How Wrong Assumptions Can Lead To Lost Opportunities

GDNI 38 | Wrong Assumptions


We all make assumptions. Humans are naturally wired to be that way. However, assumptions don’t always equal reality, and sometimes, wrong assumptions cause us to misunderstand, to make errors, and to miss opportunities. Chris and Gail cite some adverse effects of making assumptions in real estate. They highlight the importance of reflecting on what we do before jumping into conclusions. Reminding everyone to never be afraid of taking risks, they give instances where their wrong assumptions on things were shattered by reality and led to lost opportunities.

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How Wrong Assumptions Can Lead To Lost Opportunities

Gail, how are you?

I’m well. Thanks, Chris. Good to talk to you again. What’s happening in your life?

A lot has been happening. I’ve been busy. I’ve got a lot going on, as I know you do as well. Why don’t we start by sharing that with our portion of what happened? I’ve got a nice little love letter in the mail from a certain city summoning me to appear in court because according to the summons, it is criminal to have trash on a property if you have a dumpster overflowing or having trash on the side of the dumpster.

This is not a single-family home?

It’s a multifamily property that is a land contract. Code enforcement allegedly sent me a letter in March asking me to appear at that time. I, being the criminal deviant, did not appear because I was never notified. They have resent a summon that if I don’t appear, I will be in contempt of court and a warrant will be issued for my arrest. It’s not even my dumpster technically. I’m just on the title. I knew nothing. The interesting thing is the county or jurisdiction and the borrower, they’re all on the same page that it’s the people across the street are coming over and throwing the trash into the dumpster or into the side. When I spoke with the individual I mentioned, based on the fines, it might be a little cheaper to put up a camera and catch them on camera.

What do you do? Are you going to go to court and criminally sue these people for using your dumpster? You need to call them up and make nice. I have a vacant single-family home in Anderson, Indiana and people keep throwing stuff into the yard. Fortunately, mostly in the back yard. That’s the only reason I haven’t gotten slammed with code enforcement fines myself. I have other properties where people dump. What are we supposed to do? We don’t live there. We cannot chase these people away.

You can have missed opportunities for assuming too many things that turn out not to be true. Click To Tweet

I did call and I spoke to the people involved or who I needed to speak with. We will get this resolved without having me end up in handcuffs or in an orange jumpsuit. That’s my goal on this. On our Notes and Bolts section, I’m going to talk about some of the things I’m doing to mitigate this.

I will be glad to hear that as I have confessed to having a trash problem of my own. I hope there’s something in there I can use. What happened to me? I’ve had a whirlwind couple of weeks. As you know, we’re now offering our tapes and we’re selling some things. By happenstance, I bought a lot of stuff in the fall of 2017. We are at that place where everything re-performs quickly has now had a year of performance and it sells. I feel all I do is answer phones and reply to emails about assets and pull collateral files together. It’s been crazy. I’m feeling a little pathetic quite frankly, but the cash register is ringing. This would probably be a good time to say if you haven’t already signed up on the website for our mailing list. Get on it because those are the people who get first look at all our tapes when we’re selling stuff.

We had about 20% of the assets sold to people who had that first look. What is the main topic that we want to talk about?

We’re doing some dumb things, not over my life but I’d say the biggest issue I have had is I have missed opportunities because I assume too many things that turned out not to be true. I said to you, “Let’s do a story about how you can lose opportunities because of assumptions,” and particularly the way assumptions lead you to either do or not do things that could benefit you. I, like many of our friends, buy contracts for deed and these houses, generally speaking, are worth $50,000 or less. Sometimes a lot less. I ended up with a couple that one was in bad shape and the other was in bad shape, but we fixed it up.

It has always been my assumption that when you get a contract for deeds house back, the only exit strategy you have is to create a new contract for deed. Do a little fix-up to make it attractive enough that somebody with no opportunity otherwise to buy a house would seize the opportunity. I was encouraged by a realtor to go ahead and list these retails. That sounds crazy to me because the house is worth less than $50,000. People who are spending less than $50,000 on the house, first of all, they don’t usually have the money to buy it outright. Banks don’t make loans for that amount, generally speaking, it’s a small amount. Instead of retail, my house is not in good enough shape to sell to an FHA borrower. They would make me fix the whole place up. The bank isn’t going to make the loan anyway and nobody has any money. What are we doing?

