Who Says You Can’t Make $ in Small Towns?

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After returning to the states- from living abroad for a number of years, I discover that I had absolutly NO credit scoreand had No Tax Returns! I was a ghost in the system. In less than 6 months with secured cards, I was able to accomplish a 760 FICO.
Meanwhile, I purchased a small 2 bedroom/1 bath home for cash ($28,000) and proceeded to rehab it over the next 4 months. I only invested another $15,000 and added substancial square footage (Enclosed deck into sunroom). I mortgaged it for $55,000 cash-out and utilized those funds to develop additional Rehabs.

I bought another 3 bedroom/2 bath for $13,000 cash (Local Bank Repo)and gave the new tenants/owners $2,500 In remodeling materials to do wish as they wanted-with a deadline. They bought it immediatly for $50,000 on a 1 year 12% I/O contract. In 3 months, It was appraised for $50,000 and I mortgaged that house for $36,000 cash-out and retained $14,000 equity.

Then I bought another for only $15,000. This house was the eyesore of the neighborhood. It is across the street from me and I look at it out of my home office window. It looked as If the redneck inbreads lived there..(they did!) Car parts under the front porch, garbage piled up, a porch that looked like it belonged on a trailer, no rain gutters, foundation problems, dilapaded exterior as well as interior. I found a new tenant that would do most of the work (Sheetrock, flooring, drop ceilings, etc. ) for 6 months free rent. Meanwhile, I proceeded to affordably contract the Roof, Gutters, Window installations (tenant from deal #1-rent trade). I did the electrical(totally gutted to the pole), plumbing, unassembeled kitchen cabinets, interior doors and baths. We took it from a 1 bedroom, 1 bath to a 3 bedroom/2 bath (related living) in 3 months. The home was completly rebuilt. The only thing saved was the laminate flooring in the kitchen and a couple bath/lighting fixtures. Even the HVAC ductwork was changed out. I used personal credit cards (mistake) to accomplish this as well as NO Pay deferred interest credit lines from local supply centers. (I splurged with the other cash) This, Unfortunatly drove my FICO down to 620. All in all- I spent only 25K to totally rebuild the home. Total investment came to $40,000. The home is now appraised for $65,000 and cash-out mortgaged for $52,000 (80% LTV-Non-Owner occupied, stated income/stated asset mortgages are difficult with that FICO). Although this deal wasnt the most profitable as the other ones were, it was certainly the most rewarding. My true profits are in the equity (12k) and the fact that I dont look at a dump across the street as well as helping out others. The home is resold now for $65,000-on contract-to the new tenants.

Then, I bought a small 1 bedroom /1 bath, which needed absoulty nothing but carpet, garage siding ($500.00) and paint, for only $13,000 from Fannie Mae (REPO). It recently appriased for $35,000 and is mortgaged for 80% LTV ($28,000). After small rehab costs, I pocketed @$14,000 on that one and it's resold on contract for $35,000. All these deals not only make the mortgage payments with small positive cash flow, but have pay off the orginal loan. They dont show any taxable income because the debt pratically equals the mortgage income.

I highly suggest that someone attempting this to become locally licenced for your business and utilize business lines of credit with local supply vendors to do your rehabs. TRY TO KEEP IT OFF YOUR PERSONAL CREDIT! It will effect your mortgage rates/Profit margins! If you dont have an established business licence-buy a 2 year old shelf corp with FEIN# and establish corp credit lines in 90/120 days so you have a D&B credit profile and can use $250K corporate business lines of credit to eliminate unnecessary mortgage broker/closing fees. (I've needlesly spent over 6K in mortgage broker fees/credit card interest!) Hindsight is 20/20. Doing rehabs thru your personal credit can be extreemly dangerous to your FICO.

Although these are not huge deals, they have brought in an adequate profit for little work and capital-as well as an education in financing. Nobody should say they cant make money in realestate because their market isnt viable.
These deals have been done in a small rural town of only 3600 people!

Claude Johnson
Illinois/Iowa border

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Who Says You Can’t Make $ in Small Towns?

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