My apologies, it's been a while since my last blog post. As a commercial real estate investor, my first acquisition went south. Last summer, I found a 7-unit turnkey apartment building for sale. It was fully occupied with long-term tenants, a real estate investor's dream! Listed on an investor website at the time, I didn't think my Company could afford it yet because I didn't have any financing in place. Robert Kiyosaki and Ken McElroy said the number one skill of an entrepreneur is raising capital. So, It was presented to one of the hosts of our monthly REIA and I emailed him with the specs. When he looked it over, he said the sellers were asking way too much ($550K) for a building that small. If sellers were willing to negotiate down to $225K-$250K, he could realize a monthly profit. That is why we're in business. But they remained inflexible and unwilling to yield.
Many commercial buildings remain DOM because sellers are unrealistic. DOM is days on market that a property hasn't sold. If it's 65-85 days or more DOM, that's a very bad sign. The sellers' liaison and I went back and forth via phone calls and emails. But as of 21 October 2017, we lost contact and I never heard from her. But I left a voicemail, then placed the folder in my Dead Files and forgot about it. March 2018, a freak snowstorm hit our area, leaving a foot of snow. One morning, I got a call from the her, asking if I was still interested. She mentioned a group of investors in a nearby state attempted to put a bear hug on it but somehow managed to put themselves out of the deal. I got busy lining up private money lenders and investors to go in with me.
The preparation had me filling out Broker Agreements and other paperwork until I reached the stage for the Purchase & Sale Agreement. This is where negotiations begin, in finding out exactly what the sellers want and working within those parameters. I should have been meeting with my real estate attorney, having him thoroughly go over the P&A. I also failed to add in contingencies that would protect me in case financing did not come through. These sellers claimed they want to sell the property and retire out of state, a valid reason. However, it has been my experience that most sellers don't understand the dynamics of real estate investing and don't know what the market will bear. They don't know what to ask as a selling price, thus putting that responsibility solely on the listing agent. Selling prices are always based on NOI or Net Operating Income.
The listing agent will suggest the seller can get $1M or an inflated number for their property only because it will aid them in getting a large commission at closing. The other mistake sellers make is in repairs/upgrades. They do so with the purpose of getting back those funds they spent by factoring it in their selling price. That tactic won't work since you also have to factor in appreciation and depreciation at the end of the year. I've looked at properties, crunching the numbers and running the comps. Then seeing that seller just priced himself/herself right out of the market; is when I walk away. Last month, this property was presented to the 2nd partner of our monthly REIA. He told me point blank, "This is a BAD DEAL!" Sellers are asking way too much and you'd be in the hole $1500.00 each month, never realizing a profit. Our Rich Dad coach said the same. This property became the deal from hell because 80% of my financing didn't come through (it was a bad deal) and the other 20% from our REIA partner concurred. The PM was quite unprofessional because I pulled out, insinuating that I didn't know what I was doing.
Dwayne "The Rock" Johnson made a profound statement that stuck with me: "Show respect even to people who don't deserve it; not as a reflection of their character but of yours." Lesson learned, now on to my next real estate adventures!