Anthony:Today, right now, we’re focused on a case study and we have a unique case study for you today, one that’s going to go through a completely different scenario. It’s one that we kind of tagged as what I would call out of the box. This is what we are. At this point in time, everybody on this call is an out-of-the-box thinker because we’re real estate investors. The coolest thing about real estate is no matter what the scenario is, where you are in the country or the world, frankly, you can get really creative and I won’t say manipulate, but structure a deal to make it a deal for you.
That’s sort of what we’re going to go through today. A lot of of different hurdles in this one, you are going to learn an enormous amount. It’s not your traditional hey, I did a wholesale deal or I did a rehab, we have something a little special for you. We brought in one of our coaches, Angela Greg. Angela, are you out there?
Angela:I am, aloha.
Anthony:Aloha to you. Thank you so much for spending some time with us today.
Angela:Not a problem.
Anthony:So is it bright and early where you’re at?
Angela:For me it is 8:00 o’clock in the morning.
Anthony:Eight in the morning, rise and shine! Thanks for waking up early for us and sharing this case study with us, as well.
Angela:No problem.
Anthony:Now, if you guys are brand new to GoToMeeting, I know some of you on the call might be relatively new students, know there is a question box. If you have questions along the way, type them in. I’m going to do my best to answer the ones that I can in the background. If I can’t answer them and we have to gear them towards Angela and ask her at the end of the call, we’ll do that as well. At about 30 or 45 minutes max into this, we’ll open it up for live Q&A and clear up any confusion you might have about the case study. That’s our time to interact live together on this call and definitely take advantage of that.
I will tell you that the reality is this is GoToMeeting. This is on the Internet and stuff happens, sometimes there’ll be small, little glitches along the way, the audio might briefly cut in and out. There’s not too much we can do with that, but just know that we are speaking as loud as we can and this is being recorded. If you have any glitches on your end, you will be able to watch it. It will be posted to the Mastery site, typically within 24 hours.
Without further ado, we’ve got about five past the hour. I’m going to go ahead and mute myself and, Angela, I’ll turn it over to you.
Angela:Aloha everyone and Happy St. Patrick’s Day. I am really excited to share this deal with you, this is an amazing deal. There are a lot of different strategies going on here and the main reason why we’re sharing this deal is so we can get our juices flowingand really understand that we can take more than one strategy to get a deal done and that’s exactly what we did with this deal in Hawaii.
So just a quick overview, you are reading those numbers right. The after-repair value of this deal is $1.2 million. We bought the property for $650k, the repair cost $30k, estimated profit $460k, that’s if we sold it. I’ll explain why to you that’s there here in a minute. Passive income that we currently make on this property is $1,300 a month and the future passive income will be over $5,000 a month, crazy huh?
I put a little note there “Noah Cosby”. Many of you who have been to the BIT camps, he’s got this awesome C3X where you take all the money that you get from your passive income and you put it back towards a mortgage and you get it paid off much faster. That’s exactly what we’re going to do with this property here.Rehab only took 30 days and we actually lived in the property while it was getting rehabbed, so imagine that.
- How We Found the Deal, Marketing With the Simple Systems We Have
This is as simple and cheap as it can get, Craigslist. It’s free, it’s cheap, utilize it. Repost your ads, whatever the case may be. I cannot stress that enough because we got this deal from a Craigslist ad. The seller contacted us and said he’s tried every route. His banks won’t work with him, etc. He saw the ad, actually, that you see to the right on Craigslist and he was like well, shoot. I thought I just might give you guys a try.
We are big advocates of RealeFlow, so we pulled up the comps in RealeFlow and used the after-repair value, estimate repair, etc. on RealeFlow. So if you’re not a RealeFlow user, I highly encourage it. It’s an amazing tool and we definitely use it within our company.
We prepared a deal analyzer and, really, this guy didn’t care what he got for the property because he was overleveraged. He knew that he wasn’t going to get the full value for the property and we knew this wasn’t going to be your quick buy and flip. On top of that, we found out there were liens on this property. So our first initial reaction was to refer it to our short-sale agent and work the deal out from there and that’s exactly what we did.
