Dave Knudson, Gravity Capital, talking about the Deal of the Day. Keep this in mind as potential lenders and or brokers that borrower do and often will lie. Keep in mind that the people we are lending to are people that can’t go to a bank, and they don’t go to a bank typically a few reasons. One is the might have some credit issues, they may have some income issues, or they may fib.
Today we’re talking about a property in Lake Geneva Wisconsin, he had four lots valued at 60,000 a piece, and he paid 50,000 a piece, again if the borrower paid 50,000 piece per lot, we can verify that, that gives us a little bit of an idea of what this maybe worth.
We also talked to some brokers in town who seemed to think that these lots may not be worth that much, maybe from 30 to 40,000 thousand. We were given a value of 120k to 160k. Now the clencher is he also said he had 24 town home lots and he paid 750k for these.
As part of our deal, we always like to verify that he actually bought these for what he is talking about, it just gives us an idea of how much he is into the property, we still need to check out values.
On these it would have been the end of this thing if he was right 950k. So he flew me out there, I looked at the property, they were interesting. One thing you got to also be very aware, if this is in an area where there’s a home association, which this was, you may have condo fees, he did.
He told me, “Number one, no condo fees until a building was constructed. Two, I paid 750k for this. Three, I paid 200k for this.” He told me all those three, he flew me out there, I believed him, but then we checked them all out.
So, I called the actual previous owners of the lots because he wouldn’t ever give a closing statement. He paid about 2 to 5k for every piece, he’s only into these things maybe 20 at the most. This one, home owner fees were $254 per lot. So if we would have lend on this, we would have had to take them back, we would have had about 70+ condo fees we would have to pay every month, that’s a big dent right? Condo fees.
So, by the time the whole deal was done he only wanted a 350,000. So at the end of the day, he didn’t have any money in this. I think he only paid around 90k for this. Condo fees, he said there are no fees and ended up being 7,000 a month, which is a deal killer in itself. And he wanted 350k. We turned this one down, but we spent a lot of time on it.
Again, just never trust what a borrower says, you can check everything out, and once you check it out and verify, then you can move ahead. Deal of the day: Borrowers lie.
Find more of Dave’s videos here.