Would you buy a killer deal even if it took you 2 years to close?
I have waited two years to post about this. Well, make that 2 years and 2 months but who's counting. About two years ago I had sent out some mailers that proved to be very successful. I know we had a couple of deals out of the three or four thousand letters we sent out, but I had no idea the best was yet to come. I had a local seller call me and mentioned they received our letter and they really wanted to sell. They even gave me a price they were looking for (some of my best deals turn out this way) but were very insistent this price would come with baggage. The seller was very clear on why they wanted what they were asking for. The purchase price they wanted was $9,500 and we split closing costs. In an area where the ARV two years ago was around $25,000 to $30,000, I thought ok well not a home run but still there is some room to make a couple of dollars. I was simply only wholesaling at this point and by no means did I have the cash on hand to just buy a house without having to sell it right away to get my working capital back out of it.
The baggage, as we will refer to it was the fact this home was purchased at a tax sale. Oh but wait! It gets better...The tenant who had not paid any rent and came with the house at the tax sale (more on that later) swore that she was the sole owner and that she would fight to make sure she kept her home. At the time when the first discussions were taking place, I asked the seller who bought this at the tax sale if I could see the inside. They informed me they could ask but this would all be up to the tenant who was not paying. So, being the chipper and energetic lad that I am decided to venture into the great unknown and go knock on the door. To my surprise, the tenant was home and after a few uncomfortable moments on the porch, I assured her that my intentions were to simply understand her position in all of this. I took a backseat approach all the while informing her that I was currently under contract to purchase. I believe now, looking back, it was her intention to scare me out of doing anything.
I entered the home and was stunned to find an Open Concept living room/kitchen. The home while not very high-end, it was clean and seemed to be maintained fairly well. That was two years ago. I got to take a quick tour of the home where I took pictures (that I can no longer find) and even managed to get the tenants respect. She even had an Acoustic Guitar where she allowed me to play while we were talking. I felt at ease with her and she eventually let her guard down as well. Our first goal was to "Quiet the Title" with the county since the tax sale took place. I knew there were some red flags that could come up. The tenant explained she had purchased the home on a land contract (which was NOT recorded). So, we hired the absolute best Real Estate Attorney money can buy - Jynell Berkshire who agreed to take on our case. If we were going to be successful not only would we need to quiet the title but we would then need to do an eviction.
A year into this whole process the tenant, who still had not paid a dime, fought tooth and nail to retain her right to the property. This individual knew real estate law just enough to know how to play the system. Which, in turn, made Jynell's life miserable and made the expenses start to add up. She managed to get continuation after continuation citing she was disabled and needed more time to retain legal services. Yeah right! She needed more time to live rent free is more like it! During this quiet title action suit the company who did the land contract came into the picture. They were the prior owners who apparently let the property go to tax sale rather than deal with this particular tenant. Now, you know if a bank would rather just let a house go to tax sale instead of doing an eviction or possibly foreclosure - then this must be a tough person to deal with.
At one point about 6 months ago this bank offered to both myself and the seller who bought the house at the tax sale in the first place a "payoff" to just wring their hands of this ordeal once and for all. We were both asked to put together our numbers and submit them to this bank for review. At this point, I strongly entertained the thought of just throwing in the towel and walking away. At no other point in my life was I unsure about doing a deal than with this one. Apparently, our numbers were too high. I asked for around $9,000 and the seller asked for about the same. We figured if they wanted to pay us I wanted to get something for my time if I was not going to end up with the property. No luck! Rejected!
That was my last shot to bail out of this deal! Oh man! Boy, was I ever worried. My wife, always the calm collected one said hey at least we still get the house. Over the course of time, this property took to just to quiet the title our wholesaling business really started to take off. We were doing 50-60 deals a year and I even got to work a $1.25 Million dollar portfolio deal. Needless to say, we were ready to become landlords. We had a plan from the beginning to wholesale houses in order to build enough capital to then use that money to buy rentals for cashflow. It is a very unique strategy -I know! Ha!
So, finally time was starting to run out on the tenant. This past January and February were real nail biting times for us. Would we get the house or not? Jynell, continued to push toward the end goal. She did what I believe most attorneys would not do- stay the course! She kept in there though. Week after week, and month after month until two years passed. Finally, we were awarded the Quiet Title Action in our favor. Think the story ends here! I wish!
Now, we had to close. That was the easy part. Then we had to do an eviction just to get her out. The real concern was what was the condition of the house now? It had been two years. I felt like the tenant probably continued to maintain the home- right? Don't people who live rent free for two years take good care of a house? Yeah right! It took a month or more to do an eviction. We ended up having to hire a different attorney since technically Jynell worked for the seller and not us the buyers. Jynell was also being threatened with lawsuits from this tenant and she was done. She paid her dues and I could not have done this without her help! So, we got our eviction and then the day came- POSSESSION!
Oh, how I wish I could tell you what I saw when I opened that door to go inside for the first time in two years. I was hoping for it to be at least empty and she would be gone. Nope! She still had a ton of stuff inside and outside of the home. Also, as another surprise - the county Board of Health had apparently had multiple complaints of trash outside. So, that was never disclosed to us during the purchase. That is real estate for you. I cannot begin to tell what it was like inside this home. How people choose to live in certain conditions is just beyond me. I mean, the smell was just ferocious. We spent around $1,500 just doing a trash haul. To say the words trash out does not do this justice. I mean we had two different crews pulling at least 10 loads or more all together. We had a giant jacuzzi, that no one wanted to touch but was one of the main complaints by neighbors. We even had a jacuzzi embedded in giant brush piles that you could not even see until we started to clear the weeds and brush. Monster poison ivy growing all over the garage. Trees causing issues with fences. The list goes on.
While paying people to do the trashout I noticed the sump pump was not working correctly. I decided out of the blue to just go and replace it- no questions asked. That intuition saved us from our entire basement from flooding. The craziest thing happened. We had the water main rupture somewhere in the front yard and water started pouring into our basement. Ugh! Want to talk about a close call. The water pouring in was so bad that I could hold a cup up to the basement wall and it would fill the cup in 3-4 seconds. I mean it was just gushing in! Having a mentor like Brett Snodgrass has really taught me by observation -stuff happens in life but it is how you handle those situations is what determines whether you can stay in control or not. I have seen some crazy stuff happen while doing deals with Brett but he always manages to keep his cool. I mean like losing thousands of dollars or being sued - he taught me that money comes and goes. He has risen above the nonsense and continues to dominate the Indianapolis market to this day. All because he knows how to stay level headed through it all!
We got water main fixed for well under $4,000 - thanks to the help of FS Houses LLC. I just have to say that Ryan and Ashley Mullin , and @Steve Lehman are some of the finest investors around. Every single one of these investors kept tabs on us and asked us how things were going and what they could do to help. You cannot begin to know what it feels like to have people willing to help you. I cannot begin to tell you what it is like trying to do things on your own like our previous house we rehabbed vs. what things were like with great friends helping out like Brett Snodgrass, Ryan, Ashley, and Steve Lehman. Steve Lehman would call me periodically just to ask me how things were going and if I needed any help with anything! How cool is that!
With the trash out, and rehab of the house we spent around $15,000 total. So, we are all in right around $27,500. Well, with the comps in the area two years ago that would have been bad. But hey! This is real estate and things change all of the time. This is an area just outside of Bates Hendricks and Fountain Square so in the last two years the values literally doubled in that amount of time. I would have never believed it if you told me this area was going to jump that much in two years. I can proudly say today the houses in this exact block are selling for an easy $50,000 to $60,000.
At last, we got everything cleaned out and started doing the rehab when out of the blue I had a contractor call me saying someone cut down the trees in the back of the house partially to where they were falling down. I dropped everything and loaded up my chainsaw and headed out the door. I would tell my wife today that I did the speed limit but I am glad I did not see any officers out there that day. Whew! Sure enough, when I got there someone had taken a chainsaw to four of our trees in the back and partially cut them down just to where they would fall during heavy winds or a storm. Of course, the weather was calling for a large thunderstorm to hit that day. Not to fear -Stephen with his trusty chainsaw is here! Well, I took down the worst one of the bunch I had my contractors finish up the rest once they got the tools they needed.
Today, August 15th, 2017, we are totally finished and have now looked to FS Houses LLC to help us get this rented out. Sure, we could do this on our own but if you have ever screened tenants you will know that it can be a full-time job just answering phone calls and following up on emails. We plan to rent this out for $700/month which is what it is currently listed for. This would bring an easy 15% Cap Rate considering what we went through I feel we deserved a decent return. Having the appreciation is just icing on the cake.
What we did right:
1. We bought for cashflow. Rentals seem to be a little more forgiving than flips.
2. Had some insight on knowing whether there was a chance at appreciation. In all reality, we got lucky with that.
3. Held on to the bitter end – got a great house for a great price $9,500.
4. Learned a ton about Quiet Title Actions and Evictions.
5. We actually hired a contractor to do the rehab. Our last rental we bought we decided it would be a good idea to do most of the work ourselves. Last winter my wife and I spent countless hours hanging drywall, and eating fast food for dinner for almost 4 whole months. This rehab beginning to end took around 3 weeks! Big difference! (Ugh! I can still taste drywall dust)
6. Learned how to better deal with contractors.
7. Had a scope of work from day 1.
8. Had a great support system of family, friends, fellow investors, contractors, and even “handy people”.
What we did wrong:
1. We assumed things were ok with the house and did not think to check on the board of health issues.
2. We had a scope of work, yes, but we did not have enough details included in our scope. We literally had some items that we “expected” were supposed to be done like building a closet when framing in a room when we figured we would get shelves and a clothes hanger right? Wrong! It was not on the scope! We figured our contractors would place a fridge on the outside of the cabinets instead of being in the middle. Nope, our stove is on the end, not the fridge. Again, it was not in our scope even though “new cabinets installed” was.
3. We did not do an inspection prior to our rehab. Meant we had a massive water main break which could have been noticed as it was a little moist in the basement.
4. We did not completely outsource every detail of the rehab in the beginning. We should have had our contractors do everything including the cleanout. Instead, we burned at least a week and a half of time just messing around with craigslist type “contractors”. Never again!
5. We paid our contractors all but $500 of their final payment knowing there were still items that needed to be finished. I seriously thought they would finish. They did come back once to finish what they thought needed to be done. However, there were still items left on the scope that did not get done properly. Luckily, I understand electrical outlets and how to safely install them.
I hope some of you will learn from our lessons and I hope others will be encouraged by this post. We were simply at the right place at the right time. In our eyes, this was a great deal. To see this house now since it is finished is just awesome! Words cannot express how glad I am that I listened to my wife and ignored my thoughts of giving up. Being at the right place at the right time just means – taking action! Period. Just start doing something if you are not already involved in real estate – go make something happen. I did it with NO MONEY! So can you. You just have to “want it” more than those who fail because they never got started in the first place.
