Let me tell you a story about how I made a bundle of money this week. It’s the story of how I captured my latest deal. Now when I tell you the story you may think that I’m counting my chickens before they’ve hatched but you really do make your money when you buy. Never, loose site of that important fact. In this case the money is made and in the bank. Now until the home is sold the money is mine to loose or keep, depending on how I manage the project.
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
Persistence and Ambition Lead to a Working Relationship
You could say it started about a month ago. A young ambitious Realtor contacted me when he saw my ads stating that I buy houses. He sent me about a half dozen listing and to my surprise the list had potential. I am a licensed and active Realtor but I appreciate a go-getter when I see one. I can only cover so much ground myself and I love to enlist the services of ambitious people. We looked at a few of these properties on his list and we made some offers but nothing came through. The beautiful thing was that this young Realtor came back with another list of properties. That is how I knew he had the stuff. Many Realtors say they want to work with investors but when they actually see the nature of the game they roll out quite quickly. The fact that this guy came back told me he was real deal.
I want to give this young Realtor a plug here. His name is Jorge Reyna. His office number is 703-503-1893. He lives and works in Fairfax county Virginia. If you’re moving to the Washington D.C. area he just might be your man for finding you that dream home or your next investment property.
In the second or third batch of properties he sent me there was a single family home in Mclean Virginia (bank owned.) Mclean is a high-end neighborhood inside the Washington D.C. beltway. This particular property is only about 15 minutes from Washington D.C. down the scenic George Washington Parkway. Jorge said he thought the property was worth about $750-800,000 after repairs. I pulled my own comps and was convinced that we could get even more than that. The bank was asking $740,000, way too much for a home that needed about $85,000 in work. On this deal I contacted the listing agent myself. She gave no indication that the bank would take less. When I told her that I was considering placing an offer for significantly less than asking price she did not seem very happy and she made it clear that our chances were not good at all. I had Jorge proceed anyway.
Submitting Offers Despite Reluctance from the Listing Agent
We submitted a cash offer but I only had proof of funds for about 70% of what I was offering. Usually I’m OK even if I’m short on cash when I make an offer as long as I have a significant portion of the money. Often times the bank will negotiate and give me 5 days or so to show proof of funds after the contract is ratified. That is good for me because I don’t want to go to my potential partners and ask for a check until I know I have a deal in the bag. Unfortunately this bank was going to be sticklers and wanted proof of funds before they would give any indication that they liked my offer.
With that we changed the offer. I went to one of my private lenders and got a pre-qualification letter for the additional funds and changed the cash offer to a finance offer but still with me putting about 70% down. We resubmitted the offer and this time the seller said that if I was going to use financing at all that I had to qualify with their Wells Fargo Mortgage Guy. I asked Jorge to contact the seller and find out if the bank would give me any indication on their feelings about my offer. When Jorge got back to me it was clear that the bank had no intention of prematurely tipping their hand until we jumped through all of their hoops.
At this point I had a feeling that the seller was going to turn my offer down flat. I did not want to go all the way through a convention loan pre-qualification to get shot down. So I went to a gentleman with whom I have partnered in the past. I told him the scenario. I asked if he would go on the contract with my company. He would have to sign all the documents and then show the additional proof of funds. I went through the entire presentation that one must perform when asking for money from someone. I showed him the comps. I told him what I felt we could get for this property. I showed him a rough estimate on the cost for repairs and he went over and took a look at the property. This was all a bit premature in my estimate because (as I advised my would-be partner) there was a very good chance that we would not get this house. There was a good chance that we would be laughed out of the bank.
Regardless of the odds, I guess I have built enough trust with this partner that he agreed. So once again we presented a cash offer. I showed my money and my partner sent in his bank statement showing the rest of the money. Now we sat back to wait for a response. The response that came was another demand of us. The bank now wanted to see all of my company documents. Normally the bank never asks for company documents. The title company always asks for these documents but that is usually just before closing, long after a deal has been made. At this point Jorge asked me if we just wanted to walk away because it was pretty clear that the seller was giving us the run around. I told him that this is actually a good sign. If the bank is treating us like this then they’ve probably ran off a lot of potential buyers. If we have the staying power we just might benefit. I quickly sent Jorge my company docs. I have them in digital form because I’m used to having to submit them. And again we waited.
Success! A Counter Offer, and . . .
The bank finally came back with a counter offer. It was much better than I thought, but it was still significantly more than what I had offered, like $100,000 more. So at this point I had a glimmer of hope but still just a glimmer. I sent over my contractor to get a detailed estimate of repair costs. I re-analyzed the comps. Finally I returned to the bank with another counter offer. I upped my offer price by $20,000. To my amazement they accepted.
I am very excited about this deal. I am convinced that I got it purely because I actually had the endurance to stick with this when other people said its not worth the hassle. I know a lot of rehabbers like to call listing agents and feel them out for indications of the seller’s willingness to lower the price. I’m certainly for being judicious with your time but often you have to just go fishing.
My fellow investors, I honestly believe that your greatest advantage in the race for riches in any field is that the vast majority of people out there are inherently lazy. I know I am. I force myself to do the things I don’t want to do just because I know other people are not doing them. Don’t listen to those get rich lazy people. Get up, get moving, keeping going and make some money.
Persistence is a virtue. Patience is a marketable business asset.