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8 Deals: Average Purchase Price--$14,000

by Peter Huot, Marin County, California   

I have purchased several "nothing down" seminars and books, including Robert Allen's, Carleton Sheets' No Down Payment course, and two courses from Joe Kaiser, including The Mechanic's Lien System. None of these worked in my county, Marin County, California.

I tried to get involved in foreclosure sales, but appreciation rates and prices are so high they make this a fast track for well-heeled gunslingers only. They appear at foreclosure sales with cashier's checks in 300, 200, 100, 50, and smaller denominations (these are in hundreds of thousands of dollars) in order to "make change" at the sales, which are actual cash-on-the-barrel-right-now sales.

I attended dozens of these events, befriended auctioneers and brokers, and picked brains until I had satisfied myself that it was absolutely hopeless for me to play foreclosure sales in my county. Pre-foreclosure sales require deep pockets, too. Instead, I began to cast about for a county where I might play, and happily I found one.

It was some distance away, but at least it was possible. Early on, and quite by accident, I found a "don't wanter" owner. Seller emotions have played a major role in most of my purchases. This seller inherited the house when his father passed away. The tenants were very old; unable to pay; did nothing to maintain the premises; had lots of cats; and eventually passed away.

He wanted out, and he wanted out NOW!

The new owner had hated the place since he was a boy when his dad made him go there for family vacations. He wanted out, and he wanted out now... but for cash! He was asking $25,000. This was ridiculously low, but since I did not have $25,000 cash and did not want to admit it, I said, "Too much! I'll give you $15,000." He said, "Sold!" extended his hand, captured mine for a deal-sealing shake.

A surprising, even astonishing, turn of events. Not only did I not have $25,000, I did not have $15,000 either. Knowing what I know now, this would be easy; but then it required some hoop jumping, scraping, credit card stretching, the sale of my boat and my old Les Paul Gibson Guitar with two hum-bucking pickups, and I had to stretch the seller's patience to the snapping point.

But I was an owner. Not your "zero down" program, but there I was, budding real estate tycoon at age 70. Better late than never!

As dollars and time became available we bought paint, carpets, lots of Lysol and other deodorants. There was a large bedroom, and we included a bathroom in it for about $1,000. I made many runs to the dump with debris, and with sweat and about $5,000 more in cash, I now had a grand total of $20,000 in the deal.

The place looked pretty good. Now it was a mainstream house: three bedrooms, two baths on a good sized lot, and people began to inquire about renting it. We let the first tenant in for $650 per month and applied for a loan to refinance. The lender ordered an appraisal, and the house was valued at $100,000.

Imagine that! I yanked out $50,000 of my equity and began to look for number two. It came to me.

On to deal number two

The owner across the street heard we were cash buyers. He was emotionally motivated too! His daughter, who lived there and was supposed to be paying him rent (Ha!) had instead been cooking up an illegal substance. A Sheriff's Deputy drove by and caught a whiff of the fumes oozing around the garage.

Raids, arrests, and such followed, and the dad wanted out real bad. Seems he hated the place. He owed a balance of $39,000 on the mortgage and would be so grateful if I would, "Just get me out of this!" Sweetheart that I am, I rushed to his aid. I painted and did some very minor repairs, about $100 worth and applied for a loan.

The appraisal came in at $105,000, and the lender wanted to give me 105% of that number. Imagine that! I then bought two more--one for $7,500 and one for $10,000. It took me a year to get the $7,500 house renovated. It sat empty all that time because it was not ready for occupancy (I was nickel-and-diming the rehab as dollars became available).

I made $80K without the nuisance of tenants

I had it appraised two weeks ago "as is," and it came out $87,500. I made $80K without the nuisance of tenants! I now have eight properties. Five stick-built and three old mobile homes. The average acquisition cost: $14,000. I have two more stick built houses on the radar screen, but I seem to have run out of "don't wanters" and others have awakened.

Although none of the books, courses, or seminars that I have purchased, studied, tried have "worked in my area" per se, they have kept me involved, motivated, and out making offers. For that they were worth the price I paid and then some.

Making offers is vital

If you are not making offers, you are not getting started. Make offers, make a lot of offers, make a lot of low ball offers. When some seller says, "We can't do that," you say, "What can you do?"

I bought a house for $500,000 (the asking price) with $5,000 down. They were insisting on 20% down. In case you are not good with math, 20% is a smooth $100,000. At closing the owner said "This is really not a good deal for us."

Their broker, whose commission the seller paid out of pocket, said, "If I had any idea he would take $5,000 down, I would have bought the darn thing myself." But he wasn't making offers, and I was.

This was a classic example of leverage at its finest. I took control of an asset worth $500,000 for 1% of its value. If this property appreciated at only the normal, everyday Marin County rate of 15% to 25%, I could see a nice profit in the deal.

The reason I was able to get in with those terms was that the seller could show a profit on his books. Even though he was carrying the paper, it enhanced his bottom line from a bookkeeping standpoint.

Because the market was temporarily cooled off, he had been receiving only offers lower than his asking price. I offered his asking price but with terms of 1% down, owner to carry. I could not lose on the deal. I was once timid about making ridiculously low offers. Sometimes they work. When they do, make your move.

 
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