Nov 6th - 3 very different deals that made me $25,000. Part 3

Well, I figure I should finish up my series and complete the story of how I have made a little bit of extra income that will be useful to some that can duplicate this action, and see different ways to make a deal work.

Deal #3

One of my Brother-in-laws knows that I work in real estate and has listened to different ways that I find houses.  So from time to time he will take photos of FSBO signs and send me the number and address.  On one such occasion, he sent me a photo of a property in Holladay, UT.  East side properties in a more affluent part of town.

I called the Seller, ran comps, and made an appointment to meet with the Seller.  Before I went up to the area, I pulled comparable active and sold homes to the subject property.  I do this so I can negotiate with the Seller, but also because if I am making a trip to the area, I want to be able to drive by the other homes and learn about the neighborhood.

I met with the owner of the FSBO, and made him an offer, to shorten this story, that property did not work out.  But I decided that I would drive the comparable homes as I was interested in what else was on the market.  I was looking at the data for the other homes, and I noticed a Rambler that had been on the market for over 90 days, that was listed on the MLS, for $299,000.  The thing that caught my eye is that most Rambler style homes in Utah have a full basement, but this home was listed with 1535 square feet upstairs, and only 1074 in the basement.  This detail caused me to drive by and take a look at it.  

When I arrived at the property I realized that the home did in fact have a full basement.   If the listed price was $299,000  divided by 2609 that is $114 per square foot.  

But this home really has 3070 square feet which brings the square foot value to $97.

Anyway I made an offer on the home of $265,000 (or $86 per square foot).  I negotiated lightly with the listing agent and was able to place the home under contract at $273,000.  Now that I had the home under contract, I met at the home with my Contractors to evaluate the work needed to transform the property.

Here are some facts about the sale and property.

* Deceased Seller, and the home is being sold by members of the Trust that have never lived in the home.

* Out dated styles, that had not been updated since construction.

* I spoke with 3 other investors in my network, that had previously offered on this property and not reached an agreement with the Seller.

As I inspected the property, we became aware of several problems that needed addressing and also threatened my ability to be profitable on the deal.  One of these items was that there were 2 roof trusses in the attic area over the garage that were damaged and splitting.  My decision was close to cancelling my offer based on Due Diligence, and moving on to other prospects.  But, I learned before never to flat cancel the deal.  What I did was send over notice of my objections to the condition of the property, with a detailed report of my inspection findings.  I asked the Seller for a reduction in the price, and that without an agreement to the price reduction that I was then cancelling my offer based on due diligence and inspections.

If I just cancel, I can get out of a bad deal.  But, by offering the Seller a solution the my concerns I can give them the opportunity to sell the home and move on.

Another interesting point here is that I was willing to inspect the property, and provide that information to the Seller.  The other investors I know that had offered on this home never made it that far, due to not getting it under contract in the first place.  In the event that I cancel my offer, the Seller is now faced with having information, and photos, of a material defect in the property.  In Utah this seller is now bound to make repairs, or to disclose this defect to future buyers, because now they know about it.

This Seller chose to accept my offer for a price reduction and I was able to purchase the home for $265,000.   I now offered this property to my Buyer's network for a modest wholesale fee and sold the property with in 10 days.  My wholesale assignment fee was $10,000.  I am also a licensed real estate agent, so I had written my self into the deal as the Buyer's agent so my commision was 3% of $265,000 and an additional $7950

Purchase Price $265,000

agent commission  $7950

assignment fee  $10,000

I made a gross of almost $18,000 in a matter of about 4 weeks.  I did no rehab, or management of the project, and my Investor Buyer spent $37,000 on rehab and listed the property for $419,900 just 86 days later.  They sold the home for $120 per square foot.

So back to my original price per ft.  

Purchase price per foot  $86

Sale price per foot of $120

This means that the mistake of 461 square feet makes a difference of $15,674 of additional profit in the deal for the Investor Buyer.

I have tried to keep this as basic as possible and highlight the specific areas of questions I receive from new investors. What questions do you have that will help you to feel comfortable to make your next offer on a Short Sale?