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This Old Crack House

From log house to farmhouse. Farmhouse to townhouse. Townhouse to apartment house. Apartment house to crack house. Crack house to our house. Our house to our home.

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Wednesday, October 08, 2008

Enquiring Minds Want to Know .......

Did we sell the house? Well, we have a strong potential buyer and I will know more in a day or two how the transaction will turn out. We will end up with either a rent to own or a land contract scenario. The process has been interesting because it didn't produce the results we were expecting but it did produce a result that we wanted. So in that effect, the concept worked. Here is what happened. I placed adds on numerous free classified ad sites for greater exposure and I designed a pull off phone number type flyer and put a few of these up wherever I could but realized that there were so many potential places to place them that I could never get to like the employee cafeteria at Wright-Patt Air Force Base or Wright State University etc. Soooo, I attached a copy of the flyer to an email and sent it to everyone on my email list who receives the neighborhood newsletter every month electronically and asked them to put the flyer up if they could. Now the fact that it read "$100 or highest best offer" got some immediate response. I got a call from an old neighbor asking about what we were doing. We sat on the roof of the "Crack House" for an hour or so while I was working on my chimney discussing financial options available and covered a few owner finance scenarios that might work for him. He reported back to me just days later that he may be able to sign a land contract with a friend of his on a duplex that he could live in while renting the other half and fixing the place up. Then, one person we know fairly well called and told me that they had placed our flyer up at work and offered to rent the place for $600 a month if we couldn't find a buyer. So effectively we had a bailout plan before we even placed the ad in the newspaper or held the open house days. We got over 40 phone calls. Most were investors looking for cheap property to fix up and rent. I suspect many of them drove by the house after I revealed the address and realized that it was truly worth more than they were willing to pay for it. What is the place worth? We bet it could appraise in the $85,000 range however, we elected to have a sale at the same moment the U.S. credit and financial markets were crumbling around us. We factored in many things. Our dream price would have been $90,000 but to get this I would have to replace the roof, replace the water heater and put in a new furnace to replace the perfectly good 1950s era gravity furnace that has worked for half a century! So I would have to spend $8,000 or so reducing our realized price to $82,000. Then, to get the best possible exposure we would have to list with a realtor in order to be on the multi-list. Upon a sale we would be expected to hand over $5000 in commission, taking us to $77,000 realized gain but this could take a year or even 18 months costing us between $5,000 and $7,500 in mortgage payments, taxes and insurance as well as the cost to heat the "Crack House" just to keep the pipes from freezing and the walls from cracking. Net gain ends up being $70,000. So we decided that if we got any offer in or around that amount it would be acceptable.
We held an open house over two days. From 10 AM to 5 PM each day. This was a huge waste of time. We should have run it from 1 PM to 5 PM because we had only 9 or 10 lookers and 5 bids. I think about all the work I have to do on the "Crack House" and I am stuck indoors on a beautiful weekend waiting for people to arrive at our door. Most of the people who showed up for the open house were walking or driving around the neighborhood, saw my signs and stopped in out of curiosity. Two left bids for the opportunity to get a house very cheaply. All bids were very low and unrealistic. On Sunday night, before calling the bidders, I called our rental offer person and asked if they would like to own the property if we could work out a land contract or rent-to-own deal. They said "Yes" and lo and behold, a $600 rent equates to a $70,000 mortgage plus taxes and insurance. There is a variable depending on what interest rate you use. We picked 5.75% as being very reasonable. Effectively this established a best offer scenario for us but since they were not a bidder on the bidding sheet, I had to follow the process that we had established. The purpose of the whole process is to establish a sales price that is agreeable to both parties. Nothing was binding until we agreed on a price, then a finance arrangement and we made it very clear to everyone that we would accept the best deal for us. The highest bid did not get above $35,000. We don't know if that was because the bidders did not understand the concept of an auction or they had no real idea what houses are worth that are ready-to-move-into quality. I called the "serious" bidders back after the bidding came to a halt and told them our best offer is a land contract for $70,000 and they have the opportunity to offer us something reasonably better. That didn't happen. So. I meet with our "buyer" later today to make sure they are happy with the place and to discuss the financial arrangements that we can fine tune and at the end of the month we can sign papers and depending on the arrangement, get them filed with the county. No muss, no fuss and we probably won't need a lawyer or have horrendous closing costs.
So we have to ask ourselves, "Did this system work." The answer is yes and no. Yes because the effective marketing brought forth a candidate who would have never considered they would be in a position to own their own house had they not called us. We were also able to explain that we could, if need be, owner finance for several years. Had we just posted a sign in the yard, this person would never had considered talking with us. Yes also in the fact that we found a serious real buyer very quickly. No in the sense that the bidding process did not establish a fair market value for the home. Of course the financial crisis did not help our situation as far as strangers were concerned and advertising at $100 attracted a whole bunch of "bottom feeders" who realized quickly that our home would be worth more than they were willing to pay. The financing thing isn't so bad because we act as the mortgage company and earn interest so after say 5 years we will have realized a real $ amount close to our dream price!
How did we get so smart? We purchased the "Crack House" in a similar manner and I would advise anyone to seek alternative financing arrangements over a traditional one any day because closing costs will eat you up! Plus, real people are easier to deal with than banks.
My next post will explain the difference between a "Rent-to-Own" and a land contract so you have a better understanding of the concepts in case you want to try what we did.

4 Comments:

At 10/08/2008 12:28 AM, Blogger Just A Girl And Her 1911 Craftsman Bungalow said...

I'm sending you good thoughts. I'm curious to see what your next big project will be after this.

 
At 10/08/2008 11:56 PM, Blogger Jennifer said...

Interesting! Congratulations on a good result regardless of how or what, though. In this market, you are very lucky!

 
At 10/09/2008 10:37 AM, Anonymous Anonymous said...

I hope it all goes smoothly. I'm excited for you and your family to finally be moving into the house you have brought back from the brink and fixed up so nicely.

My old house sat on the market for an entire year. I was BS'd by realtors who were full of crap and did virtually nothing for their potential 6K dollar cut.

In the end, I rented it out. I get $150 above my monthly mortgage payment and in 11 years the house will be paid off (by someone else). I'm thankful I bought it for $46K way back when so the house has not lost any value in this horrible market, it is currently valued at 85K, but who knows what tomorrow will bring.

 
At 10/09/2008 9:35 PM, Blogger kendra said...

Wow, I hope that works out! It sounds like an ideal situation for the current market, and I'm so glad you won't end up selling your nice house to the bottom feeders! I'm looking forward to hearing more about how it might work.

 

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