I want to keep today short & sweet as the past few weeks of LTRE have been borderline way too long, and truthfully this week has just been way too crazy. BUT we recently closed on a multi-family up in Binghamton – WOO! Except that this close was 5+ months in the making and we hit some serious bumps along the way. Let’s talk about what we learned.
So, as we do, let’s talk Real Estate, let’s talk THE LONGEST CLOSE EVER & THE LESSONS WE LEARNED ALONG THE WAY…
QUICK DEAL OVERVIEW
March 2018 : Signed two purchase agreements for two separate properties. (1) Signed an agreement to purchase a fully occupied, multi-family, as-is, for less than $100k. (2) Signed an agreement to purchase a single family home, that would be fully occupied through May 2019. We worked with the bank to come up with a loan that would include the cash out refinance of a property we already owned outright PLUS the acquisition of these two new properties.
Sounds like a pretty sweet deal, right?
September 2018 : FINALLY closed on ONE of these properties, and cashed out the home we already owned.
Now I haven’t really purchased that many properties in my 26 years of life, but I think it’s safe to say 5 months is an abnormally long amount of time to take to close on a property. ESPECIALLY when we were purchasing it AS-IS.
But 5 months of this back and forth, just trying to get this deal over the finish line, taught us a lot- so honestly, for that, I am actually grateful! Let’s talk about it all.
FIRST OFF, WHAT WENT WRONG?
Honestly, a lot went wrong with this deal but I will touch on the top 3!
(1) DELAYED INSPECTION REPORT The inspection report for the multi-family took over a month to get back from the home inspector, SO we lost any chance of backing out of the deal post-home inspection.
(2) LOW APPRAISALS As talked about in a past LTRE post, the appraisal for the single-family home came in $40k below what we agreed to purchase it at. In that event you have a few options; (a) request a 2nd appraisal, (b) purchase the home anyway but only receive financing for the appraised value, this would technically put you “underwater” right off the bat, so I wouldn’t recommend that, or (c) walk away – which we did! However, remember this deal was part of a blanket loan encompassing two other properties, so it wasn’t that easy. A blanket loan is a GREAT IDEA IN THEORY except for when you decide to drop one of the properties pre-settlement. So, when we decided to walk away from the single-family home, the underwriting and closing process essentially started all over again… We had to wait on new bank approvals, new commitment letters, new title documentation, etc.
(3) NO ONE SEEMED TO BE ON THE SAME PAGE I have no idea why, but it seemed like all of the parties were working separately throughout the entire process, even though we all had the same end goal. There was some serious lack of communication among all parties and we ended up playing numerous rounds of telephone to get this closed out. FYI – just to avoid any confusion, I am not talking about my business partners – they are great!
SAVE YOURSELF THE STRESS & USE OUR LESSONS LEARNED
(1) BUILDING THE PROPER TEAM IS IMPORTANT We were constantly forced to play the middle man between our lender, attorney, the bank’s attorney, the seller, the seller’s attorney etc. If we had built the proper team ahead of time, we would not have had to play this role. The only perk of this was that I like to be “in the know” and because we were the middle man for all parties, we were constantly aware of what was truly going on.
(2) BE CAREFUL WITH AS-IS PURCHASES Now that we are in the house, there is SO MUCH MORE WRONG than we had originally anticipated. The amount of work we need to put into the home will totally eat away any chance of profit for a LONG TIME, but hopefully this helps with the value of the home, makes the tenants happy, and proves profitable for the long run.
(3) DO NOT RUSH CLOSE We had a few last minute issues pop up with the property at the closing table BUT we were SO READY to just have this deal over with that we closed right
then and there – BAD CALL. Instead of delaying close, and requesting our own estimates for these new property defects, we took the seller’s word and accepted a credit for the repairs. This decision may have cost us $13k+ . Bye bye 2018 profits.
Now please note I do not write about these stories to complain to you. Trust me, I save all my complaining for my fiancé – sorry PK! Rather, I share these stories with you to demonstrate that things CAN go wrong! Many times the internet only shares the success stories with you, and while I totally hope I have some success stories to share soon, I want to be real and share the “failures” because honestly THEY HAPPEN and we are learning so much from them.
Do YOU have any CRAZY CLOSING STORIES?! Make us feel better and share them with us!
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