A Story of a Promising Real Estate Investing Business That Went Bad

It’s the middle of the night. From the outside the house, distant from the road but grand and stately in the moonlight looks completely dark except for a feint glow coming from one of the windows on the first floor. There he was staring at the screen of his laptop.  Wife and kids, upstairs, fast asleep.  He couldn’t rest, so there he is, trying to figure it out.  A spreadsheet staring back at him.  He’s a professional, businessman, very successful and he’s trying to figure a way out, but deep down he knows the numbers don’t lie.  “How could this have happened to me?” he thinks.

Almost a year ago to the day, he was in his office, approving another wire transfer.  Making another investment, a small mixed-use property.  It seemed similar to the three other deals he had done in the past several months.  The process was simple – buy, fix, fill it with tenants and refinance.  Pocket the proceeds and move on to the next one.

The problem was that he didn’t know what he didn’t know.  First it was the old water bill that became a lien on the property, then there was a violation from the town inspector that prevented him from starting an eviction against a nonpaying tenant.  By themselves, these were all little things, easily knowable things that could have been avoided, if he knew enough to look for them.  But now, there seems to be no way out.  All of his money is in the two properties he currently holds, he can’t refinance because of all of these problems.  He can’t fix these problems because they require the payment of tens of thousands of dollars in fines, much more in renovations and repairs to clear the violations, and who knows how much to get rid of the bad tenants.

He thought he was covered.  His financial advisor recommended that he add some real estate to his portfolio, but he didn’t say how.  His insurance broker put a policy in place for the property, but that only kicks in if the place burns down (which he thinks, doesn’t sound like a bad option right now). The lawyer seemed like a bargain – $750 for the closing, but that only included the closing – making sure the deed was delivered to me, his job was done.  The construction crew was great – complete rehab of the properties done in three weeks, but they just did the work, I didn’t know to ask and they never offered to pull permits. He thought he knew it all – he’s a smart guy, graduated at the top of his class, MBA, great job, and spent thousands on real estate courses to get educated on the business.

So now he has a mess, and he’s in a jam.

If only he had a trusted guide, someone who had done it and could have helped him avoid these mistakes.  There was the guy at the local real estate investors meeting offering turn-key real estate investments. He seemed very experienced, but something wasn’t right – it seemed too easy, and how was he getting paid?  The whole thing screamed Ponzi scheme.  Then there were the real estate agents with the market  forecasts and the stories of the buildings just like it  that were selling for twice what I paid for mine.  Very knowledgeable, but again, seemed in it just for themselves – once I closed on the sale, they got paid, and I never heard from them again.

Back in bed, he still can’t sleep. His spreadsheet was telling him it will take years to get out of this mess, all the while his money is locked up in these properties.  He’s taking another day off work tomorrow to deal with these properties.  He’s not sure how much he’ll be able to do that going forward – he’s got a great job, and it’s the only thing keeping him from financial ruin right now.  The alarm clock rings, it’s morning the flashing lights in his head scream – SELL, SELL!

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It Could Have Easily Turned Out Differently.  This is a story I have seen play out in one form or another countless times.  The investor with dreams of making it big, getting lucky for a while, only to get caught in a tangled web that threatens the very fabric of their financial independence that made them want to consider real estate in the first place.  They usually get out, at significant cost and go on to working their jobs and investing in mutual funds.  It didn’t have to be that way.

In many ways real estate is the wild west of investing.  Regulations in place to protect investors of stocks and bonds don’t exist in real estate.  That’s not to say there are no rules, but the rules are often skewed against the investor in favor of public safety and tenant protection – the “greedy” investor is the bad guy.  The players in real estate, for the most part, all have dollar signs in their head, and they’re all in it for themselves.  There’s two sides to every trade – a winning and a losing side.  Often the experienced players in real estate prey upon the newbies who end up on the losing side of the trade.

For these reasons, and others, little problems in real estate can quickly become financially lethal.

I’ve seen these problems over and over again through the years.  I’ve also seen the investors who make it big and become wildly successful investing in real estate.  Yes, there are plenty of people making a killing in real estate, returns that dwarf what they would ever see in your standard mutual fund.  What’s more is, unlike the stock market where an investor is at the whim of unseen market forces, insiders and luck, the returns in real estate can be predictable, controlled and infinitely increased by the investor.

I’ve also done it myself, turning $100,000 in savings into a multi-million dollar real estate portfolio that continues to grow, that promises to provide for my retirement, and that gives me the freedom to do what I love most – being an attorney representing investors looking to do the same thing.

A Proven System for Success.  There are common traits and tactics among these successful investors. I’ve documented these tactics and I employ them every day using tried and true systems and processes for a select group of active reals estate investors.

Start to finish, these processes provide our investor clients the best chance of success.  We cover every legal aspect of their real estate business to keep our clients safe, that’s what we do best, and as a result our clients are free to focus on the things that they do best – like finding deals, analyzing them and employing capital.  Other than the proven processes and our experience, what makes us different from any other professional our clients might work with in their real estate business is:

  • Undivided Loyalty. For us, it’s about the client. We’re guardians of our client’s success. If they succeed, then we succeed with them. Our clients never question our allegiances because we are bound by a duty of undivided loyalty to them as attorneys and because we believe in what they’re doing.
  • Crystal Clear Judgment. While we are invested in our client’s success, we never invest in or profit from our client’s deals other than the flat fees our clients pay us. This is intentional – we keep ourselves one step removed from our client’s investments to make sure our judgment is never clouded by financial motives. If a deal doesn’t look good for you, we won’t hesitate to say so.

We’re serious about keeping our clients safe, and getting them to the next level faster, and so we limit the number of people we work with at any given time.  We welcome new clients who we believe we can help and that are otherwise a good fit for working with us.

So if you are an active real estate investor or looking to become one and you’re interested in having an experienced, fiercely loyal team with a proven system for success on your side, then call us at 631.669.6300 and ask to be put on my calendar for a brief ten minute introductory call so we can discuss your plans.  If we think you’re a good fit for our practice, we can give you more information about working with us and schedule an REI Strategy Session to get into specifics.