What lessons should I learn from this failed deal?

[Erik Bollinger]

I'm brand new to real estate investing. With my first deal I tried to hit a home run and I ended up striking out. In order to make the most from this failure I would like feedback on what I did wrong, and if my conclusions are reasonable. These properties are still for sale. I'm not linking directly to the properties because I'm going to quote their response to my offer, and I don't want them to feel like I'm singling them out. If anyone wants the contact info for the seller's agent I'd be happy to give them that information via a private message. Also to be clear I'm not asking for a partner on this deal, nor do I have any connection with the seller apart from pitching them a deal that was rejected.

The deal was for two car washes being sold by the same investor(s) that were on the market for over 2 months. The first car wash was listed at $495k with a NOI of ~$56k. The second car wash was listed at $695k with a NOI of ~$100k. I looked at those cap rates was excited, but I knew that ~$50k cash, and ~$25k home equity wouldn't cover a down payment. My thought was to offer $1M for both properties so I could put 5% down, and ask the seller to carry $200k at 8%. This would bring them close to asking price (counting interest + the fuzzy math of potential capital gains savings), and hopefully make the deal attractive enough so a bank would lend me $750k. Below is my letter of intent:

• 1.Purchase Price

• 2.Definitive Agreement

• 3.Closing Date

• 4.Training Time

• 5.Nonbinding

This was their response:

Firstly I would like to say that I sincerely appreciate the seller's candid feedback. Without feedback it is much harder to grow and learn from my mistakes. I asked my agent to thank them for their time, and let us know if things change in the future.

My big takeaways from this experience are:

• Don't assume a property owner is distressed just because the cap rate is 2x the norm of other commercial real estate in the area.
• While reducing taxes might be a selling point in some residential deals, leading with this to commercial investors is a turn off.
• Limit training time requests to the absolute minimum. My current mindset of 80 hours = 2 weeks of work isn't valid for people with a passive income mindset. Also people who sell properties aren't going to want to be involved in the property for an extended time. Even if it is just a short phone call for general guidance in case something major happens during business hours in your mind, the seller may interpret this as me asking them to drive to a location at all hours of the night.
• Before submitting an offer I need to make every effort to learn as much about the motivation behind the sale as possible before making an offer. Otherwise I may alienate the seller with an incorrect assumption.

What do you think I should also takeaway from this experience? What do you think I learned that was incorrect?