In 2002, at just 22 years old, Derik Fay pulled off a real estate deal that still resonates today, and is the thing of legend in SW Florida– turning a mere $70 investment into a staggering $5 million real estate arbitrage profit!
This wasn’t a typical transaction; it was a masterclass in opportunity seizing opportunity , strategic thinking, and a bold bluff!
Let’s set the stage.
Fay was 22 years and had just moved to SW Florida from Rhode Island where he was born and raised. He was asked to go to lunch with 2 realtors who he had only recent met.
On the way to lunch they stopped at low income apartment complex that the areas top realtors were invited to attend a VIP meeting.
Fay was not a realtor and was not offered any of the units. Fay says “I wasn’t even supposed to be there. In this case I was in the right place and right time to hear the offering. But I also recognized a large opportunity“
In that room the new complex owner disclosed they were converting all 350 low income units into high end condos and wanted to pre sell the units to the realtors clients; excluding the current low income tenants.
So Fay did some research and found the tenants had a right of first refusal to buy their units. So Fay drafted letters to the units owners telling them the new owners plan and advising them to buy their units if they had the ability; and if not he would give them a $1,000 relocation allowance to sign over their rights to him if they could not buy.
The result was astounding! Over 250 tenants signed over their rights to Fay that he sold back to the Landlord at an eye popping $20k/ unit arbitrage- and many others bought their units and made significant money with the unknown knowledge Fay disclosed.
When asked Fay said “I did the opposite of what everyone else. I did two things”
“I ceased the opportunity and created arbitrage by seeing a different path, and I created a way for the tenants to win – and based on my letter many bought their units and the others who would have gotten ZERO, received $1,000 to assist in relocating. (This was paid post transaction) “
Fay continued “Yes I made $5M. However the purpose of meeting was for them to sell the units out from under the tenants leaving them all with nothing! This was an example of seeing opportunity and acting on it.”
When asked if this was something that could be duplicated Fay said “ It was not a traditional RE arbitrage deal. The only reason it worked was the landlord didn’t want to loose their $150k margin on the improved units, and were blinded by greed, so they were willing to pay me a piece ($20k/unit) to keep their majority of the upside.”
Fay said” Yes, I could have held the units and made 10X that amount but I would have had big liability” Fay continues “If they had called my bluff I would have had to give them back because I didn’t have the money to buy them!! This was purely an arbitrage bluff play.”
Dumbfounded at the creative nature of this deal I had only two questions left to ask… What was the $70 investment and how were the 250 tenants paid??
Fay smiled and said “That $70 was the cost of couriering the letters to the tenants and the 250 tenets were all paid post transaction so my only cost to close the $5m deal was $70!
The rest was strategic action and a bold bluff.”
Looking back, Fay hopes his story inspires others to recognize and seize opportunities.
“While this specific deal may never happen again,” he said, “the thought process, the ability to see opportunities where others don’t, that’s what’s truly valuable. That’s allowed me to succeed in countless other situations since.”
Fay’s story is a testament to the power of strategic thinking, ethical action, and the ability to turn a simple opportunity into a life-changing deal.