This year of 2017 marks 10 years of me being in real estate. Out of those 10, I’ve been full-time just about five years. The time flew by. When I sit back and reflect at that point, I realize I am getting old. And no matter my experience, I continue to deal with the same types of people in this business. Before I elaborate, in no way, shape, or form am I saying ALL sellers are storytellers. And I am not saying ALL buyers are liars. The point of this article is to let you know that you will come across some shady characters, so don’t let that discourage you. It’s part of the business and has been happening since before I entered the business and will continue after I retire from this business.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
My Newbie Investor Friend’s Story
I have a good friend who is book smart out of this world and is ready to get started in real estate. She has been at it for over a year. And finally, a lead jumped right in her lap by just talking to a random stranger. This seller advised her that he had a mobile home on a waterfront property, but he couldn’t afford the HOA fee. The HOA had collapsed and was foreclosing on him. All mobile homes in the community were to be eventually destroyed. He also explained to her that the money was in the land because they were building houses in that community.
She got a price out of him. He advised her he would take $10k, just wanting to walk away with something. He admitted he worked at a low-end job and there was no way he could afford the back pay in HOA fees or to keep the thing. She got excited, but she did not know what to do and what steps to take.
Also, another big problem was that the property was 90 minutes away from her. She called me asking my advice. I told her to pull the sales and see what things were selling for. She told me a house down the road sold for a little bit over $300k. I told her the land had some value in it then. She then found out that the lots were selling for about $80k-90k. I said, “Lock this up and shoot it out for $60k. It will sell very fast and before HOA foreclosure.”
From Motivated to Tire Kicker
Well, when she was ready to get contract from the seller, he went from super motivated to tire kicker. He kept giving her lame excuses and dodging her calls. One minute, it was “my family said $10k was too low.” When she asked what did he want, he replied with $18k, and she said “OK, let’s write it up.” Then seller then said, “My brother is a co-owner; let me get back to you.”
After a few weeks of getting the runaround from the seller, I explained to her that this was normal. Some sellers will drag you around with their fabricated stories. I said, “One thing you could have done would be to ask him to sign the contract immediately, and even in that case, that would not have guaranteed anything.” I told her not to give up. He could have been shopping around, with family and friends telling him he could get more, etc. I recalled one time in particular, I emailed a seller a contract, and she kept saying she did not get it. I offered to meet up to sign, and she said she would not be in town. Then, finally, she came out and told me she signed another offer with an investor. That was not the first time that happened, and it definitely won’t be the last. The best thing you can do is keep your marketing automated with a service like REIVault or REI BlackBook. That way, your leads continue to roll in, and one bad tire won’t stop the show.
As far as buyers, when I was new to wholesaling and working with a partner, it was the deals where the buyer put up no money that ended up being the only deals that the buyer walked away from. In your assignment, put in a clause that your buyer has 24 hours to put up non-refundable money with attorney. Sometimes I tell the buyer, “I will market this until you put your deposit up with an attorney or title company.”
In conclusion, I wanted to give you this example to let you know these things don’t just happen to you. This is just part of the business. Don’t get discouraged; keep going. I recently had a seller defraud me out of $1,000 dollars for a property he said he owned. On the tax record, it said he was the owner, but he sold the property the day before. My end buyer did a thorough search and let me know a few days later that he was not the owner. The seller did not answer our calls or text for two weeks.
Well, I sued him and pursued criminal charges, and he was eventually arrested. I still have not gotten my $1,000 dollars back plus court fees. I still have no intention of quitting. And believe I actually got off easy because the person who brought the property can’t do any work on it due to the previous seller having pending charges of getting houses deeded to him illegally. Yeah, it was a mess. Every day will not be a shiny day in real estate, but you have to go through the storms to get to the rainbow. As far as my situation, should you give sellers money and off-market deals? Probably not. Have I done it before then and after then? Absolutely. I made probably a 100 times more than what I lost. I just have to take the good with the bad.
Have you had bad experiences with sellers (or buyers) backing out? How do you guard against this?
Let me know with a comment!