It was a guy and a realtor that I trusted. I signed a listing agreement for a few weeks assuming I’d get it back. The contract would end and I would end up doing what I thought I was going to do the whole the time, sell it to a land contract borrower. I didn’t know how I was going to do that. I didn’t have a plan for getting those borrowers. I went with it. Lo and behold, in less than a couple of weeks, both of these houses sold for close to the listing price. One sold for $48,000, one sold for $45,000. In both cases, the people got cash from their families apparently. I don’t know what this is. I can’t imagine my family giving me $50,000, but apparently those families are out there. They pool their funds or something, I don’t know. Does this surprise you that happen?

GDNI 38 | Wrong Assumptions
Wrong Assumptions: Don’t always assume that just because something is listed or going to sell that it is going to sell very quickly.


In a similar sense, talking about low-value properties selling, I’ve had almost the opposite end of the spectrum. I’ve acquired some notes in the contracts for deed where the properties were either recently listed or currently listed for sale. I’m thinking, “This asset for sale for $30,000, I’m picking it up for $12,000. This is great. This thing sells for even $20,000. I’m going to make a quick few thousand bucks quickly,” and stuff like that. I’ve had three of them go that route and on all three, I basically made almost no money. In two instances, the realtors and the realtor had them enter the BPO. I still had a realtor go in and tell me what it was worth were way off.

On the third instance, the borrower didn’t want to leave. They fought tooth and nail and then eventually ended up giving them a mod, which they are now paying on the property. Doing the numbers, the mod and having them pay was the lowest return of all the exit strategies. It’s still a good property. We did get to keep a borrower in the home because she wanted to, which is one of our main goals. It was one of those things where you sometimes see your eyes light up and you’re assuming, “This is great. This thing could sell in the next 90 days and it’s going to be a quick hitter.” My assumptions on those have been wrong.

I once bought a CSD because in the Google Street View which was a photograph, there was a “For sale” sign on it. It was like, “Look at this. They’re trying to sell it. Let’s buy it now before they do.” That has been the biggest problem property I’ve ever had.

Same thing with me where the borrower is an agent and there were signs in the BPO. I was like, “There’s a for sale sign leaning up against the house. They probably might be looking to sell it.” The guy was an agent. The guy wasn’t looking to sell it. That one’s been a challenge as well. Don’t always assume because something is listed or going to sell that it is going to sell quickly.

You and I had a situation and I feel guilty about this as we always tell people to ask for the servicing notes. This was a case where having the servicing notes led us to assume something that turned out not to be the case. We’ve got the servicing notes and we saw that the borrower kept asking to be released from this contract for deeds. How can I get out of it? The UPB was way too high for him and the payment was way too high. We saw that and we were like, “This guy wants to leave.” In that case, the guy you had sent over to photograph the house, the neighbor came over and was like, “Is something going on with this house? I’ve wanted to buy this house. If this house goes up for sale, I’m going to make an offer on this house.” We put two and two together. The neighbor who wants to buy the house with a man who wants to leave the house, we realized this is a no-brainer. What a lesson in assuming. This is a perfectly reasonable assumption. We had it all. We weren’t sanitizing. These people said these words and then they didn’t do it. The borrower was stuck like glue to that property. He couldn’t afford it but he didn’t want to leave. It was hard for him to make peace with the fact that it was unsustainable. He couldn’t stay there long-term.

Who is living in that property though? A single guy doesn’t have the stuff that was in that property.

What your expectations are determine how much pain you feel when things don't go according to plan. Click To Tweet

It was the badge itself right within the shower.

There’s that. There were kids’ toys and he didn’t have any kids. He’s clearly renting it or something. The guy gave it away from me.

Not only him but the neighbor flaked. I’m beginning to think we’ve had enough neighbor experiences where they either actively try to scare buyers away or maybe, like in this guy’s case, he’s more seductive and enticing. He’s like, “Yes, buy this house then I will buy it from you.” He lured us in.

That’s like the borrower’s story with borrowers is they are like, “I could get this, do it in a rental and make all this money.” They realize, “That’s great but people who want to go buy real estate and all this other stuff and they have no money.” It’s like, “I’m going to go do all this,” and then it comes back to that stuff that’s green with president’s names and faces.

I know you know about that because you spent a weekend with your college buddies. They couldn’t even understand what it is that you do in real estate, which is fun because they’re all engineers also and they’d be great at it themselves if they even knew this type of investing existed. I want to say as the crowning touch on our disappointing experience where we assumed we knew exactly what’s going to happen with the CFD. We also hired a realtor who said we should list it. Even though the house was not in good shape, he was like, “We should list this for $59,000 because there’s nothing else for sale in this area.” To him, that equaled, “Everyone’s going to want this because it’s the only thing over less than $60,000 in the whole county.” It turned out that was often not correct. We were happy to accept an offer of $35,000 a few weeks into a bitter winter with a non-working furnace and worrying about the pipe bursting and all kinds of havoc happening with this place.

