Is a $100 Investment Home a Good Deal?Posted on August 30, 2011 by
Earlier this year, I wrote a column about a three-bedroom, two-bath investment home we bought for $101 (see “How to Buy a Home for $101 – REALLY!!!”). Needless to say, that column generated a lot of comments like: Holy Cow! Wow! Unbelievable! And, of course: You’re full of #*%@!
A few days ago, while speaking to a group of real estate investors in Gwinnett County, Georgia, I asked the question: Is a $100 investment home a good deal? Most folks shouted, “Yes!” A few shouted, “No!” The smart ones said: “It depends.”
Here’s one of the deals I presented to the group. You decide whether this deal – a home you can buy for $100 – is good or not.
A homeowner called saying she needed to sell quickly. She had moved out and wanted to get the monthly payments off her back. The home was in a mobile home park in the Acworth, Georgia area.
The seller said it was a three-bedroom, two-bath manufactured home that was in pretty good condition. The home just needed some minor fix-up work.
What would you do if you got this call? Would you ask the seller lots of qualifying questions? Not me. When a seller calls, I ask four questions: 1) What’s your name? 2) What’s your phone number? 3) What’s your address? 4) When do you want to get together? That’s it.
I believe that a real estate investor’s job is to get face-to-face with as many sellers as possible. The best deals are structured when you fully understand the seller’s situation. Remember: WHAT a seller says isn’t nearly as important as HOW he says it! Being face-to-face with a seller is the key.
When I arrived at the seller’s home and got a quick tour, I asked the seller how much she was asking. She said she wanted $2,000. After a little – very little – back and forth, she agreed to sell me her home for $100.
Wow! I had the chance to buy my second investment home of the year for $100. So did I do the deal? No way! If I had agreed to the seller’s $100 asking price, I would have immediately lost $5,000!!!
You’re probably wondering how it’s possible to buy a home for $100 and immediately lose $5,000. Let me explain. What the owner called, “pretty good condition,” I’d call, “Oh my God! You LIVED here?” The ceiling had about 127 leaks. Mold and rot was everywhere. The stench was nauseating. I’m sure if I had stayed in the house another five minutes, I would have gotten leprosy!
Rehabbing the property would have cost a minimum of $8,000. Once the $8,000 rehab was done, I would own a $3,000 trailer. This would give me a net loss of $5,000.
So remember, when you’re looking at deals, the answer to the question, “Is this a good deal?” is, “It depends.”