January 31, 2011
Minimize the Surprise
I have my own little saying when it comes to real estate: "Minimize the surprise". I guess it's because 99% of the surprises in real estate have a result that puts LESS money in my pocket. What's that? You want a few real-world examples? Well, if you've read this blog in the past, you know that's just what I'll give you.
We recently purchased a condo unit in Florida at a great price. Normally, the banks that own these properties before we buy them in bulk have maintained them pretty well; that is, they've kept the property taxes, association dues, etc. paid up to date. Of course, the banks don't like surprises any more than we do, so asset management is something they throw quite a bit of money at.
However, not all banks have the same mentality. We received an offer on this condo unit and started working with the title company engaged to close it for us. Last Monday morning, out of the blue, comes a letter from the condo association alerting us we must pay (SURPRISE!) over $8,000 in association dues, accrued interest, late fees, and attorney fees in order to sell the property. Oh, and we also needed a (SURPRISE!) Certificate of Use (Florida law) on the condo, which would cost us another (SURPRISE!) $1,250.
All of a sudden, our cost basis just got bumped about $9,500. That "great deal" we thought we had turned out to be just another property we did "OK" on, but certainly wasn't the homerun we thought we had.
Last Wednesday evening, on the eve of yet another property that was set to close on Thursday, I got a voicemail from our Realtor. He relayed that when our buyer went to do his final walk-through of the property, he found someone had kicked in the side door and proceeded to (SURPRISE!) steal all the copper plumbing. Therefore, our buyer was getting estimates to repair the damage and would (SURPRISE!) be looking for a price reduction on the property.
Now, the challenge of this blog isn't trying to remember the surprises, but which ones to choose from a seemingly endless supply. I'll give you one more, from the early part of January. We were working with a rehab guy in New York who was trying to buy a property from one of our bulk sellers. After literally months of back and forth, buyer and seller finally agreed on price, and buyer ordered a title search as part of his due diligence. You know what's coming, right? The title search came back with (SURPRISE!) two judgments on the property totaling (SURPRISE!) over $16,000. This on a house under contract for only $9,000! Dead deal, and NO surprise there!
The purpose of due diligence is obviously to minimize the surprise. However, there are certainly things that can trip up an otherwise great deal that you simply won't find out about until you're in the thick of the deal. Regardless, be always on the ready for the surprises and use your creativity and ingenuity to keep those surprises (if possible) from killing your deal.
Make it a great week.
Our efforts stay focused on note holders. If you are a note finder, a note
broker, or anyone other than the actual note holder, please do not contact