This deal more or less dropped in my lap. I had ‘wholesaled’ a property from a seller in the Summer of 2020. You can take a look at that deal diary here. The seller and I had stayed in contact for months, when she reached out to me sometime in January. After thinking it through, she was ready to sell the final two properties in her portfolio. We set up a time to look at them together.

Negotiating

After the walk-through and my preliminary due diligence, I made an assessment on what they would be worth, either as wholesales, rentals, or flips. Once I had my numbers in order, I created a small presentation with three offers varying from a cash sale to a seller-financed sale. We talked about what each property would be worth as a cash sale, but it was hard for the seller to see them go at such a low price point. I always try to offer one or two seller-financed options with every offer that I submit. The seller hinted at being interested in the seller-financed offer that I presented for one of the houses, but she needed time to think about it.

This house was a foreclosure that she had bought back in 2011, located in Havelock, North Carolina, and only 5 minutes away from Marine Corps Air Station Cherry Point. It was well situated, location-wise, and perfect for a military family. It had a very big backyard, four bedrooms, and a beautiful master bathroom. The master bathroom almost seemed out of place, as it was high-end for the area, but would have a huge appeal to a renter. I’m talking all tile, jacuzzi tub, walk-in shower, sky light, granite double vanity, and a heated ventilation fan. Regardless, the house as a whole would have been a desirable and lucrative rental property, so I made sure to make the numbers work on my end, but also take into account that the seller was fixated on price. I made sure to offer a fair market price with a long-term amortization for the seller-financed offer, in order to cash flow the property.

We went back and forth for a few weeks and I allowed her time to think about each offer. One day, out of the blue, she gave me a call.. During that conversation, she elected to go with the seller-financed offer. This would be my first 100% seller-financed deal, requiring no money down, at 0% interest. I was trying to keep my cool on the phone, as I was beyond excited. It was a win-win. The seller wanted to close quickly, didn't want to rent to tenants again, didn't need all of the money up front, didn't want to pay agent/closing costs, but still wanted to sell at fair market price in a hot market. She and I were very engaged in understanding each other's position and clarifying exactly what the offers entailed during an intense two weeks of negotiations. As a result, we worked out a solution and came to a mutually beneficial agreement.

Closing

Seller financing is very simple, with fewer moving parts, unlike bank financing. Closing can be executed as quickly as the attorney can get to that closing file. We had agreed to close two weeks from the day we signed the contract. Smooth sailing, right? Not so fast. The seller called me while I was attending a night class at the local college. She expressed a hesitation towards proceeding with the deal. This was just a few days before closing. Her son was trying to convince her that he could do all of the work necessary to have the property either rented again or sold on the market. She, on the other hand, did not want to have to deal with the hassle of the project, as she had been doing impromptu rehabs and renovations for over 15 years. Regardless, I can understand where the son was coming from; he wanted what he felt was best for his mother. Throughout the conversation, she pleaded with me to talk her off the edge, and I obliged her. I reminded her why she was doing this and reiterated to her the scope of work I would be executing to protect her investment, and more importantly, our investment. As we hung up, we both felt better about the prospects of the deal being mutually beneficial and more confident about getting to the closing table. Over the next few days, I walked the property with my property manager and finalized the scope of work with my painter and contractor, making sure that we were all on the same page in regards to the tasks that needed to be done immediately following closing.

Closing day was a little bit nerve-wracking! We showed up and got right to business. As we went through the nitty-gritty details, foreclosure came into the discussion between the seller, attorney, and myself. “How would it all work?”, the seller asked. The attorney talked us through the process in detail, which was educational for me, but scary for the seller, seeing as she acquired it through foreclosure. As straining as the conversation was, we were talking about the worst-case scenario; as much as they needed to be addressed, the likelihood of me defaulting on a 0% interest loan with very manageable payments was almost slim to none. We were able to get through the rest of closing and walk out of the room feeling at-ease, and a bit excited about the transfer of ownership.

Turning to the renovations, my property manager and I decided that the walls definitely needed to be repainted. We also looked at everything else that needed to be done. Repairing, painting and affixing handrails/backrests to the backyard deck would make it a more entertaining space while providing a home-like feel as a family rental. We identified the little things that would make a big difference: hardware would need to be changed out, bathrooms would need to be recaulked, cracked porcelain replaced, old ceiling fans, outlets, and switches all swapped out with new. Many of these items were a small cost, but added a lot of aesthetic value to the new paint. All in all it was a very cosmetic rehab, focusing on the “80/20 items” that would have the biggest impact on bringing the place back to life.

Due to a very involved renovation that I am still tackling on a separate property, it was important to have this deal go through for little to no money down. I will be posting about that one soon! I was not hurting for capital, but I was not swimming in it either. I was able to turn to an investor that I know in New Jersey who had some cash on the side and wasn't opposed to deploying it in order to help with the renovations. This was a tremendous help, as I was able to pay for a chunk of the renovations with the lump sum loan, then use the cash flow of the property to pay back those renovation costs over time. Additionally, you have to start somewhere with private lending, even if it is a small $3,000 loan. The trust and confidence built by timely payments, in accordance with an agreement, is worth far more than the money actually being borrowed or the interest being made. I hope to eventually receive more lending opportunities, and/or partner on some deals with him in the future. Shout out to fellow investor and Biggerpockets member Brian Wolf for helping me out on this deal!

After handling the original scope of work and some minor items that had to be addressed in regards to electric, gas, and cleaning, the property was able to be listed for rent and shown to potential tenants at the beginning of March. There was a lot of interest in the first couple days, and within a week and a half my property manager was able to secure a tenant to move in by the middle of March.

The Numbers

Monthly Expenses/Debt - $982

Property Taxes - $113

Insurance - $112

Property Management (8%) - $96

Maintenance/Repairs - $55

Capital Expenditures - $70

Vacancy - $91

Seller Finance Payment / 0% interest over 30yrs - $445

Rehab - $7,500

Income/Rent - $1,295

Performance

Monthly Cash Flow - $313

Purchase Price - $160,000

ARV - $180,000

Cash ROI - 42.92%

Total ROI - 103.92%

Future Plans

This is a no-brainer long-term rental. Additionally, I can see it being a piggy bank to fund other deals in the future. It cash flows well, and will most likely appreciate well with some of the economic drivers that are at play in Eastern North Carolina. The financing allows for the whole mortgage payment to go directly into the principal paydown, adding equity with each payment. There is a 15-year balloon payment on the mortgage, so in 15 years (or sooner) I will likely refinance and pull cash out to re-invest. This property will certainly be held in my portfolio for quite some time.

Thank you for reading! Please let me know if you have any questions about the deal.

-Padric

Pictures