It happens to all of us—sometimes we lose a deal we really wanted. It hurts! When that happens, what lessons can we take away and learn? Most importantly, what adjustments do we make moving forward, so that we can apply the lessons we’ve learned? In this episode, Jeff tells the story of a deal he recently lost, and what he’s doing differently as a result.
It’s an experience we all unfortunately have. Sometimes you make your best possible proposal, you’ve built great rapport with the seller. And unfortunately, they say no, and somebody else gets the deal. And when you go to look back later, you see that they accepted a lesser deal than the proposal that you made to them. Ah, it’s so frustrating. In today’s episode, I’m going to tell you a story about how that just happened to me, and what we can learn and do differently next time.
Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs, we’re just looking for quote, motivated sellers to make lowball offers to. You see, we are people-oriented dealmakers, we sit down directly with sellers to work out Win Win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale.
I’m Jeff from a Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants a long-term wealth, not get rich quick gimmicks are pictures of yourself holding fat checks on social media. This show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.
Hey, thanks for joining me for another episode of Racking Up Rentals. Show Notes for today’s episode can be found at www.thoughtfulre.com/e39 . Please do us a big favor and do yourself a big favor by hitting the subscribe button right now in your podcast app. It really helps fellow Thoughtful Real Estate Entrepreneurs to find us and of course, makes it so that you can’t miss this episode or the next one or the next one after that. All right, onward.
Last weekend was the Sunday before my wedding anniversary with my wife it was on Monday. And Sunday morning we woke up and we thought hey, you know it’d be fun would be to go out to breakfast. So, you know, of course today eating out it’s a little bit weird. So, we found the right place, it has enough outside seating. And we went there. And they said, “Absolutely, we’d love to have you but it’s going to be about a 45-minute wait, let’s get your phone number. And we’ll call you when we are ready.” We said, “Fine. That sounds great. It’s a beautiful morning, we’re going to go take a walk.”
So we started taking a walk from that restaurant. And within a few minutes, we were walking down this residential street. And I looked over and I saw a house. Now this was a house that I had been trying to buy about a year earlier about a year ago. And it just dredged up this memory in my mind about this experience that was frustrating it kind of painful. And I thought I’m pretty sure that the people who bought that property didn’t even pay as much as I had proposed in the first place. And so I came back home and I looked it up and sure enough, and as I started thinking about it reliving that whole experience, I got so, so frustrated, because I lost that deal, won in a just a fantastic location, exactly the kind of thing I would love to buy, fix up, redevelop in this case and hold, I could have easily have flipped it or wholesaled it as well. And I was super frustrated. But I thought instead of getting frustrated and feeling disappointed about that, I would work on capturing the lessons and sharing those with you.
So I had found this property by simply combing the areas that I love to buy in, in this town. And I don’t normally do a lot of what people call driving for dollars. But I was doing that in this case goods a very small, very specific area and part of town. And I found this particular house, a tiny little rundown house in a great, great neighborhood on an average size lot. And I had sent them a letter and the person did not respond immediately. And eventually I got a phone call from a guy with the same last name but a different first name. And it turns out the guy calling me was the brother of the person I had sent the letter to and the owner the brother had passed away. And now the brother here was working with I think maybe the ex-wife of the seller and a sibling or to ex-wife get rid of the house and to be able to share the proceeds amongst them. So I had a great rapport with this guy immediately we met at the property. Very Nice Person — we just we had a good connection. And he told me that they were hoping to get upwards of $400,000 for this property. So I understood there might be a little bit of flexibility in that. But based on some comps that they felt were comps. And if you could see me right now, I’m using finger quotes because I did not consider those comps later, once I really looked into them in terms of quality and whatnot, but they thought that this property should sell for upwards of 400,000. And if they didn’t have to use a realtor, they would accept a little bit less than that. Well, as I started doing my analysis, and using my opportunity vision, I did not feel like I could, frankly, get anywhere close to that. And I also didn’t think that really anybody was going to be able to get close to that, I believe that there was a realtor giving them very, you know, optimistic information, and kind of blowing sunshine, if you know what I mean. And making them feel that they could get there showing them comps that were close by and similar in size, but were completely different condition and livability. And so, I didn’t think anybody was going to be able to pay them that close to $400,000 price. So ultimately, I got back together with the seller. And I presented him a proposal for I presented him two proposals, actually, one was $330,000, with an 18-month promissory note, which would allow me to do what I needed to do to the property in and execute an exit plan. Or if they really wanted to get paid out immediately $285,000 with no financing contingencies, or otherwise known as 285 cash.
