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.

The summer flew by and things have been progressing.  We just closed on our latest rental.  It is a giant mess inside and outside. This deal was bought from a local wholesaler who found it via a mailer.  The same person owned it since 1984 and has since moved to Nevada and had it rented out.

The owner was in her 80′s and the wholesaler and I negotiated a carry back and it was pretty funny as she had a mortgage calculator in front of her as we discussed the terms.  She was a really tough negotiator.

I think this is the only 2-story rental house we own, because we buy mostly smaller houses and don’t want to limit our market we mostly stick to single story properties. At the end of the day the numbers work and we have some good financing so this should be a good rental.

September is almost over and I have not done a very good job of posting.

Here is a house we sold not to long ago.  We really didn’t do too much on the inside but on the outside we converted the carport to a garage.  The City liked us for doing this.

Before

After

Layout

Everything else is moving along nice and steady.

If anyone has some recommendations for topics for me to post let me know.

House #92 is an interesting story.  GMAC was the bank that foreclosed on it.  We bought it the first time in August of 2010, it was still occupied and we would have been responsible to evict the tenant.  About two weeks into escrow the bank cancelled because the previous owner was starting a lawsuit trying to nullify the foreclosure.

About two months later, the agent called and said everything was resolved again and we opened escrow.  This time it took a month, but they called and said they couldn’t provide clear title this time either.  We cancelled again.

We got pretty excited when she called last month and said the house is ready to go again.  We closed escrow two weeks later.

This is a pretty good house that is a 2 bedroom, 1 bathroom on title; but in reality it is a 3 bedroom, 2 bathroom with a bonus room.

Our rehab was finished in about two weeks.  This house had a ton of tile that is a bit on the ugly side, but we decided to keep it.

This is my first post for July.  June and July have been crazy busy months for us.  Lots of purchases, lots of sales.  I will be posting a summary this weekend.

As we started looking for houses we found an interesting feature in a house for sale.  It was an old two bedroom, one bathroom house that needed a lot of work.  It had a detached garage and behind it the owner added a slab with plumbing and a toilet.  He didn’t have a roof.  He had a make shift interior door tied on with rope.

Too bad I didn’t have time to try it out.

Things have been busy for us and it seems like another month has gone by with me only making 1 blog post in April.

If you have followed the blog for a while, you know we love a good project house that other investors shy away from. In April, we ended up buying two “project houses.”

House #78 is a 2 bedroom 1 bathroom house built in the 1940′s that has no garage.  We are going to be doing an addition and adding a bedroom and bathroom with a two car garage.  The City Code Enforcement Department has an open case on this property and will be ensuring we do a good job on fixing this house up.

House #79 is even worse.  It was converted into three different living areas.  On title the house is 1,800 sq ft, but there probably is over 3,000 sq ft of living area that was added without permits.  This house had been in escrow 3 different times and the buyers could not close, we ended up getting an accepted contract for about 60% of list price.

Our original game plan was convert it to a duplex and resell it.  After discussing this with the City and Code Enforcement Officer we realized that the City wouldn’t be on-board for this plan as they want it to be a single family residence.  Our new game plan is to get as much space as we can permitted and sell it as a single family residence with a “granny living quarters”.

We closed on House #69 in late January.  The owner inherited it from her mom and had been renting it for about 15 years while she lived out of state.  She was ready to cash-out and get a lump sum of cash and we struck up a win-win deal for all parties involved.

It is a smaller house, in a great area.  We did a pretty basic rehab and listed two weeks ago.  We have one offer we are negotiating but this one should move pretty quickly.

The main expenses was re-doing the kitchen… which was a big debate.  The kitchen was acceptable for a rental, but we thought if we where going to ask for top dollar for the house we needed to impress the buyers.

The hard thing with retailing properties, it is really difficult to track if it is worth it to do this kind of stuff.   You cannot really ask the buyer and get a real answer, it also depends a lot on what the competition’s properties look like and probably a little luck never hurts.

We set pretty ambitious goals with this house, basically hoping for a 10 day minor rehab and to have it rented up with a paying tenant for March 1st.  As of Friday, we got both those accomplished.

The rehab turned out really well, see pictures attached.  We don’t do a ton of business in this city and we though that the area would was a bit above average.  But after talking to some of the neighbors I guess people do not move and many of the neighbors have lived in the area for 30+ years.

How good the area was really showed when we started getting for rent applications, I probably would get 10-15 phone calls a day just off the sign.  The three times I showed the property to potential renters I got at least 2 additional parties knocking on the door asking me to see the inside of the property so they could rent it.

On Friday, we collected the deposit from our new renter.  He will be providing the rest of the move-in funds before March 1st and will move-in on the 1st.  It is nice to get another property rolling and collecting the monthly cash-flow this house should produce.

Here are two of the rental houses we picked up January.

Both of these houses are the same model, built in the 1980′s, 3 bedrooms, 1 bathroom and should make fine rentals.

The one on the  left we rented this weekend to someone who drove past the house and talked to one of our workers who was fixing up the property.  That is always nice as we haven’t even owned the property for 4 weeks yet.

We are working on renting the one of the right at this time.

We just closed on House #73 about a week ago.  It is a 2 bedroom, 1 bathroom house where the single car garage is converted into a third bedroom.  The house is just under 1,000 square feet and a pretty solid rental in a good neigbhorhood.

The house is actually in pretty good shape compared to what we normally buy.  It has ugly linoleum flooring throughout that we are going to end up replacing, it is in mediocre shape, but just not worth saving.  The kitchen is pretty good shape, the cabinets need a bit of paint, we are going to be adding counter-tops, a range, and a microwave.

Our crew should be in and out of this house is under two weeks, so we are hoping to have a tenant moved in for March 1st.

Here are some more pictures.  I realized I forgot to take a picture of the front today… maybe because it was raining?