I started back in July 2002 trying to learn about creative real estate investing, but I did not go out and make any offers until February 2003. It was not until this week that I got my first deal done and under my belt. One evening, about three weeks ago, I was discussing with my wife the fact that I was frustrated with the “business.”
I was chasing what I thought were “deals.” In reality, I found I was a motivated buyer. I had to stop acting like one. I told the wife that in order to find real deals, we needed people to call us, not for us to call people; she agreed.
My new action plan
So the next morning, at about 3:00am, I took fifteen of my “We Buy Houses” signs and posted them at various locations around our city. It literally took me until 6:00am to finish. The next morning, I got a call from a man in trouble. He said, “Are you the guy who buys houses?” I asked, “Yes I am, how can I help you?” He said, “Man I am in a bind. They got my back against the wall.”
He went on to tell me about a house that he owned. It’s a two-bedroom, one-bath house that is a rental in the east end of the city. Normally, I’d stay away from 2/1s, but I listened to him anyway. He said that his grandfather owned the house and gift-deeded it to him just before he died. Since then, he had rented it out to a couple. They’ve paid him regularly on a timely basis.
He went on to say that the kitchen and bath had been remodeled two months ago. As we spoke, I pulled the tax record online for the property. The city assessed it this year for $33,600. So I asked him, “How much?” He said, “$25,000.” I advised him that I needed to do my homework and that I’d call him back.
So I called a fellow member of our local investors association. She is well educated on rentals in the city. She advised me that the house might appraise for $40k to $50k and said that I should try to buy it with the hopes of getting cash at close. She said it really depends on the area and condition of the house. She encouraged me to go look at it.
My wife and I drove over there the next day. It was almost picture-perfect, kind of like a “Leave it to Beaver” style street. Kids were out playing on the sidewalk; there was a nice city park down the street; parents were out front of their homes talking–it was nice.
The house looked like it was in pretty good condition, less normal wear and tear. So I took a picture of it. Not knowing where I would go on this deal, I thought it might be well worth pursuing after all.
The next day I called the young lady from our group. I had sent her the picture of the house via email. She told me that I needed to get the house under contract as soon as possible–that I could not pass up this deal, and if I did pass it up, she was going to take it!
“Gosh there must be something to this house!”
And I suppose there is with all that potential equity involved. But I needed to dig deeper first, so I pulled the comps. The comps were selling between $44k and $49k. I further learned that SiteXdata claims it’s worth $54k. After learning this, I decided to get it under contract.
I called the owner of the house, but only got a fast busy signal. This concerned me. Having experience with cell phones, I knew that meant bad news. His cell account must have been suspended for lack of payment. Now I have to track him down.
I looked at the tax records and noticed that the assessment was mailed to an apartment address on the north side. My wife and I went there to find him. The resident told me that she had just moved in last week. The man I was looking for had moved out!
Arghh! This is not good! Okay…think…think…now what? His tenants! Yes! Contact his tenants! I backtracked the subject house address and found a phone number for the tenants that he had there. I called and explained that it was of the utmost importance that the owner call me back.
A couple of days went by, and my wife and I prayed that the owner would call us, and he did. We discussed his situation and negotiated for a final price of $24k.
We later met at a gas station in town and I gave him $10 earnest money deposit, and he signed a contract to sell me the house for $24k to close in 45 days. We both left feeling good.
Then, a couple of days later, he calls me back. He says, “Hey this contract is not going to do me any good.” I asked, “Why? What can I help you with?” He said, “My wife and I are now out on the street. We got kicked out of our apartment. I need a roof over our heads. I need $1,000 from you on the house.”
I then advised him that I could not pull that out of thin air at the moment, to give me a couple of days or so. He agreed. Two days later, he calls me again. I advised him that I could not get the money to him because I had my cash tied up in other deals at the moment.
He then dropped the bomb on me and said, “I don’t care about that house now. If I have to, I will pull out of this contract and sell the house to the first person that I can for $10,000 cash.” He further said, “I am not living like this in my car any longer.”
Talk about a MOTIVATED seller
It doesn’t get any better than this. Knowing I might lose out on this deal altogether, I said to him, “Give me an hour to find the money.”
I called a close friend and advised her of my dilemma. She told me that she could get the cash to me that afternoon. I called him back and said that I had the money.
I then told him that I could get the cash to him that afternoon, however, I wanted to renegotiate the price of the house. I got him to drop down from $24k to $20k. We agreed to meet later in the afternoon.
After our conversation, I then called my attorney and discussed the matter with him. He advised me to fully secure my position in the deal with him since the owner had no residence now. He told me to get him to sign a quitclaim deed for the $1,000 cash and a promissory note for the remaining amount of $19k.
I called the owner back and told him what my attorney advised. He said, “Look, I don’t care. That’s fine with me. Let’s just get this done.”
By now it was 5:00pm, and I could not find a notary public to witness and seal the quitclaim. I called the owner and told him that I knew he could not get the deed, nor could I get it notarized that day. He told me, “I need cash today.”
I said, “Alright, I’ll give you some cash for tonight, so you both can have a roof over your heads, especially since it is raining, and you will sign a receipt for it. Then you get the remaining cash tomorrow once I get the deed.”
He said, “Okay, you give me $500 today and $500 tomorrow when I give you the deed.” I replied, “No sir, I will give you $100 tonight and $900 tomorrow once I get the deed.” He agreed.
We met at the same gas station. I gave him $100 cash, and he signed a receipt. We agreed to meet the next day to complete the transaction after he got the deed from the courthouse.
The next morning, June 4th at 10:00am, he called me and said that he had the deed. So I went to meet the man to get this deal done. We got the deed to the property and paid him the remaining $900 after he signed the quitclaim deed before a notary.
Rental cash flow and cash back from refi
Now we own a rental property that will bring in rent. (The current tenants have only ten more months left on $335/month lease, which his way below fair market rent.) The fair market rent for our new rental is about $500 per month!
Of course now I have a promissory note to pay the former owner back a total of $19,000. The note, not due until July 21, does not include any assets of mine (not even this house) as collateral for the note.
My wife’s birthday was June 3rd; I gave the rental property to her as a present. We have a plan for this property. We plan to hold on to it for monthly cash flow (positive we hope).
Now that we own it, we plan to get an equity loan on the property. I am working with my mortgage broker on that now–the paperwork went in yesterday. An appraisal will be done, and we will get as much cash out of it as we can.
Then we will pay off all of our bills and pay off the promissory note with the original owner. We will be 100% debt free!…with the exception of the mortgage.
How’s that for creative real estate investing? None of OUR own money down. We are pleased with this transaction. We want to thank CRE Online for giving us the resources that we badly needed in the beginning, and we thank God for the blessing that we have received.
We do not fear the unknown regarding the refinancing for we know He will see us through. Hey…He has gotten us this far!