House #5 – 23123 Erwin Pillow Whigs – When Disaster Strikes…

September 2013

Now we were really cookin’! We had officially lifted a house 12 whole inches and rehabbed most of the inside very inexpensively. We then creatively financed the house and pulled all of our money out of it. There had to be more deals out there like house #4. But where could we find them?

Deal Finding – Yellow Letters

We listen to the Bigger Pockets Podcast and are very fond of show 21, which, of course, was so good and so impressive that they took it down. WOW. The podcast is nowhere to be found, so weird. You will have to trust us that it was awesome. It was all about sending out yellow letters to specifically targeted homeowners and telling them you would buy their house. We built our list, and we sent about 500 letters. We wanted to purchase homes at a discount, thus increasing our cash flow and give our net-worth a big boost because the equity would be more on day 1.

Here are the kinds of info we used to target our list:

• Age of home – 1975-1985
• Certain ZIP codes
• Home Size (1200-2000) sqft
• Time of ownership (having owned the property at least eight years) This would ensure the owner had some equity and could sell it to us at a discount

The letters looked just like this pic. We send five notes to each person over six months. It appears to be handwritten, but it’s just a fancy font. Also, we print it on yellow lined paper to make it look like real correspondence. We also mail it in a small envelope.  Next, we add a google voice number to the bottom and then field the calls as they come in. Always, we let it go to voicemail, and they almost always leave a message. We then do some research and then call them back and see how interested they are in selling. We get calls from landlords who are tired of being landlords. People inheriting houses, people who can’t afford to pay mortgages anymore. All these types of people would call, and we are there to solve their problems. We pay cash, we can close in a few days, and we don’t do inspections. We are easy and can make that pesky house go away. In return, we have to get a pretty good discount to make this work.

Rental House #5 – 23123 Erwin Pillow Whigs

This house was the bomb. I mean, it looked like a bomb had gone off in it. We get this call from letters that a woman had inherited this house when her mother died. Her brother lived in it too but abandoned it cause he couldn’t keep it up. Here’s some juicy pics. This property would be our riskiest purchase yet, but we knew we could flip it as is for quite the profit. Some kids had been squatting in the house, and in one room, they had punched out the ceiling, and all the insulation had fallen. There were belongings and junk everywhere. The yard was a mess.

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Disaster Strikes – Title issues

We listed this house as soon as we had purchased it. There had to be another flipper who would pay a lot more than we did and would turn this bad boy back into a great home for somebody. Also, we weren’t ready to tackle such a significant rehab, YET.

But, when we went to sell it, and we got an offer fast, the same title company went to close it, but a different lawyer, I guess, looked at it and noticed a small “anomaly” in the deceased woman’s will. She was so impoverished that they used a rarely used legal term called diminutive title, which meant the house had automatically passed to all three children, not just the one daughter who had quickly sold it to us. Title had missed this the first time, and even though it was the same company that cleared it the first time, another lawyer in the dept got this file the second time around and caught the error.

What a mess…

Luckily we had title insurance for this type of problem, but it would only covered what we paid for the property (33k), not the 70k for which we were trying to sell. And to make matters worse, the house was unlivable, so we couldn’t even rent it in the meantime while we waited for the title dispute. Salt in the wound. These title issues don’t resolve quickly either; it was going to be a long winter.  This house was now a boat anchor on our cash position as we had 33k of cash tied up in this thing.

There were two kids to track down, and all of them were elusive. One had died, and the other was a convicted sex-offender and on the run from the law again. Awesome. The other was not to be found anywhere by the title company. Heck, I even tried to locate them using white pages and Google. I was successful and attempted to give the findings to the title company so they could track them down and get them to sign the house over to us.

We had to pester the title company relentlessly; it was so annoying. After a year, the title company finally just posted the notice in a newspaper indicating the house was going to be given to us, I guess this allowed the previous owners to claim the house if they were to see it. It took a while, but finally, the house was ours. The judge issued “quiet title” to us. Luckily in the meantime, somehow, the house had gone up in value. Also, we had to kick out some squatters a few times, so gross. We sold it for over 80k, and we were back on track to move on to the next deal — hopefully, one with less drama.

Let’s look at the Numbers

Line Item Detail	Amount	Comment
Purchase Price	$33,122
Closing Costs	473
Total cost of deal	$38,000	Holding costs for 18 months (taxes) yard maintenance, etc,
If we flip as is...	$83,500	Sell as is, let somebody else do the rehab, which will be about 30k.
After Repair Value of house	$130,000	This is if we did a hefty rehab, new floors, paint, cornice work, yard, new roof, sheet work repair, new appliances, countertops
We choose door #1 and sell as is after a long title winter... PROFIT!	$43,500	Net Profit from this flip

 

Net Worth Update!

With the sale of this house, my net-worth took a historic turn as over 50% of my net worth is now in real estate, exciting!

See house #4

See House #6