A Rehabber's Dream, and My Fake Ad

Rehabber's Dream
I was really beginning to wonder if having my in-laws do some mundane tasks for me in regards to my REI venture was such a good idea. At first, they were spending hours on end scouring neighborhoods, looking for abandoned properties. They would get all excited when they found one. Unfortunately, though, all the properties they found were ones that had already been foreclosed. Earlier this week, I told them that I really appreciated their help (and I do), but those types of houses are available on the internet. I also told them that what I meant by "abandoned" was houses that were empty, and/or look like no one had been living there for a while, but did not have any signs in the windows and/or any "For Sale/Rent" signs in the yard. I thought I had burst thier bubble. I understand the adrenaline rush when you find an empty property, but you learn over time that most have already gone through the foreclosure process, are available on the internet, and 99.9% of other investors know about it.

Then yesterday, my FIL told me about a multi-unit property for sale he came across from a friend. It has 8 units, and the owner wants only $50,000! Of course, I then started getting excited. I got some more information, and then decided to go out to look at the property. My wife wanted to see, too, as did my in-laws, so we just piled up the van and made an outing of it.

When we found the property, I understood why the owner had such a low price for an 8-unit apartment. It has two floors, and ALL the windows on the second floor are gone. The siding needs completely replaced around the whole building as does the roof. Peeking in the windows (at least the ones I could peek in), it looks like some of the ceilings are in bad shape. The walls looked intact, but the floors need replaced as well. The gas and electric meters were missing as was the city water intake meter, but my FIL said the utility people probably took them out and will install new ones at the owner's request (for free???). There was trash in the front and back yards as well as some of the rooms, but not a huge amount. It had a nice-sized back yard (~0.25 acres, I would guess), which my FIL said would mostly need to be a parking lot for the tenants. I would guess about $10k-$15k worth of repairs just on the outside. If the rooms I couldn't see were the same as the ones I could see, I would say about another $15k-$20k in repairs were needed inside. Add to those figures new appliances, and I would give the total repair estimate a conservative price of about $40k.

We then ate out, and returned back home. I immediately started getting comps for the place, but it is unusual as there are no other 8-unit apartment buildings within earshot of this property - let alone that have sold in the past 6-12 months. I did find some other multi-units in the area that have sold recently, and would estimate this property - when fixed - would fetch a price tag of around $250k-$300k. So, $50k to buy, $40k for repairs, another $10k for miscellaneous, and even if I sold it for $200k (which is VERY conservative), I'd still make $100k. The only problem is I have never done anything more than a very minor rehab, so I'm clueless how to go about doing something this big. The money looks VERY attractive, but I might get it under contract and then just assign it to another investor skilled in major rehabs for a nice assignment fee ($10k-$15k?).

I also called the contact number, but got a voicemail. I left a short message with my name and number. When I got up this morning, I noticed the person called me back after I had gone to bed, but didn't leave a message. Guess I'll be playing phone tag with him/her today. :-)

Fake Ad
Okay, call me bad. As people who have been reading my blog recently may realize, I have gone on a tear lately about buying houses Sub2 and selling using seller-financing. I also included a real-life example property and how I would have made a decent profit over a couple of years. Well, on Wednesday night, I decided to up the figures a bit to make the profit even more attractive. On Thursday, I then put a fake ad on Craigslist to see if anyone would be interested. Last night I checked my voicemail and email, but didn't get a response. This morning, I noticed someone sent me an email who are really interested in the property. Most of my fake ad was centered around the seller-financing part - I didn't really go into detail about the property itself (no pictures, no size, not even an address - just the year it was built, beds/baths, and the neighborhood). Talk about a pleasant surprise! Here were the figures I used for the list price and seller-financing:

Existing Loan Amount ....... $ 88,500
Existing Loan Int Rate ..... 7.25%
Existing Loan Payment ...... $ 603.73
Existing Loan Begin Date ... Aug/2004

Existing Loan Balance (as of Dec/2005) ... $ 87,267.87
Existing Loan Balance (as of Mar/2006) ... $ 87,037.03
Existing Loan Balance (as of Mar/2008) ... $ 85,032.18

2005 Assessed Value ... $ 88,900
My Comp Value ......... $ 85,000
Repairs ............... $ 1,000
Other Buy Costs ....... $ 1,500

Seller Purchase Price .... $ 99,000
Seller Down Payment ...... $ 5,000
Seller Financed Amount ... $ 94,000
Seller Interest Rate ..... 9.00%
Seller Interest Term ..... 30yr w/2yr balloon
Seller Loan Start Date ... Mar/2006
Seller Monthly Payment ... $ 756.35

My Monthly Cashflow ...... $ 152.62

Seller Loan Balance (as of Mar/2008) ... $ 92,655.35

Profit when Seller Refinances in 2 years:

  Seller Loan Balance    [ $ 92,655.35 ] -
  Existing Loan Balance  [ $ 85,032.18 ] -
  Repairs                [ $  1,000.00 ] -
  Buy Costs              [ $  1,500.00 ] +
  Seller Downpayment     [ $  5,000.00 ] +
  Monthly CF x 24 mos    [ $  3,662.88 ] =
  --------------------------------------
                           $ 13,786.05

Not bad for a property that was slightly upside-down! Of course, even though there is still a 5-figure profit, it's still a little bit less than I would be comfortable with - especially being my first seller-financing one. There are some hiden costs and hidden revenue streams not accounted for, like CPA charges for dealing with 1099's, and business write-offs associated with the deal as well as the potential risks involved (i.e., original note holder calls the loan due or I need to foreclose on the new owner). I'm looking more for properties that I could swing for $20k minimum profit to safeguard my interests. I'll still persue this one, as it could very well turn out to be even more profitable, but this was more to see if I could get a bite off of a realistic deal.

Update:

I emailed back the person who showed interest in the property in my fake ad. I basically told him it was under contract, but I'd let him know if the deal falls through (yes, I feel like a clod for doing this now). I also told the person I am working another deal, and asked if he would be interested in it (might as well pull the lie out further). :-(

I also called the guy back at lunch about the 8-unit apartment. And, again, I got his voicemail. This time I told him to call me between 4pm and 9pm today so that we could talk about the property.