Epic Real Estate Investing - Matt and Matt's Biggest Holding Horror Stories | HTH 018 | 546

Episode Date: December 19, 2018

Today, we are telling you about the disasters that could have broken our real estate ambitions, but which instead taught us that one can triumph even after losing half a million dollars. Likewise, most real estate investors are holding horror stories that have affected them or their businesses. Listen to ours and learn how we were able to get through them, what we learned in the process, and how to identify those weak points in your business. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Don't wait for appreciation to buy real estate. Buy for cash flow and wait. In other words, Hold That House. Your host's Matt Andrews and Matt Terrio. Yes. Hello.

Welcome. Flipping houses. It can make you rich. Holding them will make you wealthy. And that is what this show is all about. This is the Hold That House. show. And I am Matt Terrio, and over there is Matt Andrews. Who loves you very much? He does. And before we begin, you know, we love you so much. We've got a

free gift for you. Go to hold that house.com and download the four-hour work month. It's the 10 commandments to managing property managers, really the essence, the key ingredient to financial independence through real estate that no one never really talks about until now. And you can get that for free at hold that house.com. So go there. It's free. No strings attached. It's yours. You got it. What's free these days that's actually worse? Something. This is pretty much the only thing. Yeah. Yeah. I think so. It's the only thing out there. And love. Love is free. But not always. Not always. It depends.

I remember money can't buy you love, but it can buy you chocolate. And that's like the next best thing. So, all right, moving on. What's your wife loves. And so that gets you love indirectly. Exactly. Exactly. That works. All right. I'm glad we turned that around real quick because we were going down a funny path. We were. That was no good. rewind. It's like that bell can't be unrun. Can't get that toothpaste back in the tube.

Are we recording this? Yes, we are. Oh, okay, cool. Okay, you ready to start? All right, let's go. Well, let's talk about, I want to talk about, you know, we have this 10 commandments to managing property managers. So these are valuable lessons that we've learned over the years.

But let's talk about, say, your most expensive lesson that you've ever learned. You're the biggest horror story that you've got. And then let's kind of talk about after that what you've done to prevent that from remember happening again. Wow. There's so many directions I could go here because I've got a couple of horror stories. Probably my biggest horror story. Let's go the biggest one. We're going to be here for a many years to come. We can always talk about the others later. Well, then I'm going to tell you, I'm not going to tell you the one where I lost the most money. I'm just going to tell you the true biggest horror story. All right. And so here it is. This wasn't the one where I lost the most

money. I didn't make good money on this house, but I certainly didn't lose my shirt on it. But I was starting out in real estate investing. This was my third house. Okay. Those of you that listened to this before know that I made almost no money on my first one, on my first rehab and flip, right? I didn't know what I was doing. Second one, I got a little bit better. The third one, I bought really, really well, but it was in a rough, rough neighborhood. Okay? And quite honestly, I didn't know what I was doing.

The first couple houses that I bought and flipped were in, you know, kind of upper blue-collar neighborhoods, you know, not a million-dollar properties by any means, but nice properties. You know, properties you wouldn't have been afraid to walk. And after the sun went down, right? Well, this new property that I bought, you know, as still a novice real estate investor, you barely wanted to walk through this neighborhood in the daylight, even with a police escort. Got it. It was pretty rough. So I really didn't know what I was doing.

I didn't know, you know, I just didn't know what I didn't know at the time. So I bought a house and it was, like I said, in that rough neighborhood, I bought it and then I went on vacation. and I let it sit did nothing to it for about two weeks okay so bought it I was gone for two weeks I came back

and you know the place was trashed I knew it was trashed when I bought it so I thought hey what could what could go wrong with it while I'm gone so came to the property had a friend of mine with me and he was going to do some work for me

another bad thing don't hire your friends to do work for you right still didn't know that at the time we're talking 2001 I think so we walk into the property and it just it's first of all smells terrible I mean it smells like sin I mean it's it's so bad that I had to like literally like wrap a shirt around my face just like holds you know hold my nose and not breathe in whatever was in there and so I thought it was just you know

old food and that kind of thing so we're stepping around and there's just their clothes everywhere the windows were all boarded up so it's not it's not light inside right I just walked in so it's still dark even though it's during the day it's still dark I'm walking around. There's clothes and just junk everywhere. So I'm not even stepping on carpet. I'm stepping on layers of stuff. Stuff, right.

On top of the carpet. It feels like a moonwalk. You know, like so everything is soft and squishy, you know. And so I'm walking along and I hear a thud. Oh. I kind of step into it. Boom, right?

