David Green (2:22)

All right, and you found this thing through direct mail efforts?

Adam Whitney (2:25)

Yep, it was a piece of direct mail. Somebody called us, said, you know, hey, we have a house, we need help selling it, we want a cash offer. So it came in through direct mail.

David Green (2:37)

All right, so what went wrong with your original plan to wholesale this sucker?

Adam Whitney (2:40)

Okay, so so many things, man. Well, first off, it's not in an area that we're experts in. It's just over the border. And you know this, and I think most people know this, that real estate is genuinely hyperlocal, like even down to the subdivision level. So now I'm in a different state, in a different market. This particular area is like offset from the main metro of Fairhope. And it's over by the Gulf and it's on this like little subdivision that's off by itself with these canals behind all the streets. And everything in the greater area is selling for like $500,000 plus. And I'm gonna get this property for $295,000. That's what they need for it. And I'm looking at it and it's like not in bad shape. It probably needs about 45 grand to get like an, maybe 400 low 4 hundreds price point. So I'm thinking I'll buy it for 295, I'll take about 4 weeks, put the 40ish thousand dollars into it, I'll relist it, and 4 to 6 months this thing will be off my books and I'll make, you know, 30, 40, 50 grand on it net. And we start this rehab. So we decided to buy it. First off, I couldn't wholesale it because I didn't know that area and I didn't have buyers. And at the time there wasn't like all the software that gave you all the buyers as good as it is now. But I, I didn't have buyers. I reached out to local agents. I did try to find investors, but it just, it wasn't moving. But I, I, I got attached to the deal. I'm like, man, it's still a good deal. It's still at a discount. Let's just flip it ourselves. And this agent I've been talking to about it, like that's helping validate some of our numbers, is like, hey, I have, I have guys who can do this work. It's not really that much Work. We're just gonna paint it. We're gonna paint the cabinets. They're already shaker. We'll just make them look a little better. We'll do. So it's like a bunch of handyman type work. And so I'm starting to build this relationship with this agent as I was trying to wholesale it, and I decided like, okay, I can't find anybody to buy it, so I'll just buy it myself. Now, at this time, my assessment was if I put about 40, 45 grand into it, I can sell it for 415,000. And my strategy was that 415 might have been a little bit low, but I was going to price it to get a lot of attention, to get people to come into the house so that I can generate showings, generate offers, and maybe even drive up the price a little bit. The agent I was working with, who has a bunch of experience like her, solds her data look good. And she had been an appraiser for years, decades actually. So she came with a lot of credentials. And when I started talking to her, she is like, everything is selling 500 plus. I think you need to price it higher. And instead of trusting my gut, I'm like, okay, so I guess there's more room in this deal. She's the expert. I know I have the ARV at 415, but she's thinking closer to 500. And that's probably like the first problem right there is not rectifying the data, what the data tells you. Because what I'll tell you about that data, David, is that this particular subdivision, which is unique in the fact that it has canals, which means I have a seawall, I have a boat lift, I have all these unique things that I think are benefits, is not the same as the Data that's saying 500K and above, basically, in Fairhope, Alabama, those are like in the city. And there's really no comps for me in this subdivision that I'm having to really extrapolate this. It's a hard one, which is why I went to 415. So I said, okay, I agree with that. I'll buy it. I buy it and I start the rehab. And as we're doing the landscaping, which, you know, comes at the end, somebody nicks the septic system. I get a note, hey, we gotta. We broke the septic system. We gotta fix it. Don't worry, I've got a plumber. They can come out. Should be easy. Plumber comes out, they go, I can't fix this. Like okay, crap. We got a call like an expert at septic. We get the septic guy out there, he laughs at us and says, oh, these septic systems don't even exist. The city put these in 15 or 20 years ago. This can't even be repaired. You're going to have to replace the whole thing. So, of course, I'm like, not a chance. Get a couple more guys out there. And oh, by the way, there's not like a bunch of septic people in this area of Alabama, so you may think we got one other guy. It's like, same thing. Tells me the same thing. I'm like, okay, great. What's the damage? I get two quotes. Quote number one says 11,000. I'm like, oh, okay, I can deal with 11,000. Remember, I think I'm going to sell it now in the mid to high fours. And that's being aggressive low because I decided to agree with the agent. Quote number two comes back at like 22, 23,000. So obviously there's a, you know, 10, 12 grand disparity there. I'm like, what is going on here? Um, end up going, okay, I'll take the cheaper option. And the cheaper option actually turns into about $35,000, right? Because this septic system, where it's positioned, the excavation, that has to