How could I have done better?

[Adam Hughes]

I LOVE people and enjoy conversations with all types of different individuals. Talking about real estate, technology, business, family, friendships, sports, finance, faith and all kinds of topics is fun for me so I talk to people all the time. That said, I’m frustrated with my last transaction, not because of the deal, but because of the seller. I’m trying to get past it and using this post to look for guidance and recommendations. Let me explain then please provide your guidance so I can look in the mirror and determine how to do better next time.

SITUATION:

Decided this past 6 months I was going to start getting a little more serious than the 1 SFR that I owned and start buying some multi family rentals. That's exactly what I did when I bought a farm with a house where the house will break even but I'll get my cash flow on the crops, but that's a story for another time that I'm happy to share. Next up, I bought a package deal of two very nice duplexes, built in 2005, that had what I was told 4 great tenants. I bought these because I know the area, they were newer properties, they would cash flow, they'd appreciate, and capital expenditures should be low.

The offer I made was below asking by about 5% but because I was willing to buy both the seller accepted my offer, great deal right? Anyway when we went to do the inspection the actual seller met us at the property, walked me through it, shared the history, and we had a good conversation. Everything was on the up and up as far as I was concerned.

Fast forward through all the due diligence that I thought was thorough. I’m using a portfolio loan to finance this and didn’t get the closing statement until the night before closing, at which time I realize there was an added line item for “November rent and late fees for 503 unit B”. This essentially told me, hey this person is late an entire month and hasn’t paid December either, we closed 12/4. So I go to the closing and inform them I’m not closing with that line item there, so seller agrees to removing it. By the way we were face to face for about 2 hours. I decide, “hey this is an opportunity to pay for a lesson on how to handle these types of renters and I’m going for it”. I love to take massive action and this was it for me. So we close, and go on our ways, but I’m left with a bad taste in my mouth toward the seller that I work to get past.

Now next day I text seller to let him know I’m contacting all renters and wanted to know what he’s told them so far. He calls me to inform me of something he “forgot”. He now informs me one of the other tenants put on their 30 day notice that they were leaving. WTF? You don’t “forget” that type of thing.

Now I’ve already filled the vacancy for $50 more per month than he was charging and I was able to use pay or vacate notice to get payment for December from the late paying tenant.

I feel like I could have done better in the due diligence stage, so what have you done to prevent these types of situations?

Thanks in advance!