H. Roger Neal® Pays Buyer’s Bills Off
May 5, 2009 Investment Strategy
Here’s an example of a sweet little deal that I sold awhile back. I originally purchase this 3-bedroom house for $19,000 and worked on it for 3 or 4 days. I haven’t had time to add up the expenses, so I will exaggerate the tally at $3,000. In total, I have about $22,000 total in the deal. This is a deal where this older man called me from my advertisement in the Sunday newspaper. He stated that he wanted $24,000 and wouldn’t take a penny less. He knew the value to be much higher. On the other hand, he had just inherited the property from an uncle, so he originally didn’t have his own money in the property. After a while of listing with an agent, upgrading the interior with paint and flooring, is the time when he contacted me. I drilled him for information that I could use against him. (Anything a seller tells me can and will be used against him.) During our initial telephone conversation, I asked if he were sick and tired of trying to sell the house through an agent. Further, I reminded him that although it was a nice house he had no showings. He countered by stating that there were other buyers in the paper and he would call them. I replied that I would possibly pay $19,000 if I liked the house and that he should contact everyone in the paper and call me last. He called back in 3 days stating that his highest offer was $18,000, but he would take $22,000, if he had to. I stated that my 19 wasn’t an offer, it was a number if I it was worth it. He kept trying to meet me at the house, but every time I refused. I bragged, “I’m a busy man. I have no time to meet you unless you state that if I want it you will sell it at $19,000. I won’t look at the house until you agree to it.” He wanted to get back with a couple more investors who he had called out of the paper, so we hung up. He called back in two hours and said the 19 would be fine. I raced out to the property and, needless to say, I bought it. The interior of the house was impeccable. It even had the swinging wood door to the kitchen and French doors between the living room and dining room. There were hard wood floors throughout with new linoleum in the kitchen and bath. What was left to do you ask? On the interior, it needed a 100 amp circuit breaker and outlets in the bedrooms; there weren’t any. The exterior of the house needed a paint job in the worst way. It looked dull and dingy. An electrician took care of the breaker box and my son used his paint sprayer for the exterior paint job. In less than a week the house was in tip-top condition. I placed my advertisement in the newspaper and began contacting former tenants. I showed the house to two former tenants and they both wanted it. The one who filled out the application first with a $25 fee got first crack at it. She had a housekeeping job with marginal credit standing. In fact, there were about twenty unpaid bills ranging from $45 to $250. She had absolutely no savings and no car. However, she did work regularly and she wanted the house. The house appraised for $55,000 and she got a loan through a mortgage broker for $42,000. Out of the $42,000 came $3,000 for the mortgage broker, all her past due bills were paid, and the gap between the loan to value. (These lenders only loan 65-80% loan to value.) Who gets the gap? Essentially, the buyer does in the form of equity. Lenders want to feel comfortable with an equity position. Why don’t I find a better buyer through a real estate agent? My seller tried that. Remember? How do you expect me to do volume and FAST-FLIPS with agents? You’re right. I can’t. I walked from the closing with about $33,500, netting me with over $11,000! There were no agents used with either buying or selling, no banks requiring down payments and rigid credit standards, and best of all, no serious rehab to contend with. What a sweet deal!
Leave a Reply