Rental Home #2 – Acquisition of the Condo (Part 1): This is a post I have been waiting to write for a while. This post is about the condo by father and I purchased as our second joint venture rental real estate property in April of 2018. After writing about the initial story-line of the condo, I realized the story would be way too long if I also included the rehab portion. So this is part one.
I originally thought this condo was an impulse buy, but after writing this I realize it was something that I had been thinking about the last few years.
Let me give you a timeline of events leading up to this purchase:
- Feb 2017 – The townhome rental (first rental house) was purchased. Rehab began immediately and lasted 4 months. If you want to check out that whole process, check out the link here.
- March 2017 – Officially decided to leave my hospital job. The house my wife and I had purchased at the time was 50+ minutes away from friends/family so I could be closer to that job. This meant that we could now move back closer to my family and friends again (yay!).
- June 2017 – The townhome rental was officially rented out with brand new tenants. Due to adding a $50 pet fee, we were now charging $1550 a month (it is now at $1595 due to raising the rent). Initial estimates for max rent were $1475 so this was a nice plus!
- September 2017 – My wife and I sold our primary home after having it for sale for 2-3 months. We basically broke even, but at least we had a down payment for a new home.
- December 2017 – My wife and I purchase our current house. Roughly the same square footage as our previous home but in one of our favorite towns and much closer to family and friends.
- February 2018 – I get a foreclosure alert email that changes everything…
I received my daily foreclosure email listing for the county I live in. I usually skim through the properties to see if there is anything interesting. Usually nothing strikes my fancy but today was different. Example of an average email below:
In 2013-2015, my wife and I lived in an apartment complex that had a complex of condominiums attached. The condos were positioned along a river and had a great view, with an awesome running path. As new runners, my wife and I would frequently run through the complex, so we had a really good feel for the area. One day my apartment neighbor showed me a listing where one of these condos was selling for $50k as a foreclosure These properties usually sell for between $110-120k. As soon as I saw that listing, the idea of owning one of these condos never left my mind due to the profit potential.
Well, one of those condos was in the email. They were only asking $64k, which wasn’t too terrible knowing what the after repair value of it was. In the original ad, which I wish I saved, there were only exterior shots. We had no idea what the interior was like. I was excited that I had finally found the opportunity that I had been hoping for. I immediately call up my Realtor and ask to see the condo right away. We set the appointment up for later that same day.
I meet my Realtor at the condo. At this point we have some more information about the property. It’s a foreclosure that hasn’t been inhabited for four years. We open up the door and start looking around. Everything about this property was still in place like the orginal owner was just living there and vanished. It was the strangest thing. Down to the previous owner’s slippers still at his bedside.
Everything needed updating. These condos were built in 1974 and this one appeared to be all original. I expected to find more damage to the interior of the property but there was hardly any damage at all. It was’t even that musty either!
After discussing things over with the Realtor and telling my father about the property, we decide to proceed.
The plot thickens
Now that the team is on board with this second project, we need to find out how to purchase it. I had never dealt with a foreclosure before, so I was out of my element here. After my agent and I call around, we found out that the property is going to online auction.
Now I’m really out of my element.
I had never even considered messing around with online auction before, yet here I was. “Fortune favors the bold” I suppose. After figuring out how the online auction works and getting registered, I was as ready as I was going to be. There was just one problem. The auction said cash only. Having just purchased a home two months prior (see timeline), my funds were depleted. Dad said he had some money, but it would be tough trying to purchase this place all cash.
It pays to ask questions
I felt that the condo was a good deal and really wanted to proceed. On a whim, I decide to call the mortgage company that had the defaulted loan and asked if they would be willing to put a mortgage on this property if I bought it. They were very agreeable to this plan which was a pleasant surprise. The problem still remained… how would I get $64k in cash for the initial purchase?
Speaking to the mortgage lender again, I stated the problem. I wanted to purchase this property but I would need the auction to be changed so that I could use lender financing and not my own money. The broker called the agent who created the auction. It turns out that “cash only” was a mistake! I was able to use lender financing! The auction was changed to allow mortgage financing. We were back in business!
“It’s like EBay, except with houses…”
Having never dealt with an online auction (specifically Xome) up to this point, it was not as daunting as it initially seemed. After registering, there is a countdown to auction. The auction is held over 5 days with the highest bid winning the auction. Everything was handled online, which means you can bid from anywhere. Another nice perk, I suppose.
Well, the auction for the condo was projected to start out at $30k. If the bid did not go too much higher or no one was interested, this would be a steller deal! For some reason, the condo was immediately (were talking within a few hours) bid up to 55k. It stayed there for 4 days. On the final auction day, the condo dropped back down to the original $30k. Very strange.
