Business is F*cking Hard-Article #5-Sold!!

Buying Property For Nothing

I learned to buy real estate for nothing by accident. Since then, I have completed dozens of purchases and sales, many of which were creative deals, each with a story. I’m going to share a couple of these stories that were ultimately wins for me but definitely had their challenges. The optics, as with most things business, suggest that a positive end result means things come easily. The truth that is seldom shared or seen, and what I am trying to achieve by sharing these stories, is that regardless of what the appearance, business is always fucking hard.

It was 2005. I had just obtained my real estate license and was getting my feet wet in the industry. My broker at the time referred a client to me that he was not enjoying working with (the worst kind of referral). His warning to me was to be careful because he didn’t trust this client at all. Turns out, this was a fair warning. I ended up working with him (let’s call him Bernie (of the Madoff variety)) on a couple of transactions and he ultimately ended up leaving town owing several businesses tens of thousands of dollars that I’m sure they never collected.

Bernie was your typical greasy shyster. He drove a black Hummer H2, wore button down shirts with too many buttons left undone and sported a gawdy chain just for accent. Though there was not a chance I would ever conduct business the way he did, I did learn a lot from him. The deals he made were not in and of themselves offside. It was what happened after he purchased real estate that typically didn’t play out too well for everyone involved. He would get creative in order to acquire the property, quickly do some alterations to the property, resell it and get out of town. Anyone left owed something was typically out of luck.

It was one of these failed attempts to be creative while negotiating the purchase of a property that I understood what he was doing and that I could do the same. In fact, I remember realizing he was attempting to buy a property without using any of his own money and thinking to myself, “I have no money, maybe I could do that too?”

Bernie and I were driving around one day looking at properties when a particular property caught his eye. He pulled into the parking lot of the hundred-year-old, stone construction, eleven-unit apartment building and started asking questions. He wanted to buy it. Of course, with Bernie, it is never straight forward. I found out who owned it, made the call, and was surprised to find myself, a few days later, sitting at the table of “Marvin”, the owner. Living in a small, two-bedroom apartment of another complex he owned, Marvin’s wife brought us coffee and was happy to repeat any point Marvin made that needed emphasizing. One of which was that he had no interest in the deal Bernie was proposing.

Leaving that night, I didn’t give much thought to what had happened but after a little thought, it became clear that Marvin didn’t know Bernie. It wasn’t that Marvin wouldn’t entertain the idea of a vendor take back mortgage (in fact, he admitted to already having such an arrangement with someone else on another property he owned), it was simply that Marvin, unlike many others, could see through Bernie and his gold chain. I called Marvin.

I very distinctly recall the short conversation. When I asked if he would do the same deal with me, he simply said, “with you? Ya, sure.” I wrote up the contract, we both signed it and I went to the bank.

Now, you must appreciate, this was 2005; banks were still financing these types of deals then. Certainly not as easy today. The contract had the purchase price of $200,000. I was to get financing for $150,000 and Marvin would carry a second mortgage registered against the property that I would get title to (I only did these types of deals if I got title) for $50,000.

I took possession of the property in January, breaking the rule of not purchasing large old buildings when heating costs are highest. Marvin left me alone and was only interested in having his cheque for the interest on the second mortgage clear each month.

Here’s the thing with second mortgages, there has to be an end game. They are not perpetual, so there has to be a plan or opportunity to pay them out within the agreed amount of time. I was able to refinance the building before the maturity of the contract and pay Marvin the balance of the purchase price. He was happy, I was happy, and Bernie was long gone.

12,000% Return

Then there was the time I bought a 9200 square foot, hundred-year-old building for one dollar. Listed at the time for $36,000, it was a distressed repossession held by a credit union. I presented my offer of one dollar to the listing real estate agent with zero expectation that the offer would be accepted. The only reason I knew they had accepted my offer? I saw the cleared cheque on my bank statement! A quick call to the real estate agent confirmed that we had an accepted offer.

Six months later I sold the property for $12,000. Twelve thousand percent return on my original investment. Seems pretty good until…

A year later (just ONE year) I acted as real estate agent for the guy who bought the property from me and sold it for $185,000!! I made more on that commission than I did when I sold him the property. Timing is everything.

“They Paved Paradise-Put Up a Parking Lot”

Like most things, when I was in a position to buy my first brokerage, a Century 21 franchise, I couldn’t afford it. So, once again, I got creative. The brokerage was in a stand alone building on the corner of a busy intersection. To one side, a large public institution, on the other side, a fire hall. Grass area between this building and the institution, a parking lot between it and the fire hall.

I negotiated a combined purchase price for the business and building of $185,000. The bank financed the purchase based on an agreement for sale that I negotiated with the institution next door to have them buy the property from me for appraised value three months later.

I took possession with the original appraisal coning in at $167,000. The purchase by the institution was delayed several times, which was fine because the brokerage was doing well and I was focused on the business.

Enter the bureaucrat. A city official contacted me and indicated that they would like to pave the shared parking lot between my building and the fire hall. I don’t recall what my half of the cost was but I told them I was not at all interested because, not only could I not afford it, it didn’t make any sense for me to pave a lot for a building I am selling. They pressed; I held my position.

Two more calls, in the ensuing weeks. Attempts to negotiate, make it seem like this was a deal I couldn’t refuse. I refused.

Then, one day I’m caught off guard when I go to pull into my own parking lot and there are barriers set up, an initial layer of tar spread across the entire surface of the parking lot and equipment there to finish the job that had been started. I am barely into the office when I am told the bureaucrat is holding on line one. I pick up the phone and the first words out of his mouth are, “I guess I’m not holding any cards anymore, hey?” Turns out, the paving company jumped the gun because they had an opening in their schedule. I was the recipient of a freshly paved parking lot.

I don’t remember how long had passed before the neighbouring institution pulled the trigger on the agreement for sale but with a slight bump in market value and a freshly paved parking lot, the new appraised value of the building came in at $185,000.

Unintentionally, I bought a real estate brokerage for nothing.