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3 Creative Real Estate Deals That Transformed My Business

by John Fedro on February 7, 2014 · 21 comments

  

Welcome back,

“Real estate investing is easy. You simply purchase an unwanted property for cheap and resell it for a higher price.”

This is what a young me thought 12 years ago, before I ever invested in a single property.

Now with more than 100 deals under my belt I can safely say this is the biggest over simplification for profitably investing in real estate.

In fact, often times you can buy and resell a property for the same exact price and still make a significant profit in the middle. However in most cases buying low and selling high is the structure we tend to follow. Along this “buy low and sell high” path there are literally hundreds of important steps and to-do’s along the way.

One of the single, biggest “Ah-Ha” moments I’ve experienced was when I realized I had the ability to turn a profit investing in real estate while simultaneously helping others that I was working with. Occasionally, as an investor, you come across a seller who is experiencing some sort of issue. Often times, a seller’s problem does not seem extremely difficult to us, but to the seller it can feel like an insurmountable hurdle. All of us who are actively investing have likely closed a no-brainer deal that simply fell in our laps and went smoothly.

The below article focuses on 3 past experiences when I had to go further than other investors would go to make a profitable deal happen.

My Brother’s Keeper

A mobile home attached to a small lot of private land was being advertised for sale. The home and land were both in a good area of town and I knew that if I could structure seller financing with the seller I would be able to make significant cash-flow monthly on this property.

Approaching the seller I learned that I was not the first investor to look at the home and want it. An investor recently turned down the opportunity to purchase this home for 30% under FMV (fair market value) because the owner’s brother was in the home and screaming that he would not leave the premises. While the owner’s brother was out one day the owner and I walked through the 3/2 mobile home and found it to be clean and in good shape for an 1985.

I understood that once I purchased the home I would have to evict the brother. The seller did not want to do this himself because his brother was family. I purchased the home with zero down and 100% owner financing with 0% interest.

Three weeks later the seller’s brother was out and a few weeks later the home was rented for a $400 net cash-flow.

Beware of Dogs

A few years ago I purchased a mobile home from a seller that owned 3 large dogs. The family was moving into an apartment and could not take all 3 of their dogs to the new home. They did not want the third dog to go to the pound and they were unsure of what to do.

After I talked with the sellers a handful of times, played with the dogs, and understood that their main concern for selling was the 3rd dog, I posed the possibility of moving/giving the third dog to a current tenant-buyer of mine that was living in a nice mobile home in the country. The dog’s new home would have 2 acres of fenced yard to play in and fresh air.

I quickly lined up a time to go out to the country property with the sellers.  My tenant-buyer fell in love with the dog at first sight and, thusly, the tenant-buyer, sellers, and the 3rd dog all agreed that the situation would work well for all parties.

Soon after I closed the deal for a very good price and terms. Realize, again, that I was not the first buyer to come along and want the house. However, I worked hard to discover a solution in a difficult situation and my diligence paid off. Win-win-win.

Hospital Bills Versus Equity

Did you know that hospitals will likely settle on defaulted hospital bills for 20% or less of the face value owed?

I was approached by a seller who got my information from my advertising and we began to talk. The seller told me about her plan to leave the state and move to a home she already owned, but she needed to sell her 2 unwanted mobile homes.

The seller was asking $40,000 for both mobile homes, one home was on private land and the other was in a rented mobile home park. After she was done explaining I inquired further: “$40,000 is a lot of cash. What do you plan to do with all that money?” The seller quickly replied that she wanted to be able to take care of her hospital bills.

Knowing already that hospitals would heavily discount medical bills that were in default, as these bills were, I knew I could likely purchase this home and solve the seller’s problems with less than $40,000. We wrote up a purchase and sale agreement with the understanding that once the hospital bills were paid in full the homes would be sold to me for the amount needed to cover the bills.

After 3 weeks I had a written agreement with the hospital to accept $6,000 for the immediate payoff of the $40,000 medical bill debt. We closed shortly after.

