Real Estate Investing Gone Bad Readers

Real Estate Investing Gone Bad Book Cover

Ask a follow up question about any of the stories in the book or share your own deals gone bad stories below:

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  1. Luis Alba says

    In story # 1 talks about earnest money. It always catches my distrust deals of a wholesaler where they ask for nonrefundable earnest money not on the escrow title but into their name.

    Is that a fair practice? I wonder if there has been a sad story about a wholesaler scamming this way.

  2. Paul Lidster says

    After reading horror story #2: the two lost deals caper. What happens if you put a house under contract, then don’t have the money to pay for it? Is it simply you don’t get the house or are there financial repercussions?

    • Phil Pustejovsky says

      Depends on your contract. If your contract allows you to back out scot-free, then you are fine.

  3. Nick Proffer says

    My deal went bad due to probate and family issues. The property was in pre foreclosure due to the occupant not occupying the residence which had a reverse mortgage. I refinanced the reverse mortgage but being a young adult with little work history, signed me up as a co-signer on the loan with my great grandmother who previously went into assisted living and wasn’t occupying the residence anymore which is what initiated foreclosure proceedings.

    After we refinanced we paid off the reverse mortgage and got a conventional mortgage. I was going to do the BRRR method, but as soon as i put in about $25K of renovations my grandfather got conservator over my great grandmother (CO-signer). After the renovations I was going to refinance into a HELOC to pay off the renovations and my grandfather evicted me out of the house I was paying a mortgage on!

    I’m still going to court, but my lesson here is to always make sure your name is on title, not just on the finance paperwork

  4. Roger Kubly says

    Phil ….i thank you so much for your advice and wisdom that you are sharing with new re investors. I especially appreciate that you’re a Christian and that you desire to help people and get them going in real estate. I doubt if many or if any will match my experiences here(i hope not anyway)but there is much to learn!
    Ive been in real estate for almost 40 years now (even have a college degree in it) I began when I was very young and God put in my heart the desire to want to manage properties and make them better. I started owning when my dad helped me with the first building and then more and more came together as cash flow improved and other opportunities came about. By the time i was in my mid 30’s i had several million dollars worth of properties.At age 50 i lost half my properties in divorce. After several more years I decided I didn’t want to manage all the properties i had left. I just wanted to collect income without having to worry about toilets and heaters etc so I ended up trading a number of my properties worth maybe $1m dollars into TIC s (tenant in common)properties that were managed by a national company that had hundreds of these tics.That went well for a while and i kept getting these nice checks month after month and didn’t have to do anything. it was very enjoyable until 2008 happened and all of a sudden one month the checks stopped coming. zero income and hundreds perhaps thousand of investors that had millions of dollars in their investments in this company (DBSI. in case you know of them)…now almost completely lost. this company had done basically a ponzi scheme and the whole thing collapsed. Then all these investors and us were left with just a couple properties. We went for the next few years of barely surviving….even having to work for the the Census Bureau in 2010 for 10 or $12 an hour. For my wife and I it was a very powerful stretching time and we learned a number of things through this. First of all like Job said: God giveth and God taketh away…Blessed be the name of the Lord. God owns it all and He has the power and authority to take anything we have (all of which is a gift from Him) at any time and so it was very important to learn that lesson. It was also important to learn about taking personal responsibility for our investments and that’s what we thought we would do from then on…. But had we learned all ? Of course not! We had to learn again in a little different way…we had a storage facility in san antonio and were having a property management company manage it. Except they mismanaged it even though we thought we were watching over their work…so we almost lost it. My wife and i had to start over managing it ourselves and so that’s the other big lesson is REALLY taking a personal interest in your investments both to be a good steward as God provides for each of us as well as to bless people that are involved that are your tenants or clients. Seek FIRST the kingdom of God and all these things will be added unto you. Mathew 6:33

  5. Trent Short says

    You want to hear a horro story?…well I have one….

    1- I purchased a Foreclosure through a trustee sale. I purchased a JUNIOR LIEN.

    2- I knew the other lien was under 20k and I knew who had the Senior Lien.

    3- I extinguished the Senior Lien and obtained clear title. Confirmed by my title company.

    4- Wells Fargo began bugging me thinking they have the senior lien. They conveyed the Senior Lien to another bank before the Trustee sale. And the trustee sale was for their Junior Lien.

    5- I will likely have to bring a suit against WF because they are so big they can’t stop all groups in WF from harassing me! Its been going on for months now. Each time they say they will stop the Property Preservation team from posting till ownership is figured out and they don’t. There is two houses on the property and I have one renter in because he works for me and knows the drills I go through for houses. I don’t want to put a renter in the other house with all the postings and people coming to the property stating to tenants that I don’t own the property.

    One thing is I google lots of different scenarios and cannot find any case law similar to this so I feel like I am in unchartered waters right now. Atleast with the attorneys in my community – I am.

