All Forum Posts by: Chris Newman

My main REI niche is newly-undervalued raw rural acreage in Snohomish county, WA, near Seattle. My general investing strategy is to "clip off" the land's surplus transferable development rights for later sale to urban mixed-use mid-rise developers who need them and then flip the residual land, also at a tidy profit, on seller note terms. This new REI niche only works in Snohomish county, but I have no competition.

My biggest challenge right now is that it's going to be another six months to a year before the market demand for these high value TDR credits launches. It's a matter of one final passing of a piece of legislation for county growth management, for an area-wide multi-family rezone that has been in the works for years. 

The final vote is currently scheduled for two weeks from now, but it's still going to take some time for the local mixed-use developers to see the many new opportunities. 

Anyway, in the meantime, my family still has to eat. So, as I cruise the MLS for new arbitrage land acquisition deals to line up, I stay tuned for other opportunities to make a quick happy bridge-funding buck.

One of these side niches is spotting SFR wholesale opportunities with plenty of profit margin to pass along to the buyer, in exchange for a modest finder's fee. I actually see these fairly regularly, but not usually with the double-your-money-fast upside of this new one.

I just learned of a good house (bank REO) that just came back on the market, after being "Pending" for four months. It originally went Pending in 11 days, which is very fast in this market. No idea why that deal went south, but someone sure snapped it up in a hurry at this price.

The exact details aren't pertinent to the main topic of getting past no-assign purchase contract restrictions but, if only for the entertainment of the deal gurus, I'll throw in the basics anyway. Someone might have better ideas on my deal strategy than mine, too. 

I know this small nice quiet rural neighborhood very well, which is how I spotted the high value. This property is a 3/1 of about 1,000k' on a very-usable and private jumbo lot surrounded by trees. Stick-built, not a mfg. home or mobile. About 40 years old, with decent kitchen and bathroom. With a garden cleanup, it will show well from the curb.

Perfect for either a rental with excellent cashflow, owner-occupied or, with summer lake recreation and winter snow skiing nearby, even AirBnB. Full in-town services are less than 10 minutes away.

The asking price is in the very low $100's, which is about as low as any house around here ever gets, no matter what's wrong with it - that's the minimum land value of a ready-to-build lot. 

To be rentable, it needs a garden cleanup and used kitchen stove. For fix-and-flip, I'd replace the ugly and dated, if serviceable, floor coverings. But, pending my own inspection, that's really about all it needs to hit market value.

There is a near-direct comp across the street: 

A 2/1.75 with just a few more square feet size, on a comparable lot. Earlier this year, someone did a moderate-quality remodel on this one and quickly resold it for $235k. It went Pending in 9 days, at $7k over the listing price. 

Most local sales take months of showing and usually close for under the asking price, so this kind of bidding war is very rare. All this tells me that the comp was priced too cheaply. It closed a month later.

So, I'm really motivated to find a way to put this new deal together for a quick wholesale flip. 

I've got a couple of challenges, however:

1. I don't have the cash to just buy this property. My current holdings have me all-in. But, if I did, I would. 

Then, I'd do a quick cleanup and flip it for top dollar on longer term interest-only seller financing terms. Then sell a chunk of the new note's cashflow for fast cash in order to recoup the original capital plus a modest profit now, with a much bigger locked-in profit not far down the road. Lather, rinse, repeat. 

Borrowing the money is not an option. And, I don't have any potential JV partners in my network who can pony up even a low six figures in fast cash.

2. This is an active MLS-listed property and I don't expect it to last long. But, I don't presently know of any wholesale buyers in the Seattle area who would pay me a bird dog fee just to tell them where to look on the MLS. I know that having a wholesale property under contract before shopping it is key to keeping buyers honest.

(There probably are Seattle area wholesale buyers who operate on a "hand shake honor" basis, but I haven't met them, yet. If you are, please PM me.)

3. This is a bank-owned property and, according to my agent, they absolutely insist on "no-assign" purchase offers, where I cannot resell the accepted contract to someone else. This is where I'm stuck. 

I've run into this no-assign restriction on court-supervised bankruptcy liquidations, too. So, this is not an uncommon barrier to us fast-turn REI folks.

I thought that I came up with a new workaround that I've never heard of, that I call a "Double Offer:" 

The way that this would work to end-run a no-assign is that I'd submit to the bank an accepted offer, then the new buyer would submit a (Pending inspection) backup offer that also gets accepted. 

At that point, they do their inspections and, if they want the property, they pay me an agreed amount to rescind my offer, which puts them straight into escrow. Everyone gets what they want without undue delays. Win/win/win.

However, my agent tells me that this large national bank, in addition to a mandated no-assign, also doesn't accept backup offers, either. So, that pops that bubble.

Does anyone in BP Land know of a strategy around these no-assign purchase offer restrictions? Or, have any better ideas than mine on anything?

Thanks!

Thanks! Ditto for Snohomish County.

