It’s Halloween, time for those scary stories to resurface. In this episode, Scott Carson shares some of the scariest and grossest notes and real estate deals that he has experienced in his fifteen years as a note and real estate investor. Some of these deals will send shivers down your spine and even make you think twice about being involved in real estate. Learning lessons from each experience, Scott proves that often, the most complex or grossest deals are the most productive money-wise and experience-wise.
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Halloween Episode: Scary Note Deals
Skeletons In The Closet
We’re going to label this episode, The Scary Note Stories. As we are around Halloween, I know many people love to discuss that and what’s going on, get dressed up and decorate their houses and wear costumes and stuff like that. I thought I’d take the time here in this episode to share some of the scary note stories that have happened with some of the deals that we’ve done. Some of the deals that will make you run, you go scared as it was broken into and I’ve been shot at before up in Gary. I thought I’d talk about it. Some of the deals that we’ve done over the last several years have turned out going to be scary. The first one is a note deal that we bought in Dayton, Ohio. This goes back about a few years ago. In Dayton, Ohio, we picked up this note as part of a portfolio.
When we value a portfolio, you ranked them basically the highest value down to the lowest value. This was one at the bottoms of the barrel drags. When I say a few years ago, the market was a different place than it is. Dayton is one of the cheaper markets being buying assets in real estate. This asset, we picked it up for $4,000. It was maybe worth $10,000 to $15,000. We finally get around. We’re working through it and we send a door knocker reaches out to the borrower. The borrower hadn’t responded. When we bought the note, they had not made a payment in a few years. We bought the note cheap. We’re going around door knocking servicing, nothing there. When the door knocker showed up, there was a pile of mail and newspapers at the house. When you see that, what’s that tell you? That’s a sign that a house is vacant. Nobody’s there. Nobody’s picking up the mail. Nobody’s turning off the newspaper. The power and the light on the front was still on. The power is still being paid by somebody.
The door knocker showed up twice, knocks and no response from any of the borrower. The next-door neighbor tells us that nobody has been at the house for a couple of years. We go ahead and I sent a locksmith out to meet my realtor. I said, “Let’s go ahead. They’re not there. We’re going to winterize the property and protect our investment.” They opened the door, break the lock and go to replace the lock in the house. As the realtor said, “It looked like somebody had been living here but had not been there forever.” There’s still furniture in the house. There are still stuff in places, but it had a funky smell to it. Lo and behold, she goes into the bedroom and has opened up the closets and finds the borrower in the closet hanged.
Crumpled on the floor in the closet. He’d hung himself in the closet. Eventually, over time a couple of years goes by, what’s going to happen? You’re going to decompose and the skeletons are going to fall on the ground. Let say she was pretty scared. She didn’t want to go back to the house later on. We ended up selling my house to a local investor who I believe turned it into a rental. That was a little bit of an interesting thing. Luckily, we bought it cheap enough. We did disclose. It made for an interesting story in buying that asset and selling the asset. We sold to another investor so we didn’t sell it to a mom and pop coming in. I don’t know if that place is haunted.
It’s a scary one. That’s got to be sad if somebody takes their life. This happens probably more than you would expect. People passing away in a house. People dying. People get old, but this guy was in his 40s. For him to hang himself was sad because he was still living in a house and didn’t made a payment. They’re trying to go back and figure out. They figured he’d been in there well over a year being in the house. He’d set up his utilities, at least the power anyway on auto-draft. That was why we still get paying. When we call it say, “No, we’re still showing payments.” He must have been set up on ACH, Automatic Clearing House. He was so either still been withdrawing money from his account, but to think about how sad of being no family, no friends, even the neighbors check in on you.
Raining Cockroaches At The Worst House
They said that the guy kept himself pretty quiet and didn’t do much. That was probably the scary of the scariest that I wasn’t there for. Another deal that makes my skin crawl thinking about this. This is a property in Salt Lake City, Utah that I was working with a couple of investors in that neck of the woods. I spent some time up there. We found this property and he had a lot of work. It was pretty trashy. A lot of stuff that was still in it. A hoarder lived in it. It was full of trash and junk. It took five dumpsters of hauling crap out of this house.
