Mr. Spock Would Say That Emotional Investing Is Not Logical

[It’s Mr. Nickels at the keyboard today.  I may not write much, but when I do, I usually have something to say.]

The final tactic we used to get the price of the laundromat down to our purchase price of $105,000 actually started early last year.   In pursuit of that earlier investment, we developed a mindset that allowed us to negotiate from a position of power, by removing emotions from the equation.   Not only did we learn to project a ‘take-it-or-leave-it’ attitude, we actually believed it.

Because, as Spock would probably say, emotions are irrelevant.

Lets go back…..

We had a large chunk of money in investments and thought it would be smart to diversify and move some of that money into investments we had more control over.

Our first strategy was to try to get into the real estate rental market. We had a friend that was a retired real estate agent, so we reached out to her to find an agent to help us find the right property. Laura reached out to the agent and told him what we were looking for.

We wanted a distressed property in a middle class neighborhood that could give us nice returns. I also wanted the area to be decent enough that I didn’t feel like I needed to pack heat to go fix a toilet. We had a few houses that we wanted to look at, about 10 miles north of us.  A few days later we met up with the agent and went through the houses on our list.

On that first outing, all of the properties were more distressed than we were comfortable with.  Hmmm.

Where, Oh Where is Our Realtor?

A week passed and we hadn’t heard a thing from our realtor.  To say that he wasn’t helpful is an understatement.  But we had found a few more houses on our own that we wanted to look at so we called him again to set up a time to see them. On this trip out, we finally found the one we wanted to make an offer on. It was a duplex with a two bedroom-one bath in the front and a one bedroom-one bath in the rear. It was distressed, but nothing that we weren’t comfortable with.

When we went to look at the back unit, the gate to get in was locked. He couldn’t find the combination and I had to climb the rickety fence to get into the unit.  Laura refused to climb over, so we relied on my observations and pictures to evaluate it.

While looking at the property, our realtor gets a phone call and tells us he needs to leave. He tells us to lock up when we’re done. (Yeah, we thought it was strange too. And probably not legal. Whatever.) We decided to make an offer. We called up the agent, and he sent over the fact sheet with the property details.  (Remember that locked gate? Yeah, the combination was right there on the fact sheet the realtor had the whole time. No comment.)

The asking price was $97,000. We made an offer of $91,000 and crossed our fingers.

Our Realtor Sucks!

We found out that our realtor didn’t submit our offer for two days.  When he called us back, he let us know there was now an investment group from the bay area that was interested in the property too. (Of course there is.) We were asked to submit our best and final offer. The investment group made their offer sight unseen.

Unfortunately, or fortunately, we lost out on that property. We did find out later that our offer was technically higher than the accepted offer, but we wanted help with closing costs, and we can only assume they went with the deeper pockets.

When our realtor called with the bad news, he apologized for not being more active and attentive with us. He admitted he didn’t take us seriously until he realized we were actually going to make an offer.  (No, we will not be using his services again.)

In the end, I admit we were disappointed, but we knew if it was the right thing for us, it would have happened. There was no emotion involved.  We weren’t going to pay more than it was worth.  This was a totally different attitude than we’ve had in the past.

On to the Land of Laundry

We were moving on to better things….and along came the laundromat in our neighborhood. Early last year, the price was at $150,000. By the time we came into the picture, the price had dropped to $129,500. Our initial offer was for $119,500. Our offer was accepted and we moved into the due diligence stage of the purchase.

The Key to Negotiations…Research, Research, and More Research…and the Right Attitude

When negotiating, the more you know, the better your position. I’ve said it before, Laura is an information sponge. When she is interested in a subject, she will research it until she knows everything about it inside out. So why did we drop our offer to $105,000?  Laura noticed a sudden drop in the rent for 2014, but couldn’t determine why. It was actually the landlord that answered our question. He sent the seller an email and we were copied.

In the email, the landlord said that the seller would have to catch up on his back rent and late charges, as he hadn’t been paying his full rent for most of the year. Wait, what? Not paying his full rent? This was a little slippery on the sellers part, and it had quite an impact on our cash flow calculations.  (In other words, the annual net profit dropped, which means the value of the business went down too.)

I called our broker and sent the seller an email asking for an explanation. That happened on a Thursday, and we had plans to be away that weekend. (After months of nothing but laundry on the brain, we needed a mental break.) But now with the recent news, it wasn’t much of a mental break after all.

Anger Management

By that Sunday, we hadn’t received any response, and we were very angry about the whole situation (let’s face it, I was pissed!). We really thought this was the end of this journey. On Sunday afternoon, we went to a local coffee shop to relax before our drive home. I broke out my laptop and wrote a lengthy email to the broker.

Some key points I brought up besides the latest slipperiness (is that a word?):

We thought the laundromat had a lot of potential, but we would not pay for potential.

The current lease was above market rates. We had negotiated the renewal back down to market rates, but we still had to assume the stinky current lease and ride it out for three years.

In the industry there is a calculation for determining value. I presented our revised calculation, and made our final offer of $105,000. Take it or leave it.

And most importantly, we were not emotionally attached to being business owners. If this fell through, we would find another investment.

That attitude/thought process we had in the end was huge. We really were at peace with it and kept our emotions out of it. If it happened, great! If not, something better would come along. We were both totally prepared to walk away. Without that attitude, if we had let emotion creep in, we would have paid way too much and possibly struggled because of it.

We didn’t get a response until that Monday night, but our final offer was accepted.

Keep Calm and Use Your Head

As I write this, we are almost a month in, and all the numbers are right in line with our projections. It makes me think back to when we were deep in debt. Most of our spending was done with emotion and not logical thought. We have come a long way since then in how we view our purchases.  And we couldn’t be happier.

 

“Insufficient facts always invite danger.” –  Spock

Star Trek: The Original Series, “Space Seed”