Let me introduce you to E Simpson Ave, a single-family home in Fresno, California. E Simpson has 1048 square feet, 2 bedrooms, and 1 bathroom. I found this property off-market, and it was occupied by the owner when I found it.
THE FIND
This deal, like any other good deal out there, took some serious work to find. I was targeting distressed homeowners in Fresno County - people who were about to lose their homes. In one week, I called 472 of these people and knocked on around 30 of their doors before I got into contact with this particular seller.
When I first made the phone call for E Simpson, the person who answered was not the actual homeowner. He was actually the owner’s significant other, which I found out through asking questions. He told me that he and his partner were busy at the time, and asked me to call back another time.
So, that’s exactly what I did. I called him every day for about a week. With the first 6 calls, I was sent to voicemail, and I left one every time. He finally answered on that seventh call and I managed to build enough rapport with him through our phone conversation that he invited me to meet him at the home.
We scheduled a day and time to meet at the home so I could meet his partner, the homeowner. I showed up at the time we scheduled, but the owner wasn’t there - only the partner. And instead of getting upset that the owner wasn’t there as promised, I saw the situation as an opportunity to connect with the partner.
We ended up talking for about 1-2 hours right outside his front door. We talked about everything and anything, EXCEPT about selling the home. I talked to him as I would’ve talked to any stranger I met at a coffee shop. I was genuinely curious to learn about him as a person, and asked thoughtful questions as a result of that curiosity. During our talk, he mentioned that he had three other investors stop by the home before me, and he turned ALL of them away because he felt like they were sharks who were just trying to take advantage of their situation. He trusted me enough not to turn me away, because he knew I genuinely wanted to help with their situation.
So, we scheduled another time for me to come to the home, and he promised that the owner would be there too.
I came to the home again to meet up with the owner and his partner - this time with one of my mentors, Chris. The owner gave a tour of the home to us, and Chris was able to help me gauge the amount of rehab work that needed to be done.
THE NEGOTIATION
During the walkthrough, we asked the owner questions to get the most accurate idea of the home’s condition and his overall situation. I quickly found out that the owner had SIXTEEN puppies at the home, and that they were bottle feeding them. When I asked why they bottle-fed them, they told me it was because they could not afford to buy dog food for all of them.
At the end of the tour, we asked the owner what he wanted for the home. Eventually told us that he understood we were investors who needed to make a profit, and that he would need an offer of over $100,000 to sell the property. He was well aware that his home was worth $134,000 as is, since he had the home appraised not long ago. Even with that information, he was willing to sell it for less because he was in a distressed situation and because of the rapport I had built with him and his partner. However, I could tell by his nonverbal signals that he was very hesitant about selling the home. He had an enormous amount of pride in the home, as it was the home he grew up in as a child. I understood that part of him wanted to find a way to keep the home.
Once he said he needed at least $100,000 for the home, I left the house to do 3 things:
CRUNCH THE NUMBERS
I needed to analyze the deal to find the price where it made sense to purchase the home based on the information I had.
BUY DOG FOOD
After I crunched the numbers in the office, I went to the store to buy dog food and brought it to the owner and his partner so they could feed their puppies. I wanted to show them that I actually cared about them and their situation, because I did. Kindness has always gone a long way for me, and this situation was no different. Once I brought them dog food, the owner was much more willing to discuss selling his home to me. I spent about $5 for the dog food, but that small gesture was a MAJOR factor in making this deal happen. Without it, I don’t think he would have sold his home at all.
COLLECT MORE INFORMATION
I also asked a title officer to check if there were any open deeds of trust or federal liens on the property, as that could cause issues if there were any. He confirmed that there were no open deeds of trust or federal liens on the home. However, he told me that there was leased solar on the home and around $5,500 of delinquent property taxes, which I already knew by asking the seller questions during our walkthrough.
My title officer provided a document showing which company the solar was leased through, so I called them to get the solar lease. I needed to see the lease before making an offer on the home because it’s the document that determines the options for the solar panels when the home is sold. I did NOT want to take over the solar lease payments, so I wanted to find out what options were available if the home were to be sold.
After many calls between the solar company and the seller, I finally convinced the solar company to email me the seller’s solar lease. It was a 27 page lease, and I read through it several times to make sure I knew exactly what I was walking into. According to that lease, the seller had four options for the solar panels at the time of a home sale.
Of those options, I was only happy with two of them. One option was for the seller to take the panels with him to the home he moved to. The other option was for him to pre-pay the entire solar lease, keep the panels on the home, and have the new buyer assume the solar lease but without the payment obligation.
Once I gathered as much information as I could about the home, I verbally offered $87,500 to him, and we eventually settled at $90,000 after several phone calls. Remember, he initially told me he needed an offer of over $100,000 in order to sell the home.
When I came to the home to have him sign my offer, I presented the terms so we could iron out any differences. It was a $90,000 offer as we discussed, and I gave him the option to either take the solar panels with him or pre-pay the lease. He wanted to take the panels with him, which was perfectly fine. However, I made sure to clarify that if he was unable to take the solar panels with him for whatever reason, he would need to pre-pay the solar lease. I also wrote into the offer that he is the one responsible for paying his delinquent property taxes (around $5,500 of taxes).
The seller was happy with these terms overall, but there were two more things he needed in order to accept the offer.
MORE TIME Under the terms of the purchase agreement I created, the seller was to be out of the home by the time escrow closed. I initially offered to close in 10 days, but he needed more time to move out. It was a reasonable request, so I revised the contract to make it a 30+ day escrow.
