First Deal : A Free House?!?!?!

7 Replies

My first Deal: HOW I GOT A HOUSE FOR FREE!!!

I began listening to BiggerPockets and attended a "Rich Dad Poor Dad" free seminar in late May of 2016. So with my 2 weeks of podcasts under my belt I started looking at properties. My real estate investing started on the  Zillow app, and I began to look at anything and everything under 100k. I was currently in the Bowling Green, KY area and figured because of the University in town I had an area to focus on. 

I came across one property listed at 80k and noticed it had been on the market for over 300 days, so I looked into it a little further. It was a unique property in that it had two single family homes on one piece of property. The first house was a 3 bed/1 bath that was currently empty with active water damage from a bad roof, and the 2nd house was detached garage that at some point was turned into a "church" that had 2 bathrooms, a kitchen, and 5 rooms; 4 rooms with closets and one without. So I saw this as a 4 bed/2 bath with an office. This is where the owner currently lived. This converted church was apparently of buddhist background and incense burning was a common everyday practice leaving the entire place smelling of incense with every vent and room outlined in black soot. I saw a 7 bedroom property near a university and figured this is a student property. 

I began to ask the realtor questions about the place. Why was the owner selling? What did the owner want to do with the money he made from the property? The realtor replied the owner wanted to buy a "normal" house and he was going to use the money from this property to put down on a new place. In the middle of talking with the realtor the owner pulled up and I continued to ask questions. I asked, what do you owe on the property? How much money do you need to put down on the new property. He gladly answered my questions, I owe 15k on the home and would like to put 25k down on a new property, and with those answers I knew my starting offer. 

I put in an offer for 40k cash, no inspection, and no appraisal. I figured with my 2 weeks of podcasts and my one hour seminar I had this thing figured out. The kicker to all of this is that I didn't have 40k cash to buy the place, really I was offering this as a, there is no way they will take this. I had left for a bachelor trip in Florida and really kinda forgot about it and in the middle of my week in Florida I got a call saying they accepted the deal. At this point I started to panic a little but knew I could get it done, so my work began.  

I made some phone calls and found someone to loan me the 40k and with that I closed on the property within 14 days. During the closing process the realtor had told me about some possible zoning issues which could delay my rehab and July completion date for the new students coming in to town for the Fall semester. We went back and forth and settled on 35k purchase price and I covered all realtor fees and closing cost. So I came away with the property for around 38k total. 

Luckily the podcast I had listened to on BiggerPockets talked about refinancing a property to pull money out, so immediately after closing I headed to a bank and asked if I could refi a property I just bought, and because I had purchase the property with cash they were happy to refi the property. The appraisal came in at $79,999 and leaving in 20% in equity the bank stroked me a check for 64k. I took this cash and paid off 40k to my lender and used the other 26k to rehab the property. 

I rehabbed the place, about 80% on my own, in time for the Fall semester, and now rent the 3/1 for 1200 including utilities and rent the 4/2 for 1400 including utilities. 

Monthly Expenses (Mortgage/Utilities/Taxes/Insurance) : $1,100

Monthly Income: $2,600

Cash Flow: $1,500/month  ($18,000/yr)

This is truly my first deal...I got a FREE house. Yes there was luck involved, but I had the guts to get started. 

Thank You BiggerPockets

Sounds like a solid homerun, congrats! 

Don't forget about your vacancy, repairs, and CapEX. 

Sure, you just rehabbed and repairs could be lower for a while, but vacancy and CapEX should always remain static. =)

Nice work. Stories like these inspire me to keep looking for deals even when I'm out of ammo. How did you manage to get 100% financing from a hard money/private lender? What was the rate and term?

@Peter T. I was able to get someone to loan me the money for 8% flat rate. I had several months to complete the deal and the lender made a quick $3,200 bucks in about 2 months. This was pretty much a hard money lend.

Great job Cody! You jumped right in but were super smart about it. What do you think the property is worth now that it is rehabbed? Maybe you could cash out refi again in 6 months and use that cash for the next deal?

@Cody Campbell Now that is REI! Way 2 go! You saw the opportunity, did whatever it took to get and close the deal, found a way to get it rent ready, and got it refinanced. Absolutely an amazing first deal. See what happens when you take action? Welcome to the club and a great way to start your REI journey. Bet you got the fever now lol.

@Austin Peck is absolutely right in that you need to plan for those other expenses whether they are present today or not. Vacancy, repairs, and cap ex will happen and you need to be ready accordingly. Even property management expenses, if you choose to hand the property over to someone else in the future, should be factored in. Your true cash flow numbers are not what you have stated but overall you look to have a great deal anyway. 

Thank you for sharing your story. I hope to see more from you in the future! Good luck in all your future REI ventures!

Awesome story! Finding that first deal can be extremely hard and time consuming but it certainly pays off once you find that property where the numbers line up. I hope I can do the same soon. I'm focusing on trying to find a good duplex or 4 plex to purchase, live in 1 unit and collect rent from the others but so far the numbers don't like up. I'll find one! Thanks for sharing! 

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