How to Survive When Your Real Estate Deal Dies

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We’ve all ran into the person who was taken advantage of in a bad real estate deal, but why does it seem to happen so often?  Maybe, some real estate investors are just shady to begin with.  Or, they just tell us what we want to hear, and the deal is too good to be true.

Unfortunately, real estate investing is one of those things in life that can go downhill pretty quickly.  There are unscrupulous people out there who scam people out of their money.  And, at the same time, there are real estate deals that can go south from other outside forces, like market conditions, changes in lending guidelines, lawsuits, zoning or township requirements, or environmental issues.

There are many other factors as well—probably more than I could mention here. But these types of situations can compound the negative real estate deals even more so because the shady investor can hide behind the same reasons.

“Why don’t they do what they say, say what they mean, one thing leads to another…” – The Fixx

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Bad Deals Happen

The dishonesty represented in the The Fixx’s lyrics is an all too common thing in real estate. People are always trying to pitch their great deal or real estate investment opportunity; they get the money, and then mysteriously you never hear from them again.  Personally, I’ve been in real estate deals that were mismanaged and went bad, and I’ve also been involved in others that went bad from unpredictable outside forces.  Regardless of the reason, I’ve seen some very big differences in how they were handled.

A Failure to Communicate

For example, I’ve seen the scenario where there was a total lack of communication.  As Les Brown says, “Honor your commitments with integrity.” I’m not saying that you should never exit a deal.

Sometimes it is better to get out, but you want to make sure you’re exiting the right way. The level of commitment and communication in a transaction is paramount. Once, I was involved in a commercial deal that went bad due to egotistical partners suing each other, on a perfectly good project (with plenty of cash flow), and the project finally went bankrupt over people vying for control.  That being said, I was still committed to representing my investors, so I took it upon myself to eat the legal and accounting bills. I spent a lot of time trying to protect our interests, while at the same time staying in constant communication with our investment group.

Although it didn’t end very well, many of those same investors are still with me today, I believe, because of the proactive communication and level of commitment.

Another commercial project I was involved in went down because of the market, and the folks running the project also failed, I believe, in their level of commitment and communication.  These were very smart people, especially when it came to real estate investing, but they were very poor at communicating with investors and showing their commitment to the project.

Unfortunately, the investors, including myself, were left unaware of the negative state of the deal. Maybe if they were communicating with us about the measures they were taking against the challenges of the market, I would’ve felt better about their management. But, that was not the case. No one ever knew what was going on. Due to the lack of honest communication, I do predict that they will have issues raising capital in the future.

Conclusion

Now you’re probably thinking, this guy gets himself involved in a lot of bad deals, and you’re right that there are more than I care to admit. But if you’re doing enough deals, at some point a difficult real estate deal will creep in there.  It’s really what you’ve learned that will make all the difference.

I believe one of the reasons that we’re so successful today is that we are totally committed to what we’re doing, in good or in bad times, and we always strive to have a consistent, honest level of communication with our investors. My partners and I believe in treating each investor’s capital as if it is our own. After all, staying true to your word also means promoting something that you would do yourself. So, I’m curious as to how others maintain integrity with their investors? Or, what actions and levels of communication/commitment have you, as an investor, dealt with that has made a real impact?
Photo Credit: PhotoJonny

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. - an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.

4 Comments

  1. In my business, funding, I’ve learned to celebrate when MY check clears.

    I really like your attitude – staying totally committed to what you are doing.

    Thanks for sharing.

    • Hi Kevin,

      Thanks for the positive feedback!
      Commitment is more important than many people realize. And, a lot of RE investors are reluctant to take the plunge into full-time RE investing. I know I was at one point. But if you have a plan and set goals, it’s a lot easier to pull off. For me, it was 20 units.

      Best,
      Dave

  2. Hey Dave,
    I admire that you didn’t let the bad experiences stop you from being successful. You know the good old cliche, the only people that never fail are the people that stay at home and never try anything. I’m sort of like that too, I keep trying different things; some work great, some not as great, but in the end we come out ahead 🙂

    • Hi Patrick,

      I definitely agree. There’s certainly nothing wrong with failing forward. Sometimes when people are so afraid of failing, they never try, and that actually becomes their biggest failure.

      Best,
      Dave

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