My Very Best Real Estate Deal May Not Be What You’d Expect

by | BiggerPockets.com

What has been my best real estate deal so far? The deal I didn’t do.

This isn’t a story of the big fish that got away. I’m sure we all have some of those. For me, the best deal or real estate decision I’ve made was choosing to walk away from a large multifamily investment.

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The One I Passed On

I walked away from this big 118-unit apartment complex.

At first it looked like a viable deal. It looked like the numbers could work, financing was a possibility, and there was room to push more value in it with some renovations, smart management, and new tenants.

We ran numbers, negotiated with the seller, and got our teams busy on it. Then we walked away.

Why? Well after really digging into the property, we figured out we’d need new roofs on all the buildings. That wasn’t in our budget. We could have tried to pull it off anyway, but we wouldn’t have been where we wanted to be financially. It wasn’t easy to let it go at that stage. But looking back, it was the best move — and probably one of the best decisions I’ve made in real estate so far (besides transitioning from single-family investing to multi-family).

Related: These Are the Real Estate Deals You Should Absolutely Avoid

Lessons Learned

I learned a lot in this process. Maybe some of these things will help you in your investing too.

1. Listen to the Seller

The seller had alluded to there being some roof issues, just not at that scale. When a seller mentions a potential repair, expect it to be worse than that. “Just needs new flooring” could mean you can see the ground through the floor. “Could use some updating” might mean it needs rewiring and re-plumbing throughout.

2. Get Financing Set Early

One of the smart things we did was to get with our lenders early. They sent out their own engineer and appraiser in a timely manner. Any questionable items they find during inspection are things you want to know upfront, not a day before closing.

3. Be Ready to Look at a Lot of Deals

Depending on your area, criteria, and types of product you are looking at, you may have to look at a LOT of them. Even if you aren’t that picky, you might look at a dozen before inking a contract. If you are looking for great profit margins and value, you might look at 100 on paper, run deeper numbers on 10, and sign one or two deals.

4. Get Contractor Quotes Early

The earlier you can get actual contractors out to inspect the property and provide quotes, the better. Those are much more reliable numbers than your rough estimates.

5. Have a Due Diligence Team

My due diligence team has saved me from making a lot of money mistakes. Have a numbers guy to run the deal and check your math. Have someone to check out the neighborhood, review local market data, and check the rental pool.

Related: The Worst Real Estate Deal I’ve Ever Done (And How You Can Avoid the Same Mess)

6. Be OK With Losing Money

If you are in real estate long enough and are active enough, you will lose money. You will burn money and time on due diligence, deposits, and other minor issues. That’s fine as long as you are making more than you are losing. You can’t get hung up on it. You’ve got to be able to stay objective and just keep going. We ultimately burned somewhere around $5,000 to $7,000 on this deal we didn’t do. We could have lost a lot more if we’d followed through. Don’t keep going just because you already spent or invested something.

After it was all said and done, we got some education and saved ourselves a big mess. We stuck to our numbers and remained objective. That’s what makes the difference in the long run, in my experience.

What have been your best deals?

What were the best ones you let get away? Biggest lessons learned? Share below!

About Author

Sterling White

Sterling White is an investor and business owner on a mission to make the world a better place through principled and efficient real estate investment.

Even before co-founding Holdfolio, Sterling and his partner Jacob Blackett had been involved with the purchasing and selling of over 100 SFRs. Today, Holdfolio is a prominent platform for investing in income producing multifamily apartments. The firm has been featured in national publications such as US News and was ranked as one of the best real estate crowdfunding sites in 2018 by Fit Small Business.

The success of Holdfolio’s technology gave birth to SyndicationPro, a fast growing all in one software solution empowering investors to efficiently and easily raise capital online.

7 Comments

  1. Cody L.

    Funny you say that. I was having lunch with a friend of mine that has a few hundred units. It was back when I had about the same #.

    I asked him if he regretted any deal he ever bought. He said “no”.
    I asked him if he regretted selling any property he ever sold. He said “All of them”

    If the numbers work, don’t let a new roof scare you. I bought a property about 3 years ago that needed a new roof. I’ve yet to need to put on that new roof. “needs a new roof” doesn’t mean “Doesn’t currently have a roof”.

    In my case, if/when I do replace, I can do them a building at a time and easily pay for it out of cash flow. And honestly I’ve gotten offers to buy that property for WAY over what I paid so if I take one of those offers, I’ll have never put that new roof on.

    If the fact it needs a new roof or a new fill-in-the-blank is baked in the price, that shouldn’t be a deal breaker.

    • Dave Rav

      @Cody L. Great points. Yes, I guess there are many ways to look at a deferred maintenance item.

      As in the case of the roof, you can do building by building. And I definitely agree on the “needs a roof” concept… it doesnt mean it doesnt currently have one! I’ve been in more than one scenario where dated systems or components have outlasted their recommended replacement dates. (just be ready in the event the thing does fail – it could go at any time)

      One argument FOR this article – maybe they would want to take care of this deferred maintenance item DURING the early acquisition phase. That way they can put the property on “cruise control” and set it and forget it. Versus having to handle (and think about) the repairs over a period of say a year or two. Just another perspective .

  2. Cody L.

    (my conversation above reminds me of a more aggressive friend, who got to about 2000 units before selling everything and taking an absolutely sick amount of money and deciding to ‘retire’. He says quite simply “if you can finance it, buy it”. I’m not suggesting that for everyone, but for myself I’ve not often walked from a property that is well priced that I’m able to get financing on. I’ve bought some hairy stuff. Another friend — hey, I’m popular — said of a few of my properties “That’s a dog! No, that’s a dog with flees!”. Yet those properties are my fat cash cow money makers so go figure…)

  3. Hayden Crabtree

    Great Article Sterling! I recently learned the importance of getting your appraisals for you lenders set up early.

    Do you make offers on every deal you look at, at numbers that would work for you, or do you only make offers on certain ones that you think your offer will be closed to being accepted?

  4. Dave Rav

    Good post! This just happened to me as well about 3 weeks ago. I had a SFR under contract at a 40% discount and knew I would have awesome cashflow once it became a part of my portfolio.

    However, upon performance of due diligence, I found out several things that would a) cost me more money than anticipated and b) very likely create ongoing headaches with this property.

    The first issue was the utilities. Everyone (even the utility co themselves!) thought this home was on county water. They even allowed us to open and account and put a deposit to begin service! However, upon their rep coming out to the property we found there is, in fact, no tap and no water line to the home! The reason this happened is explained below, but essentially, they had mislabeled this property address in their system (more on that). To obtain water, we would have to pay the tap and impact fee of $3k! I def didn’t budget for that one.

    So, about that address issue. Yeah, apparently the geniuses who designed and planned this street didn’t plan for ongoing development. The house numbers didn’t allow for expansion and future growth. Result = home numbers out of sequence. Imagine driving down a road and the homes and numerically out of order. WTF! I was blown away the city planners allowed this to happen. Utterly ridiculous. And something, I would not be able to change. Into the future, I foresaw myriad issues with coordinating contractors, tenants, and anyone else trying to locate this home as the GPS would be wrong. To some this may have been a small issue, but for me, no thanks. I dont need to take phone calls from every single person every single time they go out to the property. Pass

    So, yeah, I was out the costs of the inspection, and the deposit and a small bill for the electric utility. But I am glad I didn’t proceed. I hate to waste money, but this one was worth it. Live n learn, people

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