I regularly attend REIA meeting in my area. In fact two of them. To meet new investors, learn from experienced ones and get the inside scoop on deals that be coming down the pipe lines from real estate agents that attend the monthly meetings. These meeting also have local brokers would pitch each other their current clients wants and needs. In one particular meeting, another broker was pitching one of his own properties for sale. It was two side-by-side four-plexes (eight units total) with each unit being one bedroom. It was in a low-income part of town, but he was only asking $120,000 for both properties.
“$15,000 for each unit?” I thought – “There has to be a catch.”
There was. The property was badly in need of repairs; there were only 4 apartments rented with paying tenants and the Owner was a few payments away from a bank repo.
Great deal worth looking more closely at – YUP! But I was broke.
That was a big glaring issue, though. Neither my partner nor I was credit-worthy in any sense of the word to get a traditional bank loam. The chance of me getting approved for a mortgage was zilch (let alone a non-owner occupied, low-income commercial loan). I waved the property off.
At our next networking meeting, though, we caught wind of some additional news on the properties. The broker who owned them was in serious trouble on about a dozen different pieces of real estate. He owed $76,000 on both the buildings, which were financed through a popular investor/hard-money lender.
The private lender was getting scared that the investor would soon default (giving the lender a property he wanted nothing to do with) and the owner was only looking to get out of the property, so he could focus his energy on his salvaging his other properties.
Without much thinking, we pulled the trigger.
We called up the private lender (an individual) who was currently financing the properties and pitched him the idea of us taking over the loan and purchasing the property from the current desperate owner. We offered to both sign onto the loan, giving the investor two names opposed to the one he currently had and showed how we would remedy the situation, evict all the tenants, and plug it into our management system.
Neither of us had a penny to our names, so we even had the guts to require that the private lender actually invest more money into the property. In order for us to take it over he’d have to loan us an additional $15,000 to replace the furnaces and repair two of the units after evictions.
It was a bold offer. We’d give nothing but a management plan and our signatures on a $91,000 private mortgage (at 12%) for eight units and a $16,000 cash loan. The lender must have known even more about the current owner’s dire circumstances then we did, because he took our offer. The current owner was happy to get out for what was owed, and within the week we sat down to close.
After the contracts and loan docs were signed on my first-ever real estate purchase I was handed a $1000 check (for prorated rents/deposits for the month). I gave nothing tangible, just my worthless signature, and walked to the bank to deposit the money.
I did put some sweat equity labor into this property, turned it around, and have a fully rented and highly-profitable rental investment property.
We made a bold offer and it paid off! So never be afraid to make a pitch.