Our First Investments (Part 2): The Elma House

I was always a naysayer. When opportunity arose, I would find the problems instead of looking for a solution. I looked for the worse-case scenario and wound center my energy around that possibility. Honestly, if it weren't for my wife, I would probably not be here investing and writing blogs on BP.

Sheila had a completely opposite mindset. When someone told her "you can't," she would push even harder to prove them wrong.

A property had been listed on the MLS for four months with no activity. It was bank-owned and initially listed for $95k in a market that was lucky to see those numbers in a completely fixed property. This particular house was in poor shape.  If the rot and mold present throughout the kitchen and bathroom weren't bad enough, it also smelled as if a dog had died inside.

I had been very active in the education portion of real estate investing, but was still nervous about getting my feet wet on an actual purchase. Sheila, on the other hand, had been watching this property as the price continued to drop further and further.  Finally, when the time was right, she came to me and proposed her idea.  We were going to buy this house, somehow.  Due to the property's condition, the bank would only accept cash.  

"How are we going to come up with $40,000 cash?" I asked, trying to wrap my head around such a large figure.  We were still in debt, living in an apartment, and losing money on the one rental property we did hold.  Thinking I could defer the conversation, I finally told my wife, "If you can find a way to actually buy it, go for it."

That she did.

Within a month and a half, we were moved in.  

We had reduced a substantial amount of debt by renting out our brand new house and selling our brand new cars.  This freed up enough credit for us to obtain two private, unsecured loans through two different credit unions.  We signed for the loans, with a total amount available of $35,000.  We then put in an offer to the bank for a cash purchase of $34,900.  To my amazement, and Sheila's expectation, the bank accepted!

Within a month of the accepted offer, we performed an inspection on the property and were denied any further reduction in the price, assigned our lease with the apartment to a new qualified tenant (which saved them $100 a month over current market rent for the remaining 6 months of our lease) and even paid them $200, and created a plan for fixing the new house before moving in.  

We paid for closing costs and initial fixes with a credit card.  By the time we made the Elma House move-in ready, we were maxed out on available credit.  But, we had successfully accomplished what we had visioned.  We reduced our debt, rented out our house, and bought a cheaper house to live in.  

Over the next year and a half, we would slowly chip away at the necessary fixes this house needed.  

That was, until we discovered something we wish we would have known about 18 months prior.  We purchased our house for $34,900 with unsecured loans.  Since the purchase went through as cash, it appeared the house was owned free and clear.  The tax assessed value on the property was $82,000.  The bank was willing to give us 80% of the tax assessed value of the home without an appraisal.  This meant we were eligible for a loan up to $65,000 based off the equity of the house!  

Due to our debt-to-income ratio, we had to roll in some debt into the new line of credit which left us with $45,000 available cash to now fix the Elma house.  We hired a contractor and within a few months, we had a brand new house worth over $145,000!  

Our plan is to sell the house, pay off all of our debt, get out of the rat race, and continue to purchase properties to fix up and turn into rental income.  Through our success, I became a believer.  Through my education, I realized that a negative mindset will not produce the results you desire.  It will only become an excuse for your failure.  

It felt amazing getting the Elma house for a fraction of the current market rate.  For years, we had watched as deal after deal had been swept up by investors.  Those properties we dreamed of acquiring washed away.  This time, the deal that was bought was ours.  The profits would be ours.  We would have the opportunity to finally make a difference in our community.  We could clean up the neighborhood by fixing up the house and providing quality, affordable housing for someone else.  The feeling was exhilarating!  We wanted more.  

In the next blog post, we will share the story of our success and failure venturing into the real estate investment world.  Through the success of acquiring the Elma house, we decided to take on wholesaling properties.  We failed miserably, although found success in one single letter - on a property we had been watching for over a year, and had practically given up on.  

See you there!

By the way, we are always looking for local investors to network with.  Please send us a colleague request.  Hopefully, we can meet up sometime and do some deals!