Newbie 1st Deal, Story, Questions - Posted by Jason

Real Estate Investing
1

Posted by Brad Sowles on December 04, 2004 at 09:27:05:

Sounds like an interesting deal. First, I would NOT have offered the higher price if you already had it under contract for $127,500. If you had a signed purchase agreement and everything was met, there was no reason to pay more because the seller has an obligation to sell it to you. I mean whats the point of having a contract in the first place ??? Second, I would have took the property “subject-to” and gave the seller the cash he wanted to get out. The benefit of this is that your capital is not tied up in the house. But it does sound like you have some cash just sitting around. Third, I would have sub’d out a lot of the work that way you get paid for doing virtually nothing but managing the project. Yeah, you might get a few thousand less after the deal, but you could have done other deals or things on the weekends you were working. Sounds like you are going to make some nice money on the deal. I would personally sell the house for a couple reasons. You have already put significant time and money into it and to rent it out you have the cost of finding good tenets, fixing stuff they break, watch them trash the place, etc. You could also sell it on lease-option. That sounds like it would be a pretty good deal if you could find a good buyer that doesnt have much credit but good money down. There are all kinds of options open to you. Good luck and go out and find more deals like this and you will be on your way to millions.

Brad

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Newbie 1st Deal, Story, Questions - Posted by Jason

Posted by Jason on December 03, 2004 at 23:31:02:

First I just want to thank everyone on this board for all of the helpful topics that are discussed. I’ve been reading pretty regularly for about a year now. Although I still don’t understand at least half of the terminology, it seems to get a little better each time I read more. Thanks again in advance. I truly appreciate it and hope that in time I can help others as well.

Ok, here’s the story first.(all the technical numbers and questions are closer to the bottom of the page for those of you who wish to skip the story.)

We(meaning wife and I) started a mail campaign and posted bandit signs some months ago. Also had been attending sheriff’s sales off and on for about a year or so when I had time off from my day job. Bid on a few things but never confident enough to bid too high. After fielding a few calls and checking out some leads, we get a call from a homeowner who’s house is going to sale in 4 days. I visit with him the very next morning and inspect the house (total rehab). The good:3 beds all with walk-in closets,2 full baths,gas heat,central air,gar., backs to woods,overlooking freshwater pond and house is only 14 yrs old (oldest house on the block). The bad:Garbage everywhere,carpets destroyed,broken toilet,leaky sinks,interior doors and trim beat up,kitchen in shambles,flooring all chewed up from dogs,outside the grass is a foot high,siding faded, gutters missing and trees and bushes covering the whole house. This house is only 14 yrs. old and looks like it was never once cleaned. Even the windows were rotting out of it. But beyond all that, to me it was a diamond in the ruff. Owner is in distress and just wants to walk away with a few thousand. States that he knows the house needs about 50k in work. My estimate is closer to 35k but keep it to myself. Originally paid 107k and owes 103k. Estimated Retail value after rehab 240k-260k. We make a handshake agreement for 110k (rookie mistake that will never happen again). Didn’t have contracts with me and by the time I went home and came back with contracts to sign another investor/realtor was there offering 120k all cash. Long story short, after trying to make a deal with the other investor first to walk away for some cash (he wanted 20k), I outbid him and got the house under contract for 127,500. The next day another investor offers 135k and owner signs contract contingent on breaking mine. Another long story short gives me chance to match and I buy it for 135k cash. I figure it still has some profit left in it but definately not as good as the beginning.
After about 2 40yd. dumpsters and nearly 3 months of part time work (few nights a week and most weekends), because of my day job, I am finally near completion. Looks like a Brand new house. Windows, Siding, Gutters, Kitchen, Interior, Tile, Floors, Trim, Bathrooms etc. all within budget. I must admit at times I was wondering what did I get myself into but this past weekend was very gratifying and I really saw the light at the end of the tunnel. When I started to cut all the trees and bushes down that were hiding the house, too see the look on people’s faces as they drove by and just stared was amazing , especially the one that turned around and asked if it was for sale.

Ok heres the numbers and where the funds came from:
Since we built our house a few yrs. ago and had a small mtg.,Refinanced and cashed out the equity up to 80%. Now owe 200k . 30 yrs.@5.75% with a payment of $1500 with taxes. Household income around 120k with first baby on the way. Paid 135k cash for investment house plus 35k rehab for a total of 170k wih no mtg. Now worth 250k-275k. We’re still not sure if we should sell or if we should rent for around $1400-$1500 a month.
Any suggestions or advice would be greatly appreciated.
Let us know what you would have or wouldn’t have done.
Thanks again,
Jason