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Cash More Checks with

Aaron the House

Real Estate Investing Problems Solved!


June 2018

Summer Harvest is Abundant

A Unique Strategy for "Ghetto" Houses

I received a call in Sept 2016 from a guy who had received one of my marketing pieces. He said I mailed him about one house, but he would be interested in selling two. These were great purchases for him. He picked both houses up at the bottom of the market back in 2008. The one I would eventually purchase from him on Vine St. he paid $51,00 for it. A single family house in California for $51,000. Just incredible. I should point out that these houses are located in a very run down, and what most would consider dangerous part of town. Definitely not a place you want to be driving into on a Friday night to pick up rent.

He asked me to send an offer for both houses to his sister. I sent over offers of $105,500 for Vine and $122,000 for Congress. About a month and a half went by with no contact from the seller even though I sent multiple emails and made several phone calls. Finally he responded with, "How about $123K and you pay closings costs on Vine." It wasn't a hard no from me. First I thought I'd send it over to one of my favorite cash buyers to see what his number might look like. If he was close, I might be able to squeeze out a check to cover a week's or more worth of marketing, which is still a good deal in my opinion. My buyer asked if I would take $127,000. I sent an email to to the seller asking if she would take $120K. I got no response, so I emailed an offer for $122,500 and decided when they accepted, I'd rehab and flip the house myself. We closed on the deal at the end of November.

Even though the house only comped out at $165,000, we were in a very strong seller's market and prices were climbing with no end in sight. I decided to reach out to one of my more expensive private lenders to see if I couldn't get 100% financing. I'd sit on the house for a year, then kick out the tenant, rehab and sell the house. I'd qualify for long term capital gains,and I could enjoy some easy appreciation.

Over the course of the time I held the property and after booting the tenant and doing a full rehab, I was out of pocket a total of $27,296.25. I had very little maintenance calls with the exception of the hot water heater, but when I sold the house retail, the newer heater was a bonus.

My mortgage payments were $1,000/month and I was only collecting $1,000/month in rent, so I was losing a few hundred in taxes and insurance. But the value of houses in the neighborhood were appreciation much faster than even I anticipated. When I finally put the house on the market and sold it for $255,000 just 18 months after I purchased it. The prices in the area had climbed almost $100,000 in 18 months. Because it was a run down ghetto house, I didn't have to deal with the tenants constantly complaining about repairs, the cockroaches or the mice that were in the house. They stayed, paid, and of course left a huge mess when they moved out. But for basically a hands free investment and because I was willing to take the risk, I enjoyed a very nice profit in a relatively short period of time.

Are you looking at gentrified areas in your market? Thinking of investing in them and sitting on the properties to see what transpires? There can be some very good opportunities if you pick the right neighborhoods.

Please leave any comments below and head over to my blog for more insights on interesting in real estate.