Real Deal REInvestor Network

About a month ago to the day, I finally got my first deal under contract. I found the seller through a bandit sign and boy was he motivated! He owned a rental property that he had paid cash for and couldn’t afford maintain it any longer. His personal residence was going through foreclosure and he had a ton of credit card debt that he racked up through a failed business venture. This guy was hurting!

So needless to say I rushed and got the property under contract for $17,500 and I promised I would close within 30 days. I hadn’t realized that once I got it under contract, I was about to be schooled in the School of Wholesaling-For Hardknocks. Unfortunately I didn’t close the deal, but here are the valuable lessons I learned through the process.

Lessons Learned

1)      LOCATION LOCATION LOCATION! Focus within your immiediate area when starting off! DUH!!

The house was located 1.5 hours away from where I live. Correction: it was 1.5 hours away on a good day, with minimal traffic. On a regular weekday it would take me 2+ hours to get there. Once it took me 3 hours 45 mins to get there!! Yes-traffic was terrible that day and I encountered 2 fatal car accidents on the way there, one of which a medical helicopter had to be called in to pick up one of the victims. God bless them. My daughters were in the back seat and they were not happy that day, which leads me to lesson 2!

2)      When meeting a seller: Leave the kids at home!

I had to bring my daughters with me a few times (ages 5 and 2) to meet the seller and see the property, and although I love spending time with them- I found myself fussing with them and trying to keep them under control when speaking to the seller. I felt this was very unprofessional on my part but it may have helped the seller feel more comfortable with me and view me as a family man. I’m not sure. But I learned, it’s best to keep business time and family time separated when conducting business. Some people may consider it unprofessional and rude when your kids are playing loudly , screaming and running around their problem property.

3)      Due Diligence! Know ALL the FACTS before making an offer!

After finding the ARV, market rent, annual taxes, HOA fees and other factors that are pertinent to the deal, I made my offer. “I’ll take it for $17,500!” , I said to the seller when I called him with my offer. But I under-estimated one thing: actual REPAIR COSTS. As a matter of fact, the word “under-estimated” is in itself an “under-statement” in this case. On this deal I estimated, in my own little mind, that repair costs would be about $1,000 or less. That would consist on a new interior paint job, and replacing a few bathroom fixtures. Yeah, this house is GOLD I thought and I made my offer. Ooopsie!

            After getting the house under contract and getting a copy of the key, I called in a contractor (contractor lesson learned is to follow) and we went and walked through the house. The contractor pointed out many OBVIOUS repairs that I had overlooked because of my initial excitement. Bathroom floor tile needs to be bleached or re-grouted, shower tiles were missing or falling, the bathtub had rust and holes in it and so water was leaking through onto the floor underneath, the ceiling throughout the house had become loose and was about to cave in (the 3^rd bedroom was BAD) so it needed to be reinforced, the roof in the back was rotten and obviously leaking so roofers were going to have to be brought in to repair it, windows were cracked and needed replacing. In total, it would cost well over $7000 to make these repairs. Take the time to gather all the RIGHT information before making your offer and negotiating! I'm not a contractor and I know almost nothing about contruction so I should have contacted a contractor from the start before making the offer.

4)      Contractors! Grrr…..!

The contractor I met with was one tough cookie. As soon as he saw me, he knew exactly what I had called him in for and he was determined not to help. This guy refused to give me a number to go by as far as repair costs were concerned.

After walking through the house and taking notes, I asked “So given all the repairs we need to make, how much would it cost me for materials and labor?” He replied, “Oh, I can’t give you a number."

I asked, "Oh? Why not?" and he answered, "Well a lot of people ask me that only so they can see how much their going to profit on the deal and give the job to another contractor. It's a big waste of my time. I just can’t tell you.”

I was HEATED after that! “What a waste of time driving 2 hours all the way out here for this estimate only turn up empty handed!” I thought. After pushing him a little more he was kind enough to say it would cost a lot more than $7000 but that he couldn’t tell me any more or give me a breakdown of the costs and, then he left. Somehow I felt cheated after that. LOL

Anyway, find a contractor you can trust and explain to them BEFORE you meet with them at the property that you will need a solid estimate by the end of the walkthrough so they know what you expect and what they can expect as an outcome of the meeting. Tell them if their estimate seems the most reasonable then they will get the job once you close on the deal or you will highly recommend them to the end buyer to do the job. It wouldn’t hurt to actually get multiple estimates either. I just went with the one, another mistake. 

5)      Re-Negotiate!

After finding that the repair costs were going to be higher than previously thought, I recalculated all my numbers and found that I was going to have a harder time selling it at the price I planned on offering it at and I would make less profit as well. But me being the shy introvert that I am, I refused to call the seller to re-negotiate for a lower price.

6)      Marketing! Let the world know dammit!

Once I recalculated everything, I was ready to market the property to the world. But I didn’t. For reasons yet unknown to even myself, I only listed the property on Craigslist, Kijiji, and Oodle. Why? Good question. Maybe because these sites were free. Although I could have afforded to buy a few bandit signs to post around the neighborhood, or maybe even a classified in the local paper, I simply chose not too. Perhaps I was over-confident that the property would sell itself through the ads I posted onine. Either way,  I am more than convinced that THIS is a major reason as to why the house did not sell. Next time, once I get a house under contract I’ll make sure to spread the word like wildfire and tell everyone and their momma about it!

7)      BUILD A BUYERS LIST!!

This should be at the top of this list as it may be the single more important key to wholesaling. Always have a buyer’s list available. Now although I did have a buyer’s list of about 30 investors, neither of them were “serious” cash buyers and they especially were not looking to buy investment properties 2-3 hours away. Now, I am on a mission to find SERIOUS cash buyers that can close at a moments notice. I’ve learned the hard way how important this really is.

These are a few of the lessons I learned from my first deal...which never closed. Many of these mistakes seem like common-sense but for some reason or another I missed the clues. All of you beginners out there, take a moment to learn from my mistakes. All you veterans, just have a laugh why dontcha! Heck, why let you have all the fun?  I’m laughing about these myself now.  :)