Now, he did not necessarily say I think this is terrible. But what he did say is I have to go back to my sister in law and our other sibling, and we have to talk about this because it’s a collective decision. And when he called me back, he said, I’m sorry, my, my family, and I were just not feeling good enough about that, we really think we can get more. And so we’re going to go ahead and put it on the market with this realtor who has, you know, told us we can get so much more. And so I begrudgingly accepted that and wish them the best with it. And just kind of put it out of my mind. And even in my own CRM database, I marked it as a dead lead, unfortunately, because I felt like they were going to be able to sell it on the market, I didn’t think they’d sell it for that price. But I knew they’d be able to sell it on the market because it’s extremely desirable location. And I felt like the sellers were a little bit unreasonable. And this was not maybe the place that was the best use of my time to devote a lot of energy to fast forward back to this weekend with my wife, we’re taking a walk. And I think, I wonder what that property sold for so, sure. And so, I decided to look it up, and it sold for $288,250. And that’s an on the market price. And so after you back out the Commission’s that they likely paid, just give them a generous, rounding to $274,000. And they probably did receive cash for that 274,000. But I had offered them 285,000. And I had offered them $330,000, if they would provide the financing. Now, that’s a whole other episode as to why I would offer to pay them so much more if they provided the financing for just 18 months. But we’ll have to talk about that at another time. As you can imagine, I was so frustrated, I saw that these people bought this great house, not a great house, a great property in a great location and a great town for less than I had offered to pay for it. And instead of being frustrated, though, I decided to just process the lesson. So I want to share two lessons with you. And I want to share three things I would do differently if I had this as a do over. Because unfortunately, this is just part of the business. This does happen. This isn’t the first time this has happened to me, unfortunately, I’m happy to say doesn’t happen a lot. But it does occasionally happen. And when you’re out there in the market in the arena, and you’re trying to get deals done. This does happen sometimes. So the two lessons I want to share with you are this. The first lesson is that it’s not always good to be the first one through the door. You know, I think there’s some kind of funny Well, maybe not so funny expression about it’s usually the first person through the door who gets shot. And then the second and third people are a little bit safer. Well, in this case, I was the first voice of reason and reality that they heard they had heard kind of the fluffy, sunshiny version from the realtor and I was the first voice of reality that came through the door. And when you’re the first voice of reality, you often don’t get listened to because the sellers think that you are the anomaly that you are the exception. The information and the perspective they already have is right You are the oddball and the wrong one. And if they can just get rid of you, then the next person to come along will certainly be more realistic and reasonable than you are. And you will see their perspective. And that it usually doesn’t play out like that, right. So they get some sort of, quote, bad news from me the first time, I’m sure they talked to a couple more investors, builders, developers, this is a perfect location for building new construction, for spec homes, for vacation, homes, all sorts of things.
And I’m sure they got another couple bit of bad news there. And that those people, they were starting to believe the bad news, the low three hundred, upper to hundreds, price point from the second and third people, but not so much from me. But they still decided to put it on the market anyway. The second lesson is that multiple decision makers makes it so much harder, especially when you can only see one of those people. Now, I would say multiple decision makers makes it harder, in general. But if you can get an audience with all of those people, then it’s not that big of an obstacle. But when you’re only speaking to one person who’s representing a group of three or four, perhaps those people are not local, you’re not going to get the opportunity to see them or talk to them. Maybe you’re even being held, you know, at arm’s length by your one contact so that you can’t see them, or talk to them, it gets much, much more difficult for a couple reasons, you can’t understand those people very well, unless you have some kind of contact with them. And the more you understand your audience, of course, the better off you’re going to be in terms of making a proposal that matches the needs and the worldview and everything of those people. But if you’re flying blind with those people, it’s very, very difficult. And secondly, your message to the group is now not being delivered straight from your mouth, you’re the horse and it’s not coming straight from the horse’s mouth, it’s being filtered through your contact to them. So, I told, you know, my contact the brother, what my proposal was, and my rationale for that I gave him my best messaging. But then he translated that probably pretty poorly to the rest of them. And they didn’t get to hear directly what I thought. So the two big lessons that are really important to learn from this is it’s not always great to be the first person through the door, especially when you have to deliver some sobering news. And secondly, when you have multiple decision makers, it definitely makes things more difficult, and probably overall decreases your odds of being able to get something done, unless you’re able to break that cycle and get in front of everybody. So most importantly, what would I do differently? And maybe, what will you do when you have this situation either to avoid, you