Real estate investing is a learning experience. Even when it
seems like a deal is going south, it can still (actually) work.
In this installment, I am going to talk about how my
impatience and need to get a steal of a deal nearly got the best of me.
It all started with my partner in crime, Ms. Lowball. I was
at work one day so I enlisted her (and her big giant head) to go check out a
wholesale property for me. The wholesaler informed her that the lockbox didn’t
work and that she would have to jimmy the lock with a credit card. A little apprehensive,
she did it anyway. She was quite proud of herself once she had gained entry.
She called me and said, “This white chick just broke into a house in the hood,
with a credit card….all by herself!”
That’s Ms. Lowball for you. She thinks she is like McGyver.
She inspected the house and said she anticipated it needing
about $12,000 worth of repairs. She ran a quick CMA and we upped the repair
budget to $15,500, which was still within a decent range for profit margins.
Here’s where it got tricky. Neither Ms. Lowball or I were
familiar with how wholesale deals worked. We got our education on this one the
hard way. I had to put $5,000 down, no option period and it was non-refundable
after five days. This made Ms. Lowball and I very nervous. We reviewed the
contract and decided to move forward.
The Crappy Appraisal
Once I went under contract, I met with Rob McGoldrick, a
Lifestyles preferred vendor for an estimate of repairs. He quoted me about
$15,600, which was right at my ceiling. However, he asked me, “Have you done
your research in this neighborhood? This house is a real S**T hole!”
(Thanks Ms. Lowball)
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| The "Shit Hole" |
Yet, confident in our numbers, we forged forward.
That’s when the crappy appraisal happened. I needed the
house to appraise for $64,000 to keep within my 70% margin. It didn’t. We
argued with the appraiser as I, Ms. Lowball and another real estate agent had
all run numbers that would work.
The appraiser came in $10,000 below what I needed. On the
fourth day, at 4:30 p.m.
MURDER!
DEATH!
KILL!
The “evil appraiser” (that’s what we are going to call him)
would not budge on his numbers.
Now my out of pocket rose substantially. I was NOT happy.
Needless to say, Ms. Lowball gave me a wide birth, because I
was picturing this every time I looked at her.
I was inches away from backing out of the deal and losing my
$5,000 down payment on principal alone. However, in a last ditch
advice-gathering effort, I made a call to my investment guru and mentor. He
told me that you can’t always hit a home run, that single base hits are still
okay. He went over the numbers with me and said that if you are walking in with
20 percent instant equity and adding in your first year return on investment
you are still at 33 percent. Then he told me to quit crying.
So I did.
And I closed on the house.
Without killing Ms. Lowball -- that's was a miracle.
Without killing Ms. Lowball -- that's was a miracle.
The moral of the story here is that even while wholesale
deals can be tricky, Ms. Lowball and I navigated our way through it, and still
ended up ahead....and the numbers still work.
For more, check out our case studies.
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