Walked away in due diligence and it still cost me $18,400

I want the boring thing that works, and a conversion is not that, but a small one came across my desk and I looked at it seriously for about ten weeks. Single story former bank branch, 4,400 sf, drive-through canopy, in a first-ring suburb. Asking $295k. Idea was three units plus keeping the vault as a weird storage amenity, which everyone I mentioned it to loved, which should have been a warning.

I did not buy it. I killed it in week ten because the sewer lateral was 4 inch and the city wanted 6 inch for three dwelling units, and the connection ran under the drive-through pavement and out to a main across a county road. The utility contractor's number for that was $61k to $80k with a bore, and the county road permit was its own timeline nobody could give me.

So I walked. Correct decision, I think. Here is what walking cost:

Earnest money, $5,000, of which I got $2,500 back because my contingency had lapsed by three days on the extension and the seller was not feeling generous. Architect for a feasibility set and code review, $7,400. Utility contractor site visit and camera scope, $2,200. Phase one environmental, $2,900, which I ordered because it's a bank with a canopy and I wanted to know about the old fuel tank rumor (there was no tank). Survey, $1,600. Plus about $1,800 in fees and mileage and a title search I asked for early.

$18,400 to learn no. On a deal I never owned.

I'm not sorry I spent it. I'd have spent $61k on a sewer otherwise, and that number would have arrived after closing. What I'd do differently is order the utility scope in week one instead of week six. It was the cheapest test at $2,200 and it was the one that killed the deal. I ran the architect first because that felt like the real work, and the architect's set assumed the plumbing connection worked. And I'd watch my contingency dates like a hawk, because three days cost me $2,500.

7 replies

3kevin_lombardPG1BPRO5

Wait, eighteen thousand dollars on a building you never bought? That is new to me. Is that normal for conversions or is that a lot?

1samantha_ruizAU4APRO6

@juniper it's normal and it's the part that stops most people from doing more than one. On a straight rental you spend $600 on an inspection and an appraisal. On a conversion you're buying answers from four or five professionals before you know if there's a deal, and most of the time there isn't. A few deals in I budget a kill fee per building I look at seriously, and I only get serious about buildings where I can imagine paying it.

The order-of-tests point is the real content here. Cheapest test that can kill the deal goes first. Always.

-1stephen_ok9CO2CPRO6

$2,200 to kill it versus $7,400 spent first on drawings that assumed the answer. That sequencing is going straight into my notes even though I'm on the capital side and would be writing checks rather than running this.

3hannah_west29 Get yours

Ten weeks and $18,400 works out to roughly 6% of the $295k ask. If you look at ten of these and buy one, your acquisition cost on the one you buy carries $184k of dead diligence, which is 62% of the purchase price. That math either means you have to get much faster at killing them or you have to be much more selective about which ones you get serious about.

@verity what was your kill rate before this one? Curious whether ten weeks is your normal or whether this one dragged.

1jordan_ellis2ActivePRO6

@ledger that number is brutal but I don't think it's right to load all ten kills onto the one buy unless you're doing exactly ten. Some of the kills cost $400 because you find the answer in the zoning map in an afternoon. This one was expensive because it got to week ten.

1aliyah_bAU2APRO6

The three days on the contingency extension is the cheapest lesson in the post and the one I'm most likely to repeat. I've already had a date slip on me on a plain house purchase. Do people set calendar alarms for these or is there a better system?

1omar_haddadActivePRO11

@tally alarms at seven days, three days, and the morning of. And you send the extension request in writing the moment you know you'll need it, not the day before it expires.

@verity the vault-as-amenity thing making everyone happy is exactly the tell you called it. Every renovation I've regretted had one feature that was fun to talk about. It buys you nothing on rent and it eats a week of drawing time.

Walked away in due diligence and it still cost me $18,400

7 replies