Picture this: A new investor with $15K college savings for kids learns about buying a second as the way to get a foreclosed property. He finds a vacant foreclosed property with a second note, takes kids’ college money (First kid going to college within a year. No problem; I’ll be in and out in 3 months), and buys the second.
After buying the first at the sale, I had paid $105K. I THOUGHT it would sell for $130-135K. After purchasing it, I got the comps; they were $105K to $110K. I tried to sell at $125K, $118K, $115K, lease option, etc… No luck. I then decided to make it a long-term rental. So, I refinanced it because the loan for the first is due in 30 days.
I found a company through a mortgage broker that would refinance at 90%. I would lose $150 per month easy, but I reluctantly did it. But wait! When the person doing the appraisal took the picture, I had a “For Sale” sign in the yard. The finance company got spooked. They think I am going to sell it as soon as I refinance. They won’t refinance.
I went to Creative Real Estate Online for advice. Someone said, “If you have more money, put it down so you can lower the LTV and increase your monthly cash flow.” It worked. I went down to 80% LTV and opened myself up to ten more companies, allowing me to escape PMI and giving me a negative cash flow of only $25.
Unfortunately, I had to go to my wife for her permission to sink the kids’ college money in to this house, indefinitely. I promised that I would pay for the kids’ school somehow. She reluctantly acquiesced, and I did it.
After numerous deadbeat applications, we got a decent renter. Interest rates went lower, and I refinanced it, taking it to a break-even cash flow. I was pretty down and doubting myself. But, I didn’t give up.
I refined my pre-foreclosure techniques. I talked to a mentor. I bought more courses. I submitted offers (I got turned down). I went to foreclosure auctions (I got outbid). I got close, but no cigars for AN ENTIRE YEAR.
In the meantime, I shared my knowledge with other investors. I showed them how to bid. I took them to auctions.–anything to keep my spirits up. So I was at the auction with a newbie, and I bid the higgest number I could based on my calculations, and. the other guys dropped out. I won!. The newbie with me was surprised. “This doesn’t seem hard,” he thinks.
Now the exciting part: I went to the vacant house to get the locks changed. Let’s see what’s behind Door #1. Nothing bad, looks real good. Everything looks real good. Oh yeah, the basement. It looks good, too. But wait. The wall seems damp. Forget damp; it’s WET.
I called my handyman, and he showed me where the pipe is loose from the sump pump. He said $25 tops to fix this. I got a second opinion (my process says always get two estimates) from a company that fixes wet basements. They said the handyman was wrong, and I need a new sump pump and drainage system. Estimated cost $3K. No Problem, I allowed $5K for repairs.
The house goes on the market and gets some offers. Not as high as I expect, but I have a lot of leeway this time. I got close to the selling price of $132,500 at $130,500 and decided to go with it. The buyer was going for VA financing, which is the most stringent. I bought on June 5th and collected my check of $15,473 dollars at the close on Aug 20.
Oh by the way, my daughter is in her third year of college and made the Dean’s List. (Also, she knows her way around the Register of Deeds office.) My wife and I renewed our vows in April for our 20th anniversary. (She stuck by me even when I did something stupid with all of our savings. It is always good to know that you can count on your partner for better OR for worse.)
Guess what. On my first house, I not only had to sink all the cash I had, but I had to put a note of against another rental property I owned. This journey has had ups and down, but I never gave up. On the second deal, the banker was so comfortable with my process and numbers, I put up nothing but a note against the house itself.
I submit that I learned more from the first experience than the second experience. The second gave me money, but the first gave me tools to make the second possible, and the third, and the fourth?