Real estate deals require critical thinking, judgment and understanding complex situations immediately when we walk into them. Sometimes we are scientists, contractors, plumbing experts, junk collectors, critical thinkers, these-people-lived-like-this data collectors, bankers, firefighters, geologists, foundation experts and even shrinks.
Probably that last one a lot. #truth
Why? People — you, me, everyone — we have problems. As we walk up to a house and speak with the seller about why they need to sell their house (because why would we be meeting with someone if they didn’t), we have to be prepared for anything. We must walk in with more knowledge, more understanding of how we can structure a deal so that when the opportunity presents itself, we can see it is a deal. And also know when to walk away.
Learning to Just Say No
The one thing that has taken me a long time to be able to do is say NO.
Practice with me.
(insert breath here…) No.
Now, that wasn’t so hard, was it?
Yeah, yeah, yeah, everyone is like, no man, wholesale that thing. Wrap a sub sandwich on it and sell that baby. Make like $10k on it tomorrow with no money when you call all those guys on your list of buyers who are ready to dole out Benjamins like a bill shooting cannon…
Listen. Stop it.
Sure, there is SOMEONE for every deal. It doesn’t mean — let me repeat — it doesn’t mean that person is you.
Let me give you an example.
The House That Needed More Than Just “A Little Work”
I spoke with a woman a month or so ago who needed to sell, had some “work” that needed to be done and asked me to come a few days after our conversation so she could get the house presentable and work on the “drywall.” I said sure and scheduled the appointment with her two days later. I pulled into the neighborhood and did my pre-driving (I always pre-drive the surrounding 6-8 blocks before the meeting so I make sure and have a good boots-on-the-ground idea of the subject and surrounding neighborhood) and then pulled into her driveway. She met me at the door. I said, “Good afternoon, my name is Nathan, and I am here to buy your house today.”
Yeah, thanks, yellow letters guy…that’s a sweet line, man.
So I walked into the house, crossing the threshold of the door, and WHAM. Dude. Oh man. Ouch. Here we go…
Immediately to the left was the room they were “working on.” The drywall had been hung completely broken, crooked, sideways and backwards. Oh yeah, just wait. I walked farther into the house and turned left into the small 1/1 bathroom in the house. To my complete astonishment, the panel…
People, the electrical panel was IN THE SHOWER. #speechless
From there we walked into the first of the bedrooms, where sheetrock was completely missing on the ceiling and all walls and immediately noticed the joists in the ceiling were all sistered. It’s not like most people tear out all the drywall in their bedroom and sister their ceiling joists for fun, right? So the seller says family members had put the second story on the house, and the day they decided to rip the roof off to put it on, it rained. And they didn’t necessarily understand, say, the engineering, of say, the entire second story they put on. I also found foundation support beams placed (halfway sticking out) in between the studs. The only working light was a piece of romex laying on the top of closet connected to a single bulb fixture.
From the master bedroom, we walked through the living room to the other side of the house (total sqft is probably 1200), through the kitchen (also with water damaged from said second story roof situation) into the other bedroom on the first floor. I felt the floor move as I walked in. I asked her, gently pointing to the floor and giving the, what’s up with that look — you guessed it! — they built this room on too. Bummer. The whole floor shifted as I walked around. I seriously wondered if I would fall through the floor or if the whole back side of the house would come off itself. This is not a comfortable feeling.
Remember, these folks lived in the house.
But Wait: It Gets Worse
At this point we proceeded up the stairs into the second story. It was never finished — all sheetrock, in varying degrees of being hung and finished, newly installed windows and more OSB on the floor. A second bath studded out that will likely never be. I have to tell you, I did not want to be up there anymore. It was scary situation being in that house. I was concerned for my safety and the safety of the seller.
I looked at her and I said something to the effect of, “I hate to tell you this, but there is absolutely no way I am buying this house. I am a believer in karma and doing the right thing with everyone I meet, and I don’t believe you should be putting another dime into this house. This place is not safe. You need to get out.”
Then I went on to explain why. I didn’t feel that the house was sound. The second story would need to be torn down. Part of the first floor probably needed to be torn down. The electrical panel completely removed, rewired and redone. The kitchen needed to be completely gutted. It did not have a great floor plan anyway. There was no way I would buy it.
Investors: we are better people than what others think we are. Let’s act that way.
I then took another 15-20 minutes to talk her through what I thought her options were.