happen. The sod that I got to put on after, like, all the things that really, you know, aren't the septic system. But we had to do it because I can't sell a house that a toilet can't flush in. Like, you don't really have an option. Um, so now, now we put this money in. And of course, this isn't like the only thing we're. There's always something that comes up in the rehab. It's like, ah, well, you know, like the cat, the kitchen cabinets, they're white shaker, but they look a little dingy. Let's throw some paint on there. That's another thousand bucks. And we end up getting nickeled and dimed. Not the fault of the people charging us, but just like, you know, we. We probably didn't dial in the rehab as good as we should have. Ends up being a total cost of about 80 to $85,000 on this rehab. Remember, I underwrote it at 45k on the rehab. Okay. And I'm borrowing money, private money on these have private lenders anywhere from 8 to 15%. I think this one, I had a 15% lender on annualized, of course. So the juice is running, as they say, and we're finally going to market. This is in 2023. And the price, the initial price that it goes to market to is like 459. Okay. We get some people in there, like, oh, this house is interesting because how are we marketing this? We're marketing it as this, like, second home boater, special type market, because that's what the agent said this area is. Well, they get out there and they look at the canal and the water's low. Because it's time of the year, the water's low, and you can't even get a canoe in there. Okay. So it's like attracting people with boats, but they can't put boats in the water, so it's not. I'm bringing all the wrong people to this house. Then there was a boat lift on the house. It was dilapidated. And as I kind of. And I've never done this, by the way, so I'm inexperienced on these types of things for rehab. We're like, there's a million different types of boat lifts, sizes. I'm like, you know what? Just leave it. We're pricing it in, right? We're pricing it so well, it's under 500k. They'll be happy to buy it and do the boat lift themselves. So we left it. So after about two and a half months of people coming into the house, actually getting attention and everybody to a T saying, like, I can't really do anything with that water level. That dilapidated boat dock is like a problem. I'm like, fine, what are my options? I can build a new boat thing for 25 to 35 grand, or I can tear the one down for three grand, make it look a little cleaner and. And help them envision what it could be. So I decided to tear it down. Let's just tear it down and clean it up. Okay, now. Now we can actually see the seawall. And the seawall is, like, potentially needs repairs too. And if you know anything about repairing a seawall, it ain't cheap. So we're looking at another 30 to 50K. So once we tear that down, now we're talking price drops because we're four or five months on market. We start what I call the. The price drop spiral, which David, I'm sure you're. You guys see this all the time in your retail brokerage. And we just go down and down and down, and we get to a year on market, which we're talking about time now, last couple of months, we get to a year on market, and I basically am like, totally defeated we're price dropped all the way down to 365 just to get attention. And I'm on my second real estate agent, by the way. At this point, I'm like, I'd already made the decision. In my mind, I'm refinancing this. So now I have. Now I'm like, looking at what my secondary options are. I get an appraisal a year later after the market corrects even a little bit more, and I get an appraisal for 408,000. So my original 415 underwriting was pretty close. And the like, I get an appraisal because I'm like, I'm just going to refinance this thing and hold on to it. It probably won't even break even, but I'll hold it. And in my mind, I'm going to wait till 20, 26, 27, see where we're at in the market, then I can weather holding it. So I'd already made that decision, but it's still listed. We price dropped it down to My agent's like, let's try this. Like, let's try this. I'm like, yeah, go ahead, do whatever you want. In my mind, I'm refinancing this thing. So I had already started that process. So then she calls me, like, we're literally on the day of expiration of our agreement. And she did a great job, by the way. This is not a slight on her. And she's like, I got you a full price offer, 365. I said, yeah, I'm not accepting that. I'll take 380. And she's like, oh, now you're just like this frustrating client, you know? And I'm like, yeah, sorry. But, like, the numbers just don't make sense. I can either give away $80,000 to this person in equity when they buy it at that price, or I can just keep that equity and put my own capital, just re. Take actual liquid cash and just put it into equity in this property and be okay holding on to it for a little while. So that was like my decision lens at the time. So I'm like, yeah, change. She's like, I need to change the price. If you're not going to accept 365, like, and you said you'd accept 380. I'm like, okay, change the price. I don't care. Like, I'm in the process of refi. Like, I literally. I have zero hope that this thing sells. So then she changes the price. I'm like, yeah, that's fine. And then we start getting offers at 380. I'm like, I'm not accepting 380. Like, I'm not. I'm done.

