Contract for Deed Gone Awry...

[Emily Forthun]

Investment Info:

Single-family residence fix & flip investment in Edina.

Purchase price: $850,000
Cash invested: $82,000
Sale price: $1,305,000

This was a 2015 tear down and build. Initial owner was on a contract for deed where, unfortunately, they were unable to meet their payment obligations. 3 investors involved in this deal. 1/3 split up front cost. 30 year conventional financing with one investor assuming loan while all parties had a legally binding MOU.

What made you interested in investing in this type of deal?

The numbers were favorable immediately. Builder regained the property and wanted to unload the property as quickly as possible.
My group of investors were in the right place at the right time.

How did you find this deal and how did you negotiate it?

Networking does pay off. A close family friend is a real estate agent and asked if I would like to invest.

How did you finance this deal?

I utilized a HELOC along with 2 other lines of credit.

How did you add value to the deal?

I worked primarily as the project manager by contacting and communicating with various contractors throughout the project. During the MN winter months so I had my two sons, 8 and 11 at the time, help with snow removal.

What was the outcome?

We ended with a 49% ROI. Our profit enabled us to proceed with another deal immediately post sale.

Lessons learned? Challenges?

Consistent and timely communication between all parties is a must. As an investor being proactive on design and contractor decisions can not be taken for granted. Assuming all contractors are self starters with the same work ethic is a fallacy. Outlining your SOW with timeframes right out of the gate is imperative or deadlines will be missed yet contractors still want to be paid yesterday!