The above examples are written to help you think outside the box. Listen to a seller’s wants and needs. I make it a point to let each seller know that I may be asking some personal and unorthodox questions for the purpose of getting to know them and their situation better.

As you can imagine this helps to negotiate great deals and helps to solve any problems the seller is facing.

Thank you for reading and please comment below with your thoughts. If you have had a similar experience of solving a seller’s unorthodox problem please comment it below so we can all learn and grow together.

Love what you do daily,

John Fedro
Photo Credit: Thomas Hawk

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{ 21 comments… read them below or add one }

Lindsay Wilcox February 7, 2014 at 3:24 pm

THIS is the kind of real estate investor I would like to be. Fancy cars and ever-increasing expectations for wealth don’t really have any appeal, but using my expertise to help people think outside the box to solve some very real challenges in their lives, and earning a profit by helping them solve those problems, that, to me, is how to use real estate investing knowledge for the greater good. Good deals have to do more than just make your pockets bigger, so to speak, and those other investors who visited the properties before you did apparently hadn’t learned that lesson!

Reply

John Fedro February 8, 2014 at 2:08 pm

Hi Lindsay,

Very well said!! I believe you and I are in the minority with regards to priorities. With that said BP is probably the biggest REI website that has helpful high quality and active investors here. Most investors I meet focus on the profit first, not realizing that as investors we only make money by helping others solve problems. The bigger seeming the problem the more value we create. Often times the “problems” the sellers have are so built up in their mind that simply by you being experienced and thinking outside the box there is a fairly simple solution.

Thanks for commenting,
John Fedro

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Eric February 7, 2014 at 6:22 pm

John,

The third one is genius!

Eric

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John Fedro February 8, 2014 at 2:09 pm

Hi Eric,

I wish I could take credit myself however I had learned of this hospital discount fact years prior and just connected the 2 in my mind at the time. It is funny how some things we learn stay hidden in our minds until we need them.

All the best and thanks for commenting,
John Fedro

Reply

Roy N. February 8, 2014 at 7:17 am

John:
It is not about buying and selling things, it’s about solving problems for people. Focus on the vendor and your likely to come out with a deal that makes everyone smile.

Reply

John Fedro February 8, 2014 at 2:10 pm

Hi Roy,

Thanks for commenting and I couldn’t agree more. Stay active daily and focus on being well-known and helpful in your area and it is highly likely good things will happen.

All the best,
John Fedro

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Al Williamson February 8, 2014 at 4:58 pm

John,
Your post got me pumped! Excellent examples of creating more value than you consume.
Love the way you do real estate investing. Thanks for sharing your journey with us.

Reply

John Fedro February 8, 2014 at 6:38 pm

Hi Al,

Thanks for commenting and saying so. Happy to give back.

Talk soon,
John Fedro

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Geoff February 8, 2014 at 10:18 pm

Those are great ideas, looking forward to hearing of others.

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John Fedro February 9, 2014 at 11:47 am

Hi Geoff,

Thanks for commenting. I’ll bring you more and more over the next few months.

Talk soon,
John Fedro

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Patrick Flanagan February 9, 2014 at 11:05 am

Hello,
This type of strategy, has always been my style. If you can appeal to the “needs” of the other party, you will always have a more solid negotiating platform! Don’t ever be afraid to ask! It may take a lot of time for some answers, but as the old saying goes, “A stranger can sometimes be a better friend. ” People will surprise you everyday. They may feel,there is no way to solve their situation, it is your job to help them and gain a fierce ally and salesperson in the process.

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John Fedro February 9, 2014 at 12:06 pm

Hi Patrick,

Wonderfully said! I have not heard the expression, “Sometimes a stranger can be a better friend” however I have seen this in action countless times. Unfortunately sometimes shady investors take advantage of sellers in their times of need. As we know this is not a recipe for long-term success.

I love how you said, “They may feel,there is no way to solve their situation, it is your job to help them and gain a fierce ally and salesperson in the process.”

