ok time to eat the frog, or boil the frog, or kiss the frog, or whatever the book tells you to do with the frog... Within limits. (PETA would be proud)
It's been a lil bit since anyone had added to the scenario so I'll go ahead and tell you what I did.
So as mentioned, the property consisted of a 4 bedroom house and a 2 story garage duplex. With 77k in code violation liens growing by around 100-200 per day and the city had just authorized the demolition of the property.
The buyer was in foreclosure and had gone into chapter 13.
Well you know what they say on how to eat an elephant, one bite at a time. (Ok maybe PETA won't be so proud)
So I went to my seller first and asked him what he needed. " I just want this behind me," was his response.
So I wrote up a contract to purchase the property for the payoff to all liens and encumbrances, subject to permission by the bankruptcy trustee.
(Keep in mind, I have not put any money down as this is subject to acceptance)
I then went to the lender who had been the prior owner who had owner financed the property to my seller.
I offered him 25k for the purchase of the note. The problem was that he also knew about the upcoming DOT situation.
"Why should I settle with you for 25k?" He asked. "The DOT is coming and should give me all my money."
"The problem is," I replied. "There is a demolition order on this place, and If you don't accept my offer, you will have to finish your foreclosure and by then the place will probably be torn down." "If that happens, the DOT will only offer you land value, which is around 25k. "So you can accept my 25k offer now, or you can spend money on finishing your foreclosure, have to deal with the demolition lien, wait a year and still receive 25k."
Long story short, he accepted my deal.
(Again keep in mind, I have only written up the agreement, I haven't actually spent any money yet)
I then went before the board at the next meeting and asked them to reduce their lien from the 77k to just their hard costs, and to give me 90 days to bring the property back into compliance.
"Why should we do that?" They asked. (I seemed to be getting that question a lot in this deal.
"Because," I responded. "I control the first mortgage on this property, and if you don't work with me on this I will just foreclose you out and you won't collect anything." (Kind of like @bill gulley said) "However, if you accept my plan, you will get your hard costs back and won't have to eat the demo lien and will end up with a property that is up and running and a good tax base for your municipality."
Thankfully, they saw it my way, and reduced their lien from 77k+ to 1k.
(Again, I just got the agreement from the city. I haven't actually paid anything out of pocket yet)
My last stop was to the bankruptcy trustee. Now keep in mind, the trustee goes off of the property assessed value of 67k. He still sees the 50k first mtg and the 77k plus code lien.
There was no equity for him to pay against the creditors so he had already released the property from the bankruptcy. However, because it was still an active bankruptcy I needed permission from the trustee to complete the deal.
"I need your authorization to take this property back." I said as controller of the note.
"Why don't you go ahead and foreclose out your lien?" The trustee asked.
"Because," I responded. "There is a demolition order on the property." (Which there is, until the 1k is paid then a 90 day repreave) "If you don't work with me, I may lose my property." "You are supposed to work with creditors, I need this help."
He did see it my way and for 2k he released the property to be sold.
Now that I have a clear passage to ownership, I took the completed package to my title company, borrowed 53k from my private lender and closed the property for 28k.
The repairs were actually relatively nominal. The issue had been how long the violations had remained latent.
It only took me about 12k in rehab to bring everything into compliance (my employees doing the work) and I actually walked away with 13k in overage that went into my pocket tax free!! (Proceeds of a loan)
I then rented the 4 bedroom for 800 through section 8 and rented the duplex for 500 per unit for a total rents of 1800 with monthly profits around 1k per month.
About a year later, sure enough the DOT showed up. There was one change though, the map had moved over in the plan and all they needed was pie shaped sliver of the property. The problem (for them) was that the pie shaped sliver ran right through the duplex making it so that in order for them to take the property they would have to tear down the duplex.
The DOT made me their initial offer at 67k plus I would keep the house. I said, "no."
(You never accept the first offer)
"Why won't you take that offer?" The negotiator asked me.
"Because, right now I have an income property generating 1800 per month." "You will be taking 2/3's of my income (never mind anything so trivial as math) and leaving me with a rental house backing up to a highway. (This is what we call presenting intrinsic damages)
The final number we agreed to was 97k with me keeping the house.
So with the numbers in hand, I went to my private lender and asked her if, since I would be keeping the house which was more than enough collateral to protect her interest in my offer, if I gave her 13k, would she do a partial release on the duplex and leave the remaining 40k on the house.
Since she liked me and was mainly interested in receiving a return on her money, she agreed.
So instead of making a measly 44k on the property, I was able to actually keep 84k. That with the initial 13k I had pocketed at closing and the 1k per month profit I had been receiving for over a year, gave me well into the 6 figure profit on this little "cracker shack" @Manny Cirino that most people would have passed on, while still being in a positive cash flow on the house (which I later sold for a separate profit)
Not bad, eh?
The point is, if you are a problem solver and are willing to eat your "elephant" one bite at a time, you can make an incredible, ethical living in this business.
Thank you @Kimberly Jones @Brent Coombs @Bill Gulley @David Maleski @Benjamin Pekarek everyone for playing this round!! If you liked it, let's do it again soon!!
