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$32,000 Profit on a Pre-Foreclosure

by Jason B., Highland, CA   

Hello! I wanted to briefly share my first experience with you in an effort to inspire others, as I have been inspired by this wonderful website!

I started following the CRE Online website about a year ago. My ears were now open... I was passively searching for motivated sellers. Well, when the opportunity arose approximately 9 months ago to purchase a 3 bedroom, 2 bath house for about 40% under market value, I whipped out my pencil and calculator and went to work!

The sellers were in bankruptcy and just about ready to be foreclosed on when I stepped in. I offered to pay their entire principal balance ($67,000), closing costs, late fees, and anything else necessary, so that they would not have any out-of-pocket expenses... they could just sign some papers and walk away from their house... simple.

I initially thought they might get greedy and try to negotiate with me. Well, believe it or not, they were delighted to hear my offer! They knew that they had some equity in the property but were willing to give it up just to have their financial hassles taken care of.

When the purchase was all said and done, I ended up paying about $4,000 in total closing costs (I had them "pay" for most of my closing costs by raising the purchase price 3%, and counting that amount toward closing costs.) The official purchase price of the property was $81,500.

Within a month after taking possession, I had the property in tip-top shape. I did most of the work myself in an effort to save some money. (Not going to do that again!) Expenses included items such as new carpet, paint, shower, flooring, light fixtures, wall outlets, ceiling fans, doorknobs, grass seed, flowers, cleaning supplies, etc.

Anything I did, I thought about the return for my money, e.g., is this $80 light fixture going to add AT LEAST $80 to the value of the property? So, keeping the expenses to a minimum, adding only the items that were necessary for awesome curb appeal and an excellent first impressions, I had spent about $7,500 in total clean-up costs, upgrades, etc.

In an effort to get a quick sale, I went with a fancy, highly-recommended, highly-advertised real estate agent working for Century something-or-other. Total waste of 90 days. Only one offer. Didn't work out.

I marketed the property myself and had about 5 buyers on the line within two weeks, and a full-priced offer in writing by the end of the third week after my contract with the agent expired. After going through an unnecessarily long escrow (buyer had financial issues), I sold the house for $135,000 almost exactly 7 months after I took possession.

The check from escrow I received was for about $52,000 (after closing costs, buyer's agent commission, etc.). Subtracting my $7,500 in expenses plus the roof (negotiated as part of the sale) at $2,500, and paying myself back my initial investment of about $10,000, I netted out about $32,000, sans capital gains taxes, which are pending after my accountant takes a look at this...

Bottom line: $10,000 investment nets $32,000 profit in 7 months!

Lessons learned...

1) Read more and heed the advice of Mr. Bronchick and others to try and obtain properties for less money down.

2) Hire other people to do the grunt work for me, so that I can free up some time to find more opportunities.

3) Do not use a real estate agent to sell my house.

Well, I hope that this brief summary of what happened over the past year helps some of you out there who are contemplating making the plunge into the wonderful world of real estate. I was inspired by this website and the sincere people who offer their advice. I jumped in and was successful. If I can do it, I know you can too! Good luck!

 
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