No luck. Unfortunately, the building, a six-plex on Tower in Centralia for $75,000, just sold. An exact comparable, a mile away, recently sold for $250,000. <sigh>

I took my first and only paid real estate seminar back in the late 1970's, given by Seattle's George Hawkins. It cost $300 for the weekend, which was serious money back then, but well-worth it.

One of the first and most valuable things that George taught us, after stressing the value of having a life plan, was to "Make a ridiculous offer once a week. Sometimes, they say, 'Yes.'" 

Truer words were never spoken. And, it keeps you in the game and moving looking for next week's ridiculous offer.

You've got nothing to lose with your offer. The worst that will happen is that some stranger will decline to accept it. The only way to learn if it's a waste of time is to make the offer. 

But, even if they turn you down, if you learned even one new thing that will help you in the future, it wasn't a waste of time.

And you'll also find out if this particular agent will stick with you as an investor through thick and thin. Those are rare and worth gold. If not, there are good local agents who are also BP members who get it about REI. Let me know if you'd like a recommendation.

I share wholeheartedly your sentiment of not trying to profit from the misfortunes of others who are in a distressed and vulnerable situation - it is indeed a shameful thing to do. So, I don't chase tax liens or distressed notes, and would never lowball someone who is caught up in a short sale bind. It's a Karma thing.

Banks on the other hand, are fair game. There's still a broken heart at the foundation of the story, but by the time it reaches the REO stage, there's not a blessed thing that anyone can do help the original owner out of their jam. It's just too late.

But, if you can cut some soulless bankster's throat and pocket a happy buck for your family's benefit, more power to you! The bank will just write it off and short the next stock dividend by a penny or two.

Getting from Here to There is a lot like butting down a brick wall with your head:

As long as you keep butting, sooner or later something's going to break. If it's the barrier to your dreams, you've won. If it's your head, you'll never notice. :-)

PS Are you growing either craft beer hops or medicinal wasabi?

Chris

Nice to see a planted seed start to sprout. :-) Communal living on one side would mean that you could self-manage and not have to give up one of the bedrooms for an in-house manager, and yet not actually have to live with the students.

It would have been extraordinary if you had found seller financing. But, if you're paying cash, you're in a position to hammer down the price. Depends on the seller's situation and motivations, especially how long it's been on the market.

Can you get a 0-down low-interest VA loan combo for the purchase/rehab, once you have harder numbers? Lots of VA loan brokers will come up on a Google search and should be able to tell you. One of them advertised that you can borrow up to 120% of the home's value.

Otherwise, Charlie's suggestion is probably the best option, although more costly: Private money, then refi with a VA loan.

Please keep us posted on progress.

If you want to PM the address to me, I'll check it out on Redfin and see if I can spot any snakes in the neighborhood etc.

Fly Navy!

Hi Nick,

Do you know and trust this seller really well? If not, this smells very fishy to me. 

The excuse doesn't hold water: If the seller doesn't "want stress on the relationship" with relatives by warning them that the house house they're living in is being offered for sale, how are they going to respond when they find out that it's suddenly been sold out from under them without warning? That's pretty short-sighted, to say the least, which is a big red flag in itself.

And, what kind of person would do that to family and not even consider it way outside of the bounds of civilized behavior? I've know whole local cultures of people who think like this, though PC-ness prevents me from naming names. Do they sell a lot of used cars and RV's, usually with florescent signs, parked along a busy road? Do they do driveway "resealing?" "Honor among thieves" doesn't apply with these people: They'll cheat anyone, even close acquaintances, if they think that they can get away with it. I've seen it happen. That's just the way that they think the world works. To them, the only purpose for words is to get what they want at the moment, with no thought about consequences. It's too easy to just disappear. 

And, in the unlikely event that the seller actually holds title to the home that you buy, who exactly is going to be breaking the bad news to the tenants? How will you get them to leave? How can you prevent them from destroying/stripping the interior out of anger? 

This could be a variation on the current con game of someone leasing out a vacant house that doesn't belong to them, especially at a sub-market price that blinds victims to the red flags. Their goal is to collect first/last month's rent and a damage deposit, then do this as many times as possible before tossing out the burner phone and disappearing. A new phone and number is only $50.

If you're in Snohomish county, you can at least do a quick title search online:

Try entering the address here: http://snohomishcountywa.gov/2934/Assessor

Or use the SCOPI interactive map to zoom in on the lot and find the tax parcel number, which you can then enter in the previous page's form. You'll find that here: http://gis.snoco.org/maps/property/

Even better, go to a title company and spend a few bucks to have them run a title search. 

Even if ownership all checks out, this still sounds like a lame excuse to keep a buyer from knowing what they're signing on for inside the house. I've seen listings that didn't look bad from the outside, but that were so infested with black mold inside that you had to sign a waiver just to tour it. If that's the case, you may find yourself stripping the entire structure down to the bare studs and rebuilding it from there. Or, are there roof leaks that have the ceiling sheet rock so water-logged that it's on the verge of collapsing? I've seen that, too.  Or, is it being used as a meth lab? The list of what could be seriously wrong is endless. 

