process and progress

#IzmahShavuot Shani Amram #post5

In the following transactions we have already focused on better areas of the city while taking the improvement of the property one level above. The first property that marked the change in strategy was in a sought-after neighborhood in the city and was found after searches and quite a few offers that we submitted. 

Everything seemed promising. A sought-after and high-quality neighborhood alongside a sufficiently safe profit between the expenses we expected and the ARV estimated on the basis of similar houses sold in the same neighborhood. The Excel reflected a margin of safety and indeed, we turned the property into a dream home, we put thought into the small details, imagined the family that would live there and thought about how the house would meet their needs in the best way. We were invested in the house with all our souls, we worked on it ourselves on weekends, so much so that we thought of moving into it ourselves. 

However, this deal did not work out. While moving, the construction prices became insanely expensive due to the growing inflation and the margin of safety in Excel kept shrinking. At the same time, interest rates began to climb and we knew that from now on it would be more difficult for people to take out mortgages, which lowers the viability for potential buyers who only a few months ago could have purchased it and met the terms of the mortgage. A few months later, when the house was empty and no good enough offers were received, and with no choice, we looked into the possibility of purchasing the property ourselves, but the interest on the mortgage was so high that even the high rents in this neighborhood would not cover it. We continued to sit on the house, pay the hard money interest and cross our fingers after every showing that this time the long-awaited offer would come. 

Five months later, the highest offer came that covered the expenses but left us with no profit. We realized that every additional day we keep the house we lose and we better let it go and move on. And so we did. Despite everything, it's still a deal I'm proud of - it required decision-making under difficult conditions of market uncertainty. 

This transaction process was so tough and required us to do a deep mental calculation that gave rise to important lessons, among them the frustrating realization that there is not always a correlation between the amount of hard work invested in the transaction and the profitability. And since then? About that in the next, last and most interesting post.