Update on my Second Deal - Final numbers!!!
So this is a continuation of my second deal story( https://www.biggerpockets.com/forums/223/topics/52...)
So I have learned many things from this deal... I will post them at the end along with the final numbers!
The part of the story that I excluded from the last post: in the Option to Purchase agreement we wrote up that I agreed to pay his mortgage payment which I understood to be $800 for PITI. I was told that the owner was only delinquent up until his incarceration in August of 2017. I expected to have to pay 4 months of missed payments, fees, etc.
Also in the Option to Purchase agreement we had written in a clause that if the house were to sell during the option duration (I was given authority to sell, rent, lease, etc) that the proceeds from the sale would be split 75% to me and 25% to the seller.
Well after a bunch of run around I finally got the lawyer to have the owner sign a POA document so I could talk with the bank and law firm directly. I then found out he had been delinquent since January 2017!!!! To bring his account out of pre-foreclosure it would be $13,700!!!!
Obviously when you take that into account the COC drops significantly. In addition there was a big rain fall in February and my tenants informed me the roof leaks...
I received word of the roof leak and the $$ amount the same week...I was stressed out.
At that point it was either refund my tenants, apologize for inconvenience, move them out, and walk away from the deal losing all capital invested.... ORRRR dig my heals in and trudge on.
I went back to the lawyer and shared with him the pictures of the roof leaking and letter from the law firm and told him that I can no longer do this because of the $13k and the $9k for the roof repair. I said if I sell it as-is with a bad roof then I need 100% of the proceeds to just to hopefully make my money back.
The lawyer tells me that 25% of the proceeds was going to be part of his compensation. He said he would be willing to relinquish his 25% of the proceeds in exchange for $5000 cash now.
Now I was in a situation where I could set the purchase price and knew what the expected payout would be. I had some good comps in the area that showed it could be valued as high as $150 (there had been some more recent sales in 2017 since my previous post).
I wrote up an offer of $140,000 and I bought the place!
NOW WHAT YOU ALL CARE ABOUT:
Purchase Price: $140,000
My Cash to Close: ($29,460.92)
Proceeds from sale: $25,511.51
Cash to Lawyer: ($5000.00)
All Prior Repairs: ($9,905.37)
Roof Repair: ($8750.00)
Total Cash Invested as of 4/12/2018: ($27,604.78)
Financing: $112,000 mortgage (5 yr ARM amortized 30 yrs)
Debt Service: $602
Taxes: $3,350
Insurance: $907
Tenants are responsible for everything.
GSI: $14,400
Withholding 6% for repairs... or other: ($864)
COC: 7.44%
Percent rule: 1.04%
Tenants have expressed interest in owning this home after just 4 short months of living there. I plan to offer them a rent to own in order to lock in a sale price while the market is high!
Lessons learned:
Make sure you have all of the FACTS before you spend any $$$$
If I didn't have @Michael Henry there to call on I don't know if I would have gotten through this!
Thanks man for all the help!
I am very pleased with this deal though because I now have a relationship with the lawyer who works with some criminal, but primarily divorce. He says I'm his "go-to guy" whenever something real estate comes up!
Who knows what that relationship may be worth!
Cheers! Sorry for the novel but it has been quite the escapade!