A big part of an effective plan for a real estate project is understanding what “could” happen, no matter how different it may be from what you want or expect to happen. Quite often, it is not only first time investors that go into an opportunity with blinders on. The below linked article details a San Francisco Bay Area apartment project which seemed way too optimistic from the start. The result was a sale of the property for a loss of over $50 million. There were signs ahead of time that there would be debt. As valuable as land in the Bay Area is, this situation should serve as a reminder to consider potential consequences from a large property purchase.
Before losing significant millions, the previous buyer saw increased rents and the revenue potential being more prominent than the potential for major debt. We can all understand that. It is easy to see how the initial owner could market the income potential when they decided to sell. Being prepared for what could happen should be part of the initial plan, even if not part of the planned exit strategy. It is likely that the problems leading to the substantial debt were foreseeable. We don’t know how long they festered until the sale for such a big loss was made.
There are lessons to be learned from this happening no matter where you are located. It would also be interesting to monitor the progress of the subject property moving forward. If the new buyer can make a go of it, they will have quite a success story on their hands. There might be some elements that other investors could attempt to duplicate. Many of my readers are probably thinking that “It takes too much time to monitor a San Francisco area property over the coming months”. My response is how doing to could lead to bigger opportunities, which would all be possible because “someone else” lost millions.
Doing research is a lot more than running the numbers on a single opportunity. There are millions of reasons to have a research person or team on your side.