Case Study 3 - Be Honest with the Bank

Graydon Street - an Investor Short Sale

This short sale was a nice two family brick house on a street called Graydon. We found this house through our short sale foreclosure direct mail marketing. The owner was a fellow investor. We played phone tag for some time but finally got together. They had 6 rental properties in foreclosure! And they all were over financed and needed short sales.  Two of them had gone to sheriff sale within the first few days we were talking to them while we were starting to gather paperwork and inspect the properties. We still had 4 houses to work on. We went to Graydon first.

Description of the Property

Graydon was a two family with a tenant on the first floor that paid $400 a month. It really wasn't in bad shape; just a leaky pipe under the sink and it would need new carpet and paint. That was fairly easy.

The second floor was actually a second and third floor with a total square footage of 2700 square feet.  The second floor kitchen was pretty good for rental property. The bathroom was nasty and would need everything replaced; toilet, tub, and cabinets. We figured $12,000 in total repairs including the third floor.  You could put up a couple of walls and closets to have another little bedrooms and make it a 4 bedroom with a large play area on the 3rd floor.. You could rent it for a lot more money and easily twice as much as the first floor if you rented it to Section 8.

The Offer

 Well, we offered $26,000 on this property. We started thinking that was too much money. The bank ordered and had the BPO (Brokers price Opinion) done within 5 days of receiving our offer. They called us back on a Friday night about eight o'clock to let us know our offer was being submitted for approval. Before noon the next day, Saturday, the bank called to get a fax number to send us an acceptance letter.

The Acceptance

 They accepted our first bid. We were concerned, something was wrong. And you should be concerned to when the bank accepts your first offer.  We thought we missed something. But we went forward with a closing date of about 30 days later.

The Marketing

           We advertised our house at REIA and put together a flyer.  We put an ad in the newspaper looking for buyers in that part of town too. That’s always a great way to build your buyers list.  Advertise a handyman special and get more people to call.  Gather all their information –

• Where they want to own houses
• How much cash they will spend
• How many bedrooms/baths must they have
• What kind of repairs should the house NOT have, etc.

We didn't get anybody interested. We advertised it at REIA again.  We called people that we knew that bought in that part of town. We actually had a few people interested in looking at it. We set up an appointment for them all to come on the same afternoon so we didn't have to go over there four separate times. We staggered the appointments a half hour apart. One guy he said he wouldn’t pay more than $12,000 for the house.  So we kind of panicked that we had over estimated this thing.

Somebody said that there were a whole lot more repairs there than what we saw for $12,000. We were still a little concerned maybe that's why we couldn't find a buyer. A few days before the sheriff sale and before we were supposed to close the bank called and asked how the closing was coming?  We told them we were still looking for a buyer, but were hoping to close by the end of the month.

Ok, great, so it got to be January 31st . The bank called. Basically, we told them the truth. We do not have the funds to close this house. We are not going to be able to close by January 31st. We told the bank that our lender would not lend us that much money for this house.

 We told them we were looking for another lender and have every intention on closing this deal and please don't give up on us. All they wanted was reassurance that we weren’t going to walk on it. Yes, they told us that they would give us until January 31st. They told us they were closing the file. That was basically their negotiation tactic. But we couldn't find a buyer. We didn't want to hold this property. They were willing to wait for us. They weren't going to give up on us. We were still looking for somebody else to bring money to the table. That is exactly what we were doing. We never lied to the bank. We might have stretched the truth a bit but that was exactly what we were doing; finding someone to bring money to the table. 

 We kept looking, ran another ad in the paper, kept advertising at the local REIA group. We did start to panic a little bit. We decreased the price a couple thousand dollars. The ARV of this property was $58,000 to $70,000 in great shape. It should be a good money maker. You could probably rent the second and third floors for $700 to $1000 a month. 70% of $70000 is $49,000 minus $10,000 (repairs) is $39,000. We were asking $39,000 so we reduced it a little bit to$ 35,900. We actually sold it for $34,900.

 The funny thing of how we found our buyer is that were selling him a house in another neighborhood. We went over to put a lock box on the door and the neighbor came over and asked if we were selling this house. Her landlord had told her that if any of the houses on the street ever came up for sale to let him know.

 You can only guess that we called him right away.  He was very excited about it. He told us to let him know about other houses we had for sale. That’s how we sold Graydon to him. It was priced at $34,500 so we'd still make $9000 on the property.  At this point we weren't concerned with how much money we made so much as that we got it sold.  He had cash and was able to close quickly. Everyone was happy, the buyer, the bank and us.

We called the bank and told them we were able to close. We needed a new acceptance letter and were going to close the 23rd of February. Within an hour, we had a new acceptance letter. It was amazing.  So they can be quick at the end of the month. They want that deal on their monthly quota. They have to meet a certain quota of closing deals per month.  I'm sure they get paid commission on it. I'm sure they don't get paid the kind of commission we like. They may get paid $500 - $1,000. They're excited about it So, we did end up closing both deals on the same day.

 Never give up on your bank, yes they say they've got to close on such and such a date and it's really important that you meet that goal or try to meet that goal. I've never had the banks say no to a reasonable extension.  They want the deal to close as much as we do.  They're going to stretch the time to make that happen.

This is a Short Sale Case Study from the files of the Short Sale Queen®.

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