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

[Brandon Wood]

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?

[Darius Ogloza]

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.

[Brian Ellis]

What is your risk tolerance? 

I did about 3 weeks of due diligence on a commercial property, and I hammered the seller with questions and extensions. But the purchase price was also 400k and there was a lot to lose, with little room to escape. After the seller knew I was checking with the towns conservation zones, he threw in the towel. 

Do I regret it? No. In hindsight it was too much work.

I ended up purchasing a single family a couple months later, and it turned out to be a safer deal, but still a deal. 

Just move on to the next one, and don't be afraid to jump in if it feels right. Cant rely on contractors too much. There will always be hiccups along the way and challenges you will face. I have yet to come across a deal that goes as planned. 

[Joe Villeneuve]

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.

[Todd Rasmussen]

@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?

[Brandon Wood]

@Todd Rasmussen

At $81,000, there would’ve been no wiggle room on the rehab. I budgeted $10,000 extra as a cushion on the rehab, and it seems as though others were simply hoping nothing unforeseen came up. I was thinking there had to be a reason someone left the job after dumping ~$20,000 into it. Either they ran into something they didn’t budget for, or they ran out of money. Both worried me enough to budget the extra $10,000. Also, does 12% interest seem close to accurate for hard money? I had a friend who was able to get 8% on private money, but they wouldn’t finance the rehab on his project.

[Brandon Wood]

@Brian Ellis

Since it’s my first deal, my risk tolerance is lower than most.

[Michael Ealy]

Originally posted by @Joe Villeneuve:

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.

 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

[Brian Ellis]

Originally posted by @Michael Ealy:

Originally posted by @Joe Villeneuve:

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.

 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

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

[Dan H.]

As others have indicated it is acceptable to make an offer based on what is known and then during the contingency/diligence phase if you find out something material that makes the RE worth less you can either make a lower offer, ideally presenting the rationale, or pull out.  That is what this phase is for.

Now for why the $81K can potentially work for one investor and not another. You already are aware that your interest rate is high. Someone with a conventional loan would have different numbers than you would have with your HML. This is an initial burden that you have but it may not be the only burden. I have rehabbed a fair amount of units (I have more experience than most in my market), but there are people in my market that can do it significantly cheaper and faster than I can. I recently looked at a value add property that I did not make an offer because there was already an offer appreciably above what I was going to offer. If I had offered the same amount it would not have produced the return I desired. Well it sold for even a higher amount due to multiple offers (I suspect I would have lost money at the amount it sold for). In less than half the time it would have taken me, the RE was complete and on the market (purchased by flippers, I would have looked to keep it as a buy n hold) and looked great. I know they did it way faster than I could have but I also suspect they did it cheaper than I could. It is something I have to overcome if I am going to obtain any value add properties.

There are also some investors that simply overpay.  They are clueless to the costs associated with having rentals and will end up not making much or possibly anything.  This unfortunately drives up costs especially in "hot" markets.

Next time run your numbers faster, place an offer that works for you with the usual contingency periods.  After it is under contract due you due diligence including inspections.   If you find an issue during visit, home inspection, any other due diligence item that adversely affects the price then lower the offer or walk away.

Good luck

[Rick Albert]

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.

[Russell Brazil]

Originally posted by @Joe Villeneuve:

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.

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]

Originally posted by @Russell Brazil:

Originally posted by @Joe Villeneuve:

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.

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.

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

[Matt M.]

@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..

[Mike Dymski]

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.