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Posted about 9 years ago

That didn't go as expected.

I'm blown away, bewildered, baffled!  The REI learning curve is steep!    Mere moments ago, I went into my very first negotiation with what I thought was a motivated seller (he wasn't), with what I thought were reasonable offers (he didn't).  I found him on craigslist FSBO, gave him a call and he recommended a condo of his that wasn't listed.  Apparently they were trying to move out of the area ASAP, and owned it outright.

"You've got to buy this property, we are moving out of here and you have to buy it!  I don't care what your offer is just make me one."  He then proceeded to tell me he'd entertain seller financing.   Wahooo!  What music to my ears!  This is what people on BiggerPockers talked about!  But a few minutes after the mental celebration, I realized that while I had a firm grasp on the concept of how to make money, I had none of the tools to back up what I wanted to do.  No mentor, no contracts, no forms, no buyer's list, no capitol... nada, zinch, zip.  All I had was a few local investors who I probably partner with to split the deal.  Oh boy.

I arranged to meet with the seller a few days later, and spent the whole weekend studying up on how to present my options and get myself squared away.  Here are the cursory details...

2/2, 975 sqft Condo listed at 75k. Comps vary from 45-65k.  No renos needed.

Rents hover around 700-750.  HOA = 300/ mo (ouch!).  So NOI < 200 mo, and debt service would kill any cash flow from there... not particularly attractive. 

I decided to pitch 4 options.

1) $35,000 cash, which I figured was 65% of ARV.  I would simply turn to a wholesaler and throw him the deal for 50% of profits. 

2) Seller Financing for 45,000.  4.5k up front, 75/mo payments, balloon payment in 15 years.  Cash flow would be approx. $100/mo and cash on cash = 25%. 

3) Lease option, 45,000 sales price.  3k option fee, 5 year lease, monthly payments @ OE.

4) I property manage for 10% rents.

Unfortunately, he paid 60k cash for it years ago, and didn't entertain any of my offers.  However, he really grilled me with questions!  How would I make money here, who would take these kinds of deals and how do I find them, how I calculated my comps and ARV, how do I run my title searches... I felt like I was being quizzed, these were not all easy questions!  I first thought he was trying to get an inside edge, maybe try and cut me out of something, until I realized...

He was interviewing me.

He was making sure I was diligent in my pursuit of the highest return on investment.  And I guess I did an good job, because as we talked, he stated he wanted in on "whatever else I had going on" and said that he had up to 300k cash to invest!  We launched into an impromptu discussion on how I would make him money, and how deals would be structured, where the profits lie, etc.  And at the end we shook hands and I left, bewildered and blindsided in the best way possible.  Until now it was just my very limited personal funds.

I hadn't even considered private money until now.  I knew it was there, but you can only learn so fast, and I've been so caught up in the learning curve of everything else that I have put it off to the "learn about later" category. Looks like it's time to hit the books again.  Love this job.

Hit me with your comments!  Eager to hear anything the BP community has to offer.



Comments (6)

  1. Its amazing to see what can come out of every call you make to someone. That's why when I am on a call with a seller I treat them as an unknown prospect. I ask them if they have a property to sell, if they know anyone looking to sell or buy discounted properties or looking to increase their investment returns. Keep it up and keep on moving.


    1. Absolutely!  And a cup of coffee and few e-mails later, I find out he has done some basic flips, used to be a builder in Kentucky, and has a few basic certifications and skills that would make things much easier (HVAC, flooring, painting, etc).   And near a week later, we are looking at a potential 10 unit deal that could prove very profitable, especially with some joint sweat equity.  Submitted the offer today and hopefully will put it under contract.  I'll post about it if it works out!


  2. Wow, what a twist!  I didn't expect that from the title!! Good job!


  3. @Christopher Morin

    Almost 30 years ago I had a similar experience as a young programmer and UNIX administrator working as an intern for a company whose name is a 3-letter acronym.  I was assigned to support customer sales teams with a new product offering and, one day, was sent to this small office with two folks to set-up a system for them to evaluate.  While there I also did a few things to improve their existing network performance.

    The customer grilled me hard with an endless stream of probing questions the entire time I was there.   A week later, this customer reported a problem with the evaluation system and I was sent back.   After looking at the system for 10-minutes, I concluded that someone had deliberately crippled the system and it would need to be recovered from backup media.  When I told the customer that the system did not die, it was murdered, they offered to hire me when my current internship was over.

    This launched my life as a serial entrepreneur.

    Heed Jeff's advice and find a very good deal or two to take back to this investor to see if he is for real and to demonstrate you are the right horse.


  4. Sounds like that trip was well worth it. It might be prudent to find a deal where you can use some of the promised funds so that you can make sure they are really there. Of course, if you set up a deal to use these funds it might also be prudent to find another source of funds as a potential back up in case your new lender is not as serious as he seems.


    1. Good call Jeff.  I suppose I should view this opportunity with skeptical optimism.  I'd hate to count 100% on funds only to have them flake at decision time.