Ashley:
Everyone loves hearing about the deals that worked, the burrs, the home runs, the ones that changed everything, but nobody talks about the deals that quietly drain your bank account.

Tony:
So today we’re doing the opposite. We’re breaking down deals that we actually lost money on, and we’ll walk through what went wrong, the red flags we missed, and what we’ll probably never do again if we were rookie investors.

Ashley:
This is the Real Estate Rookie podcast. I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson. And with that, let’s get into the episode for today.

Ashley:
So Tony, I thought today would be a great episode to talk about a deal I just lost money on, and it’s actually the first deal that I have lost money on. And I say this with some disclaimers, as in I haven’t sold a ton of properties. I’ve only done four flips, I think, and two, or with a super experienced investor. So two, were really only on my own. So I don’t have a larger frame of properties that I’ve sold. So maybe down the road there will be more losses when I actually sell a property, but yesterday I just closed on my first bad deal. So I thought we could use this as a therapeutic session to talk about the emotional damage, the financial damage, and the lessons learned moving forward.

Tony:
Before we jump in, Ash, I just want to frame for the listeners, is a deal automatically a bad deal if you lose money on it? Or is there a scenario where you maybe lose money on a deal but it’s still a good deal? Just like from a theoretic standpoint, like strategic standpoint, do you feel that there’s a scenario where you could lose money on a deal, lose money on a transaction, but in your mind it’d still be qualified as a good deal?

Ashley:
I guess if I got tax benefits from it, maybe if I looked at my tax savings and it kind of actually balanced out even though the deal sold at a loss.

Tony:
And I don’t know if there’s a right or wrong answer to that, right? It was just as we talk about this, I’m just trying to make sure that our Ricky’s going to it with the right frame of mind. And obviously as host of this podcast, we’re never going to encourage someone to step into a deal where they’re actively losing money. But I think there is one scenario that I can think of, and this is maybe more so specific to my niche, but it can actually probably be applied in maybe a few different scenarios. One scenario is if you buy a short-term rental and your primary goal on that property is not necessarily to generate cashflow or even get the tax benefits, but just to maybe subsidize the cost of owning a vacation rental and a place that you truly like to go. I know folks who want Lakehouse and they grew up on the lake house, their grandparents had a lake house they went through every summer and they spent a lot of time there. And it’s so expensive where maybe it doesn’t make sense. We’re not going to be cashflow positive, but I’m fine contributing a little bit of cash towards this deal because in the grand scheme of things, it’s still cheaper than if I were to continue just to vacation in that market. I’m still getting the benefit of having that. I think about you and the deal you did with your sister or even someone that’s going to be looking like to house hack.

Ashley:
I think that is a great example that you gave. I think I’ve looked at it, I’ve flipped the mindset on that because I did buy a lake house going to rent it out a little bit, but I’m definitely not making money on it. But I looked at it not as this is a deal I’m losing money on, I looked at it as more of this is a property that I am saving money on instead of not renting it out at all. I’m getting into the property for less money because I am able to rent it out. So I guess it’s two different ways of looking at if you’re looking at it from a business standpoint, yeah, it’s not a great deal, but if you’re looking at it on a personal level as in this is offsetting some of my costs, this is a good deal to me compared to a property that I couldn’t rent out at all.

Tony:
And you kind of hit on the second point I was going to make as well is like if you’re doing maybe something that’s similar to a house hack where you’re getting some sort of utility from it, I know a guy who’s actually my trainer for my first fitness competition and he had a house that instead of turning into a rental, he let his aging parents move into it. And again, when you think about investment wise, he’s losing money on this deal, but it’s solving something else for him in the sense that now his parents have a home that they can move into as they get older into age. So I think a lot of it does come down to personal situation and maybe motivations aside from just the cashflow, like you mentioned, tax benefits. I definitely would encourage someone to buy a deal that doesn’t cashflow just to get the tax benefit because in theory you’re going to eat up all of that tax benefit by this negative cashflow, but maybe you’re getting a significantly large tax break by buying this deal and it’s a

