I say no to a lot of deals, and when I say a lot I really mean almost all that I get pitched, or that I’ve to found myself.
In someways it’s a good thing, in other other ways being such a deal snob has had me miss out on some really good deals.
There is a fine line between being “too picky” and being too relaxed on deal criteria. I’d say that the better the potential return, the more risk I am willing to take on a property. Since I look at a lot of odd ball stuff the numbers have to be so compelling that it would be silly not to do the deal.
So in this post I wanted to share some highlights of the “wish I would have” deals and the “so glad I didn’t” deals.
Investing in my friends hard money lending company
I won’t name any names here but back in 2010 I met a local guy who was running a hard money lending company as a one man show with not much to lend out.
We were introduced through a mutual friend, and he quickly became my go to hard money lender. We would often spend our Friday mornings standing at the court house steps bidding on properties.
He was also the one that suggested I use the BRRR Strategy to acquire rental properties and even gave me the hard money loans to make it happen.
Fast forward a few years and he had built a massive hard money lending empire.
The last time we talked, he had over $100 million in loans on the books. To say that he has built a successful business would be a huge understatement.
A few years ago I had mentioned to him that I needed a place to invest my self directed 401K (since it has to be a completely passive investment) and he offered me an opportunity to invest in his debt fund, which was the source of his lending of funds to other investors.
I reviewed his private placement memorandum and was too embarrassed to admit that I didn’t understand it, so I passed. I would have gladly given him the money, but investing with other people I didn’t know seemed risky and uncomfortable (I now think that syndications are awesome and a way to invest passively while still achieving a high rate of return).
By the time I checked in with him again (maybe a year later) his fund was fully subscribed, meaning he had raised all of the capital for that fund. He also he mentioned that he had paid out an ROI of over 30%+ to his investors that year.
I really wish I would have just invested that $50,000…
Buying this house + billboard for $30,000 in Everett, WA
Back in 2012 I found this pretty awesome (okay so it had been the victim of 2 fire but still) single family home with high density zoning AND a giant billboard in the side yard.
I even tracked down the real estate agent of the original owner, who had lost it to foreclosure, and learned that the previous owner had sold the rights to the billboard for $50,000 and that there were 5 years left on that contract.
In doing further research I learned that advertisers will pay thousands per month per side to advertise on billboards in this area. All I had to do was wait for those 5 years to be up (which would be now) and I would be raking in the dough.
I was headed out of town so I had an agent friend of mine write an offer, which the bank accepted. All I had to do was sign the paperwork.
Well, being out of town, I didn’t think it was that urgent (should have known better) and by the time I got back they had already sold it to another investor.
That investor didn’t seem to want to wait for the billboard rights to be up either, and he sold the property two years later for $147,750 – or almost 5 times what I had it “under contract for”.
To this day I stick kick myself when I drive by this property…
Buying this fourplex for $65,000 in Everett, WA
This is another beauty that I had under contract in 2011. It was a fourplex and I had it under contract for $65,000.
We completed an inspection and even though the rental income would be $3,200 per month I got a little scared away about all of the work. It probably needed about $30,000 (In 2011 dollars and contractor pricing).
Today this fourplex likely rents for $3,600 – $4,000 per month and is worth around $375,000.
Flipping this house instead of keeping it as a rental
This is a house that I bought sight unseen (no time for a drive by even) at the foreclosure auction on the courthouse steps.
It was one of those late bids, where the opening bid came out the morning of the auction and past the 10am start time. I quickly noticed that, did some research and took a chance on a property that was built in 2000. I was the sole bidder and scooped it up for $120,001 (you have to bid at least $1 over the opening bid).
The house was in great shape, and required about $7,000 to get it turned around with new paint, flooring and some yard work.
I could have, and should have, done the BRRR Strategy with this one.
Based on the ARV (After repair value) I would have been able to keep this with zero out of pocket and get a few hundred dollars in monthly cash flow.
Instead, I listed it on the MLS and sold it in the first few days with a sales price of $180,000.
This home is probably worth $300,000 today.
I’d also say that I regret selling almost every property I had flipped between 2010 – 2015. I guess the hedge funds really did have it figured out….
Then there are the ones that I am soooo thankful I did not buy
This hotel/apartment complex thing in the middle-of-nowhere
By 2013 I was ready to level up and get more units.
This converted hotel plus triplex caught my eye.
Sure, it was in the middle of no where but the numbers were so compelling I thought there would be no way I could lose.
I met with my long time banker, who had also given me construction loans to build single family homes. I showed him the numbers, explained the deal and waited for his agreement at my brilliant plan.
His response was not what I had expected…. He said he knew I would find a way to make this project work, and he was willing to give me a loan BUT on a personal level he suggested I think long and hard if I wanted to take this thing on.
I left his office feeling a little confused and disappointed.