I'm like, whoa. What was that? Mm-hmm. And I thought, is that a dead animal? I think it's a dead animal. So I kind of touched it again with my foot. and then I kind of were moving my foot down. I'm like, well, this is a big animal.

Big animal. It's just like that big dog that died. That's what I'm thinking. And then I pulled back, you know, I had my phone with a light on it, right? The early phones. So there's not much of a light, you know what I'm saying? A flip phone, I think it was. And I pull back, you know, like some newspaper and some stuff.

And it's a person. Oh, my goodness. And they're not moving. And I'm like, I couldn't even move for a second. And I was like, oh my gosh. And I turned to my friend Jeremy. And I'm like, dude, this is a person. And we froze.

We didn't know what to do. And I'm like, let's get out of here. So I'm scared to death. I'm getting scared right now just thinking about it. I was freaked out. I can see you. I saw your posture. Yeah, yeah.

I was freaked out. So we walk outside and I call the police. And I say, I think, think there might be a dead body in a property that I just bought. I've never made this call for. I'm like, do I call you about this? I don't know. If somebody had broken into my house and they were living there, yeah, sure, I call you, but do I call you about this? And they said, well, we'll come out and check it out. Right. So stood in the front lawn and just waited for them, took him a while to get there. They finally got there. They go inside. They check out the situation. And they come back out. And they said, we got good

news and bad news. Oh, boy, there's good news here, huh? Good news and bad news. Like, which do you want first? I'm like, the good news. And so they say, good news is,

is that you were right. It is a body. And, and, well, that wasn't really the good news. That was the bad news. That was the bad news. You were right. It is a body.

Here's the good news. it's not dead. Oh my God. It's almost dead. And I was like, what? What does that mean? So they explained to me that this person had probably been on drugs, had overdosed in this house that I bought, right? And then the ambulance comes and they pull this person out.

And I could barely even watch the whole thing. It turned out that this person had literally overdosed on drugs. was too weak to move or get up or whatever, had been there for a while, probably the whole two weeks. Wow. That I was there or that I was gone or a week or so, you know? And this is so gross.

I'm just going to say it. Their leg was like, uh, lacerated in some way. Mm-hmm. And there were, and it had gone gangrenous. Uh.

And there were maggots. Oh, my God. Inside this person's leg. This is a real horse. This is like an X-R-ROM. This is like X-rated, yeah. I was looking for just a bad deal with lots of money. I know, exactly.

That's what I said. I'm going a whole different direction here, right? So the good news after that, there was more good news later. They lived, okay, which I followed up on it because it was just like, I don't know why, but I felt, I wasn't responsible, but I just, I had to know, I hope this person lived. And they did, they did live. I didn't follow up with them, don't know anything about them or whatever, don't know what the situation. They're not a tenant now. They're not a tenant now.

Well, they might be. I don't know. I didn't get a good look at their face if they got it together and could pass a background check. They might be a tenant now. I don't know. But that freaked me out. Now, did I make some big giant mistake that led to that? Not some big giant mistake.

Did it lose me a bunch of money? Not really. But I did lose control of that property for that two weeks, right? Which allowed someone to break in there and live there. And that could have been way worse. Was it confirmed that they moved in while or they broke in while you were on vacation? Or did it have come that way? Because I'd been, no, I had been through the property before.

I walked through it before I bought it. So, I mean, I was used to stepping on all the stuff. So I knew the shape it was in and everything. Okay. You know, I just hadn't been there in a couple weeks. And probably a few people could have broken in and lived there. I mean, there's a lot of squatters in that neighborhood. You know, it's kind of par for the course out there.

A boarded up property that was obviously just sold. You know, so that happens. And so people target properties like that, you know. So, yeah, so they had most likely, you know, probably been sleeping there for a week or something like that. when something went wrong and had some kind of, you know, intravenous drug use. And one thing led to another. And they were, the way the cops described it, 90% gone. Wow.

You know, hanging on to life, but they lived. Well, that's goodness. That's the story about the time that I found an almost dead body. And I always think about, you know, like that scene on Prince's Bride with Billy Crystal where he's like, he's not dead. He's mostly dead. And that's what this person was. So, you know, I didn't lose a ton of money. I didn't make a bunch of money.