Ashley:
Ton of appreciation,

Tony:
Ton of appreciation, but you’re still putting in however much on every single month. It’s a bad deal in a cashflow sense, but from the tax benefit and the appreciation you’re making out significantly more. So I just wanted to ask that question first because I just want to be able to frame what we talk about next from the right perspective. And then I think even above and beyond all of that, Ashley, the idea that especially for Ricky Investors that we should view our first few deals really as education more than anything else, is a hill that I’m willing to on. Because I think even if we lose a little bit of money on our first or our second or some of our first few deals, as long as we learn from those mistakes and we continue to move forward, we are now in a better position to make sure that the next deal does even better and that the deal after that does even better and the deal after that does even better. So it’s the cost of education sometimes to kind of get the school of hard knocks to teach you the right way and wrong way to do things, which will ultimately allow you to be a truly successful real estate investor. So with that out of the way, Ash, let’s get to your deal, right? Drum roll, drum roll cue the scary music. Let’s get into the deal itself. So first tell us what the deal was. What kind of property was this?

Ashley:
So this was 10 acres. It was two different five acre parcels and on the one five acre parcel, it was a house with a small barn. It had been a goat barn, there was a pond, there was a little bunk bed cabin in the back of the acreage. And then this was the real selling point of the house. A real bonus, you don’t see this amenity often, but a double seater outhouse. So it had running water for the sink to wash your hands. It had electric for the lights run to this outhouse, and then it had two seats. So thinking romantic getaway, you want to go side by side with your partner? Hold hands. This was the place I had it, but we just closed on Sorry,

Tony:
Wait, Ash, I was confused when you first said that, but as you continued, it started to make more sense.

Ashley:
Yes, side by side by

Tony:
Side toilet

Ashley:
Holes from the house.

Tony:
That is a different level of commitment that I don’t yet think my wife and I have reached to do to do side-by-side outhouse excursions. So obviously that was a selling point. So that was one of the five acre parcels. What was on the other side?

Ashley:
The other side was just a vacant lot. So this property, I was somewhere, we bought this property, we got it under contract in 2021. So this was Darryl and I were buying this property together in our LLC. This was his second deal I think. And he went with the agent to look at this property, had been listening online for 75,000. It was a hoarder house. So this lady, she was 102, I think some guy came to deliver her wood, her only source of heat was a fireplace. He looked at her living conditions and he called family social services or whatever. They came and basically took her away, removed her from the home and took her somewhere. I dunno, but all of her stuff was left there. I don’t think she had any family or anyone. And somehow an agent was hired by the state to actually sell her house and sell the property. So Daryl actually went and looked at the property and sent me videos, pictures, I mean you could barely walk through this place. And we decided that then there was a lot of people looking at it. So we actually offered 102,000 for the property. It was us and one other buyer that was really competitive offers and we ended up getting the deal, said everything could be left behind, we’d take it as is. So we got it under contract for $102,000.

Tony:
Got it. Now given the condition, I’m assuming traditional financing probably wasn’t an option here. So how did you fund it?

Ashley:
I actually used a line of credit that I had on another property, so I used my line of credit to make a cash offer.

Tony:
Now for Ricky listening, there might have been a few things that you stated that would’ve scared them off Hoarder house, those terms can be scary and usually when there’s so much stuff that you can’t even look around, as you start to remove things, you start to uncover other surprises. But what about this deal made you feel confident that it was worth the north of 100 K that you invested

Ashley:
The land? Our goal of this property was to turn it into a short-term rental and rent out the house and turn the barn into a bunkhouse. It had electric already run to it and was like the barn was actually nicer than the house and it was a 1200 square foot house, but it had three full bathrooms in it, only one bedroom. It was a very weird layout and the outside of the house was, had a lot of stone work, beautiful stone work, and somebody had told us that the lady actually built the house herself and stuff like that, but there was no drywall, there was no flooring. It was all concrete floors and the bathroom walls were put up, but it wasn’t even drywall, there was paneling and stuff. So we ended up getting everything out. We paid a contractor, he did garbage removal, $3,500 to go in and throw everything out.
I am pretty sure he undercharged us and the next jobs we used overcharged us to make up for that one because it would definitely should have cost us a lot more. And then after that was all done, we decided that we would just go and do demo on everything and just get it to zero and start completely fresh. So then we got more dumpsters put about another, I dunno, 2000 into dumpsters and demo removal of toilets, the kitchen cabinets, things like that, and threw all that out. So that was really the only money we put into it besides holding cost of insurance property taxes once in a while while we had it listed for sale, we paid for snow removal. But other than that, we didn’t have a ton of holding costs.

Tony:
So what were some of the red flags then, Ashe, as you guys started the junk removal process that maybe you saw but you’re like, eh, you kind of shr shrugged them off?

