There are hermit souls that live withdrawn
In the place of their self-content;
There are souls like stars, that dwell apart,
In a fellowless firmament;
There are pioneer souls that blaze the paths
Where highways never ran-
But let me live by the side of the road
And be a friend to man.
Excerpt from "House By The Side of The Road" by Sam Walter Foss
This was the seller’s favorite poem. I love the message. For our various reasons, we all have tendencies to isolate ourselves. We have to make the decision to be a “friend to man.”
When you make that decision, good things start happening. This deal was one of those good things for both the seller and I. We treated each other as friends, and built a beautiful deal out of it.
How Did I Find This Deal?
This deal was actually the culmination of a series of deals. It started when I purchased four tax deeds from a seller I met on BiggerPockets.
I sold two of those to an investor who already owned a number of condos in the complex. He renovated and rented them. I actually owner financed one of them to him.
One month, when he was making his loan payment, he suggested that I buy his whole portfolio. He was looking to retire, and was beginning the process of unwinding the portfolio he’d spent years building.
I was immediately excited about the prospect, but had no idea how I would finance this transaction. Some of the properties were owned with tax title and would not be eligible for traditional financing.
I thought about it for a week, then called him and made an offer based on him holding the note for the transaction.
There was a little back on forth on the price and terms. We settled on a deal that I believe was a huge win for both parties.
We wrote a contract, but this was as close to a “hand-shake” deal as I’ve ever done. We had great communication, and both sides had mutual trust. This allowed us to go from contract to close in 21 days!
How Did I Finance This Deal?
The rule of thumb in transactions is that one side picks price, and one side picks terms. In this deal, I needed terms, so I paid a higher price than I really wanted to.
I purchased the 11 units for 400,000. The entire purchase was financed, and I will be making payments of $2,100 per month for the next 15 years.
When I was brand new to real estate, I had no idea how a transaction like this was done. If you have the right closing attorney, It’s actually very simple. You just tell him what you want to do. We just wrote it on the purchase contract. He wrote the note and mortgage
The seller had questions about what would happen if I didn’t pay. What do the legal proceedings of a foreclosure look like? Would he get the condos back? My attorney explained it straight-forwardly.
Basically, it’s the same way banks foreclose. The note holder’s attorney would submit a notice of default, and post a notice in the newspaper for 4 consecutive weeks. The properties would then be auctioned at the courthouse steps. If no one bid above the payoff amount, he would then own them again. We were advised that this process would cost roughly $5,000.
This loan will never default. But, it’s the same question I would be asking. Some day I may sell these properties the same way I bought them, and It’ll be good to know these answers!
What’s The Game Plan Going Forward?
The seller is retired! At closing, he told me it was the happiest day of his life. He’ll be receiving a direct deposit from me every month for the next 15 years.
I’m just beginning my real estate career, and I’ve got a lot of work to do.
- There is one vacant unit that needs a few repairs before renting.
- Some tenants are on month to month, so I will need to get new leases signed.
- There are a few units that are rented below market, so I’ll be raising these rents gradually.
- There a few small repairs tenants asked for while viewing the properties. I’ll complete those also.
3 Key Takeaways
- Deals lead to more deals. I can clearly trace this deal to previous deals that I started working on over a year ago. If I had never done that first deal, it would never have led to this one.
- Do deals that scare you a little and stretch your comfort zone and skill set. Buying the 4 tax deed condos was extremely scary. I did a ton of research for two weeks before proceeding. I talked to a lot of people who knew a lot more than I did about the subject. The $400,000 I borrowed for this deal was the largest loan I’ve taken out. It was also the first time I’ve bought with seller financing. The seller and I both learned a lot and had to get a little outside of our comfort zones.
- It never hurts to ask. I almost didn’t ask the seller if he would be willing to finance the transaction because I didn’t want to hear no. I worked up the courage to ask, and it led to a great deal for both sides. I doubled my rental portfolio, and the seller retired with solid passive income.