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Two high school buddies approached me with the idea to start a real estate business about five years ago. The plan was to buy homes in poor condition, fix them up, and resell for a profit. After recruiting another friend which moved the number of partners up to four, we started looking for homes we thought we could fix up and sell for a profit. The idea was to make enough fixing up and reselling these homes so we could invest in a business that would allow us to escape our day jobs. We even had an operating contract we signed spelling out what role in the partnership each member would play.

We did find a home on the Housing and Urban Development website which we purchased and started renovating. We spent six weeks working every weeknight and weekend until the home was ready to sell. The home sold quickly and we made around $17,000 after material and labor expenses. If the profit does not seem like much, you have to consider our business was located in Midwest.

Our profit margin may appear small compared with the profits generated on some of the popular home remodeling shows. You have consider those shows are typically shot in one of the coastal states where home prices are considerably higher compared with the Midwest. A home in the Midwest priced at 120K would sell at 500K or more in Florida, Delaware, or California. When the material in both the Midwest and the coastal states are priced relatively the same, it becomes apparent why our profit margin was much lower compared with the profits earned in those shows.

Our trouble started when we decided to start investing in rental property while still looking for another home to remodel. We bought a duplex, two small rental homes, and another home to remodel and resell. We found to our dismay the rental homes needed quite a bit of work as well, so we were working on the rental homes while trying to remodel a home for resale. Needless to say, all of these different jobs took a great deal of our time. The home remodel took three times as long as the first remodel and longer to sell, so we ended up only profiting $4000 for almost six months worth of work. That was our last remodel. We decided to concentrate on rental properties.

We borrowed the money for most of the rentals and ended up with over 40 units and kept over 90% occupancy. It would seem this would be a recipe for making money, but after the monthly debt repayment, maintenance, upkeep, insurance, utilities, and taxes there was hardly enough to pay bills every

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