How a Lack of Confidence in My Real Estate Calculations Just Cost Me $25k

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This article is a little different from any other article that I’ve ever written. As I write this post, it is difficult because I am writing from a position of pain. Although this is difficult for me, I am using reframing techniques to turn my sorrow into success. I will explain this shortly, and you’ll understand my pain.

Many real estate newbies start with a high level of confidence and are extremely excited about learning a new profession. As in many situations when beginning something new, it’s easy to be blinded by ambitions. You’re very eager and extremely excited about the new journey. These are the emotions that many newbies have until they face the harsh reality that real estate investing, especially wholesaling, is more difficult than advertised.

Although there are ebbs and flows in real estate investing, you must remain consistent. There will be times when you feel you can do anything and get any deal you want, and there are times when you may feel you made the wrong decision to go into real estate, but this is the time to persevere and get your emotions under control.

You must be confident, and you have to overlook others’ perceptions of you.

I stated in the opening of this article that I am writing from a position of pain, and my pain point is very valid.

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The Experience

Recently, I received a call via my marketing, and the seller was very transparent. He informed me that he had to sell, and he had previously contacted a few other investors who were interested in his property. We had a normal conversation like any other seller call. I was able to get all the information about the house and exactly why he needed to sell. He also informed me what the other investors were offering. Although I knew this to be a common tactic to get a higher offer price, I still considered what he was saying.

Related: 6 Common Mistakes Investors Make When Starting Out in Wholesaling

The conversation was straight forward. We actually had similar hobbies, so the rapport building aspect of the conversation was very easy. Before ending the call, he stated, “I’m not sure why I am telling you this, but you seem to be a pretty nice guy.” That was good to hear, but I really didn’t understand why he was telling me that, so I simply ended the conversation by setting up an appointment to view the property the next day.

After the conversation, I followed my traditional path of looking up the house. I ran comparables and looked at the history of the house to see when he bought the house and how much he bought the house for. I continued on my normal path of doing my research. However, when looking at the property, it was distinctly different from all the surrounding comparable properties. This house was completely converted into office space, so there weren’t any bedrooms, and the kitchen was converted into a kitchenette. This was not the problem; the challenge I faced was that the property was built 20 years earlier than the surrounding comparables. Also, the lot was huge and had a 5-car garage added, compared to the standard 3-bedroom, 1-bath home built in the 1940s.

I had a dilemma — not being well versed in doing BPOs, I had no idea how to comp this thing, but I had a pretty good baseline. It had to be worth more than the surrounding properties. I figured that out, but by how much was the question. I had done some research and spoken with some other investors to try and get a gauge on this, and I finally came up with what I believed to be a justifiable ARV.

Why Confidence & Perception Are Essential

I called the seller back within 24 hours as promised, and I made the offer, which was slightly above the competing offers. Remember, the guy did say he liked me and gave me the numbers of the other investors, right? He accepted my verbal offer, which I believe had a $100k spread in it, so this would be a great deal for someone; however, I was not confident in my numbers. Because of this, I waited to send the contract. During that time, I talked myself out of the deal because I was not confident in my numbers and afraid to take the risk. Also, if I was wrong, how would my buyers perceive my deal evaluation?

Here’s the Deal

I’m hurting, and here’s why: The following weekend I notice the same property in my email being marketed by a fellow (creditable) investor with a $25,000 wholesale fee above my verbally accepted offer. OUCH! Yes, you heard me correctly. I offered $185k, and it was in my inbox for $210k. The only solace I have right now is, when I called to inquire about the property, I had not received a return phone call, so possibly we were both wrong, but that is highly unlikely. Currently, I’m waiting to see if the property closes and for what amount.

Related: Here’s the Biggest Mistake I Made Starting Out in Real Estate: What’s Yours?

The Wrap Up

It is important to be confident in what you are doing. You have to convince yourself that you put in enough time and study to know that your figures are correct. Since I was not confident in myself and let my fear of how others may have perceived me get in my way, it cost me $25k.

This is possibly an expensive reframe, but I understand now that I have to perfect my craft by working more comps and taking a BPO/appraisal class. I also need not worry about how others may perceive me and continue my work. You win some, you lose some. I hope the deal closes for the other investor. Lesson learned.

