Always Put Your Investors First

I had met few real estate investors at some real estate conference and we'd hit it off, we felt good about each other, so they brought this deal to me and they'd already done a lot of the due diligence and that was a pretty easy deal. I liked the numbers and said that I can raise some capital. So I came on the deal, I can't remember exact numbers, it was like $4.5 million, I think we ended our raise at $1.4 million. So we raised the money, we had our due diligence and then the boiler caught on fire like two weeks before when we were supposed to close on it. The boiler, which we're going to replace anyway, because it was old and then one or two apartment units got smoked. 

So we went to the sellers like you usually do and we said, we'll be happy to move forward and close this deal. The seller started getting kind of squirrely with us first they say, we want to handle the insurance claim and we want to fix the problem, but you guys go ahead and buy it and then we'll fix the problem after you buy it. So we said that doesn't work for us. We always directly communicate with the sellers, but if we went to our mentoring group and said, because several people had experienced this before. That's the beauty of having a mentoring group with an a group of investors, you can rely on to give you some feedback. This has happened before, everybody's like, the deal has changed.

You have no guarantee that they're going to fix it to your standards or fix it at all. So I think the other option was, we'll fix it and you guys will just push the closing out for another 60 days or something, but we'd already had our investor money for 60 days and we didn't want to stretch our investors out any longer. So we went back and forth for almost six weeks and it just seemed to go on forever. And finally we had a meeting with the partners and basically we've got to give our investors their money back, this is out of our control. And we went and visited the property too and they had huge generators in the parking lot, because of what happened is took out electricity in one or two of the buildings, people had to be put in hotels, vacancy started dropping, property was not maintained, these were out of state sellers, when we drove through there, the place was just a mess. 

I personally paid my investors 6% on the money that I held during the time because I felt bad. Some of this was IRA money, so soon after the due diligence costs everything we had out, I think I lost 20 grand on my first deal. Well that's not too bad as to what it could have been. And it didn't prevent us from continuing onto the next deal. So I started going immediately for the next deal, we kept looking for deals. I had a couple of other guys that we've been talking about partnering with and so we got together and by the way, you don't have to partner with people in your area for multifamily. There's a Springville, Missouri and one lives in Dallas, Fort worth. And so we started looking at deals, got a deal on Pryor, Oklahoma, and that's a hundred unit. It was $4.2 million deal, build in 1970, class C property, decent shape, didn't need a lot of money put into it, very little capital expenditures. We were just going to start raising, fixed the exterior, the office, we increased the size of the washer and dryer room and then start raising the rents. 

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