The project that got involved or how to learn from the challenges
# Entrepreneur of the Week Eyal Hasson # Post 3
Michael Jordan, the best basketball player in history,
"I have failed again and again and again in my life and that is why I have succeeded"
"Only when I realized how to lose did I start winning"
I guess most of us in the group, in one way or another, had Schwala deals, we would have given them up if we knew why we went in, that they took out the juice, that made us pluck the hairs (for those who were left with a few ..).
Welcome to the gray world that is not talked about much, the great difficulties of real estate transactions what to do - do not progress according to our beautiful excels and plans.
Barcelona, November 2018 ?? - We are in the throes of improvement deals in hot Barcelona, receiving from our team in the field a buying opportunity for a property located right behind the Sagrada Familia church. Good area, a property with potential to sell at a price significantly higher than the purchase price (in hindsight... not really), reasonable renovation - not one we haven't already done (ummm...), structural and legal inspections that go well (spoiler - not really...), an experienced contractor we've already worked with Quite a few, a local supervisor and foreman, and... Axel who looks great.
Go to the bank, get a good loan at a comfortable interest rate quite easily, recruit 3 investors pretty quickly - everything is progressing excellently. The property passes to us at the notary.
Then - the renovation begins.
At first the whole interior is demolished, and then some unplanned things float: termite-infested walls, inadequate planning of the apartment air conditioning. Unpleasant - not terrible.
Time passes, and we feel that the contractor is progressing quite slowly in relation to what we expected and got used to, talking to the foreman and he stutters a bit about all sorts of misunderstandings about the budget for the renovation.
It should be understood that our agreements always included the possibility of exceeding up to 10% of the budget set and agreed with the contractor and we knew it was at the end of the budget To renovation of an existing structure.
This time - the deviation requested by the contractor significantly exceeds the budget by 10%.
We board a flight, arrive in Barcelona, meet with the contractor, and then a whole saga begins about changes that need to be made in the budget because she did not know it, did not receive information about it from the architect, etc ...
Bottom line - time passes, work progresses lazily, we realized that either we will agree to a budget that has increased significantly or it will not run out and in the meantime time passes.
After close to 10 months (instead of 5 months), the renovation is complete, we are already with a budget overrun that makes the sale critical, go to market at the planned price and..no offers. Talk to the realtors, check what needs to be done and the answer - wait, there will be a buyer, the apartment is good. matter of time.
And what do you think? It did not happen .. After 3 months that the property is for sale and there are no offers, we make a decision to offer investors to come out now with a 10% return (instead of 13% according to the plan) so that we can deal with the results alone - and so it was. Investors agreed - fortunately…
We realized that something had to be done - even though we were not recommended, we decided to furnish the house (staging in the flip flops) at an additional cost and this is what ultimately, after another 4 long months, brought the Italian investor who closed with us at a lower price (of course). Which brought us more or less into balance.
We said to ourselves - okay, we may not have made a profit, but after the long saga, the main thing we sold. Sign a memorandum of things (this is how it is in Spain, there are some stages until closing that must be passed) and feel that it is behind us.
really?? We were optimistic - the date: February 17, 2020. known to all? Two days later there is a football match in Italy that ignites the corona all over Europe.
The buyer begins to hesitate, the mysterious virus begins to paralyze Europe, the real estate market and Spain in particular, however, he is persuaded to move forward and we pray it will be over already.
3 days before the formal closing date at the notary, we check with our lawyer that everything is ready for signing, and then it turns out that her "small" bureaucratic mistake resulted in the municipality not approving the renovation.
The seller - who was probably just waiting for the opportunity - cancels the deal on this basis.
And we - who have already seen the deal rise, fall, once again to revive, are already beginning to complete that we need to start over with the sale.
And finally, one last twist: the creative solution was found that allowed the approval to be obtained within two days and the deal is finally signed, we get the money, return the balance of the loan to the bank and are left with a small loss.
So what did we have here?
From project to project, all the risks that are written for us in the improvement book have happened and even more - the extension of the renovation⏰, an unplanned increase in the renovation budget?, a lower sales price than predicted, an elusive virus that got in the middle, a bureaucratic error that almost killed the deal.
Luckily, we were able to get the investors out with a return and we ended up bearing the results alone - a point that is very important to us.
It was the most instructive project I have had in recent years - precisely because of dealing with the difficulties and the need to constantly find solutions, you understand that there are tools to deal with any situation, of course learning to get the prices on the way, because not everything is under our control. But at the end of the day - do we have anything safer? Is the salary safe? Is the pension guaranteed?
To achieve high returns one needs to increase risks and exposure. And the main thing - always ask yourself in every transaction do you know how to face the challenges? Do you have the determination and the means to do so?
And another Michael Jordan sentence to conclude:
"I can fail, everyone fails at something, but I'm not willing to try."
In the photos - the apartment before and after the renovation and also the insight that in this project we walked a tightrope throughout...??
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