Ashley:
I think the hardest part for me when I looked at this property is first of all, I was in a place where I wanted a deal. This was like when the height of properties were and everybody was looking for deals and interest rates were low and things like that. And so I was trying so hard to get a deal locked up that I was more worried about getting a deal locked up than making sure that it was a really, really good deal. The first thing was we shouldn’t have paid that much. I should have spent more time looking at comparables. I mean, it’s hard to say that, oh, this was the height of the market that I should have known I couldn’t sell the property. So one thing that was off was my timeline was, yeah, if I would’ve gotten this ready and I went really, really fast and refinanced it, then yes it probably could have worked out.
But I didn’t account for interest rates going up and for the market changing and things like that. When I took my sweet time and I would have to say this property was a bad deal because of me, the operator of the property, I dragged my feet, other opportunities on other things came up and I took that money for the rehab and you know what that can wait. We don’t have a lot of holding costs on it. I’m just going to go and I’m going to do this other opportunity. Then after a year had gone by, I paid off my line of credit. So after I did a flip, so I used the proceeds from that to pay off my line of credit. So then I had no even payment on it besides the insurance and the property taxes, which was very, very minimal. And so then it just kind of, so this bad deal wasn’t the property itself, it was me as the operator not having a consistent plan in place and kind of sticking to it.

Tony:
Well, I want to get into the plan and why you didn’t stick to it and what came as you thought about going into the rehab. But first we’re going to take a quick break to hear word from today’s show sponsors. Alright, we are back here with today’s guest, Ashley Care, and Ash just broke down one of the deals or her first deal where she lost money and we’re breaking down. So you talked about how you found the deal, talked about some of your initial assumptions and challenges, but obviously you said you tore it down basically to the studs. So let’s go into the rehab. Obviously this is a really, really big rehab and I know you mentioned before the break that you kind of paused and diverted your attention in your funds elsewhere before coming back to this deal. But once you came back, walk us through the rehab because it was a big job, just what were your thoughts? What was the initial scope that you had kind of put together?

Ashley:
So I took a couple contractors through and they were basically like this is a $200,000 job for us to come in here and do it. And I was thinking a hundred thousand dollars job. So then we started toying with the idea of doing the work ourselves because we have done that on a bunch of different properties and just hiring out what we need to do and things like that. Tony, I never did anything more. The property just closed yesterday, completely tore apart down to the studs. So that was, I guess looking at it, I didn’t estimate my repair costs correctly because if I wanted to have somebody else do the work, that was a $200,000 bill and that was a hundred thousand over what I had estimated on the property. So that right there was my fault for not getting estimates ahead of time with this property. I had to buy it in that market condition with no inspection. There really was no way to get into the property to get contractors in before closing or to have time to do that. It was Darryl saw the property, the offer was written, the offer submitted, and it had to all be done by the end of that day. There wasn’t time to get contractors in and stuff to actually give us an accurate estimate.

Tony:
Ash, did you at any point consider just a full tear down and building something new? Because I mean you had two parcels, so in theory you could have maybe just torn that one down, built something on parcel A, built something on parcel B, and even if maybe you didn’t keep them both as short term, maybe you sell them. Was that ever part of your thought process?

Ashley:
It definitely was something I considered and at that point it was pretty much comparable to, because the actual structure of the house was really solid. So it, I mean it was like all concrete cement. The house itself was really sturdy, so the roof was in great shape, so it didn’t make sense to tear it down. But I definitely did think about building something else on that other parcel. But then again, it went back to the points of I had other opportunities that came up that I could deploy my money towards and I ended up taking those routes. So I guess where it all, it was a year ago, I’ve had this property listed for a year. A year ago, I finally made the decision, I’m not doing anything with this property. I’ve let it sit now for three years. I just need to get rid of it.
I’m already using funds for other opportunities. Why not cash out of this property and take that cash and deploy it into something else that I’m more passionate about. And at this time too, when I bought this property, I was really gung-ho about getting campgrounds and things like that. And this already had the bunkhouse in the back, so that was even part of the bigger vision of how can we create this into maybe even a campground or something like that, glamping or something like this. So I was really shiny object chasing at this time period too. And the lady that owned it, she actually did goat retreats there at one point in time and that’s stay at the bunkhouse. And I didn’t own a goat then, so goats didn’t have any meaning to me, but now I have my own little goat so I understand. But that’s just funny. It kind of came around full circle,

Tony:
Completely different note, but somewhat related. Have you seen the TV show severance?

