I just lost an opportunity to make $110,000. Learn from my mistakes and don’t let this happen to you!
This story starts on Monday, April 26, 2021 with me sitting in my office making cold calls to my list of motivated sellers.
One of the calls I made that day was to a 3 bedroom 2 bathroom rental listing on Craigslist. This unit was one half of a duplex in a desirable town of Northeast NJ.
Now, cold-calling rental listings on Craigslist and Zillow is one of a few strategies I use to find off-market investment properties.
In my head, a landlord sitting on a vacant unit makes for a motivated seller.
So I called the number in the listing and after building some rapport, I asked if the landlord would be interested in selling the property.
The person I spoke to was just the landlord’s rental listing agent. But they asked me to come and see the unit in person so we could discuss things further.
I drove out to the property later that same week.
As soon as I got there I found out the owners of the property were going through a divorce and the court ordered them to liquidate all of their assets as part of the settlement.
This is a terrible situation for the seller’s and I really felt bad for them. But quite honestly it was music to my ears.
Before I left that meeting, I also found out this couple owned over 40 small multifamily properties in Northeast NJ. *Cha-Ching!*
I raced home and started running my numbers. We made an offer on that property immediately and closed on it about 2 months later.
Then we went under contract to buy another duplex shortly after.
This is where things start to fall apart…
My partners and I couldn’t t acquire the entire portfolio of 40+ properties at once.
So we decided to prioritize a handful of properties so we could take them down in smaller chunks.
After we closed on the original duplex where I met the rental listing agent and went under contract on another, we made offers on two more properties in one shot: a triplex and another duplex.
The sellers accepted both offers.
We offered $664,000 for the triplex and $551,000 for the duplex.
We tapped our investor network and found buyers for both properties. We were going to sell the triplex for $700K and the duplex for $625K.
Now let’s run some numbers.
700K - 664K makes for 36K in profit on the triplex.
625K - 551K makes for 74K of profit on the duplex.
That makes for a grand total of $110,000 in gross profit on two wholesale transactions.
We were beyond excited. The duplex alone was going to be our biggest deal yet.
But then… we got stuck in Attorney Review.
The sellers were delaying. We followed up with our attorney on a daily basis, but things weren’t moving along.
In a normal transaction, Attorney Review should take anywhere from 3-5 business days, but we were sitting ducks for like 2 or 3 weeks.
This was weird because we got out of Attorney Review on the first two deals super quick.
Then we got the call: The deal is dead.
It turns out, as soon as we went into Attorney Review, the seller’s agent listed the properties on the MLS as “Pending”.
Now changing an “Active” property to “Pending” is par for the course when a property starts out on the MLS.
However, this was an off-market opportunity. So you might be wondering, “why were agents involved?”
The sellers were represented by a court-appointed agent. There was no way around that. Although these properties weren’t listed, the seller’s had a contract with the agent that required all sales and dispositions to go through her.
We also decided to have an agent represent us as buyers. Remember the guy I met at the 3 bedroom 2 bathroom rental unit? We brought him onto our team because he had an inside track with the sellers. After all, he was already listing vacant rental units for them.
So why did the seller’s agent create a new listing just to mark it as “pending”?
Two reasons stand out among many:
- She wanted to get recognition and credit from their brokerage - understandable
- She wanted to drum up new business
Well, it was effective.
As soon as the seller’s agent listed the properties as pending, a ton of other investors came out of the woodwork and made better offers than us.
The sellers gave us 2 hours to come up in price on both assets. They now wanted $700K for the triplex and $640K for the duplex. Our margins were eviscerated. If we agreed to those prices, we would be losing money. We couldn’t move forward.
Both deals went to another investor who was willing to pay much closer to retail value.
Unfortunately for us, that’s just the real estate market we’re in today.
After going through the 5 stages of grief on losing this opportunity, my partners and I did a post-mortem.
Here are our 3 takeaways going forward, and I hope they help you as well:
- Stick to your numbers! We had enough margin in both deals to come up in price, but we couldn’t meet the seller’s request at the 11th hour. We had to let this deal go.
- When working with an off-market seller who chooses to be represented by an agent, kindly request they do not list the property as “pending” until you're out of attorney review.
- Expedite the attorney review process as much as possible. If you take your sweet time, someone else might come and steal your deal.
I hope you got some value out of this video. If you did, please hit the like button and subscribe so you don’t miss my next one.
By the way, what do think of my 3 takeaways? What's something you'd do differently? Drop your answers in the comments below.
And lastly, click here if you want to learn how I Directly Market to Distressed Sellers.
See ya next time. 🙂