We’ve all heard stories of houses you can buy for $5,000. They usually are in Michigan or Ohio. In June of 2011 we got a good introduction from a friend and fellow investor and were able to buy a house for $5,000 in Southern California.
In 2006 a family that build houses bought three parcels of land next to each other with the intention of building new houses on it. They got a hard money loan and ended up building houses on both sides of an existing house built in the early 1900’s. In hindsight, 2006 was not the best time to build a house in Southern California and the lender ended up with a borrower who had no equity and wasn’t buying.
When we originally talked to the note holder, the lender wanted about 20,000 for the note on the house, it had ~12,000 in back taxes and the City involved had put a lien on the property and was threatening to demolish it. We decided to pass as it was too much of a head ache for the potential.
Three months later I followed up and sure enough it was still available. Things had gotten worse, the City was threatening to demolish the house and lien the parcel. As the title alludes to, the Seller now had the right motivation and we came to a meeting of he minds at 5,000. The lender was owed over 200,000, was from Orange County and just wanted to be rid of this investment. The good news was, before we inked the paperwork, I was able to convince the owner of the property to sign a deed in lieu of foreclosure (at no cost) and negotiate the City violation down to a very manageable amount and get an extension on the violations so the repairs could be made to the house.
My partner and I discussed our potential exit strategies and we decided that if we could sell it for a certain number we would prefer not to rehab a house of this age. We ended up listing it in the MLS, with a pretty specific description:
CASH ONLY. CASH ONLY. CASH ONLY. Seller purchased note and has possession now. Major repairs needed. Electric meter is gone, City wants property fixed. All cash, big deposit and quick closing is what motivates Seller.
Two days and 10 offers later we put it in escrow above list price. The buyer wasn’t the highest offer but offered a good number and we felt very comfortable with the fact that they would close.
My favorite part was it took almost no cash out of pocket (just the 5,000). The back taxes and City lien fees were paid out of our sales escrow.
I just want to encourage people that with hard work and a little creativity you can make deals happen with very little money. Deals like this don’t happen every day but they are definitely possible.