Ashley:
No, I haven’t.

Tony:
No. Okay. You got to watch severance because there’s a lot of reference to baby goats and that TV show as well, so maybe you’ll enjoy it.

Ashley:
Has there ever been a TV show that you have said you watched that I have watched and vice versa? I don’t think so. I don’t think we’ve ever watched this

Tony:
Actually. I think the only one, and I didn’t mention it, but I was surprised that you were watching it was The Wire.

Ashley:
Oh yeah.

Tony:
And I think that’s the only show, but aside from that, no, you have your taste in good television is similar to my tastes in good movies according to you. So we got to swap seats there. But going back to your point Ash about the scope, it is challenging when you’re trying to hustle for a deal and you can’t get inside. So what would your advice be to all of the rookies? I’ve actually never done that. I’ve never purchased a property where I couldn’t get access first. Even when I’m working with wholesalers, one of my conditions is I need to get in before we close. And that’s a big part of the reason why I typically don’t buy properties from wholesalers that have tenants because a lot of times the tenants, they’re not super a minimal to that. So in that situation, what would your advice be to other rookies in terms of how do you make sure that your scope is as close to accurate as possible if you can’t actually get access to the property?

Ashley:
Yeah, the first thing I would say is if you’re a rookie and you don’t have a ton of construction experience, don’t buy it. If this would’ve been my first, second or third deal putting this money into it and then not actually doing the rehab and renovating it and refinancing it and I just let it sit, that would have been detrimental to me of having that property just sitting. And I definitely at that time period, I wouldn’t have been able to pay off the line of credit with cashflow from other houses and things like that or doing a flip. So I would say until you get more experience, don’t take that risk. But one thing that you can do is better pictures, better videos. Like I said, I literally was on FaceTime, got a couple pictures sent to me and analyzed it back of napkin math of like, okay, here’s what I’m thinking we will need to do.
Here’s what it is, and then let’s put the offer in. And I think now I have an actual checklist template to actually fill out more of the rehab because that property would’ve been the only, the third time that I really did a full gut rehab and the other two were $20,000 purchases where it wasn’t a hundred thousand dollars. I’m buying a property yet. So I think that made a big difference, but actually taking the time and getting really good photos and videos so that you can go room by room for each property, write down everything that needs to be done and then put a cost associated with it and do a 20% contingency that you’re going to go 20% over budget or take someone through that, even if it isn’t a contractor, your dad, your friend, whoever that knows something about construction that can point things out to you too.

Tony:
Yeah, I think you agree 1000% on your point of just don’t do the deal if you’re a Ricky investor and you don’t have that experience. That’s where a lot of folks, they end up going into the forums and posting about a deal where they’re super upside down is because they just kind of got in over their head. And we talk about this a lot on the podcast, this concept of comfortable versus growing versus dangerous. And where some rookies get stuck is that they only focus on what’s comfortable for them. And because of that, they find themselves stagnant. And on the opposite end of that spectrum, there are some folks who just jump so far off the deep end that they end up drowning. So we don’t want to go that far either. We want to go just outside of our current skills and abilities, push ourselves just ever so slightly because that’s where we get better. I heard this analogy the other day, Ash, I’ll share it quickly, but it was talking about playing basketball. I love basketball and if I were to play basketball against a bunch of fifth graders, it would pretty quickly get boring because I’m 6 2, 220 pounds. It wouldn’t be much of competition.