But it was a horror story. We'll be back with more right after this. Your portfolio has seen better days. But this too shall pass. And the best for you is yet to come. Together, we'll get you there faster. We're turnkeyallies.com. And we'd like to share some information with you

that will show you how you can take control of your financial future and accelerate its arrival. Go to turnkeyallies.com. More building. Less waiting. Turnkey allies.com. Okay, so let's get a lesson from this. Knowing what you know now,

if this, or knowing what you know now, what would you have done differently? So today, the day I closed on that property, my property manager would be there or my construction crew would be there, right? They would pull off all those boards off those windows. They would probably be working on the entire time I was on vacation, right?

It didn't require me going there. But at the time, I didn't have a system. Right. I didn't have a system in place. my system was, hey, I got this great property, and now I'm going to sit on it for two weeks while I go do something else, and then I'm going to come back. That property should have been punched out and ready to rent by the time I came back, two or three weeks later, right? So the lesson was, have a sense of urgency, Matt. You know, and I'm talking to myself, not you.

Have a sense of urgency. Realize that every day that you are not actively pushing an investment forward, you're losing money and also might be opening up to dead bodies that could be an house. Right? So that was the lesson there. So now when we close on a property, I mean, boom, my manager's there that day. Sometimes it's like, you know, they're like waiting to open that door and go on there and just waiting for the final word that the papers are signed and then boom, they're in there. And we punch things out in a week now, two weeks, you know, max, depending on how it is and, you know, what kind of shape it's in. So, you know, I have a better sense of urgency now. I have a process now. And most importantly, I have a process in place that takes place without

me. So, you know, the last few weeks when I was, you know, out of the country, and with my family and, you know, having some fun, there were still construction crews fixing up properties on my behalf. There were still property managers in multiple markets making my property's cash flow. So I was making money while I sleep. I didn't have that set up then.

You know, I was a very unsophisticated investor with no process. Right. So that's what I learned. Got it. Love it. Love it. So tell us about the first almost dead body you found.

No. No dead bodies. Okay, good. No. Good, good, good. I'm trying to think. I don't think I've ever seen a dead body. I saw one squirting blood.

out of his chest before. That was nasty. And I saw someone... You were in the military? No, it was actually a... That was down the street? I was at a concert. And I saw someone get stabbed.

That was a... That was a different podcast. That's a different podcast. Yeah. That was kind of scary. I think I was only like 19 at the time. 19, 20 years old. That's pretty freaky.

That was pretty crazy to see blood spurt. Yeah. All right. Let's go back. That's the different type of horror story. Okay. This is a money loss horror story. Okay.

This is a mega loss. money, or yeah, mega loss of money horror story. So when I first started my turnkey operation, we did to launch

our business, we offered guaranteed rents for the year. And that worked really well. A lot of people took it, took us up on that offer. Yeah, sure. And I'm sure they would.

For sure. Yeah. Right? And we did very well and we built a business and things were thriving. We had happy customers. Everything was going great.

And in one of our first markets, we, I think, We owned personally, we owned 20, 25 properties there, and we probably had another 60 or so properties that were owned by our clients. And so we had, you know, we'll just say 80 properties in this area. So you knew that market pretty good. Oh, yeah, we were doing very well there.

Everything was performing. We had a couple hiccups that you always do in real estate. But generally overall doing very well. And all managed by one property manager. and this one property manager went out to show a property. I can't remember if it was our property or not. But went out to show a property at dusk at nighttime. And it wasn't in, I guess, a great area or something.

Because he was basically robbed, mugged, and shot and killed. Wow. And that was a really tragic moment for us because we really liked him. And it was very sad. And, you know, it messed us up. up for a minute. Sure. But while we're dealing with our emotions and the loss of a friend and we're mourning

about this business partner that we had, we had a bigger issue, actually. It's sad to say it was a bigger issue. Well, maybe that's not accurate, not a bigger issue. He was very close to us. But what we had was an actual problem. We had to deal with. We had to push our feelings and emotions aside. You had a responsibility.

And that's what made it really a big deal, is that we had to kind of ignore what we were feeling. We had to act fast. We had no time to mourn and take it easy. That we have these 80 properties that have no property management. And they are halfway across the country. And with these 80 properties, 60 of those have guaranteed rents on them. And, you know, I don't understand this, but when the tenants got wind that the property manager was no longer with us, they decided they just didn't want to pay rent anymore.

and we've got guaranteed rents on these properties. And so our clients were calling us, we didn't receive our rent this month. We tell them the story, and they were sad for us. They said that's unfortunate, but these rents were guaranteed, so where's our rent? And that was the common response that we got.

And we couldn't blame them for it because that's the promise we made them. So we had to keep our promise. So that first month, we started writing checks while we were diligently trying to find a replacement property manager. Wow. And we found it relatively quickly. And, you know, we probably skipped some steps on hiring our property manager how we'd normally do it.

