that’s kinda where I’m at now. I could finish the flip put in 65,000 make really now I would say 10 to 20,000 after all fees and everything, or sell it for a, you know, five to $10,000 loss. At this point

Henry:
I had a very similar decision to make on a property where I could finish the rehab, maybe make 30, 40 grand in six to eight months, or I could sell it as it is and take a $7,000 loss. And I chose to take the loss so that I could, uh, move on and put my money to work, put my money to work on something else that I know is gonna get me the return that I’m looking for. Uh, but, uh, just a couple of questions. So a

Rob:
Couple of questions dummy. Yeah. <laugh>,

Henry:
I can’t be the only one feeling dumb here. It’s your turn. <laugh>. So did, did you have a relationship or know this person before they brought you this deal? No. No, you did not. Is that what I’m

Rob:
I did not. No. Yeah. Uh, I mean we chatted on Instagram back and forth and he was like, dude, I got one. And I was like, all right. So we actually met in person. So it wasn’t like I just bought it from him on Instagram. We went to the house, we toured it, it checked out to me at that moment.

Henry:
And why would, or is it not an exit for you to just finish it to rental property standards, throw a tenant in it and cashflow it

Rob:
Because I am busy <laugh>. Yeah, that that’s it totally is. Yeah, it, it is. I mean that’s the thing is like you and I think we did an episode where you and Dave Meyer were like, dude, lose the five grand. And David has told me many times he’s like, just lose the 5,000 man. And I’m like, I know, but if I lose the 5,000 a half to accept that I lost on a real estate deal and I’ve never done it, I think it is worth it. Um, I think it would be a BRRRR that I could finish out, cash out get like, you know, 150,000 of my 180,000 out, uh, yeah, somewhere around there and maybe cash flow it, but I’ve already established on the show I’d make an awful landlord. That’s not what I do. I’m a short-term rental guy and I do other real estate. So I think, uh, I, I kind of want to, but it’s just not my wheelhouse I guess is the, is the moral of the story right now. You

David:
You got that Floyd May Mayweather 15 oh, record that you’re really trying to protect really

Rob:
Hard. Yeah. Like, well

David:
If I hold onto it for 14 years, I can sell it at a game <laugh> if I just don’t count the holding costs. So like

Rob:
That’s right. I’ll look like a genius in 30 years guys, right now all the YouTube comments are tearing me apart, but they don’t know that this will make me $500,000 in 30 years.

David:
And with that $500,000, you’ll be able to buy yourself a ring pop. ’cause that’s about how much inflation it’s destroying as the part. Um, I’m actually a little upset with you Rob, because both you and Henry have brought up what we’re supposed to be bad deals that are basically breakeven and it’s kind of a lightweight flex. You’re like, well my terrible deal was actually just a break. I’m so good that when I completely screw it up and bring my worst deal ever to BiggerPockets, it ends up being a deal that I broke even on. It’s so hard to be me. This is like the equivalent of when there’s that one really skinny person in the room that wants to call attention to how skinny they are, but they don’t wanna look arrogant, so they just say how cold they are. Henry, you and I have talked about this, they’re just like, is anybody else cold in here? It’s so cold and everybody’s fine, but the skinny person is freezing. That’s what you two both just did. Just

Rob:
Okay. But in, I have a hundred thousand dollars locked up in this property. So to be fair, I could do things with that a hundred thousand dollars that would further my real estate goals. So right now it’s kind of in, uh, equity limbo as they call it.

David:
That’s why I’m telling you that you should sell it. ’cause you have many better things you could do with the money, but still these are not Ls. Like most people lose way more money than this that are listening to the podcast and they’re like, yeah, this confirms I never should have been an investor. Because if the good guys are sharing their worst deals and they broke even, this is just not for me. Do you realize the negative impact you’re having on the youth Rob by sharing a story like this?

Rob:
Yeah, they’re like, oh, all I have, the worst case is I’m only gonna lose $5,000. Yeah, <laugh> real estate’s awesome. I could make half a million or lose 5,000. We’ll

David:
Never fear folks, because when we get into my story, everybody here is gonna say, you know what? Maybe I just don’t wanna invest in real estate at all. Uh, mine’s horrific. And I just wanted to point out to you guys that you’re gonna make me look really bad when you brought such good examples.