We try to get the junk guys to come to help out and the junk guys refused to haul the stuff off because it was such roach infestation. It was so bad. We’re helping out with this. I remember getting into the suit, literally cover yourself in a suit. One of those zip-up painter suits because we didn’t want to be around it and stunk to high heaven. We finally cleared everything out. We go to knock out this wall that’s there but not a retaining wall. I remember taking the sledgehammer. I’m slamming the doorway. When I hit the wall and my sledgehammer goes through it.
What happens is it started raining down cockroaches on me. Luckily, I was wearing a wetsuit. It’s one of the most disgusting things. The other investor went in the corner and vomited. She’s like, “It was so good you did it, but it was nasty.” It was a horrible house. We ended up clearing it all the way down to the studs and removing the carpet up and all the stuff. We sold it and made some nice money. We had to do the full rehab on it because people came in. First of all, the neighborhood was so excited to see this house get cleaned up.
It was the blight in the neighbors, the ugliest house in a nice neighborhood. The neighbors were coming out. We ended up selling it before we finished with it and still made a nice profit on it. Before we put the carpet, the final paint and appliances, we had it sold. We wanted to buy it that bad and then they wanted to finish it out by putting their stuff into it. That worked out well for us. To get financing, we had to put appliances, but the minute it closed, we pulled our appliances out. They went and put their own appliances in and they finished it up. It was pretty cool that way to get things done. That was a house that we picked up for $65,000. We put about $35,000.
Poop And Piss Is Not Always The Sell Of Money
We’re in for $100,000. It was worth about $175,000. We end up selling it at $150,000. We had a nice profit and split it in two ways between me and the other investors on that stuff. It’s still the worst house. I can still remember. It makes my skin crawl feeling about the horror of that. It’s not a fun time. Literally, as soon as I hit that wall, I made the door and head out of that house. We all have our first deals. That’s one of the things. With this next story that I want to share with you guys is that many of us are going to workshops when we’re brand new. We’re reading or going to networking events. We’re going to conferences or expos. You’re going and learning from people on what to do, what not to do.
Thinking back to 2005 to 2006, like many people, when you go to an investment club or go out to your first expo, they tell you what to do about foreclosures or pulling distressed houses and things like that. We bought a foreclosure list. I printed up some letters to send out. At the same time, I was running the mortgage company as well. This goes back to when World Savings was around. This was a bank that was doing mortgages for people about 30 different states. Eventually they got bought by Wachovia and Wachovia got bought into Wells Fargo. One of the things that I would do as a mortgage broker is I would pull a list of people that had purchased houses or deeds that had been filed five years previously. Why five years? If they filed five years ago, probably within the time they hadn’t refinanced. It probably had a little bit of equity values increasing a little bit. That was the play we did it. It worked well.
It’s a great tool to get refinances into our mortgage pipeline. Sending out letters, offered up people. What I did with World Savings is I could do a very streamlined mortgage. That’s what I did. I pulled lists up on the World Savings. We’re good clients with them. I can streamline my mortgage and make some extra points. That’s what I did. I sent letters out to World Savings clients. I also sent letters out of the foreclosure list. I sent blank letters. It was 100 to 200 letters at a time. I can remember printing letters off, stamping them, sending them all out. One of the things I used to do is I put my smiling face at the bottom of my foreclosure letter saying, “I put my picture on the bottom so you know I’m a real person with real solutions.”
I think that adds value especially if you’re going to meet with somebody or somebody to call you up. They like having a face. A face to a name is always a good thing. Why would put the same picture on my signature that I sent out to the mortgage leads? Lo and behold, I get a phone call literally four days after we dropped the first 50 letters up for foreclosures. It pops up this Walmart payphone on my caller ID on my office line at the house. I’m all excited because the only person that was calling out was telemarketers or leads.
I answered the phone and when he says, “Is this Scott Carson?” I’m like, “Yes, it is.” She’s like, “Can you come over and see me? I got your letter and I could use your help in my house.” I’m like, “Yes, what’s the address?” She’s like “207 Sil Cove. When you come here, I need you to go and ring the doorbell and go standby the garage.” I’m like, “Why?” She like, “I have some dogs and they bark. What I’ll do is I’ll meet you through the garage.” I’m like, “That’s fine. It sounds good.” I hung up. It’s 1:00 on a Sunday and what do I do? I jump onto my accounting records. I’m looking at it and it’s a four-bedroom, three baths, 2,000-square foot, two-story house. At least a quarter if not a half-acre fenced in backyard at the end of the cul-de-sac. I was living in round rock at the time. I was like, “This looks pretty exciting.” I could see that World Savings was the lender on it with a first and a second mortgage. I get ready. I get my truck. I grabbed my forms, my due diligence checklist when you’re looking at an asset.
