The Best Real Estate Deal Might be the One You Never Do!

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Sometimes your best real estate deal may be the one you don’t make. As realDSC00838 estate investors we are always looking for the next “perfect” opportunity. You look around and see potential everywhere and are afraid of missing out. If you aren’t careful it can lead to a fatal case of gotta-do-a-deal-itis.

In your quest to stay in the game you may convince yourself that a marginal deal is one worthy of your attention. Even worse, you may find yourself ignoring warning signs about the potential investment or the market as a whole. When you are knee-deep in the investment world it isn’t always easy to remain objective but your long-term survival depends on it.

Case in Point

A couple of years ago I was offered the opportunity to partner on a rehab deal. Another investor had found what seemed like a great opportunity but was short on cash. I had cash looking for an opportunity so I looked at the deal. It was an REO (foreclosure) in a blue-collar section of Las Vegas. It was an area that had reasonable demand and there was enough of a profit margin in the deal to make it attractive. I was in and we moved ahead with the plan.

The Las Vegas market had started to slide and we were aware of it. We built the expectation of a lower sale price into the numbers and it still worked. An alternative exit strategy was to hold the home as a rental for a short time if necessary. The rental market was strong enough to allow for our costs to be easily covered but it would mean that our capital would be tied up. Still we considered this to be a worst-case fallback option.

As we moved forward things started to go wrong. The financing we had arranged and had pre-approved fell through. The lender had changed its guidelines and would no longer do the deal. We found another lender who would do it, albeit with a larger down payment, but no sooner had we agreed to it that it too collapsed.

Stepping Back

When the second lender pulled out we took another look at everything. On the surface it didn’t make sense. We were experienced investors with a track record and solid financials and the deal penciled out on paper. Lenders had become extremely skittish, even hard money lenders weren’t eager to commit. What were we missing?

It was a case of not seeing the forest for the trees. We were so focused on the tree that was the individual deal that we missed the forest, or overall market condition. The lenders were changing the rules so quickly because the market was collapsing all around them. We decided that the best course of action was to let the deal go.

A Better Deal

Hindsight tells us that we were witnessing the beginning of a steep and prolonged decline in the real estate market. Had we done that deal we would have been upside down by the time it was completed. The only real option would have been to rent it out until the market recovered. How long that would take is anyone’s guess, but it would have been a very bad deal.

Not buying that property left me with cash for another opportunity. Several months later I had the opportunity to purchase a house from an estate for pennies on the dollar. Ultimately, not completing that Las Vegas purchase was one of the best investment decisions I have made. If you find yourself itching to make any deal just to have a deal, remember that doing nothing may be the best option.

Risk comes from not knowing what you are doing. – Warren Buffett

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  1. Richard, you make some great points in your article…in my 30 years in the biz and being involved in the purchase and sale of thousands of homes I have many times been thankful for deals I didn’t get….I also ended up with many deals that later I wish I didn’t get…I did a 3 part series about passing up opportunities in Florida in an investor blog – first part is at

  2. Hello, My name is Elijah I’m located in south Florida which has a lot of good deal for short sale ,rehab and flipping. People are buying here when they see a good deal.There are still some good opportunities’ in the real-estate market yielding solid ROI of $50-$200K and more. However these properties do not last very long. The average property yielding this type of return lasts on the market for just a few days and have become a gold mine for quick thinking investors who are paying cash and can do a rapid closing. In certain parts of the states heavy home purchasing is taking place and these are properties that are in the price range of $150-$300 as the medium income of South Florida supports this purchase amount. These were originally homes that were priced in the $300-$600 so therefore buyers are pursuing these homes assuming that they don’t need any repairs, have several upgrades, are in desirable communities and especially appearing to be a good deal if which they can buy pass the complexities of the short sale process as well as multiple offer process.

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