(Everything in the following story is absolutely true).
A friend of mine told me there was a home in my neck of the woods and I took interest immediately.
It was through a wholesaler he knew very well. The story was, over a dozen investors tried to secure the home, but the lady who lived there was considered crazy.
She divorced from her husband five years prior and been separated a total of eight years. He stopped paying on the home and she was at minimum seven to eight months behind.
She was a hoarder. She smoked, was suicidal, desperate, and lonely. All the red flags which I should have read and taken to heart.
The ARV was on the low end $240K to $259K (median/avg) and she didn't want to split the profits 50%/50% with her former husband. He supposedly promised her 75% of the profits and he would keep the remaining 25%.
However, every time they would get close to closing, he would change his mind to 50%/50%. This back and forth dilemma killed every deal. Yet, this was just a small part of the reason every deal fell apart.
Their hatred and spite was second to none. He had not lived in the home for eight years and she felt betrayed by his drunken and abusive ways. He felt like she bled him dry and slowly groomed him to lose control.
I visited her and pitched her a deal she could not refuse. I told her we would lower the price to $100K, as they owed roughly $80K on the note... And I would pay them 50%/50% each, equaling $10K net per person as I would pay all the closing costs. I told her I would provide in writing the remaining $15K upon the retail sale of the home when she would earn the remaining balance of our agreement.
Now I am sure some investors are believing why bother when I could have bought it at the steps of the courthouse and wipe them both out. I could have potentially gone that route, but my best chance was to acquire the property before the auction.
Needless to say, even though the wholesalers lost the deal and their contract ended... I also placed in writing that I would pay them $5,000 for the phone number. Why? The Golden Rule. I've been circumvented and burned many times in the past and that wasn't something I felt I could not do. I wanted to be different, honest, and prove I was cut from a different sheet.
In the end, all the above was moot, as this couple's rage and spite for one another was too much to contend with. He would rather have quit his long time job and sit out in front of their house while the sheriffs removed her belongings from the home. On the other hand, she would rather have lost $25K and punish her former achilles heel, so every time he applied for credit, he would be reminded through rejection what he had put her through.
Long story short, after three weeks of minimal headway... I knew my old lesson of never becoming attached to any property would prove true yet again.
The rehabilitation and restructuring of property would have ranged roughly & up to $50K.
By the numbers:
$105K ( purchase price & CC )
$35K (profit for homeowners)
$45K (rehab: materials & labor)
$190K - Sub- Total
$10K (reduced commission)
$10K (holding costs)
$210K - Total
$250K (potential sales price)
=$40K (net profit)
Within four to six months... This should have sold and provided a very good profit.
However, this deal was too high risk in the sense of not closing.
It was time to fold em' up and move onto the next property.
Losing money I never had was not the issue. Instead, it was the idea of how do you help someone who doesn't want to help themselves.
This was in a great location with real estate having increased at least 30% over the course of several years.
The moral of the story: No matter how great the strategy is or how enticing the profit looms in the distance... One must know when to walk away. In other words, never become attached to the property as it my crumble apart right before your eyes.
I hope this story sheds an example of not allowing a deal to dictate your terms, but instead you dictating the terms.
Just my two pesos.
(Please VOTE if you like this blog lesson and want to see more)