Knowing When To Trust Your Gut

gut feeling Hey guys, Cody Sperber here. I’ve got a really important tip to share with you today… it will either serve as a good refresher for seasoned investors or as an eye-opener to green investors.

Today’s lesson is all about your gut, (a.k.a. your inner voice, intuition, instinct, Spidey sense, ‘that feeling’). I think this inner voice becomes stronger with more experience, and this is one of the things that sets apart new investors from experienced investors. It's that “gut feeling” that you get when you decide to make a deal or pull the trigger.

So, today I am going to tell you a somewhat embarrassing story so you guys can learn from my mistake.

What had happened was…

We bought a house at an auction, but the owners were still living in the property, so we let them know that they had do leave. The conversation went something like this…

Elderly Couple: What are you selling the house for? We have a friend who's a real estate investor out in Georgia who might possibly be interested in buying the house.

Me: Hmmm… Okay, that sounds great! Tell him to send a contract over.

About 20 minutes later, the contract came over and we were all excited because we were going to make about $10 grand on an easy-peasy, quick flip. So, we (dumbly) told ourselves:

This is great! It's a win-win win for everybody!

Well, come to find out, the terms in his contract weren’t the same terms that we would normally put in our wholesaling agreements. We like quick closes. And, even though he was trying to buy it for cash, he wanted a 30-day close (red flag #1) – which didn't make any sense. He also didn't want to put down any earnest money (red flag #2).

So, I call the guy up and I say:

“Look, you gotta change some of these terms. We have to use our title company. You have to close within 7-10 business days. You have to put up $2,500 non-refundable earnest money.”

Well, talking to him was like talking to a brick wall. It was like – no matter what I said – he circled back around and just said his piece. So I said:

“You got to abide by OUR terms.”

Then he said:

“No, I'm not doing the deal unless I do it by MY terms.”

So, we were at a standoff (in a weird way).

But he kept verbally assuring me:

“Look, don't worry. I want the deal. We're going to do this deal. I like the house as long as it has clear title and as long as there's nothing wrong with the inspection of the property. I'm going to buy the house. I like the price. We're going to do the deal.”

I got off the phone with him and told my biz partner, who said:

“Absolutely not. We're not doing a deal with the guy who wants 30 days to close for cash and not put up any earnest money. That doesn't make any sense.”

So, my partner decides to call the guy, and then 10 minutes later, he walks into my office and says:

“Man, he did the same thing to me. Every time I told him what we wanted, he would just circle around our conversation and say, ‘I want the deal. But we're going to do it MY way. If you want to do business, we got to do it MY way.’”

So this is where I didn't listen to my inner voice.

Well, it was speaking quietly the whole time, but by this point it was shouting.

gut We stretched for the deal because I wanted that $10 grand. So we ended up signing the deal against my better judgment and my partner’s better judgment. And then we even went into escrow on a contract for a 30-day close with zero earnest money on the deal.

I was thinking with my wallet, not my investor noggin’. BAD IDEA.

So, about 10 days later, our title officer let’s us know that the guy was non-responsive and she couldn't get a hold of him. So we called and we couldn't get a hold of him either. So we slyly (and desperately) blocked our phone number and called the guy.

He, of course, answers and says:

“Hey, look. The deal is kind of falling apart between me and the owners for the rent-to-own program.”

So I say:

“Hey, look, whatever the deal between you two has nothing to do with me. You have the deal with me, and then you have the deal with them, and you have to perform per our contract.”

And he basically says:

“If I don't have the deal with them, I'm not doing the deal.”

So at this point, we're really pissed off.

Because now, we're in escrow with somebody who has the right to buy the property for 30 days and we can't do anything. No movement at all. It just sits there for 30 days. So we were really frustrated that he wasn't performing, but he could still do whatever he wanted because we were locked into the deal; absolutely stuck.

Catfished by a so-called investor

doubt So, we called the elderly owner and found out that this guy was trying to rip the owners out big-time…

He wanted $7,500 as the auction deposit, then he wanted them to pay a premium on their rents of $1,400 a month (where the monthly rents should've only been like $1,200 at the max for this property). He also wanted them to close within 12 months for all cash for (about $65,000 more than what he was buying the property from us for).

These people just went through a foreclosure, there was no way they were going to be able to do this deal financially. He was just taking them for a ride.

We ended up having to ride it out – we were just sitting there and waiting for the 30 days to expire. Eventually, we were able to market the property and sell it to somebody else. We had to premarket the property, but we couldn’t actually open up escrow and close with anybody else until this jerk’s time limit expired.

So that's my sad story.

I wanted to share it with you because, as real estate investors, when you develop that inner voice, you should recognize it and listen to it. And, never accept a contract without earnest money. You always want a commitment from the buyer.

Also, use your contracts. Don't let other people dictate the terms of the deal. Make sure your paperwork is solid and protects you… and always use your own paperwork so you're in control of your deal.