Tom & Nick Karadza have shared a story of a real estate deal gone bad and the life lessons learned in the process. I liked it so thought I would share an edited version.
Our family had purchased a $750,000, three car garage, 4,400 square foot house to “flip for profit” in Mississauga only to have its value fall several hundred thousand dollars within a year. (Early 90’s)
Interest rates went up multiple percentage points at a time. We couldn’t sell it and rented it out for a monthly loss.
Our real education around real estate had begun.
The Lessons…
Over the next ten years we learned how to manage property. And many of the lessons have served us well but at the time they were bitter pills.
1. We learned that you can’t trust tenants. Sounds harsh and isn’t the type of “positive thinking” that we prefer. But its practical thinking and it’s the truth. We had executives rent that house from us who skipped out on last month’s rent … literally moving out in the middle of the night with their baby grand pianos and Persian rugs.
Today we hope for the best with all our tenants but plan for the worst. We hold back extra cash to cover several months of vacancies – even with tenants who are great people and have great jobs.
We believe our tenants are good people but even they have unexpected things happen to them. They may not have planned to change their behavour but their own personal reality can turn upside down overnight.
2. We learned that sometimes your friends … aren’t. Sheesh, how bad does that sound? A close friend to the family was a Realtor who was partially involved in finding those tenants who fled us a brand new place to rent. When we asked where the tenants were, so we could go after our losses, they denied to help.
3. We learned that there’s no easy money. Compared to working the construction business, flipping property seemed easy. Well, we learned that easy money doesn’t exist. It’s funny how after running a “real” business we fell for the hype of making “easy money”.
4. We learned to trust and believe in ourselves. We learned how to advertise and rent out property. We learned about leases and the laws in Ontario. We learned to verify employment and get the addresses of tenant’s employers. We learned to build up cash reserves and to under promise and over deliver.
5. We learned that no “theory” could have taught us as much as real world experience did. You can spend years reading books, attending seminars, researching and preparing but you’ll never have 100% of the information you’ll need. No two environments or properties are the same. It’s the same reason that 100% of MBA’s don’t go on to start or run successful businesses.
We sold that property about ten years after it was purchased and about 9.5 years after we had planned to.
But luckily we survived and learned some very practical lessons for our next property purchases along the way.
How to analyze better. How to invest to control risk.
And we learned some surprising lessons that had nothing to do with real estate … that have proved to be the most valuable lessons of all.
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