A Story of Shoulda Woulda Coulda…

2012 was a big year for me. I had just relocated to a new market, got my real estate license in a new state and knew almost no one. In December of 2011 I thought it would be a good decision to move from New Mexico to Arizona. I was in my early 20s and needed a better social scene, not to mention the real estate markets seemed to have a lot of promise.

At the time listings were as good as gold in the Phoenix metropolitan area. The demand was high and the inventory was low. For most of the year, there was a 1.3 month supply of homes in the market. So if no new listings were added to the current inventory at any given time, the existing supply would all be purchased within 1.3 months. Thats crazy! A healthy market should have somewhere around a 3 month supply.

We had buyers from all over the world coming in with all cash offers for almost every deal.

During this time I was really focused on farming listings, I picked a few neighborhoods I really wanted to focus on. I hit them every way you can imagine, mailers, flyers, I knocked every house door, etc. Doing this I was able to get some listings and start to network a little with some investors.

The Big Deal

Through networking I ended up running across a deal that showed a lot of promise. It was for a development of 6 luxury condos in downtown Tempe, AZ.

The asking price was $1,100,000, the seller wouldn’t sell them individually and all but one unit had renters in them. The condos were bringing in about $1,400 per unit on rent. So if you filled the last unit you would be bringing in about $8,400 a month in rent.

Honestly with numbers like that it wasn’t really a property any of my investors would want to hold as a rental. The cap rate just wasn’t where they needed them to be comparative to the rest of the market.

The value in this property wasn’t in the rental income. I knew with the current market inventory, amenities, and condition of the property that each condo could sell for between $250,000 to $275,000 each if you took the time to split them up and list them individually.

Luckily I had a couple of investors who focused solely in luxury flips. I called them up right away and took both out to see the property. I figured I could make a good string of commissions if I represented them on the purchase and then the sale of each condo after. Not to mention they would make a good deal of money on the flip.

Unfortunately neither of them could see the vision of flipping out of the property. They were both too fixated on holding them to rent. The only problem with that was the low cash flow for the price point. When it was all said and done they both bowed out.

So here I was with a deal i knew was amazing and would sell without a doubt but had no money, no taxes for the last 2 years (I had just finished a two year stent of 100% volunteer work before I moved to Arizona) and no investors.

So I called up the sellers agent, he told me the seller was really motivated, he needed to pull the money he had in these condos out so he could finish another development he was building. I decided I would throw my hat in the ring in the only way I could. If they took it awesome, if not I didn’t lose a thing!

The Offer

I wrote up an offer for $800,000. I gave myself a 60 days inspection period with the right to market the property during this time. The plan was to come up with the $8,000 for earnest money, market the unit that had no tenants in it for sale, find a buyer and run a double escrow to come up with the 20% down I needed on a private loan for the remainder of the note. Then I would sell off the other 5 units through the remainder of the year and cash myself out.

I knew getting that offer was a LONG shot to say the least but the sellers agent seemed really intent that the seller would consider anything we gave him. So, I shot it over.

The next morning to my surprise I got an email back from the sellers agent. He said the seller would be willing to sign and accept the offer contingent upon me providing a statement of financing… I didn’t see that coming.

At this point I’m ecstatic! The comps on this property were so high above my offer price I didn’t see any problem in locking down a private money loan in a week or so.

There was just one problem I had just moved to Arizona and didn’t know any private money or hard money lenders… So I started pounding the pavement. I started making call after call trying to set up appointments to come in and look at financing.

The Problem

I can’t tell you how many lenders I met with over the course of the next month. What really blew my mind is over half of them couldn’t understand the deal. Some had been in lending for over 10 years and couldn’t understand the principle of a double escrow. They wouldn’t lend on the property because they couldn’t grasp the concept of where my down payment money was coming from.

(If you are unaware of what a double escrow is, it is where an individual purchases and sells a property at almost the exact same time. He simply takes the money from the buyer he has found, gives the amount he has agreed to pay the seller for the property from that money and closes both deals.)

The other half wouldn’t lend on the property because of my lack of past financials and I’m sure some just weren’t comfortable giving a kid under the age of twenty five $600,000 dollars.

 

Finally after a month I found my guys! I still remember, I pulled up to their office in Scottsdale, aka richville, and they both had their new Lamborghinis parked out front. I went in to meet with them and long story short, they liked the property, understood the concept, were impressed by my knowledge and research, and agreed to finance the deal! Halelehua!

This is when I started thinking about how I was going to re invest the $500,000 dollars I was going to make this year. I had it all planned out, I would 1099 it into four other investment properties all bought in cash. Oh yeah!!

The Downfall

I emailed over the proof of financing as soon as I got it and was getting ready to market this condo like never before!

Then it happened, the sellers agent called me and let me know they signed an offer three days before for $900,000… I missed the deal by THREE DAYS!!!

There it was $500,000 gone just like that. Now I know thats just speculation and who knows if I would have been able to sell the condos or not… Oh wait, I do know!

In Arizona purchase price and mortgage amounts are public data. This means I can look up any address see when it sold, for how much, and how much of that purchase price was a loan.

A year later after I nursed my wounds I was curious what the buyer of these condos did, so I looked them up.

The buyer broke them up, and sold them each individually over 6 months for the average price of $265,000 per unit. Dang my comps were good!!

The Lesson

What I learned from losing $500,000 dollars: There is nothing more important than having a list of resources. If I would have spent some time networking and finding good private and hard money lenders before this even happened I would have been able to secure that financing in under a week.

I’ve put together my list of online real estate marketing resources to share with you. This is a list of tools that I use everyday to bring in leads and market real estate online. Some of these tools took me a long time to find and some are pretty common. I have also included links to a lot of the guide that inspired me.

Check out my list of resources right now! Who knows, it may save you from losing $500,000 dollars.

P.S. Leave a comment and let me know the most valuable resource on your list!