Am I too slow or am I doing more due diligence?

Question

I recently missed out on a deal after spending 3 days calculating, calling contractors, and trying to schedule a time to look at a property. It was a two-house deal under one deed. One was partially renovated, but the renovations looked sketchy (20-inch wide shower, rippling siding, exposed lam beam in the living room hanging down about 10 inches, etc.). I calculated my maximum allowable offer at $71,000 because I have to use hard-money or private money at 12% as it’s my first deal. They were asking $85,000. I was finally able to look at the property only to be told as soon as I left that they just assigned the contract that day. I asked him how much it went for and he said $81,000.

Does 3 days seem unreasonable for due diligence on a first deal?

Todd Rasmussen · Answer

@Brandon Wood

For a first deal, you did just fine.

Someone, let's call him Joe, with more experience, knowledge of their market, buying power (including history of volume with property managers, contractors, agents, and title companies) can do a deal more efficiently than you can at this point. If you are competing heads up against a Joe, you are either going to take a smaller margin or lose the deal.

Track the property every week or so via county property records and see how much and when it actually sells. When I lose deals I check in with the seller, wholesaler, or agent every two weeks, a week before scheduled close and the day after. I haven't gotten any properties directly out of that follow up but have used it to build our network and am working on a portfolio deal now that came from someone who was referred by one of those individuals.

Treat everything like an opportunity and build your own metrics for your market. Call your contractor and let him know what you lost it by. Ask him what scope of work he could have done for whatever reduced fee you would have needed to offer what it sold for. Cut your gross margin by whatever you are asking him to cut his by and reevaluate. Would you still want the deal at the price it sold for?

Joe Villeneuve · Answer

You should be able to make an offer within 15 minutes.  Now before I get the wrath of God (or in this case BP) fired in my direction, let me explain that I don't analyze properties...I analyze Markets.  By doing so, I have analyzed every property in that market by default.  When one comes up (like this), I already know my numbers, and make my offer accordingly.  I inspect the property only AFTER I get an accepted offer.  That's what the inspection period is for.

Michael Ealy · Answer

I totally agree with you Joe.

People need to distinguish between making an offer and the due diligence phase.

Make an offer - tie up the deal first, then do your due diligence after you have the deal under contract. It's pointless to do a lot of analysis and call people upfront only to realize you don't even have a deal tied up.

Now having said that, as Joe said - you need to know your market very well so you know your property values and you should have a quick way to analyze the deal and make offers.

I wrote exactly about this last night - how we got a 279-unit portfolio and tied it up quickly (even though we didn't have the T12 - trailing 12 months income) beating out other investors (and in fact, we ended up selling 173 units of that portfolio to other investors who got beaten out). Here's the link:https://www.biggerpockets.com/forums/432/topics/796499-how-to-get-deals-in-todays-hot-market

Mike Dymski · Answer

It's a progression (and it's not linear).  With each property you analyze, knowledge increases and time decreases.  You are on the right path.

Darius Ogloza · Answer

Answer will depend on the market and on how hot the market happens to be at the time.  In Marin County California, for example, in recent years, it has been customary to make all cash offers with no contingencies on the day a property is listed.  In other markets, properties may sit for months.  Gauge your market and act accordingly.

Russell Brazil · Answer

Joe and I either disagree 100%, or agree 100%......here is one of the times we agree 100% and disagree 100% at the same exact time!

The part we agree on....When you know the market well enough, you know from a cursory glance what each property is going to sell for within a pretty narrow range, and you know from looking at the pictures typically, almost exactly how much you need to spend on that property.

The part we disagree on....and this might simply be a matter of the differences in our market is the use of the inspection period.  Most of my market, you simply cant use a home inspection contingency if you want to actually acquire the property.  In the rare events where we are getting them, if its a site unseen offer, there will need to be a non refundable EMD thats very large.

Joe Villeneuve · Answer

In my markets, making offers before inspections is par for the course.

Rick Albert · Answer

What I see investors do is get the property under contract and do the due diligence at the same time.  Once under contract, you generally have an inspection contingency, in which case it gives you an opportunity to back out if the numbers don't work and the Seller won't drop the price.  There are some costs to doing it, but that is the cost of doing business.

Brian Ellis · Answer

Yes, definitely. My scenario was after the offer was accepted. Mis-interpreted the posters initial question. An offer should be put in almost immediately.

Matt M. · Answer

@Brandon Wood

I agree with @Joe Villeneuve also. Once you are in the game, you’ll know what things cost, what to look for, etc. if the market is hot, there’s no time for 3 days of due diligence. I can be in a house for 20 mins and know pretty well what it’s going to cost to rehab. I have 2 investor clients (that aren’t contractors), that know in the same amount of time. My one guy doesn’t even bother to have me come with him to look. You just know..

Am I too slow or am I doing more due diligence?

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