David Green (13:29)

Sorry, Adam, did you let her listed at365 without running the numbers to see what number you needed to be? I'm just going to assume you're wholesaling other deals, you're running other businesses. She sends you an email or a text like, hey, what do you think about 365? You're like, yeah, that sounds good in your head thinking, I'll figure it out later. Is that how this went down?

Adam Whitney (13:49)

Not at first. At first, I think we went to 399 was our strategy and we had actually talked about it. But we price drops with her too. Second agent. We price drop. And as when it was no longer an option to get a 3.99 offer on it. Like it was pretty clear to me then. Then, yes, it was very much like that. She's like, let's try this. I'm like, sounds great. Let me know what to sign.

David Green (14:11)

And you didn't look, you didn't think it. Because I know people are hear saying, why do people list at a price and then turn down an offer when they get that price? It's like every real estate agents. Well, I shouldn't say it's their biggest pet peeve because we have a zoo of pet peeves. There's a lot of pets in the peeve department of real estate agents. But as an investor, I see both sides. I could totally understand and a business owner that this hit you when you had a bunch of other stuff going on. You knew it was close to where you needed to be, but you didn't know exactly. Then when she brings you the offer, you sit down and go, no, I'm going to be losing money if I do this. I don't need to do it. Is that right?

Adam Whitney (14:44)

Yeah, that's exactly right. At that time, and I'm sure she was like, dude, you're a Dr. I did pay. I did buy the photos from her, though.

David Green (14:50)

Okay, okay. All right. Whatever makes you sleep better at night out of this poor agent out there with her cup of coffee in her high heels trying to get this house ready, working her butt off to get you that full price offer. Well, to be fair though, those buyers were probably going to come in and try to retrade and knock you down. I have no idea what I'm basing that belief off of, but I could just feel it based on some of the stuff you said, that's coming too. So you got to start with a little bit more extra when it's been on the market that long. And when they get those inspection reports, they're going to panic, man. Just like when, you know, you start dating that girl that you think you fell in love with and then you start seeing her ex boyfriends and all the issues, you're like, oh no, this isn't the deal that I thought that I had.

Adam Whitney (15:33)

Yeah, that's, that's total fact, by the way. I was full. I mean, mind you, like, this isn't like the only deal in my world to your point. Like we're moving all kinds of other deals in Florida, like normal. So what I'm seeing on the. At that time, and I would be surprised if most people aren't seeing this. Almost every offer ends up with concessions today. Like we're baking in concessions into our underwriting now because we know they, everybody's asking for something. And I started looking at the numbers, I'm just like, these people are going to get an inspection, they're going to want to retrade. And you know what frustrates me with the agent on the agent retail side is agents want to do best by the client and they don't want to like overshare information. They're like hiding information from each other when they're negotiating. And I just want them to go to the agent who's making the offer and say, this is his bottom line. He will not accept a negotiation after, after the inspection. So you're going to take it like it is or don't waste our time, you know, because that's how I would have negotiated it. But that's just not how the game is, is played on the agent side. And I can respect that, obviously, but I know how the game is played. It's like this back and forth and let's get them into inspection and then we'll knock some more cash off. And yeah, I just became unwilling to. I made my mind up, man. I was refinancing it. I'll hold the equity for now. We'll figure it out a couple of years from now and see if we can get our equity back out of it. And if not, we'll eventually get rid of it or hold it for the long term and see what happens.

David Green (16:59)

Yeah, you know the game better than most because you play it from the perspective of the person that's going to go negotiate a lower deal. Same thing that I do. I feel like it helps me as an Investor understanding what real estate agents do, how they think, how to present information. And I think you just being the smart guy, you are seeing the angles that you do, could see that coming as well. All right, let's recap why this deal probably went so bad. So how much equity did you think you had in it when you were first buying in it? What was that purchase price again?

