Well, my friends, I just came back from a very interesting afternoon. I went to an auction. This is an interesting deal. It’s always interesting to see how people are willing to do business without having any real insight into what they’re doing, how egos get involved in things. And an auction is the absolute greatest place to watch egos get involved in things.
The story starts about a month or two, three, four months ago there was a property for sale. And two or three of us that were fairly sophisticated in business went after this property. It was in very bad repair. It was very low occupancy, needed a lot of work. And we went after the property for about $9,000 a door each. The seller wouldn’t release it for $9,000 a door. It was a bank, and they wanted to play hardball. So they decided that they would negotiate a better deal, and they started negotiating and all the buyers fell out.
It came down to finally where they came back to me and said come on, would you do a deal with this? And I wrote a contract under the assumption that they wouldn’t sell it for less than $13,000 a door. I said, okay, I’ll write you an offer for 13, but then we are going to go into feasibility and find out what it’s really worth. They wouldn’t do that. They wouldn’t accept that. They wanted me to write the offer as a hard earnest money offer meaning there was no backing out of the deal. I said, you’re crazy, not going to do that.
So lo and behold they decide they’re going to take it to auction instead of selling it at a fair price or at least letting somebody do feasibility to know what a fair price really would be. Well, we got into the situation where they went to auction with this deal and two gentlemen showed up at this auction that are both embarrassing for me to say one of them is an ex-Lifestyles member who’s one of these kinds of individuals who believes he knows everything. And he has left Lifestyles oh, gosh, ten years ago whatever and went off on his own to be an agent and sell foreclosures on single-family houses. The other guy was one of our great stories, he was an individual who bought single-family houses, moved up to apartment complexes, got himself an agent’s license, became a consultant for us, a broker, then he broke away to go off on his own and sell real estate.
But that gentleman has never owned anything larger than a small 20-unit apartment complex and had no rhyme nor reason to be sitting there with a young gentleman here that is bidding on a 270-plus unit apartment complex that’s half vacant and needs a total renovation. The two of them together if you took all their skill sets added together could probably buy a 30-unit apartment complex, maybe 50 at the largest. And they were there bidding on this multi-million-dollar deal.
Well, they walked into that auction and the opening bid was like 1,950,000 — that was the lowest bid the bank would take as an opener. And by the way, that’s what I bid was 1,950,000 which was like $7,000 a door. And this guy jumped right to like 3 million something, which it comes out to be like it was almost $14,000 a door. The property’s worth 9,000 a door. You could get away with paying $10,000 a door for it. I actually today got up to around 10,000 a door because I had the economics of scale of owning the property right across the street. I was willing to go up to 11, but I really didn’t want to. I really didn’t want to pay more than 10, really thought it should be 9.
Well, this guy bid this 3,500,000. And the way this deal works, I want you to understand this, is you have to put $50,000 down instantly to be in the bid. If you win the bid, you have got to put another 10 percent down so his $3,500,000 bid he had to put another $350,000 down. Well, he called me up and asked me about the deal, and I told him he had paid way too much. And he got scared and he walked away and didn’t complete the deal. He just left his $50,000 down and just walked away from it.
Now, the point I’m making to you is this: It cost 500 bucks to be a member here. Why would a guy who knows what we have here, who was a member here, why would a guy like that who knows that I own the property right across the street not call me and ask me before he goes to a bid? Why would somebody not look for that kind of help when it basically, you know, costs nothing? Why would you go out there and risk $50,000 not knowing what you’re doing, thinking you know what you’re doing but really not knowing what you’re doing, and knowing that you really don’t know what you’re doing, that you’re just guessing? Why would you do that? I don’t understand it. It just doesn’t make any sense to me at all. And so the property he walked on the deal and lost his 50,000 bucks—a very expensive mistake.
And the property went back up for bid today. When I went over there today there was 15, 20 people there but only about seven or eight people that were actually bidding. And I opened the bid and then the people started bidding. And when the bid got up to where I was not interested in going above I just stopped, and they kept trying to get me back in because they thought I was the most likely person to buy it since I own the property right across the street. And yet I wouldn’t go back in because my ego didn’t get involved.
That’s the whole point here is that this guy lost 50,000 bucks because his ego was too big. And I’m not going to lose any money because my ego’s too big because my ego isn’t going to get in the way of my common sense. Now, we all have egos—don’t get me wrong, I have mine too—but in this situation you don’t let your ego get involved when it comes to business.
Well, today the bidding continued on right past me and ultimately the property was sold for way more than what it should have been sold for, and it was sold to a foreign investor—California investor’s what I mean. He was not from around here. He had no idea what he was doing. In his brain he thought he got a great deal. Well, what he doesn’t understand is that the properties in his part of the country in California cost $150,000 a door. You come down here and pay $15,000 a door and you can actually have paid too much. And he thought he had gotten a great deal. Now, the truth is he got a great deal compared to what the property would have sold for a year or two ago, but he didn’t get a great deal compared to what he should have paid in this market at this time for that property.
And so again, why does someone fly in from out of town and not seek consulting of somebody from the local market that knows what they’re doing? Why do you just do things blindly? Why do people do that? I don’t know. But you need to think about it because when you look at it out here and you’re thinking about doing something yourself and you want to make some money, that risk is way to high to take.
