Most people don’t like to discuss the mistakes they’ve made in business.
I’m a little different. I view every error I have ever made as part of my journey of personal growth and financial well being.
The truth is, everybody in business makes mistakes, and the most important lesson to be gleaned from these is obviously to change whatever it is you did and move forward.
If it weren’t for mistakes or errors in judgment, we would never be able to make the fine distinctions to avoid future pitfalls.
And you know what? I prefer to do business with people who have screwed up and admit it. If you’re ever working with someone who says, “I’ve never made a mistake in real estate,” then run as fast as you can from them, because they will lie about other things as well.
This is going to be an “ongoing blog,” as I have really screwed up a bunch of things over the last 35 years of buying houses. I have painstakingly written them all down as they happened so I would never forget the pain they caused me and the excitement I experienced when I resolved the problem.
I believe every step I’ve taken in life has brought me to where I am right now, writing this blog. Life isn’t easy, but it can be exciting when you have an entrepreneurial spirit. Even the bad in life is good once you’ve overcome it. As I look back, my biggest successes came after my greatest failures. You just don’t want to get used to failure, so it’s imperative that we all modify our behavior and change course as the need arises.
Failure No. 1: Buying low-income housing
Even I, the great OZ, can’t make a business and keep my sanity with low-income housing. This type of real estate is not for the faint of heart as it will rob you of your enthusiasm and potentially kill your spirit. It is management-intensive and carries a high cost of maintenance to go along with it.
At one point, I was the largest owner of single-family houses and duplexes in western New York. This also made me a target of political activists and politicians who used their offices and titles to promote their cases as I collected rents “off the backs of the working class.” Translation: I was also the biggest target of potential wannabees and I was constantly being ostracized in the news.
It didn’t matter that my houses were the best on whatever streets where they were located or that we had 93% collection rate, which is unheard of when dealing with the bottom rung of the socio-economic scale. It appeared to be a very good business for a long time, but eventually it wore me out and I left with my tail between my legs.
It turned out that I really didn’t own a business. I had a job that required me to be “hands-on” all the time. That’s not what being a real estate investor is all about, and I became a slave to my work.
New York State is very liberal and has gone overboard on consumer protection, and as a result, these properties seldom increased in value.
I was buying in rental neighborhoods and that, my friends, is not a good business model. The reason properties don’t go up in these areas is because the only exit plan you can have is to sell to other investors.
And the tenants? As I look back I would say 40% of my tenants were great, 30% very good, 20% not too bad and 10% caused 90% of the aggravation.
Section 8 is not my current choice of tenants, but back in the ‘80s and ‘90s, this was about 50% of my tenant makeup.
The lesson for me was, don’t buy low-income houses. Don’t rent to tenants with subsidies. Don’t buy in New York State.
RJ Palano invests in Atlanta. Get more information below.
[hs_form id=”3″]
[hs_form id=”4″]
0 Comments