New Deal: What would you do? Create Cash Flow with Owner Financing, or Wholesale


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      Found a new deal in Waco, TX

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      THE BASICS

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    Location: Near downtown Waco, and 2.5 miles from Baylor University, 1.7 miles from Silos (hip area in Waco)
    Built in 1940
    3/2/2
    1000 sq.ft
    Frame construction with wood siding<br>

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      THE NUMBERS:

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    Asking price: $15,000
    Offer accepted: $8500 cash
    Property Taxes (Nonexempt) $ 735/year
    REHAB for RESALE to RETAIL BUYER: $28,000
    ARV (RIGHT NOW): $51,300 ($51.30/sq.ft)
    Future ARV: $88,000 ($88/sq.ft) Houses are already selling for the higher price in areas already rehabbed. This area is in transition right now.<br>

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      CONDITION

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    House already gutted and cleaned out. Owner is a newbie investor who wanted to do a complete rehab, but got scared of the extent of the work. She has been sitting on it for almost 1-1/2 years.

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      EXIT STRATEGIES

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    1.

      OWNER FINANCE

    With a highest down payment, and loan amortized over 240 payments. Example: $7000 or more down, $700 or so per month- P&I. The Buyer does the labor, and puts in his sweat equity.

    2.

      WHOLESALE

    For a quick buck for $18,500. I already have offers for $15K & $18.5K.

    Rental market for a 3/2 in the area is $ 825- $895

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    With easy bicycle distance to Baylor and to local hangouts for that crowd, the reliability of rental payments should be outstanding. I have a 3rd suggestion, because I’m very familiar with a deal where the 3/2/2 house was badly run down, in a high demand city. The wiring was fried from an underground lightning strike. The HVAC was toast, so the elderly woman and her mentally schizo daughter were reduced to heating with a open kitchen oven in January, etc, etc. When they abandoned the place one January, the authorities waited a few years until the legal fees grew to where they were irresistible to the ISD’s law firm, which then filed for a foreclosure auction.

    There were only two rehabbers bidding, and they pushed the minimum bid of $12,500 up to about $55,000. Then the winner could begin a full gutting and rehab. Since he finished the job and put in a renting family, they’ve told me he has since imposed two $200/mo price increases over the 4-5 years they’ve been living there. The latest price increase came up to $1,600/month.

    Now imagine if there had been several rehabbers at that county auction..

    So why not make a list of all the rehabbers in the Waco area, and create an HBS event just for them? That should be quick and profitable money, without any long term commitment.

    I’m not saying you must do it this way. I’m just suggesting you add this possibility to your available choices, and then decide.

    –Dee

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    Dee,

    Thank you for a very interesting idea. Following up on it, I started perusing the different ads on Craigslist by all the investors in and around Waco. I put up ads on CL too. To experiment, I put up one to attract owner-finance prospects, and another to attract he rehabbers. I have had inquiries from Joe Crump’s “push method” following investors with auto-generated email and text replies.

    In OfferUp I got the most inquiries- yet again. There seems to be a pattern here – all low priced properties seem to get a lot of interest from these new and upcoming p2p selling websites. I’ll try FB’s marketplace too.

    I am also going to look on BiggerPockets for rehabbers in Waco.

    After I have a list of Waco investors lined up, I’ll contact them to come in at the same time for a hypbrid HBS by invitation idea of yours 🙂 Thank you.

    We have many Waco investors right here on CashFlowDepot too.

    If you want to find the majority of the CASH buyers for Waco, you need to go to the foreclosure auction for Waco the 1st Tuesday of every month… June 6th auction coming up.

    I went to look at the property today, and spent some time understanding the house itself, as well as the neighborhood, and extended neighborhood transitional nature. A lot of building activity is happening a block over, as well as 4 streets over on either side of the street. The house needs a LOT of work, including complete roof replacement. Surprisingly the foundation and sub-flooring is in excellent condition. Only the super-structure is severely damaged.
    A brand new house has been constructed by Habitat for Humanity 1 street/4 houses over. That one has a market value of 100k+ .

    This made me wonder if it would be better to just buy it and sit on it for some time, rehabbing it at a snail’s pace. I even found some construction workers in the neighborhood willing to work at extremely low rates. I am talking about demolition, and other non-licensed trades related people.

