INVESTOR’S CORNER: Recognizing a great deal

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Why is it so important to be able to spot a great real estate deal?  What are the negative consequences of missing one?  Allow me to share this illustration from personal experience:

Direct mail to homeowners facing foreclosure has always been one of the mainstays of my business. I got a call from a lady who was desperate to sell, and had only a couple of weeks left before the foreclosure auction

The homeowner had contacted a company from a newspaper ad months ago, before the foreclosure had even been filed.  The “investor” came out and looked at the house, ensured the homeowner that she would buy it (without putting anything in writing), and then disappeared, never to be seen or heard from again. She must not have considered it a deal.

So here we are, six months later, two weeks before the auction, and the homeowner calls me.  It was in a hot area, and was worth probably $150,000 if it got about $15,000 in repairs done.  They owed $70,000, and didn’t want any cash other than a token amount for moving expenses.

Now, we could have paid off the loan, fixed it up, put it on the market, and waited.  Instead, we chose to make the deal self-funding by selling it before the auction, using the buyer’s money to pay off the loan.

We chose to use the concept detailed in Bill Effros’s book, “How to Sell Your House in 5 Days.”  In essence, you run a newspaper ad for five days, put up a ton of signs, hold open houses Saturday and Sunday, and people leave bids with their phone numbers.  Then, Sunday at 7 p.m., you start the “round-robin” auction –  you call the lowest bidder, and ask them to top the high bid by $500, and keep this up until you get the “last man standing.”  In this case the neighbor bought it.  He probably paid more than he otherwise would have, because he wanted the house for his mom.  What he did pay was over $96,000.

So, the net profit was around $24,000, and the lady who bothered paying for an ad in the newspaper declaring “We Buy Houses” is probably still waiting for a better deal to come along.

Lou Gimbutis is director of education at the Metrolina Real Estate Investors Association, which provides education, mentoring and networking for real estate investing in the Charlotte region. He can be contacted at [email protected]. For information, visit www.MetrolinaREIA.org.