Adam Whitney (17:28)

Yeah, so the purchase price was 295,000 and the estimated rehab was $45,000.

David Green (17:36)

Okay, so you thought you were in for 345. Let's call it 350. And where did you think the ARV was over 500.

Adam Whitney (17:42)

I originally had the RV at 415,000. So it was like not a home run deal, but it was a base hit in my mind. And I thought 415 was conservative.

David Green (17:52)

But your agent told you it could sell for more than 500, right? So you had the potential upside for that much.

Adam Whitney (17:58)

I was smoking the Hopium when she told me that, as I once heard you say, and she's like, nothing is selling under 500. I think if you. Because my strategy was like, let's price it low, drive attention. And she was like, I think pricing it at 460 is pricing it low. And I was like, okay, great, I believe you. You're an expert. That's not a good idea, by the way.

David Green (18:19)

I don't know who can blame you for that. Like, as a real estate agent, you're always trying to get your client to sell lower. Well, I shouldn't say always, but you are usually in the position that they think their house is worth more than it is. I'm trying to get them to list it at a lower price so I can get multiple offers and get over asking price offers with better terms. In this case, she's convincing you to list higher. That only happens in most cases when you're interviewing several agents and you're going to go with the one that tells you what you want to hear. That's always when people get lied to, by the way, when you're dating several people and you're comparing them all against each other, whatever guy tells you the better story is the one you're going to pick. When you're talking to different real estate agents and you're like, well, how much would you sell my house for? They're always going to feel pressured to give you the higher number. It was very rare that this gal was giving you a higher number. And then it should be in wrong. Did she ever explain her thought process on why she Thought this house would sell for more.

Adam Whitney (19:11)

Yes. And I don't. I, I think she. First off, I think she genuinely believed that selling it at 460 was priced low. And the data, this is a big lesson for me. There was. This area was kind of secluded and there was no real data in this particular area. So the, it was like you really had to extrapolate out of the comps. And even her as a 20 year appraiser was like extrapolating. And she genuinely believed that. Yeah.

David Green (19:41)

But did she show what she was looking at that caused her to believe it?

Adam Whitney (19:44)

Yeah, we, like, we did our due diligence, we went through the comps, she provided a comparative market analysis and we kind of went through it and we were both kind of like, I don't know. I mean, I see what you're saying, but there's no data to prove right or wrong. So we're, you know, at that point, I'm like, I feel good at 415. She's like, I feel good at 460. And I'm like, okay, well, it's your area. It's not my area. You're professional. Like, we'll go with what you said. So I'm there. I have no. Yeah, I have no ill will for her. Like, I don't think she was trying to do anything wrong or win my business. She had already got my business. I think she believed that which made it believe she can. I was convinced because she was. She believed it so strongly.

David Green (20:26)

Well, and she, I think that the numbers did justify what she gave you. The problem was probably the issues with this house that we just talked about that gave people the ick, for lack of a better phrase. So we had the septic issue where during the rehab it was nicked. The septic tank was so old, or the septic system, I should say, was so old it couldn't be repaired. They had to replace the entire thing. That was between 10 and $40,000. I think you mentioned, depending what you wanted to do.

Adam Whitney (20:53)

Yeah, that was like 30, 35k is what it ended up costing me.

David Green (20:57)

All right. And then the sea wall, which is a unique feature of a property on the water that most people would never think about at all. And there's not a lot of people that have the expertise or the ability to repair those. So when you do need it fixed, the materials are not readily available. The person with the skill to do it's not readily available, they get to name their price. Because how many people are running around in diving suits that can go down there and build a wall in a canal. Right. So that was 30 to $50,000, I think you said. And there's not a lot of options there. You can't just go find a person who's willing to do it for less because it's like underwater welding. They're gonna make what they make because there's only so many people that could do that kind of a job. And then you've got one guy. Yeah, a guy that's exactly right. And everyone knows him. And he probably was like, didn't take care of himself. He probably could just do whatever he wants. That guy was just the king of whatever world he lived in because he's the only guy that can work on sea walls. Then you got a boat dock also that we need to talk about here. So the boat dock was, like, dilapidated, falling apart, and you just made the decision that I probably would have to. I'm not even going to put more money into this disaster and fix that thing when the house isn't selling anyways. So what was your thought process with how you were going to make that decision and how much money was were you looking at there?

