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Unrealistic Investor Expectations – Adam Cohen Today

Unrealistic Investor Expectations

Unrealistic Investor Expectations

Having spent over two decades in the real estate industry it’s safe to say there is very little I have yet to see; however, each passing day presents an entirely new set of obstacles that make an otherwise simple transaction into a complex labyrinth of deal related handicaps requiring a unique skill set to overcome.

There is no text book of life to navigate through transactional hurdles but almost without exception I find unrealistic investor expectations to be the number one cause of transactional fatalities.  As President & CEO of Saxon Spencer Capital I get to see hundreds of real estate transactions every week that require “special attention”.  Naturally my team cannot accept every deal; based on available information we select the opportunities that the Saxon Spencer Capital team believe have the highest likelihood of success.  If only life were that simple.

I always explain to potential new clients the importance of honesty and yet more than 90% of clients withhold essential, pertinent information that in many cases cause a good deal to fall apart.  So many real estate investors over value their properties based on erroneous information from overly enthusiastic realtors desperate for an exclusive listing or miscalculate outstanding obligations often not taking into consideration prepayment penalties from other lenders, default interest, real estate taxes, closing costs, loan fees, etc.  Many clients neglect to mention pending foreclosures, foreclosure sales, outstanding bankruptcies, outstanding judgements, a second mortgage or lien and a plethora of other information.

Other hot topics new Clients like to misrepresent are sources of capital, current liquidity, availability of additional funds to complete a purchase or renovation, funds invested to date, status of permits, personal financials, property income and expenses, personal qualification and credit.

Would be borrowers are constantly beguiled by false advertising.  The internet is rife with thousands of lenders and mortgage brokers advertising loan programs from one end of the spectrum to the other.  If you take just about any word, add “Capital” after it and then search that name on Google, you will find a lender or broker of that same name online.  Legitimately there are thousands of companies competing to get your business many of whom will make false representations to secure your deal thus setting a benchmark for unrealistic borrowing expectations.

In conclusion, my advice to the new investor, any potential borrower and to the real estate world is as follows; real estate investing can be confusing, even to the professionals.  Every transaction comes with a unique set of hurdles to overcome.  When contemplating any kind of real estate loan be sure to perform significant due diligence on every relevant factor such as personal credit, financial sources and obligations, time versus cost and exit strategy before engaging with any lender or loan broker.  Real estate investors need to have realistic expectations as to market facts pertaining to before and after asset value, debt coverage and to do their homework on real lending platforms.  The best advice I can offer, a loan closes when both lender and borrower completely understand each other’s needs and the needs of a potential transaction.  Withholding valuable information is the weapon of mass destruction when it comes to closing just about any real estate loan.