When making a long-term investment real estate, determine your strategy, formulate a plan, and stick to it!
I had the good fortune to meet my client, Jan, randomly on the street one day. I was with my investment partner looking at a house that was scheduled for a probate auction. We hung around outside discussing the property for a while when 2 gentlemen walked up and began eyeing the probate property. We struck up a conversation and found out that Jan and his friend lived nearby, and Jan was looking for a home in the area for a long-term investment with rent potential due to its proximity to USC.
Being a fellow Trojan and local myself, I know the area very well and offered Jan my card. To my delight, he called me the next week and we began a property search in earnest.
Jan had a tight budget, particularly for the area, with the additional challenge of competing with cash buyers and big money investors. Development has been spreading, radiating from the University, and prices have been climbing rapidly. The new business model in this neighborhood is tearing down the dilapidated 2- and 3-bedroom homes to make way for modern, luxury-style apartment units. Those with prime real estate near the University center are not likely to part with it any time soon. Inventory in the area is notoriously low and houses don’t sit on the market long. We had a challenge on our hands.
Our first accepted offer was for a small 2-bedroom home within walking distance to the University. The price was excellent, primarily due it’s undersized lot. The inspection came back good, but Jan was concerned about the lack of outdoor area and the inability to make any significant improvements or additions. In the end, we didn’t have to decide as the sellers uncovered a complication with their loan, and escrow was cancelled so they could sort things out with their lender.
We only saw a handful of houses in the coming months; anything that was within Jan’s price range. It’s a waste of time and will only lead to disappointment if you start looking at homes beyond your financial limit. Even though the median market price was out of range, we were determined to find a solid investment within Jan’s budget. We must have made a half dozen offers, always being outbid by another buyer.
There was one house that kept popping up. It was out of Jan’s price range, but it had been sitting on the market for months without much interest. It was a Fannie Mae owned property, and they were allowing owner-occupants the first shot at purchasing. The pictures were unimpressive, and the house looked like it had a quick cosmetic facelift (we all know how those go!). Jan wasn’t particularly interested, but I mentioned they would probably be willing to negotiate on the price since it hasn’t had any offers, and since we hadn’t seen anything remotely viable in a couple weeks, we decided to check it out.
The day we visited the property, there was a HUGE price drop on the listing. That was good news for us – they were ready to sell – but also presented a risk in case the new price attracted new buyers.
The property itself was better than we had anticipated. There are some awkward things about the layout, but most everything is an easy fix, and the rest of the house looked brand-new. But even with the price reduction, it was slightly out of Jan’s price range.
Our initial offer was rejected and countered. We were also informed that they received an all-cash offer that was higher than ours. We negotiated a bit more and submitted a second offer. OFFER ACCEPTED! Even though we were still slightly below the cash offer, because Jan was willing to owner-occupy, the bank took Jan’s offer instead. This is one example of why it’s important to understand a seller’s motivation.
Getting our offer accepted was just the first step. Inspection and loan approval are probably the two most important tasks for the homebuyer.
The first stop was the Los Angeles Department of Building and Safety. We were interested to see if permits were on file for the remodeling. Los Angeles is full homes with un-permitted additions and repairs made by homeowners. For “flipped” properties, a lack of permits is usually a sign a low-quality workmanship and potential code violations.
Our investigation revealed the house had recently been consumed by a fire. The good news was that the insurance company rebuilt the home from the ground-up, including a new foundation, new framing, new roof, new flooring, the works! The work was permitted, inspected, and approved.
The physical inspection was a little tricky. Bank-owned properties usually do not have utilities connected. We still performed a full inspection with the help of a portable generator, a hose, and an expert.
Find out more about how to perform an inspection without utilities
Jan was satisfied with the results of the inspection and due diligence, and was ready to sign off on the inspection contingency. Only the loan was left.
Jan was working with a great loan officer who worked quickly to review Jan’s file, initiate the appraisal, and get everything into underwriting. Failing to get loan approval is the most common way home sales fall through. At some point, all the other work is done and it’s time to just wait for the call from your lender.
