Deal That Got Away (Good Idea to Remember In the Future)

[Phillip Tillotson]

My intention with this post is to give readers a possible way for getting into real estate should the right circumstances present themselves. I left out exact details of the deal to keep this short. Also, this deal was not created to make me a lot of money. It was created to help a person I know, and to get me into real estate investing with a lot more funds.

The Problem

A person I know came to me needing money (10k+). He is not employed nor does he have a vehicle. The only thing he has is a house free and clear that was gifted to him. He has poor credit so the banks wont loan anything to him. He informed me that he wanted to sell his house so that he could pay off his debts and restart his life. If he were to straight sell his house then he'd have to take a large tax hit since the house was gifted.

Also, I have been trying to get into real estate investing. I thought that this might be my best first shot..........I was wrong.

The Solution

We offered a seller financing deal that would change his life and mine. We first assessed the house. We determined that it would be worth around 124k$ after repair. The seller was willing to sell the house for 100k$. We determined that it would take 10k$ to repair the house. We lined up a hard money lender for 20k$. 10k$ of that would be a down payment to secure the seller financing and allow the seller to pay off his immediate debts. 10k$ would go into rehab. Our goal would be to sell the house for 124k.

Now the good part. The seller would note receive the 80k$ difference immediately. Instead, it would go into an escrow account. The note would be parked on my house. The seller would receive 350$ a month interest payments only. I would then have the ability to use the 80k$ to invest in other properties. The seller would be my first pick for contract work per the contract. Additional provisions could be negotiated on a per deal basis. This would continue for 10years or until we mutually agree to end the arrangement. (there were several provision details for protection of both parties but I just want to post the cliff notes)

This means that he was buying himself a job, getting a steady monthly income, and clearing up his present issues. I would have a chance at some funds to start my real estate investment career. My thought was that we would form a LLC and start making some big bucks once we sold his house. I really thought I was doing a good thing taking him from no job to potentially making a lot of money.

What Happened

The seller agreed to and signed the letter of intent. When we gave him the sales contract for the house he freaked out! He thought we were crazy for expecting him to sign the sales contract so soon. I later found out that his ex-girlfriend had been trying to talk him out of it, and he was not capable of doing physical labor. This means that he was not able to perform his part in this contract. After he blew up he stopped communications with me. I decided that his outrageous behavior and lack of communication were good indicators that I wouldn't want to do business with him. There were also a lot of risks for me involved that I could no longer trust him with. (like MY HOUSE!!!!)

Conclusion

Had everything gone as expected it would have been great. I would have had funds to invest with, an incredibly smart/experienced mentor, and a partner to help with the rehabs. He would have had all his problems solved and a bright future. Instead, I'm back to looking for that next opportunity. Hopefully I can turn this experience into an opportunity. If anything, hopefully I gave somebody a good idea for creating a real estate investment opportunity.