Rob:
Well, let’s get into it. Lemme give one piece of advice to everybody and then we’ll move into your, I would say if you’re gonna, if you’re in a similar situation, if you wanna try a flip, if you want to foray into a, you know, a, a, a sector of real estate, that’s not your jam, find a mentor, find a partner, find someone who’s done it before and ask them for help. I mean, I literally have access to Henry Washington, David Greene, James Dainard, all the, all of you guys would’ve picked up the phone. And obviously I, there’s several other people I could have called too that I didn’t, um, because I was just like, oh, I’ll figure it out, but I’ll figure it out. Has cost me five to 10,000 bucks? So find someone that’s already figured it out, lost that five to $10,000 that has learned the hard way so that you can learn the easy way.

David:
Don’t find someone that’s lost five to $10,000. Find someone that’s lost 50 to a hundred thousand dollars like a real loss and actually get actual good advice from somebody <laugh> like who needs to ask Floyd Mayweather for boxing advice? Like, you know, Floyd, I’m really trying to work on my jab here. Like, you don’t need to ask Floyd unless you’re an Olympian level boxer. That’s so funny that you’re saying this. I hope you guys just know, uh, we all know that you’re prideful and that’s why you didn’t want to share actual losses or you’re both really that good. In which case I’m just gonna like bend the knee and bow. I’m gonna hire both of you as a real estate coach.

Henry:
Alright, we have to take one more quick break, but stick around as promised, DJ walks us through his epic loss right after this.

David:
And welcome back. I’m David Greene and I’m about to put the ick in epic loss.

Rob:
So speaking of losing $50,000, tell us your headline, David, tell us, uh, tell us the headline for today’s show.

David:
I would be so happy if I had lost $50,000. I would be like literally jumping up and down and shouting if it was only that bad <laugh>.

Rob:
I’m scared to hear this.

David:
My headline reads, experience investor underestimates local city’s ability to ruin perfectly good deals.

Henry:
<laugh>.

Rob:
Good, good. As

David:
You can see, I’m taking complete responsibility for these deals going horribly. Jocko willing could be very proud with the ownership that I’m showing here.

Rob:
This is a, a bad show. Reverse tostada the worst ones at the end.

David:
Oh yeah, for sure. Uh, what I found out the hard way is that there are many cities in this country that do not want short-term rentals. And even though there are landlord friendly laws or um, owner friendly laws in those areas, many that they cannot tell you don’t put in a short-term rental. That is not enough. And I’m saying that ’cause so many people think, well if I just go to a landlord friendly state, I’m not gonna have problems with tenants or whatever. But it, it is much more complicated than that. There’s several layers. So I’ve had this problem in California, which everyone’s going to say, well obviously you have, but also in Florida, which is like a bastion of freedom right now, right? This is where everybody’s moving to that’s pro business and pro real estate and doesn’t like taxes. And in South Florida I’ve had absolute nightmare.

David:
So I bought some properties, uh, this one in particular that we’re talking about and the city doesn’t like short-term rentals, but there’s nothing on the books that tells them that they are allowed to tell me I can’t do it, I just have to apply for the permit. So like a good little boy, I went to the city and said, I would like a permit, please, I’m trying to play by the wolves. And they said, really? Are you sure you wanna do this? And I’m like, yes, because I’m honest and I’m going to do things the right way. So they send an inspector to the property who goes through the entire property and ends up tagging it for things that I didn’t do to it. So I did get the house and I did apply for some permits to put a new roof on it to replace the windows.

David:
Obviously Florida’s known for hurricanes. So the city walks the house and there’s a neighbor that does not want it. And she immediately starts calling the city every single day and says they’re doing work. And the city is like, well, they got a permit. So she starts looking at every single piece of work that’s being done. Now you hire the general contractor who applies for the permits, who does the work. Well, he did some work without getting permits. Like well, we’re take, we’re taking off the roof, we’re putting a new roof on or placing the doors on the windows, like let’s uh, replace the cabinets while we’re here. Let’s do some flooring stuff while we’re here. And he doesn’t go get permits for those little things. Well, she’s in there taking pictures of the house and sending it to the city. Gets on the city’s radar.

David:
So the city starts to like, Hey man, we need you to pull permits for this. We need you to pull permits for that. That’s kind of normal. The general contractor’s taking care of it. I don’t have to worry about it very much. Then she starts calling the rest of the neighbors in the city and she’s like, this guy’s trying to turn our beautiful city into a short-term rental hotel and we need to stop this. So everybody in the city starts, or sorry, everyone in the neighborhood starts calling the city and complaining about this project. Long story short, the short term rental person comes to give me the permit after I’ve already done the work. ’cause I’m trying to get that insurance down from $26,000 a year. I’ve spent about $130,000 improving this property that was built in like the early 19 hundreds, like 1902 or something like that.

