How We Bought A $50K Duplex – Part 4

If you’re just joining in, this is Part 4 (the last) of a series about how we scored our $50K Duplex. Catch up with the rest of the posts here:
Part 1 – Who, What, Where, When, and How?
Part 2 – Realtors Don’t Call Them Problems, They’re “Issues”
Part 3 – Getting Serious, Making Offers, and Getting Screwed
Part 4 – Like It Was Meant To Be, Our Duplex

If you’re too lazy? busy to read from the beginning, here’s where we stood.  After looking for nearly a year, we finally had two open offers on the table on foreclosed duplexes that were actually just a block away from each other.  The first ($50K) seemed ideal, but the bank was taking so long at each step that we were getting pretty doubtful it could actually close with a clear title.  The second ($47K) had some major illegal construction that we would have to tear out to get the place back to code before it could be occupied – cost estimate to remove illegal work and rebuild $3K.  So net costs for each would be about $50K.

But… the seller notified us that the duplex with illegal construction had fines and fees on from the county that the seller wanted to pass to the buyer for negotiations and “mitigation” with the county.  In a nonchalant fax, the seller gave us 3 hours to decide if we would close with the fees in place and mitigate them with the county after the close.  How much in fees?  $128K.  Yes, you read that correctly.

We had about 3 hours to decide if we wanted to continue to play the game on this one or to walk away…

We got a fax and had 3 hours to decide?

  • Tell the seller that our offer included buyer responsiblity for fee mitigation of $128K of fees on a $47K duplex?
  • Or… forget about that duplex and hold our breath hoping that the “dream duplex” (which was taking FOREVER!) would actually close with a clear title?

When it came down to it, we really weren’t comfortable making the gamble on the $128K worth of fees.  Yes, there was a good chance that would have been reduced and largely waived after the property was brought back into code compliance, but there was no guarantee of that.  And really, the most sickening feeling about all of it was that the seller was asking us to make that decision in a span of 3 hours.  We had wiggle room in this deal to miscalculate and under-estimate costs, but not $128K worth of wiggle room, and we didn’t like the idea of the seller trying to force our hands by giving us so little time to think this through.

So we sent the fax back to the seller on the second duplex saying that our final offer was for the property with a completely clear title and no fines/fees attributed to the buyer.

Like It Was Meant To Be, Our Duplex

Good Things Come to Those Who Wait

Our offer for the second duplex was officially declined a few days after the fax episode – someone did purchase it, and we can only assume mitigated the fines with the county themselves.  (We haven’t gone digging through public records to see what they ended up paying…)

A few days later, we finally got the official paperwork from the seller of the first (the $50K) duplex.  We had a contract signed by both parties!  Things were finally moving at something faster than a snails pace!  The inspection period began and a few days later we had all of the inspection reports!  Other than the obvious damage, the only additional problems that were found were pretty minor.  As long as the title came back clear we were a go.

Remember how this duplex was pulled from the market briefly when the robo-signing scandal started?  Title insurance was getting pricier (luckily the seller pays for that!) and title companies were doing as much due diligence as possible to make sure that they were only issuing clear titles.  We were seriously biting our nails waiting for the title company to complete its research.

It took a little longer than usual, but on Festivus (December 23rd, of course!) we got the word that the title was clear.

IT WAS A FESTIVUS MIRACLE!

 If you’re unaware of the origins of Festivus, watch this educational video on the historical origins of this holiday for “the rest of us”!

 

A few days after Christmas, our bank accounts were $50K lighter and we finally had the keys in our hands.

 

Ugly And Beautiful

The duplex had two units that were mirrors of each other, but quickly became known as the “good side” and the “bad side”.

 

The front of one of the sides of the duplex. What a looker, eh?

The Good Side

The good side had high quality linoleum flooring, brand new kitchen cabinets, and some pretty good quality lighting fixtures and fans. And with the high ceilings (~10-11 feet) there was a lot of natural light.

Main room on the “Good Side”

Brand new cabinets had been installed in the kitchen, but had never been used.  They had even added space for a dishwasher, though we had to plumb that in ourselves.

Kitchen on the “good side”

 

The Bad Side

The bad side was carpeted, and had clearly been home to more than a few cats.  There was one particular fat cat that hung around whom we christened “Lehman” in honor of the financial crisis.  And, ya know, ’cause he was a “fat cat”.  Not funny?  Maybe it’s funnier when you’ve been painting and inhaling paint fumes for hours.

Lehman – or one of the many Lehman look-alikes – trying to gain entry to the “bad side” that had undoubtedly been his home at one time.

In addition to the cats, the bad side also had some unfortunate paint colors and insanely out-dated light fixtures.  In the main room on the bad side, there were three different colors of paint on the wall, and they all seemed to match a bodily function – brown, green, and yellow.

Two of the three colors from this vantage point.

And if you turned around you could get the full picture with the third color (the yellow was actually a bit brighter in person).

Also – peeking through the doorway you can see the partially peeled off wallpaper that we had to deal with in the kitchen.  Sadly we can’t find any more before pictures of the kitchen, so you’ll just have to trust us that what wall-paper was there was disgustingly dirty, falling off, and floral printed.  The sheet linoleum floors were peeling up and it looked terrible.

Another view of the main room – check out that awesome light fixture!

 

Summing It All Up

So there you have it – our $50K duplex purchase.  Start to finish, the process took over 9 months of looking exclusively for this purchase.  We made probably half a dozen offers on various properties before we were able to find one that was a good fit for us long term.  After the purchase, we spent about 5 months of weekends working on different parts of it to get it in good shape.  Since then, we’ve been renting it out for between $1.4-1.5K per month, with a very high occupancy rate.

