Saying No is an important part of this business

So just last week I locked up a great deal with a chance of being the best deal we have ever done and that is saying something!!!  

Let me set the stage for you.  It was an REO in a nice part of town that is getting a lot of investment dollars from other investors and local government.  I would say every fourth house is going through a complete remodel as it is an older part of town with lots of large houses.  So the area was just how I like it.

Then the building was advertised as Multi Family, Zoned Multi Family and listed as a triplex.  I thought great. I get triplex income for the price of a house.

The best part was I locked it up for only 25K via an agent I work with all the time and got the pocket listing so I didn’t have to over pay via a bidding war.

So all things pointed to a nice and potentially great deal.  I figured even if we dropped another 25K into the property we would be living large with 1,600+ income and a functioning triplex.

How bad would that be.

Well when we got to the house it looked like the pictures.  I need some serious love but nothing I wasn’t afraid to tackle.  You know the porch needed to be level, it needed new paint, 10+ windows and the rear porch had to be rebuilt.  Again nothing crazy.

Now we get inside and this is where the fun begins.  The first thing we do is walk in to the left side unit which is really nice and has all the old world charms and special details.  Again it is old but I would have made it beautiful without batting an eye.  

Then we walk up stairs to where the bedrooms would be and we find two ready made bedrooms and then a door cut out it the attic.  It appeared that the last owner had envisioned using the space for more bedrooms and I was on board.  The space was large enough to have 3 nice sized bedrooms and a sitting area.  So the left side unit could have been a beautiful 5 bedroom 2 bath unit.  One problem about a 4 foot section of the roof was missing and pigeons and other birds had been nesting, for over 2 years and it was disgusting.  Not to mention every time it rained it just ran through the house.

At this point I was still thinking we had a deal.  A new roof would have been 7-9k and the clean up of the birds probably 1-2K.  So that was a 10K surprise but I figured for 10K I would have a new 30 year roof so I was still good to go.  Not happy but still willing to do the deal.

Then we get to the right side unit which was a 1 bedroom unit that again was pretty straight forward.  It was roof but very fixable.  

Finally we get to the downstairs unit which was really a basement with 6 foot ceilings in some parts and not really livable.  But again looking for the positives I saw a stair case that lead to the second unit and thus we could have configured part of the basement and turned the one side into a 3/1 without much of an issue and then just framed off the other section or used as storage.  

However when we got to the left side of the basement we found that the basement was not constructed well and dirt had literally come through the wall to the tune of 2 feet and as it rained it would only get worse.  Again if this was the only surprise it was fixable but again this was likely a 10K fix because we would have to dig up that side of the house and construct it correctly.

The nail in the coffin for this deal was we had 2 gas meters but only one electrical box so we would have to share electricity or apply for a permit to install the second box.  Given all the issues we saw the last thing I wanted was the city or code enforcement being invited in to look at this junker of a house.
Then to top this all of the neighbor across the street came over and he was super nice.  But turns out he is the head of code enforcement for the city and he indicated that he would love to see the house get redone “correctly” his words.  I said I was only in the house for 10 minutes but I saw at least 50K in repairs (I went high on purpose).  He laughed out loud and said “Sunny I would be surprised if you spent less than 200K doing this job correctly”.  

I likely would have passed before that comment but having the head of code enforcement literally across the street with a 200K budget in mind I simply looked at my agent and said sorry we have to fined the next one.  

That house or lets call it a duplex completely repaired is not worth 90K in today’s market so it will likely just burn down or fall down someday.

Even though I did everything right and I was really excited about the deal and I have nothing else going on right now I just had to say no as the deal did not fit my financial model and I don’t want to invite trouble.

Good investing and don’t be afraid to say no