I’m like, “This is going to work.” I drive over at the time and she’s like, “This actually works.” We’re both tickled to death. I drove over. Sure enough, I’m looking two-story like a Kaufman and Broad house. If you don’t know Kaufman and Broad, they’re KB Builders and they build a big square house. It’s literally four square walls. The appraiser says, “The roof looks okay. The neighborhood is good.” There’s an older car in the driveway. Older cars are late model. Sure enough, I ring the doorbell. It’s been icy that weekend so there’s ice on the ground. It had been raining and suddenly I hear dogs barking.
I decided like, “Dogs barking. That’s okay. Let me go by and knock on the door as she said.” After I knock the door, I’ll go stay in the garage. I did that. I’m standing there and suddenly I see the garage door opening up. It’s like something out of a movie. It was cold outside and inside as it’s going up, I see the walls of the garage are these bookshelves and all these love stories, paperbacks. There are black hefty cinch sacks everywhere in the garage. There’s this car in here. There’s a lot of like dog poop I can see is moving up. As it gets all the way top its dark out steps, this lady who’s maybe five-foot-tall and she’s about as wide as she was tall, she said, “Are you, Scott?” I’m like, “Yes, I am.” She’s like, “We should talk for a minute.” I said, “I need to go in before I can help you. I need to go and see what the condition of the house is.” She is hesitant to let me in. She says, “Okay.” She turns around and walks in and her pants were split smack dam down in the middle. Luckily, she was wearing underwear, but as we’re walking, this wave hits me of trash and nastiness. I’m like, “This stinks.”
We open up the door in the garage and went into the house. I can literally still smell it. It’s funny how your memory is such a strong reminder and your senses kick in. There are a bathroom and a half bath right off the kitchen. She goes, “This is the half bath.” I opened the door and it’s nasty. She told me outside that she had not had the water on in four months in the house. She was driving without a license. She had a couple of warrants out. She’d been arrested without a license. It was a big soft story, “I used to have four houses and lost some inheritance. My roommate stole money from me and I was doing drugs and got arrested, lost a lot of it and some other thing.” What was sad is this horrible stench. They go beyond the first and half bath. The toilet had no water in four months, but it was full of poop. She’d been wiping her butt and putting the dirty toilet paper in a Home Depot Homer bucket in there.
We went by all three bathrooms, it was all the same, Homer buckets full of dirty toilet paper. Stuff everywhere, we get downstairs, there are these clothes that are on the couch. She did have four big dogs. She had a big backyard too. The carpet downstairs was spongy in places and squishy. The lower two feet of the sheetrock was yellow. I was watching a dog basically go lift their legs and piss. That’s what it was spongy from the dog pissed in the carpet. She didn’t clean it. They were defecating. There were dog turds everywhere. These dogs were rolling around it with nastiness, dog hair everywhere.
In the kitchen, dirty plates and there were flies. You could see the nice cabinets and the nice granite countertops. It could have been a very nice house. It was just nasty. Once you sit down, the dogs want to lick me and I don’t want to touch the dogs because you see what they’re rolling in and playing with. There are two stacks of postcards and letters on her coffee table. We’re talking a little bit. I’m trying to avoid the dogs come up to me. She said, “The reason I called you is I got two letters from you. I’ve got one for the mortgage and I got one for helping me on this one. What can you do?” I said, “We could try to work out a loan.” She’s like, “I already tried that. I want to get out of the house.” I’m like, “We could always see if we can get a short sale approved because you owe more on the house on what it’s worth this time.” She goes, “That sounds good.”
I had her sign off an authorization and release information. I made a copy. I took a photo of her driver’s license so I can send the name of the authorization release form and some other information. She found a mortgage statement and gave it to me with the loan numbers and I left. I almost vomited when I got out of that house. I had to hold it in. I get home and I called my wife and said, “Put some clean clothes in there and some soap in the garage and can you bring the garden hose inside.” I get out of my truck. I go in there and close the garage. I strip down, scrubbed down. I basically took those clothes and threw them immediately into the wash because it was nasty.
