Creative Solutions for Impossible Real Estate Deals

And just to kind of let you know, I think there's been some drug issues there too. So you might have to do like meth or drug remediation.

If I have to do meth remediation, then I got to add a little more to my budget.

You know, pretty much what I'm doing is I'm getting your information. I'm going to have to go back to the seller because, you know, what's happened is the seller has been at, you know, wanting $250,000 to just getting beat up, get beat up. And now she's down lower and lower. And I just need a firm offer to bring to her and be like, hey, you know, this is a reality. This is what's going to happen if you need to sell. If you want to sell, this is what we're going to have to do it for, you know. And if I can negotiate it, then we're good. But, you know, she's just— her expectations are too high. All right, guys, this is a guy that I met when I was in Vegas shooting Funding Face Off, and he buys where I have some deals. So we're going to ask him about the deal that I sent him.

This is Jared, how can I help you?

Jared, it's Nathan Payne Payne Payne. How are you doing?

How are you doing?

You good? You good? Or are you busy right now?

No, no, I'm good. So I just got that appointment with— we just— I moved my other appointment.

Well, I appreciate that you're doing that for me. So, yeah, let's kind of dive into this deal. You said that you— did you go and walk it or did your agent just go and see it or what ended up happening?

Yeah, so my agent went and looked at the property for me and pulled up some comps, and then I went ahead and just did what's called a remote budget. So the numbers are— I was just kind of scrutinizing them and I was going to try to head down and take a look at the property. Okay. So I could get a dial in on whether or not the repair budget I put together remotely is spot on or not. Couple things, the photos were real good. It told me kind of what was going on with the property. So I can see it needs all new windows. Trying to decide if I needed a breaker box and furnace. And so now those photos being there and the condition it's in, that's the one thing I'm checking on. The other one's the main service disconnect on this particular property. So it looks to me like the wires are cut and I know it's got a solar system on it. So if that line's cut, I gotta run in a new meter base. And if I bring in, I gotta pull license to get that done because they got to run the new lines from the new meter base out to the telephone pole.

Right.

So permits are going to have to be pulled. And that means they'll probably make me forcibly do the upgraded service panels and then the electrical will be questionable. Right. So then I have to—

I want to write that down and ask the seller. What's the concern? Is it you're saying that some of the lines are cut? Power lines are cut?

It looks like from the photo on the back of the property that was sent over, the wires come down and touch the roof line and I can't see where they go. Normally those would be pumped. And stretched out and brought from that meter base up, and then the meter's pulled off the back.

Okay.

So to me, that means that the city or somebody has come in and pulled it. Now that brings two issues up for me as a buyer. One, I gotta call the city and find out if this thing has a certificate of occupancy, because, uh, the meter base being pulled isn't normal unless they've pulled maybe the CO, the certificate of occupancy.

Okay.

So that's one thing I'm checking out is whether or not that CO needs to be done. And then of course, that line just laying there is the other issue. So I may have to pull permits or maybe it has a CO, but for whatever reason, there's an electrical issue where they won't let them run at meter base because the power company has pulled the meter base, I'm assuming. So based on that, I made a couple other assumptions. You know, I've got to replace all the windows on this particular house. There's a little bit of a foundation settling problem on the front. So I don't know to what extent that is. So I'll have to just go walk that. But the chimney looks great on it. We got a whole, you know, sheetrock on the whole interior and a skim coat throughout the entire house that I've got a budget for. We've got that fireplace in the front room that they've already walled in would move. We'll just cover that up. And then we've got a couple rooms with some sheetrock that needs to be replaced. We'll compound and sell for the right amount. So the bathroom looks pretty decent. I can probably get away with keeping the shower tub on the one bathroom and the toilet based on what I can see. Looks like there's, um, some electrical in there. Could just be sprinkler system stuff right out the front and connected in the laundry room, but it looks like the laundry room has overflowed a couple times, but it could just be their stuff. It also looks like there's a toilet in there, and that—

there is a toilet. There's a toilet in the basement in the laundry room. Yeah.

This looks above ground, actually.

Yeah.

So there's a laundry room. Looks like there's a laundry, maybe half bath or something.

