Recently I meet a new real estate investor at AZREIA (Phoenix Real Estate Investors Club). She shared with me how seller financing literally saved her from a poorly performing duplex in Kingman, AZ. What follows is her narrative – with my comments.
I currently hold a note on a Duplex in Kingman AZ. This note came about as an accidental solution to a really bad problem property. It is a very short term note with 5% interest(VERY LOW INTEREST RATE) and a balloon. The note has been extended once, and there is an option to extend it again.
I originally acquired the property in August 2014. My investor and I paid cash for the duplex. It was in very bad repair and needed a full rehab. We had originally intended to rehab it and rent it out. We had a lot of issues with the property, many problems with contractors, problems within the partnership, and tons of money issues. We couldn’t get it finished, and it was just sitting vacant and getting vandalized. It was a huge headache for me, a source of serious stress, and a huge money pit. I drove back and forth to Kingman many times to deal with the property, contractors, solve problems, etc. My partner and I fought about it all the time for two years. After a year I wanted to sell it and get out, but he did not. It was a good property. We just could not agree on any aspect of the property. We both had completely different rules for our investing and very different ways of doing things. After almost two years of butting heads and losing money I’d had enough and was desperate to find a way out.
We owned one other property together that I also wanted out of. Both were good properties but it was technically the partnership that I wanted out of. He did not want to sell the other property either. With the help of a local note investor in structuring a buyout contract, I acquired the duplex solely as part of my partner’s buyout of my share of the other property.
I immediately put the duplex up for sale. I was a very motivated seller, but I did not want to discount the price very much because it was a very good property in a good location in downtown Kingman. We had already put 15K into the rehab so one side was really close to being rent ready. The other side still needed full rehab, but it could have cash flowed or at least broken even with just the one side rented.
Very quickly my real estate agent found me an investor buyer who wanted to live in the finished side and slowly rehab the other side until she could rent it out. She was willing to pay full asking price but wanted seller financing and was going to refi within a short period of time. She was willing to put down the amount I asked for (about 40%) which took care of my partner’s buyout of the other property and the small private money loan on the duplex for rehab costs. In September I wrote a $37K note for 6 months at 5% with a balloon due in March of 2017. The sale of this property as a seller finance turned this disaster of a property into an easy, stress free cash-flowing asset.
In March, my buyer was not able to refi and cash me out. Rather than foreclose, I extended her loan. I charged her a fee to extend her loan. She could not pay the fee up front so I added it to her monthly payment. The property now cash flows at a net of $435.50 every month and I do nothing except get a deposit into my bank account. (AKA – Mail Box Money) Taking a note on this property not only turned a disastrous and extremely stressful negative cash flow property into a stress-free income-producing asset, but the new owner is happy because she lives there and works on the property. Eventually her renters will pay her more than she needs to cover her payment to me, or she can sell it. The work she has done so far has increased the property value by quite a bit, so if she sells it she can cash me out and still have a profit.
This is an incredible story with a heart warming solution.
- The Seller got her price for the property.
- The Seller dissolved was able to disolve a negative partnership due to a very hefty 40% down payment.
- The Seller turned a negative cash flow into a positive cash flow
- The Seller reduced stress in her life. As she put it so well, ” It was a huge headache for me, a source of serious stress, and a huge money pit.”
- The Seller no longer has to commute from Phoenix to Kingman to handle landlord issues.
- The Buyer is fixing up the house for the seller. In the event of a foreclosure, the Seller is way ahead
- The buyer was able to occupy one side of the duplex and rent out the other half which is paying her mortgage and…she still has a profit.
- The real estate agent received a full commission and…………..got a quick sale.