What is the deal you almost did that would have ruined you?

Question

Yesterday I walked away from a deal that I have been persuing for a month and spent about 1000 USD on. When the first disappointment had settled I felt grateful. Grateful that I had read all the books, listened to all the pod casts and gotten so much good advise in the forums. If I had not spent the time to get educated and do the due diligence I would probably have bought a bad deal which would have been a moneypit for years to come.

I truly beleive that the deals you don't make are as important as the ones you make.

Do you agree and do you have stories of deals you almost did that would have crushed you? What stopped you from doing the deal?

Thank you for sharing your thoughts!

Niels

Dennis M. · Answer

I almost missed out on being an investor because I always thought you needed a massive amount of money piled up to get in to the business . thankfully I awoken from my slumber and began to question my beliefs on money and investing

Niels Bjørn Toppenberg · Answer

@Jack Medford Sounds like you learnt alot the past couple of months. I think Warren Buffet once said that if you take risk you should be compensated appropriately and follow rule number 1 of investing: never lose money ;)If you want I will be happy to take a look at your potential deals.

Niels Bjørn Toppenberg · Answer

@Daniel Buck Sure, here is the deal as it turned out after inspection (see attached calc.) After inspection CalculationsWhat saved me was the ability to see how renovations were supposed to be financed. If I did the deal as proposed by seller my profit would be around 4-5% at max in stead of the more the 10% I was after because I would have to set aside 30% of the rents for CapEx.The sellers agent even tried to convince me that I could use the deposits from the tenants for the CapEx, but that is not even legal. So here I was saved by due diligence in reading up on the law.I don't think that seller or sellers agent were acting in bad faith but they should have kept themselves better informed - I am glad I did :)@Jack Medford Seems like you dodge an ugly one as well. That could have ended very badly both money and time wise. What learnings do you take from that experience?

Jack Medford · Answer

@Niels Bjørn Toppenberg The big lesson was: Don't ignore the red flags just because there are a couple green ones. The signs were there early on that this deal was not going to work, but we focused on all the reasons why it could be great for us. We were pressing a little bit, trying to find deals where they didn't exist. The other big lesson was to restructure my goals. My first property was bought while doing the 90 day challenge Brandon put out there (buy 1 property in 90 days). I took a similar approach after that. My goals were structured: Buy X number of properties in X amount of time. This lead me to try to force the numbers to work so I could hit my purchase target. I've since changed my goals to analyze a certain number of properties. Right now, I am analyzing at least 1 deal a day (usually more, but that is the minimum). On top of that, I'm commenting on BP at least once a day. Doing these things wont guarantee me a property by a certain date. However, they also wont push me into a deal that doesn't look right. I'm hoping the consistency pays off in the long run.

Jack Medford · Answer

Congrats on stepping away from a deal that wasn't right for you. In the grand scheme of things, $1,000 is not a big hit. Still, some people would be caught up in the sunk cost fallacy and would still pursue the deal. For my story... My partner and I were looking to scale up and found two 4-plexes right next to each other for sale by the same owner. Looked like a good value add opportunity on the surface. We put in an offer and got an inspection, but that is when everything unravels. We find a lot more deferred maintenance than expected, making the initial offer look pretty unfavorable. More troubling than that was that every single tenant was a member of the Laotian community (as was the owner). Most did not speak a word of English. We realized as we went through each unit that we'd likely be unable to communicate with these tenants, which would make management a nightmare. We also thought it might be a possibility that the tenants would all leave if new ownership took over (especially if ownership was a couple white guys trying to raise rent). Overall, we spent about $650 on inspection fees and then didn't even bother countering at a lower price.

Daniel Buck · Answer

Would you be able to elaborate? What happened that made you walk away? Why would it have been a money pit?