From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.

BiggerPockets

General Info

BiggerPockets Q&A, Site Questions, & Announcements

1520 topics, 14434 posts — Last Post 04/23/14, 07:50AM

BiggerPockets Exclusive PRO Area

118 topics, 844 posts — Last Post 04/23/14, 08:28AM

New Member Introductions

10961 topics, 86391 posts — Last Post 04/23/14, 08:47AM

Real Estate Success Stories

397 topics, 6188 posts — Last Post 04/23/14, 07:49AM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5981 topics, 47151 posts — Last Post 04/23/14, 08:44AM

Renters

649 topics, 5854 posts — Last Post 04/23/14, 05:49AM

Get Foreclosure Help - Help Stop Foreclosure Forum

316 topics, 2557 posts — Last Post 04/21/14, 03:59PM

Home Owner Association (HOA) Issues & Problems Forum

238 topics, 1611 posts — Last Post 04/23/14, 04:02AM

Do it Yourself

658 topics, 6315 posts — Last Post 04/23/14, 06:01AM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3702 topics, 29691 posts — Last Post 04/23/14, 07:54AM

Real Estate Guru, Book & Course Reviews and Discussions

1138 topics, 11593 posts — Last Post 04/23/14, 08:45AM

Ask About A Real Estate Company

742 topics, 7341 posts — Last Post 04/22/14, 11:25PM

Real Estate Investing

Real Estate Strategies

Wholesaling

5628 topics, 43889 posts — Last Post 04/23/14, 08:52AM

Rehabbing and House Flipping

3348 topics, 31087 posts — Last Post 04/23/14, 08:37AM

Real Estate Development & New Home Construction

554 topics, 4694 posts — Last Post 04/22/14, 09:17PM

Innovative Strategies

705 topics, 6044 posts — Last Post 04/22/14, 04:06PM

Tax Liens, Notes, Paper, & Cash Flows Discussion

867 topics, 6692 posts — Last Post 04/22/14, 08:22PM

Rent to Own a.k.a. Lease Purchase, Lease Options

698 topics, 4918 posts — Last Post 04/23/14, 07:45AM

1031 Exchanges

143 topics, 1062 posts — Last Post 04/22/14, 03:21PM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1691 topics, 11313 posts — Last Post 04/22/14, 09:26PM

HUD, VA, and Tax Sales

416 topics, 3102 posts — Last Post 04/22/14, 01:39PM

REOs

1217 topics, 10594 posts — Last Post 04/22/14, 09:38PM

Short Sales

1538 topics, 13139 posts — Last Post 04/22/14, 01:38PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7236 topics, 71051 posts — Last Post 04/23/14, 08:54AM

Mobile Homes & Mobile Home Park Investing

639 topics, 5144 posts — Last Post 04/23/14, 07:57AM

Investor Basics

Starting Out

7725 topics, 60640 posts — Last Post 04/23/14, 08:24AM

Investor Psychology

431 topics, 6107 posts — Last Post 04/20/14, 06:04AM

General Real Estate Investing

4726 topics, 37302 posts — Last Post 04/23/14, 08:39AM

Real Estate Investor Marketing

1737 topics, 14139 posts — Last Post 04/23/14, 02:44AM

Commercial Real Estate

Commercial Real Estate Investing Forum

1412 topics, 9004 posts — Last Post 04/23/14, 08:50AM

Multi-Family and Apartment Investing

1122 topics, 9356 posts — Last Post 04/23/14, 08:18AM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

644 topics, 4909 posts — Last Post 04/22/14, 12:20PM

Business Basics

Goals, Business Plans & Entities

832 topics, 7566 posts — Last Post 04/23/14, 08:19AM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2801 topics, 20118 posts — Last Post 04/23/14, 06:24AM

Property Insurance

310 topics, 2055 posts — Last Post 04/22/14, 07:38AM

Personal Finance Discussion

330 topics, 2754 posts — Last Post 04/22/14, 12:06PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2852 topics, 19838 posts — Last Post 04/23/14, 08:25AM

Creative Real Estate Financing

1217 topics, 8843 posts — Last Post 04/23/14, 08:19AM

Crowdfunding Real Estate

35 topics, 463 posts — Last Post 04/19/14, 06:24PM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1217 topics, 8024 posts — Last Post 04/23/14, 08:23AM

Bankers, Lenders, and Mortgage Brokers

442 topics, 1929 posts — Last Post 04/22/14, 11:03AM

Contractors

269 topics, 1690 posts — Last Post 04/22/14, 07:33AM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

2011 topics, 11714 posts — Last Post 04/23/14, 08:47AM

Americans & International Real Estate

162 topics, 568 posts — Last Post 04/14/14, 11:19AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

