Listen to the Podcast Here: Welcome back to The Real Estate Nerds Podcast! As investors, we’re bound to see our fair share of both good and bad deals. So today we’re putting a spin on our usual format. Instead of talking just Best Deals or Bad Beats, we get to hear a little of both. Today, Amanda Han of Keystone CPA shares two of her deals–one of her best, and one of her worst. Amanda and Scott examine both from a tax and investment perspective, providing new and helpful tips and stories about rental real estate and creative financing along the way. Amanda also shares some strategies that she has observed over the years with regards to tax-free investing, IRA use, and more. Whether you are self-employed or working a traditional job, Amanda and Scott have insights to share with you. Tune in to hear the full conversation. Description Useful Resources References Robert Shemin and His Legendary Worst Deal Scott welcomes Robert, gets some information about his background, and asks for the details of his worst real estate deal. [1:00] Robert is an All-American guy joining us from his home in Medellin, Colombia. He’s a full-time real estate investor with over 1,000 properties, author of 18 books (many on real estate investing), and lover of a great deal. He entered real estate after dropping out of high school partially because of struggles with a learning disability. He had many misconceptions about financial success that were busted when he met his real estate mentor at age 27. [2:30] Robert didn’t start with any of his own money, but listened carefully to his mentor–a fellow high school drop-out and multi-millionaire. He began acquiring properties. Within two years, he was able to “retire” with 15 duplexes in his hometown of Nashville, TN. This gave him the idea to scale up, and he hasn’t stopped since. [3:00] Robert shares his motivation for talking about his worst deal: “I think you learn more from mistakes. I’ve pretty much made all of them, and if I can help someone avoid them: there you go.” Scott agrees that there’s a huge value in learning from our bad deals. [4:00] Scott asks Robert to set the scene for his first deal. He begins by stating his strong belief in systems and checklists, which he shares later, but acknowledges that he missed some critical things in his bad deal. “When you get an ego and overconfident, you’ll make a mistake. That’s what happened to me.” [4:53] His bad deal began with a wholesaler whom he looked up to very much and is still friends with. [5:30] After seeing some repair jobs this wholesaler had and reviewing some promising numbers, Robert checked out the properties by driving by them at night. These were five duplexes worth roughly $80,000, with repair costs anticipated at about $5,000. Robert let his excitement over the good numbers get the best of him and bought them at about $30,000 each with immediate cashflow. He closed immediately without ever setting foot inside the properties. [6:30] Robert realizes in retrospect he skipped every step of due diligence. Today, he has a system in place for doing exactly that which he shares with our listeners. It involves looking at nearby sales, days on market, nearby properties, and getting an opinion from another person with experience. [7:15] Hindsight is 20-20 for Rob, who sees that his emotions interfered with his good judgment: “A lot of new investors like me get excited. But there’s no emotion in investing.” [8:00] Robert shares his methods for verifying property. He has discovered five simple ways to do this:First, find 3-5 recent comparable properties.Verify with a third-party market professional.Days on market. If a property is on the market too long.Evaluate repairs with a third-party contractor to verify those costs. Better yet, get two.Negotiate what you’re buying for based on the figures above. [9:20] Robert’s biggest mistake, in his opinion, was doing his due diligence after closing. Scott agrees that by then, it’s way too late. Everything is signed, the deal is done, and you’re stuck with the property and its responsibilities. Scott points out that some people would sue in this situation, but that most lawsuits aren’t based in mistakes. Fortunately, Robert realized his own role in and responsibility for his problems. [11:00] Responsibility is a key feature for Robert today. He and Scott discuss how easy it is to blame others for mistakes rather than examining what you can do better. [12:30] When Rob did his due diligence after the fact, he realized the repair costs were approximately five times what he was told. This meant he was losing roughly $30,000 on each property. He now refers to this as a “$150,000 mistake.” How Robert Shemin’s Failure Became His Turning Point Despite losing big on these purchases because of a failure to do his due diligence, Rob ended up coming back from this low point in his real estate career. Ultimately, he has achieved greater success than he ever would have thought possible. [13:30] In great distress from this loss, which wiped out the profits from his eight previous deals, Rob went to his mentor. The mentor had sage advice for him: “Time will fix any problem in real estate…If you hang in there long enough, you’ll make money.” [13:38] He advised Rob to fix the duplexes as he could, rent them, and hold them for ten years. [14:30] Rob originally argued with the mentor. He and Scott share a love for one thing: being right. But ultimately, the question for Rob was, “Do you want to be right or do you want to make money?” This experience taught Rob the value of listening to experts with experience over himself. Now, when he buys and holds, he does it for ten or more years. [15:50] The neighbors in this C- area surprised Robert by fixing up their own properties during that decade. Nashville became quite a hot city in that time as more people from out-of-town moved in. [17:00] Robert admits he considered quitting the real estate out of pure embarrassment and shame. But his mentor kept him from doing this. How? By calling him a quitter. Rob set out to prove him wrong, and in the long run, he did. [18:31] Over time, cashflow improved month to month and Robert’s situation changed dramatically. He points out that “You can’t go broke making a profit.” 