Purchasing, renovating, and reselling a distressed piece of real estate has many facets- meaning many different things that must be done in order for the transaction to be successful. One of those facets is do your due diligence! This is a case study to outline why it is IMPERATVE to do your due diligence!
***DISCLAIMER: NO PERSONAL INFORMATION WILL BE SHARED. THIS IS BASED ON A TRUE STORY.***
Investor E contacted Reel Property Solutions, LLC about a property in a town near Rochester. Investor E is from the Twin Cities area and not familiar with this particular town. Reel Property Solutions, LLC knows Investor M who lives in that town and has many rental properties, therefore Reel Property Solutions, LLC reached out to ask questions and then relay back to Investor E. Investor E asked questions to Reel Property Solutions, LLC who then relayed to Investor M about the area, and the answers were relayed back. (This is part of NETWORKING!) A few days later Investor E informed Reel Property Solutions, LLC that Investor E contacted a remodeling contractor to look at the distressed property, took pictures, and calculated an estimate of repairs. The property was a 4/1.5 that needed work and homeowner D had fallen behind on payment, subsequently needed to sell ASAP. Investor E decided to make an offer which this was accepted. After this Reel Property Solutions, LLC had not heard from Investor E.
Fast forward about 2 weeks………………………………………..
Distressed homeowner D contacted Reel Property Solutions, LLC about a property that needs work, needs to sell ASAP, and is in a town near Rochester. This information sounded very familiar. Reel Property Solutions, LLC realized this was the same property that Investor E had inquired about! Since the last known information was Investor E had the property under contract, Reel Property Solutions, LLC didn’t want to have a conflict of interest, thus contacted Investor E to understand why homeowner D called Reel Property Solutions, LLC. Investor E stated a series of events happen which prevented from moving forward with the transaction, assured there were no legal ties, and stated this property was a “great deal”. Reel Property Solutions, LLC decided to set up a property tour.
On a Saturday afternoon, Investor RM went to the property. There was significant landscape repair needed, all windows would need to be replaced, the interior could be opened by moving a couple walls, many holes in the walls from the current occupants, the bathroom needed a full remodel, and mold in the basement needed to be remediated. Investor RM crunched some numbers, which is part of do your due diligence! Investor RM saw how this property could be renovated, resold for either a starter home or rental, and a profit could be made.
The next day, Investor RM returned with Investor JM and Investor RH and Investor JH. Investor RM explained the findings, described thoughts to renovate, laid out the costs, and the remodeling contractor that works with Reel Property Solutions, LLC also does business in this town. At the property, everyone ascertained some things that were not seen by Investor RM the previous day. For example, a lady was painting over mold on a wall in the basement, a foundation wall was cracked and bowing inward, there was a leaking pipe on this day, and a neighbor gave startling information about the property. Investor RM reached out to Investor E to ask if the foundation wall was seen from their property tour. Investor E then stated they themselves did NOT see the property; all information was collected by a remodeling contractor. Investor RM sent pictures to ask if Investor E was informed of the mold, the foundation wall, the pipe, and what the neighbor said about the property. Investor E was very startled to hear of these findings. In the end, Reel Property Solutions, LLC did not pursue the property due to many unknown factors and excessive renovation costs.
Lesson learned: It is IMPERATIVE to do your due diligence!
The due diligence process happens so the distressed reasons can be addressed, the renovations can be assessed, the repairs can be calculated, and the exit strategy can be determined. If a homeowner is informed that Reel Property Solutions, LLC is not able to purchase the property, that homeowner will be notified of the specific reason(s). In this instance, homeowner D was informed the cracked/bowed inward foundation was the main issue. Do your due diligence through networking as well. What could have happened if Investor E didn’t reach out to Reel Property Solutions, LLC to ask questions? Investor E could have kept going with the transaction, then discovered the foundation after the purchase, consequently, now Investor E is stuck with a costly project instead of a “good deal.”
Reel Property Solutions, LLC started with the assistance of Fortune Builders which is an education company for real estate investors. One topic that Fortune Builders will reiterate time and time and time again is: It is IMPERATIVE to do your due diligence! A Money Lender won’t loan just based on a guess of how much the repairs will cost; a money lender wants documented proof from the remodeling contractor, therefore the remodeling contractor must also have a property tour which is more due diligence. A closing company (title company or a real estate attorney or a real estate agent or other legal source) will also be involved to do your due diligence. The more research done at the beginning, the better off you will be later when other professionals are asking specific questions! Every transaction must be a WIN-WIN between Reel Property Solutions, LLC, the homeowner, and the financing source. In this instance, nobody would have a win. Onto the next property!
If you are someone who needs assistance regarding how to do your due diligence, contact us!
If you are an investor with questions, contact us!
If you are a homeowner in distress, contact us!
If you are a money lender wanting to make a healthy rate of return, contact us!
If you are someone who has general questions, contact us!
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