Tuesday, May 29, 2007

Making an Executive Decision

Just recently, I had to make an executive decision on the issue of possession. As real estate investors, we all have heard the age old rule never to make a purchase without getting possession first. However, there are times when sometimes we have to bend the rules a bit and make things work because we are paid to solve problems. Easy as that.

I had a situation come up on a deal where the sellers needed a portion of the funds from the sale to move into their new place. However, in order to get the funds we needed to close on the property first. So, I was left in a bind and a major dilemma. The sellers could not move into their new place until they received the funds from the sale on my deal. Problem was if we closed on the deal they would still have possession until they moved out.

So, I circulated this around to my fellow investors on the boards. I received a lot of feedback. In fact, most of the feedback I received told me ABSOLUTELY NOT to close until I get possession. Many of these investors were seasoned and told me it was the sellers' problem and not mine. Only a few (I think about 2), told me they've done this in the past and sometimes it's gone smoothly but other times the deal has blown up and it took them FOREVER to get the people out.

At this point, I was faced with a major problem. In fact, the seasoned investors on the board took it so far as to scold me to even think of closing without receiving possession. One investor went as far as saying and I quote, "Boy did you screw up."

In any case, I listened to everyone's advice and considered each one carefully. I know people speak from experience and a lot of times history tends to repeat itself. No, I did not want to make the same mistakes as my fellow investors did in the past.

After thoughtful consideration, I came up with a solution. I decided to go ahead and close on the home but hold back 1/2 of the funds until I received possession. In addition, I noted specific dates for move out and a final inspection to be done to my satisfaction along with a liability waiver stating the sellers would not hold me accountable for liability issues on the home from the time of sale to the possession date. (I got this idea from my insurance agent who warned me about liability issues I would have when I closed on the home). Lastly, I included a $100 per day penalty if the sellers did not move out by the possession date. All of this was done in writing. The sellers signed the document and we had it notarized the day of the sale.

So, what happened? Did I get possession by the possession date? Did the deal blow up? I'm sure you all are wondering...

Well, things went smoothly. On the possession date, the sellers did everything they said they would do. I was very happy to see all of the "junk" out of the home and off the front porch. In addition, the home was cleaned as they promised as well as the oven. I was very pleased. I gave the sellers the other 1/2 of the funds, they signed off on my Acknowledgement of Payment Received Form with a notary to make it official. They handed me the keys and were off on their merry way!

Now, could this deal have blown up in my face? Could the sellers have stayed in the home after we closed and not moved out by the possession date? You bet! As with all business ventures, there is always risk. But, you can't let that stop you. The important thing is that you must measure your degree of risk and weigh the consequences.

In this case, the worst thing that could have happened was if the sellers did not move out of the home by the possession date. Then, I would be faced with an eviction situation. Luckily, in my state the laws are very "landlord friendly." Their motto here is, "If you don't pay, you don't stay." So, an eviction would only take 45 days. On the other hand, if I were in a more "tenant friendly" state an eviction could be a nightmare - it's taken at least 4+ months in some states to do a full eviction.

My point is it's good to get advice from others who have had experience. Listen to others and take in account their words of wisdom. However, it is YOU who makes the final decision and YOU must weigh all the risks, benefits and consequences. In the end, it is YOU who must take control of your actions and your future.

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