MONEY He also needed money because he did not have the funds in order to move. He wanted to be paid part of the purchase price before the close of escrow.
He initially asked me if he could be paid $25,000 before the closing date to help him move out. So, I asked what exactly he needed the funds for. I wanted to fully understand his situation and his perspective before I negotiated with him. He told me he needed these funds to:
Get his sixteen dogs fixed with shots and donated to a no-kill shelter
Catch up on his bills
Buy groceries so he can make ends meet during escrow
Put his belongings in storage
Pay for the security deposit and first-month's rent for the home he is moving to
When I did the math, it really seemed like he needed closer to $10,000 instead of $25,000. I let him know right away that I would be able to help, but probably not give him the full $25,000. I talked to another one of my mentors, Terance, and he also thought $10,000 was a fair amount to give the seller - but in increments. He suggested that the seller be given one-third of the $10,000, and then he would need to show progress of his move-out in order to get the next payment.
So, that’s what I offered to the seller in writing. Here were the basic terms of the revised offer:
$90,000 Purchase Price
Seller to take the solar panels with him to the home he moves to, OR seller to pre-pay the entire solar lease
Seller to pay off all his delinquent taxes (around $5,500)
Seller to receive $10,000 before close of escrow
Escrow to last a little over 30 days so the owner has time to move out
I drove over to the home to discuss these terms with the seller and to see if he was happy with them. He was, and signed the purchase agreement. We had a deal.
THE ASSIGNMENT
Initially, the plan was to close the deal, rehab the home, and sell it for a profit. However, I looked at the numbers and saw that a profit of $40,000-$45,000 could be made by flipping the home, after a time frame of 4-6 months - maybe longer. Keep in mind, this profit is not guaranteed. During a rehab, there are so many unknown factors that can and WILL pop up. And each factor will eat into the projected profit.
I also realized that I negotiated this deal extremely well, which gave me options. One option was to wholesale the home, which basically means selling the home at a higher price without doing anything to it. You really are only able to do this when you can find and negotiate a good deal. Here’s what went through my head.
I’m under contract to buy the home at $90,000. As is, the home is worth $134,000. I bet I could sell this thing to another investor for $120,000, so that they still have room to make a profit when they flip it themselves. That’s a $30,000 profit without the hassle of a rehab.
By weighing my options, the question became, “Would you rather have an uncertain $40,000 profit in 6 months, or a guaranteed $30,000 profit within a month?”
To me, the quick $30,000 profit sounded more appealing. So, I chose that option.
The day after I worked through these options, I ran into another realtor who asked me if I had any off-market investment properties for sale. I told her about this Simpson home, and she had a client who would buy it for $120,000. However, a week went by and her buyer ended up backing out.
Now, I had about two weeks left and needed to find another buyer ASAP, or else this property would end up being a flip project instead of a wholesale deal. So, I emailed over 240 realtors in the area, and had multiple interested investors. There was one person who seemed to be a more serious investor than the others. He offered the $120,000 I was asking for, said he would close on the date I needed it to close, and agreed to pay the initial $10,000 to the seller prior to the close of escrow. He signed the assignment contract the next day.
I had successfully orchestrated this deal and it was a great feeling. I found it, negotiated it, got it under contract, found a new buyer to take over that contract, and managed the escrow to make sure it didn’t fall apart (which it almost did multiple times for various reasons).
This deal would not have happened without the guidance of my mentors Chris and Terance. Thank you both.
THE NUMBERS
Original Purchase Price = $90,000
Assigned Price = $120,000
Home Value in Current Condition = $134,000
After Repair Value (ARV) = $160,000
Delinquent Property Taxes = $5,500
Solar Lease Payoff = $20,000
Investment = $5
Profit = $30,000
THE LESSONS
I learned so much with this deal. Here are three lessons I want to share with you so that you are better prepared for your next deal.
BE KIND & CURIOUS
This deal taught me that being kind and thoughtful, even in business, makes the world of a difference. Those first two phone calls I had with the owner’s partner started it all. I was able to build rapport with him because I smiled on the phone, actively listened to him, and asked thoughtful questions as a result of listening intently. Those phone calls led to our first in-person conversation, and if I had not spent the time developing that relationship, I never would have been able to meet the homeowner.
The biggest difference maker, in my opinion, was buying the dog food for their puppies. It was a small, thoughtful gesture that showed the owner that we were on the same side. I wanted to find the best solution for his situation, and after I did this, he knew it too. I truly believe that without this small gesture, this deal would not have happened.
NEGOTIATION IS EVERYTHING
I learned that everything is negotiable, at all times. You won’t know what you can get if you don’t ask. And the biggest part of negotiating is listening. If you actually listen to understand, instead of listening to respond, you will learn so much. With this deal, the seller initially told me he wouldn’t sell the home for anything under $100,000. But I listened carefully. Even though he verbally communicated this, he non-verbally communicated that he would be willing to accept less, based on his confidence and wording.
Negotiating is all about gathering as much information as you can. And you do that by asking questions, which brings me to the next lesson.
ASK QUESTIONS
Asking questions is essential to any deal. Questions lead to more information, and you want to get as much information as you can before making a decision. There were a lot of decisions that were made throughout this deal, and I wouldn’t have been able to decide correctly without asking questions first.
My biggest tip to asking good questions is to be genuinely curious and to listen attentively. Every time I asked a question during this deal, I learned something new. And some of those answers had a significant impact on the outcome of the deal.
If you ever come across any deals, or if you or someone you know is looking to buy or sell a home, please contact me. I would be more than happy to chat.
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Justin Yurong