With experience, you begin to develop intuition. Intuition is that gut feeling and driving force that aids you in your decision making for reasons sometimes you can’t quite rationalize at first. Have you ever met someone or gone someplace and it just gave you a bad feeling? This same instinct can be honed in and used for business when you gain more experience under your belt. Making mistakes and learning from them can strengthen your intuition as to what to look out for in the future. Think of intuition as a muscle. The more experience you give it to “work out”, the stronger it gets and the more useful it becomes. Sometimes, emotions can cloud your intuition and cause you to rationalize a bad decision in your head. This is something I’ve experienced in my career many times so far even in the beginning stages, perhaps none more extreme than the following story and the lessons it has taught me…
Learning my lesson…. the hard way
It was June of this year (2023), and I was pretty low on money. I needed every penny I could get to be able to pay off debt and afford regular expenses of life. I had started building my portfolio of properties that I own, but that didn’t yet contribute to my income much at all being that these properties weren’t yet stabilized. My active income in large part was coming as a result of DoorDashing for small pocket change. One day, we came across a deal in Tampa that we decided we wanted to wholesale so we could generate some active income. The way we structured the deal, I didn’t stand to make a whole lot upfront, but I would take what I could get at that time to keep me afloat. Long story short, our buyer decided to back out of the deal last minute before closing. This left us with three options and we had to weigh each one carefully:
- We could try and extend the closing to find another buyer. This was perhaps the safest route we could take, but it didn’t guarantee we would make any money and ultimately put the deal in jeopardy if we couldn’t find another buyer.
- Mimicking our previous buyer’s exit strategy (mid term rental), we could potentially close on it ourselves, pay ourselves a small acquisition fee upfront for completing the purchase, and produce a cash flowing asset in no time!
- Since we no longer could meet our current deadline with our buyer, we had the ability to back out and forfeit the deal making no money in the process.
My intuition was telling me that options one and three were the ways to go. We didn’t know much about this area and didn’t really put together a well thought out plan. Buying this property last minute would be a total shot in the dark for us! Option one presented virtually no risk to me, but the promise of the upside on option two made me emotionally attached. I wanted more cash at that moment AND to own a cash flowing asset. We collectively ignored our intuition, raised extremely expensive private capital to close, and bought the house. Not trusting my intuition on this deal turned out to be one of the biggest mistakes I’ve made so far in my real estate career.
The dreaded outcome
When the deal closed, I was elated! We just paid ourselves $3,000 each to purchase this property with the private money we raised! We had a great strategy in our heads to make money on this property long term! We couldn’t wait to get started!
The first mistake we made was the inability to pivot from a plan we didn’t have the funds to execute. After multiple pitches to potential lenders and equity partners for our project, we couldn’t find anyone interested. Before we knew it, our private money was due back to our lender with her return. We didn’t have the means to pay her back and it took an additional five weeks to scramble, get the money, and make her whole. That alone ended up costing us over $12,000 of interest in just over 60 days! As if things couldn’t get any worse, before we knew it we had a trespasser situation on our property. Criminals were breaking into our property, vandalizing it, and using it to sleep and use drugs. Things literally could not have gone any worse!
We eventually decided enough was enough and my partner Nick went down there himself to resolve the issue. We installed a security system, cleaned up the house, reinforced the entry/exit points, and fixed a leaky air condition in the attic. All in all, this house has run us nearly $20,000 post closing! This is more than double the $9,000 of profit we made from it upfront! What a disaster!
Lessons learned
As time has gone on and I’ve reflected on this decision and the issues that have arisen after the fact, one thing is very clear. My intuition was telling me this was a bad idea from the start. My emotional desperation for money now allowed me to rationalize the purchasing of the property to myself. When emotions are involved, you can rationalize almost anything! Even though choices one and three from above are not choices that felt appealing at the time, I would have been much better off trusting my gut and choosing one of the two. This property has cost myself and my partners thousands of dollars post-closing that we could have kept as profit from our other deals. It is a lot easier to be manipulated by emotion and not trust your intuition when you’re desperate and I’m fortunate to no longer be in a situation like that. More of a cushion gives you the clarity to make more prudent decisions. Heed this as a warning. Do not let emotions cloud your intuition in times of desperation! Your instincts are telling you something for a reason! If you’re unsure about something, consult with others who are more experienced than yourself until you have the intuition to decipher more on your own. Develop a system of checks and balances in your business for all big decisions. This will help you avoid the worst of the worst in terms of the choices your business needs to collectively make. Trust your intuition. You have it for a reason, use it!