Tuesday’s Tip #55: Think a Little

I've watched numerous deals close and numerous deals fall apart. They come, and they go. It's reality.

The hard part of the reality is when people make stupid decisions. It's difficult to watch it happen. It's even more tough to see a deal crumble as decision makers listen to people with absolutely no credibility. Whether you're the buyer, the seller, the real estate agent, or the appraiser, watching foolishness in action is infuriating.

I watched a deal fall apart months ago because of an insurance agent. He was determined the property being purchased needed to have screens and storm windows for them to insure it. The buyer wouldn't purchase it despite the fact there was already a similar insurance policy on the house with another major insurer. The buyer needed to use his own insurance company, who was destroying the deal over screens. It was a completely occupied property that would cash flow nicely, and we were arguing about screens. The seller, in an effort to help fix a ridiculous problem, offered to pay for the first year of insurance if the buyer would use his insurer. That wasn't good enough.

Let me explain why this didn't make sense: The property sits in an older area of Indianapolis. It's a low income section 8 area, if that helps you at all. (Not trying to stereotype here, just speaking in general terms.) Because of this, tenants don't respect the properties like they would in better areas. So, you limit some of the things you put into the properties for sake of the lack of return. They don't respect the property, so you don't allow them to destroy things that are insignificant.

Screens and storm windows are a great example. You don't put them into this particular type of property, because the tenants won't take care of them. The likelihood of you wasting your money is very high.

Take this same thing and apply it to types of flooring, paint, fixtures, lawncare, etc. If the cost outweighs the benefits, of what value is it to spend the money?

You have to decide whether screens will kill a deal that brings the cash flow you desire or not. If they really make a difference, perhaps you should be looking at a different type of property.

Tuesday's Tip: Don't let screens make or break a deal. Think about a way to "screen" deals, and ensure your criteria makes sense.

(That has to be the corniest line I've ever written)