Al Garcia joined CFRI 18 months ago. He has been a real estate broker for a long time, but this was the first time he did a deal like this one. Al hires virtual assistants to find and call on out of state owners. As a result he spoke with an owner in Arizona who had a 3 bed/2.5 bath rental house at 1524 Silversmith Pl, Orlando, FL 32818. It had some roof leaks, and smelled like dog pee. The owner was very motivated to get rid of the house without having to fix it herself.
Al thought the house was worth $199,000 if $5-10,000 in repairs were put into it. He was only willing to pay $125,000 to buy the house, but the seller owed $135,000 on her current mortgage. Al was willing to walk away, but then the seller agreed to pay $10,000 at closing when the house resold in order to pay off the mortgage!
Al offered her $1,200/month to buy the house on a lease/option agreement, which was the same rent she was receiving from the existing tenants. His first payment wasn’t due for 30 days. He first tried to wholesale the house to another investor, but found out he would probably only make about $2,500. So he decided to fix it up first and then resell it.
He used CFRI Business Member and Attorney Charles Castellon (CPCLAW. net) to draft the land trust and closing documents. He felt this helped a lot with making the seller feel more comfortable with the transaction.
After the trust documents were signed and the current tenants moved out on January 2nd, Al started with the repairs. He washed and patched the roof, repaired some wood rot, painted over the exterior dark brown and orange with much lighter colors, added new laminate floors to the first floor, installed stainless steel appliances and granite countertops, re-grouted the kitchen tile floor, and changed the fixtures in the bathrooms. The total repair costs came to about $15,000. He listed the house on MLS asking for only cash or conventional mortgage buyers. This would make it easier to sell without having to replace the whole roof. He had three offers the first day.
Al wishes he had put in an alarm system because the stainless steel appliances were stolen. In fact, his buyers and their Realtor® were the ones that discovered the burglary. They toured the house without the appliances and bought it anyway. He didn’t even have to replace them. They closed on the sale 24 days after going into contract and 55 days after Al signed the initial lease option contract with the seller.
The sale price was $190,000 and the house appraised for $197,000. The original seller signed the deed over to the new buyers and Al was paid off as an unrecorded lien on the settlement statement. After he paid his credit cards which funded the repairs, he made $40,000 in profit from the resale, plus earned $5,000 in commission as a broker.
Al thinks he would have been safer in the deal if he had recorded a Memorandum of Contract so that the seller could not resell to someone else, but this deal worked so quickly and the sellers were so cooperative he was really not that worried. Congratulations, Al!
Reprinted Courtesy of Central Florida Realty Investors. Visit www.CFRI.net From the May 2017 issue of the CFRI Newsletter.
Back to The Metro Blog >