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$40,000 Equity for a Couple of Days' Work

by Joe Spencer   

I have read every one of the success stories posted on this site and most of the discussion threads. I thought I should give back by sharing a success with you. I have been investing in real estate for about four years part time. I have focused on duplexes up to six-plexes. I have had great experiences with them and made a GREAT return on my money.

I had been doing it the old fashioned way. Nothing too creative, but still very worthwhile:

  1. Get a good price

  2. Put 20% down

  3. Get a new loan

  4. Repair the place

  5. Raise rents

  6. Flip in a year or two

I have wanted to get into single family homes, but they just don't have the bang for the buck that multi-units do--or so I thought. I sent out a first mailing of letters to people with a Notice of Default on May 21st and decided to drop in on a couple of the people. I found several people who might be interested, if I follow up over the next few weeks.

I had time for just one more stop before an appointment. I asked if the owners might be interested in selling, stumbling through my dialog. They said "yes." I asked them how many months until the sale, and they said the second was foreclosing in a few months, but that the first would be selling before that--May 28th, 9:00a.m.

That that only gave me two business days to stall the foreclosure sale and get my purchase done. I got up the next morning (May 23) at 2:30, so I could do the research needed before the next business day started.

I did a rough simulated appraisal on the property and found it was worth at least $145,000. I checked the county records and found $105,000 ($80,000 first and $25,000 second) in liens. By 7:00am, I was talking with the second (in a different time zone).

I worked until 7:00pm that night, hoping to bring the property current and buy subject to the existing financing. By the next morning (May 24th--sale is one business day away), I had decided I could not do it without a new mortgage (old financing stunk and would require $25,000 in arrearages).

I started the process for a new mortgage and went in circles with the sellers' mortgage companies for the rest of the day. With ten minutes to spare before the deadline, I got the sale postponed.

For my trouble, I have a property that I bought "subject to existing financing" and will fund with my new mortgage at the end of June. I have renters lined up for July 1st, and they will set up a contingency fund with three months' rent up front.

I know, several of you will say that I could have bought the first, foreclosed it in a quiet sale, and wiped out the $25,000 second. The second had not requested notice from the first. However, I committed to the sellers that I would try to keep the property from going into foreclosure, and I needed to keep my word.

Besides, $40,000 equity for a couple days of work is not too bad, and the property will cash flow $250 per month. No money out of my pocket, except the fee to postpone the sale and the closing costs, which will be refunded at the close of my mortgage.

Note that I did need good credit, so that I could get a commitment for a new mortgage to postpone the sale. You might say that getting a new mortgage is not very creative, but for a boring, old traditional real estate investor, this transaction is a good first step toward creativity.

 
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