I love to talk about real estate. I always say, “If I don’t talk about it, how will anyone know what I do?” If the person you are talking to isn’t selling right now or doesn’t know someone that is selling, they eventually will. I want my name to be the one they remember, so I can get that all important “personal reference.”
I got a phone call one morning from a man that I had a 15-minute conversation with six months earlier. He was the owner of an established construction company whom I met when he was doing the demolition of a burned building beside a two-unit that I owned.
During the conversation, I told him about some of my success stories and how I truly felt proud of the buildings I completed, especially of the crack house renovation I had completed two years earlier. He remembered the talk we had, and when he was forced to fire his long time property manager, he sent someone to find my number.
After one week doing his own property management, the call went like this. ” Mike, I’m seventy-two years old, and I don’t have time to fix stoves. I want to sell four of my properties for the assessed value just to get rid of them, and I want to give you first right of refusal.” He told me the whereabouts; I drove by, and by that afternoon we had a deal.
The assessed value: $309,300 for 17 units–or $18,194 per unit! Here is the kicker: He owned the property with no mortgages. I asked him to hold the financing, and he agreed. We closed six days later at 5.5 % interest! And I will bring in my own financing within a year.
We closed on the first day of November, so I got to collect almost $9,500 in rent, which I used at close and still left with over $5,000. I raised rent by almost 35% my first week to take effect February 1st. Since the owner had no mortgage and was independently wealthy, he did not need to raise rents.
Making the new income approach to value over $500,000, I will put a 75% line of credit in place against the properties, pay him out do some quick improvements, sell some, and put a lot of money in my pocket. I’m just not sure how much yet.
In addition, one of the long term tenants upset by the rent raise has offered to buy the building he lives in for $140,000 ($53,000 more than I paid just twelve days ago and for which I have yet to spend one penny of my own money.) I have agreed to the sale for quick cash and we close by the end of November.
I am giving him a good deal, so I have asked for a clause to be written into the contract. I get first right of refusal if the property ever comes up for sale again or is to be passed on to heirs. And my clause has no time limit. My option price will be based on a 3% appreciation per year every year over the sale price!
Great property and worth almost double of what I paid. The area is about to become red hot! I expect to see 10% appreciation per year or better after three or four years due to a second oil refinery and a separate liquid natural gas plant being built here.
Even if I don’t want the building, I can sell my option or flip it. I’m not worried about the condition after seeing the way he keeps his own apartment very clean, and he has done all the maintenance for the building over the last eight years. I just created a future profit.
It pays to tell people what you do. Think of talking to strangers as verbal bandit signs. Do it as often as you can. Don’t be afraid of creating competition. You will make more deals than you will ever lose. Not many people are going to just jump into real estate investing because of something you told them–unless they were already getting ready to dabble.
Learn from each other and remember you can’t do every deal. You never know when the person you talked to will come back and hand you a windfall. By the way, this brings me up to 23 properties in 12 1/2 months with a new net worth of 1.1 Million. I almost made the million in my first year. Thanks for the great site and info, CRE Online.
Editor’s note: This is Mike’s fourth Success Story. Read the first three: