Back to the model
Posted on April 23, 2007 - Filed Under Philosophy |
Mentor: Can I be honest with you?
Clifford: Always.
Mentor: The lender is trying to back out of the deal.
Clifford: I thought the same thing.
Mentor: I believe the Fed is quietly whispering to the lenders to tighten their lending practices.
Clifford: Barron’s agrees with you.
Mentor: For your situation, if the seller finances the 10% will the results fit into your model?
Clifford: Barely.
Mentor: What do you think about that?
Clifford: It is really really close. If I’m off on one calculation by just a fraction, then the property doesn’t work. I won’t get what I want out of this deal.
Mentor: Always listen to your model and what your model is telling you.
Clifford: Right now, I’m hearing this won’t work.
Mentor: In my model I always, always figure in 10 to 15% for unforeseen expenses.
Clifford: That sounds like a good idea.
Mentor: Now with you, I think you answered your own question.
Clifford: Yes, I did. The deal is no good.
Mentor: If it were me, I’d get the hell out of there.
Strangely enough, I was not sad about this decision. Relief is what filled me. If this deal were forced through there’s no guarantee I would have gotten what I wanted. Once the documents were signed, I would have been stuck.
As fate would have it, my phone rang shortly thereafter.
BossMan: Good Morning Clifford. My name is BossMan. I’m LenderLady’s boss. How are you?
Clifford: I’m doing well, thanks for asking.
BossMan: I wanted to apologize for the screwup on our part. We had this all wrong from the beginning and I’m sorry.
Clifford: Well I am disappointed I didn’t know about this earlier.
BossMan: I also wanted to tell you that the seller financing option will not work with this program. Either we finance the first and the second or you’ll have to go elsewhere.
Clifford: That won’t be necessary. I’ve already decided not to let this deal go through.
BossMan: I am sorry to hear that but I understand. Because we’re the ones who screwed up, we’re going to refund the cost of the appraisal to you.
There is justice in the world after all.
And thus the deal died on the operating table.
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5 Responses to “Back to the model”
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I’m glad that you backed out of this once the lender put you in this position. A post-mortum is in order. Some questions you should ask yourself (heck, tell us too!).
* How much money did you put into this deal?
* How much time did you put into this deal?
* What signs were there along the way that the lender would change it’s terms?
* Did your purchase agreement have a contingency for finding suitable financing? If so, what was that contingency? How did you manage to get into the position where the lender’s terms were not locked in when your contingency period was exhausted?
* What would you have done differently?
* Do you think that it is worth asking the lender to cover more costs than just the appraisal for their mistakes and misrepresentations?
I’m very impressed with the behavior of the Bossman. It’s nice to know that there are decent people in the industry.
I am sorry that this deal didn’t go through, but you’re tenacious enough to try again and I know you’ll soon own out of state properties, thereby diversifying your portfolio.
All in all a good story, by the way. Even if I did have to hear about what you ate for lunch in Texas.
Relief!! I didn’t feel good about this deal once we got the details with the landlord holding back information. Focus on the fourplex here and then move on to the next property.
Now that’s thinking like an investor! Deals come along every week. Get your financing in place and start over. Next time you will have everything ready to go before you spend $2,500.
If all the out-of-the-area investors are being hit with bad mortgage terms, some of those sellers will start to get antsy and prices will drop. With higher cap rates and your stellar credit, the properties will start at some point to pencil out.
Consider the $2,500 (less the appraisal rebate) tuition in real estate invwesting school. Bravo!
Greg, those are excellent questions. I’m in the process of performing a post-mortum blog entry. In a follow up, I’ll address these very questions.
Engineer, in the end I am thankful I got the appraisal money refunded to me.
Mottz, Everything is about focus.
Another Investor, You’re correct, there are deals that come along every week. The question to be asked is when do I feel like climbing back into the saddle. I still need to find something local, so I can have a place to live. This “homeless” situation is for the birds.