Help! I have a motivated seller and don't know what to do!

Help! I have a motivated seller and don't know what to do!

Waukesha, WI · Member since 2015 · 5 posts · 1 vote

I'm just starting out with real estate investing. I sent out some direct mail letters, and I have someone who called me back who has a property they want to sell! The owner admitted to me that the property needs a lot of work. He owns it free and clear. 

It is a small 2 bedroom vacation cabin near a lake (not on the lake) in Wisconsin. The story he told me was that about ten years ago some family friends were having a rough time and lost their house to foreclosure, and he let them move into his cabin with the understanding they would help out with maintenance. They never had any written lease or other agreement, and these people have never paid any rent. They have done, in his words, the bare minimum, to maintain the place, including putting on a new roof at some point when it was needed. And now it's been over 10 years! 

He says the property may need to be condemned, he is not even sure how bad it is. He says he knows there are some foundation issues (not a full basement, just a crawl space) and floor joists have been propped up, old six fuse electric, a garage which is falling down and he has gotten notifications from the county/town to tear down or repair, and probably more. He hasn't been inside in a long time, and the people who live there are no longer returning his calls. He lives 2 hours away. I looked it up on Google Maps Street View, and the cabin really doesn't look too bad to me from the street. I can't see the garage (it's behind the house). It's a nice lot, and the houses around look decent enough. 

He has never charged rent or asked for a lease because he doesn't want to be a landlord. (!!!!) He says he really doesn't want to be "the bad guy" and evict these people. But admitted he's been paying taxes on the property all this time and they haven't done anything except live in it ("maintaining it"). He's worried the local law enforcement will continue to send him notifications about garbage in the yard and the falling down garage. When I asked him why he called me, why he wanted to sell now, after all this time, he said that he really wants to buy a pontoon boat, and his wife says he can't buy one until he cleans up this mess and gets rid of this cabin! 

He seems eager to sell, doesn't really seem to care how much he gets for the property, just wants to be done with it.  He said ideally he would sell it to the people living there for the market price minus the estimated cost of repairs, and give them a really great deal, but I think he understands that getting them agree to pay for the place is unlikely. I could buy it, and then attempt to evict these people, but is that a good idea for my first investment purchase? What would you more experienced folks do in this situation?

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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
9y

@Melissa Yatzeck , I think you can still do something with this property, but you would have to put eyeballs on it before you buy it.

What lake is it on? Is this a popular lake? What is your ideal end game and what else could you do if that ideal end game didn't end up working out?

I can completely see his point of view. He thought he was being nice, they took advantage of him but he's probably also just a really nice guy who doesn't want to rock the boat. I'm not getting glaring red flags from this story yet. Certainly things to watch out for.

Does the property have a clear title? If there are liens or other clouds, then I'd recommend walking away.

What could you sell it for? What is the eviction process in Wisconsin? Are there any children living in the property at this time?

For sure this will be a challenge, and I don't think you'll be able to buy it contingent upon it being vacant. I think he wants to sell his problem. Figure out at what price it makes sense to buy his problem.

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  • Real Estate Agent · Jacksonville, FL · Member since 2016 · 102 posts · 8 votes
    9y
    That's could actually could be good deal if you have the resources to come up with the money to purchase and put In the needed repairs. If you don't have the capital or the sources to get the capital why don't you just whole sale the deal to another investor and make 10k or better
  • Flipper/Rehabber · Saginaw, MI · Member since 2016 · 30 posts · 8 votes
    9y

    I would say NOOOOO! Stay away from that. One, the story sounds a little bit "off". He hasn't been there. Not sure if it could be condemned. RED FLAGS all over the place.  And two, the last thing you want to do is buy your first property and already start off negative. Meaning stress and the eviction process.  Don't waste another thought on this. This already sounds like a nightmare. Move on :)

  • Waukesha, WI · Member since 2015 · 5 posts · 1 vote
    9y

    @Dan Green Would you put this under contract as a wholesaler, knowing there are people living there under these conditions? Would any investor be interested in this sort of deal? 

