An old dog can still learn new tricks! Recent deal.

[Rich Weese]

I mentioned a little of the story on a reply in a different thread. It will probably end up buried and I wanted this to get a little bit more visibility since it is about construction and there seems to be a lot more interesting that now that several years ago.

Two days ago I invited a BP member to go to lunch. We had chatted in over a year and he is the only BP member here in St. George Utah that seems interested in real estate. His father has been involved in a lot of real estate construction and is now living in our same city and they are interested in trying to do something here. I told him I would take him around and show him the homes I had built here in the last 18 months since moving back to St. George and also discuss philosophy with him of the real estate economy here in this area. I took him in my own home and showed him the type of construction that I'm building in this area. I then took him to two lots that I'm just getting ready to start construction on and also couple parcels of ground that have come across my desk.

In our drive around town we happened to pass a for sale by owner sign on a residential lot. I was very familiar with the area, in that I had built 14 lots down approximately 15 years ago. I knew exactly what I would do if I could buy this lot. With Travis in the car, I called the number on the for sale sign and began chatting with the owner. He had purchased this lot 20 years ago with the only purpose to keep it vacant so as not to affect his view of a monster home he was building up above. He is now 80 years old has sold that home and moved into a retirement community. He had no interest in continuing to own this lot and pay taxes, water fee, and weed removal any longer. He told me to make him an offer and steal it from him. His original asking price was $49,900. He also stated that he might consider doing some financing on it.

This is the part that I want to mention to all BP members. Again, this is not easy but I want you to know that it can be done. After several conversations with this gentleman I went and met with him and his wife this morning and received approval of my offer in the amount of $30,000. That was an excellent price! The better part was that he agreed to take $5000 down and carry the remaining $25,000 at 6% interest with it all coming due in 18 months or when the house was built and sold, whichever came first. The even better part was that he agreed to subordinate his loan to a construction loan! This is the part that I want to convey to BP members. Again, this won't work in every instance but this is the first time I've even tried to get subordination. I paid cash for every lot in the past and this will certainly cause my return to be in the stratosphere as I will have little over $5000 plus closing cost of my own money ever in this transaction. It can be done.

In my various threads on new construction I'm trying to convey that this is not rocket science you can accomplish these things. I knew nothing about construction when I paid to have my first home till. I've never been a general contractor but I continue to make very good returns on homes that I spec.

The new trick that this old dog learned today was to try every option available to minimize the amount of money you have in a transaction. I've always done that on existing properties but I'm embarrassed to admit I'm not sure if I've ever done a subordination on a home to be built before. I may have when I lived here before, but the memory does fade as you get older!

I know that I am not the only one doing spec homes and it would be great if other BP members would list their knowledge and experiences to help those that might be sitting on the sidelines thinking that this is more difficult than it really is. I would never attempt to build a gigantic home as the first one out of the gate. I would suggest trying to build a home below the median price home for your area and make sure that it would at least rent for enough to give you a decent return on your investment. I'm also well aware that there are certain areas of the country where beneficial. As the end of the story of short sales and foreclosures disappears and new builders start building again in your area, there will be a reason for that. If we do not have an economic catastrophe, I fully believe most areas of the country either have or will move into a time where new construction can be beneficial to the investor.

I would hope other investors here on BP would share their thoughts also. Good luck. Rich