Adam Whitney (22:09)

Yeah, so I basically had to weigh. Well, first off, at that point in the deal, like, putting. I was never going to get that money back out. If I put the 25k in to rebuild a boat dock or 30k in to rebuild the boat dock, it was not going to get me more money, so it was just going to lose me more money. So I had two options. Rebuild it for 30k or tear it down and create this canvas where somebody could see a vision of what they wanted and they would do it themselves. And so we chose to tear it down. Not because one principle I have is, like, don't put good money behind a bad deal. Like, don't put good money behind bad money. So the deal is already bad. Like, I'm already. I already know it's bad. So I'm like, I can't sink more cash into this. It will never come back out if I do that. So I decided to tear it down.

David Green (23:01)

All right. And then how much would it have cost if you wanted to replace that thing?

Adam Whitney (23:04)

Yeah. So that was going to be at least $30,000.

David Green (23:07)

Yeah. That just adds up so fast. I mean, you're basically looking at over $100,000. Over those three issues. We're somewhat unique to this property. A seawall, a boat dock, and a septic system that a lot of properties aren't going to have. And I would venture to say most of the deals that you're flipping or wholesaling are not unique like this. They're track homes, they're ranchers, they're single family properties that only so many things can go wrong. And what happens is we start to develop an algorithm in our brain like all of us do, for how life works based on what we've already seen. So you get this confidence that like, yeah, this deal looks good. It's not a home run, but it's a base hit. I can make this work. Because your algorithm isn't taking into consideration all of these factors that never pop up in your deal. So you just don't see these very often. Now you throw on top of this, you got an expert telling you, oh, we can list it for more. So any little voice that you might have had that's like, man, I just need to get out from underneath this thing and try to make ten grand or something that's being silenced by the larger voice, that saying, bro, you might make 130 grand on this thing. Maybe I should go bigger, maybe I should go better. Maybe this should be the Taj Mahal and I could sell this thing for a ton of money. So now you're listening to the expert who's also an appraiser. Just like everything is lining up here to lead you in the wrong direction. You stick it on the market and you end up in the death spiral, which is you keep doing a price drop. Your price drop continues to be ineffective. You have to decide, do I do another price drop or do I wait longer? The buyers are sitting, seeing that days on market creeping up. And you know what you and me would be thinking if we saw that? We're just seeing, oh, man, that gazelle's getting old and slow. I'm going to take that thing down. Pretty soon they're going to have to take my offer. You're just waiting. You know, it's like when you're, you're like training jiu jitsu or something and you know you're getting so tired. It's like usually when you're rolling with your instructor and they're so good and I'm like, dude, just put me out of my misery, just tap me. I'm so tired. I'm not. I know I'm not going to win. Just throw something on me. And they're just having fun with you. That's like what it's like when the buyers watch that price just drop lower and lower. So you're getting anxiety about this, you're not feeling good about it. Ultimately, you decide you're going to refinance the deal, get your capital out so you can pay back the people that you had borrowed money from. And it's, it sounds like if you're renting for what, 20 to 50amonth and you bought it at 295 and put some money and you're probably going to be losing money every month, but not as much as you would lose if you sold it at the loss. Is that right?

Adam Whitney (25:28)

Yeah, that's right. Like, I, like, I'll probably lose a couple hundred bucks a month, maybe 2500 three grand a year as opposed to like I am basically writing three checks to close this. The check to close is going to be about 30 grand. I just paid off my second position lender at $60,664. I know that number because I wired this morning. So yeah, it's like it's a, it's almost $100,000 mistake that, you know, it's. Most of it is still equity in the property. And my belief of the market is that I don't think it's going to go up like crazy. But I do believe when interest rates, as interest rates continue to improve and settle down into the fives, you know, the buyer activity will be a little better. So I'm willing to hold on to it forever if I have to because over time I'll get debt pay down. Obviously, you know, that's fine with me. Let, let somebody else pay that loan off. And worst case scenario, if I hold it for 30 years, the debt's paid down, I keep it in good condition, I sell it and I recapture my equity. Then or a couple years opportunity comes up and I can recapture some portion of my equity, I'll sell it then.

