Auction Purchase In Pittsburgh

[Mike Klarman]

Investment Info:

Single-family residence wholesale investment.

Purchase price: $39,500
Cash invested: $42,000

Picked up this house at auction for 39,500. Zillow estimate is 113,000. I have experts in the market that tell me they can sell it for 65k/70k in as-is condition. We are waiting for the deed to arrive and then my wholesaler will arrange the sale. I'll sell it to wholesaler for 65k, he'll move it to a local investor for 70k. Without lifting a hammer and in a 4 month timeframe, I'll see a 54% return on capital.

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

I've seen too many projects involving on market purchases and unreliable contractors that went a million miles an hour in the wrong direction. I've seen deals on paper people would kill for, only to have their money put to death. I am partner with wholesalers, RE Brokerages in markets that offer opportunistic off-market/non conventional ways of picking up properties for cash. The wholesaler or Brokerage then arranges the sale to a client. Higher return. Way less risk. Faster cycle.

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

It was an Auction purchase. We won the bid at 39,500. I have an expert in the market that knows Pittsburgh street by street. He advises me what to buy based on what he knows he can get rid of it for. I look for a 30%+ return on a purchase.

How did you finance this deal?

Cash.

How did you add value to the deal?

The value was already in the deal. I am an opportunistic buyer. I only buy at a discount. You need to start a project ahead of the game.

What was the outcome?

I won this house on June 2nd. The original owners had 30 days to save the house by making good on their back taxes. They did not so the house is mine. The free and clear deed should be arriving in a week or two. Once deed is in hand, I get into a contract to the wholesaler for 65k. He tells me he'll have it sold to someone for 70k in days.

Lessons learned? Challenges?

My lessons were learned as I watched 40 clients go through flips the traditional way and it was a real struggle. Buying too high, contracting overages and even a revolving door of contractors at times, and then exit sales vs ARV from appraisals months old. I received a good taste of what can happen to an investor in a project, even if it looks good on paper. You need to buy low with cash, and you need to manage your own job. This will dramatically decrease your project cost.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, but I'm not giving away my secret sauce. I advise anyone out there looking to build a network, get on the phone and have conversations with people who work in the market you'd like to enter. For me it s the stretch between western PA and Indiana. Those markets still offer cheap buys with decent ARVS.