I came across the sellers of this property while working on the Forest Hills Investment Project. We were wrapping up the renovation and they lived on an ajacent street that partially backed up to the property. They were out in their backyard one day and they commented about how thankful they were for the great work we had done to cleanup the yard and that they were sure if we did anything remotely as good on the inside that it would be a great house. They then mentioned that they had a home they were looking to sell and had just fired their realtor. I asked for the address of the home which they gave and told them I would look up the withdrawn listing and check it out.
The old listing didn't give me much of anything to go on; there were 2 thumbnail pics and a lot of information that didn't match the tax records. I saw the home was listed for a price of 150k and upon doing the comps I ascertained that would be a fair price if the home was in good shape and modernized. We set an appt. for me to see the home and at this point, I was looking more towards getting the listing as their agent and marketing the property properly to get it sold than in buying. I set an appt. to see the home and it was very interesting. It was what many would call a "Time Capsule" home. Built in 1961, everything in the home was original! (I won't elaborate here, you can go see for yourself in the Part 1 video).
It was immediately clear, why the home didn't sell the first time around or even get offers. The location, while safe and zoned for good schools, has several homes that are a bit more rundown and without an HOA, there is no uniformity or anyone enforcing maintenance on the exterior of the homes. The other big issue is that a home of it's size is normally considered a "starter home" and while it was certainly in liveable condition, modern buyers would want it updated and most first time buyers that this home would appeal to probably wouldn't have the 30k needed to get it updated. The other audience for a home like this is investors like myself and since we are interested not in living in the home but in making a profit, we need to get it at a good price to make it worth while.
In the end, I discussed 3 options with them:
1. Re-list the property at 130k. I pulled comps and included several full color pictures from the comps MLS listings to really drive the point home. I would put a proper marketing plan in place including professional photos and CORRECT data about the home in the MLS. They could expect the home to sell between 120-130k and the timeline as to when that would happen would still be a bit unknown and with the amount of work the home would need, it would be possible that a price reduction further would be needed. After closing costs, they could expect to net around 110-115k.
2. I personally would offer to buy the home for 90k cash with a 21 day closing. Because I am personally buying the home myself, they won't be paying realtor commissions which just leaves normal closing costs of Title insurance, tax proration, etc. They would net appx 87k, a far cry from 115k but virtually guaranteed cash in hand in 3 weeks.
3. I personally would offer to buy the home for 100k cash with a 21 day closing if they OWNER FINANCE it to me. Since they own the home free and clear they can "hold the note". In scenario 2, I would be paying "cash" to close however, I would really be using creative financing methods aka "Hard Money" to get the cash and there are some high fees. If they wanted to net more money, they could essentially be the bank. This scenario would allow me to get the home renovated so then I could do a Cash out Refinance with a conventional bank at a low interest rate and pay them off the balance. They could expect to net closer to 97k in this scenario.
In the end, the money wasn't that important to this couple. The home had become a BURDEN. They are in there "golden years". The home was COSTING them money via insurance, lawn maintenance, taxes, etc. Worrying about a vacant house was also stressful. They own their personal home outright, they have no bills, they could use the money sure but they had no compelling need to get top dollar. We negotiated 95k cash. They were close to doing the owner finance but the reality is that if for some reason I defaulted on the payments, they would have to foreclose on me and they would get the house back and that was the last thing they wanted! They wanted it gone for good! So we met in the middle at 95k cash and everyone is happy. They got a major stress relieved and a very nice check. I got a great property, at a great price with room to make the improvements needed and still turn a nice profit. When it's done, this house will be a step in the right direction for improving the neighborhood. Already it's amazing seeing other neighbors start doing a little more maintenance to their homes as they see you cleaning up a property.
There are many ways to be creative in investing in real estate. This deal just shows one of them. Understand your sellers needs, the emotional triggers, and don't do a deal just to do a deal; it's got to be a win-win.
Now your reward for getting through all of that is you get to see some cool pics of how we are progressing with the reno!
|Needed a way to get rid of the overgrowth. Rented a chipper and made enough mulch for 2 of my properties!|
|Teaching the youth about hardwork and real estate investing!|
|NOW THATS A FIRE!!!|
|When your roasting hot dogs on a fire that large, you gotta have a long stick!|
|Overgrowth almost all gone!|
|Grilling with the crew after a long day of work|
|Father in law is a HUGE Colts fan and we found this in an old storage shed. This isn't a throwback, it's an original!|
|I love it when the neighbors stop by!|
|Refinished terrazzo, fresh paint, and new modern fan. just waiting on special order windows|
|Robert has made this project! You have to see the refinished terrazzo in person to truly appreciate it's beauty. It makes the house!|
|Replacement Hurricane impact window in addition will add beauty, efficiency and safety.|
|new 12k BTU AC with heat pump installed in the addition|
|Quick and easy curb appeal boost|
Stay tuned as we make the push towards the finish!