Most of my option deals where wholesale flips. I’d get an option on an old run down house for about 50% of market value (sometimes less), then wholesale it to a rehabber.
Every Tuesday, there was a team of stay-at-home Moms who dropped their kids off at the “Mother’s Day Out” at the local church then went out looking for houses for me. They only had to get the address for me. I’d track down the owner and get an Option contract. If the deal closed, I’d pay them at least $500.
One day, one of the Mom’s drove by a high end neighborhood and could see from the distance that there was a blue tarp on one of the roofs. I had trained them to look for bad roofs, like curled up shingles. A tarp on the roof is an indication that there is a leak which has not been fixed.
She talked to the neighbors to find out the owner had died several years ago and the house had just been sitting there empty. She called in the lead while she was sitting in front of the house.
I looked on the tax records to see who the owner was. It was an Estate and the contact person was in Houston. (The house was in Highland Park in Dallas)
I called the owners several times and sent postcards and letters… but got no response.
So, I contacted a friend in Houston and had them go knock on their door to ask them to call me about the Blue Tarp house. One of the brothers finally called.
I discovered that two brothers inherited the house. The brothers had not talked to each other in a long time. Neither one of them wanted to spend money to fix up the house.
A huge tree had fallen on the roof. There was a gaping hole which was covered up with the Blue Tarp. Dallas Code Enforcement was called by the neighbors. They removed the tree and put the tarp on the house…. sending the bill to the Estate.
The brothers did not want this house and they did not want to deal with a long-distance mess. So it was an ideal situation.
I made two offers.
One was all cash, low ball offer.
The other offer was for about 20% more with $10,000 down with the remainder paid in two years. No interest. No payments.
Why $10,000? That was enough to pay the Code Enforcement Fines and back taxes and closing costs so the brothers would not have to come out of pocket for any of the expenses.
Why two years? The house was dated and I knew it would take at least 6 months to get the house rehabbed in the current condition.
Instead of just wholesaling the property, I did a simultaneous close, wrapping the underlying note with a new note with $17,500 down, 9% interest and due in 12 months.
Anytime I can negotiate to buy a wholesale property with seller financing, I almost always wrap the underlying note to create multiple paydays for me.
Keep in mind that I did NOT have to come up with $10,000… that came out of my buyer’s up front payment. I only had $100 invested in this opportunity as earnest money for the Option Contract.
The buyer was actually an attorney who I was working with on a different deal.. THE RANCH ( which I will write about next time)
So, I walked away with $7,500 in my pocket and excellent monthly cash flow on a house I did not even have to fix up and was not liable for PLUS another $35,000 payday when the loan was paid off.
If the buyer needed more than 12 months to pay me off, I’d charge $5000 for an extension.
But the buyer was able to pay me off early so I negotiated a discount with the brothers which increased my final payment. The buyer and his wife moved in to the house and were grateful to get a house in this exclusive neighborhood for a fraction of what it would have cost buying it retail.
Plan B
It’s always good to have a Plan B and a Plan C.. just in case Plan A does not work out.
I could have also sold the house for less money, and then kept an Option for part of the upside.
I could have rehabbed the house – but this would have been my LAST choice. That means I’d have to deal with Code Enforcement getting permits and inspections, contractors, yard work, utility costs, etc., etc., etc… and it would take up way too much of my time.
By NOT doing the rehab, I usually make more money than the person who spends 6 or 7 months rehabbing the house, has to make payments to me every month, pay utilities, taxes, insurance and then wait to find a buyer.
Instead I made MORE money because I wholesaled more properties while the rehab was going on.
Options are a great way to control a property while you find the best exit strategy.
Next time… Learn about The Ranch Option Deal.
Later this month…
MAUI – a $17,000,000 house in Hawaii
THE PLAYBOY – a $2,500,000 house in Colorado Springs with shocking celebrity surprises.
The RV – Plan B kicked in
SANIBEL ISLAND – unusual deal in Florida with a Bentley attraction
TWO FOR ONE – one owner – with 2 million dollar houses in colorado
THE DONALD – How Donald Trumps attorney’s helped with this one in Florida
