The Power of Networking

[Byron Hunter]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $148,000
Cash invested: $20,000

When a gentleman from our church found out we were Real Estate investors, he asked my wife and I to purchase his home so he and his wife could move in with their daughter. He insisted on selling us the property for the same price he paid for it in 2002. The property was renovated over the next 2.5 months when we began renting it out.

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

Our goal is to accumulate rental properties to fund our financial Independence and retirement. We already had 1 comparable rental in the area that was successful, so when this deal presented itself, we acted on it.

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

The seller was a good friend, neighbor, and church member. When he helped us pack our moving truck, he asked about the "buyers" of our house we were moving from. I told him we were actually renting it out. 1 month later, he asked my wife and I to purchase his property.

We got lucky on the negotiation. He insisted on selling it for the original price he paid in 2002. I offered to pay more, but he would not accept it.

How did you finance this deal?

I used hard money lending (expensive) for a 12% interest only loan for 6 months. I invested $10k of our own money and also asked for a $10k loan from my in-laws credit line. In Texas, we have to wait 6 months in order to do a cash out refi. We did a refi for $195k which gave us $10k cash back for a 30 yr term at a 4.875% APR.

How did you add value to the deal?

I hired 2 young men from my church to help clear out all the trash and junk left behind (2 trailer loads worth). Hired out a contractor to paint, reface cabinets, and replace flooring. Another company to replace 1 of the A/C units. I personally replaced the garbage disposal, all light fixtures, outlets/switches, toilets, and garage door springs.

What was the outcome?

The outcome is a $265k valued rental with $60k in equity.

Lessons learned? Challenges?

Scope creep is a real thing! The original renovation budget was $15k. Once we started, we realized that was way too little. We increased the budget to $25k. By the end, we spent $35k on renovations. This was influenced because a lot of finishes we chose were what we would have picked for our own house.