After a couple years of half-hearted attempts at real estate investing, I finally closed my first deal! The first year was spent mostly learning: courses, Creative Real Estate Online, and some one-on-one training.
The second year I tried a few things: bandit signs (hated it), mailing postcards to pre-foreclosures (cheap, met some sellers, but no deals), and bulk mailing to key zip codes (very expensive, met some sellers, but no deals).
I ended up “in the red” for a lot of money between the training costs and the bulk mailings, so I decided to take a break, catch my breath, and figure out how to better approach this. Also, things in my personal life started to change, and I didn’t have the free time to spend on it.
Out of the blue, I got a phone call from a retiree who had moved into a new home about four months prior, and was looking to sell his previous home. It needed some repairs, and he didn’t want the hassle of dealing with a realtor and selling the place. He called me from one of my postcards that he had held onto for over six months.
I did some research before meeting with him and estimated the ARV (after repair value) at $205k to $230k. After seeing the property, I guessed about $6k in repairs. I met with him at the property. He said that he owned the property free and clear, and wanted $170k to $175k for the house. He thought the home was worth $205k to $210k, in line with what I thought.
I told him that I would be willing to pay him what he wants, provided he would take back a mortgage for most of the purchase price. He told me to mail him a proposal, and he would think about it, which I thought was a polite way of telling me to get lost.
I sent him a proposal. $170,200, with $2,000 down and interest-only payments of $675 per month, with a two-year balloon payment. I gave him a week to consider the deal. On the day of the proposal expiration, he gave me a call, apologized for waiting until the last minute to call me, and said he would take the deal. I couldn’t believe it!
After I had the property inspected, I learned that it needed about $2k in electrical work plus some other minor stuff that I had missed. I called the seller back, gave him my report, and he agreed to drop the price $2k. Surprisingly, rather than lower the loan amount, he preferred to go with no money down!
Eight weeks later, after making the required repairs and repainting the interior and exterior, I signed a contract to sell the property for $214,500. I closed this afternoon, here are the numbers:
$214,500 Selling Price
$168,200 Loan to Seller
$ 6,825 Repairs
$ 2,625 Holding Costs
$ 12,163 Buying & Selling Costs
Net Profit (before taxes) $ 24,687!
My selling costs were a little high because I agreed to pay some of the buyers’ costs at closing. And I agreed to pay their realtor’s commission. I probably could have held out for another buyer an extra $5k, but you know what they say about a “bird in the hand.”
For the past two years I had been tormenting myself about what I had been doing wrong. I now believe that it has less to do with what is said, and more to do with the situation of the seller. I wasn’t doing anything wrong. It’s a numbers game–eventually you come across a person who will do a deal that seems impossible.
Thanks to everyone on the Main Real Estate Forum who had helped me in the past!