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Creative Problem-Solving Earns a $51,000 Payday

by Marc Blair   

Although I have dropped by the CRE Online website every now and then, I have never submitted anything. I am a fence-sitter who has enjoyed some success at real estate investing and also got a little big headed and suffered through a couple of deals that proved to be less than profitable.

I call myself a fence-sitter because I have seen what is possible on the full-time investing side of the fence, yet find it hard to leave the steady full-time 9 to 5 job, guaranteed income side of the fence.

My best deal to date was an old turn-of-the-century farmhouse located on 1.3 acres, just out side of Kansas City. I was in the middle of a painful divorce and needed a place to live.

I came across a real estate auction sign at the bottom of a hill on a street I rarely traveled. The sign indicated this property and others would be auctioned off in two weeks at a nearby hotel. I called the number on the sign and found out this was one of 50 properties that an auction company was selling for a national mortgage company.

I did some snooping, talked to the neighbors, took a trip to the county and city court house, and discovered some key facts. The house had been empty for two years. It was owned by a couple of doctors who were in the process of renovating it when they divorced and then abandoned the house.

Completed projects included new wiring, new plumbing, new windows, sheetrocked walls, the kitchen had been remodeled with oak cabinets and a great looking oak staircase. The floors were in okay shape, and new central air and heating had been installed.

The old owners had built a stand alone two-car garage with a large work area at the back of it. The complete 1.3 acres were fenced, and at one point, it had been landscaped. However, the yard hadn't been touched in two years and the 30 to 40 trees on the property were overgrown with vines, and the yard was waist high in uncut grass.

The main roof needed to be replaced, and the front and back porches were in bad shape. The auction material stated everything was sold "as is," and all money bid would need to be paid within 30 days of the auction. I didn't think the house would go for a lot, however in good shape it could be worth $80K - $90K.

I was afraid to go to the auction and see the house go for next to nothing and then kick myself for not making arrangements to buy it myself. I had access to nothing, however I did have a good reputation with a local business man who owned over 500 properties.

So I went to him and made him an offer. I told him about the property I wanted to buy. I offered him $2K for loaning me the money to bid for the house, and then would pay him 10% on the money amortized for 15 years. I would borrow no more than $40k, that was as high as I would go on the bidding.

To my surprise he said yes and gave me a check for the 10% needed for earnest money should my bid be accepted. The stipulation was that I would buy the property as his agent, then he would in turn sell it to me contract for deed.

The auction was exciting; I had imagined being the only one bidding on the property and walking away with it for $5,000, maybe $10,000. Unfortunately I was not quite that lucky.

A neighbor had also seen the property and had the same idea, so we ended up bidding against each other. He dropped out at $35K, and I ended up getting the property. Actually my friend ended up buying the property, then under our agreement I purchased it from him on a contract for deed for the auction price plus $2,000. So my total price was $37,000.

I spent the next year fixing the house up while I lived in it. I became elated at surprises like discovering that once the trees were trimmed, I had a million-dollar view of the Missouri river.

I also discovered some trouble. The biggest problem was that the city alley that serviced my garage was so steep on one end that it was unusable in the winter. No problem, I thought, because the other end of the alley which entered from another street was flat and accessible year round. That was, until my new neighbor put a fence across it and blocked the access.

It seems the last 10' of the alley shared the same location with a street that had been planned and never put in. When the right of way for the street was vacated the land went back to the homeowners. The city planners failed to word the vacation documents to allow for the alley, so legally the end of the alley belonged to my neighbor, and he decided he wanted a fenced yard.

Everyone in the neighborhood was mad at the guy and wanted me to sue. I thought about it and decided there had to be a better way.

It just so happened another neighbor's house was built on a triple lot and had a small rental house on the next two lots. I offered to buy a 16' strip of land between the two properties that would connect to the alley. I then went to the city and offered to give them the land if they paved and maintained it. Everyone agreed and, for the cost of the land (about $1,500), I got a newly paved year-round access alley and peace in the neighborhood.

I recently had the house appraised at $115,000 and refinanced an 80% loan at 7%. My fix-up costs ran me about $10K, so at closing after paying off my original loan, I walked away with over $44,000. I have since sold the property on contract for $7,000 cash and my payments plus $50. All said and done, I paid $450 a month to live in a great house for a year, then walked away with $51,000.

 
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