Just got off the phone with clients - a term I am using very loosely for these folks.
They bought an investment property about 30 months ago, with someone else, because their friend-of-a-friend salesperson told them it would break even. They apologetically called me a few months later. They were sorry they hadn't used me, they were trying to help this new salesperson and now they were having trouble with tenants and their new agent wasn't any help. [I looked up the salesperson on the DRE website and saw that he had been in the business 11 months.] These clients knew I did property management so they pumped me for information and help for about 40 minutes before begging off on paying for my services because they wouldn't break even on their investment.
A few months later they called again. They had received the supplemental tax bill and wanted to know why it wasn't paid at the closing. I explained how it worked and when I got off the phone I realized that their break even property was now a couple hundred dollars a month negative.
Tonight they called because they are out of money. They have tapped all their credit cards, one of the current tenants has lost his job and they haven't paid for August. Plus the property is worth about $85,000 less than what they owe on it before title, escrow and sales fees. Now they are shopping around for the cheapest agent to sell it.
Of course, I mentioned that most agents have no experience with short sales, that's why only about 32% of them close before the trustee sale. I reminded them that ALL of my short sales had closed and that their loan is a purchase money loan so the bank won't come after them for a deficiency judgment.
"In essence, you're not paying the fees anyway - why not hire the best?!!"
There was a long pause and they told me they'd call me back. I am not holding my breath.
So, did you catch the four lessons?
1) Taking someone's word on the numbers is like handing your money over to your crazy uncle Charlie. You have to learn to check the numbers yourself.
2) Hire a professional property manager. One months worth of vacancy will pay for 10-12 months of property management.
3) Know what the expenses are up front. Include maintenance, vacancy, insurance, the new tax base, etc
4) Hire the Best! You don't have to do it alone. You don't get an extra gold star. Instead you stand to lose a bunch of money and get a foreclosure on your record.
I feel bad for these people. I am a lot like them. I know just enough about something to get me into a lot of trouble! I have to constantly remember my own advice about using my team if you don't have your own. You need a CPA and an Attorney and a great Realtor - at a minimum.
My gut tells me that these folks aren't quite done learning the hard way. Perhaps this example will help you from learning the hard way, too!
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