No one wants to admit that they made a mistake or lost money in an investment but it happens. We learn from our mistakes and do our best not to duplicate them.
My wife and I decided in late 1999 to invest in more rental property. We were living in California. We wanted to expand our investment into real estate. Since I grew up in Pennsylvania, we decided that the market would be cheaper than Los Angeles and offer more opportunity for us, so in 2001 we purchased our first fixer-upper outside of Pittsburgh, Pennsylvania.
Purchase rental property within a 20 miles radius of where you live.
Our first mistake: We worked and lived in California and purchased property nearly 3,000 miles away. We had to rely on strangers to manage our investment and had no idea what they were doing from day to day. We couldn’t just drop in and supervise and were forced to rely on emails, spreadsheets and photos.
Location Is everything
We were not familiar with the area nor did we know anything about the neighborhood; we relied on others. We didn’t realize how important location is when determining your rental investment. We felt that we had purchased into a good neighborhood but discovered otherwise.
Our area was referred to as “Crack Alley.” Several large homes had been renovated and converted into rental units. Some absentee landlords had allowed drug dealers to move into their units, creating an unsavory environment and a high crime community. A few years after we purchased our triplex, a young man was shot and killed across the street from our property.
We had a difficult time finding renters, and once we told perspective tenants the address, they did not even show up for a walk through.
Low Price Doesn’t Mean a Great Bargain
At first the $8,000 we spent for the old Victorian style house seemed like such a bargain until we started spending money to repair, replace and upgrade to bring the rental units up to good condition. We started with a $30,000 budget, and before we were done, we were $60,000 over budget. We spent more money than the property is worth. Property values in our area haven’t changed in the last 10 years, and we spent more than we should have. We won’t be able to get out what we put in when the day comes to sell the property.
You Learn More From Your Failures Than You do From Your Successes
Mistakes are life’s teachings, and if you are an investor, you’re going to make them. The lesson is to make the most of your new knowledge, get advice from experienced investors and then take action after thinking it through weighing the pros and cons. I made mistakes but moved on with the intent not to repeat.