I’ve been promising to write my story for a few months. I’ve been on the message boards as Mike (Seattle WA) for a while, so now it’s time to give back more. I started coming to this site just over a year ago. After a week or so of absorbing information, I decided that this was for me.
I put together a solid business plan, contacted the Realtor who sold us the house we live in, found a good broker, and enlisted some family members with access a decent amount of equity. Next we formed a company to handle assets. With this complete, I stated looking.
Two weeks later (by being in the right place, at the right time, and most importantly, the right knowledge to see it), I found a person who was just entering pre-foreclosure. After much listening and research, we were able to buy their house for $120,000. The house today is worth $400,000 with no work needed. Wow! With this place rented, we got a cash-out refi and began looking some more.
We have a family friend who wanted to buy a home, had some money, but didn’t have the credit. No problem; we setup a lease option deal. They picked the house, we bought it, and they paid us a nice option fee and rent that covers the monthly payment plus. We get $500 per month cash flow.
They referred us to another person who wanted the same deal. They offered to pre-pay one year’s rent, which we couldn’t turn down. Netted $400 per month cash flow up front.
Next, we found a bank REO (Real Estate Owned) in need of cosmetic repairs. With the earlier cash out, we were able to put an all cash offer on it the day it hit the market. We made a couple big mistakes here.
1.) We paid too much. Bank listed it at $195,000. We offered $177,000. After fixing (estimated $10,000 work) it would be worth $210,000. Way too thin.
2.) We trusted the bank to make proper repairs of the property as per our agreement with them. There was a major water leak in the up-stairs bathroom that was supposed to have been fixed. Instead, they just re-drywalled the damaged ceiling, and I was too stupid not to double check.
3.) We allowed the people who were going to move in rent for a few days until their other house closed. As such, we were probably liable for #2, which cost us a bit more money.
We got out of this “deal” in three months with about only $10,000 profit, but we got a ton of knowledge. There was a time when I would have considered this a huge gain. . . Since then, I’ve done a couple of other smaller deals and had some others fall apart. Overall though, not bad for my first year.