Closed 3 Houses Today!!! $$$$$
Today was a day that we all look forward to in real estate. It might not come very often, but when it does, it's a great day. It's called payday! I closed three houses today alone. Below I will walk through the deals and lessons learned from the deals
First deal and the second deal: This was actually a listing. I know, I know, who cares about a listing...
1. How I found it - I found it from one of my yellow letters. It came from my driving for dollars campaign. This was the second letter she had received. It is right next to another house I recently purchased to flip. My original intentions were to tear it down or rehab it.
2. The numbers - It was a 850 sf house 2/1 in a very hot area of Nashville. I knew for a tear down, I would need to get it for about 70k (new construction in the area is selling for 360-380k). As a rehab, comps showed 220 a sf.
850 x 220 = 187,000 x .7 = 130,900 - 40,000 (I use sf x 45 as a quick rehab number, then I round up) = 90,900 MAO
3. Negotiation - Over the phone I ALWAYS ask what the seller wants to walk away with. She told me 146,000, because she wanted to buy a better house outside of the city. I show up walk the property, I immediately notice the gutters, roof, exterior paint, windows, and garage all need to go (starting to look like a tear down). I build rapport with the seller while further examining the property. I asked what the lowest she would take. She said 140k.
At this point I knew we were WAY too far apart. She asked what I would pay for it, and I told her around 80k. She immediately said no, but because I had built rapport she didn't get upset with me. I told her that if she wanted 140k for it, I will put it on the market for her at 159,900 and see what happens. This is my real estate agent niche now. I asked for 45 days to sell it, she agreed. We signed a napkin saying I could list the property (always bring every document with you!!!!!)
4. Outcome - It sold in 7 hours!!!!!!!!! for 155,000. The end buyer is going to rehab it and rent it out. Rents for a 2 bed in this area at best would pull $900 a month (not even one percent). This listing then lead to me representing her to buy another house which we found in less than 14 days! Total commission was 8,565 for the two houses which I netted 5,139... I cannot wait until I obtain my broker license and leave my firm to capture the full amount............
Biggest lesson here is: The MLS is full of investors who are overpaying, and I need to convert more overpriced leads to listings in this market. Using this method, I have obtain 2 more listings in the past week just off my yellow letters, and I am working on a 3rd!!!!
Deal Number 3 - This was a wholesale deal that was a tear down across the main street of the house I mentioned above. Same neighborhood. It pays off to focus on a particular area.
1. How I found it - Again, I found it from yellow letter campaign. And AGAIN, to my driving for dollars list (Best list I have). I had sent this guy 3 different letters (3 consecutive months), and he called me.
2. The numbers - This house was a 900 sf house in really bad shape. Seller told me "the lot is worth more than the house." New construction was at 330k a house. The zoning was R6 meaning "one and two family." Essentially, you can build two 330k houses on the lot. houses on this side of the street were selling for less?!
330k x 2 = 660,000
Builders like to buy at 1/5 of the ARV (new construction ARV).
660,000 x .2 = 132,000
3. Negotiations - Always ask if they have gotten any offers. He said a builder had offered him 120k for the property. Looking above, 132,000 is what I need to get it at LESS wholesale fee. I offered him 125,000. He immediately said YES!!! Emailed him my standard contract and he sent it back.
4. Selling the Deal - At this point, I didn't know hardly any builders (shame on me for not meeting more people!!!) I reached out to a guy I consider a mentor at my local meetup. He runs the meetup and is focusing on tear down lot wholesales right now. I told him if he sold it, he could have half the profit. He immediately agreed to it.
He asked 130,000. We found a buyer in 4 days for 130,000.
So we made 5,000 on the deal. Sounds simple? We had two hurdles to jump
Hurdle #1: The buyer he found was represented by an agent. The agent first wanted us to get the seller to sign the standard state forms (because most realtors do not like using non state approved contracts). I immediately said ABSOLUTELY NO WAY. How would that look if I went back to the seller and said "JK you have to sign this contract, not that one," he would go to someone else. That accepted it, However...... I got a lot of push back from the agent. He wanted the seller to pay for the commission, I told him, your buyer pays it or you don't get the deal. They agreed. That pushed the purchase to 133,000 roughly. The agent also made us redo the assignment contract because he "didn't understand it."
It literally says this: "Assignor Devan McClish assigns purchase and sale agreement between ______ and Devan McClish binded on (date) to assignee _________ for the consideration of 130,000."
That is very hard to comprehend apparently. But whatever I did not care since the new assignment contract said the exact same thing...... and they paid me 2,000 up front and 3,000 at closing (don't know why he would do that, what happens if the contract is terminated???)
Hurdle #2: Seller wasn't leaving until January 1st, 2016. We got this under contract at the end of September. That is 3 months of rent back for free!!!!! Buyer agreed to close November 6th, 2015 to limit the rent back. They did not care because it was a tear down. The hurdle was trying to convince the seller to wait to close. They wanted to close in 21 days. Which would've been fine. But I eventually got the seller to understand that 3 months of free rent back is ridiculous.
I also never met the seller and never saw the property other than when I wrote it down while driving... Never thought I would do a deal like that
Lessons Learned:
1. Never ever ever ever sell a wholesale deal to someone represented by a realtor - I just won't do it anymore. It was more of a headache than anything. They accused us halfway through the process for doing something "illegal and unethical." (his words not mine). In my opinion, he was a little envious that we made 5,000 on the deal and he made 3,000 which about 1,200 of that goes to his broker...
2. I threw away A LOT OF MONEY...... Since we closed the comps had increased to 350-360k a house so that equals 720k. I ran the numbers on how much the builders will be making on the deal because I was curious and this is why I dislike wholesaling sometimes, especially wholesaling houses in my target market. Here are the numbers if I would've done the project for 6 month project:
Purchase Price - 125,000
Closing cost buy - 1,000
Building costs - 1,800 sf x 100 x 2 = 360,000
Sale Price - 360,000 x 2 = 720,000
realtor and closing (8% of Sale price) - 57,600 (I would've retained 12,960 because I am an agent)
Insurance - My insurance agent said about 10,000 for the year / 2 = 5,000
Taxes - 1,300 / 2 = 650
Mortgage payment (my banker can finance an investment for 10% down and they fund the other 90% at about 4.5% interest) - 450,000 amortized over 30 years = 2280 monthly x 6 = 13,680.... Balance after 6 months = 446,410.97. about 10,000 in interest payments
Net profit before taxes would've been 173,710 barring any unforeseen expense or the timeline changing and we sold at that price.
So, lesson here. I threw away 6 figures for 5,000. Since then I have decided to do every project I can that has good margin instead of passing it along for someone else to become rich :)