Crazy stories about buying rental properties including photos of rotten foundations.
Imagine how hard it is to find three roommates who agree to rent your home. Typically, families with children will rent 3-bed, 2-bath homes, while single young professionals opt for 1-bed or 2-bed units. This neighborhood tends to attract young professionals who want an urban lifestyle (rather than families looking for good schools), and this gave me a bit of pause about taking on a 3-bedroom unit.
Real estate investors are used to dealing with these problems like leaking pipes, wonky foundation, electrical issues and etc. After all, the house is 101+ years old (and it’s been neglected for at least two dozen years by absentee owners). What do you expect? Real estate investors are fond of fixer-uppers, but many get scared by a bad foundation. These and other issues can be signs that you have problems and need professional assessment!
But we kept trying. Here’s my little secret: just keep trying until someone says yes. Eventually it becomes a numbers game. Never let yourself lose hope, ask enough people and one way or another someone will say yes!
The trade-off was a higher interest rate: 5.3 percent at a time when everyone else was getting approved at 4 percent. That’s our punishment for living unconventionally, I suppose. The other trade-off was that we were only approved for a $212,000 loan. Would that be enough? The house was priced at $420,000 in 2008. An investor went under contract at $380,000, but pulled out (presumably after an inspection). The seller lowered his price to $350,000. A second investor went under contract at $325,000, but pulled out. The seller lowered his price to $325,000. A third investor went under contract at $285,000, but pulled out.
By the time we spotted it, the house had sat on the market for 16 months. The owner was heading into foreclosure. He was desperate to sell. So we offered $225,000. Most of that money came from our loan, with $13,000 from our pocket. The homeowner, wanting to avoid foreclosure, agreed. So we offered $225,000 but the homeowner owed $325,000 on it. His bank would lose the $100,000 difference. Were they willing to do that?
We wrote a 24-page letter detailing all the structural deficiencies of the house, pleading a case for why a home in such bad condition should sell for a $100,000 discount. We argued that no one else would buy a house with foundational problems, and noted that the bank would collect even less for the house at a foreclosure auction. Also, including pictures. Lots and lots of pictures!
The bank said yes, We are now the proud owners of a rotting building!