My wife and I went to St. Louis this weekend and looked at more properties. The more properties we saw, the more convinced that we became that we’d previously found the right property. It was in the area we wanted, and we liked it when we found it. It was 49 years old, but lots of the other properties we’d found were more like 120 years old. The seller had also dropped the price twice over the past week or so – dropping the price a total of about 20k. Clearly, the seller was motivated to move the property. We got the second price drop on Saturday, while we were driving around with the realtor.
At that point, we were still pretty sure that we were going to wait to make an offer, any offer, until we sold our place. Still, with the price drops, this place was becoming more and more attractive. With a little work, based on the area, we could likely rent a unit for about $1k (my wife’s estimate). We’re confident, from shopping these places, that at a minimum the place would rent for no less than $900/month. One of our goals is to buy a place that, assuming full occupancy of both units, producing yearly revenue equal to 10% of the purchase price. $1800 x 12 = $21,600, meaning, under our criteria, we could justify spending up to $216,000 on the property (the more cushion the better, of course). This property was listed for just $205,000 after the two price drops, giving us some room for error in our projections. If we assumed both units would rent for only $800, we could still meet our rule by paying $192,000 or less.
We discussed how to proceed on the way home (on Sunday). We set $192,000 as our target price, 93.6% of the listing price. We decided to offer $181,000 and to see where the expected counter-offer would land. We talked about it all the way home. We talked ourselves into believing that because the price had dropped so much, so quickly, that the seller might accept our first offer and we might be moving into a situation with built in equity and a great income stream in proportion to our investment.
We knew we had to act quickly, so on Monday, I started calling lenders. I wanted to see what financing terms we could get, since we’d be putting significantly less down now, due to the fact that we were no longer waiting for our place to sell. We found out what kind of deal we’d be able to get, and decided to have our realtor write a contract on Monday night to submit Tuesday. We called him around 6 pm on Monday night to let him know.
Unfortunately, the property had gone under contract a few hours before that. We were both upset. We’d been waiting for the “perfect” deal, and felt worse than ever once we lost it. We spent the next hour saying we should have done it this way or that. My wife started crying and acted was mad, too. It’s funny how invested we actually were. It’s just a house, after all. A house we weren’t sure whether we wanted a few days before had become a huge loss. We’d acted too slowly, because we were afraid of acting rashly.
In the long run, it doesn’t matter. We’ll find a place to live. We’ll find a good investment. We won’t buy anything unless it meets our rule, which we feel gives us a reasonable margin of safety. Still, there’s something about the things you can’t have that makes you want them even more. The fact that someone beat us to the punch makes it hurt. We decided to go ahead and write a contract (at $189,000 with 1.5% going toward closing costs), giving the seller a back up in case their deal doesn’t go through for some reason. Of course, that’s probably not going to happen, but who knows? Hopefully we’ll find a deal that convinces us that this wasn’t such a good deal.
The lesson here is that once you decide on a course of action…act! Make sure you’ve considered the relevant risks and possibilities, but don’t let your analytical nature paralyze you. Don’t be afraid to move forward when you find what you’re looking for. Thanks for reading.
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{ 2 comments… read them below or add one }
I am sorry you didn’t get the house – but I think that you learned a very important lesson. Your rule, by the way, is fantastic!! I call it the 1% rule – and it gives you plenty of cushion. Looks like you’re doing your research on areas and comparables so don’t be afraid to grab a place if it meets the 1% rule and you’re happy with the findings of the rest of your research.
Best of luck!!
(Somebody posted your site on Twitter – that’s how I found you)
I just wanted to say I like your blog. I feel sorry that you didn’t get the place, on the one hand; on the other, I am happy for you because as I was reading, I was not sure it was a good idea to get that one place before you sold your current one… so – I don’t know what to feel. I could feel for you both – your wife crying… Aw!
You are a good writer. I liked the Berkshire article as well as the disagreement/fight you had with the bully lawyer.
It is nice that you thank your readers at the end. I will probably start doing that when I start blogging again
Take care and good luck.