Finding Profit After a Lakeside Home Lost Its Lake

Golf courses turned to weeds and stalled development created an opportunity for the right type of deal, it just needed some imagination and patience.

We routinely review different deal structures because each one is unique and offers a lesson or serves as a reminder of just how flexible deal terms can be. Creative TERMS can be solutions to problems, be it the problems of a housing market or a seller with a life-changing event that wants out from a property without being ripped off or any other different scenarios.

Rather than a specific deal structure, this lesson is more about the story behind a deal that is still unfolding. No breakdown of paydays here, just a diamond in the rough.

Along with one of our Associates (students) in North Carolina, we came across a For Rent By Owner and reached out to the seller who returned his calls and was overly eager — uncomfortably so — to talk about selling. The more we talked, the more we began to understand why.

A decade ago, the house had been appraised for almost $800,00, based in part on surrounding amenities like a lake and two designer golf courses. Since that time, the lake was condemned and drained, and the golf courses and a community center were shut down. Everything about the neighborhood changed, except for the 1,200 homeowners and 1,100 empty sites.

Our buyer was unfamiliar with the market in that area and was petrified of overpaying. After seeing the home, he felt more at ease about the actual property, but the surrounding area still made him wary. Visiting the home, we noticed its condition reflected the fact that tenants have lived there for a few years. What was initially almost a $1 mil home was now a bit of a fixer upper.

The seller owed roughly $375,000 on the home and he wanted some equity. He wanted roughly $400,000 which scared our Associate , especially the $2,300 monthly payments with a second mortgage on top making the payments closer to $3,000 month.

This situation with many uncertainties led our Associate to try an Assignment (AO) deal. If you’re not familiar with our deal structures or haven’t read our best-selling books (Real Estate on Your Terms and The New Rules of Real Estate) an “AO” is when we find our tenant buyer and assign that package back to the seller and step away after collecting only one Payday instead of three. The few interested buyers that we generated didn’t seem like a good fit, and our Associate didn’t want to pass those on to the seller, and so the time frame in which we had to get it sold expired. (The agreement was contingent upon finding a buyer as we suggest with all new students – and the seller had settled on 90 days because he wanted to find a renter before the fall season if no buyer came through).

From petrified to paid

After a few weeks, and a phone call I made to the seller (we do the deals with our Associates which is literally locking arms in the trenches), our Associate came back with a different offer to the seller: I know our agreement expired, but what if you only had to make two more payments maximum and then never had to think about that house again?

The seller was ecstatic. He wanted some equity, but more so he wanted peace of mind.

We crunched the numbers and it came back to a monthly cost of $3,000, but that is too much on a $500,000 home that has slipped into fixer-upper status in a neighborhood that is just starting to rebound. (The neighborhood has a new developer and some state politicians live nearby and have given its plight some attention).

The seller was able to refinance and bring down those payments and we moved forward, this time with a Subject-To deal, where the payments are $2,200 a month instead of an AO or Lease Purchase where payments are closer to $3,000 a month. That made a simple AO projection of approximately $33K possibly return more than three times that.

Our Associate was a bit skeptical on the traffic a half-million dollar house would create, but after some marketing, he’s seen steady traffic. He now has two buyers with that property:

We could even rent the house and wait to see what happens to the development. If it starts to pop back toward its former glory, the value should go up quickly and create a larger windfall to then allow us to move into a rent to own exit.

Or he can feel good that he can get a tenant-buyer into the home, someone who has a vested interest in maintaining the property. Then, build into their deal that the house could easily spike in value and reach an agreement with the tenant-buyer that any value beyond a certain threshold amount will be split (we usually just lock their price in but this is a bit different and it’s important to know how to pivot and work these deals creatively). Rather than us explaining that he’d come back and reevaluate the property, the tenant-buyer would likely be ecstatic to share the added value.

Always be on the lookout for deals that aren’t getting the attention of most real estate agents and even other investors because that is an indicator of a house with an issue. Those different but all too real circumstances need some research and creative thinking to find a type of less traditional deal that can help out the seller. In our line of work, we don’t sell or pitch anything, we solve issues. These are the types of solutions and deals that real estate agents, flippers and wholesalers don’t offer or, frankly, don’t know how to handle.

This deal is still closing so the final terms aren’t settled. Down the road, we’ll follow up with this property and update whether the development rebounds and what happens to the tenant-buyer. The lesson here isn't the bottom line numbers which will highly likely be amazing, but the imagination that helped the seller and our Associate find mutually beneficial terms for a win-win.