All Forum Posts by: Arlen Chou

@Naveen Kolagatla I am not sure why you want to mediate this deal. Did you sign off on your contingencies? Is the house that great that you don't want to walk away from it? The escrow company probably will not "mediate" this issue. But you can call them and tell them the situation and that you are planning to cancel the purchase. That should get the agents scrambling to salvage the deal/relationship, either through offering incentives to close or at least extensions on your loan contingency. As @Brian Garlington suggested, you should have a conversation with your agent and make sure he/she understands that your position and if he doesn't come around, go up the chain.

@Account Closed is 100% right. The tail end of the COVID-19 is going to be like 2008 or worse. Lending is already starting to tighten up, so if your credit is not solid you should use this time to fix it. Cash is king right now, so build up your war chest. Getting the renovation loan will probably be hard so expect to either do the work yourself or fund it out of pocket. 

As my friend Amit has said, adjust your target neighborhoods. If you have the money, going to a better neighborhood is the right thing to do. There will a ton of fallout on the back of COVID-19, just bide your time and get ready for it!

Good luck to you!

-Arlen

@Naveen Kolagatla is your buying agent an "in-house" agent of the developer? You really need a new agent. Do not close, do not extend, there will be TONS of deals on the backside of COVID-19. If your loan did not close, you should be within your rights, assuming there was a loan contingency in your contract, to get your money back. Just be to the point with your agent. The loan did not go through, as per the contract you will not close and you expect your money back. If your agent continues to push you, push back. You obviously feel he/she does not have your best interest at heart. 100% they know the market is going to get hit hard and they want to lock you in. Conversely, you could try to renegotiate the deal and ask for a price concession, but you MUST get the COVID-19 addendum in place if you decide to go down that road. You could reach out to the escrow agency if your agent is playing around with you.

Personally, I would tell them to go pound sand and protect my cash and find a new agent.

Good luck to you!

-Arlen

@Amit M. thanks for bringing me into the conversation. @Riki Tang you are in a tough position. My circumstance is a little different than yours, I am on the buy-side of a commercial industrial building in San Jose. My agents are in the same agency as the selling agents. I am at the end of my 30-day due diligence period of a 60 day closing period. Yes, it was a short DD period, but there were many reasons for that which are not relevant to your question so I will skip the details.

On Thursday, I asked for a 30-day extension, essentially on the DD because I did not want to go "hard" on the deal. My reason is similar to your buyer's reasoning, COVID-19. My building will be used for owner occupancy with a substantial portion rented out. 

I understand your seller's concern, they don't want the deal to fall through nor do they want to be retraded at a later date. I totally understand your sellers position and the hard position that you and my agents are in because they are in the same office. As an owner-occupant buyer, I have to be ready to walk away during these crazy times. Cash is totally king right now and I personally am not willing to spend cash on a building that will potentially sit dormant for a significant period of time when I might need the cash for my manufacturing business. It would sit dormant because I cannot pull permits for needed renovations.

I told my agents that I will not go hard on the deal, but I also assured them that I will not retrade the deal unless $/sqft prices fall significantly., which they might. I realize that the seller might tell me to go pound sand and that I could lose the deal. But the downside of spending the cash and then actually needing it for operations at a later date is too high.

You are in a very difficult position and I would recommend that you keep communication as clear and unfiltered as possible between the two parties and keep your personal interest out of your communication decision path. Obviously you have a financial interest in closing the deal, so if you are not 100% transparent with the buyer, and they feel like you pushed for the close, you might have an issue later. The seller probably will not sue you because they have the final say on the price, but the buyer could go legally sideways if they feel you put your interest ahead of theirs, especially if this is an owner-occupancy deal... just keep that in mind.

A 90 day extension is a crazy long time, but these are crazy times... I would explain to your buyer the concerns of your seller regarding a retrade. I don't think there are other buyers out there right now, so I think missed opportunity costs are not really a valid issue. Ask your seller how much of a non-refundable deposit would they be willing to accept. 