65 topics, 439 posts — Last Post 04/22/14, 09:27AM

Marketplace

Real Estate Marketplace

Real Estate Marketplace

15074 topics, 54091 posts — Last Post 04/23/14, 08:30AM

Real Estate Events and Happenings

167 topics, 2588 posts — Last Post 04/23/14, 08:03AM

Off-Topic

Off Topic

Off-Topic

2907 topics, 32438 posts — Last Post 04/23/14, 04:54AM

Housing News & Real Estate Market

920 topics, 8378 posts — Last Post 04/23/14, 08:21AM

BiggerPockets Real Estate Investing Summit

97 topics, 1752 posts — Last Post 04/23/14, 04:51AM

BiggerPockets Resources

Forums » Buying & Selling Real Estate » Lessons Learned From My 1st (Failed) Deal

Lessons Learned From My 1st (Failed) Deal

20 posts by 10 users

Signup

Real Estate Investor · Boston, Massachusetts


I had planned on writing a very different post today. A triumphant post outlining the details of my very first wholesale deal and what an unmitigated success it was. Alas, such was not the case, as the deal fell through at the last minute. Rather than dwell on losing out on a sizeable assignment fee, I figured I would share some of the lessons I learned in the process.

First, a little history:
A realtor approached me through one of my ads seeking investors. He said he had a great opportunity that I should check out. The house was a single family colonial in an exclusive neighborhood of an affluent suburb north of Boston. It was perfect. Three bed, 2 bath on just over an acre of land backing up to protected woodlands that needed a lot of updating. The owner was a developer who bought it for his daughter and planned to rehab it himself, but his daughter ran off with her boyfriend. Asking price was $375K, and I negotiated it down to $305k.

Comps for the town are in the mid $400k range, but this particular neighborhood was more like the mid $600ks. This part of town is pretty exclusive with two country clubs, protected woodlands and beautiful houses. Because of this, there is very little turnover, making actual comps difficult. I estimated about $150k worth of work on the house to make it worth $600k, and was asking for a $15k assignment fee.

In Massachusetts, we have to submit a written offer that is a binding contract with the seller. It basically protects against a seller accepting other offers. Think of it like a pre-P&S. In the offer, we scheduled the P&S for today 2/15, giving me plenty of time to find a buyer and for them to get their ducks in a row. I sent the property out to my buyer list and got a lot of responses, scheduled three showings, and by the end of the week I had a buyer- or so I thought.

The buyer had joined my list saying they paid cash. Their website said they pay cash. Their business cards say they pay cash. Cash, cash, cash. After they saw the property and did their due diligence, they told me that they wanted to move forward and just had to clear it with their hard money lender. Uh-oh.
Seeing comps for the area at $450k, the lender didn’t see the how they could sell it for the profit needed to make it worthwhile. Two days before we were scheduled to go to P&S and I was to collect half of my fee, the buyers backed out. I was left with no buyer, no fee and no time to line up a new buyer before my offer expired. Deal=dead.

Lesson #1: Beware exclusive neighborhoods!
Any neighborhood that is really exclusive is going to have very low turnover, which makes running accurate comps virtually impossible. Inaccurate comps means everybody is going to be working off the wrong numbers, and that puts you at a big disadvantage.

Lesson 2#: Interview your buyers thoroughly!
Cash is cash. Hard money, although not a traditional mortgage, is still not cash. Ask your buyers questions like “Are you financing this, or paying cash?” and “Are you the decision maker, or is someone else going to have the final say on this deal?” When your buyers are using hard money, that’s one more party being added to the mix who has to say yes- one more cook to spoil the soup.

I learned some tough lessons on my first almost-deal. While I would have preferred that $15k I had coming to me, I still got a lot of value from the education. And now I’m spreading the wealth.



Real Estate Investor · Springfield, Missouri


Yep, understanding the lending process isn't just for borrowers. It happens, keep at it and good luck!


Financexaminer@real estate investor dot com


Hard Money Lender · Tyngsboro, Massachusetts


There is lots of good news in this post.

1. You learned tons by doing, even though it didn't close.
2. You now understand why people accept lower offers if they are backed by actual cash in the bank, not just hard money.
3. You didn't pay a guru to learn all this.
4. You aren't still reading books and sitting on the sidelines.

Don't give up, there is a huge need for good wholesalers here in MA. If you have a good deal, you can sell it in 10 minutes. I have buyers who I lend to even if I can't see good comps, because I know they can follow through. This is not how regular hard money works, but it happens every day. I can refer you to some very active buyers in my network. I've sent you a colleague request, please accept.


Small_small_logoAnn Bellamy, Buy Now, LLC
Telephone: 800-418-0081
Website: http://www.buynowhardmoney.com
Hard money lending in NH and MA, and for free networking in MA, http://www.BlackDiamondREI.com


Real Estate Investor · Boston, Massachusetts


Thanks, Ann! I think I actually got your business card at one of the BostonAREIA meetings I went to. Always good to network with a good lender.



Real Estate Investor · Dallas, Texas


Sounds like a good learning experience. did you put any earnest money down or did you have an opportunity to have the "cash" buyer put earnest money up? Good luck next time.



Real Estate Investor · Boston, Massachusetts


Thankfully the offer was contingent on financing. I put up $500, but the only thing I lost was a few weeks of my time.



