2/1 Townhouse with lots of potential

[Christina Linn]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $59,000
Cash invested: $10,000

This is one unit in a duplex (or townhouse) and it just fell right into our laps. The owner was losing her tenant and wasn't allowed to legally rent out the house, so she was going to allow it to be foreclosed on. The tenant is a lifelong friend of mine and contacted me about it, saying she would sell for what she owed ($41k-ish) - this was on Thanksgiving Day. The next day we got in the car to look at the house, thinking it would be so horrible we wouldn't want it.

What made you interested in investing in this type of deal?

The price was amazing. I am extremely familiar with my market and I know that these townhouses (they should really be called duplexes) sell for $115k after days on the market. They are the only houses that consistently sell quickly in our market. The price was it for me though!

How did you find this deal and how did you negotiate it?

Like most of our deals it fell into our lap. The tenant was buying a house and felt bad that the owner was going to let it go to foreclosure, as she lived out-of-state and had a type of loan that didn't allow it as a rental. There was no negotiation necessary. We offered $41k or balance on mortgage, whichever was less and we offered to cover all closing costs. When liens of $27k came up I taught seller to negotiate with collection agency and they settled for $17k. We paid just over $59k.

How did you finance this deal?

We put it on credit cards... I did not want something else to come up as far as liens and didn't want the seller to get cold feet, so I put on credit cards to allow easy close. We refinanced just over a month later and took out equity to pay off personal debt.

How did you add value to the deal?

I am still working on this house (2/24/19). We will paint the interior (exterior this summer), replace carpet, we put tile in bathroom and kitchen, replace appliances, and hang new doors. This is a big home and we are going to finish the basement with a theater room to add value as a STR. We will use it as STR to cash flow more, but may convert to LTR later, depending on convenience.

What was the outcome?

I did a couple days worth of work on this deal and made $55k right off the bat. Since then we have added tile floors and will finish the basement, which will increase value about another $15k. This will cash flow very well and will be a great property to sell if we fnd ourselves in the position of needing to sell.

Lessons learned? Challenges?

It was nerve-racking to put this house on credit cards and it dropped my score significantly until we refinanced. As with most of our deals, I learned that thinking outside the box and making decisions that will be fruitful are usually worth it. Of course, I was painfully aware that something could happen to prevent a refinance and then I would have nearly $60k in credit card debt. As it was though, I prevented paying closing costs for two mortgages, as I knew we wanted to take out equity.