She was like, “You smell funky.” I was like, “It’s because it’s got in my clothes. I smell of piss and poop.” I reached out to the World Savings and for six months I was negotiating back and forth. We took plenty of pictures, which they were scratch and smell pictures because that would have helped, but they would not budge from the number. Eventually, I said, there’s nothing I can do in six months and they’re not budging of me calling them once a week and sending everything in and short sales and also the notification that they finally did it. Fast forward another six months, I get a phone call from World Savings asking me if I’m Oscar the buyer. I’m like, “I’m sorry. What are you doing?” They’re like, “We finally foreclosed on the property but unfortunately, we found the borrower inside deceased.” She had died in the house and the dogs had gotten hungry a little bit and nibbled on her. I feel very sorry for her.
It turns out that the buyer had to strip that house down and moved everything down to the actual studs in the concrete and reseal it because of everything and messiness. That’s a deal that I didn’t close on, but that’s the first deal that inundated in with going to that and the true smell of poop and piss is not always the smell of money as Ron LeGrand says. If you don’t know who Ron LeGrand is, he’s one of the foremost real estate educators in the country. He’s been doing it for many years. I say that, “A home that smells poop and piss is the smell of money in real estate.” It can be but that one deal it was not. It was definitely one that like, “Real estate is not always picking out paint colors and carpet and pretty rehabs.” I’ve been my fair share of ugly houses as I’ve shared on my last couple examples with the one in Salt Lake City with the worst cockroach population.
This one was in Cedar Park, Texas but 207 Sil Cove, I’ll always remember that. The reason you may think it’s a big backyard and I asked the lady, I was like, “Why don’t you take the dogs out in the backyard?” She’s like, “Because there’s a part of the fence that’s falling down and I’m not going to fix it. The neighbors don’t like me so they always throw trash. I keep the dogs inside because it’s too cold. I’m like, “They got a fur coat. It’s not that cold.” It is what it is. Be careful if someone’s got big dogs and they tell you to knock on their door and go standby the garage. They’re not going to kill you. You may want to feel you’re lost a life or two in there anyway.
Three-Story Brownstone Townhome
Those three stories are probably the three that stand out the most to me. The first one was found deceased. That’s a few years in my real estate career. The one with the roaches was about three years into my real estate career and Sil Cove is the first one here back over several years ago. There have been other deals that we’ve had that have been ugly. I was up in Pittsburgh coaching a student. One of the great ways and you may want to use this in your marketing or as a way to find deals for you. The fact that oftentimes churches are given property. People pass away, members of the church will donate money, donate property, donate real estate to the churches. The client I was working with, he had reached out to his local church and they have been left this three-story brownstone townhome. It was a triplex that had been left. It needs some work. It had been locked up.
According to the priest who was this big Joe Green looking guy. When he shook my hand, when I met him, I felt like his hand wrapped around my hand. Almost seven-foot-tall guy you wouldn’t want to mess with. My investor and I go and meet the priest. We unlocked the door and it’s boarded up. One of the windows are broken. He says, “It looks like somebody’s been living in there a little bit.” You can hear a little bit of noise upstairs. It sounds of squirrels or something like that. The priest goes, “It’s the real estate. Anybody here?” It had a set up where you’d walk into the front door and there were four or five rooms that branch off the main entranceway there.
A couple of bedrooms and a kitchen and the main living room in the center. We do that and there’s nothing there, but there’s a stairway to go up to the second floor. We go up on the second floor and walk-in, we hear more commotion upstairs. It gets a little louder and the same thing. The ministry goes, “It’s the real estate. We’re here. Anybody here, don’t shoot us.” The noise upstairs, there’s nothing there. We’d go up to the third floor. It’s the same thing, we walk in and in the rooms, I want to paint the pictures. You got two rooms to the right, to the left and one facing forward. They come to the front door on the third floor and the two rooms to the right are locked. The two rooms to the left are basically open. The one-room that we face was locked and that’s where we heard noise coming from.
I’m like, “This should be interesting.” My investor is a little nervous. He’s like, “Should we leave? Should we call the cops?” The priest looks at him and said, “No.” He walks over the door, knocks on the door and you hear the commotion inside and all this stuff going on. He kicks the door and opens the door of the lock and we see two homeless people, one guy, one girl, butt naked, going at it having sex right there. They were on the drug. You can smell the nastiness, piss in a corner. These two people were so high as a kite, but they were going at it. They were not attractive. She was missing most of her teeth. He was missing his teeth and smelled nastiness. They finally realize it and they were trying to get uncovered and try to go out the back at the same time.