Ashley:
Okay, no need, Greg. Tony, we get

Tony:
On the flip side, if I went and I played against a bunch of NBA players who were 6, 8, 6 10, 6, 11, it also wouldn’t be a ton of fun. I would just be getting my butt kicked all the time. But if I went and I played against a bunch of other middle aged 30 year olds, we’re on the same path and we can push each other to get a little bit better. So as you’re thinking about your progress as an entrepreneur and a real estate investor, you want that same thing. Find those deals that push you just outside of your comfort zone so that you can take a baby step towards getting better and not necessarily jumping off the deep end. But I love that. I love that advice, Ash. So that’s the rehab. So you kind of went through this and realized, man, this is going to be way more, and actually one last thing I’ll add to you.
It’s like if you are in a situation where deals kind of moving quickly, a lot of times this is going to be more so if you’re working with a wholesaler, usually on market deals, you have a little bit more time, you can do inspections and all those things, but let’s say you’re working with a wholesaler and you like the deal, everything kind of checks out initially and you don’t want to use this too often because you end up burning that bridge with the wholesaler. But you can say yes, just say yes. Like, Hey, yeah, I’m here for it, I’m down. And then you still have until you give your EMD or whenever your EMD goes hard to back out of that contract. So depending on how you and the wholesaler set it up, sometimes wholesalers want non-refundable on day one. I know a lot of wholesalers who work like that, Hey, the only way you’re locking up this deal is a non-refundable EMD of 25,000 bucks. So don’t do that. But if you can negotiate with that wholesaler to get even 48 hours of due diligence, that’ll give you a lot more runway to make sure the deal can actually work out for yourself.
So actually we talked about the rehab and we see how things kind of went sideways, but you mentioned one of the reasons that you held onto this one for so long was that the holding costs were relatively low. Did it stay that way for the entire duration of you owning this? Or were there any maybe surprise holding costs that made this deal maybe even worse in reality than what you’d originally anticipated?

Ashley:
Yeah, so one thing that we had to do was, I guess when we decided to sell the property and even during the junk removal process is maintain the driveway and the landscaping to actually get to the property. This property was pretty much overgrown. And then once one year had passed, we’d gone through a summer and oh my god, I can’t believe how fast things grew. And we had to go in and just so the driver could get the dumpster as close as possible to the house to clear it out when we’d kind of did the demo on the property. So the snowplowing, when we had it listed on the MLS, we’ve had it listed for a full year. We got it under contract in June, so six months listed. There was sporadic showings throughout there. We ended up getting another offer, got it under contract, then that fell through and then we got this one.
But every time somebody went to the property, so it was listed from November to June, we had to do snow plowing all through the winter. And this property isn’t in a town, it’s kind of a little more remote, it’s a longer driveway. And just getting somebody out there to plow the driveway was difficult. And that was another mistake is not, if I was going to operate this as a short-term rental, I would have to have somebody out there to plow it and not planning that either. As in how easy could I get a plow driver. So that’s something else. Our A-frame property that we bought around the same time, that property also pretty remote, very difficult to get a plow driver to actually go to the property to get that taken care of too. So that would definitely be a big thing that I missed on this.

Tony:
And obviously over the span of 12 months, the markets changed a lot as well. Interest rates have shifted, supply has shifted, demand on the buyer side has shifted. Have any of those changes in the market itself impacted or did any of those changes impact the deal as well?

Ashley:
Yeah, definitely. I mean, we bought this property in 2021, held it for three years doing nothing. And then now we listed it in December or November of last year. And I kind of feel like after that, since then the market hasn’t been that hot or that great, and it’s the worst time to probably sell that property. So we listed it at 139,000. Our first offer came in at 125,000. We took it, it fell through during their due diligence period. They backed out and it sat for a while with no showings, nothing. We considered taking it off the market. Then it was in May. We started to, in the spring, we started to pick up more interest and we actually had three people saying they’re going to submit us offers. And so we ended up settling on one for 115,000 and they were doing a 10 31 exchange.
The thing with third deal was that they had to close on the sale of their other property in order to buy this one. They would only submit their offer. They were putting a $5,000 earnest money deposit down, but their attorney was stating that it was a refundable deposit. And so we just went back and forth forever, what’s even the point of it then if it’s going to be refundable. So we still took their offer and we ended up, it took a very long time to close. They did their, so it has a septic in a well. And when the county came to do the septic inspection, they couldn’t find the septic and they have no record of the septic. So there is a possibility the plumbing just runs into the ground and leeches out, which makes me feel even better that I no longer own this property if that’s the case. But so the seller was like, I don’t want this anymore. And so I said, I’ll give you a $20,000 price reduction. That’s probably how much it’s going to cost to do a new septic. And they said, okay. So we went under contract again for 95,000.

Tony:
So give us the final numbers then, Ashley, where did you actually land? Obviously you said you wanted her contract for 90 some odd, you bought it for just over 100. So even just on the sale price and the disposition price you lost, but when you factor in the holding costs and any other due diligence that you did, do you know what your actual total loss was on the deal?

Ashley:
Yeah, so we bought it for 102,000. Our holding costs and the demo, the removal of stuff that was over the course of time, that was about $18,000 that we ended up with the snowplowing, things like that too. And then we sold it for $95,000. So we’re looking at what, 7,000 plus 18,000, about

Tony:
20 5K give or take.

