Case Study #3
College student catches reak estate investor bug.
A college student in Seattle caught the real estate investor bug. He bought a beat up old mobile home to live in, and over time painted, recarpeted, and generaly made it pretty. When he graduated, he sold it for $5,000 more than he paid for it. He liked that so much that he decided to make investing his central occupation, his college degree was in a completely different field. The 1st deal he went after was a 6 unit apartment building in down town Seattle. The price was great-unbelievably low. It turns out the reason for the low price, was the building had been involved in a fire. Evedintly the owners at the time had failed to insure the structure. And were forced into a fire sale price.
If the seller initiates low price that is good, be sure to find out why. The cost might be more than the property will sell for. Besure to find out if the project can be rehabed, so you can make a profit.
In this case the ex-student, turned investor, brought in a contractor to make an estimate on the needed repairs. Cost of repairs came out to $75,000. That was much more than this recent graduate had available to him. He was clearly in over his head.
But the young investor was smart enough to know he didn't have to walk away. he knew that the purchase contract that he had with the owners, gave him control over the property.
1. You ask how? A real estate contract provides the buyer under the contract, the legal right to buy the property for the price stipulated with the time frame given in the contract.
2. Nobody else may legaly purchse the property for the life of the contract, without getting say-so from the buyer under the contract.
3. The buyer under the contract will gladly give the say-so formally and in writing for a fee.
In this case, the young investor advertised the apartment building for sale in two major Seattle newspapers, for the price contracted for. This generated a good volume of callers. One of the callers was a general contractor, with both the capitol and the crew to rehabilitate the building. The young investor assigned the interest, in the purchase contract to the builder for $4,000.
The bottom line, the young investor did not spend a penny to make $4,000. He didn't have to do anything to rehab the building, he incured no risk. In fact, he had contingency clauses, wich he could have evoked, that would have cancelled the deal, in the unlikely event that he couldn't find a anyone to take the purchase contract off his hands.
Another win, win, win situation.