The $5,000 Southern California House

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.

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11 Responses to “ The $5,000 Southern California House ”

  1. Justin says:

    Am i understanding this correctly – the lender got the property back and you purchased it from them for $5k. You negogiated the fees and got an extension on paying the town, which you paid with the sales proceeds.

    Wow!! I’m impressed. I just started following your blog and am already inspired. Thanks for the post.

  2. Steve says:

    Yep, 5k! Only thing I couldn’t negotiate was back taxes… The County doesn’t budge on those.

  3. Steve – wow!

    I really didn’t think this kind of thing was possible in CA. Congrats on the big WIN.

    You going to hold it as a rental or rehab and sell?

    AG

  4. Chuck says:

    Steve,

    Great deal..congrats. I am tracking one in my area and I have a few questions.

    The city has condemned this house I am tracking? Once they do this, they put all kinds of small liens on it for mowing and misc maintenance. However, they have also been charging $100 per day until repairs are made..fastforward 5 years later and they have put a lien against the house for like $90k or something.

    If I can find the owner of this house and get them to sign over the house, can I then get the city to undo the lien against the house or will they just demo it and not negotiate the charges? I would pay the smaller maintenance liens, but not this $90k lien – the house needs $20k in repairs – worth maybe 125k.

    Any help would be appreciated..

    Thanks,
    Chuck

  5. Annette says:

    Steve,

    You answered this in the comments on another post. I should have made a note when I saw it. Sorry. Looks like ‘search’ doesn’t search comments.

    Where do you get your forms for your res rental agreements?

    Thanks much,
    Annette

  6. Steve says:

    I use California Association of Realtors contracts.

  7. Horseshoes says:

    Hi Steve
    Great website!

    Do you use hard money to acquire and rehab your rentals and then refinance to a conventional loan after you rent it out?

    Thanks

  8. Steve says:

    Unfortunately, banks won’t lend money to me. After you have 10 rentals on your tax returns it is very tricky.

    I typically buy cash and refinance to long-term hard money or private money for all properties.

  9. jay says:

    Unfortunately, banks won’t lend money to me. After you have 10 rentals on your tax returns it is very tricky.I typically buy cash and refinance to long-term hard money or private money for all properties. <<<<<<<

    could u touch on that subject a lil more ? Y is it tricky when u have 10 different sources of income showing that your making a profit and can afford more ?

  10. kim says:

    That is amazing! I cant believe this happens in CA. There’s opportunity anywhere, I guess.

  11. Mona says:

    Hi Steve
    I am inpressed with your $5000 deal. I am trying to buy realestate in CA but can not find lender or partner for 100% financing. I find great deals but can not get them under contract without showing financing. Do you have any suggestions for me.

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