I located all of the foreclosures in the Wilmington area and began a direct mail campaign. For this particular property, I had been sending her postcards since the property was filed at the courthouse. Foreclosures are filed in the special proceedings in North Carolina if you were wondering where to find the cases. She had two people come by the property to take a look at it and they both made her offers. It is a competitive market out there. I got on the phone with her and tried to give her every option to keep the home, but she really wanted to sell. All she wanted was 30, 000 on top of her payoff, which was about 70, 000. The other two investors offered her 25, 000. I told her we could give her 30, 000 no problem. She sold the house to me because I developed a good relationship with the her. We had common interests, which I found out by asking about her, and I fulfilled her need (giving her the amount
she wanted). We purchased the property for $105, 000 and rehabbed the property for a final sale price of $187, 000.
I bought the property with another investor and we went in on it 50/50. Our original purchase consisted of us buying the property “subject to” the existing loan, paying her $5,000 up front to help her move and get an apartment and paying the other $25,000 after the property was sold. It turns out that when we went to the foreclosure attorney to get the reinstatement amount, the note was owned by the original owner of the house who sold it to our client. Our client had assumed the loan from the original owner, which caused a significant impact on the original owners credit when our client fell behind on her payments. (When someone assumes a loan, the original owner's credit is still on the line).
The attorney told us that the original owner had to get a hard money loan (90 day loan) to pay off the note from the bank, so she was not willing to hold the financing any longer. The 90 day loan had to be paid off in order to complete the transaction. This caused us to have to go to the bank to get a new loan pay off the existing loan and give the owner some money to move on. It was quite hectic to complete the transaction and avoid having the property go into foreclosure. Almost every investor will say that you can buy properties “subject to” anytime, but in this case the attorney said they would enforce the due on sale clause in order to pay off the existing loan. I learned that it is important to see who the noteholder is because it may have an impact on how you need to structure the transaction.
We took over the property and began to complete the rehab. The property was bought in september and the rehab took us about 2 months to complete. The house had two rooms upstairs that did not have the electrical run or drywall, so we decided to finish off these rooms to increase the after repaired value. The house had old asbestos siding, so we replaced all of the exterior and in the process of removing the siding we found several areas that had siginificant termite damage. We had to rebuild two walls on the side and front of the house because they were eaten up so badly. This caused our costs to increase as the workload increased. Our original estimate on the repairs was about $25,000, but we ended up spending amost $45,000 to fix up the property. There were several things like rebuilding the walls that we did not expect to have to do, but now i know to thoroughly inspect the property to ensure we know how much the repairs will cost in the future.
Our final sale price of 187,000 left us a profit of approximately $26,000 after paying a realtor to sell the property. We were expecting a profit of closer to $50,000 when we closed on the house. It was a learning experience and now I know several things about rehabs that I did not know before I bought this property, so the time and effort was well worth the profit and more importantly, the experience.
Moral of the story: No matter how many people are trying to get the same deal, it is who you are that makes the difference. Convey an attitude of helping people first and they will trust your judgement at the times when they really need someone they can trust. Always try to be a helping person for someone facing rough times.