When I moved to Colorado in 2010, I set out to buy a home no different than my usual strategy of purchasing distressed properties. The only issue I had was that I was now buying for my family. We had a specific neighborhood we wanted to reside in. Unfortunately, everyone else wanted to live in the same neighborhood too. Purchasing a property at the Public Trustee Sale would still prove to be very competitive in this neighborhood. It would also mean I would need to have the money in cash. Over the years, I’ve become…particular…about spending my own money. SOOO I needed to find another way to purchase a home at a discount.
I have never been a big fan of the Short Sale. It has proven to be one of the most cumbersome real estate transactions to get through. I’v helped countless others through the process, but never opted to purchase one for myself because of all the negatives involved.
Never say never! I drove by the perfect property in the neighborhood I wanted to live in…and there it was…an eyesore from the front…but dripping with opportunity. I took the time to look up the property. It had been a bankruptcy for over two years. The auction dates kept being postponed. So I set out to find the owner and work my way through the short sale process.
They should call it a long sale really! It took a year and two months, but I was able to work the entire thing through. It probably fell apart three or four times. I kept putting it back together. In the end, it was worth it! I bought it for $375K…it is worth $670K today.
This video was tooooo long. If you skip the first 1:30 and the last 1:20, it becomes a 3.5 minute video about short sales. Sorry…I tried to trim it down, but ran into some technical difficulties. I originally filmed this three years ago…but it is still appropriate for discussions on Short Sales.
As many of you know, I have a military background. My father was enlisted in the Air Force…and later on in life, I graduated from The Air Force Academy and served honorably. I wish that we were able to give more to our men and women of service for the sacrifices they make.
I usually try to flip a property as my first option. I approached this foreclosure with the idea of flipping it until I met the occupants. When I knocked on the door, a young lady answered. I immediately noticed she had a newborn baby in her arms…maybe a month old. She also had a two year old son watching tv in the background. I found out that she was renting the place from the owners and had no idea what she was going to do once the property got foreclosed. Her husband was on active duty at Ft Carson. He was deployed in Afghanistan at the time. He had set up a rental allotment that was going to a property management company so that his wife and young kids would have nothing to worry about while he was gone. Unfortunately, the owner was not paying the mortgage. She was kind enough to let me walk through the place. The property was not in the best location, but she showed extreme pride of ownership by taking care of it so well. I knew I had to do something beyond serving my own needs.
Here is the analysis on the property:
We helped out. We bought the property for $79K. We kept the tenant in the property and continued renting for $1,100 per month. We got most of our money back out of the deal by getting a mortgage on the property. By leveraging our cash position, we only had $19,000 invested in this deal and we were cashflowing the property about $500 per month. For helping out…we made 33% on our money annually and then sold the property and made another $10,000 on our investment. Over a three year time span we made over 100% on our investment. Always have a plan B!
I have been buying distressed property for over 15 years and I am still constantly surprised at some of the deals you can find. There was nothing extraordinary about this particular project. It represents your average flip. There are a few things I noticed regarding this particular property. First, it was in a great central location in Colorado Springs. Within the neighborhood, it was on a cul-de-sac. I spoke with both neighbors and they were very nice. When I got inside, I noticed it had a great layout. It also had newer windows and a very awesome view of the mountains. It had a massive back yard. And finally, it had an unfinished basement…which is rare for a tri-level.
This is what the property looked like (for the most part) when we purchased it at the auction.
Here is the quick analysis we did and a look at the final resultsl
Again…nothing special. This is what an average deal looks like.
Foreclosures can be a very exciting and lucrative investment. Take a look at this first case study.
Foreclosures are sold every single week in Colorado by Public Trustees. There is a Public Trustee appointed for every county in the state. The list of properties for sale are posted one day before the auction. There is a mad dash to perform all of your due diligence within 24 hours. Buyer Beware! Properties are purchased for cash…no refunds…you can not afford to make any mistakes. Here is a recent property we purchased.
There a two main obstacles you must get over if you want to buy a foreclosure at the auction. The biggest obstacle for most is money. Up front cash is the only thing that counts. And there are a number of people, like myself, who make a living buying at the auction. You must bring enough to be competitive. The dream of showing up at the auction and no one else wants the property your after…it’s a pipe dream. Be prepared to compete against others. The second obstacle for most is time. In less than 24 hours, you need to analyze a list of properties. Analyze means, figure out neighborhoods, rough values, and completely understand the title. You need to understand loan priorities, liens and judgements, taxes, and assessments. Everything counts. Afterwards, you need to go see the properties with potential. In this particular example, we were unable to get inside the property because it was occupied by renters who did not answer the door. In most single family residences, this would be a major stopping point for me. Over the years, I’ve seen how many distressed families live. It’s not pretty…and in many extreme cases, it is down right sickening. What do you do when you can’t see inside a property? I ask the neighbors. You would be surprised at how much information a neighbor knows about your lifestyle. Everything checked out with the neighbors…they even invited me inside to look at their unit…a mirror image. So we took a calculated risk on bidding on this property. After you’ve done your analysis, it’s time to go to the Public Trustee to bid….and hopefully win the property.
So…based on the above analysis, you can see we have a property that has a lot of potential. Don’t ever buy a property thinking your plan A will always work. Many times, you need multiple ways of exiting out of a deal. The key is always what you purchase the property for. If there is enough equity, you’re always going to be get out clean. Want to see what the property looked like?
This one worked out really well. Great renters who are taking care of the property. We could opt to evict them, but why? They will buy down the property another $13,200 in a year (9.2% ROI in rent alone). When it comes time to sell next year, we should make a total return over 25%. Not bad for just one deal huh?
Make sure you bookmark this page as we look forward to having many interesting topics to discuss. Foreclosures continue to provide some of the most interesting stories…they are never the same and they are always interesting. This site is better for grownups who desire to make a little more income through real estate investment.