As a real estate investor, I spend a lot of time searching for good deals. I make a lot of offers, take a lot of long shots and I get rejected quite a bit so it’s very exciting whenI finally get a positive response. However, the path to closing can often be very bumpy.
A few months ago, I got a handshake deal on a nice little brick Cape Cod home in District Heights. It was a solid property and the price was just right. Upon hearing the news, I took a drive out to double check the property before I finalized the paperwork. When I arrived at the home, I found that the neighbor’s huge oak tree had fallen on the home. This was the weekend after that big derecho storm we had last summer.
This changed everything. This was a foreclosed home and, therefore, it was owned by a bank. I informed the listing agent of the situation and thus began the long process of renegotiating. Dealing with an institution as a seller can make for a very frustrating process.
The damage to the home was extensive. I had a contractor go out and he informed me that the tree had crushed six of the roof rafters, broke the chimney, destroyed the hardwood floors, and more. The bill for the additional damage was $20,000.
I asked the seller to reduce the purchase price by this amount and they said that they needed to get their own contractor out there to do a bid and that they would remove the tree and cover the roof in the mean time.
After weeks and weeks, I still had received no word from the seller. The tree was still on the home and water had been soaking the inside with every rain storm. Finally the bank came back and offered to take $7,000 off the purchase price. This, of course, was not acceptable.
Things went on like this for more than two months. Meanwhile, the home was now very damp inside and as a result a fairly significant mold problem had developed. The bank eventually agreed to reduce the price of the home by the $20,000.
Great! I would have jumped on that two months earlier, but by this time the home needed to be dried out and treated for mold. I told them I wanted an additional $5,000 off the price and I refused to budge on this number because it was a very good offer considering the mess I would be inheriting.
After a few more weeks, that bank agreed to my offer. I was in business once again with closing scheduled for just a few weeks away. I lined up the contractors and got things ready to roll but the real estate gods said not so fast.
I fund most of my projects through a private investor with whom I partner up and split the profits. Within just a few days of closing, my investor on this deal informed me that all of his funds were tied up and he couldn’t fund the deal. Now I’m only two business days away from closing and I don’t have the money.
Things like this are very common in real estate. Funding real estate investment is not like going to your bank and getting a commitment letter. Most investors beyond a certain size work with private funds and these can be a little less reliable and there’s not much you can do if a lender just changes his or her mind.
In this business, just like any other business, you really need to build a reputation for delivering on your promises. It’s difficult to deliver on promises when you don’t control all the variables but that is life. The good business owner, just like the good athlete, finds a way to win.
Rather than lying down and letting the deal go, I went into full emergency mode. I called everybody I knew in the business and I networked on sites like Facebook and LinkedIn. I received several responses from other investors and lenders but nothing promising.
I contacted a friend who had expressed interest in real estate in the past but the condition of the home scared him off. But, as a long shot, I had decided to send a message to a friend of a friend who had put up a little money on past deals to see if she had any interest or ability to fund a deal this size. To my surprise she eagerly responded and agreed to fund the entire project on a partnership agreement.
I had an agreement drawn up and she wired the money to my account. We closed on the home last week. Every project has its snags. I hope we’ve got all those out of the way on this one.
Justin Pierce is a real estate investor in Northern Virginia. In his occasional column, he will write about investing in real estate.