    Anyways! Thanks for the good YOUTUBE info!

  6. LUCY MEOWMAN says

    I bought a house as is and seller (after accepting the offer) wanted to keep some ceiling lights for sentimental reasons.

    Being the nice person I am, I said yes. Then at the estate sale, those very lights were for sale.

    Don’t trust any of them 🙁

  7. Kent Harris says

    I wished I had watched this video before I had flipped a certain house. The roofing contractor did not hire enough labor and had substandard equipment to do the job. ($100 two gallon compressor) A Texas rainstorm came through and flooded half the house. This was two weeks before closing. The roofer was not insured so the roofer had to redo the sheet rock, insulation in the attic and replace the carpet padding. We closed and took a $20,000 loss on the property since we had to fix the foundation, Replace the electrical box, the roof and had to buy the materials because of the flood. Plus $8,000 to the hard money lender since our Real Estate Scout made promises in our behalf to purchase more properties then we had the money to close deals.

  8. Julian Rollocks says

    I really need this knowledge for me and my son.

  9. Ken Lemal says

    I hope the owners of these stories don’t give up. It is not how many times you get knocked down but how many times you get back up. Failing on a large scale or what may look to be a large scale to one investor would be peanuts to another. If you look at your fails as expensive education and get back in the game you will be much better in this profession in the long run. I have had several big fails a few in the multi million dollar range. The bigger fails were caused by government and economic downturns. So even when you think your doing everything right it may not always work out. My saving grace has been that I rejected the belief to be focused and put all your effort into one business and be the best you can be. i have always had another business coming out of the dirt prior to a failure so when one failed it was a matter of switching horses. Some of my biggest revenue growth years have been right after a crash where I lost millions. I have been doing this 40 years now and feel like my experience and economic times has me on the path to achieve much more than I ever dreamed possible. Happy Investing!

  10. Jeremy Heady says

    I have a horror story for you. I had my first home for about 5 or 6 years that I bought for just under $50,000 and had built some equity up on it. I applied and was approved for a HELOC for around $20,000 at about the same time I was attending real estate school to get my license. I decided to use half the money to improve my current property and the other half as a down payment for an investment property. I asked my friend, a REALTOR, who was helping me get my license to broker a deal. He found a small double for $80,000 that had a tenant in one side paying $400 a month. When I went to look at the property, I found out it was a co-worker of mine in the military. No lender was going to give me a loan without it being owner occupied though, so I decided to move into the other side and rent my house out as well. The double was only 2 bedrooms on each side and my house was 3, so it was a downsize with 2 kids. I bought the double with a 10% down payment and moved in and set it up with the tenant to direct deposit the rent. For the first month or two, I used the rest of my HELOC to improve the other property and then rented it out for $750. Altogether, my rent coming in was $1150 and my mortgages, including the HELOC, were just under $1000, so I was bringing in about $200 in cash flow AND I didn’t have to pay for my own living expenses. I thought this was a pretty sweet deal and it was for about 6 months or so when everything started to fall apart. My tenant in the double decided to move out at the end of his lease, so I had to rent it to someone else. Shortly after that, my tenant in the house started getting later and later with their rent and my former neighbors were complaining about their wild kids. One of my former neighbors owned more th an half the street and I found out later that I won the bidding war for the house next to him 6 years prior, so he was bitter still. He would call the county ordinance office about anything and everything. Anyways, my tenant there decided to take a month long or longer vacation without catching up on rent or calling me, so I started eviction proceedings on them. Meanwhile, the tenant in the double called the city ordinance officials about a supposed leak in the roof because there was liquid accumulating in the hall area, but no stains or anything on the ceiling. I believe that their kid, whom they barely watched, was peeing or spilling something there on purpose considering it was not close to a wall and there was no plumbing near it (one story). They also decided to stop paying rent while I’m in the middle of eviction proceedings on the other house and now that I have almost $1000 in mortgage payments, I couldn’t afford to evict them at the same time. They called someone from the city and the city found all kinds of little things on the double (not the leak of course) that rendered it uninhabitable and I had to pay close to $3000 to get these things fixed or it was going to be condemned. After a couple of months, my mortgage payments starting falling behind and my tenant in the double was still living there rent free. I had completed my contract with the military and was moving out of that state, so I ended up having to sell both properties to get out of this mess. I sold the double as a short sale which destroyed my credit and the house I ended up breaking just under even on. My REALTOR told me that she had to write a check for around $50 at closing just to get the thing to close and break even. I learned a lot of lessons from this experience which is why I stated in an earlier thread that I’m wary of managing my own property now, at least in the beginning, and I know I need a financial safety net before getting involved in a rental to cover probl ems like this. I actually gave a shortened version here because there was actually more to this mess. For one, my tenants at the house were black and both my former neighbors turned out to be racists and I had no idea. This experience has not made me give up on real estate investing, it’s just made me look at things at lot more wisely before getting involved. So far, you are the only mentor out there that talks about this stuff which gives you a higher degree of integrity and genuineness than others, so thank you!

