How to Lose a 10 Unit Property in 10 Days

Yeah, that happened. But before I go into the details of how I figured out how to lose a 10 unit property in 10 days, allow me to provide some context.

Ok, so when I first started looking at rental property, I went where a lot of people go for commercial multi-family real estate...LoopNet, which I later found out is often called "the place where deals go to die".  Nevertheless, I happened upon a property in a market I was interested in...so I said what the heck, I need to start evaluating properties. I contacted the listing agent and after some time of persistent nagging, received the financial data. The weird thing was this property was being advertised on LoopNet as a 4 unit property, but there were, in fact, 8 units + 2 single family properties next to them. This had been on the market for nearly 8 months to this point...no wonder...what they were asking for was crazy for 4 units in this market (I later found out that the owner was incredibly stubborn).  I actually drove down to visit the property and it was 50% vacant and needed a ton of work. The owner had owned the property forEVER and let it go to H-E double hockey sticks.

I did what any incredibly dumb rookie would do...I made an offer!  I actually gave a couple different options...a cash offer and a seller finance offer.  I talked to the agent and got nowhere...I needed to get the property for far lower than what the owner was willing to take. So it went no where.

I continued to follow up with the agent every few months: "hey is the owner ready to sell?". The agent would say: "sure at full asking price..."  PASS.

DAY 1: Well lo and behold I followed up with the agent about a month ago and asked if the owner was ready to sell. This time the agent responded "I'll present any offer you want and I will work with you until we get a deal."  BINGO, looks like the owner was finally ready. By the way, this property had been on the market for nearly 2 years at this point and another 8 or 9 months after I had first made contact.

DAY 2-3: I received some updated financial information on the property. The owner had made some improvements and got the occupancy up to 80%.

DAY 4: I ran the numbers and made another cash offer (256K) and a seller financed offer. 

DAY 5: To my surprise, the agent texted me and said $295k cash and we have a deal. I replied back saying, before I accept I'd like to come down and visit with my contractor. I believed the property would be worth over $500k once it was spruced up, fully leased up and able to increase rents over time.  The agent and I coordinated a time to tour all the units.

DAY 6-8:  I met my contractor at the property to take a tour.  The agent met me and immediately told me that there was already an offer on the property ($300k). Crap, in my naiveté, I was thinking that this property had been on the market for so long that I was in the driver's seat. Well, it turns out when the agent told me $295k and I didn't just snap it right up then and there, he blasted it out to his entire virtual rolodex.  I can't blame him for doing so, its his job to get it sold. In any event we went through with the tour of the units. 

DAY 9:  I gave my offer of $305k to the agent. Didn't hear anything the rest of the day,.

DAY 10: I followed up with the agent. Agent said the owner executed a contract with another buyer.  I had lost the property in a bidding war. Curiously, the owner/agent didn't even give me the chance to increase my offer. I am not really interested in getting into a bidding war, but I could have gone higher. Maybe it wouldn't have mattered. At the end of the day, I lost the deal in 10 days.

What did I learn from this ordeal?  There's always something to learn.  I knew $295k would have been a good deal. Looking back, I could have submitted a Letter of Intent (that's what the agent was asking for anyway), which would have included a Due Diligence period. I could have used the due diligence period to do the walk-through with the contractor.  The difference would be, I'd have the property tied up and in my control. Instead, what ended up happening is that I left the door wide open for competition, which at the end of the day out bid me for the deal. 

Add this to the list of my growing education. What's next for me? Well, I'm not giving up. I have some irons in the fire, but its too early to say what's going to happen. I'll be sure post about it. Take care for now.