Rehab Nightmare

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My first experience in real estate was , for quite awhile, a nightmare. My brother-in-law and i started looking for property to rent, with dreams of making a lot of money. We found a cute little two bedroom house with a lot of potential, for only 18,000. When we bought the property, neither one of us really had any experience with realestate, and very little knowledge of how to rent a house.

The house needed some repairs to the roof over the kitchen, actually we had to rebuild the entire roof. Things would have been great if we would have stopped with the roof, cleaned up the rest of the house, and found someone to rent the house, but we changed plans. We decided to start gutting the house to rehab so we could sell for a profit.

It sounded like a great idea, until we started, and by the time we realized it was no longer a good idea, we were too deep into the destruction phase to stop. Both of us were working full time jobs, as well as trying to find time to work on our rehab project. As i mentioned, neither one of us had any knowledge in realestate, let alone rehabbing a property.

The studs were not uniform, actually they varied from stud to stud. We were busting plaster off the walls, only to find the walls covered with inch lumber that we had to remove nail by nail, and board by board. To make matters worse, the walls had blown-in insulation, which of course was falling out all over us, as we tore down the walls in each room.

The work was tedious and so overwhelming. Most of our spare time, was spent working on the house, each little job became very time consuming for us, because we didn't know what we were doing. I was putting all materials on a credit card, that had no interest for a year, but that year went by very quickly. We bought the house in 2001, and as time went by and frustration set in, we worked on the house less and less. The house just sat, while we made the house payment each month, with no money coming in, plus i was having to go and mow the lawn each week through the summer.

A couple of years later, when the war broke out in iraq, my brother-in-law was called to duty. I bought him out of the property for what he had put in, to help him out since he was leaving. Things didn't go much better for me after that. I found someone who wanted to rent the house from me, and was willing to finish the work while he was there. The work that was still needed to be done, just to make the house remotely liveable was horrific, but this guy seemed to want it, he was working for my uncle, i even went to school with him, so i thought i could trust him…… i always have to learn the hard way.

A month or two had went by, i never checked on my friend, trusting in his words that things were going fine at the property. Then one day he called and told me that he didn't want the house anymore. I was a little upset, but that feeling quickly turned to rage when i went to check on the property. He didn't do anything to make the house liveable, he actually set me much further back. When i walked into the house things looked about the same, a wreck, until i looked into the bathroom. The bathroom was completly gone, all the way to the studs, i could see the cellar, because he even removed the floor. It was even worse in the master bedroom. The walls were destroyed, along with so much blown-in insulation on the floor, you couldn't walk through the room. He even half-way tore the plaster off of the ceiling in the bedroom, adding more insulation on the floor.

I was so upset, i couln't believe what he had done. I thought of taking him to small claims court, but he didn't have any money, and you can't squeeze blood out of a turnip. I spent some time trying to clean up the insulation, picking up trash. I even put the house up for sale as a handyman special, but nobody wanted to have to do that much work. I stopped going to the house, other than to mow the grass, which most of the time i did not even do that, almost getting a ticket for the lawn being so terriblly in need of being cut.

So much money had been put into this house, and month after month i was paying for the mortgage out of pocket, with no money coming in. Then one day in October of 2004, a woman came by while i was at the house, and she asked if i was interested in selling the house. She was looking for a house in Leadwood for her husband and there family to live in.

I quickly said yes, but i figured that as she would look at the house, she would change her mind when she saw how much work had to be done. To my surprise, it was quite the opposite. She saw a lot of potential, and even came back with her husband so he could look at the house. They were needing a house very soon, as there lease was getting ready to expire at their current location, and there landlord was selling the property, forcing them to look for a new location.

They had no credit, and very little money, but something told me they were worth the risk, that and the fact that i had been putting money into a property for over three years now, out of pocket, and with nothing to show for it. We came up with a selling price, an interest rate, and a payment schedule. As i look back, most experienced investors would say that i made a lot of mistakes with this deal that I made with this couple that could have really come back to haunt me Since so much work needed to be done, i didn't accept any money down from them. I owner financed the house, keeping my mortgage in my name at the bank, paying this mortgage with the money that they were giving me each month.

In the contract, they carried the insurance on the property, paid the taxes, paid for the repairs, basically it's their home, and I was the bank. We had the contract notarized. I sold them the house for 25,000 for payments of $382 a month at a 10% interest rate for six years. This not only covered my payments at the bank, but gave me a little extra since my payments were only $352 a month. I put all the money that they pay me, towards the properties mortgage.

A month after we made the contract, they had already put $3000 of their own money into the property and were moved in. A few months later i had the property appraised by the bank, and the house that i bought for 18,000, and paid on for three years out of pocket, was valued at $32,000. To this day, they pay me on time, never missing a payment. In another two years i will have the mortgage paid off at the bank, still having another three years of recieving payments from them for $382 a month. I know things weren't done the way most people would do when creating a contract for deed, but i got lucky. I found an honest couple that got a house they really wanted, for terms they could afford. They have built a lot of equity in the house, which is good for them, and i am no longer paying out of pocket for this property, and earning a great interest rate…. only took three years of learning lesson after lesson the hard way.

I love real estate. I now own a seven unit apartment building and another rental house. I know that i am a small-time investor, but i am working my way up. I have come a long way since 2001. Three years of losing money and feeling hopeless, is a hard way to start off in realestate, but it is a lesson learned.

Brian C. Wade
Leadwood, Mo.

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Rehab Nightmare

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