  11. How should I say this? I wish had gone with your program. I went with one of your competition. I liked the idea of HUD homes and I found a realtor who knew the process he even said I was smarter and well informed than most of his clients on HUD homes, he was a very helpful bloke. I found a property and I crunched the numbers but forgot to carry the two, who knows;) maybe my offer was rejected first than accepted by HUD. The person I bought the HUD info from said if after two weeks I had no buyer I could personally use his nationwide list of buyers for properties. I first used my own built buyers list, I also listed it on Craigslist, I had a lot of interest but the most intriguing was an investor who saw the numbers said it was good but cited some ratio wasn’t high or low enough , I can’t remember which, and he said he doesnt invest in properties unless the number of that ratio is correct.
    I saw the house had an ARV of 160K I had it locked at 114K. I went through my checklist and figured 7500 max for partial fence replacement, repainting interior, general yardwork, rotted trim on the fireplace column outside and repaint the column and new carpet. Needless to say I used his nationwide list and had no buyers noone called me. I had to keep calling his office to get updates. My wife backtracked and I didn’t offer a low enough price I didn’t carry that darn 2 so to speak. I lost $1000 earnest money and I got cold feet now for future deals but I wonder even if I had gotten it for a lower price would I have sold it. I guess my moral is a guy who sells a lot of of modules may not necessarily be as customer service friendly after he gets your money. Also what is that ratio that investor was talking about? I also wonder after reading those stories if it was a great deal and they just waited for my time to runout and then put their own bid in later? Thick skin indeed. Thank you for the stories it could have been a lot worse for me.

    • Phil Pustejovsky says

      (1) If everybody already knows about the deal (aka HUD Homes, Foreclosures, Properties Listed on the MLS), and you are the highest bidder, then you are the biggest sucker in the room. You paid too much for the property. Other investors don’t need you to help them bid on HUD Homes. All those investors you contacted to try to sell the deal to, already know how to do that and there isn’t anything special you are bringing to the transaction. The reason you didn’t sell it is because you paid too much. You paid too much because it was an auction, a foreclosure, a deal that everyone already knew about.
      (2) Putting up $1,000 non refundable earnest money is typically a terrible idea. There’s your additional $1,000 lesson on top of the lesson you learned from buying a course from a typical guru.
      (3) The smartest investors are the ones that find the deals that no one else knows about. I personally avoid auctions, foreclosures, listed properties and any other deals that everyone else knows about. However, I LOVE being the one that creates the auction frenzy by selling a property in a multiple offer situation and getting a whole bunch of investors to compete and bid up the price.

  12. Jeff Armstrong says

    Just read your book start to finish! What impresses me is the fact that many of the ‘victims’ in these stories are motivated, intelligent people.

    Scary.

  13. Hello Phil,
    Your first story related to the Earnest Money Deposit, mentioned about how the investor overpaid for the property. In the world of real estate investing, I have seen a number of mobile phone apps and other online services that provide calculators to help properly determine all of the costs associated with flipping a property. Are you familiar with any of these prigrams/apps? If so, would you be able to recommend the top 5 or so, that you believe can be of benefit to a new, and or, seasoned investor, that actually works and doesn’t cost an arm and a leg?
    Thanks!

    • Phil Pustejovsky says

      I have a great training on this topic called, Determining Property Value the Right Way. As you’ll discover from that training, apps and websites and any other technologically based valuation calculators, often referred to in the industry as “Automated Valuation Models” or “AVMs” are rarely accurate. Nothing is as accurate as the human brain (at this point in the evolution of technology) at determining what a property will really sell for. Great question!

