Middle Class Millionaires

Recently I was approached by someone with “paper lots” that he would graciously sell me for $50,000 per lot less than what the lots on an adjacent property were retailing for. Wow, a couple hundred lots, all approved and ready to start developing at what looked like, after the cost to develop, a tidy $5,000,000 profit. I should jump on this one before the word gets out its available, right? Wrong!

When you find property available for well below what you know market price is, beware. Like the used car that was owned by the proverbial little old lady from Pasadena who only drove it to church on Sundays, there’s probably more to the story than you’re being told.

Yes there are reasons why a property may be priced low, and sometimes it may be in your favor. At other times it will be to your detriment. A forced sale, divorce, death in the family, retirement, moving to Hawaii or “We just hate it” are all reasons why you might get a great deal. There are a whole lot more reasons that will turn what you first think is a great deal, into a real dog. Mold in the basement, a cracked foundation, Radon gas, aluminum wiring, a high water table, the meth lab next door or the shifting hillside all mean that you are about to get an expensive education. If it looks too good to be true, hope it is, but do your homework before you buy. Acting on excitement alone is like running in the dark. It usually turns out bad.

In the case of the above $5,000,000 deal of a lifetime, a little research revealed the facts about why the paper lot owner wanted out so bad. It turned out that almost 80% of the land had bedrock almost at the surface. The additional cost of development would have been staggering. Imagine trying to convince builders that having to blast out bedrock to build a basement or to even bring in utilities was a good idea. The expenses that could be expected to finish this development and the fact that the chance of sales would plummet once the rock problem was found out, would make this the worst purchase opportunity I have ever been offered, and I’ve been offered some real woofers. Instead of an opportunity to make $5,000,000; this was really an opportunity to quickly lose $10,000,000. The odds are better in Vegas. This is not a roll of the dice I would make.

The point here is that real estate is a business and when one person makes an offer that staggers the imagination, the other person would be wise to put his/her hand over his/her wallet. Keep searching and eventually one of the truly great deals will come across you desk. Just expect to weed through dozens and dozens, if not hundreds and hundreds, before the diamond in the rough appears. Do your homework, and lots of it, and you should be fine. Good luck in your career. We’d be glad to help if we can.