 

If you missed any of the other posts in this series – here are the links!

 

Have you ever bought a foreclosure or a rehab project that you were going to use as a rental?  What was your time investment like?  

 

21 comments to How We Bought A $50K Duplex – Part 4

  • That’s an incredible purchase for $50k. Best of luck fixing it up and getting it rented out!

  • […] How We Bought A $50K Duplex – Part 1 If you're new here, here are a few of our favorite posts that you may want to check out to get a flavor of our site. – How We Decided to Self Insure – Being A Landlord – Meeting Our Personal Banker, Or How We Learned to Love a $100K Unsecured Line of Credit If you like what you see, subscribe to our RSS feed and we'll keep it coming!  Thanks for visiting =) If you’re just joining in, this is Part 3 of a series about how we scored our $50K Duplex. Catch up with the rest of the posts here: Part 1 – Who, What, Where, When, and How? Part 2 – Realtors Don’t Call Them Problems, They’re “Issues” Part 3 – Getting Serious, Making Offers, and Getting Screwed Part 4 – Like It Was Meant To Be, Our Duplex […]

  • […] How We Bought A $50K Duplex – Part 2 If you're new here, here are a few of our favorite posts that you may want to check out to get a flavor of our site. – How We Decided to Self Insure – Being A Landlord – Meeting Our Personal Banker, Or How We Learned to Love a $100K Unsecured Line of Credit If you like what you see, subscribe to our RSS feed and we'll keep it coming!  Thanks for visiting =) If you’re just joining in, this is Part 3 of a series about how we scored our $50K Duplex. Catch up with the rest of the posts here: Part 1 – Who, What, Where, When, and How? Part 2 – Realtors Don’t Call Them Problems, They’re “Issues” Part 3 – Getting Serious, Making Offers, and Getting Screwed Part 4 – Like It Was Meant To Be, Our Duplex […]

  • […] How We Bought A $50K Duplex – Part 3 If you're new here, here are a few of our favorite posts that you may want to check out to get a flavor of our site. – How We Decided to Self Insure – Being A Landlord – Meeting Our Personal Banker, Or How We Learned to Love a $100K Unsecured Line of Credit If you like what you see, subscribe to our RSS feed and we'll keep it coming!  Thanks for visiting =) If you’re just joining in, this is Part 3 of a series about how we scored our $50K Duplex. Catch up with the rest of the posts here: Part 1 – Who, What, Where, When, and How? Part 2 – Realtors Don’t Call Them Problems, They’re “Issues” Part 3 – Getting Serious, Making Offers, and Getting Screwed Part 4 – Like It Was Meant To Be, Our Duplex […]

  • If the whole landlord thing falls through, you can always open a “vintage” light fixure store. You never know what those snowbirds might like. Great series. That is a wonderful price, and you even got a cat out of the deal. Hope to hear more about the renovations.

    • Haha, we’ll definitely have to do a renovations post at some point – though in hindsight we didn’t take nearly enough pictures of the process! Too busy getting stuff done =)

  • $128k in fees!?!?!? Holy crap! That is enough to scare anyone. I’m glad it worked out for you….and hey, what’s wrong with those unfortunate paint colors?!?!?! And the light fixture. =)

    • The colors were so much worse in person – the green and brown were actually semi-gloss so the light reflected off of them and made them seem extra vivid!

  • That is awesome that you bought a duplex for $50k and are renting it out for $1400 per month. Hopefully you got some good tenants.

  • Congratulations on landing that duplex.

    With relatively minor repairs ahead, it sounds like a great deal. I can say “relatively minor” when I’m not the one replacing the flooring and wall paper.

    But, at least there’s no structural or roofing issues. It looks like it ought to be a great rental property!

    • Yeah, replacing the floors sounded minor until we actually started to do it. Found out there were multiple layers of sheet linoleum to strip off – and the linoleum we got to lay fresh was pre-glued and wasn’t adhering correctly… So we abandoned that idea and spent the extra time to tile the kitchen and bathrooms. It took more time, but now we won’t have to deal with it for a very long time and it should hold up much better than linoleum.

  • That is an incredible return on investment. Real estate always intrigues me, but I always worry that I don’t have nearly the handyman skills, nor the patience to deal with renters. I guess I’ll have to stick to REITs for now in regards to my real estate exposure. The geographic proximity to you guys sounds perfect. Any plans to keep expanding the business while the market is near a bottom in terms of housing prices?

    • The bottom has long since passed around here… properties like ours are now being listed for $80-$120K depending on their condition – and the $80K ones are truly dumps. We managed to pick up one other property that we felt was undervalued (these are all the properties we own now – http://www.plantingourpennies.com/2012/08/10/our-diversified-real-estate-portfolio/ ).

      We’ll be open to more investments in real estate like this later, but for now we want to pay off the debts we’ve incurred in the process before Ben Bernanke comes to his senses and lets interest rates rise from their ridiculously low rates.

  • Purchased for $50K, a few thousand bucks of improvements, and rental income of $1,400 – $1,500 a month? That’s an AWESOME deal. Even after insurance, maintenance, repairs and taxes, the rental income will pay for the cost of the house in about 4 years. Nice job!! That’s a great find!!

    • Thanks! It was a bit more than a few thousand to fix it up – but yes, definitely a good deal. It’s going to pay for itself and another piece of non-income generating property that we bought as well!

  • So was it worth it? Seems like you guys definitely put in a ton of work. I think the first one would be the most difficult, but you gain so much valuable knowledge it’s almost a waste not to do it again and again..

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  • Wow, no brainer! That is so cheap! So many opportunities, just gotta look!

    S