I like to share stories of my clients, and I prefer good ones, however this one is not of the good variety. Yet, it is important to share, and you will see why.
Stan has been in the business since 2010, so he is not a newbie. One benefit of not being a newbie anymore is a wide network. This is how he found his latest deal: a $20,000 duplex in Oklahoma. My first question was – WHY? As you know, I’m firmly against buying investment properties out of town, especially when your town is Houston.
Stan gave me a classic response:
But, Mike, it was dirt cheap! Only $20,000 for a duplex built less than 10 years ago!
Ain’t that a great reason to buy? Except…
Except that his financial report shows $1,850 rent for 2015 so far. Yes, that’s right: less than $2k in rent from a duplex. I repeated my favorite question – why? Because only one side was rented this year, and the tenant has already been evicted. This kind of tells you she was not paying, doesn’t it?
– What about the other side?
– Oh, it needed some work.
– How much work?
– About $15k I paid to my contractor.
– You mean 15 thousand or 15 hundred?
– Thousands, Mike.
<…insert a pointed silence here…>
– So, the other side is vacant now?
– Yep. That woman damaged it pretty good.
– Fixed by now?
– Yeah, but you know – I’m having hard time finding good tenants there.
– And why is so, Stan?
– You know, the area is good, but the immediate area around this property is really bad. You know what I mean?
Yes, I know what you mean, Stan.
You’ve been around the block, and you are still missing the fundamental concept of making money in real estate:
The price tag alone does not make a property a good investment.
What does he have? A $20k property that required $15k in rehab costs (not to count $4k of damage after the bad tenant) – in a “really bad” area where he cannot get it rented. And he is a day’s drive away from it, so he cannot manage it and cannot keep an eye on his contractors and tenants. This is anything but a “dirt cheap” investment – this is a painfully expensive mistake. A rookie mistake, I should add. Sorry, Stan.
Now I have to ask you guys –
are you sure you are immune against such mistakes?
If you’re not sure, then take a look at my Black Belt Advisory program.