My investor is flipping out. They grabbed their clothes. They run out the back window. The minister turns to us and goes, “Do you want it or what?” I can remember I started laughing there and my investor was like, “I don’t know if I could do that.” The priest starts laughing and that was the most memorable time. It was an interesting deal. You get memories and that’s where I got the idea of, “If you ever need to get into a house, just use a size fourteen boot hammer.” You never know what you’re going to run into sometimes. Our friend, Wayne Snell, famously a couple of years ago, took a video of him going into a house and vomiting up on the live video.
Being Shot At And Running For Your Life
We’ve had that happen. Other people have gone and seen half of the houses and there’s been dogs or animals in there before. I’ve been to places I’ve been shot at before twice and both were in Gary, Indiana. One was, I’m driving through looking in and stop. I get out and look at a house and knock on the door. A gunshot goes off and whistles past and I’m like, “Close enough to know to get out of here. My skin is a little too light.” I get out of that one. The second time was on a shadow inventory roadshow with our friend, Mark Gold. There was this house at the corner. I think it’s been vacant for a couple of years. We’re all peaking around and I can hear a lawnmower on the other side of the street.
This is a residential neighborhood where you have the street and blocks. I pick around. I see this guy mowing his yard two houses down on the backside of this house. I walked down there and it’s this beautiful sunny day. We were driving around in this Mercedes Sprinter that Mark would rotate on. We had fifteen people. Stephanie was with us also with a film guy that was working for us and two students in the blue Suburban. They’re at the house. As I’m walking down to see the guy who’s mowing the lawn, there’s no way you can see the vehicles. I come up to him and he stopped mowing his lawn looked at me smells all funky, I say, “I want to ask you about this house down here in the corner. How long has it been vacant? Do you know anything about the person that lived there before? This was part of a list of properties that we’ve gotten from a hedge fund to take a look at while we were driving around Chicago and Indiana.
The guy’s like, “It’s been vacant for three years. What do you care about?” I’m like, “I’m sorry. I’m an investor. I got some other friends down there. We’re looking at deals in the area here and wanting to get an idea. This was on our list.” The guy who goes to this tirade. He gets upset about the fact “You California investors need to go back. You need to get out here. I’m going to shoot you.” I’m laughing. I’m like, “Whatever.” His wife was walking out ad she hands him a beer and she’s like, “How’s it going?” She was cordial.
The guy goes in his garage and comes out with .44 Magnum. He starts yelling at me, “Get out of here.” I was like, “Calm down. I just asked for information. I’m not stealing anything. I’ll leave it.” I take off and the guy fires over my head. I hear whistling past me and I go jogging back a little bit. I did not run and I did not crap my pants. I was a little nervous there. I was interested. I was like, “I got back there and they were like, “We heard a gunshot, are you okay?” I was like, “Don’t go down the street asking neighbors here about advice. They don’t like you.” I got back in the Sprinter and we’d make sure to get out of that part of Gary.
There are some great parts of Gary, Indiana. That was obviously about a few years ago, but it made for a memorable story of going out and talking to people. Most of the time your borrowers or your neighbors of the house will give you plenty of information. More information you’ll get from most people about the asset and what’s going on with the deal and go from there. That was an interesting story there where somebody did not want to be forthgiving of information on a property in the neighborhood. Most people don’t realize that if an investor comes into the area and keep a profit motive for closure and they build it up, they add value. They don’t take value away, but not everybody understands that.
Nightmare In Chicago
I would say if there’s been a nightmare of a city to invest in, it will be Chicago for me. I hate Chicago specifically Cook County. I lost a lot of money in that market, over $250,000 of my own money. We bought some assets there and it was a pain in the butt to foreclose, tenants stealing crap. I’ve had properties where the homes were broken and vandalized three times after we’ve repaired it and put the copper in. We’ve had the city give us zoning violations because they said the doors are wide open and then we should provide proof. The doors aren’t open. Somebody out there is trying to finance for things that we’re not seeing. We got to pay our attorney to go to the court to get this approved. They have high taxes. I absolutely hate Chicago. I’m a big fan of sports teams. I love visiting the city, but it is not a great city to invest in unless you live there locally.