For starters, I wouldn't give the seller a dime directly. Put it in escrow, with both of you visiting the title company. If you get a lot of excuses, you'll know you're being scammed. 

If it was me, I'd just keep looking for another opportunity. There's always another deal out there, even on the MLS.

Please keep us posted.

Chris

@James Haffner Good for you in finding 220k properties in Lake Stevens. They should certainly cashflow nicely.

You wrote: "The biggest concern I have with renting out to college students is having to deal with college kids not being able to pay rent, then dealing with an eviction." 

I'm certainly not trying to talk you into this strategy - you've got your thing going and need to follow through with it. There are many pathways up the mountain.

However, for the sake of other readers, having an onsite house manager/master tenant in a student co-housing situation will shift all of the potential eviction hassles onto them. I would hate this job, too. But, no matter what their sub-tenants do, the master tenant is still responsible to pay the full rent. If only because the interior fittings don't need to be as nice, this is going to be higher than a straight lease to a family, and that extra rent goes straight into the profit column. 

This real estate management experience at a young age is probably more valuable than what the school teaches. :-) They'll be just one short step away from buying their first investment property.

@Natalie Kolodij

I wouldn't live in either area. We were trying to identify sub-$200k neighborhoods where it might be possible to cashflow a little. You get what you pay for, at least sometimes. 

I hear a lot more about gang activity and serious crime in south Everett down to Alderwood Mall, than north by the college. Student co-housing there is the only extra edge for cost/cashflow that I know of. I think that, as WSU continues to expand at Everett CC, the neighborhood rents will tend to go up and that will flush more of the low-rent culls further south. But, that's not what I'm doing with SnoCo REI.

Hi @Martha Bishop

Welcome to Bigger Pockets!

My best advice for newcomers is to go slow. All the normal BP investing niches in Puget Sound are jammed with profit-killing competition. And, it's not nearly as easy as they make it look on TV. As for developing raw land, you'll be going up against the SnoKing Master Builders Association members and they don't leave much on the table for others. 

2nd best advice: Before you put out a dime on a deal, run it past the cynics here. There's a dedicated forum just for deal analysis and feedback. If there are snakes in your deal, they'll find them. 

As for small acreage parcels with 30 year old mobiles, $270k seems awfully high to me, unless the land itself is exceptional. I've seen a fair number of mobiles on an acre or so, fairly close in, for $100k less. Check out the area near SE 20th St. between Hwy 9 and Machias road, due east of downtown Everett. There were a lot of these done here in the 80's and they're wearing out. 

If you plan to redevelop the lot, which isn't necessarily a bad idea if you really know what you're doing, don't forget the cost of disposing of the old mobile. If you can't find someone to take it as a freebie, this could get costly. Solid waste disposal costs $100/ton or more, plus a crew to tear down the coach and dumpster rental, plus hauling. 

My particular niche to raise capital to buy passive managed multifamily buildings for cashflow is the "non-developing" of rural land, which is a lot faster and easier than the other way around. That is, unbundling the unused residential development rights from cheap rural land and transferring them, in the form of county-certified credits, to more valuable urban growth areas in the western county. If you've never heard of this, don't feel bad. Almost nobody else has, either. It's new and it only works within Snohomish county.

The residual land has a permanent conservation easement placed on its title that prevents it ever being developed for residential. But, it can still be used for all other permitted uses. One interesting option is that an occupied RV is still legal for 180 days/year, one per lot. That opens the doors to reselling to Snowbirds or Preppers, but probably not both in the same community. But, there are a lot of other interesting options, too. I particularly like the idea of selling "$500 post holes" at the rate of thousands per acre.

In rare cases, the development rights credits are worth considerably more than the asking price for the land that they came with - that's my particular target, while they last. This sounds like it's a little more up your alley, too. Certainly, there's pretty much no other competition. 

 Here's the county flyer with the rules on how this new Transfer of Development Rights program works: http://snohomishcountywa.gov/DocumentCenter/Home/View/8118

My best estimate is that a TDR urban Receiving credit is a good value for a developer to buy at $22,000 and every acre of multifamily development site will need 36 credits. We should know prices for sure starting within a couple of months. This is still the ground floor for a brand new free market.

Here's a 40 acre TDR investment property that I currently have under contract near Arlington: https://www.redfin.com/WA/Arlington/xxxx-Grandview-Rd-98223/home/57084686 (The outlined-in-red lot is the wrong one, on the wrong street. The correct lot is about a mile west on Grandview Road and has a big powerline easement running through it that shows on the satellite view. But, what matters is the size and zoning.)

As an exercise, assuming that the residual land has no value (although it does), what's the profit here, just from pushing paperwork around? 

Please PM me if you have questions about anything.

Chris