Four years ago, I was renting a small, one-bedroom house for $250 per month. The owners informed me that they were seriously thinking about demolishing the houses and building two large rental cottages. I live in a resort area on the North Carolina coast and $250 was dirt cheap for a rental.
With the help of a local bank, I was able to purchase a mobile home and nice lot for $55,000 with $17,000 down and 10.5% interest in September 2000. Shortly after closing, the rates started to drop and the housing market began to soar.
Within 18 months, I converted the mobile home to real property was able to cut my interest rate in half by replacing that loan with a HELOC (Home Equity Line of Credit) at 5.25%.
In April 2003, I had the property paid down to less than $20,000 and had it reappraised for $100,000. I took out a 15-year interest only (option) HELOC for $80,000. Recent comps value this property at roughly $150,000 with a balance on the HELOC of $40,000. Current equity = $110,000!
There is a strong demand for year-round rental property in my area. I decided that it was time to start looking for a real house. In June 2003, I found a FSBO (for sale by owner) add in the newspaper for a totally remodeled house with a separate buildable lot for $190,000. I agreed to the price because I knew it was a heck of a deal.
My wages couldn’t qualify me for a loan of that size, so I had to apply for a low doc mortgage where I didn’t state my income, but I had to show a minimum of $50,000 in assets through my HELOC, a good employment history, and strong credit score (almost 800).
The mortgage company wouldn’t finance the two separate parcels, so the sellers agreed to sell me the vacant lot dirt cheap and finance the remaining balance on the house. The appraisal on the house came in at $200,000 and the vacant lot at $60,000.
Although the sellers realized the contract price was too cheap, they knew it was their obligation to sell me the property, which they did. Recent comps value the house at roughly $250,000 and the vacant lot at $85,000. I own the lot free and clear and have almost $90,000 equity in the house.
$110,000 + $90,000 + $85,000 = $285,000 in equity!
I never dreamed I’d achieve this in such a short period of time (three and a half years). The local market remains red hot. If we have another banner year in this market, I just might quit my job and turn this into a full-time hobby!