I finally did it, on my own! (with the support of my family, of course)
Ok, after being encouraged by Will, at the last Naked Club meeting, I decided to document a recent success I had. Actually, it was the first substantial success I have done, where I was the one completely in charge. Sure I did not do it alone (who can in this business), but I was the one completely calling the shots, no one to blame if it went wrong.
Better go get a cup of coffee, this will be a long one.....
Let me first preface this story saying I had been studying real estate for about 5 years, but never really pulled the trigger. Also, I currently work a full time job and commute 45 minutes each way to work, and have a 5 and 7 year old.
The story actually starts 8 months earlier. My friend and I went to purchase a probate house and needed $260k. My father has a Self Directed IRA, with $130k in it, so we needed another $130k. I asked my dad if he could think of anyone. He did mention a long time friend that he had discussed real estate with several months prior, but hadn't spoken to in quite a while, his name is Larry. Dad said, why not give Larry a call, doesn't hurt. So, I called up Larry, and Larry said, "Well, I am not to sure, but if your dad is in for half, I will go the other half".
Fast forward, 7 months, we FINALLY got finished (thats another story for later), and we are in the middle of escrow with the buyer. I cannot wait for escrow to finish not only to get paid, but to be able to call Larry, and say, "Hey, I did such a good job, want to lend me some more money?" Well, I did not get the chance. About 2 weeks before closing, Larry calls ME! and asks if we have another deal lined up! I told him we were looking but now that I know he is ready, we will find another one quickly. I also asked if we could get together so I could share with him what we were doing.
Well, 2 weeks later, we got together a restaurant near his house, and he brings along his son, his previous business partner, that guys son, and one other guy, that has an interest in investing. We had a great discussion, and they basically said "bring on the deals". We did not discuss exactly how much they had, but I knew they had recently sold their business, so they had some cash to invest. This was Mid December 2009.
So, a few days later, they gave me a prequal letter, along with POF, so I could start submitting more offers confidently.
Around that same time, I had signed up for alerts, at http://reo.wachovia.com/ to get notified when properties became available.
Also, another relationship that I had been developing was with a friend of mine that I used to work with, but he quit the company we were working at to go full time into real estate a number of years back. He is now a broker, but has been struggling financially. His name is George. George lives in Azusa, CA.
One of the emails I got, had a property on it, in Azusa, I knew George was local, so I forwarded him the email, and asked him to check out the property, meaning drive by, look at the area, and walk in and around the property, then let me know what he thought the value was. BTW, George is primarily a BPO agent, he has done over 6000 BPOs, so he is very experienced at ascertaining value especially when it comes to valuating a property in terms of how a bank looks at it.
George called me from the house that afternoon, very excited, he said the house is very nice, it does need some updating, but it has a huge (10k) lot, and the house is a 3/2, about 1700 sf. He also said he puts that value at about $350k, once you cleaned it up, nothing major. He also told me that he contacted the listing agent, and she said, all offers will be presented to the bank after 7 days on the market.
So, I thought about it, and asked George to write it up at $275k. I came up with $275k, by taking the $350k value, and deducting about 20k for selling costs, 20k for my profit, 15k financing costs, and 15k for repairs. My offer also asked for a 5 day inspection period, and to close in 10 days. I included my prequal (from Larry) and POF letter with the offer. George wrote it up and delivered to the agent.
I then emailed Larry, and let him know the numbers, and he was okay with it. He is charging me 3 pts and 15%. I was asking Larry to lend me the purchase amount PLUS the repair cost, so $290k in total.
So, after impatiently waiting about a week, I got a phone call from a very excited George, our offer was accepted!! The L/A told him that they had received a total of 82 offers (later we found out, they had received another 8 after we opened escrow). 8 of those offers were all cash. She told George that she has been listing REOs for several years, and this was her record for most offers received on a listing! My offer was the highest of the 8 cash offers. They did not even bother with the financing offers.
