Solve problems while maximizing values

This story has some good lessons and observations that you can certainly use to take advantage of the hidden opportunities that are often in plain sight; however, most people have not been trained or instructed on how to recognize or find them.

The following true story begins with a classic log home package designed, manufactured, approved, and delivered for use in Alaska. A friend of mine, in 1996, built the house and I helped him with the foundation. This leads to our first observation in looking at this deal: if you know the full history of a property, your confidence and position in the deal can be improved.

You can start researching the property’s history and succession through county records, tax rolls, and by contacting previous owners as far back as possible. Optimally, you want to end your search by reaching out to the original owner and builder of the property.

Now back to our story. My friend had built this house himself and I knew for a fact that he is a smart perfectionist. This gave me the confidence to know that this owner-built home was a solid structure through and through, not to mention that when the energy rating, aka “blow test,” was performed, the home was so airtight (no air leaks) that it had to be artificially ventilated.

At this point, I had the following information: I know who built it, the quality of the construction, its energy rating, and its value based on what my friend had sold it to the new owners. This brings us to our next phase of the investigation, the current owners.

We now turn our attention to the current owners who are selling and the story behind them. They originally paid $159,000, which by some strange coincidence was the sale price. I’m sure if the asking price was $160,000 it would have been priced at that, but my friend made it look cheaper by keeping it below the higher $160,000 level. This is known as pricing strategy.

Our investigation of the new owners revealed that they had relocated from New Jersey and had a son. The neighbor, who is a home inspector and general contractor, tells me a few more details about the family, their habits, and the updates, improvements, and modifications that have been made to the house. Again, I’m getting good signals that the house is good, but the owners are a bit picky about their design habits and choices.

This is where opportunity begins to knock, folks. When you have people doing things that are outside of the mainstream of what most people do, you’ll notice that when it comes time to sell, many buyers are put off by a lack of conformity with the overall appearance of the home. Let me explain.

These people did the following: First, they installed a spiral staircase and painted it a purple fuchsia pink. Yuck! This was said to have only turned off more than one potential buyer. Also, the original paint had scribbled pencil and marker lines here and there, the faucets and caulking needed repair, glass was missing from one of the kitchen cabinets, the walls needed new paint, and the patio was overgrown. Along with a few other small details, this was all cosmetic, but people couldn’t miss it.

Let’s get to the real “nails in this coffin” of lost resale value. The following information is about choosing a good real estate agent who will properly handle your affairs, if in fact you cannot do it yourself, although you must be actively involved. This is where the ineptitude of this agent will seal the fate of these relocated homeowners. Let’s set the stage: We are now in 2003; our vendors are being transferred and are moving after five years. This is in line with the national average that people tend to move every five years. So along with the move, a relocation company gets involved. Here comes the bureaucracy!

Our sellers chose a local real estate agent who works half a day and delivers newspapers the other half (not too professional). So this agent registers our owners and proceeds to blow up just about everything from the day our sellers are transferred. The agent does nothing to prepare the house to show up nicely and the best thing about this was that the agent had left an inflatable monstrosity of what used to be a half deflated pool/fun center with standing water, breeding mosquitoes at the base of the front steps. What a first impression and what an easy solution!

That’s just the beginning because now our agent, by a stroke of luck, has found someone willing to pay $156,000 for this monstrosity, but the agent doesn’t investigate anything and can’t produce proper paperwork for the original well and septic approval. So the relocation company sends their own engineer to back out and he botches the deal because he doesn’t know the local protocol and doesn’t have the original documentation either. As a result, potential buyers back out and the house sits empty for another six months. Meanwhile, our poor relocated New Jersey homeowners are still paying a mortgage on this while facing leak tests for a special $10,000 septic tank that isn’t needed.

What we have now is a stigmatized vintage home and its value is plummeting, costs are rising, and the agent is completely exhausted with phone calls, septic tank manufacturers, engineers, state regulators, canceled contracts, and constantly complaining sellers. Whatever, this looks pretty grim.

Enter the white knight, that is, the educated investor. What a relief, someone who knows what to do! Watching this carnival of events unfold for a while, I decided to intervene. What finally spurred me into action was a call to my office that came up with a final game. What I mean by this is that a military officer called to ask me if he had a place that he could rent for two years. At that point, I told him that I could do it and that I would contact him.

As our friend Paul Harvey says, here’s “the rest of the story.” The first thing to do was inspect the property; the repairs were mostly cosmetic. I then went and drilled the agent for information and at this point the agent was giving me all the inside information that could legally be disclosed. I now knew that this property could be had for $137,000. Plus, you’d get a 3.5% commission and the seller would pay your closing costs! I had a solid two year tenant lined up and willing to pay $1,350.00 per month and he would pay his own utilities. Six months earlier, an appraisal of the agreement had been carried out, which had not materialized, and set the value at $160,000.00.

The only thing left to do was get the original documentation from the owner-builder that would solve the septic problem. I called him (since he lived less than a mile from his old log home) and he said, “Sure Dan, I have all the paperwork here…the current agent never asked for it!” I looked it over and this is what I had: the original design and construction study, original well and septic engineer approval, building department approval, and environmental conservation department waiver granting permission to install according to plans. This completely removed all obstacles to financing and the appraiser agreed. Problem solved in less than two hours!

Now the green light was flashing so I had the lieutenant sign a two year lease, give me a check for a month and a half rent in advance plus the last month and a half as a security deposit totaling $4,050.00. So I bought the house! I painted, cleaned, trimmed and adjusted the house in 8 days; Now it’s a beautiful show place on 1.77 acres worth $27,000 more than I paid in less than a month. Additionally, there is a positive cash flow of over $300.00 per month on top of my mortgage payment obligation and escrow.

I would also like to add that the spiral staircase is now painted white and stands as the most beautiful centerpiece in a home anyone could ask for! All he needed was a vision, some labor, and paint.

Let’s get to the highlights and take home some of the lessons from this series of events.

1. Do your research and get as much history on the property as you can.

2. Pay attention to the quality of construction and the types of materials used.

3. Use comparable sales, construction costs, recent sales prices, appraisals, existing appraisals, and take into account the cost of correcting existing defects to begin determining fair value.

4. Look for easily correctable problems that put other people off and correct them.

5. Pay attention to landscaping and the ability to improve its appearance.

6. Analyze the series of events leading up to the sale and the current position of the seller.

7. Have a plan or end game in mind for using the property once you acquire it.

8. Always try to ask for less than full sales price and be prepared to walk away if you don’t get the price and terms you think justify the purchase.

9. Stay clear of market conditions and events and be patient; these offers will come to you when you are ready to see them.

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