Thanks for all the hard work that goes into CRE Online. The info you provide has enabled me to change my life! I’ve been investing in real estate full time for nearly four years. I had always read about investors finding great deals on houses and selling to other investors for a quick profit (wholesale flipping), but I had never really searched out these opportunities.
Actually I’ve been doing pretty good just doing “subject-to” and lease option deals. But last week a situation fell into my lap that I couldn’t pass up. I got a call from a general contractor I know about a house he thought I should look at. He was “on the scene” estimating repairs on this run down 4-bedroom, 1-bath home for the owner.
The owner was from out of state had not seen her property in 15 years. Seems her ex-husband was living in the place and making the mortgage payments until ten months ago. He stopped making payments, moved out, and the owner had to bail the property out of foreclosure.
By the time she flew here from California, her property had not been lived in for nearly a year. My contractor friend seemed to think I should drop everything and get to the home right away as the owner was only going to be in town long enough to sell the place. I was on the scene in ten minutes.
The home was an absolute mess! Caved in porch, rotting roof, broken glass, the whole deal. Herman Munster would have been right at home. Lilly Munster would have especially loved the floor-to-ceiling spider webs (with spiders still in them).
The city had boarded the home up so a #2 square screwdriver was our “‘key” to get in. The piles of malt liquor bottles were confirmation that vagrants had been crashing there. Even though the home hadn’t been lived in for nearly a year, it might as well have been fifteen; not a thing had been done to improve it since the owner had moved out.
This home needed everything: roof, foundation, sheet rock, a complete gutting. But there was enough left of the original craftsmanship (it was built in 1900) to give the home a ton of potential. It was 1600 sq. ft. and sat on a good sized lot.
The poor owner was in tears because she had been clueless as to how run down the home had become. Fixed up, this home should have been worth about $135,000. My contractor friend was estimating repairs, only so the owner could go after her ex-husband for the damages. She had no intention of fixing the home up, and she just wanted to dump it.
After looking around I simply asked the owner how much she wanted for the home. She said she needed $25,000. I had already made up my mind that $40,000 was the most I would offer, so when she said $25,000 my heart about leapt out of my chest. I tried to play it cool, though, like $25,000 may or may not be doable.
I said I’d have to talk to my partner (true) and give her a call later that day (very risky to leave her without a signed contract, but I felt strongly that I was the only investor she was working with).
I consulted with my partner and we arranged to meet her the next day. I tried the old Ron Legrand line on her: “If we could pay you all cash within 48 hours, what is the very least you will take?” She said, “I owe about $6,500 to Washington Mutual, so I HAVE to have $25,000 to pay off some of my debt.”
Oh well, it was worth a try. We convinced her to sell for $24,000 due to some taxes and city expenses we’d have to pay. We wrote it up and set closing to occur in three days. No earnest money.
We knew we could find another investor with cash in the time frame we had, and flip it to them. But in order to get cash that fast we’d probably have to sell for less than we’d like. It just so happened that one of our lease options closed the day before we needed to pay the owner off. We had over $25,000 coming to us!
It took only a couple of hours to do our own title check and perform our due diligence. In doing so, we discovered that the city wanted the past due utility bill to be paid off before restoring power. The delinquent bill was for $2,500! Always check for stuff like that.
The owner really didn’t know about the delinquent bill. We handed her our phone and she confirmed our info with the city. So we reduced our price to her by $2,500.
We met her at Washington Mutual, so that we could pay them off. They quickly got a payoff for us, and we gave them a check. Then we gave a cashier’s check to the owner and she signed over the deed, which Washington Mutual notarized. Done!
We placed an ad in the Sunday paper that read: “Major Fixer: 4br, 1ba, 1600 sq. ft. Tons of potential. $50,000 OBO. Call xxx-xxxx”. We got about 20 calls on Sunday, and on Monday we got an offer for $45,000.
We accepted the offer but told them they’d be responsible for the $2,500 utility bill. They agreed and gave us $10,000 earnest money with the balance of $35,000 due in 30 days.
So in less than a week, we grossed $23,500 on a $21,500 investment and, although we did use our own money, we could have used another investor’s money. We may not have sold for as high as we did, but we still would have done well.
And as for my contractor friend that called me about the home? He’ll be getting a nice check in the mail for the referral. And you better believe I’ll be networking with other area contractors after this? On to the next deal!