After just 30 days, the loan was approved and Jan was signing papers on his new investment! He has a lot of ideas for the home to make it more inviting and practical. Plant life and outdoor space are a big part of his vision, along with some other cosmetic updates.
The property seems to be a great fit for Jan. It is close to the University, has a fair number of rooms, and most importantly, has the potential for growth.
Congratulations on your new home, Jan!
For a virtual tour of this home, visit: https://www.facebook.com/myCAREagent/videos
Congratulations to Jan for bagging his dream house! The way I see it, the trick to a successful real estate sale is meeting either the seller or the buyer half-way. If their needs are both met, they can smile, shake hands and seal the deal. It’s precisely why buyers need to have a clear idea of the type of home they want and how to acquire it, while sellers have to set their standards when it comes to entertaining buyers. When both sides are happy, then it’s a win-win situation.
There are many people out there who really like doing what they do and they really know how to do them and seems like the guy you just met out the street is one of those people, indeed. I’d really like to make some future plans for my upcoming purchases as well, that’s such a nice thing to do. Congratz to Jan!
Congrats, Jan! This is a great anecdote and a great account of how the process should go. Listening to the client’s needs and what they are looking for is a bigger part of selling than most people realize. It does take a lot of looking and a lot of trial and error by both parties, but it seems that everyone was satisfied with the purchase in the end. Awesome!
Good to see that message, aha’
Congrats to Jan for getting the home! He’s made a good investments snatching this place up. It must have been in his fate since the price dropped when you two were ready to make an offer. What happened to that all-cash offer though? Did the owner decide it wasn’t a good idea?
The home was owned by Fannie Mae, which prioritizes first-time homebuyers and owner-occupants over investors. In this case, they were willing to take a slightly lower offer so the home would go to someone who would live in it rather than someone who was only going to rent it out or re-sell it.
Well, good for Jan. I’m surprised that people wouldn’t attempt to make a profit instead.
True thing mate.
This place looks quite nice! Not to mention, it sounds like he got it for a good price. Lucky him! Its hard to find place that are decently priced and looks as good!
I remember I always got suspicious of the bank-owned homes that did have the utilities hooked up. I mean I get it, but I am just that skeptical and cynical person so it always comes down to someone trying to get the better of me. It does highlight how important the inspection is, though, and it can be tricky and you must be diligent, as it sounds you were.
I don’t understand your suspicion. Isn’t it good if the utilities are still hooked up in a home?
I think he’s talking about the debts you’ll have to pay for the time the house lasted without an owner, I guess.
I thought that you don’t pay for those costs since you’re not the owner during that period?
I understand, but it all has to be sorted out by the owner and the buyer themselves, it’s kind of a deal, I guess.
Wow, this really nice pretty place. He must be got it for the best price. It is very hard to find a place that meets your needs with less price. He can earn a lot of profit by reselling it. Congratulation. Nice strategies.
It is so stressful buying real estate! Especially when you’re up against people who have more resources than you. It is true that it matters to some sellers how the new buyer is going to treat the property they’ve grown to love. My boyfriend made an offer to buy a bar/restaurant that was over 100 years old. He brought me in to meet the owners he said, to “charm,” them and reassure them that the business will be in the hands of someone who loves it as much as they did. We, too were up against all cash offers and yet after the meeting the owners were willing to finance the whole thing themselves after I impressed them with my knowledge of the history of the property and willingness to apply for a historical designation.
Jan is lucky to get that house. He needed a house near university and it has the option to make changes and improvements in the house. I hope to see in the future what will be the look of Jan’s house in the future. It must be wonderful to decorate its front porch.
What a coincidence was it for you guys to meet that way, and that was a really nice place he got at a good price too. Not only was it convenient because of its proximity to the university, its also a pretty good investment because of its location. Although it did took a while for you to finally get this house because of the bank and the loan, I think its pretty much worth it. Cheers!
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