know, the, the situation I had, where I lost the deal, or to correct your own situation that maybe you’ve had in the future. So the first thing I’m going to give you three, the first thing I would do differently is I would have worked harder, a lot harder to try to get all of them into the conversation directly with me. I’m not sure I would have succeeded. But I do look back and I think I did not try my hardest to get all of them into the conversation. I didn’t even ask directly to my contact, can we please all three, get on the phone together? Can we meet up in person? I was sensing that that wasn’t going to be a possibility. And so, I just wrote it off. In hindsight, I really wish I had not written it off and that I had tried much harder to get everybody into the conversation. Secondly, I early on, assessed this as being a low probability opportunity because of all the seller dynamics. And because I was the first guy through the door who had to deliver the sobering news and I diagnosed this as a low probability deal. And as a result, I didn’t follow up very well. I wish that I would have followed up better now it if I talk to the seller, I give a proposal they say no. And then immediately they put it on the market. That’s a very difficult situation, because now they’ve got a contract with this realtor, they’re immediately taken a huge financial haircut for the Commission’s. So even my follow up there might have been not that effective. But again, I know I didn’t give the follow up my best effort. And as I look back, and I think about this particular property in the location that it’s in, in the town that it’s in, I should have put so much more effort into following up and maintaining that relationship. And the third thing that I would do differently is I would have used a different strategy that I do actually often use In many other cases, now this other strategy is, if I feel like I can get an initial negotiation with a seller into a zone, that is generally in the ballpark of being acceptable to me, even if it’s not perfect, I will proceed to go ahead and tie the deal up, meaning, you know, make the proposal, get the acceptance, get it written up and in contract, and then I will conduct my due diligence. And then I will do my best to, as I would say, tighten up the deal, which is renegotiate little bits of the deal based on my due diligence findings, to get it from generally in the strike zone of acceptability into this is actually a great deal now. And one of the bits of magic with that whole process is simply the element of time. Now, I mentioned this in a very recent episode about how you should slow down in your cellar negotiations. And this is the same idea. If I had tied up the property, and I had spent a month or so doing due diligence, and being in daily or, you know, every other day contact with the seller and developing that relationship. By the time I tried to adjust the price in terms of the deal, I would have had two things. One, is I’d have a ton more time under my belt, communicating with them and more time means more relationship more so, of an established rapport. And secondly, I would have had much more practical evidence of why this property shouldn’t sell for quite so much as a result of my due diligence, right, I’d have an inspection report, I’d have other research, maybe I’d conducted more detailed analysis of the difference between the things they thought were comparable properties in this property. So I would have had a lot more information, and I would have had a lot more relationship. And so, at that point, call it one to two months later, after I completed all that due diligence and built that relationship further, my likelihood at that moment of being able to adjust this deal into the zone of acceptability was probably I mean, it was certainly higher than it would have been with my initial offer.
So to recap, the two lessons that we learned from this are number one, it’s not always great to be the first person through the door, especially when you’re the one who has to offer some sobering news. Sometimes it’s more effective to be the second or third person because the So, first couple people have kind of softened the seller up and brought them down to reality. Number two lesson is that multiple decision makers makes it so much harder, especially when you can only see one of those. So the three things I would do differently. Number one, I would have worked so much harder to get all of them in a room or on a phone call together so that they could hear my proposal straight from my mouth, and I could get to know each of them individually as well. Number two, I would have followed up better even though the situation did not seem very hopeful to me follow up is cheap and easy. And there’s no excuse for not doing a good job. And number three, I would have focused on building the relationship as I did due diligence, and use the additional time and information that came from that due diligence process to then try and renegotiate to get the deal into the zone of acceptability. That’s it for today’s episode of racking up rentals. Again, Show Notes for this episode are at www dot thoughtful. Our e.com slash e three nine, please do us a big favor and hit that subscribe button and the podcast app you are using right now. And also rate and review the show. It really helps other people find us. So did you know that we have a Facebook group for thoughtful real estate entrepreneurs as well. It’s called rental portfolio wealth builders and we would love to have you join us there. Just go to group dot thoughtful r e.com. And it’ll take you right there. If you liked this episode, please take a screenshot of it and post it to Instagram and tag us. We are at thoughtful real estate on Instagram. Until next time, I am Jeff from the thoughtful real estate entrepreneur and I’m signing off thanks for listening to racking up rentals where we build long term wealth by being a win So, deal makers. Remember solve the person to unlock the deal and solve the financing to unlock the profits.