I'm passing on good deals?

Question

I was talking with an investor recently and asked how the market was treating him.

I expected him to say finding deals was the challenge.

Instead, he said,

"I'm actually finding plenty of deals. I'm just passing on more of them than ever before."

His reasoning was simple: he'd rather do fewer deals than force one that didn't meet his numbers.

It got me thinking because that's probably the opposite of what many newer investors expect. They assume experienced investors buy more, but sometimes experience just makes you say "no" more often.

For those of you who've been investing for a while...

Have your buying standards become stricter over the years, or are you finding yourself taking more opportunities in today's market?

Robin Simon · Answer

I think there might be some long-awaited bits of distress in some flip markets for the first time in a long time -- maybe cause of this is just flips sitting longer

Jeff S. · Answer

"I'm actually finding plenty of deals. I'm just passing on more of them than ever before."

His reasoning was simple: he'd rather do fewer deals than force one that didn't meet his numbers.

I’m sorry, but this is nonsensical doublespeak. A good deal meets your numbers. If it doesn’t meet his numbers, it isn’t a deal. What is there to force?

Anyone in this market telling you they are finding plenty of deals is either faking it ’til they make it or is straight-up full of crap. We avoid the chest beaters.

With lower ARVs and greater days on market, it seems that many of the higher-dollar flips are now losing money. As a result, we recently cut our maximum loan amount in half. More loans, or not, for fewer dollars reduce our risk exposure, but at the expense of saying “No” more often.

Our business has slowed down as a result. That’s OK, because we’d rather have money sitting around earning Treasury rates than have it tied up in bad loans.

Sruly Goldschmied · Answer

Seeing the same thing from the lending side. The deals that make us nervous right now aren't the ones with thin numbers. Those are easy to pass on. It's the ones that look great on paper, where the ARV leans on one or two comps from a hotter market, or the exit only works if it sells in 60 days.

A few questions we've started pushing harder on every deal: Is the ARV supported by what actually sold in the last few months, not what's listed? If it takes 3 extra months to sell, does the deal still work? Does the borrower have reserves if the rehab runs over?

Passing on a deal isn't a failure. Forcing one that only works in a perfect market is.

Warren, cutting volume in half to keep your standards tight is probably one of the smartest moves anyone can make in this market.

Warren Mah · Answer

I'm passing on many more deals than I had in the past. My own personal underwriting guidelines have gotten much stricter due to the increased fluctuation in the resale market. As a reference I flipped 25+ homes last year and this ytd I'm at half of that. Not because of a lack of deal flow but more because I've been running my numbers much tighter, the same deals I would've taken down last year I'm passing on. I've taken the emotion out of deals and am buying strictly based on hard numbers incorporating longer hold times and increasing construction/renovation costs.

Jay Toluganti · Answer

It all depends on your lead flow and your strategy. I got like 50+ qualified leads in my inbox. I did not comp them because I dont want to list them during holidays.

I'm passing on good deals?

I'm passing on good deals?

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