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Adopt a 'Why I Shouldn’t do this Real Estate Deal' Attitude

3 min read
Adopt a 'Why I Shouldn’t do this Real Estate Deal' Attitude

imageMichelle from Michigan hasn’t closed a deal in over two years, though it’s not from a lack of effort.  The real estate market there is in the tank.  It’s no wonder she left me two messages, twice last Friday and again on Monday.  She was excited about finally finding a profitable opportunity. I explained to Michelle that I’ve never been to Michigan.  I know very little about real estate markets 200 miles from me, much less 2000.  All I could offer her was some objective feedback. She proceeded to outline the parameters of her deal:

  • Custom home located on 3 acres of forest land
  • Appraised Value at $1.8 million
  • Purchase price $1.3 million
  • Move-in ready condition
  • Owner will carry with 20% down

 Michelle gave me a little more information about the area and then asked for my thoughts.  I told her I didn’t have any thoughts.  However, I did have several questions:

  • What’s your exit strategy?
  • What kind of ROI do you want?
  • How long will it take you to sell this house?
  • If you had to sell the house FAST what would the sales price be?

It turns out Michelle didn’t really have an exit strategy in mind.  She may live it the house for a few years and then sell it.  Or, she could flip it.  She hadn’t given much thought about an ROI but she was supremely confident the house would sell in about 9 months.  Michelle was also very certain the home could be sold quickly for $1.3 million. Ugh.  When presented with any real estate investment opportunity I always try talking myself out of the deal.  Michelle was doing the opposite.  Most of her desire to do this deal came from the fact that the .  Great I told her.  But without a clear exit strategy the terms are irrelevant.   What really concerned me was the acquisition price.  Michelle said the home would sell fast for $1.3 million and that it’s in move-in ready condition.  So if she decides to flip the house quickly she’d be paying full market value. imageIt’s important to adopt a why I shouldn’t do this deal attitude.  This can be tough, especially if you’re just getting started or going through a drought like Michelle in Michigan.  That’s why it’s a good idea to get feedback from an experienced real estate investor whenever possible. The investments I talked myself into cost me the most – in time and dollars.  By the end of our conversation Michelle understood why this deal wasn’t really a deal.  She promised to evaluate any future deals with a whole new attitude.  You go girl.