The Path That Led Me to Real Estate Investing

I just recently completed the selling of two properties. They were separated by only a mile and were equally valuable. Beyond these two commonalities, however, the two transactions diverged significantly. Please permit me to elaborate on how these two agreements are the same and different.

My business partner and I purchased Both homes from families on the verge of foreclosure. Each property’s leads originated from letters I sent to residents recently served with Notices of Default. Only one family got back to me when I wrote to them on the first day. Two hours after getting their call, I went to their place, and we signed a deal to buy their house on the spot. After I sent the other family four letters, they finally replied. We finally bought their home after two meetings and a few missed appointments. Within a few days of signing the contract, we had a “kitchen table” closing for each home. Both properties were acquired “subject to” the continuation of the current mortgage. Each residence was given a $1 as an earnest deposit.

Deal One

We started by putting up posters around the area and at major junctions and advertising the first house in the newspaper at a competitive price. We and the seller verbally understood that they would remove all of their belongings from the property within two weeks. The home was a shambles, filthy and unkempt. After the sellers made no headway in clearing the house, we proceeded with marketing at a lower price. Within the first two weeks, we had barely any interest from potential customers, with only a handful of calls.

We then altered our signs to inform potential buyers that owner financing was an option, lowering the asking price even further. After that, we began to receive a more significant number of calls from those considering making contact. Compared to the hundreds of properties that were represented by realtors but needed bank financing, our owner-financed terms and lower-than-market asking price set us apart.

We bought The second house a month after the first, and we started advertising it right away with owner financing. We purchased this house, stipulating that the seller must vacate it within two weeks or face a penalty. The seller was amenable and helpful, and they worked fast to empty the house. The first house’s seller was still uncooperative, and the property had not been cleaned up.

We had an offer on the first house within days of switching up the advertising. Our goal was to assist the family in moving into this beautiful home. We accepted their offer because they could pay for it using bank financing. There was still time to arrange the funding from a bank and close the deal before the foreclosure auction.

Since we had not held title to the property long enough for FHA to authorize a new loan, I advised the buyer to look into other options besides an FHA loan. In case you haven’t heard, FHA has a new rule stipulating that a property must have been on title for at least 90 days before authorizing a loan on it. The buyer then proceeded to do what?

Right. His real estate agent and mortgage broker recommended that he apply for an FHA loan. The buyer was fortunate enough to be eligible for a solid FNMA program. Therefore, I included a clause in the contract stating that if the buyer did not receive FHA program approval within five days, they would be required to forego FHA and move on with FNMA. My written education of the broker and agent on this subject was followed by the broker’s written notification to me four days later that FHA would not authorize the buyer and that they would be proceeding with the FNMA program.

The home inspection was the next stumbling block we had to overcome. After the review, we were asked to make repairs costing several hundred dollars, which we gladly did. Two weeks passed before the repairs were finished. During the course of the maintenance, we decided to have the property valued. Our local appraisers have a wait time of eight weeks, but we knew one who could do the job in a week if we paid him 150% of his regular rate. Since eight weeks was too long to wait, we had to shell out for the costly appraisal.

The next challenge was ordering a preliminary title search, but fortunately, it revealed a clean title. Due to the lack of an as-built survey from the last owner, we were forced to request a costly set of survey documents from the county.

Even though we had practically eliminated all of the impediments to closing and were within striking distance of the closing date, we still had an issue with the previous seller. They hadn’t removed much of the clutter because they’d just moved a few things out. They planned to move out someday, but not soon enough for the deal to close before they did. Their unwillingness to work together and their failure to keep their word were apparent reasons for their home’s neglect and eventual foreclosure.

Since the seller was no longer there and the utilities had been disconnected, I informed them that I would remove their goods from the property as they were considered abandoned. My business associate and I spent an entire day packing the seller’s belongings into boxes and bags, and the seller grudgingly picked them up the day before closing. Whew!

A New Deal

However, everything moved forward much more smoothly now that the second property was involved. We purchased, located a buyer in just eight days, and finalized the deal on the ninth day.

With the current finance, we decided to sell the second home via land contract or wrap mortgage. We also included a clause stating that if the house weren’t refinanced within two years, we would be entitled to a foreclosure sale. We took these measures to shield the original seller’s lien position on the underlying finance. They didn’t want it sitting there for too long.

Many potential buyers saw our “owner finance” signs and swiftly made purchases. We demanded a lump sum to “cure” the loan or cover the outstanding arrearage and lawyers’ fees. We tracked down a severe buyer with plenty of liquid assets and a solid salary but not enough time in the area to have established credit. We negotiated a deal with him in a Starbucks, and he explained the basics of a wrap mortgage and the underlying financing. He offered a more significant down payment to negotiate a lower purchase price. When he refinanced, we essentially got the entire “back end” profit that was supposed to come to us in two years. In exchange for a lower selling price, we were given this upfront. The deal was mutually beneficial for all involved.

He was willing to purchase the property “as is” and to make any necessary repairs. There was no requirement for a home inspection, an appraisal, the completion of any repairs, the hiring of a real estate agent, or the ordering of a survey. The buyer paid the total closing costs far lower than what they would have been had he employed the services of a real estate agent and mortgage broker. We used a closing agent with extensive experience with “unacknowledged wrap sales.” In addition to becoming a friend, our closing agent has shared his expertise with our local Real Estate Investment Club.

Overall, both deals generated around the same profit, but it’s clear which option would be better. It’s possible that Robert Kiyosaki’s “Rich Dad’s Deal” and “Poor Dad’s Deal” would be what I refer to as my “Rich Dad’s Deal” and “Poor Dad’s Deal,” respectively. We picked up some helpful information that will make future transactions of the first sort easier, but give me a bargain of the second variety any day of the week.

I pray you to have quick and successful closings on your real estate investments.

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Entrepreneur and educator Garry Gamber work in the public education system. Real estate, health, and online dating are all topics he’s covered in his writing. Anchorage-Homes.com and TheDatingAdvisor.com are both under his domain name.

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