The Deal Everyone Wants to Save
I've watched deals slowly turn into completely different deals without anyone noticing exactly when it happened.
They usually don't fall apart because of one enormous problem: it's $5,000 here, another repair there, an appraisal that comes in a little lower than expected, a closing delay that adds another month of carrying costs, a seller who won't make the concession everyone assumed he'd make...
And every time something new appears, everybody looks at it and says essentially the same thing: "Well, we have to do it."
And at that particular moment, they're usually right. You've already come this far. The inspection is done. Financing is moving. Attorneys have been paid. The contractor is waiting. Another $4,000 doesn't seem like a reason to kill the deal.
Then another $3,000 appears.
Same conversation: "What else are we going to do?"
That's the strange thing about a deal once it's underway. Every additional expense starts looking like a necessity because you're no longer choosing between this deal and every other opportunity in the market. You're choosing between paying the additional cost and abandoning something you've already spent weeks - and money - putting together. This deal becomes the only possible deal in the circumstances.
And often, that actually stands to reason. You could walk away, start looking again, find another property... and discover another inspection problem, another repair, another appraisal issue and another set of closing costs.
Maybe the next deal develops exactly the same way. But then again... Would it? Would it really?
That's the question I think we sometimes stop asking. At some point, you have to forget what the deal looked like when you first found it. Forget what you've already spent. Forget how much work everyone has put into getting this far.
Look at the deal exactly as it exists today. If someone put this property in front of you for the first time, with today's price, today's financing, today's repair budget, today's appraisal and everything you now know... Would you still buy it?
That's a much harder question than, "Should we spend another $4,000 to save it?" Because $4,000 may be perfectly reasonable. It's the previous five "perfectly reasonable" decisions that changed the deal.
There's another human factor involved, too: everyone wants to save a deal. The investor wants it to work. The agent wants it to close. The lender wants to find a solution. The contractor wants the project. Nobody wants to be the person who finally says: "Maybe we shouldn't save this one."
But sometimes that's exactly the conversation that needs to happen. A deal doesn't know how much money you've already spent on it. It doesn't know you've been working on it for six weeks. And it certainly doesn't owe you a profit because you've worked hard to keep it alive.
I've learned that sometimes the hardest deal to walk away from isn't a bad deal. It's the deal that used to be a good one.
(Have you ever looked back at a deal and realized you couldn't identify the exact moment when you should have walked away?)
- Drago Stanimirovic