Newbie's first deal turns into first big blunder - Posted by DavidM

Real Estate Investing
1

Posted by Mike-Wa on June 27, 2001 at 18:01:03:

Here’s a thought. I buy VA,HUD and bank REO’s, rehab and sell. Some of the thinhgs I noticed that I do that you’re not are:
1)I have a very EXPERIENCED realtor…who is very experienced with creative deals.
2) I have a rehab guy do the inspection with me and get a written estimate. He finds DOZENS of things I missed…
3) Get a written estimate of the cost of repair and minus that number from the seller’s asking price and see if they will renegotiate, or…
4) WALK!
Just some suggestions. Good luck.

2

Newbie’s first deal turns into first big blunder - Posted by DavidM

Posted by DavidM on June 27, 2001 at 15:41:49:

Well, I attempted my first deal. I put a property under contract (a junker) hoping to flip it to a rehabber (a la Ron LeGrand techniques). I went to the property to look at it with an agent with whom I’ve developed a very good rappore. She’s a new agent, and I’m a new invester, and we’re both interested in learning.

For some reason, I really screwed up on this. I went through the house with my inspection checklist checking off items in order to estimate the repairs. For some reason, however, It totally slipped my mind to go around and look at the outside of the house. Turns out it has some structural problems on one of the exterior brick walls. So far, I’ve had TONS of calls, but no one that has looked at it has wanted to touch it. One guy with “a crew” was interested in making an offer, but is not interested in paying as much as I need in order to avoid losing money on the deal.

Fortunately, I only have $100 binder deposit down on the property. My question is this… It looks like I am not going to be able to successfully flip this property, so how do I get out of this gracefully and manage to keep my rappore with the agent I’m working with. I fear that she will no longer be motivated to work with me since I wasn’t able to close this deal.

Thanks,
DavidM

3

Re: Newbie’s first big blunder - Posted by Ronald * Starr

Posted by Ronald * Starr on June 27, 2001 at 21:16:10:

DavidM--------------

Calm down. Take a couple of deep breaths. Now relax a bit. There, doesn’t that feel better?

Don’t jump out of it yet.

Here are my suggestions.

Find out what the market value will be fixed up. You might ask your beginner agent to ask some more experienced agents to help her do this for you. Learning experience for you and her.

Get some estimates of the cost to fix up. You have some information about what needs to be done, perhaps that will do it for you. Get in two or three handypersons or contractors and get rough figures, at the least. Ask about alternative methods of handling the odvious problems.

Consider tearing off the brick and replacing with less expense siding.

Only when you have a better picture should you throw in the towel. Meanwhile, continue running your advertisement Make it clear that this is not a cosmetic fixer. When people call, be realisticly negative about the property so when they see it they are prepared and not shocked.

Try to find some positives to encourage potential buyers, especially the “potentials.” Ron’s Rule # 128: When you don’t have a good property to sell, sell the potential.

Do not give up until your time runs out, even delay the purchase a few weeks. These sellers are not going to mind. Better for them to wait a few weeks with a (more or less) certain sale than to go back out on the market again, starting over. You never know when the most generous buyer in the county is going to come see and make you an offer that makes you a profit.

Meanwhile, you might want to lower your advertising costs. Put it in the local free advertising papers and run it only on Sunday in the major paper. Could you put a “for sale” sign on the outside, with your phone number on it? Hmmm, probably not a good idea. Here, get somebody with a very run down house to let you put a “for sale” sign in front of their house. Best if it is on a busy street. Then redirect the callers to your rough gem.

Good Investing and Good FlippingRon Starr**

4

Honesty - Posted by PBoone

Posted by PBoone on June 27, 2001 at 16:28:47:

Honesty is always the best policy… Using the legrand method allowed for inspection, right? Why not go to the seller showing the inspection results and renegotiate the deal… You already have a buyer dont let this one get away!
Pat

5

Ron’s Rule # 128 - LOL (nt) - Posted by JT - IN

Posted by JT - IN on June 27, 2001 at 21:46:55:

.

6

Re: Honesty - Posted by DavidM

Posted by DavidM on June 27, 2001 at 16:51:48:

Pat,
I intend to be honest, it’s just that I’ve never been through this before, and I don’t know what proper protocol is. I want to be professional. So what do I do? Do I just call up my agent and tell her that I cannot close, and then she will notify the seller’s agent?

Also, I don’t think it would be profitable to try to renegotiate the deal. I happen to have found out that the seller is one of the “big players” in town as far as investors are concerned. I have looked at the tax records and I know how much they paid for the property themselves. If I would be able to flip it, they would be eating $6500 just to unload it. Evidently it’s been a problem for them too. If I would attempt to renegotiate the deal, I would essentially be asking them to eat more than they’ve already chosen to. I think they’re going to wind up eating it anyway, but I also think that they are going to at least want to try and hang in there to get as much as they can…

Thanks for your reply
DavidM

7

DavidM, RENEGOTIATE with the seller, - Posted by Carey_PA

Posted by Carey_PA on June 28, 2001 at 09:28:47:

you NEVER KNOW what they will accept unless you ask!

CAREY

8

Re: Honesty - Posted by SueC

Posted by SueC on June 28, 2001 at 07:51:30:

Yes, does your ispection clause give you an out? Also, there is no reason you can’t renegotiate the deal; especially if they know you will walk otherwise. Is there are requirement for a seller’s disclosure in your state? Something like this would be so obvious that the seller couldn’t say they didn’t know about it without violating the law (at least in PA). So, if you didn’t get disclosure, or they “didn’t know” about it on the disclosure, then I would use that as leverage.

Try to make this work before you walk, either by renegotiating or getting estimates and seeing if it will work that way. Then if the seller won’t work with you you have done all you could. I wouldn’t just walk without some other issue to base it on, such as the disclosure; you’ll jeopardize your budding reputation, possibly marking you for a long time as inexperienced.

Figure that you paid some $$ to learn to be more thorough next time (a lesson I’ve learned the hard way myself). Then figure you’ll make it back on a future deal where you learned from this mistake! Good luck!

9

Don’t give up yet - Posted by GL

Posted by GL on June 27, 2001 at 17:06:42:

If your contract gives you an “out” if the place does not pass inspection take it. Have the agent tell the seller that it is in worse shape than you thought and that you cannot do anything with it at the price you have agreed. Tell the agent that you would take it at “X” dollars and apologise for wasting her time.

The sellers may well take the lower offer. If they are willing to pay $6500 to get out of a mess maybe they will pay more. It may well be that if they fix it up it will cost $50,000 more than it’s worth and if it goes to foreclosure they will lose the $50,000 they have invested in it. In such a case if they lost $10,000 and got out of a jam it would be cheap.

If they are big operators they have made mistakes before, and they have learned that you have to get rid of them as quickly and cleanly as you can, before they drag you down. Because a bum deal can drag on for years, and it WILL eat up your time and money and drag you down.