We still did well on that asset.

GDNI 38 | Wrong Assumptions
Wrong Assumptions: Don’t ever assume the property is closing until it is closed.


That’s the other thing too is that what your expectations determine how much pain you feel when things don’t go according to plan. That only felt like a disappointing deal because we were high at the beginning. We thought we had it nailed. That’s quite a humbling and enlightening experience to me. I felt like I learned something there.

One popped in my head too, which is when you talk about expectations and stuff and assumptions. Don’t ever assume the property is closing until it is closed. If you have an asset that the borrower was selling or it’s an REO you took back and you’re selling, don’t count your money until you have it. I’ve had on two occasions where basically out of the blue I’ve had borrowers ask the servicer, “We need the pay off because the title companies are looking for it. It’s going to closing and get that.” Question on the title report or whatever I give him an answer on or they may have needed the title insurance policy to check something. Give them all that and like, “We’re closing on this Friday.” I’ll email my Monday, “Did this close on Friday or whatnot?” They’re like, “No, the buyer flaked the last second and walked.”

They didn’t need a little more time. They literally disappeared.

I’ll tell my JVs and stuff when I say the property is pending, I flat out tell them because it is pending until it’s signed, sealed, delivered, don’t assume that initial investment and some of the money that you might be getting from it, don’t go spending.

I had a good experience with having low expectations and then it turning out better. I had a house that was under the agreement for a retail sale. It was a BFT that I took back. The people did their inspection and they come back when they tell us these two major problems with the house. The roof was bad. Bad is definitely a spectrum, not an absolute. There are a lot of things that can be wrong with the roof and it can still have a certain amount of integrity to it. I said I don’t know what the issue was with the roof. Apparently, the other thing was when the inspector did something with the electrical box, there was a spark. I am not an electrical engineer, but that does not sound good. This was not a big price anyway that we were getting in the $40,000s. The realtor breaks the news to me and they want some money back. I’m bracing myself. He goes, “They want $500.” I thought, “Did I mishear something?” I feel like I dodged a bullet.

That was the craziest thing ever. In that case, there had been another bidder and those people had to give their best and final. They were afraid to drive too hard a bargain. It works out. I thought $10,000. Leave the table when I heard about the problem they found. It can work both ways these assumptions. Here’s another one. I’ve got a property and I’m keeping it and I’m renovating it. I’m super excited about it. There’s an empty lot next to it. I have looked at this lot a million times and thought to myself, “I wonder who owns that.” To me, this is a hot neighborhood. I can’t imagine anyone giving up a lot like that. Several times I thought to myself, “What if they sell it to me?” and then I immediately thought, “They probably want to build on it.” I had a whole story in my mind about what they were going to do, who they were and why it wasn’t going to happen. I recognized because I spent the first half of my life being timid and always thinking of reasons not to do things. Thinking how they’re going to do that.

You may be told no, but if you don't ask, you're never going to have a chance. Click To Tweet

The new me took over, took the wheel and I thought, “I’m going to contact them and see if they want to sell it.” Nothing ventured, nothing gained. I contacted them, “We are closing tomorrow. I am buying a lot in a city next to the property. A rare situation wherein an urban setting you get a chance to buy an empty lot next to a building your own.” I don’t even know what I’m doing with it yet, but I’m psyched about it. I have many friends and children and husbands who say like, “Why don’t you ask them?” They were like, “They’ll never know,” and they don’t even ask them. I thought, “Why? That is dumb.” You may be told no, but if you don’t ask, you’re never going to have a chance. You may not get what you want but if you don’t try, you’re definitely not going to get what you want.

In Detroit and Baltimore, you can buy city blocks.

We should clarify that it should be a place that you want to live first. I have friends and relatives in Baltimore, I am aware. I would say it’s the Beirut of America, but Beirut is beautiful from what I understand.

Let’s talk on some bidding assumptions. When they’re bidding on assets, we’re not going to dive into a complete how to bid on things. There are some assumptions with bidding that people should maybe not assume or because they’re told something, not always have to follow it. Would you agree?

Yes, absolutely. I have some assets up on our portal that I’m saving for Notes and Bolts. I have one listed for $45,000. Somebody did $33,000, which frankly I found a little insulting. Rather than be all upset about it, I countered that $40,000 thinking if he already gave me his complete explanation of why he only thinks it’s worth $33,000, he’s not going to accept the $40,000 but he did.