    @Scott Walther I don't think I would want to take on the eviction as a new investor, but would a more experienced person be interested?

    Right now I am trying to decide whether to pursue this as a wholesale deal. I think I need to get some more information from the homeowner. What questions would you ask? 

  • Flipper/Rehabber · Saginaw, MI · Member since 2016 · 30 posts · 8 votes
    9y

    @Melissa Yatzeck. Yes, you could try to wholesale it. But you are still going to want to put together some numbers before you try and present it to another investor. Having a good idea about rehab costs and the major issues in mind, as those costs will increase dramatically. Along with the comps.  I would start there to see if the numbers make sense. 

    I can't speak for all investors but it would have to be a pretty good payday for me to get into that situation. Seems like a really big headache.

  • Member since 2016 · 143 posts · 157 votes
    9y

    Someone might be able to make a few bucks on this one. I'd buy it if the price reflected the condition of the house and having to evict the tenants. All depends on your niche.

  • Rental Property Investor · Leander, TX · Member since 2015 · 89 posts · 51 votes
    9y

    What's the area like? I wonder if you could do the rehab and Airbnb it?

  • Northern, CA · Member since 2014 · 674 posts · 444 votes
    9y

    Everything has a price, I wouldn't run away from it just yet.  Ask him if he will sign a contract that is contingent on HIM getting rid of the dead beats.  If not, look into local eviction laws and figure out cost/time and factor that into your costs.  Get a contractor to look at it and get it under contract then wholesale if necessary.  Be honest with the owner and tel him what you are doing, he won't care and will appreciate the honesty.

    I don't get "not being the bad guy"either, might as well hang a sign on your forehead that says "please take advantage of me, I'm insecure and just want people to like me" because only a low life is going to live off of someone else like this.  I met a local old investor a week ago with multiple properties that he hasn't raised the rent on in 20 years.  He wants to sell but doesn't want his renters kicked out.  I told him they never will move due to their 1980's rent, I'm not interested.  Its not my job to financially support other adults, sorry.

  • Real Estate Agent · Jacksonville, FL · Member since 2016 · 102 posts · 8 votes
    9y
    This is what I would do. Find out how much the property is worth all fixed up and then estimate the repairs. Being that someone lives in there and it's going to be hard to get inside I would estimate the rehab at $35 a sqft . It's a good rule of thumb when you need to do a complete rehab it's not 100% accurate but it should do the job. Now that you know these two numbers you then need to get the seller down to where the purchase price your fee ( try to get 10k) rehab and closing cost come up to no more than 70-75% of the Arv. That gives the investor enough room In There to take it on and evict the tenants and still have a good profit. I wouldn't try to evict them myself. disclose all that info to your end buyer and let them deal with it. Also I would look up the rents in the area just incase the numbers don't work as a flip it could work as a buy and hold for someone else. Hope this helps you. Keep me posted.
  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Melissa Yatzeck , I think you can still do something with this property, but you would have to put eyeballs on it before you buy it.

    What lake is it on? Is this a popular lake? What is your ideal end game and what else could you do if that ideal end game didn't end up working out?

    I can completely see his point of view. He thought he was being nice, they took advantage of him but he's probably also just a really nice guy who doesn't want to rock the boat. I'm not getting glaring red flags from this story yet. Certainly things to watch out for.

    Does the property have a clear title? If there are liens or other clouds, then I'd recommend walking away.

    What could you sell it for? What is the eviction process in Wisconsin? Are there any children living in the property at this time?

    For sure this will be a challenge, and I don't think you'll be able to buy it contingent upon it being vacant. I think he wants to sell his problem. Figure out at what price it makes sense to buy his problem.