    I hope one of my kids attends the medical college barely 2.2 miles from there in 3 years. So I have time. If I finish in 1 year, I’ll rent it out. So my exit strategy ha changed. In the meantime the construction on the next set of townhomes, and apartments will start 2 blocks over. The building material is already being stockpiled on a large fenced lot.

    I have just sent a message to the Seller, telling her the scope of work is extensive. So should I tear down the house, after renegotiating the price to compete with the new construction going around, and soon to catch up on this street too, or just fix this one up at a slow pace as and when funding becomes available utilizing the neighbourhood tradespeople. This will help the neighbours in so many ways. Eventually will give me a rental property that hopefully will become my kids boarding & lodging when their time comes around. Or I’ll find some other parents who want a place for their college kids.

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    Ayesha, first about that roof. Do you know what caused the damage to it, and how long ago? The reason I ask is that in Texas, I think that insurance companies allow up to two years to submit a claim on hail damage. Just an outside thought that if this was a hail damage case that the owner just didn’t follow up on, you might be able to work with that seller through that insurance company to fund much of the roof repair. But that might not be relevant in your case……

    Second, it’s none of my business what choices of academics, career goals, or educational providers that your children decide to pursue. But if you are staking out those choices for them years in advance, you run some risks of terrible disappointment should they make their own choices that are different from your plans for them. And if their plans, goals, skills, and down deep ambitions are different from your plans for them, should they knuckle under to your wishes without their hearts being on board, then they are potentially being set up for some terrible inner conflicts, and sub-optimal performance in their later work, and possible early burnout.

    I’m thinking that a Plan B needs to be kept in mind in case the children make other choices. For example, if you fix up the house in record time and keep it as a rental (or master lease it out) until you’re sure what the childrens’ real intentions are, then you’ll have the choice of letting one of more of them using it for school housing, and maybe even training them on managing a room or two as a rental, OR if all of them choose to go elsewhere, then you’d have the choice to sell / swap / exchange the house (and the funds tied up in it) for housing property somewhere else.

    I’ve seen so many stories over the years where “My son, the doctor” or “My daughter, the lawyer” ambitions of the parents either trapped the children into a path where their hearts and/or abilities were not a match, or where the childrens’ choices were exceedingly disappointing to the parents with ambitions in different directions.

    The practice of medicine in this country has changed wildly over the last 20 years. So many independent practitioners are either retiring early, or shutting down their practices to work as employees for large firms. Much of that is because of the massive growth of federal regulation of such practices — that solo practitioners can’t afford. Jackie sees many such stories from attendees to her Panama relocation tours. Also, the medical schools have been geared toward applying medical solutions (that often bypass preventative or curative purposes) that the mega-pharmaceutical companies are able to patent and price sky high. That tends to leave out any education for plant-based natural medicine and centuries of successful prevention and curative experience, relevant in many other countries but demonized by ignorance and federal regulation in this country. The UK just produced a survey showing some 28,000 plants around the world with significant medical applications, but only some 16% of those are addressed in regulatory documents. And medical schooling in this country tends to reflect those same percentages. So it might depend on which areas of medicine might be most of interest to your children, and in what countries those specialties are embraced by the teaching system. Examples: ER technology in this country is probably as fine as anywhere in the world. But cancer treatment with chemo and radiation is horrific. Recent surveys of oncologists suggest that 90% of them would want no part of chemo and radiation, but plant-based remedies that work in country after country are demonized here.

    Now, don’t let me make your choices. Just be aware of what might work, what might not, and how to manage your real estate deals to cover the possibilities.

    –Dee

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    Oh Dee, if virtual hugs were allowed, or invented, you would have gotten a big one from me right now:-) You choose to remain under the radar, or I would have traipsed over to your part of DFW to meet you! THANK YOU for your concern and insight. FYI, I know so many physicians that I would even care to acknowledge. I believe in holistic medicine, and focusing on health rather than letting everything go and then treating symptoms alone.

