Knowing when to walk away from a situational scenario that does not look promising is not a prophetic science. Without a doubt, some of the flips I closed and bought from builders in 2005 were clearly no-deal stragglers that I should have steered clear of. And I mean that literally. At the trust closing signing table, I could, but did not, just get up and walk away. And it’s not like I’ve never done that before. One of my first changes in 2003 resulted in exactly that result, in which the terms of the loan were not explicitly as they were supposed to be. Three days later, when the loan terms were amended to my liking, I went back into escrow, gave up the loan documents, flipped the house over, and made a quick $68,000.
As to why more caution was not exercised on the five fast-changers anticipated in 2005, three in Southern California and two in Las Vegas, that were targeted for a quick profit, can easily be answered. Greed. It was greed that got 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 for your family, or you can misuse it and it will burn down your shelter and kill you and your family! It sounds crude, but I don’t know how to make it clearer. In terms of time frame, all five homes were purchased during 2005 and should have been off the books for the first half of 2006 (given an average time to market of three to six months), but instead were not fully off the books until early 2007.
Ultimately, these were five quick deals (after having successfully done about thirty or thirty Five properties in Phoenix, Las Vegas, and Riverside before them) that I should have steered clear of. Although these five houses alone were not the main reason for the financial collapse, they substantially depleted my cash reserves at the time, which had a ripple effect and was a contributing cause of defaulting on the mortgage debt of the nine condos that he had recently purchased. . In short, it was too much too soon. And simply put, I was over my head. At my pinnacle I had about a dozen properties either in contract to purchase, under development, or in escrow on the other side. My level of activity was probably equivalent to that of a small property management company or a local developer. The speed of the activity, which I was working over sixty hours a week and logging over 25,000 thousand miles a year on my car between trips to Phoenix, Las Vegas, and Riverside, on a more reasonable level should have taken a three. one year period to develop, instead of the eighteen months I squeezed it into during the five years that Potter Equities was actively in business.
All told, these five deals, or rather lagging, cost me almost a quarter of a million, which is a quarter of a million dollars that I’ll never see again. Much of that monetary loss was primarily due to servicing the mortgage debt on the five investments, which I may have netted $15,000 on those five properties, but almost wrote a check on escrow to close, which is always a painful experience. I hope you never experience writing an escrow check. It’s a horrible, sick feeling.
The other half of the collapse was the nine condos that should never have been bought. Without going into bitter detail, the nine deals on paper just didn’t come together as a whole.
But almost scarier, and three years after successfully launching new homes in tranches for 2005, my best investment being a $104,000 investment in Moreno Valley, was that at this point I had already walked away from at least five or six deals that They were clear and demonstrative. no textbook deals. So, the past experience and decision-making was there, the discipline was there, the common sense, balls, and Machiavellian ruthlessness to walk away from a deal was there, so why didn’t I walk away? In short, it’s 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 just gambled away his daughter’s college tuition money. Or it’s like asking why an alcoholic gets drunk when he knows the destructive impact he has on his own life and his family’s. As you can guess, a clear explanation is complicated.
However, I know with absolute clarity, and somewhat to my personal disappointment, that I strayed from a successful business plan that had created me substantial wealth in a short period of time. The fact is that remodeling 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 selling, it doesn’t undermine the validity, soundness, and time-tested practice of selling new homes for a quick profit.