The Midas Touch . . . or maybe not.
No sooner had I closed when another REO unit listed and went under contract at 325K, and then 3 short-sales came on the market in the low 300s. Yikes! . . . my ARV had just dropped by 40-50K in about 45 days! When I sold a few months later the true net gain was only about 28K, and I was glad to get that! Sure, 28 grand is better than a kick in the teeth but this deal had taken 7 months from purchase to sale and it represented a lot of my own time. It also tied up my investment cash for far too long. Further, if I had used hard money I would have been looking pretty ugly on this deal with extra points (after the 6-month mark) and all the interest! It might have barely been over a break-even. So much for my Midas Touch! A deal or two like that can kill a new investor.
The bottom line is that even experienced investors cannot count on an indefinite winning streak. There is no Midas Touch. Instead, there must be great planning, fat margins, room for error, multiple exit strategies . . . and it doesn't hurt to have deep cash reserves.
A great article that emphasizes getting deals with great margins is this one by Chris Clothier (...fail 90% of the time and still be a success...)
Have Fun . . . and Make Your Own Luck!
Below are a couple more pics of the not-so-golden flip:
Comments (4)
Awesome post! I love hearing stories like this. These kind of lessons you'll never hear from a guru or book!
Brandon Turner, about 11 years ago
Awesome post! I love hearing stories like this. These kind of lessons you'll never hear from a guru or book!
Brandon Turner, about 11 years ago
In the end, a cheap lesson. In my case, for my first big(gish) mistake, I rented to a tenant I almost knew was going to have issues, but did it because I needed cash flow rehabbing other units and it was super easy/no time. Fortunately, I got a 2 month deposit and was able to give it back to them and let them out of the lease later when they needed to move suddenly. In my case, their rent was low, market was up, and was able to rent for an extra $300/mo. So I was saved by the market! But it reminds me to ensure you have enough cushion to absorb a deviation from your expectations and have reserves!!
J. Martin, about 11 years ago
In the end, a cheap lesson. In my case, for my first big(gish) mistake, I rented to a tenant I almost knew was going to have issues, but did it because I needed cash flow rehabbing other units and it was super easy/no time. Fortunately, I got a 2 month deposit and was able to give it back to them and let them out of the lease later when they needed to move suddenly. In my case, their rent was low, market was up, and was able to rent for an extra $300/mo. So I was saved by the market! But it reminds me to ensure you have enough cushion to absorb a deviation from your expectations and have reserves!!
J. Martin, about 11 years ago