1-2 years later the neighborhood, spurned by Robert’s own improvements, started to beautify and the area as a whole became nicer. His involvement with the community sped this process up, and the area is now one of the most desireable in Historic Nashville. [20:00] About four years later, Rob sold the properties for an average of $120,000 each. He views this now as another mistake, as these formerly run-down duplexes are worth even more today. Tornados in the area ended being up an unexpected blessing as well, as the city and insurance companies fixed up the properties in the wake of these natural disasters. [21:30] Scott observes that Robert’s ultimate low became a driving force in his career that prevented him from quitting: “In those low moments you have to dig deep to find what’s motivating you to use your downfall as your rebound.” Rob agrees that his mentor knew he liked challenges and supported him through it. [22:30] Rob also realizes that not quitting was his best move: “If I would have quit, I would have never written a New York Times bestseller, I would have never done 1,000 deals or traveled around the world. I’d probably be working at a restaurant.” The Takeaways: Design Effective Systems and Never Give Up Scott and Rob discuss the major lessons listeners can take away from Rob’s story. The two investors conclude that systems are vital, relationships with others are crucial, and that giving up is rarely a good idea. [23:00] The mistake Rob made has made him committed to sticking with the systems that he knows work. He continues to verify thoroughly using the checklist he shared to this day. [24:00] Robert’s primary takeaway from his own story is to have a system for buying, selling, and verifying properties. Ideally this should be an emotionless system that you do not deviate for. He also encourages investors having systems for human error, because even the best people in the world make mistakes. [25:00] Scott and Rob agree that investors should choose to learn from mistakes, and never just quit. Scott also observes that Rob’s relationships with his neighbors and the importance of his mentor played a major role in how he was able to process this failure into a system for success. [26:46] Rob closes with the lesson he learned from his mentor: “Time fixes most mistakes for most investors.” He also encourages listeners to learn from his mistakes instead of making their own. Connect with Robert Shemin Connect with Robert Shemin through his website, RobertShemin.com. Robert is also active on Facebook, where you can message him directly. If you want to hear more of Robert’s recorded real estate insights, check out his appearance on the Jake & Gino Podcast. Listener Resources Thank you for joining us on today’s episode of the Real Estate Nerds Podcast. For even more free educational resources on real estate investing and the law, check out the Royal Legal Solutions blog. You can also reach our host Scott Smith directly, connect with him on LinkedIn, subscribe to the Royal Legal Solutions YouTube channel, or join our investor community on Facebook. Don’t forget to subscribe to stay up to date and have the most current episodes of the Real Estate Nerds Podcast directly in your listening library. Every subscription helps us create new, custom content for you. What did you think of today’s episode? What would you like to hear more about in the future? Leave your thoughts and questions in the comments section below, or leave us a review in the iTunes store. We love hearing your feedback, so fire away. Join us again next week to hear Scott chat with Lane Kawaoka about the good, bad, and ugly of syndication and partnerships. Thanks for listening and joining us on our journey to become better investors! Hosted by Scott Smith, Lead Attorney and Founder of Royal Legal Solutions. Schedule your personal consultation now. If you have questions about our content or suggestions for future episodes or guests, reach our podcast team at [email protected]. A millionaire by age 32, Robert is a New York Times and Wall Street Journal best-selling author with 16 titles to his name, including blockbusters How Come That Idiot’s Rich and I’m Not? and 7 S.E.C.R.E.T.S of the Money Masters. An Emory University Doctor of Law and Master of Business Administration, he is considered one of the world’s savviest real estate and financial market forecasters. To date, he has been involved in over 1,000 real-estate transactions totaling over 100 million dollars. As an internationally acclaimed wealth-creation expert, Robert has helped thousands of people with no investment experience or funding achieve total financial freedom. He has traversed the globe teaching the secrets of his success at sold-out events and his business-coaching clients include some of the most recognizable individuals and enterprises in the world. For Robert, however, true wealth cannot be measured in numbers. He derives his greatest satisfaction from the work he has done to assist people in need. He has been a major donor to charitable organizations helping the less fortunate, including supporting efforts to aid the homeless and treat patients in need of critical eye operations overseas. He helped found and operate a specialized school that mentors at-risk teens and college-age youth.Robert has been interviewed and quoted on all topics of finance ranging from real estate to branding, negotiating, entrepreneurship and investment strategy in over 300 publications, including the Wall Street Journal, Business Week, USA Today, the New York Times, the New York Post and TIME Magazine. He is a frequent guest on national radio and television, including CNN, Fox News, CNBC, NBC, ABC, CBS, National Public Radio and the BBC. He has also been featured in countless regional and local television shows and publications.