All the best and keep it up,
John Fedro

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Shawn February 9, 2014 at 8:23 pm

So how exactly do you: “buy and resell a property for the same exact price and still make a significant profit in the middle”

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John Fedro February 10, 2014 at 1:59 pm

Hi Shawn,

The very short answer is Interest rates. There are other profit centers besides the home itself however I will cover these in an up and coming article for you. Please let me know if you have any further follow up questions.

Talk soon,
John Fedro

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Shaun February 10, 2014 at 7:39 am

Great stories.
This business isn’t about milking every penny out of someone in a difficult situation. It is about profiting from providing a valuable service and helping solve problems.

These are some great in your face examples of just that.

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John Fedro February 10, 2014 at 2:03 pm

Hi Shaun,

Thank you for your kind words and insights. I was not always under this same mindset however having been a full-time investor for the past 12 years it is the only way to act and run your business for long-term success. Thanks again for commenting.

Talk soon,
John Fedro

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Doug Merriott February 10, 2014 at 6:39 pm

John,

This is a great article. Sometimes the solution is so obvious, but others fail to see it because it is non-standard. I read your articles often, but never really had an interest in mobile homes. This might be because I used to think trailer parks and I did not think mobile home communities. I am starting to come around now that I listen to smart guys like you. Thanks for sharing your wisdom.

Doug

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John Fedro February 10, 2014 at 6:52 pm

Hi Doug,

Thank you for commenting and explaining your history. There are things that I was blind to in the past as well. Mobile homes are not for everyone however they have been amazing for me. I like that you too like to think outside the box when it comes to helping sellers and buyers. I’ll keep the articles coming. Thanks again for reading along.

All the best,
John Fedro

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Roy Schauer February 11, 2014 at 9:17 am

Hi John!
I love problem solving! We have been able to create a niche for ourselves because most realtors, and other investors don’t do what we do. When people ask how do I make these deals happen, I say “really listen to them.” They may tell you what they think they need, but if you listen carefully you will hear their real needs while just talking to them. Most are so frustrated and inside the problem they aren’t able to step back and think clearly about it. That’s our job! And by networking with a lot of local sources, the ability to be creative in solving problems just keeps getting easier.

Our latest deal involved a lady who was about to lose her home of 15 years, and runs elderly care out of it, to foreclosure when they weren’t able to do a loan modification she had been working on for over a year. If you want to read about the tight timeline to stop this check it out here: http://www.biggerpockets.com/blogs/4135/blog_posts/33650-tightest-foreclosure-halt-yet

We ended up helping get her into a bigger rental, we paid security and first months rent, where she was able to add an extra client so her income increased and she has more space than her old house. We just counted the expense as an advance on her equity. By being creative like this, we have not only put her in a better situation, we’ve created a client who thinks we walk on water and tells all of her friends and family about us. Being ethical and a problem solver has very good future returns, not to mention it brought a business opportunity to us to expand into renovating bathrooms and kitchens now so we aren’t paying the contractors profit, it stays in our pocket now.
Great article John and would love to hear some more stories of how you helped people.

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John Fedro February 12, 2014 at 3:44 pm

Hi Roy,

Thanks for commenting and I enjoyed reading your story. I am glad to hear the deal worked out in the end. Great persistence and follow through. I love when you said, “They may tell you what they think they need, but if you listen carefully you will hear their real needs while just talking to them.” I could not agree more.

All the best and I’ll keep the stories coming.

Talk soon,
John Fedro

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Ralph August 22, 2014 at 9:13 pm

Hi John!

Can you tell me more about the My Brother’s Keeper deal? How you made this deal work, etc? Like, the owner agreed to do zero down with 100% financing with 0% interest. So, did you use part of the rent to pay the seller of the mobile, with whatever was left as monthly profit?

I am really interested in finding creative ways to get into real estate investing with little to no money down, since I have little money to start.

Reply

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