We came across this lead in 2013 from a tired landlord who wanted out. He told us to come out and look at it. I looked at the house and got pictures. He was willing to take a payoff, which was $70k in his estimate. The house was in a small pocket outside a desirable neighborhood. I offered him $40k-45k. Obviously, he could not do anything with that due to the fact that he owed more on the property. He kept calling us back and also tried other investors. And no one could make his numbers work. Earlier in the year, I had realized how much the market was changing and rising in price. I called up the person I was working with on that deal. And I told them to give the seller a call.
The seller was still interested in selling. However, I began to think the house was worth more than what I initially thought. I guess fate was on my side. We found one comparable sale in the neighborhood for $180k for a 2/2 at 936 sqft. We decided we could make that work.
We called the first lender to lend on the deal. He did not like the fact that there was only one good sale in the neighborhood and the rest were just ok. He said he would pass due to the pocket that the house was located in. We called the second lender, and he said he wouldn’t lend on it because he did not like the metal roof. In other words he was saying, “Hey, I don’t feel comfortable doing this deal because of the one sale, so I will just pick out something that can’t be changed and say I don’t like it.” I called a third lender, and after averaging out all comparables in the neighborhood, he said he did not like the average sales price and would pass. We were stuck like chuck. We were scrambling trying to get the deal done.
Making the Deal Work
I had to call up the wholesaler I was working with to make a different offer. I had to ask her to ask the seller about taking the house over “subject to,” and we would give him $3k at closing. Also, we had to pay the other wholesaler $3k. Fortunately, the seller accepted. At that point we just had to find an investor to fund the rehab — and we secured that within days. We were able to close on it. The house was a 3/1 with 1,000 sqft. We were in about $77k after paying everyone at closing. The budget was $60k in rehab costs. And we wanted to sell for $180k. The owner recently just changed the roof on the house to a metal roof. I personally don’t like them, but they last longer and are maintenance-free. We ended up keeping it, and it came out beautiful.
The house is located in a trending little pocket in the neighborhood. We needed to take it from a 3/1 to a 2/2. We decided to add a master suite by utilizing the bedroom. We also wanted to build a deck outside and basically update the rest of the house. The rehab took four months but should have been done sooner. We had to hire an exterior decorator to find a color that would match with the burgundy metal roof. In the end we were able to get a full price offer of $199k the first week of it being on the market. We staged the house because right now it’s not the peak selling season and we needed to give the seller a vision of what they could do with the 2/2.
In conclusion, don’t forget that we are real estate investors, and we are here to solve problems. Sometimes the problem is not only the seller’s issue, but also issues within our business, such as securing funding. In this case, the seller was tired of driving three hours to check on this rental and deal with a problem tenant. Also, please keep in mind that not everyone can see your vision. In the case of hard money lenders, they simply make the best decision for their business model. They earned their money, and they can choose to do with it whatever they please. I am still friends with those lenders who rejected me today, and I plan on using them in the future. Always remember to follow up even when you’re being rejected, because you never know which route will lead to a closed deal.
What was the last deal where you had to try different avenues to make it work?
Let me know your stories in the comments section below!