Your back was against the wall. We're back was against the wall. We needed a solution. Sure. And they came in with confidence that they could take it over. And they did. And they were a good property manager. But what happened was they weren't prepared to take on 80 new properties.

And it takes a while to make that transition. And it takes a while to convince the tenants that. that there is a new property manager here to take rent, especially after they already got away with one month of not paying rent. And then it probably took another two months for the property manager to get around and talk to all of those tenants. It's a lot of units. So there's three months gone by that we're writing guaranteed rents to our clients.

And probably two months later, they probably got about half of them secured and half of them back up to performing, but we're still writing guaranteed rents on the other two or the other half. And then they actually went out of business. they couldn't handle the load. And here we were again with 80 properties unmanaged. And this guy stepped in and he actually used to be good friends with our previous manager that was killed.

And he said, don't worry, I got this. I have the same type of business. I got the playbook. I'm going to whip all this into shape and you're going to be just fine. Give me 30 days and everything's going to be great. And at that moment, that's what we wanted to hear. And so we went with it. Sure.

And so after a month, it wasn't whipped into shape. And after two months, it was still not whipped into shape. And we're still writing these checks. And so we're about probably $400,000, $350, $400,000 in writing these checks, along with fixing up the properties and doing the repairs because it just, it went to chaos once it got wind that there was no property management in town. You know, when the mouse or the cats away, the, the, the, Mice were certainly playing. And so that was a very, very expensive lesson for us to learn. You would have rather had my horror story than yours.

Yeah, I think so. I think so I could have dealt with it. Less expensive. Blood and maggots, though. I don't have a strong stomach for that, but I still think it would have been a little bit easier. People are listening to the podcast are throwing up right now. That's right. Yes.

And so we had to fire him and go find another one. Thank God third time was the charm. And that property manager whipped that whole area into shape. and eventually got all of those properties performing, producing, and maintained again. And we are eternally grateful for him. But this was two and a half years ago. And we're still feeling slight ramifications from it. Like it's reverberated far and reaching.

And it's got to a point where I can't even calculate how much that cost us. You know, I was just telling you today that we're picking up seven. We're going to Cleveland tomorrow and we're picking up seven new properties. And these are the first seven properties. I've purchased in about a year and a half because we've been so... For your personal... For my personal portfolio. Because we've been so wounded by this situation.

And so that was a very, very expensive lesson. And I would say easily a half a million dollar lesson. Wow. And that's the kind of lesson that would pretty much have a lot of people completely out of the business. Totally. And it's a testament to what you've created and that you have diversified in these other markets. That's why you're here to... That's why you're still operating.

That's why you're still, because I've looked at your business lately, and it's, I mean, it's thriving. Right. You know, you are, I mean, for lack of a better term, you're killing it in the markets you're in, you know? So that's a good lesson to be diversified in other markets. What if you were only in that one market? And what if that was the only deal you were working, you know? A deal that if it all went great would make you tons of money, but then that turned like it did. Well, that was our, you'd be out of business.

That was our very first market that where that happened. That was the first market? Yes. You were, so you were able to weather it. Wow. We were. But we had to expand

to create income from other markets to pay for this market is how we were able to get through it. So let me ask you this because this is a good lesson because a lot of people would fold up and die

right at that point. Right. Like, you know, figuratively speaking. What were you thinking when that happened? Because that obviously spurred you to, I'm guessing if that was the first market

you're in, you're in 10 now. So, I mean, you went into action which created mass of growth pretty quickly for you. You know, what was it that you thought then? Because there's two ways to go, right? I mean, a lot of people would literally just fold up and be done. You went the different direction, went to the wall.

Right. And blew your business up in a good way. So what were you thinking that? What made you take action and do that? Why did you not just go home and get a safe, secure job and start there and just be easy, you know, have the easy, you know, the quote unquote easy life, right? well, first of all, I know that easy life doesn't exist. That's first of all.

Second of all is I've already started over once before in life, and I ended up, I was back in groceries. Didn't want to go do that again. That's one of the things that keeps me going forward is that I ain't going back. Yeah. Right? And so there is that. And then the big epiphany I had at that job when I was having this huge pity party

after the music business, I had realized that no one's going to do it for me. If it's going to be, it's up to me. And so that was it. I just had to create a solution. I had to move forward. And I still believe in real estate. You know, just because, you know, a property manager had an unfortunate circumstance. It doesn't make real estate bad.