  • North Central USA · Member since 2016 · 38 posts · 7 votes
    9y
    Sounds like a great deal of a life time! Get a great price on it with the tenants in it.... that's what the seller wants. Hire an attorney to kick them out! Have fun rehabbing.
  • Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    9y

    @Melissa Yatzeck you stated near a lake, not on a lake right? and "cabin" so its a 3 seasons structure? you are gona have to do your homework on it, first off does the person that called own the property? is caller who they say they are? What is it worth? (ARV) if its in a swamp near Pembine or Hakins or something it may not be worth a gallon of gas and a match. if its "up Nort" Im here and will help you if i can with out stepping on your toes, let me know if i can do anything to help

  • Waunakee, WI · Member since 2015 · 63 posts · 28 votes
    9y

          I think everyone is kind of saying the same thing.  There is probably a price that makes it a great deal and a price that makes it a horrible deal.  You just have to figure out which is which.  I would contact either a local lawyer to inquire about the cost of eviction.  Depending on the local laws regarding eviction is may be a nightmare because no lease exists and they have been doing "repairs" on the property.  This will take an eviction, the people living there had a foreclosure in the past and have been living rent free for 10+ years.  They ain't leaving without a Sheriff.  

    So figure out all costs, and all of the options for the property and figure out a really safe price including extra holding costs during the eviction. I would also consider knocking the buildings down and just selling the land.  Depending on which lake on how much land and such it could be buy in for 10K, evict for 10K, eliminate the building and backfill for 15K and sell the plot for 70K, and profit 30K.

    One other thing to make sure is that it has been 10 and not 20 years.  I believe in Wisconsin you can establish adverse possession (squatter's rights) after 20 years.  So he may have found out that if he tried to kick them out, they threatened to a legal fight over title so now he wants to unload.  If they have been there 20 years without a lease they may have a case.  As there is no lease, they are living in the property openly, and only they live there.  That would fulfill all the legal requirements.

    That being said I am not a lawyer, talk to someone who actually knows what they are talking about, as this should not be construed as legal advice because again I really don't know anything. 

  • Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
    9y
  • Winter Park, FL · Member since 2017 · 35 posts · 4 votes
    9y

    Sounds like an opportunity to pursue, if anything it's practice for you to learn something new. I just had a property out of state in PA that ended up being practice for me as the person trying to sell really didn't have rights to sell the property as she thought she did. I would do like others have mentioned and figure out what the ARV would be and see what's the lowest he will let it go for. If you never ask, the answer will always be no.

  • Rebecca KnoxBusiness Member
    Specialist · Milwaukee, WI · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    If the current tenants are not returning his calls, does he know if they even live there still? 

    Most sellers tend to be more optimistic with their perspective of the property so if he says that it may need to be condemned, it's very likely it needs a ton of work. 

    I would check the ARVs for houses similar and also the ARVs for just the vacant land and then estimate a full gut job as your SOW plus you may want to add 10k-15k for razing the buildings (house and garage).  The other thing to think about is where the house is positioned as far as the ease of razing it.

    You also may want to call the city inspector (municipality where the property is located) and ask them for the code violations. In my experience with smaller municipalities, they are very helpful and often know the background of the property immediately.  You may also want to ask them the process and time frame for getting a raze order approved and also find out what you can build on the land (how big of a house).  

    Captain Save-A-Home LLC
  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    9y

    Congratulations on finding a property to work with.

    I would recommend first finding out what it is worth, the rest is just speculation. Also I would start looking for guys who's wife won't let them get a cabin/muscle car/New BBQ deck etc until they get rid of their pontoon boat.

    If all the numbers work a quit claim deed in trade for a pontoon boat you got for pennies on the dollar may not be a bad option.

    Best of luck!

  • Rental Property Investor · Olympia, WA · Member since 2012 · 543 posts · 311 votes
    9y

    @Lee S.'s suggestion that, "Everything has a price, I wouldn't run away from it just yet." is right on.  However, to get the best deal possible on this property you need to be the problem solver for the owner -so I would NOT recommend that you, "Ask him if he will sign a contract that is contingent on HIM getting rid of the dead beats."  Though it is certainly OK to ask for the owner's help in removing the tenants (maybe they'll move just because the owner tells them too), I would not risk loosing a deal over it.  Handling the owner's problems should be your job as a RE professional.  Just factor in the extra cost of eviction and include the likely 3 to 6 months of extra holding costs while going thru the eviction process.