Yeah, that's what it is. It's a laundry room, half bath.

So there's a bunch of holes in the wall and that could be just some electrical issues and where they've run some wires in and out. It could be just cable, but it could also be just sprinkler system. So anyway, but the electrical looks okay. There's older windows, just all of them have to be replaced throughout the house. Yeah. Glass door looks like the homeowner did it and I can see daylight behind that. Now all that wood paneling in that back room, so that's all going to be stripped out.

And just to kind of let you know, I think there's There's been some drug issues there too. So you might have to do like meth or drug remediation.

Uh, if I have to do meth remediation, then I got to add a little more to my budget.

You know, pretty much what I'm doing is I'm getting your information. I'm going to have to go back to the seller because, you know, what's happened is the seller has been at, you know, wanting $250,000 to just getting beat up, get beat up. And now she's down lower and lower. And I just, I just need a firm offer to bring to her and be like, hey, you know, this is reality. This is what's going to happen. If you need to sell, if you want to sell, this is what we're going to have to do it for, you know, and if I can negotiate it, then we're good. But, you know, she's just, her expectations are too high. So let's, let's kind of run your numbers real quick. I got my calculator. What did you have the ARV at? What did you feel like it was worth after, you know, after you fixed it up?

$340,000. So I've got about $340,000. Now, I don't have meth remediation in here. Yeah, but at $340,000, realtor's commissions on the resale are going to cost me about $20,000. I've got closing costs at about $8,500. I've got holding costs for about 6 months covering the mortgage payment that's already there in place.

6 months. Okay. So when you sell a house, don't you— I mean, I know some agents that are able to do it for like 1% or like $2,500. So you pay the full 3%, you know, for a listing agent and a buyer's agent?

So normally I always pay the realtor the commission if they bring me the deal, right?

Okay.

So in this case, there was no realtor that brought the deal, but it only changes the commission from about $6,000. So you go from a 4% relist commission to a 6% commission is Okay.

What did you have for the rehab?

So the rehab without methamphetamine is $76,000.

Yeah, I was right there with you on $76,000 on that one. You were saying you would make $0 at what price? $227,000?

Yeah, my offer price on it is $228,000 and I didn't make a dime. Okay.

$228,000. That's what you said. $228,000.

All right. So $228,000, but I don't make a dime.

So let me ask you this about the property. How much are you usually trying to make per deal, you know, a flip for a team makes sense for you to do it?

It actually depends on how much out-of-pocket expense I'm having to throw out. Okay. So in this case, because if I have all my money here on this project, then I have opportunity cost on other projects.

Of course. Yeah.

$22,000 is a little shy on this for the risk, right? Market shift, a quarter percent interest rate. I just list the house for $667,000 and I've lowered the price down to $615,000. I still don't have it sold. So I'm at a $60,000 adjustment because market shift.

Yes, of course.

I'd have my money tied up for 1, 2, 3, 4, or 5 years. Well, I'm holding it as a rental property after I completely renovated it and my renters destroy it. Yes, that's the risk. So for me, I mean, I don't think I do. I mean, even if I went conservatively at like $28,000, right, with a market that's a little volatile.

Right, right, right.

So if I did that, Christian, you're at $207,000 and that's the most I can pay. But I haven't calculated the missing payment.

Yeah. So their payoff is $181,000 and that pays off their solar, that pays off the lien. Well, it's the grant on the property. So if we can get rid of the solar and assume that—

and how much is that solar? Because I just have to pay that later.

$18K.

Okay. So that means there really is an $18,000 cost associated with that. Like it has to be paid at some point.

Right.

So it has to be paid sooner or later.

And you wouldn't want this as a rental, right? You're looking at this as a flip.

Well, I don't want to tie up $76,000 on a flip and then hold on. I mean, there's other stuff I can make that money make more money.

Agreed.

Agreed.

I don't think it's a good rental. It's way too much money to put into it for a rental. I mean, you got to fix it up. You got to catch it up. Doesn't make sense as a rental.

And I pay $18,000 off on the solar and then I catch up their missing payments at $12,000. Like the most I could pay for it would be $177,000.

