We are always on the lookout for property, and all of our close friends know that. So it was nice to get a call last summer from a friend who said that he saw a house for sale in his neighborhood that he thought we might be interested in. Brad went into the local MLS, and could not find the house listed at all.
After some digging we found out that it was not listed in the local MLS. The house was a foreclosure and Wells Fargo, the bank that now owned the property decided to list it with a real estate agent located on the other side of the state. The house would only show up in their listings, which was nice for us. No one else in our town knew this property existed!
It was a large 3 bedroom 1 ½ bathroom brick home. It had a garage in the back with a 1 bedroom garage apartment. The house had been owned by an elderly woman who had passed away 3 years ago, and the kids had inherited the property but lived out of state. I don’t know all of the details, but I think there was some dispute over who would get what, and eventually the property ended up in foreclosure.
The house was brick, with a newer roof. The electric was in good condition, and you could tell the place was well taken care of. It did smell, like it hadn’t been lived in for a while, but there were hardwood floors underneath the carpets that could be refinished. A fresh coat of paint was needed, but other than that and refinishing the floors, there wasn’t much work to do. The apartment in the back had also recently been updated. The carpet in there probably needed redone, as well as fresh paint on the walls. Most appliances were also included with both units. Overall, we estimated $5,000 would get the place in proper working order.
It was shocking to us how nice the place was, and how little work it needed, and we knew we immediately wanted to make an offer. The place was listed for $59,000. We calculated that we could rent the house for a minimum of $800 a month (we felt like we could get closer to $900, but are always cautious with our estimation). The apartment would rent for a minimum of $400. That would give us $1200 of rent per month.
Using a mortgage calculator, like mortgagecalculator.org, you can estimate that the payments would be $404.94 a month if you took out a 30 year loan for $63,000 (the price plus our estimated repairs). Even with including taxes and insurance ($1,500 per year) and vacancy rates (.10 of rental income), we would still be making $549.06 a month in income.
A strange turn of events
After we submitted our offer for the full listing price, things got a little strange. We were on a train ride in the mountains with our boys when we got a call from our real estate agent that something was wrong with our paperwork, so we needed to submit it again. This happened two more times over the course of several weeks, where the listing agent needed something else from us, and we would always give her the information she requested quickly.
At this point, we weren’t concerned as we had offered the full listing price in cash. However, soon a friend of ours (who also does real estate) let us know that our property was relisted…at $51,000, $8,000 cheaper than our offer on Zillow.com. However, it was listed as under contract in the MLS. Needless to say, we were confused and upset and immediately contacted our agent.
Ultimately this is what happened: with a foreclosure there are quite a few people involved and it can take quite a while for all of them to communicate and accept an offer. There is the real estate agent, the bank contact person, and the bank’s board that have to vote to accept the offer. In this case, our offer had not been submitted to the correct people and in the meantime, the bank had decided to lower the price of the property. A person at the bank relisted the property on Zillow at the lower price without talking to the listing agent. Obviously, communication was lacking on their end.
So what ended up happening? The bank decided to accept from us a lower offer of $51,000 as that is what they were listing it on Zillow. We resubmitted paperwork for that and our offer was accepted and we closed on the property. Yes, you are reading that correctly. The bank screwed up and lost out on $8,000 because they couldn’t communicate. Their loss was our gain, and the numbers worked out even better! Here’s the breakdown:
|House: $1050||Mortgage: $381.07 ($58,000 taken out on a 30 year loan)|
|Apartment: $500||Taxes/Insurance/Miscellaneous: $125|
|Rental Vacancy Rate: $155(10% of rental rate, which is $1860 per year)|
|Total Income $1550
|Total Expenses $661.07
Total Rental Profit per Month $888.93
Now I will tell you that this is probably the best deal that we have ever done. It’s not that there aren’t deals out there like this; they are just very hard to find. But, hopefully this will give you a little inspiration and show you what is possible!