Today Is National Puzzle Day, We Can Relate.
Life is a puzzle as we try to figure out what to do next. We work, play, and do whatever we have to, just like everyone else. People in different professions are always trying to figure out the puzzle pieces and where they fit to create a complete image.
Sound familiar?
As Real Estate Investors we are always trying to fit the pieces together to complete a certain picture.
Many of today’s properties have a puzzle behind them.
I will show you an example of one we had to figure out a few years ago.
We do use Bandit Signs, and we had been putting some out in certain areas.
A few days after we had put our signs out to a targeted area, we got a call from a nearby but different area.
We were (puzzled) as we hadn’t put any signs in this area. Not wanting to miss out on a deal that came our way we set up an appointment to see it.
When we arrived at the place to look this deal over, we were amazed at what we saw. I say amazed here because we couldn’t believe that someone lived this way.
We looked past what we saw to get down to the actual property at hand.
It was a side-by-side duplex, with 2 bedrooms and 2 bathrooms on each side.
The seller said he needed to sell pretty quick, as the county was going to sell it out from under him soon for the back taxes.
Note, Tax Deed Sales are another whole business in real estate and many courses are offered nationally to teach you how to do just this type of investing.
He also mentioned that his real estate agent had produced nothing since he listed it with her. (We did take note of the sign when we drove up to this property, that it was listed for sale.) Another piece of the puzzle.
The seller then told us that he would take $25,000 in his pocket to walk away and we own it.
What he didn’t mention was that he also wanted us to pay off his two credit card liens that were attached to this property, and also pay any commission owed to his agent if we bought the property through his agent.
His credit card debt that was attached to the duplex was in two liens from different credit card companies that he never paid. One lien was for $23,000 and the other one was for $13,000. The total was $36,000.
Also, and most important was that the back taxes came to just under $8,000.
I did take the time to look up his agent’s listing and the write-up on it was that the intended purchaser was to absorb the liens and taxes, plus the listing price was $59,900.
Let’s add this up.
8,000 in taxes
36,000 in credit debt
25,000 to the seller and
59,900 for the property.
128,900 – Total would be the investment on this one if we purchased it the traditional way that it was written.
Comparable properties to this, in that area, were about 89,000.
Do you see any kind of puzzle developing here?
If we had purchased this property with these conditions, we would have had $128,900 invested in an $89,000 property.
I haven’t even mentioned that the interior of both units needed a total rehab to be able to be lived in! That, even on the conservative side considering that it needed 2 air condition units, and rehab costs would come to about $60,000.
We would have been way upside down on this or tied to it for years trying to get our investment out of it, by renting it. That in itself can work against you if tenants tear the place up or skip out in the middle of the night on you.
Now what?
Math! That’s what.
Not complicated math, just subtraction.
The seller wanted his $25,000 walk money first before he would sign up to sell. So here is how it worked out.
I had told him that we would be able to buy the deed from him, or if we went through his agent, he would have to sign on for $4,000 due to him because we would have to be paying his credit card debt and the back taxes, thereby reducing the amount we could give to him.
He agreed and we went about it the way we were supposed to. We sent a contract to his agent and that opened up a whole new can of worms. We were just short of getting death threats from his agent and broker.
Again, Now What?
With some help from a mentor, we think the world of, I learn something from him every time I talk to him, we went about it like this.
He said to buy the deed from the owner. We did. For the $4,000 we agreed on. Next, instead of giving the seller all of it at once, we said $2,000 first, and when he moved out and vacated the property within 7 days, he got the other $2,000.
In the interim of things, we had contacted the attorney for each credit card debt and negotiated a lower settlement for them to release the liens. The 13,000 one was negotiated down to $5,000 and the $23,000 one down to $6,000.
Did I also mention that code enforcement was all over him about cleaning the place up or that they would do it for him at a cost? No, I didn’t.
They had taken him to court about this, and we ended up going with the seller to both court dates. Another story in itself, but it is attached to this property.
Next, we paid the back taxes and recorded the deed in our name.
We didn’t worry about his agent, as the contract he had with the agent was with him, not with us. Therefore, his agent did not get paid as we now owned it by purchasing the deed.
I ended up reaching an agreement with code enforcement to give us time to clean the place up, and that case was closed at no cost to us.
So, how did this whole transaction turn out?
Here’s how.
Paying the back taxes owed, and giving the seller his walk money of $4,000, then the cost of two 40-yard dumpsters and hiring some help to clean all the debris, plus paying off the credit card liens, we had a total of $23,000 invested in this deal.
After all this was done, we marketed it to the general public and ended up selling it for $59,900.
We also did no rehab whatsoever. Actually, we had to remove the kitchen areas in both units and did not replace them, they were really bad, all of the cabinets and sinks were even torn out.
The total profit in just about 30 days was right at $32,000 as we had some closing costs and miscellaneous other fees involved. (The math would have us showing a $36,900 profit) but there are other costs that were involved that many people don’t show when they post profit margins.
In Summary.
We did profit from this whole puzzle. We put the pieces together to make it complete, as many investors that saw the problems associated with the title on this property walked away from it, not wanting to work to figure it out.
The agent just wanted a sale and did not work to clear up the title.
Other investors wanted easy profit.
The county had two problems, one that code enforcement handled, and the other the tax issue.
The main point of all of this was that we solved the seller’s problem.
We also solved what others thought couldn’t be done.
Keep in mind, complicated properties don’t have to be problem properties, they just have to be good deals, and you solve someone’s problem.
Puzzle solved.