That’s a perfect example of what I was going to roll into is when somebody tells you that they’re looking for something at 50% or 70% of UPB or whatever it is. If your numbers don’t work at that and you still are interested in that asset, bid a number that works for you. If they come back and counter or have commented, explain why you got to that number. Don’t say, “That’s a number I want it for.” If you say, “Your BPO is off and also there’s $5,000 in taxes and you said there was only $500,” then all of a sudden people might be, “That makes sense,” and might look to exit that property. I’ve got one where the BPO that the seller provided was $160,000 and my BPO was $110,000. I went to the seller and I said, “We’re not even close on the BPOs. You said this BPO was done a few months ago. Will you send me a copy of your BPO? If it shows that, then I’ll still honor my price.” He sends it over to me and I look at it. This was a townhouse community. The three comps they had were all townhouses that had all been completely renovated and updated.

GDNI 38 | Wrong Assumptions
Wrong Assumptions: It can be a very growing experience to be more reflective about the actions that you take and what your goals are.


Theirs were still in original form?

I’m guessing that a non-performing note that the borrower hadn’t paid in a few years probably isn’t completely updated and renovated, but I’m assuming. I looked at the comps that my BPO person provided. One thing, and this is an extra Note and Bolt, don’t look at the number when you get a BPO. Look at the actual comps and make sure because I’ve gotten BPOs that they come back and say, “It’s worth $20,000 and all the comps were at $50,000.” I’m like, “Why is it one to twenty?” They’re like, “It’s because it is.” I went back to the seller and I’m waiting for their response, but I’m like, “Here’s your $160,000,” and the seller is usually reasonable. “You can look at this and agree that it’s probably not worth $160,000 based on these. Here the ones that were sold that weren’t updated and it’s more in line with these. Let me know.” If they come back and say “We still want it,” then the reality of it is whoever pulls a BPO probably isn’t going to get one at that price point unless somebody bids blind. In that price point where you’re bidding at $50,000-plus assets, people usually at that price point are more sophisticated and pull BPOs and things like that.

This started out to be about making assumptions and how you can go astray making assumptions. What I want to leave people with is that my message. When my kids were growing up, I had on the refrigerator a photograph with a message I found compelling. I know from your Instagram that you like to present thoughtful quotes and I do too. Our business can be transactional. You’re busy doing deals and stuff. Sometimes we don’t take the time to reflect on what we do. It can be a growing experience to be more reflective about the actions you take and what your goals are and stuff. The thing I had on my refrigerator was, “Every achievement begins with the decision to try.” I always said to my kids, “If you try, you may fail but if you don’t try, you’re definitely going to fail.” I would say in every situation where you’re not risking your life by trying, you should always try. You should ask. You should try it. You should bid. You should offer.

It reminds me, we’ve got a bid. Somebody sent something into me and said, “I have an agent that’s in this area who thinks we’ve got a BPO of $35,000. They came back and said, ‘We think it’s only $9,000 because he sold the house next door a couple of years ago.’” I was like, “If your BPO is only $9,000 on a house that’s a couple of years old, I don’t consider that BPO. Don’t waste any more of your time because I’m not going to sell it to you, but it doesn’t hurt to try.” There is a fine line though. You’ve got to be careful. You can’t low ball everything because then you’ll start getting repetitions. He had a reason to bid that low, but the reason may have been a little flawed because you’re using something from a couple of years ago.

It’s helpful in this business and probably every human endeavor to come from a place of understanding another person’s point of view also. In this case, this particular asset, we could do well with it by renting it out, by selling it on a land contract. We’re not at such a level of desperation with this thing that we’re going to accept his low value, his low bids. It’s incredibly valuable to be able to see things from other people’s point of view, particularly in our buying and selling situations. I will admit I submit low ball offers to big companies that have hundreds and hundreds of assets to get rid of. I figure, “Why not? I know they will counter.” I have no idea where they are on the pricing spectrum. Giving a 30% or 38% bid, that’s a way of starting the conversation that I know they will then tell me where we are and what it’s going to take. Now that we’re putting out tapes, we have people making incredibly low offers with no justification seeming. It feels a little disrespectful.

I’m trying not to take it personally and I don’t want to discourage people from making a low bid where you think it’s warranted. I was telling someone about this one, I have a performing note and someone put me through. This was when I allowed people to waste my time when they weren’t serious buyers. This guy came to me. I didn’t know anything about him and started asking me for all the things. Not the usual documents, but other reports I would have to pull and things I would have to gather for him. I said to him up front like, “If you’re a serious bidder, I am happy to get you what you need for your due diligence. If you’re going to make a low-ball offer, tell me now. I’m asking you, please do not waste my time.” That guy, I probably put three hours into satisfying his every demand, made an offer on a performing note that gave him a yield of 62%. Basically, he offered me less than I bought it for when it was a nonperforming note. Let’s find a happy medium. Use some sense.