David:
The person comes and starts tagging stuff that we never did to the house owners before me. Added two bathrooms to the property. It’s a big 3,600 square foot main house and a 1400 square foot duplex in the back. Well, the bathrooms have been there for decades, doesn’t matter. He’s like, oh, you, you’re not allowed to have these. They see that the uh, hot water heater isn’t big enough for what the house is supposed to be. They tagged me for that. They just start making things up like, oh look at this point you had a, you had some work done. They put an island bar in your kitchen and we don’t have anything on record in the permits. Now this wasn’t a kitchen remodel. I did, I’m telling you this was something people did way before I bought the house. Here’s the kicker. I bought the property ’cause it’s a 3,600 square foot main house and really close to the beach and just north of Miami.

David:
And it had a duplex on the back of the lot. They tell me that I have to take the duplex down. We look at the, at the zoning and you’re allowed to have three units. Okay? When I bought the property, it said on Zillow legal triplex zone triplex, it has already three different electrical panels, uh, for and meters for every single unit. They said, yeah, well you, the person who built this thing in 1943 didn’t complete the permitting process. So we’re gonna make you tear down that duplex. We say every single house on the street has a duplex and they, and the, and the city official told us, yeah, but we only enforce it when someone applies for a short-term rental permit. And I’m like, okay, well nevermind. I will sell the house. I don’t want a short-term rental. It’s too late. We’ve already put in the system, it can’t be taken out.

David:
You have to tear down the duplex. So I hire a consultant to go try to argue and this person is great. His name’s Derek. He’s actually that ADU guy on Instagram. Awesome dude. He finds, oh that guy, yeah, yeah, yeah, yeah. He’s going through like the microfilm and stuff of the newspapers. I don’t know what he does, but this guy puts his gum shoe hat on and he does show at one point the, there was, it was allowed, even though they didn’t complete the permitting process, the city saw it and said You’re okay. And so he makes this argument that at that point you can’t come back and make him tear it down. Well they’re like okay fine, but you can’t have a duplex. You can only have one unit. And so until you get rid of one of the two units in the duplex, we’re shutting off the power.

David:
They turn the power off to the entire house in south Florida A couple months later there’s mold. Oh no, there’s more bro. Long story short, that duplex is now overrun with mold ’cause it hasn’t had air conditioning run it for like almost 24 months now. So they’ve told us you have to tear that duplex down and now that it’s a health hazard because of your mold, you have to like rip it out. And when you do that, it now qualifies for a substantial renovation, which means now you’re not allowed to have the duplex at all. So you have to tear it down like I am in this horrible, horrible mess with the city. The deal itself was great. I paid a hundred grand less for it than what it appraised for when I bought it, the numbers on it looked really, really good. I had to go spend all that money to try to get it up and running again.

David:
And then this happens. So now here’s where we are. I cannot put anyone in the house ’cause it doesn’t have power and I can’t get the permit. Okay? The neighbor’s still watching every single thing that I do and they’ve been horrible. It ended up getting infested with bees during this period of time and 50,000 bees made their way into the interior of the siding of the home through the roof. Okay? So like they’re calling to complain about the bees that are in the house every single day. Uh, if I tear down the duplex, I lose my zoning. And then that hot water heater that they said I need to have being bigger, the house is at the maximum capacity that is allowed to have for electricity. So if I put a higher, a better bigger hot water heater and I have to upgrade electrical, but when I upgrade the main panel, it needs more amperage to pull in from the city which they

Rob:
Shut down.

David:
Yeah, well that is shut down. But the line that city has run is already at max capacity. Meaning they can’t supply the power that they are telling me I need to have. Which they are now saying you have to go dig an underground, uh, like tunnel basically to run power to get the level of power you need just to get a bigger water heater. Because these two bathrooms were added in the freaking sixties that nobody told us about. The, in order to add the power line, I have to move the neighbor’s fence and dig underneath it. And the neighbors have said, no, we’re not gonna agree to anything. So I am just stuck in this limbo that I cannot get out of and I can’t sell the house to anyone else because it, they’d be inheriting all these tags and they’re stuck there. And that’s why I’m mostly blaming the city because they ruined a perfectly good deal. But the moral of the story here is it’s not the stuff you know about that’s gonna hurt you in real estate. It’s like if you’ve seen it happen before, you usually have a contingency plan. It’s the things that you didn’t anticipate that you didn’t see coming that create the problems that you’ve got.

