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When Push Comes To Shove

Date: 03/07/2019

I’ve bought lots of real estate over the past 20 years, but I’ve also missed out on my fair share of good deals too.

Sometimes I lost the deal because I negotiated too hard, or maybe it was because of personal procrastination, perhaps even stubbornness where I won the battle (i.e. didn’t pay the asking price), but lost the war (i.e. missed out on a great deal in hindsight).

One example comes to mind. It was a multi-tenant gem in Orlando that would have been a fantastic pickup in my US real estate Fund. I managed to haggle down the price a little, and even get some seller financing thrown in. Truly, every ounce of opportunity was sucked from this deal until there was nothing left. Then at the last minute, the owner pulled the sale, only to relist it a couple of months later. The selling agent said “Shall I re-engage with the buyer we had on the hook?” “No”, the seller replied. “I’d prefer to get a little less and go with another buyer.”

Oh so close…

In a more recent example I’d thought I found a great deal in Queensland. It was leased to a brand name tenant on a three year lease that had two years to run, and returning an 8.75% income return, and a cash-on-cash return pushing 13% per annum.  Even better, I had it under contract for my new AREIT about $500k below the estimated replacement value. Surely a great deal, right?

Imagine how surprised I was when the independent valuation came in at $300,000 below the price I’d negotiated! Heck! The justification was that the current rent was above what might otherwise be possible if that tenant vacated, so resetting the value for the lower rent equalled a lower value.

So, what do you do when you think you have a great deal, but it’s not supported by the valuation, or the property inspection, or something else? This is where you have to listen to your head, not your heart, and make an intellectual rather than an emotional decision.

As the seller wasn’t interested in re-trading the deal at a lower price, with gritted teeth I called the agent to say I’m pulling out.

The lesson is this: It’s better to miss out on a great deal, than to buy a dud and have the risk and aggravation of having to fix it. I call this the John West approach to investing – be the best because you reject deals that others accept.

When I’m feeling melancholy about missing out on a deal I remind myself of two sayings:

  1. First, there is always another bus around the corner – meaning great deals come by all the time.
  2. Second, mollifying me after missing out on a good deal, my real estate mentor Stu Silver once told me “Nine Cup, you can’t get hurt by deals you don’t buy.”

Find out why my real estate mentor calls me 9 Cup, together with listening to an audio podcast series I did with him, here

Profile photo of Steve McKnight

By Steve McKnight

Steve McKnight, the founder of PropertyInvesting.com, is a respected property investing authority as well as Australia's #1 best-selling business author.

Comments

  1. Profile photo of fxdaemon

    Hi Steve,

    Will negotiating for interest free vendor financing be commercially feasible & sensible to compensate for the
    valuation shortfall?

    Thanks,
    FXD

    • Profile photo of Steve McKnight

      They needed a cash pay out @FXD . I toyed with the idea of paying their asking but keeping $300k in escrow which would be released if the tenant renewed, but the seller was wanting to cash out and retire. I don’t think a creative offer was what they were seeking.

      – Steve

      • FXD

        Ok I get it.

        My question is more about if that will work for you from your own commercial perspective, obviously subject to vendor’s acceptance.

        If you think it is commercially feasible I may try that trick next time 8-)

        Thanks,
        FXD

  2. Profile photo of Richard M

    Great Lesson Steve!

    Some good insights here:
    * Due diligence is key
    * Don’t get emotionally involved
    * There is always another deal around the corner
    * Don’t lose sleep over investments you don’t own

    Thanks again!

  3. Raymond Choi

    Hi Steve, Thanks for the great wisdom of property investing. Due Diligence is the key to separate a great deal and a dud. I believe “win-win” is also the key to secure a good deal. I like your nick name given by Uncle Sally.

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