    Evictions are usually not hard -provided you clearly own the property.   @Kevin Kurt, gave a good word of caution about the unlikely, but possible claim the tenant could make that the property is actually now theirs thru adverse possession.  On the facts stated in your post, (tenants living there for 10 years with no written claim on the title), the tenants would not prevail in a claim of Adverse Possession, but they could use such a claim to delay an eviction.  See this article on the matter from a Wisconsin Law firm and note the Wisconsin Adverse Possession law was change just one year ago. http://www.dkattorneys.com/publications.cfm?id=3645 Here is the article in part:

  • Waukesha, WI · Member since 2015 · 5 posts · 1 vote
    9y

    I just wanted to pop back in and say THANK YOU to everyone for all of the excellent advice! I am following up with the seller and will come back and give an update when I have more details. Thanks again, everyone!

  • Yuma, AZ · Member since 2017 · 40 posts · 5 votes
    9y
    Dude this is what you are training for , these exact scenarios , begin the evicting process yourself because thats what the sellers dont want to deal with but you will and get it at a good enough price to make profit
  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    9y

    @Melissa Yatzeck This could be a good deal.  I'd pursue it.  The landlord tenant laws are pretty friendly in Wisconsin so If an eviction will be required then shouldn't be an issue.  You do however run the risk of the current occupants trashing the place. 

  • Waukesha, WI · Member since 2015 · 5 posts · 1 vote
    9y

    I'm back with an update! 

    The tenants began returning calls and agreed to let us in to come and estimate repair costs. I visited the property (it's in Jefferson county, for those of you from Wisconsin) Friday morning with a business partner who is a general contractor to make repair estimates. The short version of the story is that the repairs needed for this property are so extensive that a rehab just isn't workable. However, we are considering a complete teardown and new construction on the property, as there are other new constructions nearby that have sold recently and this seems to be a desirable area for such a home. The new build would most likely be 3 bed/2 bath with an attached 2 car garage, so the ARV would be much higher than the current 2 bed/1 bath cabin. The comps for a 2 bed cabin on a small lot like this support an ARV around $80,000. The larger home would probably sell for something in the $200-$250,000 range, depending on exactly what the build will be.

    The owner's story seems to be legit. The current occupants were neighbors. They lost their home to foreclosure and asked permission to move into this cabin temporarily as they knew it was a vacation rental that the owners didn't use frequently. The owner thought this would be a very short term proposition until they figured out what to do next. He and his family weren't really using the cabin anyway, and it was mostly filled with old furniture and files and things they didn't want to store at their home in Illinois. He felt he couldn't charge rent to them as tenants because the cabin wasn't in what he thought was "rentable condition" at the time, and he never thought they would stay this long. He never wanted to be a landlord. The occupants are a couple and one child who is high school age. The owner doesn't want to throw them out on the streets with nowhere else to go. On the other hand, he doesn't want to continue to pay taxes and garbage fees on this property when he's never going to get any return out of it, and also has to worry about the town giving him citations and things. It has gotten to a point where it seems like he just wants to sell the cabin and wash his hands of the whole mess. He's a nice guy and I sympathize with him.

    I am planning on making him a few different offers for the property - a low cash offer ($7500), and a couple other higher offers with terms/seller financing. My contractor friend wants to do the rebuild, and we will either go in on it as a partnership (we went in on the direct mail campaign jointly), or we will arrange some kind of buyout, or we will just wholesale the whole thing to someone else. I'm not sure yet exactly what the plan will be, it depends on what purchase price we can negotiate. I don't want to get into a situation where losing money is a possibility, and I'm a little afraid of getting in over my head on this one.

    (P.S. If you are near Jefferson County and are interested in getting this deal as a wholesale from me, let me know. I want to reiterate that I do NOT have this under contract yet, and I am still working on it.)

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