Mistakes to Avoid When Flipping
Knowing when to walk away from a situational scenario that doesn’t look promising is not a prophetic science. Without question, some of the changes that I closed and bought from the builders in 2005 were clearly lagging behind with no deal that I should have stayed away from. And I mean it literally. At the escrow closing signing table, I could have, but didn’t, just get up and walk away. And it’s not like I’ve never done it before. One of my first changes in 2003 resulted in that result, in which the terms of the loan were not explicitly as they were supposed to be. Three days later, when the terms of the loan were rectified to my liking, I went back to the escrow, waived the loan documents, changed the house, and quickly made $ 68,000.
As to why more prudence was not exercised in the five quick-change houses planned in 2005, three in Southern California and two in Las Vegas, which were destined for a quick profit, it can be easily answered. Greed. It was greed that took over the better half of me. Although Gordon Gekko may have said that “greed is good”, I can tell you the gospel, and that is that “greed is destructive” if not handled correctly. Think of greed as fire. You can use it to heat your shelter and provide comfort to your family, or you can use it incorrectly and it will burn down your shelter and kill you and your family. It sounds crude, but I don’t know how to clarify it. In terms of time frame, all five houses were purchased during 2005 and should have been off the books during the first half of 2006 (given an average time to market of three to six months) but instead were not completely off the books. of the books until early 2007.
Ultimately, these were five quick deals, having quickly successfully traded thirty to thirty Five properties in Phoenix, Las Vegas, and Riverside before them, that I should have stayed away from. Although these five houses alone were not the main reason for the financial collapse, they substantially undermined my cash reserves at the time, which had the domino effect and was the contributing cause of the defaults on the mortgage debt of the nine condos that he had recently purchased. . In short, it was too early. And simply put, I had gone crazy. At my peak I had about a dozen properties in contract, under development, or in escrow on the other side. My level of activity probably matched that of a small property management company or local developer. The speed of the activity, in which I worked more than sixty hours a week and drove more than 25,000 thousand miles a year in my car between trips to Phoenix, Las Vegas and Riverside, at a more reasonable level, should have taken a difference. of three. one-year period to play, rather than the eighteen months I squeezed it in during the five years Potter Equities was actively operating.
In total, these five deals, or rather laggards, cost me almost a quarter of a million, which is a quarter of a million dollars that I will never see again. Much of that monetary loss was primarily due to servicing the mortgage debt on the five changes, which I could have gotten $ 15,000 from those five properties, but almost wrote a check on deposit to close, which is always a painful experience. I hope you never experience writing an escrow check. It is a horrible and sick feeling.
The other half of the collapse was the nine condos that should never have been bought. Without going into the bitter details, the nine deals on paper just didn’t go through together.
But almost scarier, and three years after I successfully changed new homes in 2005, my best investment of $ 104,000 in Moreno Valley, was that by this point I had already walked away from at least five or six deals that were clearly and demonstratively no textbook offerings. So the past experience and decision making was there, the discipline was there, the courage, the balls, and the Machiavellian ability to walk away from a deal was there, so why didn’t I walk away? In short, it is complicated. And frankly, I’m not sure. It’s like asking a compulsive gambler why he didn’t get up from the roulette table and walk away, but instead gambled on his daughter’s college tuition money. Or it is like asking why an alcoholic gets drunk when he knows of the destructive impact it has on his own life and family. As you can guess, a clear explanation is complicated.
However, I know with absolute clarity, and of which I am personally disappointed, that I deviated from a successful business plan that had created substantial wealth for me in a short period of time. The fact is, home removal from new homes was and can be a successful investment strategy for the small real estate investor. And just because my mistakes contributed substantially to my inability to continue to move, it doesn’t undermine the validity, soundness, and time-tested practice of changing new homes for a quick profit.