There are great areas there, don’t’ get me wrong. These ten assets were on the south side predominantly. I taught a class in Chicago one time. I sent Jay Tenenbaum at the class along with Robby Woods. Both guys are great friends. I remember us going and driving around. Jay had a note that he bought in Chicago. We wanted to go do a door knocking. The three of us on a Monday after our workshop went off and went to these assets and a knocked on the door. Jay was able to negotiate a loan mod with a tenant in place who was a sister of the guy that owned the mortgage holder.
He was able to negotiate. We had these ten assets that we went and drove around and looked at. All three of us inspected these assets. We all were excited about these assets. There’s even a ten-plex that Robby still owns that he bought off of me as part of a portfolio. It’s been an absolute nightmare for him in that neck of the woods where people do some stupid stuff. They let the water running, take off spickets and let it run continuously. It’s been a rough area. I would not recommend people to choose Chicago to invest in unless it’s in a good area and they’re able to be around that asset on a regular basis. That’s the things that I would tell you about Chicago or Cook County, that neck of the woods. It’s a bad, rough area to invest in. I do not recommend it unless you do have a gun. Go there because people will do weird things. We had people that were cutting out walls and walking back and forth through units.
It’s just stuff that you would never believe. We’re glad to get out of there as fast as possible. Chicago, I’m not a big fan of that area. I think about some of the other areas. We’ve had rentals that were good here in town. We’ve had subject-tos that have been good. Some owner finance stuff. A big lesson for me early on in my investing career came from a property that we picked up here. This is a thing about partnering with people. I talked about Sil Cove as the first asset that I had to walk off of postcards. In that same batch, I got another asset in Round Rock that came to me. A homeowner reached out the week of the foreclosure auction. I went over there and was able to talk with a borrower. A gorgeous looking red brick home in Round Rock, two-story house, nice big backyard in a beautiful neighborhood. These people just to be honest, they’d overextended themselves. He’d been out left off of work. She was trying to do whatever she could. They had three girls and they wanted to walk away from the house. There was some equity there initially of what we thought.
As I’m doing my due diligence, I’m calling around and checking taxes and all that stuff. I’m like, “It looks like we’re good to go here.” We took our subject two, got this foreclosure auction stopped. I went and brought a friend of mine who brought me into the real estate side. It made me an introduction. I said, “Do you want to bring them on?” I brought him on and we took the deal over and started getting the rehab of it. Clean-out and rehab, it took us roughly about 90 days because we’re doing a lot of it ourselves, a lot of the pain ourselves. I did have to fire one painter along the way. I did all the landscaping myself. I placed some locks and drag out longer.
I did call the taxes and said the taxes were paid up to date. When I called the bank and get the balance on the mortgage and gave me one mortgage. Ninety days later the balance on the mortgage was a lot higher than what it was. We had taken the property over just as the bank and paid the taxes reclosure but it was not reflected on the most recent mortgage statement that we’ve gotten. What we thought we were going to make at least $20,000 in profit. We came in and realized we were going to be making $5,000 profit after 90 days. When I figured out how much time I put it in the house, I was working for less than what most people make flipping burgers. It’s a great learning experience. It was better to come out on top of it versus not losing anything rather than money. The biggest lesson I got from this deal was that don’t bring on partners that don’t have the same motivation as you. Me and my spouse at that time was doing a lot of the work ourselves. We spend every week in there. There’s one time I get on the phone and the guy, I was like, “I need you to come here and help me out with this.”
He shows up and dress clothes to check it out. He’s like, “I can’t stay and help out because my wife’s going to a concert. I had to go home and babysit.” I ripped him a new one. The guy’s older than me. We’re still friends, which is a great thing. I said, “We are here every weekend and we make this happen. Hire a babysitter. I need you here to help because it takes me twice as long to get stuff done if you’re not here to help. We’re doing the best we can.” He was like, “You’re right.” He got a babysitter. He came back, spent four hours there and it was about all the work we got from him. Fortunately, we got the stuff done. We got the house sold and moved on. Sometimes you learn more about yourself. This is a big thing. I didn’t want to do all the work myself or ourselves. I didn’t have the time. You need to be very careful about your numbers when you’re looking at stuff, especially if you’re a new investor.
