How A Deal Can Change! (Long) - Posted by Mark-NC

Posted by Mark-NC on December 20, 2000 at 18:17:13:

Acutally I did get 300 from each one and yes they did loose it.


How A Deal Can Change! (Long) - Posted by Mark-NC

Posted by Mark-NC on December 20, 2000 at 14:52:16:

One thing I have learned in this business is to have a plan B,C and sometimes D along with an exit stragity.

For instance the Last three deals I have done, none of them went as planned.

The first one was a duplex I found, my first intention was to Wholesale it. It needed about 5K in work minimum to get it rentable, It was an older place, about 80 years old, but it had definate potential for cash flow. It was in a decent neighborhood to so I thought it had great possibilities.

The numbers on the deal were decent, the ARV was 47K. I was able to pick it up for 20K. So I figured I should have no problem wholesaling this to another investor for maybe 3K.

I take the info to my local REI meeting. I had some interest and even had a couple drive out to it. Only to hear all the excusses why it wasn’t a good deal. Big waste of time. A lot of nice people at the meetings but I don’t see a lot of buying between members.

So my next plan, Throw an ad in the paper and try to sell it as a handyman special before I have to close on it. A guy calls and says he is interested. He looks at the place and he says, “yes he wants it” but wants to know if I can get him financing. So I say possibly, let me check your credit. So I check him out he has excellent credit. Looks like I may have a buyer.

So then he calls me and asks if I can get it financed 100% plus 5K inrepair costs. I said maybe and called my private lending guy to see if he would be interestd. He says sure. So I offer it to him for 23k and the private financing guy would include the additional in the note plus an additional 1K for closing costs with a total note amount of 29K. It doesn’t get any better than this for the guy “what a deal” I thought I put together for this guy. After he rehabs it and gets it rented he will have a bare minimum of 200 per month cash flow.

I get everything set up including the closing date. Then buyer flakes on me 3 days before closing. I just don’t get some people AAAARRRRGGGG.

Well lets see, I am into plan C by now. So I decide with those terms I will buy it myself and have the 8k that is left over after costs to fix it up and rehab it myself so thats how I close it.

As soon as I close it I am thinking I bet I can still sell this thing. I will try to sell it on a CFD as A handyman special.

I put another ad in the paper; handy man special small 2 family 38k will finance 2500 down, 390.90 per month 555x5555

Get tons of calls, after weeding them out I get a guy that I know will fix the place. He has A credit, is a rehabber and has the talent to get it done. So we come to agreement I will take 2K down and hold the financing with a ballon for 1 year. His game plan was to obtain the property, rehab it, get it rented, then refi it at his bank after it is done. He has other properties, so for now I feel comfortable with the deal in the fact that it looks like he knows what he is doing.If he cant get it refied I will look at selling the note after it is seasoned for a year or I may extend it.

So here is what the numbers ended up being.
I bought it for 20K
I have a 20 year 29K private note 20 year am. at 12.75% with a payment of 339.77 per month (It has a 5 year baloon)

I am selling it to my buyer for 38K. He has put 2k down and I finaced him on a 20 year am. with a one year ballon at 12% with a payment of 390.90 per month.

So after paying closing costs and a discount on the note I walked away at the original close with 8K. The buyer put 2K down. If the buyer can refi I will put another 7K in my pocket from the deal. That will make a grand total of 17K I made on that junker.( unless I have to or decide to sell the note It will be discounted for less of a profit) plus I will get an additional cash flow of $50.62 from the mortage untill it is refied.

Deal 2; I just finsished plan c, I am just getting ready to excecute plan D.

I Picked up a property for 41K only needs cosmetics. Carpet to be exact thats all. FMV as is 57K. My origianl intent was to flip it. Found a buyer had 10k down But could not get him financed quick enough before I had to close (mainly because he had a lack of credit). But I knew I could get him done.

So like an idiot I put all my effort into helping this guy instead of paying attention to the other calls. So I end up buying the house myself ( got a 95% nonowner loan). So I had to put $2050 down to get it.

My goal was to Sell to this guy for 56k with 10k down on contract for deed and get him financed in a few months to totally cash me out.

Well guess what 2 days before we are ready to close this thing he calls me and says “He is transferring jobs and can’t buy the house”. After expressing some very colorfull adjectives I clamed down and started looking into plan D.

Right after christmas, this house is going back in the paper.

Deal 3; This one went well, but not as origianlly planned.
I put a contract on a house that had 2 extra lots next to it to sweeten the deal. The lots were not really that good but it helped.

Anyway to shorten this up, my original intention was to rehab this one, but it would be spring untill I could get to it. So one day I was telling another investor about it and he said he new of someone that would love to have it. I talked to the guy and ended up flipping it to him and made 10K.

When I go to the convention I hope to learn about plans E,F and G just in case I need them.


Mark I Like This Post - Posted by phil fernandez

Posted by phil fernandez on December 21, 2000 at 17:44:04:

What you are really saying is that you have to be flexible enough to move on to plan B, C or beyond if plan A does not work.

It was Joe Kaiser that said in his course, that you have to have pegs made of foam rubber so you can be flexible and put them in the different shaped holes to solve the specific problem. In other words stay flexible and have a backup plan.

Would Earnest money have helped? - Posted by IB (NJ)

Posted by IB (NJ) on December 20, 2000 at 16:36:22:

I just started in RE this past spring. I’ve already had my experience with shaky buyers. It appears that you’ve had 2 of them. But I don’t see where you collected any earnest money from them to show that they were serious. I didn’t and got burned at the last minute. Would collecting earnest money have forced them to stay committed to the deal? Or at least allowed them to back out but you keep the em?

Re: Mark I Like This Post - Posted by Mark-NC

Posted by Mark-NC on December 21, 2000 at 21:27:00:

I like that analogy. I need to pick up some foam pegs!


Re: Mark I Like This Post - Posted by Mark-NC

Posted by Mark-NC on December 21, 2000 at 21:18:56:

I like that analogy. I need to get some foam pegs!