Rob:
Oh man, uh, I think I need a cigarette. I don’t even smoke. Um,

Henry:
<laugh> and that lady, she can’t, you can’t be more thrilled about what’s sitting next to your property now than if it would’ve been a functional short-term

David:
Rental. That was my argument to the city is like, do you guys realize it is heading to foreclosure at a certain point and you’re going to have a like rotted out be infested mold infested pro property in a historical district because you didn’t want a short term rental. Like is anyone here? But here’s the problem, Henry, the person you talked to in the building department doesn’t really care ’cause it’s just a W2 job. Their supervisor’s like, don’t ever let anyone get to me so we can’t talk to their supervisor. When you do get someone from the building department to work with you, they say, now the zoning department has to agree to this. And then they kick you to like the business department that oversees departments and then they have the planning department and none of these people make a decision, right? So like I I absent trying to find a lawyer out there that could sue the city for like the damages that they’ve been causing ’cause they’re not treating me the same as everyone else. They’ve admitted everybody else has the same duplex and we don’t care. But you wanted the short-term rental permit. So we’re gonna go after you specifically.

Rob:
So let me ask, let me ask you this. How much are you out as a result of all of this? Like how much money has gone into this entire like process?

David:
Eight grand a month for two years? You got that right off the bat, right? So that’s what I’m about a hundred grand a year, 200,000 there, 125 I had to spend in the beginning. And then you’ve also got like the B problem and the other little things, all of the permit applications we’ve had to pay are probably in the 30 to 40,000. Like I, you just at some point you stop counting. And here’s the worst part, I still don’t see a way out. I don’t know what you can do at this point to try to like, I guess just normally when something goes this terrible, you sell it, you take the loss. I mean if it’s you, you only get a $5,000 profit. But for a normal person, they take the loss and they get out from underneath the deal and they move on. But because the city’s involved, I can’t sell it and the lender doesn’t care. You can’t go to them and say, well I’m not gonna make the payment ’cause I’m stuck here. That’s not their problem. Right? And the city won’t let you fix it. So I’m just, I’m kind of at a loss like, I don’t know what you do do other than illegally pay somebody in the city money and then they look the other way or something.

Rob:
Okay, here’s what we do. We start a GoFundMe and we raise more than what you’ve lost and then it’s a win. So everybody will leave that information in the show notes down below. <laugh> uh, <laugh> donate to David. Did I need, I need time to process that. I will call you separately with ideas, but geez, Louis Weasel. Oh man,

Henry:
You need to go move into this house.

David:
Yeah, I

Rob:
And take up like a very loud instrument like drums.

David:
I’m afraid of bees

Rob:
<laugh>. Oh well that you could get fixed. I had a bee infestation at one of my properties like a year or two ago.

David:
Well, you had to live. How you gonna live in a house without power like that? Dude, they’ve, this is like Darth Vader in the evil empire that had put all of the powers of the empire against me here kinda

Rob:
Already look like a caveman though with your beard. So you could just go like full like a nomad, you know? No, no power, no hot water. Be

David:
Like a squatter. A squatter in my own house. <laugh>,

Rob:
You could squat in your own

Henry:
House if it’s your primary. Don’t they have to turn the power on? I think, I think you might have a lot more leverage to get them to do what needs to be done. If you, if it’s considered a primary,

David:
There may be something here. Yeah, maybe that is what I have, dude.

Rob:
Yeah, you’re looking to move, you’re looking move states. I mean this could be

David:
It. Bring my Coleman’s uh, ice chest and a tent and some, a little barbecue

Rob:
Park on your front yard and then always like, just park a little on theirs and be like, oh sorry, just

David:
Throw stink bombs over the fence into the neighbor’s yard. And so, uh, yeah I’m still kind of trying to figure out what I’m supposed to do with this thing. I, I’d love it if there was a real estate attorney that was out there that knew like what could be done to get things going. But I’ve, I’ve got about four properties that all have the exact same thing happen and these are all over a million dollars between one and three and a half million dollars over these four properties where that the city all did the same thing. And you can make any progress. They don’t want to help fix the problem.

Rob:
Maybe we could do a show on that. You bring on an attorney to consult you and say, Hey, how can this be, you know, how can you go up against the city in these types of scenarios? Because I think a lot of people in your scenario not as bad as yours, but are always lost like, man, I’m helpless against this city. So maybe we could bring a show, make a show about, you know, like how you can fight back against a city that’s kind of like bullying you around. If you’re

David:
An attorney out there and you would like to be on the show, we would love to talk to you. But let me ask you guys, do you feel a little bit better about your two deals after hearing this?

