House #6 – 4536 Avid Beet Kruger – A Painful Lesson with rental property

November 2013

Buying Rental Houses

My partner and I were now getting good at buying houses, especially from these yellow letter lists from which we had been sending letters. Our problem now was having enough capital to close deals. We started getting friends to loan us money for the short term, and we had other short-term financing options, but our long-term financing still required about 20% down. This amount was anywhere from $12,000 to $20,000 per deal. In our minds, all that mattered was accumulating net worth, and the best way we knew how at the time was to purchase as many rentals as we possibly could.

Flipping Every Other House

D and I hatched a plan that we would flip every other deal we got so that we could fund our voracious appetite for long-term rentals.  In hindsight, this was a terrible idea as we “gave away” some sweet properties just for some short-term cash gains. However, it was a vital part of evolution as we needed every dollar we got from these “flips” so that we could fuel the cash flow snowball. Of course, now I wish we had every one of these houses back, and in the line up of factories making me sweet cash, but instead, we sacrificed them for future deals.

Yellow Letter Success

We got a call from a lady who desperately needed to sell her house. D worked her for a while and true to form with these leads, if they are in enough pain, they will sell at severe discounts. D got her three bedrooms, two bath 1500 sqft house under contract for $62,000. He’s a master negotiator.

Now we could’ve kept this house, but we would’ve needed roughly 14k to get this financed long term. D and I were a little tapped after buying several properties in just a short time, plus we had 40k of our own money still tied up in the last deal, as we hadn’t been able to sell the prior disaster deal yet, (It had a happy ending though). So we were cash poor, plus we had five other houses to service and needed a little safety net.

We found an investor quickly, while we still were waiting to close, and were able to sell it the day after we bought it. Luckily, we used some of our short-term financing options to seal this deal. Thankfully, we sold it for 72k and made a quick 10k. In hindsight, we probably could’ve gotten more, but the house wasn’t in great shape, and we had no money to rehab it either. Basically, we were paid 10k to find a deal for somebody else. Tons of people do this full-time, called wholesalers, and while this can be a lucrative career, it was not something Dave, and I wanted to do long term. We enjoyed owning the “factories” and not always having to chase the next one for regular income.

What Did We Learn?

We needed to find a way where we could keep all the houses we purchased and not need to flip. It killed us to have to sell this only to make a “measly” 10k. How could we get more creative and evolve our process?

Deal Analysis

This deal was straightforward.

Net Worth Update

See House #5

See House #7