When there is a lull in business, it's hard not to take the deal in front of me to get the money flowing again.
April was a bit slow. After being on vacation all of January, most of February and getting things started in March, I was gearing up for some serious house and contract flipping. In this business, it is important to learn that it is a lot like the tides - there are times when it is busy, and times when it is slow. If you've been doing the business a while, you must learn to enjoy the slow times. You will have them. I'm getting better at it, but I've certainly not mastered it yet.
For this reason, I started doing deals that weren't in line with my typical 55 cents on the dollar buys. They are still profitable, but definitely a bit more risky. I like to be the market maker when I sell. If times are great, I list high and try to sell for top dollar pushing up values for every homeowner in the neighborhood. When times are slow or trending down, I want to have enough cushion to drop my price until my house, or inventory as it should be considered, is the next property in escrow. If it wipes out 3, 5 or even 10% of the equity in the neighbor's homes, well, business is business and I have to do what needs to be done.
I recently closed a pretty thin deal. You can read about in April's D.O.T.M. At the time, it was the deal in front of me. If I didn't take it, my money sits in the bank, on vacation, not earning me a dime. I decided to do the deal and keep moving forward. I then got a smoking deal on a beat up house out in Banning. I figure it is worth $130K and I paid $70K for it. I had cash so I closed it. Another marginal deal in Riverside suddenly came my way. I paid $145K. I really think I let the seller out-negotiate me. I was having an off day, what can I say. I had a wholesale offer at $152,500. Had my buyer said $155K (and don't think I didn't try to get him there), I would have taken it. In retrospect, I probably should have taken the offer any way. Instead, I got my private lender to fund me $130K and I hope to make around $20K on the deal. I'll take a single if it means getting on base. It only takes 4 singles to get a home run, right?!
I was at Disneyland on Friday and got a call from a very motivated seller. We came to an agreement and I was able to purchase his $230K property for $135 - Not a bad margin. Now I have to borrow more money and put myself at a higher level of risk. These are the evenings when I lay awake at night going through the numbers. Would it have been better to pass on the April's deal and use my cash for this deal? What I will pay in points and interest will wipe out any profit I get out of the first deal. So, had I known then what I know now, yes, I should have waited. But, at the time I didn't know, and the expression "A bird in the hand is worth two in the bush" certainly applied.
On Tuesday, I spoke with the seller of my Disney deal and he backed out. Claimed he was going to move into the house. Just like that a very nice profit goes up in smoke. So is the life of a real estate investor. Now, having taken the deals in front of me and not held out for a better opportunity proved to be a very smart move. Bird in the hand.
In the mean time, I'm still trying to enjoy the slow times and remember that good times are coming.
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