Sure. It's just I got a challenge here that I got to conquer and that I got to solve. And so that's really what kept me going. I kept everything in a perspective. Like business was going good. I just have to go make some more business to compensate for the business that I'm losing in this particular market. Yeah. So when you talk about diversifying markets, and it was a big eye-opener because what put me out of business in the music industry was I had one distributor.

When that distributor went under and stopped producing the way they were producing, I was out of business because that was my only stream of income. Sure. So I was like, okay, so I need to learn that lesson. I need to eliminate all single points of failure in my business. So not only does that mean diversifying my markets. Not only does that mean diversify my property types. It means diversifying my teams, specifically my property managers. So now in all 10 of our markets, we have at least two property managers in each market.

Some of the markets, we have three. And so we are very sheltered, or not sheltered, what's the word I'm looking for? We're protected from that. They're hedged from that happening again. Right. You have understudies in place. Yes, yes. And so, and we have had some issues with other property managers.

We're not, we don't always get it right the first time. But because we had another property management in that place, it was very easy for us to remedy that situation. Sure. To go ahead and let that person go, get our properties over to a safe environment, find another property manager in case it should happen again. Sure. And most likely, most people will never go through a catastrophic event.

Like you went through with that property manager and that terrible thing that happened. But it's very likely that they will have a property manager that at some point is not doing the job they're supposed to do. Right. And they've got to get them out and put somebody new in. If you don't already have that person in place or at least don't have a plan in place for how that happens, then you're looking at two, three, four months of kind of, you know, stepping back and having to start over again. Right.

So that's a great lesson for us all to learn. You need to hedge against that, whether it's something catastrophic that happens or just the very, you know, the much more likely scenario of a property manager and just not doing what they need to do. So you need to quickly get them out and put somebody in. You know, so that's a great lesson. One thing, I think I mentioned it here maybe several weeks back, watching an interview with Mark Cuban. Yeah.

And he had said, he goes, I want you to look at your business. And imagine that you are your competition. How would you put yourself out of business? And I think everyone should step back in that, regardless of what business you're in. But this is a real estate show, so particularly with your real estate. Sure. How would you put your real estate portfolio out of business? How would you crush your real estate portfolio?

and you identify those weak points in your business, and now it's time to get to work to start, you know, strengthening those weak points. Absolutely. So you're not at, you know, one bad property manager or one bad situation or circumstance or one bad instance of turning your whole world upside down. And so that's, you know, eliminate all single points of failure.

That was the big lesson that I got from that. Absolutely. Absolutely. And now, if that happens again, well, I don't think that will happen again. But if you have a property manager that, stops doing the job, flakes out on you, moves to another country, suddenly, you've got somebody you can plug right in there. Easily.

That's not even a concern. I don't even lose sleep over anymore. You don't even lose a step. No. Right? Nope. Yeah. We'll go ahead and the transition is easy.

Absolutely. We got that playbook. Yeah. We spent a lot of money for that playbook. Exactly. But we've got it now. So we're prepared. And that's one of the commandments that touches on that, one of our ten commandments, right?

That's right. That's right. That was a lesson that cost you thousands and thousands of. thousands of dollars. It's incalculable now. Yeah. Yeah. I mean, that's just the money side of it.

Not to mention, you know, the stress and the toll it took on you, right? And I see people talk about the rich dad. That's not happening again. The rich dad poor dad education. They talk about $100,000 want to rip off. And I'm like, no, that's a deal. Because, you know, the education that you can, the tuition that you pay out there in in the real world sometimes can be far greater than that.

So anyway. Not that this is a rich dad show, but I'm a big fan. Anyway, that's it for today. Those were our horror stories. That's enough. And those are the lessons that we learned. Those are the lessons that we're sharing with you. So we're going to be back next week.

We're going to talk about our best deals ever. And we got many more of those stories than we got horror stories. So flipping houses that can make you rich. Holding them will make you wealthy. We will be back next week with good stories, many more of them. And until then, remember, don't wait to buy real estate. buy real estate and wait Hold that house

Contrary to popular belief A lack of funding is not the biggest barrier to starting a business It's excuses, but don't let a lack of funding be your excuse. We are Epic Fast funding and we'd like to fund your business with up to $150,000 in revolving credit lines

If you've got 60 seconds on a solid credit score you could have access to your funds in as little as seven days. Go to Epic Fast Fastfunding.com to fill out our 60-second application. It's fast, it's simple, up to $150,000 in as little as seven days. Go to epicfastfunding.com. This podcast is a part of the C-suite Radio Network.

For more top business podcasts, visit c-sweetradio.com.