| What if you were able to buy a decent two | | | | the bank took the house and dropped the price. In |
| bedroom home for about $30,000, fix it up a little | | | | the end, that is exactly what happened. "I gave the |
| and put it on the market for $80,000? Do you think | | | | house back to the bank," the old guy told me one |
| you could make some money that way? This is the | | | | day. |
| story of a man who lost it all that way, followed by | | | | A Few Real Estate Lessons |
| a few lessons to be learned from his sad tale. | | | | I like this story because my old neighbor did so many |
| The story takes place in 2002, in a mountain town in | | | | things wrong. This makes it a great teaching story. |
| Montana, where the last of the good jobs had left | | | | Often real estate success consists as much in |
| town twenty-two years earlier when the copper | | | | avoiding common mistakes as knowing intricate |
| smelter closed. It is a beautiful town, but the resulting | | | | techniques. Here, then are some of the mistakes he |
| economic decline caused a population decline of more | | | | made. |
| than 30%, down to about 7,000 or 8,000 people. My | | | | 1. He had no plan. He had only a vague idea about |
| wife and I bought a great little house there for | | | | what he would do and how much the home would |
| $17,500, so home prices had obviously tumbled along | | | | sell for. |
| with the population. | | | | 2. He had no idea of how to value a house. If he had |
| A neighbor, at eighty-years-old, decided to become a | | | | compared the home to recent sales (like our $17,500 |
| real estate investor. He bought the house next to us | | | | purchase next door) he would have realized that the |
| for around $30,000, and borrowed more from the | | | | most he would get for the home was probably |
| bank to fix the place up. Given the price of our own | | | | around $30,000, if that. |
| home and the fact that this other house wasn't | | | | 3. He had no concept of his market. This was a two |
| nearly as nice, I wondered if he had overpaid. He | | | | bedroom starter home. Buyers for these homes are |
| seemed sure that he had a good deal, though and | | | | not looking for a fancy fireplace. |
| could make some money. | | | | 4. He had no contracts or firm quotes from |
| As the weeks went by, he did get the place looking | | | | contractors. He let them find as much as they |
| better. He put in an incredible fireplace, and new | | | | wanted to do and charge him by the hour. |
| carpeting. The electricians worked on the old wiring | | | | 5. He didn't get an inspection. Had he gotten the |
| on and off for a long time, always finding something | | | | home inspected, he might have had some idea of |
| else that needed to be done, and then taking their | | | | how many problems it had, and how much it would |
| time doing it. The old guy was paying by the hour, | | | | take to correct them. |
| with no contract, of course. The heating system | | | | 6. He didn't understand the concept of return on |
| needed replacing, at which point our neighbor | | | | investment. Even if buyers liked the fireplace and |
| mentioned, "I didn't know the house had so many | | | | other features he put into the home, these features |
| problems." At some point his enthusiasm started to | | | | probably increased the value less than what they |
| fail. | | | | cost. |
| His bank account started to fail too. Eventually he | | | | 7. He didn't have enough money or financing lined up. |
| admitted to me that he had over $65,000 into the | | | | This was a fortunate mistake, perhaps. Since the |
| place, but still seemed certain he could sell the home | | | | project was doomed to fail, it may have been good |
| for $80,000. I politely nodded. It was too late to say | | | | that he ran out of money. |
| anything anyhow. He didn't even have money to fix | | | | Why not learn from the mistakes of others? As a |
| up the rusty iron fence around the house. In fact, | | | | side note, we selectively put $1,900 into our home |
| from the outside, the appearance had hardly changed | | | | there for a total investment (with purchase price and |
| at all, since all his money went into the interior. | | | | closing costs) of $19,800, and sold it for $28,000 four |
| The sign went up, though I am not sure why the real | | | | months after we bought it. We might have been |
| estate agent wanted such a listing. Perhaps it was | | | | lucky, but we also avoided some common real estate |
| with the hope that he would maintain the listing when | | | | investing mistakes. |