How An Irritating “New” Investor [almost] Wrecked my Deal…
Is it just my imagination or are there a bunch of folks coming out of nowhere calling themselves real estate investors? Yes they’ve messed up a few of my deals, but they can just be downright annoying. But there is something I learned a long time ago; it was to always leave the negotiations with a friendly handshake and leave the door open so you can come back in later.
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The Perfect Situation; Both My Favorite Type of House and Motivated Seller
One afternoon recently I met with a motivated seller that had a very nice 3 bedroom, 2 bath brick ranch in my city. Brick ranches are one of the preferred types of investment properties here. This was also my favorite type of seller; the executor of this estate was also an absentee owner. This deal absolutely screamed “motivated seller”. He just wanted to get rid of the house and go back to sunny Florida.
The property had a partially finished walk-out basement with a two car garage which was also in the walk-out. It was about 35 or 40 years old and it was in a good neighborhood. The house hadn’t been updated for many years but even the ugly green ceramic tile in the bathrooms was pristine! The furnace and AC were original which was not surprising. Even though it was outdated, this home had been well cared for. There was however one big issue and it was a structural issue.
There’s Always Something….
This was a hilly neighborhood, and the property was on a fall away lot. It had some significant cracks on opposite sides of the house on the exterior. The floors were badly sloped on one side of the house. There were numerous other signs of this structural problem to be found in the home as well as in affected side in the walkout basement.
By my estimates the house would need about $15,000 worth of piers at one end of the house. Some of you may know that I owned a home inspection company for almost 20 years. So when I saw the obvious signs of structural damage, I knew immediately what the house needed. I also knew that he had just limited his pool of hungry real estate investor buyers. My experience told me that few investors, even seasoned investors, were going to want this property.
This man was like most sellers. He already had a figure in his mind; a price he wanted for the house. Without the structural issue, I could have easily paid him close to that amount for the property. But once the structural defects which were significant were factored in, there was just no way to come close to his asking price.
We had a long conversation and he understood the issues with the house and what it would cost to fix them. We also discussed how a lot of buyers would be put off by the whole issue of the piers and the structural repairs on the property when the house was resold. I made him an offer with a little “wiggle room” left for me which was of course, significantly lower that his original price. He told me he had to call his sister who was the other heir and also lived out of state, and he would get back with me no later than the next morning. I wasn’t really too concerned that he wanted to call me the next morning. When I left that day I was pretty happy and the seller seemed to be OK with my offer.
“Pretend” Real Estate Investors
When I met with the seller that afternoon, he had mentioned in passing that he had someone that held estate sales coming in three days to get the rest of the furniture. I told him that was fine, and that I would take care of removing anything that was left in the house.
Imagine my surprise when I spoke to him the next day and he told me he had received a “surprise offer” from the people buying the furniture. First of all, they were not supposed to be coming for 3 days. And, they had given him the exact amount of money he originally wanted which was $15,000 more than I had offered. This amount was also the projected amount needed to stabilize the house.
I asked the seller if the folks buying the house were experienced real estate investors. He replied that they indicated that they bought a house “from time to time and fixed it up”. I then asked him if they understood the nature of the structural problems with the house. He said he had pointed out the cracks on the exterior and they said, “Oh we find cracks all the time. We are used to dealing with those”. I am quite sure that at this point in their conversation, he simply just shut up! He got his asking price, and the buyers had no idea what they got.
The thing that bothered me the most was that unless this repair was done properly, they weren’t going to have a chance of unloading this house. Inexperience was definitely their enemy. They could “pretty up” the house all they wanted but in the end, they would have to do the structural repairs to sell it to any retail buyer. And once that expensive repair was completed, there was no way they will be able to make any money.
Always Leave the Negotiations with Grace and Leave the Door Open As You Leave
I thanked the seller and told him that if anything changed to give me a call. I set myself up to be “plan B”.
I kept watching the PVA to see if there was a change in ownership over the next 10 days or so. When there wasn’t, I sent him a note and told him I was still interested in the property at my original price if the sale didn’t work out for any reason. I also reminded him that I would pay cash and close quickly. My original plan was to call him in a few days to follow up. I never had to call him thought, because he called me. The potential buyers started stalling almost immediately. The seller said he had to wait for their contract period to run out and that’s what he did.
At some point, the “pretend real estate investors” found out that they were in way over their heads and didn’t close on the deal. The seller was really fed up by that time and never mentioned a price reduction to me again. Who was my buyer? It was a landlord that was thrilled to get the house and currently rents it for $950 a month.
Do you have any similar stories? Feel free to share ask questions in the comments!
Photo: francisco delatorre