Idea Network

May/June 2000

One Mistake Iíll Never Make Again

By Alan Breznick

Michael Schaul learned more about undoable real estate deals from an old mansion in East Orange, N.J., than he did from 100 other houses put together.

Schaul, a 57-year-old cash-flow broker in Raleigh, N.C., who owns KG Funding, made the mistake in June 1995 of getting deeply involved with a century-old mansion built by the Vanderbilts. The house had fallen on hard times and its former owners, after financing the propertyís sale to a New Jersey community group, now wanted to sell the mortgage. Enchanted by the mansionís history, Schaul quickly agreed to take on the project without checking out all the financial details. The retired IBM software engineer also got emotionally involved because the sellers were Israeli, like his wife. He spent much of the summer and early fall researching the mansion and pitching the property to a large mortgage and securities firm and other possible buyers, all to no avail.

Much too late, Schaul discovered that no company would touch the mortgage. The mansionís new owner was paying too little to cover the loanís monthly interest costs; there was no one person to stand behind the mortgage; and no financial firm wanted the political risk of having to foreclose on a community group if it couldnít meet its payments.

"Every one of those things was a potential deal-killer," says Schaul. All three combined made the deal impossible. Schaul now knows what questions to ask early in the process. And heís learned to keep his emotions in check.


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