Real Estate Investor · San Francisco, California


@Chris Wight, thanks for sharing your pain so it can be a lesson for everyone else. As someone who is actively mailing absentee owners (still waiting on deal #1), your experience is invaluable to me. Best of luck closing your first deal shortly!



· Chelmsford, Massachusetts


@Chris Wight Thanks for posting and congrats for getting in the mix. Hope to be joining you soon!


Sean Brennan,
E-Mail: [email protected]
Telephone: 617-620-4224
Commercial RE Appraiser and Wannabe Investor


· Chelmsford, Massachusetts


@Chris Wight sorry if this is a stupid question; but, you only did the formal written offer because it was through a realtor, right?

If you were dealing directly with a motivated seller, wouldn't you want to go straight to P&S?


Sean Brennan,
E-Mail: [email protected]
Telephone: 617-620-4224
Commercial RE Appraiser and Wannabe Investor


Renter · Kentucky


Not an expert, but wouldn't it have helped if you had gotten an appraisal on the property?



Real Estate Investor · Boston, Massachusetts


Thanks, Sean. Although not everyone does them (I certainly didn't when I bought my own house) written offers are technically required in Massachusetts. Being my first deal, I wanted everything to be by the book. It also only serves to protect me as the buyer, so there's no real downside.



Real Estate Investor · Boston, Massachusetts


Hi David, since the problem wasn't with the purchase price, but rather the project ARV, an appraisal wouldn't have helped. You can't appraise work that hasn't been done yet.



Rehabber · Canton-Akron, Ohio


A note on appraising work that hasn't been done.

The bank we use to fund our rehab deals, we give them a list of the planned upgrades, they always sends out an appraiser to every property to do an after repaired value, appraisal.

They lend us for purchase and repair money up to 80% of after repair value.


Dell Schlabach, BenchMark Properties
Telephone: 3304326927
Dell Schlabach BenchMark Properties


Real Estate Investor · Boston, Massachusetts


Dell, that's really surprising. Do you have to provide construction plans too, or just a list? You must have a very good relationship with your lender!



Real Estate Investor · California


Chris, I'm sorry to read about your deal that fell apart. Sounds like that "cash buyer" was only pretending. Definitely good to know right away where his cash is coming from. I don't understand why you don't undertake the rehab yourself? I would much rather do that and take the full profit on the resale than a comparatively small assignment fee right now. Maybe you could work an arrangement with the seller, so that you would get the rehab completed now, and then sell it. That would eliminate the need to raise cash now to buy it. Also, I don't understand the thing about how your written offers are binding and prevent the seller from accepting other offers? How is that unique to Mass? Isn't it like that nationwide? Once a seller accepts, he cannot accept another offer without exposing himself to lots of liability? I just lost out on a deal because the seller chose to delay accepting mine in hopes of getting a better one, which he did. By the was, was this your first deal you worked on or the first one that failed? I hate the word. Maybe i should say "went up in smoke" or "failed to materialize?" Regardless, I'm sure it left a pit in your stomach. Sorry about that.



Rehabber · Canton-Akron, Ohio


I type up a very basic list, no drawings.

New kitchen 8,000
New bath 3,500
New roof 5,000u
Etc
Etc

I total the list and email it to him.

The other thing I have done when I needed to convince a hml or myself, when going into an area I wasn't comfortable comping myself. I would contact the two top realtors in the area and offer to pay them for their opinion of value.

Typically they will do it free.

A realtor who sells a lot of homes and is familiar with an area is a better predictor of what a house will sell for than an appraiser , in my experience.


Dell Schlabach, BenchMark Properties
Telephone: 3304326927
Dell Schlabach BenchMark Properties


Real Estate Investor · Boston, Massachusetts


Dell, the realtor is how I came up with the $600k estimate. He lives in the same town and knows the area well. My buyer seems to have had a rather conservative hml.



Real Estate Investor · Boston, Massachusetts


Thanks for the support Ed. I didn't take on the rehab myself because I don't have the experience, money or time to do so. Otherwise I totally would have. The written offers here in MA are actually required,where as in some other parts of the country you can just have a verbal agreement which isn't worth the paper it's written on. This was my very first deal, and I like your attitude towards using the F word!



· Chelmsford, Massachusetts


@Chris Wight I am an commercial appraiser and we do "as complete" appraisals often; but, yes, we do need plans and specs. And these appraisals are not cheap ($3500 and up for commercial property, not sure for residential).


Sean Brennan,
E-Mail: [email protected]
Telephone: 617-620-4224
Commercial RE Appraiser and Wannabe Investor


Commercial Lender · New York City, New York


Hi Chris- great sharing, its the same in the commercial real estate industry. I have borrowers looking for 100% financing NOT going to happen first of all at our company. However borrowers tell me that they have buyers lined up and contracts signed. You know what? It doesn't mean (). " you can fill in the blanks there. "
Anyone can back out of a contract. When people say I have a buyer lined up and need 100% financing its all talk. We all have to be aware of that.
Always think like a borrower and lender my manager says. If your borrower is not taking a risk; Why should I (lender) take all the risk then.
thanks for sharing and its a new year, Stay Motivated.





Sign up