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The Deal That Helped Me Overcome My Biggest Obstacle

by Ben Innes-Ker, Indiana   

I thought that maybe I could tell you about the first deal I did (that actually made money) around about the time I discovered this website, which I think was shortly after it was created. Because I get so much from this site, I feel a little guilty for not contributing more.

Anyway, when I first got here to Indiana I ran an "I Buy Houses" ad. I got all sorts of calls, and after about two weeks, I got one that really clarified the concept of motivated sellers for me.

The sellers had a 2/1 house in a little rural town about 15 miles away. They'd been trying to sell it for two years. Their fourth listing was about to expire. The wife talked to me about their dilemma (4 kids and one on the way, 2-bedroom house) and told me that a recent appraisal on the house came in at $39K.

I asked her what the least she could take would be if I paid her cash and closed quickly (just like it said to in the books). She said something that was a little less than the appraisal, and told her I probably wouldn't be able to help her if she really needed that much from the sale. She said "oh," and we amicably ended the call.

I thought that would be the end of it, but she called me another three times in the following week. Each time we had the same conversation, and each time she came down a few thousand. Finally she got to $30K and said that would be the least because their new trailer and land they were going to buy cost what they would net from a sale at that price (about $20K).

Going by what little I knew about structuring deals that made money, I told her "Sorry, I can't help," thinking that $20K would be the most that I could pay for a cash deal. But her dogged pursuit of me and her obvious need made me think there must be something that could be done here.

That night I logged onto Creative Real Estate Online (which I had just discovered), and read a posting by Claude Diamond who was discussing lease options in general and different ways to use them. Part of what he was saying was getting the seller to refinance the home was a way to satisfy their cash needs in a lease option (or lease purchase as he calls it) transaction. At that moment I had what some philosopher called "a moment of clarity." It all made sense, and I knew just what to do.

Predictably, the seller called again the following morning and asked if I was sure there was nothing I could do. I told her that actually I could help her, I'd just remembered something, and here's what we're going to do. I laid out the plan: She would refinance the house at 70% LTV and would take $30K of that. Any overages would go to me for repairs.

I explained that I'd lease option the house from her, covering her payment until I got it resold to a new buyer. She didn't really know what I was talking about, but she did hear the bit about getting $30K and the house did need cleaning up, so she said "OK."

It took about two months to get her refinance documented, but the appraisal came in at $49,000, and $34,300 was funded into the closing, $1,500 of which came back to me after closing costs. After they moved out two weeks later, I saw that I would in fact need that money for repairs. Since it was January in Indiana, I spent the next four weeks sliding off ice-capped roads into ditches getting out to this place each day. I took a friend of mine who knew how to do repairs, and eventually the work got done and the place looked good.

Since it was winter for another six weeks, I had to make three payments on the loan during my attempts to find a tenant/buyer (a "Rent To Own" ad in the paper and flyers in WalMart). This situation was a bit of a problem since my wife and I were basically relying on her student loans to get by.

But one day a lady called up and said, "I want that house!" She'd already driven by and got in the back door somehow to check out the inside. I signed her up to buy it "Rent To Own" at $49,900. She pays $400/month rent (covers PITI) and an extra $230/month down payment installment (which goes to me). Her up front deposit was $1,500 (also went to me). When she gets her loan through and buys it, there will be another $10,000 coming my way too.

Although this is not a $5K in two weeks situation, it was the first real estate investment I put together, and it really got me over a psychological hump. All of the creative real estate I had read about and listened to made beautiful sense. But I had not been able to apply it. With this house all the elements were there, and they just had to be played out. Not long into it, I realized my biggest obstacle was myself. Fortunately, I had few other choices but to keep trying, so inevitably it worked out just fine.

 
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