How I Lost $100k

I'm going to admit right out of the gate that I'm selfishly writing today's blog more for myself than I am for you. I'm staring down the barrel of a BIG decision and on the other side of this decision could be a life-changing success OR an absolutely dismal failure. To break my own cycle of analysis paralysis and give myself a good ole fashioned kick in the butt, I'm going to share with you a story of my first real estate investment and how I lost out on $100k. The reason that I'm sharing this story with you is because as you'll see, I took action and everything turned out fine. Did it turn out the best it could possibly have turned out? Definitely not. Did it still turn out amazing? Did I still learn a ton? Did I still make a killer ROI? Did my ability to get over my fear and get out of my own way change my life? You bet it did.

The year was 2019...

COVID hadn't happened yet and we were all eagerly awaiting the Game of Thrones Finale. Life was good. I was a year and a half into being a full-time real estate agent and DEEP into the Bigger Pockets podcast. If you have ANY interest in real estate investing, Bigger Pockets is probably the number one resource I recommend. The podcast has shaped the foundation of my real estate investing journey. Including my very first deal. On this particular day, the episode was talking about getting over the fear of doing your first deal, trusting the process, and believing in yourself and the notion that real estate deals are "everywhere". I'm actually kidding. I don't remember what the episode was about but just believe me when I tell you that after months of listening to BiggerPockets Podcasts, this was how I was feeling. 

It was a warm winter day in Durham and I was out for a run in my neighborhood when I saw a little handwritten "Land For Sale" sign on one of my favorite residential streets in Durham, Wa Wa Ave in the Lakewood neighborhood. Utilizing the mindset training from Bigger Pockets, I immediately took action and called the number on the sign. I spoke to a man who was waist-deep in Minnesota snow who inherited this land from his mother and he wanted to get rid of it as fast as possible. He wasn't coming to Durham, he didn't want to pay the taxes, and in fact, he wanted to sell ASAP because he needed the money for his daughter's tuition. Asking price? Tax value. $63,150.

The deal...

To give you the breakdown; what was actually for sale was 2 lots. One of them was almost definitely a buildable lot and the other had what's called a "blue line" stream going through a corner of the lot. Builders don't like blue line streams because there are setback requirements that need to be adhered to which can make things tricky. In this case, it rendered the second lot unbuildable. Or so we thought. The total tax value for both lots was $63,150. The challenge was the other buildable lot was pretty small which would make a construction project challenging. The solution; combine the lots into one large buildable lot. This seller didn't want to do that. He and his brother wanted out and they wanted out fast. With what I call the "drunk monkey" on one shoulder yelling in my ear "You don't know what you're doing", "who are you to invest in real estate", and "You'll surely fail" in one ear and BiggerPockets in my other ear saying "real estate investing is about creating value where there was previously none" my partner and I decided to make an offer. Our offer? $63,150.

Holy smokes. Our offer was accepted. For my Realtor friends out there, yes the sellers knew I was a licensed professional and yes, we signed the Working With Real Estate Agents Disclosure. Yeesh.

Now the fun began because we didn't have the money. Our first stop was to get our commercial bank for a loan. If you've never bought land before I'm going to save you some headache right now. Banks don't like lending on raw land. It's speculative which makes it risky in their mind so there are not a ton of banks that will offer financing for raw land. Our bank had a loan option for us, however; the terms were VERY unfavorable. Nevertheless, we persisted with the loan application and got the land appraised at the lender's request and our cost. The appraisal came back at $115k. Great, now we knew we weren't crazy and we had a real bonafide opportunity on our hands.

Before moving forward with the bank's sharky loan terms, we shopped around to some private lenders we knew. If you've done any research into real estate investment you may have seen the terms "hard money" and "private money" thrown around. Hard money is typically a lending institution that has loan products specifically for real estate investments. Rates are typically higher, and terms are shorter, however; they can be very effective and necessary to get a deal done. Private money, on the other hand, is usually an individual or a group of individuals with money to lend. Terms and rates are negotiable. In our case, the private lender was a family member. With our appraisal of $115k in hand and a signed contract for $63,150, we felt pretty confident we weren't going to lose anyone's money. We closed on the deal and got to work.

The first step was to get our survey work done and figure out what was going on with the blue line stream. We had the center of the stream marked and measured and consulted with the City to get assurances (not permits) that if certain conditions were met, a house could be built. We consulted with a few builders and even went so far as staking out a potential homesite. Our thinking was that whoever bought these lots, would have to combine them into one, and all of the research we did with the city had that end goal in mind as the highest and best use. After getting our survey work done and consulting with the city, we turned around and listed the lots for $115k 2 months later. If you know Lakewood then you know a buildable lot is in HIGH demand and we were able to go under contract fairly quickly and ultimately sold for $110k.

Pretty cool, right?

After all was said and done, my partner and I made about $35k off of the deal. Thank you BiggerPockets. I was proud of my partner and me. We used our knowledge and experience to create value. We utilized our network to research and finance the deal. Despite the feeling of imposter syndrome, we took action and created a win-win situation. To remind myself of how great of an investor I was, I would periodically drive down my favorite street in Durham and past the lots I sold to check on construction progress. Months went by with no activity. I'd take pictures and send them to my partner. "Why aren't they building?" Doubt started to creep in. Did we mess up? Did we sell the lot as buildable when in fact it wasn't? Are we frauds? 

After almost a year, I saw what was taking so long. One day, I went for a bike ride and decided to cruise down Wa Wa to see if there was any activity and I saw it. 2 home sites. Clear as day. No mistake. The builder had managed to get a house on each lot. I don't know how they did it. I do know that from the research my partner and I conducted, we thought it would be impossible.  

How did we lose $100k?

I'll be honest, the headline to blogpost should have read "How I Lost OUT On $100k", however; let's be real. You probably wouldn't have read this far. The bottom line is that 2 buildable lots in Lakewood are MUCH more valuable than 1. At the time, about $100k more valuable. If we'd been more persistent in our due diligence, or taken more time, or consulted with another surveyor or who knows what; maybe we could have turned a good deal into a GREAT deal. Maybe.

Looking back on this story, I don't think about the lost opportunity cost. I don't dwell on what we could have done differently. I reflect on the knowledge I gained from going through the experience. I feel a sense of pride knowing that I could have just kept running. I made the call and talked to the brothers. I learned about what they needed and put together a solution that made sense for all parties. I took a calculated risk and it paid off. When I think back on this I'm reminded of a sign that my father used to keep on his desk:

"Take the leap in and build your wings on the way down"

At this moment in time, that's a message I need to hear. Maybe you do too?

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