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It'd be nice to always win, but (un?)fortunately you can't....
I wanted this next post to be about a win, but I guess a lesson learned is just as good. About four months ago I found a less than beautiful duplex online. It was listed at $89,000. Each side was a two bedroom one bathroom apartment. The property had been listed on the MLS for a little over year, so I figured it may be worth a shot to take a look.
I call the listing agent and set up an appointment to view the property for the following week. The appointment finally comes and I am terrified, even though I'm just looking at a house. During our walk through of the property, I learn that the seller inherited the property after the death of his parents and had no idea what to do with it. I let the agent know I was planning on fixing it up and renting it out. After some questions, notes, and a few photos we parted ways so I could analyze the numbers.
I knew that I could find a private lender who would do 100% financing of up to 70% ARV. For example, if a home was worth $100,000 after renovations (the after repair value or ARV) the lender would be willing to loan the full purchase and renovation price if the costs were going to be $70,000 or less. So for my deal, the ARV was about $135,000 -which put me at a max loan amount of $94,500 if I wanted to have the deal fully funded. The property was listed at $89,000 and needed about $10,000 in repairs - so I needed to convince the seller to come down... a lot.
I decided an offer of $60,000 would leave me plenty of margin if accepted and plenty of room for negotiating if declined. Terrified again, I call the agent and let him know I'd like to purchase the property for $60k and he tells me that is too low and the seller most likely wouldn't entertain. I thank the agent for his time and hang up.
Another month and half go by and I see the property is still listed so I call the agent again and ask him if the seller is willing to come down yet. He asks me for my offer and I tell him I can still make the financing work at $65k purchase price. After checking with the seller, he come back and lets me know that seller is only willing to go as low as $75k. I decline.
Two weeks go by and I get a call from the agent telling me that the seller is looking to sell the property and is willing to go down to $70k. I know this is a great deal but I tell the agent to let me look at the numbers again to make sure they work at this price. I knew the numbers worked, but knowing that I may be signing a contract to purchase an investment home scared the hell out of me. Like: "What do I know? I'm just a kid. What if something goes wrong during renovation? Should I be working with an agent?" Self doubt was sitting on my shoulder whispering fear and failure into my ear. BUT this is what I want to do. I want to be a real estate investor. What's the worst that could happen? I lose a couple thousand dollars and have to keep going to work. If I didn't, I was going to have to keep working anyway. I tell self doubt to shut up, call the agent back, and tell him to send me a contract!
After the contract is signed, I send the lender all of the required documents and purchase agreement. The agent tells me I have 5 days to send in an earnest money deposit (money held in escrow until closing to assure the seller that he will be compensated if our deal falls through and he misses other offers) of $1,000 and a proof of funds letter (letter from the lender showing that the money to purchase is available) or the contract will be void. As part of the contract I also had 10 days to perform an inspection and if it did not meet my "standards" I could pull out of the contract and get my $1,000 back. After that, I either close on the property or lose $1,000.
Unknowingly, the agent was telling my self doubt that I had two ways out of this exciting but frightening opportunity. And of course self doubt took it and ran. I didn't submit my check or proof of funds letter until the 5th day because I was so worried that I was making a huge mistake. The first way out was now gone and I only had a few more days to perform an inspection and decide to either push on or pull out. Fear. Again. But I pushed through again, got the inspection done and let the agent know I'm moving forward. Now we were just waiting on the lender...
This is where the deal fell through. The lender let me know that their approval process takes about 3 weeks, which gave us plenty of time within the contract deadline. Unfortunately, the representative of this hedge fund was a bit unorganized and apparently not aware of contract expiration dates. Long story short, the lender is taking forever and the seller finally pulls the plug on the contract (we were running on 3 weeks of extensions at this point) because he was getting interest from other parties. And that was it. $1,000 gone. No duplex.
I didn't win. I didn't lose. I learned. I got a little experience in negotiation, the private funding process, patience, contracting, rehab cost estimation, deal structuring and on and on and on. Considering some spend tens of thousands for real estate seminars and coaching, I think i got a lot of value for my $1,000 earnest money deposit. I could have never gotten any of this knowledge if I succumbed to my fears.
You just have to accept that you're afraid and do it anyway. You can only win or learn.
What fears are keeping you back from a win or new experiences? Let me know below!\
“A great book should leave you with many experiences, and slightly exhausted at the end. You live several lives while reading.” - William Styron