PLP-058 Foreclosure Journal: Episode 4 – A New Exit Strategy

PLP 58 | Exit Strategy

PLP 58 | Exit Strategy

 

Just when Keith thought he had it all figured out, he found a new exit strategy for the property he and his partner landed. This fourth installment of the foreclosure journal documents is about how Keith and Landon made a property more profitable than reselling it with owner finance, taking a down payment, and coming up with a note. Find out more as he walks you through how it happened.

Listen to the podcast here:

Foreclosure Journal: Episode 4 – A New Exit Strategy

Just When I Thought I Had It All Figured Out

I’ll be speaking or giving you part four of my Foreclosure Journal. I’m going to be telling you the rest of the story.

In the past three editions of the Foreclosure Journal, I’ve talked about how my partner and I got into the property. What happened? What went wrong? Hurricane Harvey. We let the guy stay for over a year with no communication from him. Ultimately, we consulted the attorney and we had him take care of the foreclosure process on our behalf. What finally happened? The foreclosure went through. Nobody bid on it because the ask was high. It didn’t make sense picking it up at the foreclosure auction for several reasons. Mostly, there wasn’t enough equity in the home. We got it back, which is fine. It’s still in bad shape, about the condition it was in when we bought it. However, we have a new exit strategy that in a perfect world, it should prove more profitable than reselling it again with owner finance and taking a down payment and then coming up with a note. What had happened was against my initial feelings and flashbacks to my landlord. We’ve turned the property into a rental. Yes, it’s true. I want to walk you through at least how I was sold. All the credit goes to my partner, Landon’s team, his office who found a new couple that has some interesting needs and there’s some synergy here with us.

Once we got the house back, Landon’s team found a new couple. I don’t know how young they are exactly but apparently, they’re new. They’re maybe divorced, having some credit issues. I’m not exactly sure. However, they run a contracting business and want to rent this house for its garage on a lease option program with it. We’ve got all the documents. We have our lease that stipulates some pretty wonderful things including inspections. We ended up trading services in lieu of a deposit. It all worked out because we found this couple. They’re going to rent it for a year. We have a contract, a lease for a year at $650 a month in rent. The security deposit normally would have been at least $650. We put it in the contract that the tenant had to have the property trashed out, the yard mowed, the three cars removed from the front yard, all the junk out of the backyard and the floor is swept before they could move in and get the keys and take possession. We were able to confirm that. They held up their end of the bargain, so now the property is not going to get letters from the city and other municipalities for various code violations. We are renting. We’re going to depreciate and take advantage of some of the depreciation on that property for this first year.

Take advantage of some of the depreciation on a property for this first year. Click To Tweet

My friend, Michael Plaks, always says you should consider converting rental properties into owner finance or seller finance properties because it is much more beneficial for you tax-wise. I’ve got to run that back down. I knew that in the back of my head that this would probably be a decent move if we can get some good renters who are serious about wanting to become owners in the next many months. We can depreciate the property lease up and I need to fact check that with my CPA because you never know these days. Every time you turn around, something’s new. I believe at least the last time I looked, we can still depreciate the property which might not be much but every little bit that goes to helping me avoid taxes, not evade them but avoid them. Avoidance is okay, remember that. I’m okay with that.

I realized I don’t have the firm numbers on this. I’ll have to go back in another episode to confirm with you these numbers. Essentially, our overhead on this property consists of taxes and insurance. It’s about $125 a month, give or take. We’re cashflowing $525 a month before taxes and repairs on a house that is worth as is probably $25,000. We could seller finance it for $35,000. If somebody went in and fixed it up, it could probably nab $60,000 to $65,000 retail after repair value, give or take. I’m still a landlord and I feel a little weird about that. I wouldn’t have done this if I didn’t have a partner who’s experienced with this type of house in this particular city in this part of Texas and whose staff manages the property and similar properties on a daily basis. We’ll see how it goes but so far, all the checks have cleared. All the signatures appear valid. We’ll have to go from there and see what happens. I’m hoping that this doesn’t end up like my last landlord adventure.

PLP 58 | Exit Strategy

Exit Strategy: Consider converting rental properties into owner finance or seller finance properties because it is much more beneficial for you tax-wise.

 

You’re probably yelling at me going, “Keith, I thought this is about private lending? Why are you becoming a landlord?” Being honest, I’m trying to tell you what has happened with the foreclosure. Not my initial exit strategy, but I’m willing to be a little more nimble on this rental. It’s a great way to get my feet back into the game. If we can turn this into lease option and seller finance, then it becomes a win-win for both Landon and I and also this couple who want to convert it not just from a shop but back into a residence. The Journal will continue on this for a little bit, but that’s the four steps that have gotten us through from the beginning to the end. The price of admission to this podcast is free. The only thing I ask is that you please go to iTunes, particularly leave a rating and review. The more of those I get, the more we can reach people like yourself who are looking for alternative ways to create wealth and not have to live with banks or Wall Street. You can also go to Google Podcast, Stitcher, SoundCloud or whatever platform you use to listen to the show.

Normally, if you’re listening on your iPhone, hit the little Podcast button. Find the Private Lender Podcast and scroll all the way down. There will be a place where you can give a star rating and a review. Please help spread the word so that others can find this and read as well. Connect with me on social media, Facebook, Instagram, Twitter, LinkedIn and BiggerPockets. Links to all of those channels can be found at PrivateLenderPodcast.com. Finally, if you want to know and learn about the Private Lender Academy whenever I do finally get it out of the workshop and into the hands of the public, please go to PrivateLenderAcademy.com and sign up to get on the waiting list. You will know more about when it launches and goes live. Thank you for reading. Please keep reaching out to me. I greatly appreciate all the feedback I’ve been receiving. Besides health and success, I wish you all a safe and prosperous private lending. I’ll catch you on the next episode.

Important Links:

 

 

Love the show? Subscribe, rate, review, and share!
Join the Private Lender Podcast community today:

About the author, Keith Baker

My ultimate goal is to create an economy for Real Estate (and other) Investors where banks are no longer needed. An economy where every day people look to each other for leverage and support. During the day I am an insurance adjuster for the oil field, where I handle millions of dollars of other people's money (OPM), and by night I invest in Real Estate and host this podcast. I hope you have an excellent experience and find real value within this website and the Private Lender Podcast. Please leave comments or submit your questions on the Contact Page.

I wish you prosperous, safe and happy lending and investing!

Thanks for listening

-k

Leave a Comment