Patti Robertson shares the details of the biggest mistake she’s made as a real estate investor. From not following the recommended system to not finding the right contractor, her first deal taught her some valuable lessons.
Mike: Welcome to the We Buy Ugly Houses show, where real investors share real investing stories and lessons from the trenches, where our team buys thousands of investment properties each year. Now, let’s meet today’s host.
Patty: Hi. Welcome back to the We Buy Ugly Houses show. Today, I’m going to be your host and I’m Patty Robertson. I’m a HomeVestors development agent in Hampton Roads, Virginia. What we’re going to talk about today is the biggest mistake I ever made as a real estate investor and it was a doozy. It was the first house we ever bought as HomeVestors franchisees and we bought our franchise back in April of 2007. We were all excited, raring to go.
Back then, we had to go to Dallas for two weeks of training. Now it’s one week of training with the residual of the training being in the market with a Development Agent. But at that time, we were away for two weeks, came home, and we were ready to buy a house. So we learned all we could, but the biggest mistake we didn’t make was we didn’t follow the advice that HomeVestors gave us. When you invest in a franchise, you do that, you spend a lot of money to invest in a system. And they give us a system and the most important thing you can do is follow the system.
We came home from training. One of the first leads we got, we were really anxious to buy and overpaid a little bit for the house. We bought a house within 20 days of coming home from training. One of the first things that HomeVestors tells us as franchisees, and my advice typically for new investors too, is you want to start by wholesaling a little bit just because the risk is lower. You can develop a little bit of cash and you don’t have as much financial outlay. But we didn’t listen to that advice. We were so excited to get started that we decided that we were going to rehab our first house.
The first mistake: paid a little bit too much. The second mistake: we didn’t follow the advice of rehabbing. Another thing that HomeVestors taught us and I tell every real estate investor is that we should always make our contracts contingent on an inspection. The most important inspection is the moisture/termite inspection, especially if you’re in an area of the country that has a lot of moisture like we do in Hampton Roads. We’re on the ocean; we’re on the Chesapeake Bay. Termites can really eat up a house, and it’s something that you can’t see with a naked eye. You have to send somebody underneath the house or drill in walls so it’s a really important inspection. But while my contract had a contingent on it, we failed to get a moisture/termite inspection.
Next, we picked our contractor. And when you’re picking a contractor and you’re a flipper, it’s really important to find a contractor that knows about real estate investing. We picked a contractor who was an amazing contractor. He’s done work in my own home, but he is definitely a retail contractor. Just like any business, when you go with someone who works with the end-buyer, is closest to the retailer, they’re going to charge the highest price, just like we do with houses. So we need sort of a wholesaler investor, someone who’s used to working with a contractor, used to working with investors. But we had a top dollar guy and boy did he do a beautiful job, but we paid too much.
We started the rehab. We knew that there was moisture damage under one of the walls because that was visible from the eye. We could see one of the windowsills was wet and we knew that portion of the wall was going to have to be replaced. What we didn’t know is, when we removed that portion of the wall, the next portion of the wall was rotten so we removed that. And then we went to the next corner and the next wall was rotten. And, wall by wall, as we rotated around this house, and then to the garage, every single wall was eaten up by termites.
And once you open it up, you can’t cover it up. You’ve got to fix it. We essentially replaced every exterior wall in that house, which is not something we budgeted for. It ended up being a beautiful house. Actually, you can see it if you can look in the picture behind me. Our local newspaper did an article about the house and that’s it. It was a beautiful rehab, ugly into beautiful. But we made a lot of mistakes. Obviously, it took us a lot longer to rehab that house as well because it was a lot more work than we expected.
We had short-term money on the house. HomeVestors actually gave us the loan for that house. It’d be kind of like using a hard money lender. We had 160-day money on the house. We finished the house in about 140 days, really close to the end of our loan. So it really didn’t give us time to list it. We got some advice from HomeVestors, our coach at HomeVestors told us to try something called a five-day sale. It’s actually a book you can buy. It’s a way to do an auction on a house you want to sell, and you run it, and you sell the house in five days. We bought the book, we followed the advice in the book, and we actually sold the house for higher than any house that had ever sold in the market. So we had some successes, but we had a lot of trial and tribulation along the way.
The lesson for, you as a new investor, especially if you’re in a franchise company, always follow the system. At HomeVestors, I think we’re on about 65,000 houses we’ve purchased. Believe me, collectively, we’ve learned a lot of mistakes with 65,000 houses purchased. One of the nice things about being in a big company is sharing from others’ mistakes. It is what we pay for, follow the system. The second really, really, really important lesson is to always put your contracts contingent on inspection, including a moisture/termite inspection. And don’t fail to get that inspection.
Worst case scenario, you have more damage than you thought, that gives you an opportunity if you have to, if you’ve not budgeted your numbers correctly, you can always go back to the seller with that. But at least you’ll know what you’re getting into when you buy a house. So always get a moisture/termite inspection.
The third piece of advice is, in the beginning, until you’ve at least shadowed some of your investors in your market, if you haven’t rehabbed before, start with wholesaling. Shadow either some HomeVestor franchisees or some experienced rehabbers in your local market and just go through a couple of rehabs before you spend your own money so that you don’t make the mistakes that I made.
And lastly, choose a contractor that works with investors, so that you will at least get the benefit of the experience that person has had in working with investors in your local market. I wish you guys lots of luck and I thank you for watching the We Buy Ugly Houses Show. Stay tuned. We’ll see you next time.
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