Ashley:
So lost 25,000 on it. And also too, one thing that’s not factored in there is the time, the time for the acquisition, the time that we physically did the demo ourselves. So that wasn’t a cost that associated, we had to rent the dumpers and stuff, but then my time isn’t even calculated in that too.

Tony:
And 25 Ks, that stinks. I’ve shared so many times on the podcast, especially if you’ve been around for a while, that the second real estate deal that we bought my house in Shreveport, Louisiana with issues around flood insurance and we had to fix part of the foundation, we ended up losing about 30 grand on that went over the course of about a year as well. Between listing, you had to write a

Ashley:
Check, I think, right?

Tony:
We had to literally write a check act closing. So we literally had to write a check at closing, which made it tough. But it as part of the game is that as you go through this, not every deal is going to be the best deal. And again, to that point we try and learn and identify what went wrong so we can make those adjustments moving forward. So on that point, Ash, I would love to maybe get more for both of us on deals where we’ve lost money, like hey, what are some of those lessons that we’ve learned and how are we applying that to our portfolio moving forward? Obviously a lot of this conversation was about your deal, but I’ve had my share of deals that haven’t worked out the way that I want them to as well. In fact, I’ve got a flip that I’m sitting on right now that I’ve been sitting on for just over a year where we’re trying to find some creative ways to disposition that deal as well.
So anyway, we’ve had our fair shares of ups and downs, so let’s get into what we’re learning and what we’re doing differently based on those failures right after. We’re from today’s show sponsors. Alright, so we’re back and we are deep in the depths of Ashley’s despair on the deal that she lost money on. And we want to talk more so about what are you doing differently? And even for me, what am I doing differently in my portfolio based on what we’ve learned? So I think my first question, Ashley, is do you have any new non-negotiables after going through this that you’re applying to any future deals?

Ashley:
100%. So my first big mistake that I called myself out on is I was a long-term rental buy and hold investor. And then I decided I wanted to make the pivot into more of a, and it wasn’t even clear, a clear strategy, it was camping, glamping cabins. I wanted to make the pivot to that. I was looking at campgrounds, underwriting campgrounds to do a syndication. I got three properties that were lands with cabins under contract within a three month period. So what I did wrong was I didn’t test out this new strategy, this new path for me with one property. Instead I jumped the gun and I got three under contract at once. And the other two great, I love them. They’re wonderful properties, they make me money. I don’t want to sell them, I want to keep them. But three was too much. I took on too much at once and I should have tested that strategy with just one property. Got it start to operating and then moved on to more.

Tony:
I agree with that of you said testing. And I think that’s a big lesson that we learned in our portfolio as well, or as we built our portfolio. So Chase Sharifa, who was a guest on the podcast, he and his wife April have a really successful short-term rental here in SoCal and they’ve built a few others in different parts of the country, but t and I are partnering together to build a short-term rental from the ground up. And the goal is to sell it as a turnkey short-term rental. And the reason that we’re doing that, there’s two reasons that we’re doing that. Number one, we want to test the partnership and we found, or I felt the best way to do that was not to test it in a way that we’re going to be holding this asset forever, but if we can make it more of a transactional thing where it’s one and done that makes it easier for us.
And then number two, it gives us the ability to test out this concept of building really cool short-term rentals together as well. And we had a call earlier this week and he had this piece of land that was basically we could build four different cabins on it at one time. And my immediate gut reaction was four is way too much for us to take on as one deal. Can we find even if the land is maybe more expensive, can we find maybe a smaller parcel where we can just build one and make sure that it works out that way? So the test first kind of non-negotiable is something that’s really big for us as well. And I think the other thing too, Ash that I’ve learned is we built our portfolio that’s like a non-negotiable now as well is diversification within our portfolio. And I think one of the things that we’ve done that have presented some challenges as we’ve scaled, which sounds somewhat counterintuitive, but because we went really deep specifically in Josh Tree, we weren’t really deep into one market.
There were definitely a lot of economies of scale that came with that. We have cleaners that work specifically for us and there’s a lot of economies of scale that come with that. Managing these properties. We have a lot of vendors that can service the same properties. From a management perspective, it’s definitely easier to have a big portfolio in the same city. But I think the challenging part was we bought, we’ve got quite a few tiny homes in that market and the builder that we were buying these from, not only did we buy a good number from this builder, but he went on to continue to build those even after we stopped buying. And he kind of flooded the market with this same, literally the exact same product. And that’s made it challenging for us to find ways to continue to differentiate our units from some of the other ones that he’s built.
And there’s only so much you can do with 300 square feet. So even just trying to find ways to differentiate, it’s become a bit of a challenge as well. I think for us, one of the big things that we learned is we’ve got to find ways to differentiate it. Even if we want to go into the same market, we’ve got to make sure that there’s differentiation within the portfolio of what are we actually offering to folks and we don’t have too much cannibalism going on, not only within our own portfolio, but across the market in general. So that’s one big or two big non-negotiables for me. What else, Ash, what other maybe big key takeaways came from this deal?

