The story of quad deal #1: Ending still pending.

A little back story first.

Earlier this year I did two major things: Left my regular "day" job and started my OWN real estate investment company without my former partner. While both were scary in some ways, they were exciting and fun in many others and I've really enjoyed being my own boss. I had run the numbers before I became unemployed and knew that I could go the summer without working at all, and much longer if I could get another cashflowing property under my belt. My plan was, if things went well, to buy a quad or other multi-family building that would cash flow at least $1000 or more a month so that I could have a little more income coming in and then be able to work on other aspects of real estate with a lighter mind.

I knew I had enough money for one good subject-to transaction. I was looking for a quad (or larger if possible) that would ideally not have any immediate/large repairs, hopefully have at least a couple of current PAYING tenants, and that the seller would need no or practically no cash down from me. I had enough to pay for closing and a couple of back payments, and am perfectly willing to do minor repairs myself if needed. Yeah, I know, many people told me I was probably dreaming about nailing such a property. Who'd just sign over a quad in good shape with good cashflow potential?

So when a Realtor called me up out of the blue and told me about this really awesome quad that was bank owned and just lowered to a killer price, I was interested. I'd spent the summer looking for a multifamily building and wasn't having much luck within my parameters, so a killer REO seemed worth a look. The Realtor was right. It was an awesome deal. The previous owners had been rehabbing it and were nearing completion when I guess they ran out of steam or money or both. All the major things had already been finished, it just needed some minor stuff to be ready to rent.

I absolutely knew, without a doubt, that the numbers would qualify for a 100% hard money loan. I had the percentages and fees memorized and ran many estimates and circumstances and tried to use conservative numbers. I happily put down my $2000 earnest money deposit and after some back-and-forth on numbers I got it under contract. Although I can't qualify for a hard money loan due to not having the regular income to refinance out of it, I knew this kind of slam-dunk deal with no money down would be good enough to get a financing partner. I was right, they lined up fast.

Problem is, the 100% hard money financing didn't go quite as I expected. Turns out that even though this will be a "hold" property and not a flip, and even though it is in the cashflow's best interest to keep rehab costs down and not do any extra bells and whistles (its really in a "lower income" area, after all), the lender still requires a MUCH larger rehab budget than my contractor's estimate. Twice as much, actually. They say its to protect their investment in case they have to take the property back, but from what other people are telling me of their experiences, this 100% lender never really gives 100%, there's always some caveat that prevents it. They advertise 100% rehab loans, but everyone I know that has used them (or tried to use them) ends up actually needing cash down. So with a doubled rehab budget the numbers no longer qualify for a 100% loan, and none of my potential financing partners has the relatively small amount of cash to cover the increased budget.

So its looking more and more like the deal is dead.

But wait, its not over yet.

When I submitted the offer I was in a hurry and went online to get a quick pre-approval letter from an online bank late at night. I just needed something to lock up the deal fast, other offers were coming in. Now the bank that owns the quad is demanding to see a denial letter from this online bank that I was preapproved with in order to let me out of the contract with my $2000 earnest money. Problem is, I can't get a response from the supposed "bank" that I got the preapproval from, so I can't seem to get a denial letter. My $2000 may be going down the drain, and what's worse the Realtor that I was working with doesn't seem to care. In retrospect, I probably should have used my own agent rather than the listing one so that my own interest was better protected.

And Murphy still wasn't done yet.

The worst part is that during all this, I actually found the deal that I'd been waiting for all summer. A man called me off of a mailer I sent and said he had two quads that he was getting behind on payments with and he was ready to walk away. SCORE!

Oh, wait, some of my meager amount of money meant for just this deal was already tied up in the other REO quad. Major Bummer.

One of the two quads he owns turned out to fit all my criteria, so after some thought and consideration it is now under contract with me and a new partner (see yesterday's post) to make up for the fact that I am lower on funds than I should be.

I could lament about the fact that I should have stuck to my plan and waited for the right quad to come my way, but I still believe the first REO quad is an incredible deal and I don't regret pursuing it. I actually still want it, but am running out of ideas to get to the closing table. If I loose my $2000, I'll only regret rushing and not using a more legitimate bank's preapproval letter!!!

So, please wish me luck in getting out of the contract with my money. As an unemployed person I really need to keep every dollar I have, I have no way to make it back! Or contact me if you want to buy a quad with minimal repairs needed at a great price in Richmond, VA and can either finance it yourself or have good credit and good income and can bring a little cash to the hard money closing table.

The ending isn't written in stone yet, but Saturday is the start of our big vacation of the year and I'd sure like to go without a stressed out mind and heavy heart.