For at least sixty-five years I have enjoyed fishing. My grandfather had purchased a 64-acre piece of land in Big Cottonwood Canyon, just east of Salt Lake City. It is some of the most beautiful land in the entire state of Utah. Over time, the popular Solitude Ski Resort was built next to it. I don’t know the details, but I remember Grandpa telling me that he bought that land for pennies on the dollar. He was a farmer without much education, but he found this property through Salt Lake County delinquent tax records. Grandpa paid back taxes. I don’t even know where he got the money from. He had a skirt relative who was a lawyer and this guy contacted the heirs who were scattered all over the country and had each one sign a deed of relinquishment for whatever interest they had in the land.
Grandpa built a cabin by the creek and spent the next 30 years developing the land. As a boy, I spent several summers working in Silver Fork, building roads with a pick and shovel, digging a trench to bring ice water from an old silver mine to meet the needs of the growing community, and filling a pickup truck with topsoil to transport return to the farm every Saturday. Grandfather would sell a 50 X 100 foot lot on the creek for $600 at 6% simple interest. People made their payments to grandfather in cash and he would take a small notebook out of his breastplate and write it down for his records. My parents built a cabin on their 50 X 100 foot lot in 1953. I would guess their total cost was less than $3,000. My brothers and I sold it a few years ago for $195,000 and that was the last time anything in the area sold for less than $200,000.
Those were great days. Every morning he would go down some rickety steps to the creek and fish for breakfast. I was a two bait fisherman using worms or grasshoppers. Most of the time I did pretty well, but some days the fish wouldn’t take either bait. At twelve I got a winter job at an old sporting goods store. Customers came to visit, tell stories, and buy materials to tie their own fishing flies. I learned to tie flies and was soon using a variety of patterns. Spinning caught on and gave me another method of fishing. Trolling has also helped me get some big ones. Let’s not forget the joys of ice fishing. Now when I go I have so many ways to catch fish that I rarely get tormented.
Why this long introduction? Here is the meat. As we dive into the exciting world of real estate investing, we learn many strategies. We take classes in wholesale, lease option, foreclosure, probate, creative financing, marketing, etc. We read books. We are advised and trained. So, many of us put blinders on. Blinders are for horses, but the term is also used metaphorically to refer to people with too narrow a focus or an inability to see the big picture. When we evaluate a property with blinders on, we limit our opportunity to make a deal. When we take them off, good things can happen. Let me give you an example of taking off your blinders and using duct tape, wire, and glue to put together a deal.
On March 13, 2006, I received a call from a lady who had seen my “I Buy Houses” ad. I used my motivated seller sheet and filled in the answers as she asked questions. I determined that it was worth driving 100 miles to meet the seller and view the property. This lady had lost her job, she was left without workers compensation, she was eight payments behind on her mortgage, her husband was in prison for 4 1/2 more years and she needed to move in with her sister. . The trustee’s sale had been set for July. The house was stuffed from floor to ceiling in some rooms and you couldn’t even get into the garage.
She estimated that her loan balance was around $55,000 and that it would take $5,000 to bring her current. I offered to bring the loan up to date and purchase the property subject to the existing financing if the restitution amount did not exceed $5,000. I asked him to sign an authorization to release information and faxed it to the lender. The numbers came back and the actual amount was $5,814, so I withdrew my offer. $814 may seem like a small number, but I had determined what my maximum offer would be and paying more than that would make this an emotional purchase and rarely create a good return on investment. Now let me tell you the rest of the story.
I asked him to cooperate with me by asking the lender to let him sell it to me for less than he owed. I explained the process of a short sale and described some benefits that could be obtained if they agreed. I told him that he could live in his house for another couple of months without making any payments and that his credit report would not have a foreclosure notation. I told him that the lender would probably hold off on the trustee’s sale while they considered the offer. I told him I would buy him appliances for $1,200 so he would have some money for the move. I also told him that he couldn’t guarantee that any of these things would happen, but that he didn’t have much to lose by working with me.
She agreed and I offered her $40,000 for the property. We complete the short sale paperwork and send the package to the bank. I told her not to contact the lender or respond to her phone calls or letters ever again. I also told him not to water the grass or mow it or do anything to make the property look nice. The offer was transmitted to the lender on April 28, 2006. While they considered the offer, they postponed the sale of the trustee.
Lenders will usually obtain an appraisal of the property. Often this will be a BPO or pricing opinion from a broker, and sometimes you can help the agent see things they might miss by meeting them at the property and pointing out all the flaws. I wasn’t so lucky. The man who came had been a county assessor for several years. I asked the seller for a key to the house so I could meet with the appraiser. When he came, he had the drafts ready for her. He had 21 photographs showing the worst parts of the house. The garden was almost two feet high covered with weeds. The appraiser still told the lender that it was worth $60,000 “as is”. The bank countered my offer at $50,000. I got back to $45,000 and then the waiting started. This all took several months but I didn’t have a penny tied up and my expenses were three round trips to the property.
On September 27, 2006, the bank accepted my offer of $45,000 and wanted to close two days later. I decided to use a credit card with a $50,000 limit and a good promotional rate, but I couldn’t get funds from it acceptable to the title company in just two days, so I had to get creative. I got all my own cash together and then went to a private lender, my son, for the balance. He gave me all his cash and we had enough to close the deal.
I met a rehabber who was looking for a project. As soon as I closed my purchase I contacted him and within a week I leased it to him for six months with a purchase option for $63,000. He paid me $1,410 in option consideration that paid the credit card fee for the cash advance. Your lease payment covered my monthly credit card payment plus 1/12 of the annual insurance premium.
In March 2007, my buyer said he was ready to exercise his option and finalize the deal, but he couldn’t get a loan from his credit union until he had the deed to the property. I closed the sale with him retrieving a note due in one week at zero interest secured by a deed of trust. He got a loan from his credit union and paid me back. We closed on April 9, 2007 and I walked away with a profit of $15,135. My buyer already had the property leased to someone, with an option to buy for $97,500.
With blinders on I would have gone for the $814. With the blinders on, you might not have considered a short sale. With blinders on, I could have sat on the property waiting for a buyer instead of making a lease option. With the blinders on, you may not have created a payment schedule that would work for the rehabber. With the blinders on, you may not have done the owner financing. I probably didn’t get 40 hours on the whole project and my pocket money was gas money and a couple of meatball sandwiches at Submarine. I made about $375 an hour. I can’t calculate ROI since I didn’t have any of my cash on the deal.
So let’s take off our blinders! Familiarize yourself with all the lures in your tackle box and use them to put together your deals.