Clay Wooten has been a member of CFRI on and off for the past 11 years. Clay wanted to share the deal below that anybody could have done. He has done many deals, but felt there were some good lessons in this one.
In 2015 Clay bought a lot in Winter Park from a Realtor and built a spec home. The Realtor® got to know him through this process, and found out that Clay purchased many mid to high-end short sales. She called him a year later in 2016 when she had challenges with a short sale at 609 Driver Ave, Winter Park on Little Lake Fairview. It was a 4 bedroom, 2 bath house, with 2,848 heated square feet on a 3/4 acre lot. It had a converted garage, a poor floor plan, and an enclosed porch. It needed $175-200,000 in repairs and would have been worth around $650- 700,000 after being fixed up.
The loan balance was about $900,000, but Clay negotiated to get the bank to lower their requested payoff by about $150,000, and he bought the property for $405,000. Because Clay had a real estate license, he was able to earn a $12,000 commission credit, so the net cost to him to buy was about $393,000.
Clay could have borrowed all the money, but because he had some cash available and wanted to keep his loan costs lower, he paid 50% down and borrowed the rest at very low rate from a private lender he knew.
Clay considered three possible exit strategies:
1) Renovate and resell the property,
2) Tear down the property, split the lot and develop two properties to resell at a much higher profit, or
3) Sell the property right away for a quick profit.
He wasn’t interested in renovating a house with a poor floor plan, and felt that values in the area had flattened a bit.
He also determined that splitting the lot would require hefty demo costs and septic variance and legal fees. Plus, splitting and rebuilding was also very speculative and it would take a long time to make his profit.
It was a lakefront lot surrounded by many other lakefront attorney residents, so if he was not able to fly under the radar to complete the variance and appeal period, there could have definitely been push-back from the neighbors against the increased density on their lake. He did the research, assessed the risk, and is very happy with the deal he made.
Clay checked with builders and neighbors to see if they were interested before he even closed on the purchase. He found an attorney neighbor who agreed to pay $450,000 and $3,000 towards Clay’s closing costs. Clay netted about $53,000 by selling the property eight days after he purchased it! Attorney and CFRI Business member Roland Acosta handled the transaction. Congratulations Clay!
1.The most $ comes from the most speculative prospects, but with the most risk depending on exit.
2. Don’t speculate off of one comp and/or opinion.
3. Do consider ALL exit options, their numbers & timeframes.
4. Pigs get fat, hogs get slaughtered…
5. Never later regret a win.
Reprinted Courtesy of the Central Florida Realty Investors. Visit www.CFRI.net From the March 2017 issue of the CFRI Newsletter.
Back to The Metro Blog >