Finding $80K in the Middle of Nowhere

Off-grid homes pose a lot of potential problems for real estate investors… But they can be perfect for terms deals!

Picture this... A property that is completely off the grid, needs about $40,000 in work, and that no lender wants to touch.

Doesn’t sound like the best real estate investment, does it?

Well, you’d be wrong. While this house might not be well-suited for a traditional realtor or lender, it’s perfectly suited for a terms deal. One of our High Six Associates took this property on when no one else wanted to go near it and ended up receiving a sizable payday in the end.

The house that no one would touch

This house was on the market with a realtor for over a year before our Associate got involved. So, why was it so difficult to sell? And what does “off the grid” actually mean?

Well, when we say this house is “off the grid” what we mean is that it is not connected to any electric or water utility. It supplies its own power with solar panels and a backup propane generator. All of the water comes from a well on site. It’s basically in the middle of nowhere, with nothing in sight for miles.

This style of house is unique, but it’s actually very enticing to some people. Especially with the pandemic going on at the time of this deal, a lot of people are interested in moving out of the city, into nature, and getting away from it all.

But it’s not quite that easy. There were a few problems holding people back from buying this house.

First of all, living off the grid isn’t quite as easy as it might sound. You really need to know what you’re doing, and you have to be able to manage the electric, plumbing, and heating systems yourself. If anything goes wrong, it’s on you. That can deter a lot of people right out of the gate.

Second, the house wasn’t quite finished. All of the electricity and plumbing was set up, but it still needed flooring, counters, and appliances. All in all, about $40,000 in work to get it up and running.

Lastly (but most importantly) is that government backed lenders will not finance off-grid properties. Typically, only local lenders or credit unions will give out mortgages for this type of property...or people selling on terms!

When the realtor had listed this house, they were getting pre-qualified buyers that were ready to purchase. But they had pre-qualified with a major creditor like Chase or Quicken Loans—which meant nothing in this situation!

Then, once the pandemic hit, lending companies became even more stringent. That made it all the more difficult. This is one of many scenarios where investors like us are needed—and that is not changing for the foreseeable future, given all the chaos we’re seeing.

All in all, this was a tricky situation. But the seller was becoming desperate to get rid of the property, and our Associate was able to save the day. Let’s see how he did it.

Slow and steady

This deal ended up taking a long time to complete because of the remote nature of the house and all of the complications listed above, but it was well worth it in the end. Our Associate had sent out a SlyBroadcast in October and got the house under contract in early November the next year.

The house had been on the market for $475,000 and our Associate was able to structure an owner-financing deal with a purchase price of $430,00.

You might be wondering how he was able to negotiate $45,000 off the purchase price… Well, it was quite simple really. He explained to the seller that he could get this property sold but needed some wiggle room in the price to make it work. Obviously, the current price wasn’t working.

But most importantly, the house needed $40,000 in work to be livable! If the seller were to do that work himself, that price might work. If not, he’d need to bring it down.

From there, our Associate showed the property about a dozen times over the next three months.

Normally, we recommend using a lockbox so people can view the house on their own time and you don’t have to go out to the property for each visit. In this case, however, our Associate needed to be there for each showing. There was some expensive equipment on the property that the seller did not want anyone running off with, and our Associate needed to explain all the details of this unique off-grid house to the potential buyers.

But lo and behold, our Associate was able to find a buyer within those three months. Because this was an owner-financing deal, it removed a lot of barriers that a traditional buyer would have (mainly, not having to deal with banks and lenders that won’t touch an off-grid property).

And even better, the buyer was a contractor, and was more than up for the job of fixing up the property and making it livable.

The 3 Paydays™

As mentioned before, this was an owner-financing deal with a purchase price of $430,000. The term was 36 months and the sale price was $460,000.

Payday #1, the down payment, was $46,000. But we also capture the first month’s rent on all of our deals, so the actual number jumps up to $47,500. That was split across a few payments, with one down payment of $15,000 right off the bat and then a few more over the next six months.

Payday #2 is the monthly spread on the home. Our Associate was getting $1,500 per month from the tenant buyer and owed $1,200 per month to the seller. (That entire $1,200 is going to paying off the principal, by the way, which will come up later.)

That’s $300 in monthly profit, which is $10,800 over the course of the 36-month term. If the buyer needs to extend the term—which is likely, with the pandemic going on—this number will only get higher!

Payday #3 is the markup from the sale and the principal paydown, minus the down payment. The house sold for $460,000, which is $30,000 in markup. The principal is also getting paid down by $1,200 each month—which comes out to a whopping $43,200 over the length of the term! Minus the $46,000 deposit and our Associate is left with $85,500 for All 3 Paydays™.

To put that number into perspective, let’s take a look at how much time and money was invested in this property.

Our Associate spent about 36 hours driving to and from the property while he showed it to prospects over those three months. He also spent about 4 hours talking to the seller and buyer in various meetings. About 40 hours in total.

And as far as money, he invested absolutely nothing! He didn’t spend a cent on this. So in the end, he’s making $85,500 for 40 hours of work, or a typical 9-5 work week. How many people can say they made a year’s salary (and a pretty good one, at that) for one week of work?

Have you ever sold an off-grid home? How’d it go? Did you run into any problems or obstacles? I’d love to hear about it.