Always do Your Work on the Front End of the Deal

There is nothing like closing on a parcel of land for development and finding after you close that:

1. The city is going to require you to provide a new 8″ water main to your property at a cost of $18,000.00.

2. Or the sewer cannot reach you-you are going to have to go septic, but your soil won’t percolate.

3. Or the city just changed their flood maps and you have to fill 2 feet on 5 acres.

4. Or a “no growth” city commission has just declared a moratorium on building permits.

These are just a few of the situations that have happened to people I have known after they closed. These situations could have been ascertained before closing with a little work and due diligence. When I was teaching, I told my attendees that the only thing they could not find out about a property was when the next earthquake would come.

I have known people to build a strip center without checking the competition, the population, and/or the traffic count. And then they have spent years trying to make it feasible. This is called doing your work “on the back end of the deal” instead of the front end.

Once I suggested to one of my clients that he should contact my fellow S.E.C. member, Charles Sutherland, and hire him to do a market study on a piece of land for a mini storage system. The price of the study was $5,000.00. When the report was finished, it indicated the project was not feasible for a number of reasons, and they were all specified in the report. Instead of the client being pleased at not having made a bad deal, he was very upset. It was apparent he was not looking for real counsel. What he really wanted was support for something he had already decided to do. I don’t know whether he took the advice or not; but if he did not, doing the work on the back end is probably costing him $10,000.00 to $15,000.00 a month.

We all know people who spend years trying to “save” a property from mistakes they should have found early.

Below are a few things that could make your future a little easier if you remember:

1. There is no deal you must have-he who cares least wins-be very selective.

2. It is better to walk away from a deal, even losing your front-end money, than it is to live with the consequences of a bad deal.

3. Never close on a tract of land until the building permits have been issued.

4. When assembling building costs never assume anything-use and rely upon only signed bids.

5. When you have all of the facts before you, making decisions will not be difficult. Don’t make any decisions before you have all the facts.

6. Do not try to put a square peg in a round hole. If things do not fit, don’t force the issue; another opportunity will present itself soon.

7. On zoning deals, always see the neighbors first before petitions are filed.


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