My private lender's lack of funds forces my hand to rework my deal
This seller originally called me back in January. He didn't give me any clues on why he wanted to sell and the phone number he left me stopped working by the time I tried to get back to him. No matter how many times I tried or from which number I called, I have multiple numbers all with different area codes, he never answered or called back. I even tried sending a text message. When I called, it rang and rang and then hung up. When I called back, the phone message said it wasn't accepting incoming calls. My next step was writing letters and ultimately sending an offer and follow up letters regarding the offer. About mid March I moved onto other leads and dropped this seller lead into my "No Deal" file.
On July 12th, the seller called back. He immediately told me he was behind on his property taxes to the tune of $12,000. (I checked and it was more like $15,000!) We made plans to follow up in a few days. I called him back on the 17th and made him an offer of $275,000. He told me the properties needed some work so I pressed him to put a dollar amount on that statement. He wouldn't so I started discounting the purchase price for him. I got him down to $250,000 and thought we had a deal. Then his fiance started screaming in the background, "Those properties are worth over $400,000!" Knowing she was right, I agreed to honor the $275,000 offer. I then put the deal out for sale on my very short buyer's list. Unfortunately, I know my buyers and they generally don't like multifamily, and I was right. I got one offer of $200K. Not good....
I made an appointment with the seller to walk the properties. Heck, I had to see what kind of condition it as in since it looked like I would be stuck with so I thought I might as well go take a gander at it. Luckily, I was in the area the day before our appointment, Saturday morning, so I took a drive by to see what I might see. Well, I saw a homeless guy camped out on the sidewalk in front of the driveway and the windows boarded up on one of the houses. That was all the information I needed.
I called the seller to make sure we were still on. It went to voicemail. Again and again. So, I tried sending a text message, but without success. Saturday morning came and the seller called. I hopped in my truck and headed out there. We walked one of the houses and it was a mess. The other two tenants wouldn't let him inside and the last unit was boarded up. The whole walk-thru the seller kept telling me about his tax problem, tenant problems and all the other issues every landlord with a rental deals with. Some deal with it better than others.
We stood on the curb across the street and talked about the offer. I told him based on the condition, there was no way I could put $275,000 cash into escrow. I'd still honor the price if he'd carry, but if it had to be cash, my offer was going to be significantly lower. I asked him a key question; what do you need all that money for anyway? He said he wanted to pay off his house. I asked how much he owed and he said $66,000.
Again, I told him there is no way I can put $66,000 down. Once I got him to see the deal from my perspective, I told him the best I could do is to put $45K down; $30K he can use to pay the loan on his personal residence down by half and $15K for the taxes. He said he could make that work. I wrote it up on a piece of white lined paper with him carrying $230,000 payable $1,000/month, zero interest, had him sign it, gave him $100 earnest money deposit (I always keep $100 bill in my wallet for such situations - thank you Jack Miller!). Then we parted ways.
I've since rehabbed the 1 bed apartment and raised all the tenant's rent to $750. I did some minor upgrades to the 2 small back houses; some new windows, ceiling fans, bath tub valves, etc. I currently collect $3,000/month on this property. I've also given a 60 day notice to the tenant in the other half of the duplex. It turns out they are animal hoarders - animal control took away 13 of 27 cats they counted, but that doesn't mean there aren't more they didn't see! Plus they have 3 rabbits and two dogs. It's just too much for me to deal with and people like this belong somewhere out in some other unincorporated area where you can have lots of feral animals running around. I don't think it is going to be cheap to rehab their unit, or get them out actually, but once they are out I know I can get around $950-975 for that unit if it is 2 beds and easily over $1,000 if it is 3 beds. I honestly have no idea how many bedrooms are in that unit.
I do have a lot of money into this deal at this point. The 1 bed rehab was over $13,000 once done, but I think in the long run it will really be worth it and with that $1,000 a month principal reduction payment every month, I sure do like this deal a whole lot more. This was easily the worst property on the block and updating it will improve the lives of all the residences in the area and I think my cash flow has gone up by at least $1,000/month.
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