Don’t try to do it all yourselves. I have so many note investors that they want to do the workouts or they talk themselves. It is not worth it. You don’t want to do that. You want to hire professionals to get it done because when we hire professionals, we could have this deal done in 30 days versus 90 days and took another 60 days to sell the house and get financing to go through. It was a beautiful house. We did some cool features to it that made sense. It was a nightmare when it came and when we’re calling to get the payoffs and stuff like that.
Nightmare Deal In Texas
I can remember the blood draining from my head as I’m talking to the banker and I’m getting the numbers. I’m like, “What? No way. It’s not good at all.” It’s a gorgeous house in Round Rock, Texas. That was an interesting deal. I’m going to leave you with a final one. This is the one that you will always probably don’t want to let your borrowers stay in the house once you take the asset over. Sending out letters, postcards. We get a response from a local guy here in Austin, Texas and I remember the address 1500 Bluebonnet Drive. This is down in Zilker Park, a great area of Austin, Texas. This is right by where South by Southwest down the Austin City Limits pavilions and we’re all at live music is. It’s a popular area to live in.
We’re pretty excited about this house. We figured the after-repair value was going to be somewhere around $550. At the same time over $780. The borrowed owed $298,000. It was a slight portfolio service. The guy that was living in it is a local drummer here in Austin. He had these long dreads that went down to his knees. It was a good-looking house. It needs some work, a little outdated and he wanted to be gone. He says, “I know there’s value here. If I can get $10,000, I’ll be gone and sign it all over.” I remember I came across this deal originally because I was talking to a couple of local realtors here in the area.
He guided me to list ten houses he thought would be good investments for someone to come and fix and flip. It was funny because this is the postcards that we sent out to the borrowers ended up going with one of those ten. We looked at all these numbers, the rehabs like, “I don’t want to do heavy rehab.” We’re able to take it over subject to. We are able to pay $15,000 to the banks and portfolio services for six months of payments to substitute. The borrower signed the property over to us with deed in lieu, but he wanted to remain in the house for 30 days. That was the kicker. In 30 days, this guy sold about he could out of the house, appliances, cabinets, granite countertops and fixtures. It was all for-profit. It was okay because we ended up wholesaling and make a quick $75,000 on a wholesale deal above and beyond on what we paid to take it over. The guy that bought it didn’t care. He was going to strip it down anyway.
The nightmare for him unfortunately is it had a brand-new roof on it. It had these beautiful old wooden floors in the house that were good. When Sash moved out, he’s like, “You can’t be doing this, you can’t be selling stuff. It’s part of the house. You’re going to have to be out in a week.” Sash moved on. Unfortunately, Nick, the guy that bought the house from us, when he sent his crews out to fix it, they ripped the new roof off. They ripped the old floors out. They literally demolish the house. It was almost literally just the wall standing. That house sat like that for over a year because Nick did not expect that much in rehab. They went way above and beyond. He didn’t have it invested in it. Even the numbers would’ve made sense. He didn’t borrow enough money from his investors. They wouldn’t give him any more money because of the trash out and the extreme rehab.
That’s a nightmare of a deal there for him. Unfortunately, Nick recovers. He’s made some money. He’s doing some great stuff here in Austin with some commercial developments. He was not prepared for that. This is why sometimes it’s more sense to make quick money and move on to another deal versus trying to do all the heavy lifting yourself. You don’t want to get into it because what’s going to happen if you’re not there, especially in demo day. You’re going to be wishing that somebody drops a hammer on your head. Sometimes deals can turn into a bomb that blows up in your face. That’s a deal that we were glad, made some money and moved on our merry way. That’s why I don’t like heavy rehabs. I like light rehabs, paint and carpet for the most part and moving on there. That’s why I got in the note business from the get-go because I want cashflow not big rehab cost.
I would love to know about your deals. I would love to share your stories. If you’re reading this episode and you’ve got a story that you’d like to share, a disaster story, I love to know a bad story and a good story. If you’ve got one of each, I’d love to know about it. I’d love for you to drop me an email, tell me about it and maybe we’ll do a whole episode on your nightmare stories. Things that we’re thankful for and the deals that we got out of. We can talk about that, but we’ll do the whole series on some guests there. I would prefer you to drop me an email at Scott@WeCloseNotes.com. Tell me about your story. If you can, film a short little video of it and tell me about the stories and send it over to me. We’ll see if I have a future episode talking about bad beats. I hope you had a great time and we look forward to seeing you all at the top. Go out, make something happen and we’ll see you.