  14. Carl Johnson says

    ATLANTA 40 UNIT APARTMENT DEAL FROM HELL
    After reading a book and going to a seminar about high leverage apartment buying in 2005, and my own home had gone up over $300,000 in equity in CA, I thought, why not use this free money to invest only go big this time with a bigger complex, not just a 4-Plex or a bunch of random single family houses. Everything sounded great in the book. So, i started flying around the country trying to find the best deal I could with my money and my college friends money, that saw me do a bunch of deals before. I ended up finding a deal in Atlanta, a 40 unit apartment building that appraised for $2.2 Million that I got for $1.8 million with $400k down. Was $280K from me and $120k from my friend. Mine was equity I borrowed out of my home, his was stocks that he owned. It was 39 rented units out of 40, all City paid Section 8 by the City of Atlanta, and $24,000 a month coming in. It had a positive cash flow of $6000 a month, plus the passive loss in depreciation would offset the active annual income from my painting income of $60,000 a year, as long as I kept them rented. Here is the not investing out of town, not with friends, not knowing what you are getting into part and on and on as your book teaches. Only a few months later did I find out that the water bills were all on one meter, paid by me, the owner, not like electric that was all separately metered for each unit. The water bill was over $5000 a month due to leaks, wrong readings, tenant overages etc, and the seller forged the copies of the bills as I didn’t get copies direct from the water company as I should have. I was scammed and that took all of the positive cash flow out of the deal. The City wasn’t sending my money by the 1st, or the 5th for that matter, when i had a mortgage payment due on the 1st of $12,900. I had a signed contract, but they still just did what they wanted to do. i made a partnership inside a corporation to protect us from tenant lawsuits etc, but my attorney gave no consideration to the IRS rules by creating this type of entity for me vs. an LLC. I had to do monthly accounting reports etc as opposed to an LLC which is considered a Flow Through or Disregarded entity as far as the IRS is concerned, but still gives legal protection from your own assets. So after hiring an accountant and a private consultant in order to be there for me, and tell the City people how to do their job, in addition to the property manager wanting a raise management rates as soon as the ownership changed to me, these were all unexpected expenses. Then I found out that the tour I went on was staged, and I failed to go into all 40 units before I closed as i am too trusting and optimistic. The agent got her $50,000 and I’m left with dealing with an out of state property where no one does what they are supposed to do. Then there was the non disclosed fire that took over the building with repairs not done right.I had to remodel one of the units in order to have an on site property manager, which up until now had been off site. I had to give up income from one unit and $22,000 from my IRA to make that happen with office equipment and phones and procedure manuals etc. Do deferred maintenance and hire a maintenance guy and convert an old store room into a work shop. Redoing street signage and replacing mail boxes and cutting down trees etc. This was closed in January 2006 and 3 months later is when Hurricane Katrina hit. I was trying to sue the former owner for non-disclosure and false water bills and this was before all the mortgage fraud deals came out in the open. No one would help me. The lender knew it was also a phony appraisal done wrong after I hired a consultant to review it. The white collar crime unit of the Atlanta Police did nothing, no FBI cases were open for this type of thing, and the laws in Georgia are buyer beware, whereas in California the DA would have prosecuted. I had a number of things going on beyond my control. Not to mention the thefts, fires, floods, drug use, prostitutes, murders and births happening there as I didn’t just buy a piece of real estate, i bought a community of 122 cry babies with no value system, and I had no idea that there is more to a real estate deal than just looking at the numbers, there is racial, social, economic, political, etc considerations as well. After the police are called so may times at one address, you get red flagged by the DA, who also sent me a letter telling me to clean it all up or they would take adverse action and take my property from me. I had to hire a patrol unit made up of off duty police officers to go there at night to curtail the crime at another $600 a month. The DA was off my back, but shortly after that, I was in the middle of an FBI investigation, as the lead guy I had hired from the police dept, in charge of the team that was policing my units, was charged with murder as they fired upon what they thought was a drug house with bad intel and no search warrant and then shot and killed a 92 year old woman. They wanted to know if this team was extorting money from me as well, which they were not. I had to give up after spending another $13,000 trying to sue the former owner and file Chapter 7 Bankruptcy after the lender who was made aware of the fraud upon me would not help me fight him or rescind the note or take a deed in lieu of foreclosure. The City kicked everyone out upon getting my bankruptcy notice, they burned down the office, and my manager got out just in time with the files and the laptop. The lender sold the property way under market and then sued me for a deficiency judgement as I had signed a personal guarantee on the note that my closing attorney must have slipped in there. My business entity protected against tenant lawsuits but not lender lawsuits. Then the City of Atlanta tried to sue me for breaking the contract and them having to evict 40 families when they were a big part of it all. There is much more to this story, but you get the point by now. Then, after defending myself against the lender, I also had to file personal Chapter 7 Bankruptcy to protect my assets as they won the judgement but then could not collect anything from me. Then, as with many bankruptcies, it is a legal maneuver, but does not really mean you are out of money. In my case I WAS out of money. But the IRS doesn’t care about that. I still had attorney fees to pay and 2 different tax returns to file in order to settle up all the paperwork and get K1s generated in order to file my personal tax returns and losses. I had to borrow another $8000 from my sister to get through all that. You don’t wake up one morning from a bad real estate deal and un-sign things and get out of stuff that you did the day before, like an annulment to a marriage. Once you are the owner, you’re the owner. Another case of it costing more than just money and credit and your initial investment in not knowing all the risks involved. I lost my house in California and then the market crashed in 2008 anyway and I would have lost all my equity if I had done nothing, just as my next door neighbor did, but in the end we both lost all the equity, but i lost my house too. I hope this becomes the worst failure you ever heard about, and that wasn’t even all of the story! Oh yeah, my friend that lost his $120,000 doesn’t talk to me anymore, as you mentioned also!

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