As a real estate investor focused on buying, renovating and reselling homes, I’m pretty much always looking for deals. In fact, I’m usually desperately looking for deals.
That is the situation in which I found myself this past spring. The batch of homes I’d purchased and renovated over the winter were pretty much all sold and I had nothing in the pipeline. I had been looking for deals for months but was getting rejected so much I was starting to get a complex.
In late April, I came across the listing for a home in District Heights. It was a bank foreclosure listed at $100,000. Based on the property description, I estimated the fix up costs and submitted a bid for $80,000 without seeing the property. The seller quickly rejected my offer.
Eager to find some middle ground, I grabbed my notepad and camera and made a trip out to the home to see if I could trim off some of the fix up costs. The home was in relatively good shape structurally except for a poorly done addition and it needed a complete renovation.
I knew the renovation costs but the structural issues on the addition were a little more difficult to guess. Several weeks had passed by this time and the home was still on the market so I went out on a limb and raised my offer to $85,000.
The seller countered at $95,000. They were being a little stubborn but the counter offer gave me a glimmer of hope so I scheduled a walk through with one of my most trusted general contractors to get a firm cost on the addition, hoping that it would be an easier fix than I had guessed. Unfortunately, it was not. It was actually a little worse. Seeing no way to bridge the large gap between us, I reluctantly walked away from the deal.
By early July, I noticed that the home was still on the market and the price had been dropped to $90,000. I sent another contractor over to the home to get another bid on the fix up. The estimate for repairs was very similar to the first contractor so I did not feel comfortable meeting the seller’s price.
In fact, time had also become an enemy. Had I purchased the home in May, then I would have had June and July to renovate it and have it back on the market in August or September, those are pretty good months to sell a home but now it was midsummer. If we encountered unexpected problems, and there are almost always surprises in the business, then we could easily be faced with the scenario of listing the home for resale in the holiday months, my least favorite time to bring a home to market.
With the hopes that time had made the seller a little more eager, I made an offer of $75,000. The seller countered at $85,000. I would have jumped on that price two months earlier but now the year was getting old and I had picked up two additional homes in the meantime, making me a little less desperate. I countered at $80,000 and they immediately counted at $83,000, still a little higher than I wanted to pay. I countered again at $81,000 and they held firm at $83,000. I sharpened my pencil, crunched the numbers and negotiated with the contractor to trim a little off the repair costs. I determined there was enough potential profit in the deal even though it left little room for error. It was more risky than I like but there are very few slam dunks out there these days.
I accepted their $83,000 price and expected that my persistence had paid off but I wasn’t done just yet. Dealing with a bank is not like dealing with a home owner. After agreeing on a price, I signed the documents and returned them immediately but they took weeks to return to me a ratified contract. I did not receive the ratified contract until Thurs., July 26.
Upon receipt, however, I lined up the money and was ready to seal the deal at anytime. On Mon., July 30, they informed me that we had to close and they needed to receive funding by 3 p.m. on July 31 or their system would kick the deal out and we’d have to start over.
That wasn’t a problem for me. On the day of closing, however, my lawyer told me that he had not received the original deed and he could not fund. Well, that’s the seller’s problem, right? Not in the world of bank-owned properties.
After many calls and e-mails with the seller’s office, it became clear that they were not going to go out of their way to get us the documents and they didn’t seem too concerned that the deal may fall through. So to save the deal, my real estate agent had to drop everything and drive up to the county courthouse, get an original deed and hand carry it to the closing. He made it just in time and the deal closed.
It was a lot of headache, but I think it will all be worth it in the end. I estimate the home will be worth about $190,000 after about $50,000 of rehab. We paid $83,000 for the home and there will be another $25,000 or so in other costs such as title, taxes, interest, insurance and realty fees.
If all goes according to plan, then this deal should yield about $30,000 in net profit.
Justin Pierce is a real estate investor in Northern Virginia. In his occasional column, he will write about investing in real estate.