A lot of people don't evaluate the risk along with what return they're targeting. Click To Tweet

The reality is if it’s a performing asset, your returns are going to be around 12% plus or minus is what they sell for. You might get a better return if there’s less equity. If you’ve got an asset that’s got a $20,000 UPB and the house is worth $100,000, don’t expect you’re probably going to get that for 15% plus because it’s covered by equity. There’s a lot in there. If it’s a CFD that they could possibly get the property back. A lot of people I talk to don’t evaluate the risk along with what that return they’re targeting is. 15% return is a good return. I’ve seen deals with 15% with risks that would put your hair on fire. I’ve seen 15% deals where you can sleep like a new puppy all night long. There’s not a lot of risks involved. That’s where people from an investing standpoint, once you understand the numbers, that’s the real thing you need to learn. I had a conversation with someone that was saying, “Should I bid this amount?” I said, “It depends.” I showed this to her. I said, “I can make that deal look like you’re making 15% and I can make that deal look like you’re making 40% by changing two numbers.”

That’s your engineer voodoo economics. Your mastery of the numbers is far greater than probably 99.9% of people.

It was all based on the term you held it and what your exit strategy is. I’m like, “If this continues to perform and you sold this in eighteen months, your returns are 40% something. If you held it to perpetuity, you’re going to be at 15% or what.” Reality is you’re probably not going to hold it to perpetuity. At some point in time, you are going to sell it or do something. You’ve got to weigh those options.

Why don’t we move into the Notes and Bolts? Would you like to start us off?

The criminal I am or alleged. What I’m doing with this asset is I’ve reached out to the borrower on this and said, “Enough is enough. I’m converting this into a note. You don’t have a choice because you violated the terms of the land contract. I can cancel it and we can spend thousands of dollars in court arguing over it. Here’s the deal.” I even said, “I’ll pay for the cost to originate it. Basically, if there are recording fees, I’ll pay the first $100 recording fees or whatever it was and I’m going to record this as a note and then I’m going to be a lender. If you have any more issues like this, you’re the one getting these letters, not me.” When the guy came back and said, “That’s fair. That’s fine.” I said, “Good.”

That’s overflowing dumpsters on him. Where was he in this whole dumpster situation? He’s the landlord.

GDNI 38 | Wrong Assumptions
Wrong Assumptions: Don’t assume that you weren’t going to get a buyer because you may very well.


He was aware of it. When I called the city, he had talked to the city to try and get an understanding. Make sure everyone’s on the same page as well. He’s met with them on occasion out there too to try and come to some resolve. At the end of the day, it’s something that because of a technicality I’m involved in and I want to get rid of that technicality, that’s one of the downsides of CFDs. Everyone talks about why they don’t want to deal with them. This is some of the downsides is your name is on the property. I’ve had instances where somebody left an abandoned car in the yard and I was the one getting fined because I’m on the title to the property.

We love them and we hate them, all those things. Mine is simple because as far as related to this conversation. I am for the first time selling on Paperstac. I want to give a shout out to Brett Burky and our buddies at Paperstac. They’ve redesigned their platform. It seems dynamic, so much so that I’ve struggled a little bit to understand exactly how to do everything. I’ve only had my access on there for a day or two. I’m getting a lot of interest. They do seem to have a lot of buyers shopping on there. Those of you who are looking to sell, I would definitely recommend putting them up and seeing what happens. Don’t assume you weren’t going to get a buyer on there because you may well. Thank you to Brett. Keep up the good work.

Has he started allowing CFDs yet?

Not that I’m aware. I don’t know if this is normal. My CFDs vastly outnumber my regular note. You probably have a more balanced portfolio. You are slow to get on the CFD train.

I would say I do have over 75 active assets and probably 75% are CFDs.

Chris, thank you. Thank you to everyone for joining us. Please be sure to join us for a back and forth conversation. Go to to RSVP and get the link to join us. We surprised people last time asking them to pop on and talk to us like real people. That was fun. We’re getting a fun little group every week on Thursdays at the open mic.

If you go on, register, you’ll get an email where you can click on the link to register for you. You’ll get a reminder as well as get an advanced notice to our tapes. Some other free cool stuff that we give out as well on email or on our Notes and Bolts Facebook page, which is part of the show.

Thank you so much, Chris.

Thank you, Gail.

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