If you are buying real estate right now, there’s an argument to be made you are either rich, brave, or foolish.

Every time I evaluate a deal, there is a better chance I will do nothing at all than take action.  Good deals are far fewer than bad ones, and I’ve made a lot of money in real estate NOT buying something.

With all of the low prices, distressed properties and desperate sellers out there right now, it is really tempting to start snapping up bargains.

But the wise move may still be to wait.   If you are buying real estate right now, there’s an argument to be made you are either rich, brave, or foolish.

You’re rich: You’ve watched as real estate prices plummeted. Now signs of recovery mean it’s time to invest. If you have the spare capital, you stand to make a lot of money in this market of incredible opportunity. You can afford to gobble up the discounts and hold them for three years. It’s great to be you, and you are part of a fortunate and elite crowd.

You’re brave: You have both ends of the financing worked out, and you buy bargains to sell, for the most part, at small margins. Most likely you are forced to run a volume business. Do enough deals and you can still cash in on the current market conditions. But you are probably working yourself sick to make the same money that will take half the effort as the market improves.

You’re foolish: You know you can get bargains, so you buy them any way possible. But did you plan how you are going to get rid of them? If you’re trying to make a killing and price your resale high, your short-term financing may come due before you can resell. Quick sell it at a discount, and you may have so little margin by the time you unload you could wind up breaking even. If you get stuck holding, you still have to pay off your short-term lender. The unhappy possibilities are endless.

You could be wise. Even though there are juicy discounts out there, as the siren song of equity beckons, you could remind yourself about the resale profile of your deal in this market. It’s simple, really: don’t buy, and you don’t have to sell. You’ve waited all this time, maybe there’s wisdom in waiting just a little while longer.

The first Monday of the new month, at 6:00 PM, I got a phone call from my accountant. He had had a few drinks, and I had a little trouble understanding what he was saying.

How I Got the Deal:

My accountant knew I was a real estate investor and called me with a deal. He was trying to sell his personal residence. He had already tried to sell the house for a while, unsuccessfully.

He had title trouble. His partner had died with the house in her name, and they weren’t married. The house was in probate and there was an executor, and my accountant was going to inherit it, but that process wasn’t completed.

He had the right to sell the house, but he wanted to move out of state, and more than anything he wanted to put all of this behind him, hoping I could take care of everything.

He had run out of money, and couldn’t afford the payments on the first mortgage. I would need to make two back payments to keep the house out of default.   He also mentioned at the time there was a small second mortgage.

After a walk-through, I told him the house needed minor cosmetic repairs and that meant I would need to front fix-up costs.

Once I did the comps, I felt there was reasonable equity in the house. I could put out a couple thousand, split the profits on the sale, maybe make $10-$15K each very little effort.

It was a small margin, but because the numbers worked, and also as a favor to him, we agreed that I would step in, complete the fix-up, find a buyer, and we would split any profit 50/50 at closing. We created a trust with each of us as partial beneficiaries, both for my protection and so I could manage the marketing and sale as the owner.

I then caught up the first figuring that bought us some time to get the house cleaned up.  My accountant moved out of state.

The Fix-Up:

The house was relatively well kept because it was his personal residence, but it needed updating of kitchen fixtures and so forth, carpeting and paint.

I began repairing the house to get it ready for market.

The Snag:

About two weeks later, the first Monday of the new month, at 6:00 PM, I got a phone call from my accountant. He had had a few drinks, and I had a little trouble understanding what he was saying. He was asking me for advice, complaining about some pesky letters he keeps getting from some lawyer. Since they were jumbled in with all of the pre-foreclosure solicitations from investors, he had been ignoring them, but for some amazing reason he decided to call me that night.

I asked him to fax me the latest letter, and I was able to decipher that these were notices from the attorney for the lender on the second mortgage, and I realize they are talking about foreclosure. And in fact, the house was scheduled to go to the courthouse steps in less than 24 hours.

You would think an accountant who is trying to sell his house would be aware of a second mortgage default. My mistake was in making the assumption that this was business as usual. In the real world, he was a human being, steeped in sorrow, barely able to deal with the sale of his dead partner’s house, and his head was buried firmly in the sand.

Well, it was after business hours on Monday night, and this thing was toast. There was $38K and change owed on the second, and that was the opening bid. It had mushroomed from the “small second” we originally factored into the payoff to now include interest, penalties and attorney’s fees. Suddenly, this took a lot of margin out of the deal.

I told him the only way we could protect ourselves and get anything out of it was for one of us to go bid on the courthouse steps next day. Since he was cash poor and out of state, he was not an option. I told him that I would do it.

The Retrieval:

I felt that there was a very good chance that I would be the only person bidding on this house. Because of the small margin, it was not attractive to investors. There was always a chance some idiot may miscalculate things and start bidding the house up, but it was remote.

At the open of business the next day, I was at the lawyer’s office trying to cure the default before it ever went up for bid. They said too late.

I went to the bank and drew out a cashier’s check for $40K.

At the courthouse, I waited for the property to come up in queue. There are always a couple of people gathered around just listening, but you never know if they are there to bid against you or just curious onlookers. The foreclosure attorney came out, and opened the bid. I met the opening bid, and nobody else bid against me, but I remember a couple of bystanders looking puzzled as they watched me bid on what they saw as a lousy deal.

Sold. I now had control of the property.

The Outcome:

All at once this deal took an unexpected turn for the better. By winning the bid on the house, the title had transferred solely to me. I was now in control of the first, and the second.

Before foreclosure, my accountant was in the driver’s seat. I was not in a position of leverage, relying on our trust agreement and longstanding friendship to make sure I got my share of the deal.

This change of events rendered our trust document void. The trust no longer owned the property, my accountant no longer owned the property, I did.

It was an interesting position. Now that the title was fully in my name and my accountant had no legal interest in the property whatsoever, our longstanding friendship was the only thing supporting whatever equity share he could collect.

Was I going to stiff him?  Absolutely no way. But I did feel, and I knew he would agree, the sheer act of fronting the $40K on short notice meant strong justification for full share on my part, and that any added costs of foreclosure would be on his side.

I also had a couple of other new advantages. I no longer had to work with him on pricing the property or accepting an offer. I was free to market the property the way I wanted to. I could execute all the paperwork, never having to involve my accountant at all. From the nightmare it seemed like the day before, it had turned into a happy accident. I was now where I always prefer to be in a deal, in control with no partner.

Now confident that I would realize what I expected out of the deal, I went back and finished repairing the house.

I advertised the house for sale, and shortly after that, I had it under contract with a good buyer who was pre-qualified for $5K less than I was asking. After closing, I collected all that I was expecting out of the deal, and sent the remainder to my accountant.

The Conclusion:

You can never make an assumption, even if you’re dealing with the President of the United States or your brother. This deal seemed pretty straightforward, and I was comfortable with the risk, especially since the person I was working with was not only a friend of mine who wouldn’t intentionally rip me off, but also an accountant whose very business relies on management of financial details. I never dreamed he would let the ball drop on his own house with which he was presumably most familiar. I admit I underestimated his emotional state.

At one point there was a chance I would never see any profit, and even get hung out to dry for what I had in it. It didn’t turn out that way thanks to some fancy footwork, in fact quite the reverse. Nevertheless, lesson learned on the people side of real estate investing.