For those of you who aren’t experienced with short sales, you refer it to an agent and then the agent goes in and fills out all the required paperwork, etc. What we do on our team is we’ve learned a lot with short sales, so we actually have built a relationship with our title company over the past year and now our title company is negotiating our short sales for us. Our agent really loves us now and he really likes working with us.
This is what the property looked like before. We loved the blue tile, it was quite fancy. What was really cool about this property and the reason why the rehab was not so expensive was the seller of this property took a second lien out to pay for renovations in his home. So he took care of more than half of the renovations for us and then once he spent all the money he couldn’t make the payments. He got a lot of the job done for us with the flooring and halfway through with the second floor and downstairs. We kind of got rid of the blue tile there and upgraded it just a little bit more.
- Acquisition Seller Negotiations
This was a pretty easy negotiation, the seller knew that he couldn’t make the payments and knew he needed to do something. He had already missed two payments, so he was behind on both of his liens. We went ahead and talked to him about short sale, he thought it was a great plan and went through the process. We worked with our broker on our team to get the property listed and the short-sale process going.
Short sales do take some time, so it requires a lot of patience and a lot of follow up. If you’ve ever listened to Bob Lachance’s training on short sales, I’ve listened to them over and over again. You can get very frustrated with short sales if you don’t have the patience, but the payoff, as you saw in the beginning, is amazing.
Initially, when we put in the offer of $600 there were several other offers on the table. There were offers for $800, $900, etc. for this property and these individuals wanted to buy the house and move in. Because there were two liens on this property, the banks were taking way too long to accept any of these offers. You have to get these two liens to match up with each other and accept a single offer and that is extremely difficult. Would I recommend jumping onto a short-sale property with two liens? If the numbers are right, yes.
So we were like okay, we’re going to put in $600 and see what happens. During the first few months, I want to say the first six months, our $600k offer sat there. The banks didn’t look at it, they didn’t counteroffer it, nothing, but because the offers that were going in were being withdrawn because people were tired of waiting, hence patience, ours started to stick out. Finally, because of the persistence and calling the banks, etc. we got it lined up, the $600 was approved and then boom, we lost it.
The reason we lost it was because when the house was looked at to get the approval done there were a few things wrong with it that they didn’t like and we actually had to put in some money to get those fixed. I wouldn’t recommend it unless you truly know that you have a good team on your side and you absolutely know you’re going to get this property.
We were 90% sure we were going to get this property, so we went ahead and dropped the funding to get a few of those issues fixed. By the time we got them fixed and notified the banks they were all offline again, so we kind of had to go through the process again and put in our offer. We put in the same offer and because the market increased over that time the bank came back and said no, $650. I’m like fine, $650. Great, we’ll do it. So we made that offer.
The way we funded the deal was I am active duty military so I used my VA loan. VA loans are awesome. I know it’s not for everyone and not everyone can get a hold of them, but in my case I could so I utilized that. The great thing about being in this area and being in the military is you get a housing allowance and most military members use the housing allowance to rent. Well, I don’t want to use my housing allowance to rent. I might as well use what the military is giving me and put it in an investment, so that’s exactly what we did. We went out and used my benefits and got a VA loan. Zero percent down, four percent interest and then we used, of course, $30k of our personal funds to do the renovation.
The house is over 3,200 square feet and we converted it into two separate units. There is a second story to this unit, so what we did was we built a wall at the base of the stairs. At the base of the stairs is the laundry room and then we built another wall, so the upstairs unit and we share a laundry room. They have their own separate entrance and we have ours. We renovated the upstairs bathroom that awesome blue you saw earlier, finished the kitchen and painted the place, really. There wasn’t much that needed to be done and then we did some renovations of our own within the portion that we lived in.
We needed a new roof and what was really awesome with a great contracting team is we had them use materials from our past three accounts on this rehab so that we could save money. I’m pretty sure if we had not, the price would have been a lot more. Always negotiate with your contractors, use the same stuff. We do, we use the same stuff. We don’t get emotionally attached to most of our properties and we use the same materials, so a lot of times there are materials left over and we were able to use a lot of those on this house.
There you have it, that’s what it looked like afterwards. The blue bathroom is now extremely modern and beautiful. We did the flooring and the kitchen and it’s a pretty awesome turnout. If you look there in the corner, there’s our little shared laundry room. When we showed it to people they were like oh, that’s an amazing laundry room! That was kind of fun.
