How everyone else complicates and loses deals for you

[Kristi Kandel]

2 weeks ago my business partner and I closed on a 4-plex. Needless to say it was not a seamless process. By the  time we finally closed instead of feeling excited we just were relieved the mess was behind us. 

This was an off-market purchase that resulted from a letter I sent to the neighborhood stating I wanted to purchase in the area for fair market value. The seller previously in August wanted 600K and by December when he reached out again he agreed to a 540K purchase price. The appraisal came back at 700K. So an immediate 160K in equity. This is a fixer upper with all 4 units fully rented in a market where there is pretty much 100% occupancy with waiting lists. 

We were able to find a credit union with a special portfolio product that allowed us to put about 17% down instead of 25% down at a 4.875% instead of 6%. Mountain America Credit Union. The catch is that while it's a 30 year monthly payment the note is due in 15 years. Our plan is to refinance well in advance of the 15 years so we are locking in the lower down payment and interest rate. However, the level of professionalism and competence was incredibly low. We just kept pushing through all of the incompetence knowing that we were getting an excellent deal for the purchase. 

While I'd struck a deal directly with the seller he wanted to use his own agent to close and that's when things got muddy. The seller's agent was incredible difficult to work with whereas the seller had been great to work with. At least 3 times during the process the sellers agent almost made us tell them no deal out of principle. However, we had a good feeling it was a deal we shouldn't pass up so we put up with all of the petty crap. 

Since it is a 40 year old building with obvious leaks and damage we brought in HVAC, roofing, plumbing and electrical experts for an additional walk thru. While there appeared to be issues that needed fixed non of the issues turned out to be a big deal that required immediate repairs and the roof was in great condition. So we decided to proceed with closing. 

Since the building had tenants and deposits we had to figure out how to transfer the money at closing since we were literally closing on the 1st of the month when the tenants would be paying the seller. Several ideas were passed around by the agents, including an option to just push closing another 5-10 days, and then I suggested that we just put the rent along with the deposits in escrow and have the tenants continue to pay the seller for rent that month like normal. Problem solved. No need to over complicate a simple solution.

The cluster of people and incompetence we dealt with continued to the escrow agents. I'll be honest, on the first 4 properties I've purchased I'd barely read the closing statement. However, with the incompetence we'd dealt with while under contract led me to request the closing statement ahead of time to make sure it was accurate. Needless to say if I had not thoroughly evaluated the closing statement we would have lost 2-4K in the purchase. There were so many moving pieces and new utility districts in the area that it just set the table for errors to happen. Makes me wonder how much money I'm out from the prior purchases. 

Since my biz partner and I are are not in the same town he had to sign first and then overnight the documents to the title company to then send a mobile notary for my signatures. The morning of my signing (closing was the next day) I woke up to an email from the seller's agent telling me power was off at the 4-plex and it was our responsibility to get the power back on. To the seller and his agent I simply replied that we did not own the property yet and it was the seller's responsibility to maintain utilities until the sale was complete. That went back and forth and the seller's agent was a complete tool telling us we need to get power on while she was still withholding things like tenant contact info and keys. However, we expected nothing less based on her actions throughout the entire process. In the background of course I then expedited the power turn on behind the scenes and when the seller tried to say he got it on a few hours later I informed them that I had pulled a favor with my power company contact and we actually solved their problem. While still not owning the house. 

Finally the next day the deed recorded and we owned the property. 

Then came the fun of telling the tenants there would be a fairly nominal rent increase that still kept the units all under market value for their condition but increased enough to ensure the proper ROI. We also had to let one of the tenants know that he was being evicted. Let me just tell you that rent increases and evictions are NOT fun. It's the worst part of real estate. However, the property is in a prime area and the only reason the current tenants are in the building is due to prior owners not maintaining the units or charging fair market value. In an effort to not displace locals, in a region where the housing crisis is VERY real, we minimized the locals impact as much as possible. We evicted only one tenant and remodeled that unit to then obtain the higher monthly rent that helped the deal pencil.

Our goal is to finish all of the exterior updates once the weather turns and then refinance and cash out mid-summer. The existing equity plus the remodeled equity should allow us to pull almost all of our cash out while still maintaining a very healthy monthly return. 

So on paper it's an AMAZING deal. In real life it was quite the ride to get to the point to own and take advantage of the great deal. Yet again proving that you must have the stomach and fortitude to make real estate deals happen. If you can hack it you can become a real player in the industry.