Creating Equity From Nothing
I write about and teach real estate investing in distressed
properties, opportunity properties, yet I keep hearing about
people who knew someone in trouble that didn't act to help. All
to often they did nothing because they didn't believe the
property had any equity to save. Worst of all are the would be
"Bird Dogs" who say I thought I had an opportunity for you but
the owners had no equity! I want to scream!
Maybe it's the TV infomercial gurus showing all those big
checks, implying that people are anxious to give you huge
equities just for asking. They didn't recognize the opportunity!
They think opportunity is money lying in the street.
They think that opportunity is finding underpriced houses! If
that were the case, your local realtor could make you rich, they
can't! (More about your realtor in my books, "One House At A
Time / Finding And Buying Single Family Rentals" in a chapter
called "Why Your realtor Can't Make You Rich" and in "A Baker
Dozen / A Real Estate Anthology" in an article called "For The
Same Reason A Plumber Pipes Leak.") If you're looking for houses
get a good realtor. Houses themselves are not opportunities!
People are opportunities, troubled people!
The difference between real bird dogs and hunters is the dog
sees a Cock in the field and the hunter sees "Pheasant Under
Glass!" Yes, poorly trained, dogs will try to eat the bird, but
it's not the same meal the hunter and his family enjoy Sunday
afternoon. It's exactly the same with "Bird Dogs" and Investors.
Too many would be "Bird Dogs" and would be Investors, only see
the Cock. A skinny Cock may not look like much of a meal but
when the right cook does their thing it's wonderful. It's the
same with opportunity real estate!
Maybe I'm being too hard on people because the second hardest
thing in investment/opportunity real estate, is recognizing
opportunity! Most people will see a shinny bird where some of us
see Sunday dinner. Let me put it simply. The hunter's dog's job
is to point out the Cocks not look for dinner. The Investor's
"Bird Dog's" job is to point out troubled real estate owners,
not to judge the value of the deal!
In "One House..." I write about one deal where the people had no
equity, and only about 40 days left before they would lose the
property to their first lender. The people holding the second on
this property were ideal candidates for a short sale, so we
settled with them for about 60% of their principal investment
and none of their accrued interest. The first lender not only
waived most of their NOD charges, but allowed the buyer to
assume the loan. We did this by using a "Net Offer" option,
adding the buyer to title and refinancing the second. The
results: $10,000.00 cash to the sellers, $10,000.00 cash out
plus a $2,000.00 television to the buyer, and real equity.
That's about $30,000.00 in real equity that didn't exist 30 days
earlier. The story is in the book, what isn't in the book is the
effect of time. When we created the equity we did nothing to the
value of the property, today about five years later that a
$140,000.00 house purchased for about $135,000.00 is now worth
more than $350,000.00!
A short term "Flip" for the same client (also in "One House...")
had a Father and Daughter owning a home in foreclosure, with the
Daughter in bankruptcy. Having tried for more than two years to
sell the house through a series of realtors with no luck they
had abandoned the house and were waiting for the lender to take
it. When my client's "Bird Dog" told her about it the seller's
had no equity and had given up any hope. The lender had an FHA
loan so there was no potential for a "short sale" but we did
negociate away a lot of NOD fees, we paid the Daughter's
attorney to petition the court and got rid of all the other
liens, now we had equity. Then we refused to list the property,
but we did co-operate (paid the selling realtor half a
commission), the results my client and I made money (her check
is in the book), the seller's attorney got paid $2,000.00
($1,000.00 on his existing bill and $1,000.00 on work for us)
and the sellers got $5,000.00 cash! We created equity with a few
phone calls. Not a big deal, but we created $30,000.00 from
nothing in about 45 days. The only thing we did to the house was
to turn the power on and clean it.
You might believe these deals took some secret knowledge to do.
I saw a new TV guru this week end offering to sell you the
"SECRET" well here it is. Find someone with a problem and make
sure they are better off for having met you! Lenders only agree
to short sales when it's beneficial to them. Sellers only accept
offers they see are for their good. The courts and even the IRS
will deal when it's in their best interest. Remember it's rare
that only one person has a problem, the people doing the
foreclosure also have a problem.
Sometimes all it takes is a sympathetic ear and some empathy.
Yes some people will just hand you their equity. The same client
and I did a deal in Pahrump, NV when one of her tenants told her
she was going to walk away from her home just to get rid of it,
she even offered to pay someone to take it. We paid her. My
client made $25,000.00 in profit in 60 days. We painted the
master bedroom in that property only because we told the buyer
we were going, to before she saw it. (We sold this house four
years ago for $96,000.00, the buyer had it appraised to
refinance this month, 2-06, it is now valued at $226,000.00.)
So far we've seen "Short Sales," "negotiations," and "a
Sympathetic Ear" and "Time" used to create equity.
My last deal with this client was a more typical "Flip" it took
six months and a lot of up front cash but the client made a
$65,000.00 profit, not bad.
Recognizing opportunity is the subject of my latest book
"Flipping For Fun And Profit"
William J Archambault Jr, reii, One house at a time, Finding
and buying single family rentals, Get the money, A guide to a
successful mortgage application, Flipping for fun& profit