    Now to the questions, and observations you have raised…..my kids father is a physician, with a running pr Active I helped set up and indirectly managed for 11 years. My daughters are undergrad students in California, on a pre-med track, and my son, still a High schooler, has been planning to become a physician of his own decision. Parenting is a very tricky business, and I try to be the sort that gives all the space, with the safety net, and guidance in place. The expectation is hat of developing good morals, ethics, discipline, etc, and of course upholding of such while respecting everyone irrespective of Colour/culture/race/creed etc. My daughters want to pursue medicine – for now, though both are very artistically inclined. They have to learn their own weighted choices, but of course in “consultation” with their parents. We may be of South Asian descent, but are not hard-core STEM oriented, and excruciatingly stifling helicopter parents. Exploration at a personal and professional level is highly encouraged.

    So that brings me to using the house as a Plan B. The university in Waco is going nowhere, nor is the rapidly developing neighbourhoods. I am not in a position to take on a major rehab project 1-1/2 hours away, unless I do it over the summer vacations. Then is the risk/reward element worth it if if it is done only with a for-profit-alone motive? My education in Sustainability taught me about the 3-tier conscientious approach to everything – striking a balance between profit, people, environment. This my approach of helping the neighbourhood by bringing in the local people a part of the process so they succeed when I succeed, the neighbourhood gradually improves, as I can teach so much along the way when I am part of a construction project. Keeping wastage to a minimum, and reusing materials helps in that too. All this keeps costs low, brings up the morale of people involved, thus keeping them mentally, financially, and emotionally invested in the project. Being far away, it would be difficult for me to do this if conducting it at a rapid pace. Then of course there is a matter of funding:-(

    Ayesha

    Fixing up the house s-l-o-w is not such a good idea. The house could get in much worse shape and be subject to vandals … especially since you do not live near this house.

    If the condition of the property gets worse, it will surely draw attention of Code Enforcement who could force you do get it fixed up fast or they will tear it down.

    Property taxes are expensive in Texas. Insurance on a vacant property is expensive. These are all expenses you’ll have with no rent coming in if you fix it up slow.

    It would be better to wholesale this one. Get the cash. Move on to the next one which is hopefully much closer to where you live.

    Dee,

    As usual, please ignore the typos. I tend to write replies, and emails on my phone, and with the idiotic smart phones taking over what is actually being typed, one always runs the risk of seeming like a nonsensical babbling person.

    I wanted to tell you about the roof. The current Seller bought the house from a foreclosure service. The original owner, now deceased, did not want to part with the house, nor fix it as long as he was alive, hence the present condition. Nobody has any idea when the damage occurred. The roof seems like one that is mostly found on English cottages in the English countryside 🙂 Wavy, undulating and hardly flat in any part. So insurance claim is out of the question.

    Jackie, I did a trial showing of the house today. Many people had wanted to come but most turned out to be tire kickers. I shall go to the court house steps on the first Tuesday as you had suggested, if for nothing else, then to start making my list of cash buyers in McLennon county, and maybe DFW. Deals are getting so hard to find in DFW, most investors are venturing towards adjoining counties to find houses to buy/fox/and hold.

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    Ayesha, after reading about the infeasibility of a rehab being done by either the present owner or a drawn-out holding-cost-sucking rehab by you, I was getting ready to announce my soothsayer’s prediction that you would most likely be attending Jackie’s suggested first Tuesday foreclosure auction in Waco. And then, by the time I was ready to post, you had already announced your plan to be there.

    A soothsayer’s lot is not an easy one. [grin]

    But after thinking over Jackie’s idea, your evaluation of the choice and your decision, I’ve been inspired to think of a posting tagline for CashFlowDepot (not that we’ve ever needed such here):

    “CashFlowDepot: Where great minds meet to cook up the best ideas.”

    And it sounds as though you have an excellent and well-oiled approach to the family politics of choice making. And if holistic medicine is in the cards for any, or all, of your children, I can visualize the possibility of them attending med school in any of several different countries. I know that the nutritional background for that is not taught in this country. The allopathic-fixated mega-corporate cartels in cahoots with the FDA have long ago (since about 1910) seen to that here.

    I think you’re right about the challenge of finding deals around DFW. The example now on the east side (with Toyota’s massive move from California to Plano) is stretching resources just to find houses for the first wave of 4,000 people, and they’re talking about 30,000 over the next few years. The “We Buy Houses” crowd of mailing marketeers are bombarding homeowners in cities on all sides of Plano.

    I’ll save a big hug for you. I’m sure there will come an opportunity.

    –Dee

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