It’s 11:00, I’m laying in the front seat of my car, and people are shooting at each other in the middle of the street. This is not the beginning of a film. This is not an engaging start to an article. This is my real life. This woke me up.
Back in 2009, I began working with an investor who was buying properties at county auctions. This was a time when very few people were willing to buy anything, let alone a house. Competition was limited. We were literally buying houses for 10 cents on the dollar. You could buy a house every day for less than $10,000 if you wanted to. Some were gems, some were garbage. It was thrilling. We would go out before the auction and walk around these properties, guess what the condition of the property was and buy it.
We bought lots of property scattered all over the South Side of Chicago. The city of Chicago is 234 square miles. The south side is larger than both the north and west sides. So the South Side is at least 117 square miles. To put this into perspective, Manhattan is 22 square miles. The South Side is made up of dozens of different neighborhoods, and we shopped in all of them. We didn’t care because we were buying properties for $10,000, rehabbing them and renting them out. It didn’t matter to us because the numbers looked incredible on paper. (What a mistake that was.) We didn’t have time to learn about the different neighborhoods. We only looked at the numbers.
Connected: We’ve done the math: You can’t make money on $30,000 houses. here’s why…
after numbers
So about a year and a half into it, we’ve bought and rehabilitated a few dozen properties in different neighborhoods. There were some problems along the way in some mohallas. We had a few break-ins on properties. We justified it by saying, “But look at the numbers on paper.” So we hired house sitters.
A house sitter is where you pay a person to stay in your home while you are rehabbing to watch over the house. Maybe this should have been a red flag, but we thought, “Look at these numbers.” We tried to hire contractors who refused to work due to some neighborhood reasons. But another voice stopped us from taking action: “Are you looking at this 20% return? We need to find someone else to work on this.” We had contractors call us and say they heard shooting outside. We said, “Then you better stay inside. I’m going to make some money on that property. We robbed contractors who came in their trucks out of the property.” It was just part of doing business. Nothing to worry about; Have you seen these numbers? I’m going to be rich! I kept thinking
So now I was praying to God to get me out of there. I don’t know how long I hid there. I don’t even remember going home. The first clear thought I remember was, “I’m doing all this for a lousy $300 a month.”
What happened after that, it was a total change in my outlook. Chicago on the South Side had a lot of neighborhoods that were safe. We already had properties in some of these neighborhoods. Looking at those properties, I asked the question, “Why am I buying in a bad neighborhood? Is it worth risking my life to make a little money?”
unload assets
We immediately started trying and offloading properties in bad neighborhoods and guess what? There were no buyers. I also showed him my proforma and income statement. I said, “Look at these numbers. It’s a gold mine.” No takers!
We reduced the cost from profit to break even. Nothing yet. No one to take We put it in harm’s way. Nothing. We fell into even bigger losses, and we finally had a buyer after a few months of this. It was another investor. He was buying properties in the neighborhood because of the returns he could get. I wished him good luck and never looked back.
Connected: Should I buy many cheap or a few pricier homes? analysis of an investor
lesson learned
We lost a lot of money on those properties, and to be honest, I was willing to lose more to get rid of them. I realized that there is tremendous opportunity in real estate without taking that kind of risk. We continue to buy property on the South Side. There are lots of great neighborhoods that are safe with great returns. Not as high as other neighborhoods, but I feel safe when I’m there. I always cringe when I hear a new investor tell me the primary way to decide whether a property is a good buy is based on what their Excel spreadsheet tells them.
The fact is, you can make more money in real estate than you might think, but it’s more complicated than the numbers on the page. It requires a lot of hard work and the 4 Ps: passion, persistence, patience, and process.
Investors: Have you ever bought a property that you immediately regretted?
Tell us your stories in the comments section below!
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