Henry:
Well, mine’s not done yet, so, uh, TTVD, uh, but I definitely feel better compared to hearing about yours. I guess what I wanna know is like, ’cause there’s a lot of people who are still looking into doing short-term rentals in luxury markets and providing these cool homes and these unique places and these cool experiences. And so how does somebody, like what advice would you give to somebody, uh, on how to avoid landing in a situation like this?

David:
I, you know, that’s the question I’ve thought so much being on this platform of like how do you advise people against it? If I’m being completely transparent right now, I don’t know that I’m the best person to advise people how to avoid it. ’cause I haven’t figured out how I ended up in this thing. I still in the middle of the night get hit with anxiety about this. Like, how did this even happen? Because there were no laws that prohibited short-term rental ownership. There was nothing on the books.

Rob:
I would say this, here’s a piece of advice for everyone at home, uh, not necessarily around this, but I would say like never go into a situation that like, you know, luxury homes are expensive, right? And so if you don’t have the reserves or the war chest saved up or the financial backing to be able to weather this storm, you could very easily be in a, like a very, very, very bad financial situation. David, you’ve built many businesses, you’ve built a real estate portfolio, you’ve built kind of an empire in this entire world. And so because of that, as unfortunate as it is, the silver lining is you are able to actually withstand this. Whereas most people would probably go bankrupt in the process. So I think it just goes to show if you’re looking to step up, whatever that home purchase is to the next level, always make sure that you can afford a good one. Two years reserves. I mean really, I would’ve said six months, but this now shows me, hey, having two months or two years of reserves is not that crazy.

David:
There you have it. That’s why I give that advice so often to everybody. I don’t always share the details of these things going wrong, but the principle behind the advice I give is because this can happen. It can be a perfect storm. Now this also all had happened at the same time that interest rates went up. So all these BRRRR projects that I had going on that I expected a six point half percent interest rate went up to like 11.5% on a lot of these deals and all the revenue coming in from selling homes and doing mortgages and everything else stops because interest rates go up and people aren’t transacting home. So it is a perfect storm and when that happens, the only way you survive, like you said Rob, is you just have way more reserves than what you thought. Which is why we give the advice that you should keep working, you should keep saving, you should still live underneath your means and not, I got a little bit of money, lemme go spend it all.

Rob:
Yeah man. Well thank you for coming on and sharing that. I know that’s not easy to share and I know you’ve given us a look under the hood for, you know, the past while this has been happening. But I hope that people take away from this and actually learn, like make sure you can afford to step into whatever business, whatever real estate transaction. And thankfully you, you were, uh, you’ll get through this, you’re David Green, you always do.

Henry:
And and I guess what I’d say too is yes, we’re all sharing deals that that didn’t go well. Do any of us regret investing in real estate during this economic time given these bad situations?

Rob:
No, not me.

David:
No. I don’t invest, don’t regret investing in real estate. I, I regret buying so many houses at once and getting into a new asset class, relatively new for me. Short term rentals, I should have waited in like a little bit at a time, but I jumped in and bought a whole bunch of ’em and just didn’t anticipate this happening. But if you look at the entire time of real estate investing, my wins are still a lot more than these losses I’ve had in the last two years. Yeah.

Rob:
And that’s, I mean, that’s how real estate is, right? Like more wins and losses if you’re consistent and strategic.

Henry:
I feel the same way. And I just want people to, to, to understand that like, yes, we all made mistakes, we’re all gonna make mistakes again in the future, but it’s not stopping us from continuing to invest or making smart investing decisions. I think we’ve all learned something that will make us better in the future, but even that still isn’t gonna stop us from making mistakes. I think we just have to really understand the deals that we’re getting into. And if we don’t understand the deals or the new segment that we may be getting into, then like my rule has always been, if it’s something that’s not my bread and butter, it’s gotta have two things. Either it needs to be such a screaming deal I can’t lose, so I’m basically getting paid to get an education in this new space, or I have a partner on this deal who is specialized in this new space. If it’s not one of those two things I typically try to stay away from.

Rob:
Totally. And as I always say, I always say this, all my mistakes add to the millions, right? Uh, over time I’m gonna be investing, I’m gonna be building equity, I’m gonna be building my net worth in the world of real estate. And the only way I can do that is by making mistakes. So they help you avoid the big ones and you get better and better over time. I mean, I’m happy for everything that I’ve lost in a weird way, never in the moment, but always in retrospect.

David:
Awesome. Well thanks guys. I appreciate you both. This is David Greene for Rob and Henry. The bad news, tostada Amigos signing off.