David Green (26:50)

That's a great feature to real estate investing is you can lose money. But usually if you hold onto it and it's in a decent area, you will end up making money on bad decisions and bad execution and bad everything. And I don't know of other investment vehicles that are as forgiving as real estate over a long period of time. But over a short period of time, it can be brutal, which is one of the reasons I tell people to have more reserves than you think. Stop this idea of quitting your job as soon as you get a little bit of cash flow and thinking you're going to be fine because those septic tanks get broken and those sea walls go out and those roofs go out on more than just this kind of property and you are always dumping energy into your Deals through the form of cash in order to grow energy in those deals in the form of equity. And you kind of have to have both. If you run out of cash, you can lose a lot of money even if you had equity in these properties, but you couldn't get them sold. So thanks for coming on and sharing this deal. What are some of the lessons that you took from it that you're going to change moving forward?

Adam Whitney (27:48)

Yeah, I think one of the biggest lessons just out of the gate is a, trust the data and B, if there isn't good data, it's probably not a deal worth doing. There's one thing we do in the military is when we do planning, we always have to make assumptions to carry planning forward. But one thing we say about those assumptions is if you don't ever validate those assumptions in planning, then those are carried forward into execution as risk. So when I have sparse data and I'm having to make assumptions, that means that's an elevated level of risk for the deal. So I've kind of recalibrated my risk analysis as it relates to how strong the data is, pointing to the numbers. So that was probably my biggest lesson learned on that deal. And of course, you know, play, play, play in the area, you know, So I started playing in Alabama and this, this particular deal, which I didn't know well enough. I didn't understand seawalls and canals well enough and I didn't understand the boating community well enough. So just do what, you know, do what you're an expert at, which I, I failed to do those things.

David Green (28:59)

That is a really well said statement from a jarhead. I like that. What was it? So risks that or not risks, unknown. Assumptions that are not. Assumptions that are not what investigated or looked into deeper, validated become risks that you. Assumptions that are not validated become risks when you take them into plan. That's where the Hopium comes from. And I can't. I mean, I've done it so many times myself. You get a little feeling and it doesn't feel good. And the voice in your head says the same thing every time. I hope this goes okay. And then your mind starts coming up with a scenario where this thing you don't feel good about is not a problem. Buyers aren't going to care, right? Seller doesn't want to upgrade their house before we sell it, but they want to sell for top dollar. Little voice goes, that's a bad idea. Their response is, well, the sellers are going to paint it whatever color they want to anyway. The sellers are going to replace it with whatever flooring they want to any it. I'm not going to go do it. Right. It's. It is a form of logic that's incorrect that comes from trying to ignore the little voice that's telling you, slow down, this is a bad idea, don't go do that. And we're sharing these with everybody because I think more people in your position are going to have those little feelings and have those little voices and they're going to ignore them. Because most podcasts that they listen to only tell them about the wins. They only come on and say, here's the deal I made, here's how much money I made, here's how great it was. And when you just hear that all the time, you start to assume everything is going to go good and then it doesn't. Now, you were able to survive this one, but a lot of people wouldn't, so commend you for coming on. Anything else you want to share about this deal or something that you learned from it with the audience?

Adam Whitney (30:37)

No, I'm, I'm grateful to you, David, and what you're doing here and just kind of helping expand the knowledge base and aperture for real estate investors who are following you. I think a combination of this and some of the more optimistic stuff will really give them a better psych picture and allow them to be better investors, man. So I commend you for doing what you're doing.

David Green (30:59)

Congratulations on being the first person to say sight picture on the David Green Show. I need to make an award for that and have it sent to you. That's wonderful, Adam. Where can people find you if they want to learn more about you?

Adam Whitney (31:09)

Yeah, you can. I'm on Instagram official Adam Whitney, you can reach out to me there. Check me out there.

David Green (31:15)

All right, everybody go give Adam a follow and tell them that you heard him on the David Green Show. Adam, I hope we get to collaborate again in the future. I had a great time talking to you. Thanks for being on the show and I'll catch you on the next one. Thanks for listening to Real Talk Real Estate. If you would like to be featured on the podcast, I'd love to have you visit davidgreen24.com Ask and submit your question there. Also, please do me a huge favor and share the show with someone that you love that you think would benefit from his message and make sure you're subscribed to get notified for future episodes. If you want to reach out directly, you can also DM me on Instagram or social media and check out out davidgreen24.com.