I hope everyone is putting together their goals for the upcoming year as 2015 winds down.It’s been a great year in real estate and I hope that 2016 is even better.I am a real estate investor and real estate agent.The goal is to generate income from my real estate agent sales to re-invest into rental properties most notable apartment buildings.I wanted to take the time to share a recent deal we put together several months ago that worked well for all parties involved and provided an exit strategy for the subject property after several other failed strategies.
It was 2012 and we had just completed 2 smaller rehab projects and was looking for more.I came across a large 2100 square ft. 2 story home with 5 bedrooms and 2.5 baths that was completely trashed.Trashed so badly, there were holes in the floor of a small addition that was allowing small critters in! (we ended up tearing down the small addition during the rehab eliminating a bedroom).I had been watching this property for several months.There had been many showings due to the already low price but when potential buyers would see the interior they were quickly turned off.We finally had our latest rehab under contract and it was time to make a move so I called up my contractor to meet me at the home for budgeting purposes and started to call potential private investors.This would be the riskiest rehab we had completed to date.I have a construction management degree and10 years of residential and commercial construction experience so it wasn’t the rehab that made me nervous, it was the financials!We could either knock it out of the park or fall flat, losing a ton of money and starting over.
We prepared our budgets and put the property under contract.During the due diligence period we fined tuned our budget and brought potential private investors through that would soon bring the deal to fruition.We had 2 individual private investors that loaned the dollars to purchase the property for $48k through their IRA retirement accounts.To complete the financing for the rehab costs, we used the services of a private lender and our personal cash on hand (rehab budget $70k).
After about 4 months of rehab (budgeted 3) and the home on the market for 3 months we had a ton of showings, one offer falling through and paying the investors through the nose every month, we decided to pull the property from the market, refinance through conventional financing and we came to an agreement with the investors to cash them out.
I have learned a great deal more since that time and I want to fast forward to the current and get into the lease option deal we put together several months ago.We have rented the property for the last 2 years @ $1,600 per month to 2 different tenants.The mortgage payment is $950 per month ($107k loan for 30 yrs).Each time trying to lease option on my terms but to no avail.As they say, third time is a charm and the prospect came calling.When they asked about the lease option, these are the terms I sent over to them and they were the following:Purchase price: $189,900, $1,500 per month lease payment, $50 per pet per month fee, $50 application fee each applicant, 5% non-refundable option fee, one month security deposit, and 20% of monthly rent going towards down payment credit when option to buy is exercised.We agreed on all the terms above with a purchase price of $182,900, $1,600 rent (2 pets) and 2 year option agreement.There was a buyer’s agent involved so I paid her a portion of the owed commission and the buyer paid the rest (buyers portion will be credited when option exercised).I was not going to pay all of commission up front not knowing if buyer will or will not take option.You can do the rest of the math to figure out what the net profit will be once the option is exercised. I required a bank letter indicating their credit worthiness and in about 6 months they are able to get a loan if they continue to follow their financial plan.If that doesn’t work out we keep the sizable option fee and do it all over again with a new prospect but that’s not the plan!
In closing, this property which I have owned for about 3 and half years now has taught me a great deal about a lot of different aspects of real estate investing including deals with private investors, rehabs, tenants, creative financing and I now live in Naples, FL so managing a property that is 1100 miles away in Ohio as well.Once cashed out, it will help us as we look for the first large apartment complex deal and going through the same process only on a much larger scale!We have several other Ohio rentals that will eventually be cashed out to invest in more multifamily properties.Want to connect, hit me up!
