Are You Buying What The Seller’s Selling?
I just lost a million dollars! That’s right, I had the plan all laid out and was in action on a deal that would have put one million dollars in my pocket in six months. Now I have zero, nada, nothing. And you know whose fault it is? Mine!
Why? Because I had the transaction structured based on my experience, the way I had done business. But the other guy had the transaction structured on his experience, the way he did business – and our minds were miles apart.
Let me explain. There was an ad in the Sunday paper offering a steel building (80 X 210 with an 18 ft clear ceiling) for sale. It had to be moved. I went to see it and could see instantly that it was in good shape. It was being used as a retail showroom and repair shop for a bicycle business. It had been used as such for almost twenty years – same owner. Now the city wanted the land (the retailer had been renting the site) and the shop owner had to move. He found another location and no longer needed the building.
The building included everything that was attached; several air conditioners, all the lighting and bathroom fixtures, lots of wrought iron gates and fences, the security system, the fire sprinkler system, office doors, partitions, and paneling – everything.
I asked the seller how much he wanted.
“One fellow offered me $15,000.”
“Is that what you want? Will that make the deal?”
He said yes and I said I would take it. We shook hands and I said I would be back as soon as my lawyer told me how to separate the building from the land so I could make the purchase and have evidence of ownership. He said fine.
A 16,800 sq ft building for less than a dollar a sq ft – with all the equipment to make it usable as a warehouse – what a deal!
On the way to talk to the lawyer I went over the calculations one more time. Similar warehouse space in our area rents for $12 to $15 a sq ft a year; say $200,000. The building, taking it down, moving it and setting it back up; say $75,000. An acre of improved industrial land, site prepared; $100,000. Total cost would be less than one year’s income. Capitalize the income at 10 and I have a building worth $2.0 million! Put a first mortgage on it for $1,175,000 and I recover the cost and put a million dollars in my pocket.
The next morning I called the seller and said I’m coming over. He said too late, I sold to a guy about an hour ago. He came in gave me the money.
“What? We had a deal!” I screamed into the phone. “We shook hands. We made a deal.”
That meant nothing to him, as I knew it would. The deal was gone. I had lost out.
I was mad. The more I thought about it the madder I got. I had all sorts of plans for the seller. I was going to sue; I was going to … until I realized I was the problem. I was at fault. I screwed up.
You see, in my mind, I was buying a million dollar warehouse and I needed to cover all the legal stuff (I am a real estate broker). This was a good size deal. It had to be done right. But in the seller’s mind he was selling a $15,000 bicycle. All he wanted was a credit card, cash, or a check he could verify.
Make sure you are buying what the seller’s selling.