Investing Outside of Wall Street – Lessons learned from my mistakes

Recently, we hired a couple of coaches to help us get to the next level with our investment businesses.  With their support, the objective is to waste as little time as possible in our efforts to regain financial freedom.  One of the first things the lead coach asked me to do was to itemize lessons learned from my mistakes as well as successes.

The idea of this exercise is to gain clarity as to what went wrong so as not to make the same mistakes again.  Now that I completed the assignment, I thought I’d share them with you.  They are itemized numerically and lessons learned are shown in bullets:

1. Paid retail.
   • NEVER, under any circumstance, ever pay retail for an investment property.
   • For any buy-and-hold investment properties, monthly positive cash flow must be a minimum of $500 from Day 1 of investment.
2. Made tax incentives for the disaster-hit area as the main reason for buying.
   • When some counties and/or states receive tax incentives due to major disasters, do NOT jump into those areas unless you already know the market inside and out and fully understand the property values. It is highly likely that, for the first several years, real-estate prices in these areas will become inflated, followed by overbuilding.
   • If you wish, watch the market values of those new (disaster-recovery) constructions for several years. When short-sale and/or foreclosure properties start to become available, then and only then start your due diligence for possible investments; and pounce on them when the numbers work for you.
3. Hired a non-CPM company, which was part of the team that was assembled as part of an investing tour.  The team was led by a national speaker from our state to sell these properties in Mississippi.  Note: CPM stands for Certified Property Managers, so designated by the Institute of Real Estate Management, IREM.
   • In retrospect, this small Michigan property-management company, owned and run by a close friend of the leader of the buying tour, did not have any experience managing properties in Mississippi. We incurred nothing but losses every single month for 12 consecutive months straight before we finally fired them.
   • Always interview a local CPM to manage your properties, where they are located, preferably who is also a CCIM (Certified Commercial Investment Member).
4. Hired the tour-organizer’s attorney, a Michigan resident, who was also part of the team assembled to close on these properties in Mississippi.
   • Never, ever hire an attorney who is too close to the deal to close on the deals, no matter what.
     1. First, this is a conflict of interest that I should have seen (but didn’t because we were already working with this attorney on other real-estate projects in Michigan).
     2. Second, when buying a property out of state, hire a local attorney, where your investment properties are located, who represents YOUR interest as a buyer.
     3. Third, get it in writing that the local attorney – and/or his/her firm – will defend your interest if and when something goes wrong with each deal.
   • Do NOT make your hiring decision based on someone being “nice” to you.
     1. Don’t be naive – as I was. It is YOUR responsibility to know – if and when push comes to shove – whether or not that individual is protecting YOUR interest or someone else’s, including his/her own.
5. Let the seller (from whom we purchased the properties) know about my five-year goal to be achieved nearly 12 months in advance. I shared this information with the seller because, by that time, combined with his official certifications (CPM/CCIM), I felt that the seller was a professional and quite trust worthy.  The seller KNEW that I NEEDED to close by 12/31/2009 in order to meet my self-imposed five-year goals.  Despite our request for closing documents to be received a minimum of 48 hours prior to closing, the seller’s attorneys, who were also partners with the seller, did not provide them until the day of closing.
   • Never let anyone know of your internal goals – with a possible exception of those whom you hire with fiduciary duties to you.
6. Not going with what my gut told me. When the closing documents, which were not presented until the time of closing, included documents which we were not expecting to sign, I began to get a very bad vibe from it.  The seller knew that I wanted to meet my goals desperately.  Our attorney, located in Michigan (the one that did not see conflict of interest in anything he did with any of our properties purchased in Mississippi), said this was simply routine and reassured us that this was not a problem.
   • Always listen to your own gut and act on it – even if it means you need to walk away from a deal at the last minute. No self-imposed goal is worth pushing ahead if your gut tells you that something is terribly wrong.

As you can see, on the road to becoming a professional in the arena of real-estate investing, I made a lot of expensive mistakes.  You are probably wondering if I have any regrets.  The answer is, “Absolutely not.”  Why not?

There is a huge difference between what happened to me because of what had happened on Wall Street in 2000 and what happened over the last decade:

1. When the market crashed in 2000 and I lost half of my savings, I had no clue how or why it happened.
   • What happened was beyond my control.
2. With the mistakes I made over the last decade investing on main street USA, as costly as they have been, I can trace back and see exactly what I did wrong and how I ended up making those mistakes.
   • What happened and how I dealt with every mistake I made was within my control, although some of them did not seem to be the case at the time.
   • The biggest lesson has been that if I am willing to take full responsibility for my mistakes, good things happen to me.  Imagine that!

For me, those mistakes represent the rites of passage to becoming a better investor.

Happy investing through lessons learned!