As a buyer, I personally will walk from the deal if the seller asks for a non-refundable deposit. Cash is definitely king right now. Reset your personal goal from the fat double-end commission to not getting sued by either party. No commission and no legal action is 100% better than a fat commission check and having to lawyer up.

Good luck to you and let us know how this one goes down.

-Arlen

This issue is substantially more complex than what happened in 2008. The impact will be very different depending on the state and down to specific regions of each state. I cannot speak to what is happening to most of the country, but if the SF Bay Area is a leading indicator this is definitely a SHTF event. Although large tech companies here have people working from home or even giving money away to employees, the fact is that small mom & pop shops, restaurants and businesses are drying up on the vine every day. Restaurants owners cannot keep doors open just for delivery service when Ubereats and Grubhub are slammed for delivery services. There is no need for busboys or waiters/waitresses. Hair salons are shut down so what do those people do? Local governments are already placing a moratorium on evictions and even if you could do an "unlawful detainer" the courts are closed for at least 3 weeks. Just imagine the backlog when they do open up. A landlord could be looking at 6 months of no rental income. 

If most Americans cannot handle a $400 emergency, imagine going 3 weeks or longer without working/paycheck. There will be delayed rent payments and no way to collect, which will lead to missed mortgage payments for landlords who are not sitting on cash to ride this one out. Hopefully, the government will suspend mortgage payments like in other countries, but I don't see that happening very quickly.

Again, this is really dependent on the specific investment market. Personally, I am in contract for a seven-figure building, but we are pushing out the close by at least 2 months. This is an industrial building, not residential, with a guaranteed tenant so I am confident in the acquisition. 100% the storm is coming, hold your cash as long as you can or convert to cash and wait for the buying opportunities on the backend.

Hope for the best and plan for the worst...

Good luck to us all.

@Emanuel Vega the worst-case scenario is that they say they will not move out and they keep paying the rent on time and you have to go through the OMI process. Read the Oakland Uniform Relocation Ordinance, get the free legal advice and get your checkbook ready. I wish I could give you better news, but it probably won't be easy.

Good luck!

@Yi Chung Chen you have opened a pandora's box here on BP, cash vs appreciation... The real key to wealth generation is to get to INFINITE returns. This can be done in real estate, stock market, basically any financial vehicle. What you should decide on is not only which vehicle to get into, but also how many you can manage. At the beginning of wealth-building, everybody has to start in serial mode. As @Yousef Reda pointed at Mark Cuban and many successful people say not to diversify. But the preface to that statement is that they are referring to people at the beginning of their journey. Mark Cuban is about as diversified as anybody can get: basketball team owner to, shark tank, to restaurants to tech companies.

Based on your self-stated financial numbers, you are past the starting line and I think you have some breathing room to create more income streams. Get your initial investments to an infinite return state, which will start to generate momentum for you to expand your wealth machine. 

Back to your original question, both OOS and in Bay Area investing can work, there are a ton of people on BP who go either direction. But the key question should be which road will allow you to get to the infinite return position faster. For me, the appreciation rise in the Bay Area has allowed me to get to infinite returns on 21 residential doors in 6 years. For others maybe they are able to do it out of state faster through cash flow. I really don't know about OOS because I don't do it, but I can 100% tell you that infinite returns are possible in the SF Bay Area.

I wish you the best of luck on your journey!

@Emanuel Vega you probably already feel it, but you are kind of hosed. Don't pay a lawyer yet. Go to the RAP office and speak to the legal counsel there on your options. Go there on Tuesday or Thursday between 9:30 and 1 pm, there will be somebody there to give you advice. You can go other days or hours, but the legal counsel is only available on those days at those times. 

Good luck!

@John Simenic do not buy anything with "protected" tenants in it...

@Julian Gonda I have used Daniel Bornstein in the past. He is a little pricy but he is really to the point. www.bornstein.law

Good luck!