March 31st 2009 was no April fools day. Over 5 years ago we were fortunate to negotiate a $2,100,000 real estate transaction 100% owner carry. In exchange to put the deal together we cross collateralized our 20 unit apartment that at the time had about $400,000 in equity. We also put up a 3 unit that had about $90,000 in equity. I being what I thought was a really good negotiator did not tinker with the asking price rather I asked for very favorable terms. I thought I was on top of the world. All that had to happen is that my area continue with very average appreciation, 5/6% annually, increase rents maybe $15.00 a door a year and minimize any deferred maintenance. When a “Perfect Storm” comes into you life one thing you will realize it and you will know it…!!!!!
Here is what happened right out of the gate, the 11 condos we picked up as a part of this transaction were assessed a $125 a month for deferred maintenance it went for 2 years until we said no more. The u nits were a break even when we purchased them so out of pocket each month went over $1,400 times 12 months times two years….off to a great start. Since the purchase of the portfolio 5 years ago the market rents have gone down 30%, we lost an additional 8000 military y troops and in our due diligence we neglected to ask many very key questions. Like to the HOA president, “do you anticipate any assessments to the condos”? The assessment was already anticipated but we never thought to ask that question.
To make a very long 5 year story shorter we ended up putting in real cash, well credit cards in many cases, $200,000 deferred maintenance, and over the past 36 months we have had to put in $3,000 out of pocket just to break even. We tapped ever financial resource we could until the funds ran out.
To add injury to insult last summer in a 2 week period 9 of the 21 total doors let us know they were moving out. Rents around town had lowered so much they could get more for less. Our payment was fixed and we really could not lower our payment, I had called to see if we could renegotiate the original transaction it became very clear that was not an option.
Here is what I learned from this: We knew 2 years ago that this was going very side ways, pride and ego will blind you from the truth. I should have been more aggressive up front when I learned about the assessments to the condos, we way underestimated the amount of deferred maintenance on the entire portfolio and we should have walked away sooner when we knew we could not turn this around with our lack of cash reserves. Tuesday March 31st 2009 we signed the original portfolio, our 20 unit and our 3 unit over to the owner. It was a deed in lie of, so it was not a foreclosure.
I tell you all this because I want you to know that I too have had and will have more business failure. “With great risk comes great reward with great reward comes great risk”.
It is very humbling to tell you all this but life is life and I too deal with negative life situations. What does not kill you will make you stronger, I now believe that….
My faith will not waiver, my marriage is stronger and my love for my daughters greater. What is really important to me has very much shifted. Thank you God for loving me enough to continue to teach me and mold me into more and better……….