I like to drive around looking for distressed properties and that is how I ran across a bank-owned residential property in mid-Michigan. I found the property to have a lot of potential but it was obviously neglected. The bank had listed the home with a real estate liquidating firm that had little interest in the property beyond getting it sold.
After doing a little resarch online via the county tax info site I found out that the previous owner had defaulted on a $128K mortgage and the property had been empty for about one year. The agency was asking $107K for the property and obviously that was too high.
In September I lowballed them at 84K and they countered at $105K which I rejected. I knew at the time that I was the only interested party so I decided to let them sit on the property longer. In December they dropped the price to $98K and I offered $84K (again) which was rejected (again).
So I continued to wait, knowing that the home would have very few other interested parties because of the distressed state it was in. The home had been winterized, the power had been shut off and there was no propane in the pig. This left any perspective buyer with a lot of unanswered questions and a very cold house to walk thru.
I continued to keep tabs on the property and occassionally stopped by and walked around, observing the state of things and thinking about the potential the property had. It was set in a beautiful rural setting on about 3 acres but was only a half mile from town and on a paved road. Working with my agent I estimated the value of the home to be about $125K – $130K with about $12K – $17K of repairs, not including my labor.
In January the listing firm dropped the price again, this time drastically, to $84K ( My previous offer price – duh!) and I immediately offered them $76,000 which they accepted. I included a two week “weasel clause” in the accepted offer to reject the property if I found any major defects after the power and heat were back on. In the end I found none, bought the house and now have about $40K in equity and a pole building (in the back of the property) to store my stuff.
For a small-time investor like me this was a great success story and it has motivated me to continue seeking real estate “diamonds in the rough”. With patience.