This is my latest success story. I hope it motivates you. This story will be unbelievable to some, unlikely to others, and “I wish I found that one” to those who know it can happen.
I had noticed the week before that a large number of buildings had come on the market from one single owner. Some of theses properties were very nice and fit our investment criteria. I called to arrange for a viewing. Our agent told me we could not view the properties for at least two more weeks.
As it turned out the owner was a doctor from California. He had had a stroke and his estate was now in the care of family members. As it became more apparent that the doctor was not going to recover, the family decided that the properties in Canada would be sold. After all, where was Saint John, New Brunswick anyway?
In addition, the relationship between the property manager and the family was falling apart. They quickly decided to replace him before the sale with another local firm. The real reason for the delayed viewing? The new management company could not get any of the keys to the properties from the former manager.
A killer deal in the making
I immediately recognized an opportunity that resembled something you would read about on here on CRE Online. I saw a seller who could turn out to be one of the most flexible ever, and I told my new partner about the deal. He was nervous, but he trusted my instinct on all things real estate and decided to see what would come of it. Some day, I”ll find out what he really thought. (Right, Bill?)
There were nine buildings in all, totaling forty-eight units. Most of the buildings had buyers waiting to be let in. The listed price, in order to sell quickly, was set by the family at the assessed value of $1,100,000. We did not have $1.1 million, but we knew if we were to get the sellers attention we needed to act fast!
I still had not seen most of the properties from the inside, but I spent some time knocking on doors and asking the tenants if they could show me around. Many did. I told my real estate broker to present an offer on all of them, and I showed him three possible scenarios under which we would be willing to buy all nine properties.
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All cash purchase price of $800,000
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$950,000 purchase price with the vendor holding financing with $50,000 down
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$1.1 Million with 100% Financing
My agent looked at me and said, “Mike, I admire your ambition, but do you really want these people to take you seriously?” After a moment of silence, I quieted my rage and said, “Fine, what would you do?” He told me to offer $950,000 all cash and wait for a counter offer. After a minute, I said, ” Well this is what I want you to do.”
I wrote the offer for $800,000 subject to me assuming all financing. I added that their agent would have to agree to hold most of his commission in the form of a note, interest free for up to sixty days after closing or I would find another agent. The next day, the counter offer came back: $850,000!
My agent admitted he was amazed and said, “If I thought they would have accepted one of those offers, I would have offered myself.” I still use this fellow, but that”s another story.
Motivated sellers are always willing to negotiate
After a little back and forth, the price was set at $830,000. I still had not seen all of the units, and the seller had no way of knowing I had seen as much as I did. So after two weeks of back and forth, key milestones came and went, and I hinted we would walk. The family representative requested permission to contact me directly. I agreed despite the protests of the agents. He asked me what we had to do to make this deal happen. I had plenty of suggestions.
Because we were dealing cross border, A percentage of all money netted at the end of a transaction must be kept in a lawyer’s trust fund in order to pay any taxes the government is owed from the out-of-the country vendor. This made it in the best interest of the seller to try to “zero out” of the deal to avoid taking money out of pocket to cover closing costs.
The purchase price was backed up to $800,000. We would pay all lawyer fees, property taxes, water and sewage arrears, broker fees etc. All of which was to come off the purchase price. In the end, the purchase price was rolled back to $595,000–the value of all outstanding mortgages. All were held privately for cross-border regulations, which we assumed. This cost us a $5,000 assumption fee, of which the vendor paid half.
Never be afraid to ask
The only way the deal could go forward was if all mortgage holders agreed to allow us to assume the financing while we put traditional financing in place, which they did. Of the remaining $205,000, almost $30,000 was in late water and sewage fees, which I was able to convince the water department to wait for until we refinanced.
The agent held a note, the lawyer held a note for both parts of double ended closing, the broker held our portion of his fee as a note. In the end we only put out approximately $75,000 of our own money–but not for long. Doing very little more than basic maintenance, we had new appraisals of $1,392,000 within 14 days! In less than 45 days after that, we had refinanced all buildings 75% LTV (loan to value).
We put all of our money back in our pockets, paid all the existing mortgages, paid all outstanding debt and notes including all the new lawyer fees from the refinance and walked away with $230,000 In CASH, $340,000 in EQUITY, and $24,000 per month cash flow!
We have since used that money to buy four more properties, and after ten months of our purchase-rehab-refinance method we now hold properties worth $2.1 million, one of which was purchased for $12,000 and appraised “as if complete” at $200,000. But that”s another story?
Good Luck to all the Canadian real estate investors who think this stuff only works for our friends in the US. The only thing really holding you back is fear. Get out there and do it. Thanks CRE Online!