Discover how a naïve beginner put his investing education to work and used an REO acquisition with a joint venture “fix and flip” exit strategy in order to earn a cool $26,000 on his first deal. Wow!
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Matt Theriault: Hey, this is Matt from the Epic Pro Academy. Welcome to another case from the Epic Files. Now this right here happens to be the file of the very first deal that I ever completed. It was a single family residence, just East of downtown Long beach. I found this property by driving the neighbourhood.
This particular property was in a really bad shape but it just happens to have a For Sale sign in front of it. Of which that sign wasn’t about the same condition as the property. They look awful. It looked like they’ve been there for a while for sure. It was very possible that this listing wasn’t even an active listing anymore.
I mean that’s just how the place looked. It also had an air of someone tried to do something with the property and they either failed or they quit or they just lost interest, I don’t know. It wasn’t totally clear but I wrote down the address and I went back to the office to conduct some basic research and it turned out to be an active listing.
There’s over one year on the market and it will just sat there. It was bank owned and after calling the listing agent, I found out that some investors had intended to turn that single family residence, that property, into a fourplex but they ran out of money. They just bailed. They left the project in that current phase.
They were in the demolition phase. That’s why it looks so bad. So this deal at this point, it looked like, “Hey, there might be something here.” But the deal got even better as the previous investors had already paid for the plans and permits.
They already went through that process. The plans and permits would be passed along to whoever purchased the property.
If you ever done a fix-and-flip, you know that process can take some time of which when time is money and the way it is with the fix-and-flip, that time that you have to wait for plans and permits can be costly. Additionally, the previous investors had left a specific wall of the building standing of which the plans revolved around it. All the plans were centred around this one wall.
Why that was special, what that means is, as long as you leave at least one wall standing, the project would be classified as a rehab as opposed to new construction.
At the end of the day, that’s a significant difference in cost. The significant difference in the bottom line is as well as the tax basis of the property would be left untouched.
Big deal, the previous investors had the right idea with this project but unfortunately, for one reason or the other, they just couldn’t get it done. I thought with such a head start thanks to them, maybe I could get it done. This was a sweet deal. But with a little over $300,000 price tag on this property, it was over my head.
Actually it was quite over my head. But based on my real estate investing education, I knew I didn’t have to walk away from this deal. So I placed an offer and after this property being on the market for a year, my offer was quickly accepted and that’s all I really wanted, just to get it accepted.
Here’s why, you see first, a real estate purchase contract gives me, the buyer, the legal right to purchase the property for the price stipulated on the contract within the time frame that’s given in the contract which was 45 days.
I had 45 days to execute this deal. Second, nobody else made purchase this property during the life of the contract without my approval. You see by being on contract, you block out any and all competition. So you can conduct your due diligence without worrying about someone swooping in and stealing it away from you.
Third, I would gladly give such an approval for a fee. In other words, I would gladly assign this contract. By being under contract, that’s an option. In this case, that was actually the goal. So based on my networking up to this point, I had recently met a couple of fix-and-flippers who worked in that specific area. I called them up and I told them about the deal, they checked it out, they wanted it. Actually, they really wanted it.
I recognize how excited they were over the phone about the deal. They showed their card, so to speak. So rather than just doing a straight assignment of the contract, I was able to negotiate a partnership on this deal. I would get 20% of the equity. I would never been able to negotiate that if I didn’t have the property under contract in the first place.
That’s probably the biggest lesson here. When you find the deal, write an offer. Get it under contract and this deal, it turned out to be a real win-win deal for everybody that was involved. I mean I got 20% of the equity which came out to about $26,00. The fix-and-flippers, they got a great project to work on without having to hit the bricks and hit the pavement to go out and find it.
Then at the end buyer essentially got a brand new fourplex in a really good rental neighbourhood. So here’s the bottom line, I did not spend one penny to make $26,000. It was all the fix-and-flippers’ money, they brought in all the money and I didn’t have to break a sweat or even left the paintbrush either. It was all the fix-and-flippers’ crew that did all the work.
I incurred absolutely no expense and no risk. In fact if I had not found the buyer or a partner in this case within my allotted 45 days, I would have simple evoked one of my “Get out of jail” clauses, one of my contingency clauses on the contract that would have cancelled the deal with absolutely no recourse to me.
So it was a really sweet deal. No money, no risk and $26,000 profit later. I’m Matt Theriault and that’s another case from the Epic Files. See you next time.[End of Transcript]