1. Short Sale
Get an agent who will work with you. Get a full comprehensive bid together from a contractor to send along with an offer when it comes in. This type of transaction is going to take some time to prepare, sell and close, and finding the special buyer who has the contracting either themselves or a contractor on staff not paying retail for those services. You will have to have people in and out of your house a lot before you most likely find the buyer. Then there will be months of dealing with the bank, their paperwork and then, if approved, to closing (hopefully not being asked to pay anything at closing).
And yes — for all of you agents/investors out there — while I lived in Florida I did dozens of short sales during the downturn of the economy and aftermath in both Collier County and Lee County, two of the worst counties in the whole country during that time. If you are going to work with an agent who “does short sales,” make sure you KNOW they KNOW what they are doing! Short sales are more complicated and take more time and dedication. Understand them or work with someone who does.
2. Deed In Lieu or Foreclosure
Call the bank. Send them the keys. Call your attorney. Throw a party. Move out. Move on with life.
I understand you have to protect yourself, and I even said this to her. I am not an attorney. She would need to contact one herself depending on her decision and how she chose to move forward. But one thing is abundantly clear: she would have to get out of this house. It was a death trap. Her son was sitting right there. He nodded his head in agreement. This is a situation none of us want to be in. Few options. No money. Owe a pile of money on a house you can barely afford, and investors who buy “ugly houses” didn’t buy.
The least I could do was talk it through with her. Sometimes people just can’t see out. Maybe they need a little push. Maybe they need a giant kick in the pants. Either way, to me, it’s our job as investors to call it like it is. This is a little morbid, but seriously, if they stayed in that house, I truly believe they were playing Russian roulette.
I didn’t want that on my conscience and neither do you.
I left their house, called my wife and told her I loved her. Told her how thankful for our life I am. The safe house we live in. We are blessed. We…YOU… ME…we need to be grateful for what we have. Do the right thing. Help people. Grow a great business. And do what we can, even if we don’t make a dime.
Now, For a Moment — Back to the Art of NO.
There is a buyer for every deal, even for this crazy one. Just not me.
Some of you do a ton of deals in the family area, like divorce situations or out of probate. Some of you wouldn’t touch that. Too much waiting. Too hard to know if it will be a deal. Too much drama. You don’t like people in suits. Others prefer buying directly off the MLS, the use of a realtor and what we would think of as the most “normal” everyday transaction.
Some say you can’t get a great deal off the MLS. Others are on the front lines with homeowners wholesaling properties after getting leads from bandit signs or mailing to absentee owners. I’ve even knocked on doors. I’ve been yelled at. I’ve been invited in to the dining room table. You never know. There is a deal and a type of deal for everybody.
There are ultimately a ton of ways to skin the proverbial real estate cat — and over time, years of experience, learning, mentoring and being alongside others in the business who have done these deals over and over, we learn how to do them. I was reading the book The Warren Buffett Way by Robert Hagstrom a few years ago, and one of the astonishing things to me about Warren is how he looked at deals when he was buying them. This guy has a multibillion dollar company and owns parts of or entire major companies like Heinz, Benjamin Moore, Nebraska Furniture Mart and Geico. There were many things he looked at, but one of the big takeaways from the book — and yes, he had many more sophisticated investment analysts — but:
He Didn’t Buy What He Didn’t Understand
And we shouldn’t either.
Here’s the takeaway:
1. Focus: If you are new to real estate investing, find ONE thing that you are passionate about and start there. Fix and flip, buy and hold, whatever. But start saving your money. And start finding good people to work alongside; find a good deal and do it.
2. Find a Mentor: I can’t say this enough. A mentor is a must. They’ve been there. You haven’t. Take them for coffee, for lunch, actually care about them and their families. Don’t always call asking for help (or money), and use the two ears for listening, and the one mouth for speaking. In that order.
3. Get good: Do the deal, and do it well. Do it again. Rinse, refine and repeat. As you have success, make money and grow in your knowledge and understanding, you can slowly work you way into other areas. But not until you master this one. Once you learn one method, the others start to come much faster, and you can move into another area and repeat the process.
There are several moments in my real estate career that changed my life forever. Some amazing days, I collected a giant check or a wire to my bank account. That’s awesome. And some days I wrote big fat checks to an attorney and a bank. That sucks. In the case of the latter, if I would have had the guts to say NO to the deals in the first place, I wouldn’t have been writing the checks in the first place. I am not saying we won’t learn or that we won’t make mistakes, because we will. But it’s time to learn the difference between the opportunities that come that we understand and the ones that we should pass on.
Here’s to saying as many NO’s as necessary to get to the right YES’s.
When’s the last time you said “no” to a deal and knew you made the right decision?
Let us know in the comments!