Good Deals Gone Bad

When Good Deals Go Bad

You know that saying, “know when to hold em, know when to fold em?”
That was me, and this property in Cincinnati I wrote about recently.  This was a great looking property from the numbers, it had an extra space in the ‘attic’ that was the size of a complete 2 br apartment (can you say free cash flow?!), the units commanded high dollar rents that shocked property managers in the area…

I had everything lined up, from the lending to professional management.  I even had the names of the neighbors in the area that watch over this street like they own it.

But then I got the property inspector’s report back.
*Pro Tip: ALWAYS get a property inspection done.

And as it turned out, that there was a lot of negatives on this property.  The beautiful remodel done to the penthouse unit? The floors were made with a ‘wall covering’ soft wood, that would scratch very quickly and need to be replaced down the road.

The electrical panels? Needed to be upgraded to modern standards to get insurance on the property.

Down in the guts of the property, inspecting the joists that HOLD UP THE BUILDING, there was some shotty work done where a ‘contractor’ sawed notches in the bottom of the 2×6’s in order to run wiring, causing them to be structurally unsound and downright dangerous.  I’ll repeat, these were HOLDING UP THE BUILDING and he sawed notches out of the bottom of them.

Now, none of these items scare me per se, but if you’ve read my earlier posts, in my business I simply stick to my numbers.  Structural issues can be fixed, flooring can be replaced, cracks in buildings can be sealed up and made whole again… BUT, the numbers must support it.   The expense must be offset by either the rents, or the seller needs to lower the price, or bring some money to the table to fix these issues before I’ll take control of an asset.  This is an investment, after all.  I want cash flowing in every month, at a higher rate of return than some stock market account.

The seller in this instance was unwilling to bring any money to the table in negotiations, and decided they’d rather keep the building in its current condition.

So I passed.  I folded my hand.  This good deal, turned bad.

And it was a great decision.

What does this mean for you?  Why does it matter?  I guess I just wanted to give you a live example and let you know that I’m not simply bringing you ‘any deal’ that comes up.  Yes, it cost me money to put this property under contract and perform inspections and other due diligence, but that won’t impact my decision if the numbers simply don’t work anymore.   My partners and I are constantly sourcing new deals, let me know when you’re ready to invest and we can talk about what opportunities I have available.

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