I immediately told George to get his home inspector out there. I did not want to even open escrow, if there was something wrong with the house. The inspector was able to come out the next day. He did not find anything major wrong with the house, it was good! I could not believe it. Now, I did not have the $25k to put down as a deposit, I did not expect my offer to get accepted. So, we were able to stall the agent long enough, asking for wiring instructions from escrow so we could wire funds (the deposit) into escrow, this bought us a few days, because escrow was not prepared to move so quickly.
Meanwhile, I had prepped my lender, this was his first major deal as well, so we were learning together. After we got the wiring instructions, my lender wired all funds into escrow, and we closed in just 7 days. We closed on 12/28/2009.
Ok, now what? So, George had another friend, Carl, that does some handyman work, and knew several different trades people I asked Carl to help me manage the project, and oversee the tradespeople. Like George, he also lived locally (I lived 30 min away). I hired a gardener to come in an trim all the trees, install sprinklers, and clean up the backyard (lots of debris from previous owner). I also had Carl line up a painter to paint the entire outside of the home, and some of the interior. The great thing about this bank, was that they came in a put in new carpet, and painted the inside, as part of their cleanup process.
All the work was done in about a month (about two weeks longer than expected, primarily due to the big rains in mid January), and by the end of January, we put it to market, for $350k.
Now, I was really getting nervous. Then, big news, FHA lifts the title seasoning requirement! Yahoo! No title seasoning issues. I can sell right away to an FHA buyer. Well, not so fast. Turns out that although FHA had put a hold on title seasoning issues, no lenders had any loan products ready. So, doesn't help me much.
(meanwhile, the clock is ticking at a cost of about $120 a day, in interest)
A week goes by, and we get one offer. Full price, but FHA, the lender is Wells Fargo. George calls up the lender, and no can do, they have an issue with the title seasoning. So, he calls the buyers agent, and tells him the problem, but that we have a broker that can do no title seasoning loans. So, the agent tells George, for HIM to call the buyer and explain to him! Go figure! So, why not, George calls up the buyer, and turns out, the guy is a die hard Wells Fargo client, and will not work with the mortgage broker, even if it means not having his deal go through (crazy, huh?).
Okay, so that buyer goes away, about a week later, on a Monday morning, we get another full price offer, George does the same thing, and calls the lender, on the preapproval, and this one is okay with title seasoning. I told George to take it! I was just so excited, and wanted to sell the thing. George suggested we hold off until tomorrow. He had a couple other agents saying they were interested and he wanted to give them another day.
Well, I am glad I did hold off! George calls late afternoon, and says: "I got a call from an agent, her client wants to pay $330k in cash. I told her that we had an offer at $350k, from a well qualified buyer, and most likely we will go with that." She then explains that this buyer just recently got a life insurance settlement and only has $330k. She then asks if the seller would carry back financing. George told her he would check with me. I told him Heck YA, make me an offer! So, he called her back and let her know that the owner is agreeable to that, and to make an offer.
So that night about 10pm, I got an email from George, that contained the offer for $360k (10k over listing) with a $330k down payment!
Now, I did not really want to carry a note for all my profit, but I was prepared to do so, if necessary. But, I contacted Larry, and told me the situation. He asked "what are the terms", I said "I don't know, you tell me", so we agreed to keep the same terms as I had borrowed money on, 3 pts, and 15%.
The buyer agreed to those terms. Most likely they were going to refi in 6 months anyway.
So, 2 weeks later, 2/17/2010, we closed escrow!
So, here is a breakdown.
Purchase price: $275k
Total Borrowed: $290k
Sold for $360k
Financing cost: 15k
selling costs, inc. commissions: 20k
Total hold time, 7 weeks.
Is there anything I left out, let me know? Any questions?
Right now, I have 4 deals that I am working. I have decided to work with a partner for future deals, to manage the day to day rehab. This property needed minimal work, but most need more major, so they need daily management.
So, I am here to 100% unequivocally say that you CAN make money in real estate, without using any (and I mean none) of your own money!
BTW, in case any local agents want to check it out, the address is 425 W. Duell, Azusa, CA check it in the MLS.