Ashley:
I think having a plan in place for the capital needed and really sticking to the plan. So I had capital set aside for the rehab of this property, but I chose to deploy it into another property instead. And I think a lesson learned was that if I’m taking on a project, I need to actually tackle it and take it on and get it done and not let it sit. And I think I got too comfortable with, this isn’t a lot over four years, the 25,000, it’s spread out. The insurance was like, what, a hundred dollars a month? It doesn’t seem like a lot as you’re going day by day. And it seems little compared to like, okay, now I need to really spend a lot of time to get contractor bids, to find more capital to do all these things. And I think it really did show me that I’m a lazy investor that and I need to lean more into that, that I shouldn’t be taking on three full rehabs at once.
I don’t have the work ethic for that, first of all. And I’m even saying me doing the work, I’m just saying even hiring, managing the contractors, all of that stuff that I am more of a small but mighty as Chad Carson would say, investor. And so I think it also taught me a lot about myself. So going into deals I am more aware of what do I actually want to do with this deal and am I going to do it? Am I not going to do it? Am I going to dread it? Am I not going to like it? And yeah, go from there. So I know right now I cannot tackle three big rehabs at once, one or two is my max.

Tony:
While you were talking, I was doing some marketing research for you to see if the Lazy Investor Instagram handle was available, but unfortunately it’s already taken. But I do like that angle, the lazy investor. I agree with you on that piece too, Ash. But I think one other one that I think is important because you mentioned this is the time component. That’s not something that we typically quantify as the time that we put into a deal, but it is very much a real cost because if you have time going into deal A by default, that means you do not have that time to invest into deal B or opportunity C or project D. So understanding not only I think the profit and loss potential on a deal, but also the time involvement that is required on that deal. And I’ve talked to enough investors who, especially on the active income side like flippers and wholesalers who generate lots of active income, but they do not enjoy it because of how much time it takes for them to achieve that active income. And you’ve got to make sure that as you’re evaluating the ecls, that’s one of the pieces you take into account as well.

Ashley:
I think the last thing that I would add is this also change my buy box too, as I’m definitely more clear instead of just, especially with this, my buy box for long-term rentals, very cut and dry to the point very specific, but since this was a new strategy at the time, looking at cabins with land, my buy box was not clear. It was like, oh, this is a cool property, it has acreage and it’s a cabin. And I think that was another lesson learned as if I’m going to pip it into a new strategy, I need to really define my buy box before actually going into it.

Tony:
Well Ash, I appreciate you using today’s episode as a quasi therapy session and letting all of the Ricky listeners kind of peek behind the curtain for when things go wrong. And believe me guys, when my next deal closes this flip that I’ve been sitting on and we lose money, we’ll do another episode just like this about my lessons learned and what I do differently as well. But we just feel that it’s important to obviously talk about the good things that come along with real estate investing, but to also highlight that there are challenges, there are obstacles and things don’t always go according to plan, but as long as you adjust, as long as you learn, as long as you keep moving forward, that’s how you ultimately make progress over the long time horizon.

Ashley:
Yeah, and I think just showing that us as investors, we have flaws and we don’t always follow everything that we should be doing or doing anything correctly. I think you definitely learn that about me in this episode that I still make a lot of mistakes and I still don’t do everything the correct exact way. And then some deals that’s worked out great, and in this case that has not worked out great taking this risk. So hope you guys learned some lessons so that you don’t have to recreate the wheel and you can learn from me and hopefully very, very, very soon you can learn from Tony because we’re all going to cross our fingers at his. Thank you guys so much for joining us. I’m Ashley, he’s Tony, and we’ll see you guys on the next episode.