I know.

Less than what they owe. And if I wanted to make nothing, I could pay $205,000.

Yeah. Yeah.

If I literally just want to do it for charity, then it's $205,000. Just the solar of $18,000 and then the payoff on the missing payments at $12,000. And that doesn't even pay you.

I know. Yeah. I've been trying trying to rack my brain on how I can make this deal work because they're super motivated, right? But then you have the— it's behind, so it's distressed, so you'd have to fix it up. So it's really—

18 doesn't really come out until you go to resell it, right?

Yeah, it doesn't have to come out. Like, their goal was to get a cash offer. She wanted $225,000, and then, you know, the payoff for everything is $181,000, and she was just hoping to do that, right? But then if you don't have them finance your flip, then you, you got to get hard money. And then the numbers are different.

All I'm really covering is 6 months worth of their interest payments. If I remember correctly, they're about $800, $850.

So it sounds to me like the play of doing this property as a rental is out. You know, it just requires too much down. It's got to be a cash purchase. But, you know, it's so low, you know, because of having to catch it up and all that. It sounds like she's pretty much just underwater, to be real.

It's underwater.

The deal with this one is like, you know, there's some major motivation there to the point where she's like, look, I might just even let this thing go, right? So if I can get her anything, I mean, the expectations were like $250,000, right? But that was at the beginning. But now that's not even close to what it is. And the longer they wait, the more that the attorney fees and everything are going to cost on the pre-foreclosure. So, you know, I'd love to get her something.

Is her reinstatement fee $12,000 or is it more than that?

It's $12,000 with everything included. So the mortgage is $158,000 including what it's behind, which is $12,000 with fees and everything. And then there's the solar plus the $4,000 $100,000 grant from the city for if he sells before like 3 or 4 years, which he would be because he just bought the house. So that's why it's $181,000 out the door. That's what they have to pay out.

If you sell it, there's a grant.

Yes.

That money doesn't have to come up front. That money can come out back on the resale, right?

Right. Yeah, yeah, exactly.

Let me see if I can set up an appointment today or tomorrow.

Yeah, just keep me posted and then I'll talk to the seller. I mean, just from what we've talked about, it just sounds like it's with interest rates going up, the amount that she's going to be able to get for this thing is just going lower and lower, you know? So let me, let me ask you about your opinion on this situation. On this deal. I can do a novation with her and just say, hey, look, like, let me, let me list this for you. Let's see what offers we get on the MLS. And, you know, I'll pay you a specific amount and then I'll take care of the commissions and the fees. Do you think if we put this on the MLS, if we don't get her the offer that she's looking for, like maybe somebody else could come in a little bit higher?

I don't think so. I mean, you're about to rock bottom if you can get like literally unless you've got a guy that can magically make the rehab less.

Magically.

That's the only guy that can pay more.

I know. Isn't that crazy?

I mean, because I'm using her interest rate at 2.99%.

Yeah.

And I'm not even using my own cash for $150,000 of it.

I know, right? Yeah.

This is rock bottom.

We're going to have to get creative on this one. And if there's something we can do to work together, let's do it. So give me a call. Let me know when you can get out there and I'll try to schedule it and I'll call the seller and just kind of break the news on what's going on with the property.

Okay. Yeah. So it's— I mean, it's just the numbers are super tight with where I think the market's headed and where the comps are at. Because, you know, $340,000. I honestly thought it was $330,000. The agent keeps pushing me, he's like, I can sell it, I can sell it. I can sell it for $340,000. He goes, yeah, I can still sell it for $340,000. Yeah.

I mean, you know, this thing was worth maybe $360,000, $380,000 before the shift. So let me know when you can make it up there and then I will set it up. Cause you know, my due diligence period or my contract ends with them at the end of the week. So if we can make something happen, we'll extend. But if not, I'll just let her know like, hey, unless you understand that you're not getting what you want, you know, I can't really help you out anymore. Thanks, Jared. We'll be in touch.

All right. Sounds good. Talk to you later.

Yeah.

Bye. Bye-bye.

Man, that house went from being a deal to not a deal with all the crap that it has. Oh my gosh. That is crazy.