I’ve shared my failure. Please learn from my mistake.

Is there an area you may not be as confident in? What areas are you doubting about yourself?

Please share! You could possible help someone before they make a critical mistake.

About Author

Marcus Maloney

Marcus Maloney G+ is the Executive Officer of Equity Realty & Investments as well as 3rd Generation Management & Holding LLC, both are family owned and operated real estate investment firms. The firms' goal is to provide affordable solutions in real estate while providing exceptional opportunities for community redevelopment for the residents of Phoenix, Arizona and Chicago, Illinois. You can follow Marcus on Twitter

14 Comments

  1. Andrew Syrios

    Real estate is definitely an inexact science, especially comping out properties. While due diligence is extremely important, I think it’s also important, as you suggest, to have a bias toward action. Pretty much any entrepreneur must.

    • Marcus Maloney

      Andrew,

      Thanks for reading, yes investing is a science but as an investor we must take risk so we can’t be gun-shy. Lesson learned, I am an optomist so I know that I will make that money back + 10Xs, every entrepreneur take risk and fail but its having the fortitude to do it again and again until you get it right.

      “Enjoying the Journey”

  2. Jeff M.

    Marcus:

    I appreciate it when people have the courage to not only face their “mistakes” but share them with others. As you know, and as others have said, we learn the most by doing. We do our homework, do our diligence, and do our business. Thank you for sharing this reminder with others so that we can learn with you. Personally, I am only about a dozen deals into my career and I am looking at a deal now. I think it pencils reasonably at $240k, that it might sell for $175 and that I would feel good about $200k. There are risks, as always, and it’s a lot of work. I am going to offer $200k and take my chances. Do I expect to see it sell for $240k, refurbed with $25k and listed in 6 months for $300k? Yes, probably. But that is the excitement of this business. No one really knows and we learn by doing. Thanks again,

    • Marcus Maloney

      Jeff,

      Thanks for the inspiration and reading the article. What you said is very true the excitement is converting an opportunity. I believe if you are not enjoying what you do and your heart is not in it then you need to stop. I love investing the ups and the downs, as with any opportunity some may convert and some may not but as longs as we have the foundation there will be more wins than losses.

      Get that deal done 🙂

      “Enjoying the Journey”

  3. joseph knapp

    Marcus,

    Thanks for posting this mistake from which the rest of us can learn.

    What about your numbers caused you to lose confidence? The difficulty comping it?

    If presented with a similar scenario tomorrow, what would you do different, if anything, to put you in a position of confidence with your offer?

    Thanks.

    • Marcus Maloney

      Joseph,

      Great question and assessment, I would have pulled the trigger, I second guessed myself on my analysis of the comps which was pretty spot on. I believe another thing I would have done was run it by one of my fellow Realtors and see what numbers they were able to generate. So to answer your question I would not have tried to do everything on my own.

      Thanks for reading and asking that question so others will know what to do if they run into a similar situation.

      “Enjoying the Journey”

    • Marcus Maloney

      Lance,

      No need to apologize information is power.

      BPO (Broker Price Option) this is an evaluation that a Broker or even a Appraisar would use to evaluate a property. So for example what exactly is the value of having a pool versus not having a pool, does this increase the property vaule by 10k or 20k. This is objective but the BPO minimizes some of the objectivity and places a dollar amount on everything.

      Thanks for reading.

      “Enjoying the Journey”

  4. Marc Jolicoeur

    Appraisals, BPOs, and investor estimates of ARV are just estimates of value. Maybe if nobody wants the odd house after it is flipped it may not sell for the higher ARV the other investor estimated. Update this post in a few months with the retail sold price!

  5. Cornelius Charles

    Hey Marcus. Appreciate the article and your willingness to share. However, you state yourself that there was an absence of good comps for this property. Your lack of confidence in your numbers seem reasonable since there was no good data to back them up. Guess it is up to everyone to examine their risk vs reward criteria. Thanks again for sharing and would be interested to hear what the final sell price for this property ended up being.

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