Getting My First Deal...
I've always had a glamorous & grandiose image of real estate investors...weird, right?! Yeah, I was one of those that thought the way to truly know you've arrived and become a big financial success is to let your money do all the work for you. BUT, i had no idea how to do it, and didn't have the first clue how to build any knowledge on the subject. For a very long time I thought it was just out of my reach, and may not be meant for me to do. BUT, I knew if i'd ever get close, I'd have to position myself to take a risk at some point. This is the story how I chose to take my first real estate leap of faith!
Anyway, when we lived in east Tennessee, I drove by a dilapidated 70,000-sq. ft. shopping center twice a day on the way to and from work. Over time, I watched businesses close and move out, the center fall into disrepair, it become virtually abandoned by the out-of-state owner, and finally clinging to life with the faint pulse of a sole business - a modestly successful local gym. In fact, before going back to school to complete my engineering degree, I had worked at that gym when the local hospital owned it years before (the gym, not the shopping center)!
So, I was itching to take a financial risk to increase my financial position and do "something," and one day it hit me as I drove home from work - "JJ, go look at the shopping center." So i called the broker and set up a meeting to walk through it. I had no idea what i was doing, or if i'd be taken seriously. I did know enough to keep from embarrassing myself, but only because I had bought a home for my family!
I met with the broker, and walked through the whole shopping center; it was awful. The anchor store (a 30,000-sq ft. space) was in disarray. Someone had broken in and stolen all the copper out of the AC units on the roof, evidence of animal life was everywhere, cats mostly. Later i found out why the cats were there...the local feral cat society set up shop behind the shopping center creating a make shift habitat for these feral cats, and would even come by and feed them on a very regular basis.
Apparently, I didn't embarrass myself; the broker called me every third day for a two weeks. Either he was a seasoned go-getter, or i was the first person in a very long time to show signs of interest in this property! His persistence encouraged me to figure out how to move forward. At the time, my two oldest boys were playing middle school football, so I talked to a handful of dads i was friends with and convinced them to look at this potential investment opportunity. We set up another walk through with my friends. their lack of knowledge like mine wasn't shadowing their excitement for the opportunity to do something big. The one thing we did agree on was trying to determine the condition of the roof. Clearly it needed repair, but to what extent?
Over the next several weeks (a couple of months, really) we did our due diligence. We checked off just about everything on our list of concerns, and formulated action plans for them. However, the elephant in the room none of us had any comfort level for, was the roof.
Now being the rainy season in Tennessee, it wouldn't be long before it would rain. We asked the broker to show us the center either during or right after a rain came through so we could see the real issues; as if the consistent water stains on the walls, columns and ceilings weren't enough to know the roofs were in really bad shape.
It just so happened both the broker and I worked in Knoxville. One morning, the broker called, and i recognized his number. Due to my current workload, I let it go to voicemail. After listening to it, I drafted an email answering his question about my interest in making an offer, and if i did make an offer, what it might be. Effectively, my offer was 40% of the list price, and i justified it saying the repairs would be at least again the value of my offer. Honestly, and because at the time of writing the email, i didn't have any guarantees from anyone - no partners, my wife, my bank...no one. I felt my offer was low enough to be realistically out of buying range, but not so low that the broker felt like i had totally wasted his time. I sent the email, and almost immediately my phone rang, so again, I let it go to voicemail. Just before leaving for lunch, I listened to the voicemail, hearing words i never EVER thought I'd hear, "JJ, I'm sending you an other email, and if you're serious at that number and are willing to put it in writing, I think we've got ourselves a deal!" So i signed the contract, and emailed it back to the broker!
That same day towards the end of the work day, I called the broker because it started raining, and asked him to meet us at the center so we could watch the rain pour into the building. I'm on cloud nine, right!? My first offer ever on a property, a large commercial property at that, and it gets accepted! AND on top of that, it starts raining - a requirement my potential partners and I asked to observe. I'm thinking, this is the best day ever! I get a property under contract, we get the rain we all wanted so we could further evaluate the property. It's all coming together perfectly!
After the broker left the property , my friends (my potential partners) & I met outside under one of the awnings to discuss the property. I'm about to tell them about the contract, and before i could a word out, all four of them backed out of the opportunity. They said the roof was too bad and it was a deal breaker. It was an existential moment. I couldn't believe my ears and wouldn't believe their eyes. I knew the potential far outweighed the current condition, but my confidence could not overcome what their eyes were telling them. So now it was literally and figuratively raining on my parade!
I left the meeting befuddled and wondering where do i go now? Fortunately, I had to go pick up my boys, who were now starting middle school basketball, from practice. Usually going inside to watch the end of practice, this time i sat in the car in the rain pondering my next move. The phone rang!
I answered it, and it was a gentleman who was a friend of my wife's parents. He was a retired gentleman, but one who was very active buying and selling all kinds of things - a guy who was letting his money work for him. He asked me how my real estate project was going. I should say now I had mentioned to him months ago during a football game one night that i was working on my first real estate deal, and he took interest in it offering advice and things for me to think about. Anyway, I told him what had just happened with my failed walk through in the rain, saying, "but I'll figure something out; I think this is too good a deal to pass up." Without batting an eye, he asked, "JJ, if you would entertain taking on two partners, I've got a guy i work deals like this with, and we'd be willing to work with you."
As cool as I could, I said I'd consider it, even though I was freaking ecstatic! He then asked if I had a contract, to which I said, "as a matter of fact I do." This was a Thursday. That Sunday, the three of us met, and I told them the story of the deal. We discussed the parameters of our deal, and put together the outline of what would become our LLC. I asked them what they thought of the contract price. They were blown away that the seller accepted my offer. This was the beginning of something i thought was very special - Getting My First Deal!
I could go on an tell the rest of the story, but I reserve that for the next installment!
Best Wishes & Good Success!
JJ