The property had been a hotel, which was completely boarded up due to being taken over by local gangs and other criminals. Each unit was a studio apartment, and parking was limited.
The other building, a triplex, was almost falling over, and the connection to septic had been disconnected by a neighbor who stopped receiving payments from the owner. They were demanding payment from a new buyer to reconnect.
All I could see were dollar signs, all my husband, and anyone else I shared this deal with, saw were headaches.
Ultimately, I listened to the advice of others and decided not to move forward on this one.
A few years later, and completely by chance, a friend of a friend mentioned he was that owner of that place and it was all he could do to try and get rid of it. He regretted buying it, said it only attracted problem tenants and said we should be glad we didn’t buy it.
This property taught me a really great lessen: sometimes the numbers look really good, but you also have to look at the amount of time and effort that you’ll have to spend on some of these properties. Now I always consider return on time invested.
New construction development project with way too many challenges
Earlier this year I was putting together a syndication for a 12 unit new construction development in my area.
The site had some major design challenges, the side sewer stubs were too high to be used (meaning we would have to open up the main road to get new stubs) and the City was wanting all sorts of crazy layout specifications including a cul-de-sac for three duplexes.
Then the sewer district threw out a comment about possibly needing us to replace the entire sewer main in front of our project because is was old. The potential cost of maybe having to replace the sewer main would be tens of thousands of dollars, and not to mention take a significant amount of time.
I had been working on this project for 3 months, trying to get the City to agree to a more reasonable layout, and working with the seller to get him what he wanted while making it work for what we needed to accomplish.
When the City said they would require a cul-de-sac, we had to take the project down to 8 units which completely changed everything.
The costs were stacking up and I started losing sleep at night wondering how I could put this all together. Then finally, I decided I was trying way too hard to put make the numbers work.
If a deal is really that good, you shouldn’t have to spend much time on the numbers. I found myself running the budget and the numbers almost weekly.
I had spent 3 months and $4000 in survey costs before I finally decided to walk away, and that night I finally was able to sleep.
I learned that sometimes you have to be willing to walk away and write off your losses, and if I’m losing sleep over a deal then I need to move on.
Two houses in Detroit – frequented by drive by shootings
Back in 2013 my friend and fellow investor Deena (also featured in this investor interview) had mentioned she was thinking about investing in Detroit, MI.
I was intrigued by these $25,000 (or less) houses that were rented for $700 – $900 per month!
Deena had made a connection with a turn key company in Detroit, and she went under contract on two houses. So we decided to fly out to Detroit to check out the properties before she closed.
When we arrived in Detroit on a Friday night at 8PM it was a complete ghost town.
Never in my life had I gone to the downtown are of a major city on a Friday night to find the streets and sidewalks empty. We honestly thought there might have been some sort of evacuation or something.
Once we arrived at our hotel that was the first time for miles that we saw life. Much of the downtown area, except for an area called Greektown, that had restaurants and bars, was dead.
The next day we drove by the two houses the Deena had under contract, only to find that they were boarded up. Actually most of the homes in the area were boarded up or had been victim of fires.
We did not have any success finding deals in Detroit on that trip, though Deena made a great connection with a wholesaler after we returned.
He explained about the good and the bad areas to invest, and offered to sell us two turn key houses with long term tenants.
One house was $25,000 rented for $900 per month, the other was $15,000 and rented for $650 per month. We got the properties under contract, did the inspections and interviewed two property managers.
The first property manager informed me that the properties would be subject to an annual inspection by the City of Detroit, and whatever came up at inspection would need to be repaired in order to keep renting it out.
The other thing she offered was a service where they secure the property at every vacancy, and her explanation of securing the property meant removing the furnace and boarding up the windows and doors.
For a minute I thought she was joking, but quickly realized she wasn’t. She said if the houses were not boarded up within 24 hours then we could expect the copper to be stripped, furnace to be taken and the appliances gone. We might even have an unwanted squatter or two.
There was one last nail in the coffin for these houses, which was when Deena had a phone conversation with one of the tenants.
The tenant said she was happy in the home, that it was in a good area for her boyfriend who was an aspiring rapper (coincidentally this house was near 8 mile) though the drive by shootings were frequent and that was a bit frustrating to her.
After that last conversation we decided not to move forward with those houses, and Detroit in general…
Other than these deals there are a probably 100+ deals that I passed on either after reviewing the leases, completing an inspection or in getting one more layer deep in the feasibility. The stories on those are pretty boring, and my reason for backing out on those is pretty much the same… all failed to meet my return on investment.
Thank you to Gustavo for the inspiration behind this post! I LOVE it when my peeps make new blog post suggestions, saves me from having to think about what to write about 🙂
Do you have a deal that that you wish you would have closed on, or one that you are glad you didn’t? Feel free to share in the comments below!