My wife and I were married in the late 1970s and have moved locally a couple of times since then. Each time we sold our present home, we always seemed to come out very well financially. So I figured that if we could make money on real estate without even trying, we might be able to make some extra income investing in property that was not our primary residence.
When the interest rates dropped, we refinanced our home and took out a home equity loan for the equity that had accumulated over the years. That was about $100,000, but the lending institution only gave us $94,500 line of credit.
After we got our line of credit set up, we began looking for a house to buy. I found a house advertised by a Realtor in the local paper that indicated a motivated seller. The picture and description of the house looked interesting, so we set up an appointment to see it.
The house was a beautiful older home built in 1910, but was in very good shape, was very charming, and was in a nice neighborhood. The Realtor told me that the current owner had moved to another town for work reasons about a year earlier.
She told me that the house had previously been on the market with another Realtor and was priced at $139,000. The owner had dropped the price to $129,500 after changing Realtors. I decided to make an offer of $85,000 and told her that I hoped the homeowners would not be offended at that offer, but that I was buying the house for investment purposes.
To my surprise, the Realtor called me back with a counter offer of $115,000. I told the her that my final offer was $92,000 cash (practically all I had available with my line of credit), and that I was prepared to close in a week (My brother-in-law is a lawyer). Again to my surprise, the owner accepted my offer, and in about a week we closed.
We immediately placed the house back on the market for $129,000. I sold the house in about six weeks on a one-year land contract deal. The buyer would pay $5,000 down and make monthly payments based on a 30-year amortization at 5% interest. At the end of the year, she would owe me the balance in full.
The monthly payments were about $250 more than my line of credit payments, so I am well covered, and she pays the taxes and insurance for the house. We will end up making around $35K before taxes after all is said and done. We still have about eight months until we are paid in full.
When we are paid, I will pay off my line of credit and begin the process of looking for another house to buy. It may or may not be as good of a deal the next time, but we proved to ourselves that it can be done.
A couple of things I learned were::
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Never assume that an owner will not accept an offer substantially below market value
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Offering cash and a quick closing really helps in getting a good deal.