To do any type of purchase successfully, you have to line up your financing.
A few years ago, two young men called me, knowing that I buy property. They had
entered into a contract to acquire a rundown multiunit property in a very good
area of Chicago known as Lincoln Park/Depaul. They know that the property was
going into foreclosure (that is, the bank or mortgage company was going to sell
because the owner wasn't making his mortgage payments), and they knew that there
was value in real estate.
They told me that they has contracted to purchase this
piece of property and would be happy to sell it - as long as I could move
quickly and close the sale in less than two weeks. Something there didn't seems
right to me. In a conventional purchase, the buyer requires more time than that
to inspect the property and to get a mortgage loan.
The truth of matter was they these two young men, who just starting a real
estate career, hasn't understood how critical it was to have their financing
lined up ahead of time. They came to me knowing that if they didn't sell the
property or flip the contract, they were going to lose their earnest money (money
they give to seller as good faith that they would buy the property). They didn't
have the money to close the deal. Fortunately for them, I had immediate
financing available and was able to give them a profit for other contract when I stepped in and bought the building, I renovated the property and kept it as
rental building for four years. At that point, i made the building a condo.
The economics of the deal were as follows:
1. The two young men has put the property under contractor to purchase it for
185,000.
2. The man who owned the property owed 150,000 on it. Instead of losing the
property to the bank, he was going to walk away, after expense and paying his
back taxes, with approximately $20,000
3. I paid the two sellers $205,000, so they earned $20,000 on their flip of
the contractor.
4. I renovated the property , invested around $200,000 into the property, and
let the renters carry the property. (that means that their rent paid for my
mortgage)
5. I turned the property into a condo and sold four units at an average value
of $225,000 each.