- How We Found Our Renters
What’s really awesome about being military is you have a big military connection. This property is located extremely close to a military base and we live in a high traffic area, so members are really trying to get as close to base as possible to not have to deal with the traffic because it’s horrendous. So we put an ad up in Military by Owner and one in Craigslist. We had professional photos taken for the ads and within hours of posting the ad we got eight applications, six of them were military members.
We used the rental application and lease documents provided by Fortune Builders, so if I can walk away with anything on this trainingI would definitely say work smarter not harder. You’ve got an amazing team behind you that has already provided a ton of these documents. Would I show them to your local legal advisor? Most certainly I would because things are different in each state, but these documents were actually perfect for us.
We just put a military clause in there which states that if the military member got deployed or whatever the case may be, they can terminate their lease. For the most part, they’re here for three or four years, so the military member that moved upstairs he’s got three years stationed here and we secured up a three year lease with this particular military member.
We’re getting down to the nitty-gritty here.
- Lessons Learned
With short sales it’s serious patience and persistence. You cannot let the bank sit on these documents for long. I remember our broker was calling so many times to each lender and they had no idea where the paperwork was. Thankfully, because of the training you get from short sales and Bob Lachance explaining over and over again, send it in order. Know the order you sent it in and tell the person on the other line hey, I sent it to you in this email, etc. So tracking is very important and that’s part of the persistence we use and some of the tactics we use when we call the bank and they have to bit the “never got anything”. They probably didn’t because they’re so unorganized.
- Financing Terms
It is not normal to live in your rehab. It’s not, but the reality is we’re making so much money. The equity is rising each year on this property and we need a place to live, so it worked out in all sense of ways. It made sense for us. Our renters are paying our mortgage, essentially, and we’re living in a very nice, comfortable home. When we leave we can choose to rent out the other half and make more passive income or we can sell the property and walk away with more than half of what we paid for it.
We did take a big chance paying for repairs prior to owning the property. Would I recommend it? No, but we took that chance. Sometimes what you’re doing with property is you look at the ups and the downs and what is really going to happen. Are you really going to get this property, is this really going to happen. We all take a chance investing in real estate and that’s what we decided to do. Thankfully, we did because then we were able to close with the banks a few months later and get it at $650.
That’s my story and I’m sticking to it. Are there questions?
Anthony:This is great. There’s a lot going on here, so I’m going to recap some stuff. I want to make sure everybody can wrap their head around this. Maybe you’ve never done a short sale and don’t even know that process, so here are a few things.
Number one, you brought up Craigslist and I’m glad you did because I did a training that’s on the Mastery site called Utilizing Craigslist. It’s actually part of your core curriculum, but when I look at the statistics of how many people actually watch it it’s not nearly as high as I would like. The reason it’s on there is because, believe it or not, it’s a grassroots guerilla campaign that’s free. Putting out ads is free. In addition to that, it’s something you can easily outsource to somebody else. It’s also something you can consistently do every single week. So definitely utilize that one. Watch that training, it’s there. Clearly, here it worked.
Angela:Anthony, can I say one more thing about Craigslist, too?
Anthony:Yes.
Angela:If you have other members of your team, this is what we do. Part of our business strategy or marketing strategy in our team is every member of our team has a Craigslist account. So we’re not only blasting out my Craigslist ads or my husband’s Craigslist ads, it’s every member of our team. It’s part of their weekly duty to get on and refresh those ads. If anything, take advantage of Craigslist. Have your whole team do it. You don’t just need one account, get 10 accounts in there.
Anthony:It’s true. Back in the day, you used to have these things you could buy for $30 that would just blast a bunch of ghost ads, essentially, on Craigslist for you. Now, of obviously, you can’t do that. Craigslist has gotten smart about it, but it’s the same concept. It’s a great virtual assistant task, it’s so simple. Create 10 ads and refresh them every week, this isn’t rocket science. You’re not going to jump out of your seat and hit homeruns like this every time, it may take you five years to get a deal of this magnitude. It may take you a lifetime, I don’t know, but you’ve got to have it out there just in case.