The final bidding day was hectic. Nothing happened at all until the last 4 hours. Bids began to slowly trickle in, moving in increments on $2000 at a time. I had a strategy here, based on the rules of the auction. The rule was that if a bid was put in less than 5 minutes at the end of the auction, another five minutes would be added to the timer. My plan was to bid right between 5:10 and 5:01 so that I would not be adding to the timer, get the winning bid and hope no one was paying too much attention to this little condo auction.
Then the bids come…
Bids kept trickling in, bringing the current bid amount up to $45k. Still, not too bad overall.
The craziest part was the last 20 minutes. Most of the other low bidders seemed to have lost interest and moved on. There only appeared to be me and one other individual bidding. We went back and forth with me waiting until 5:10 – 5:01 seconds to bid (so I didn’t add time to the clock) and then they would bid with less than 1:00 minute left on the auction, which added another 5 minutes to the clock (someone didn’t read the instructions!). We went back and forth for what seemed like an eternity.
Then the bids began to slow down, with the minimum bid increment going down to $1,000. We kept sniping at each other until I bid $64k. I told myself I was not going to go beyond that as I didn’t know how much rehab this place would need and it would be very risky throwing more money in.
I watched the counter tick down. Past 5 minutes. Past 3 minutes. Less than 30 seconds.
I had won the auction at $64k!
It should get easier, right?
With the hard part, I thought, out of the much – I could move onto closing. My agent had limited experience with closing with an auction property and strongly urged me to have a real estate attorney review all the documents. I decided to wait to see how things went before calling in the big guns.
I called the mortgage broker at this time and informed him of the good news. We decided to set up closing for a month from when I won the bid which was fine. Within the next week we were already running into problems, this time again with the Home Owners Association (HOA) for the condo. For some reason they couldn’t supply the correct documents, or any documents needed for closing. The HOA was supposed to have the association documents ready for anyone that would be purchasing one of these homes. They were woefully unprepared for the task.
The joys of red tape
It took almost two weeks to get the necessary documents, requiring my mortgage broker, agent and myself to call/email the home-owners association multiple times. It got to the point that they said “please stop harassing us!”. Needless to say, we finally got our required documents.
As closing neared, more issues became apparent. Our closing disclosure and cash to close estimates kept changing wildly. One day we need $14k cash to close. The next $19k. It was all over the map. When I asked the broker, he said it was because of the association messing things up and sending in the necessary information too late which was belieable given our previous experience.
Regardless of the other details, the deal was slowly stumbling towards the closing date. Everything was set up for the next week and all the details appeared sorted. All we had to do was wait.
Closing? What closing?
On the date of closing everyone was ready to go and meet at brokerage office. The mortgage broker would be accessible from the phone. The title company would be sending a representative to meet us. My agent was here. Dad was here. The closing disclosure was accurate. We were good to go!
After waiting for almost two hours, the title company representative never showed. The closing disclosure came back as wrong AGAIN after my agent and I checked it over more thoroughly. We had to cancel closing.
But wait… it gets better. My mortgage broker, who I am beginning to trust less and less at this point, told me we have to close in the next 24 hours because the funds had already been released. Are you kidding me?!
So we meet up the following day around 5 pm at the same spot, definitely lacking the previous day’s optimism. My father was unable to join us because he had work. The mortgage company/title company decided it would be best to send a mobile notary to come complete their side of the closing. Great, making progress. We look over the closing disclosure. It was fixed, but it was still wrong. It took my mortgage broker four more tries to get it right. I was fuming at this point. We get most of the documents signed and we finally get the closing disclosure to a point that looks complete and we are good to go.
Due to the fact that my father was going to be in the deed with me, he needed to sign too. So we brought the party over to him! He was at work during the evening (it’s around 8 pm right now). We complete the rest of the documents in his break room and we have finally…closed. (phew!)
It was done.
Just kidding! We closed but we didn’t close! What do I mean? Well, one day after signing all the documents, I get a call from the title company around 2 pm. Remember that: 2 pm, it’s important.
Plot twist! It wasn’t done!
Title company: “Hi, we were looking at your cashier’s check and we noticed that the bank representative never signed it. We can’t accept this cashier’s check.”
My heart instantly sank.
Me: “But I signed the closing documents, I own the property… what are you talking about?!”
Title company: “Unless you find another means of funding your down payment by the end of business day today (which is 5 pm), we can’t process the sale.
I was still stunned. Suddenly, I thought of a solution.
Me: “What if I find a way to get the check signed? I still have the pink carbon copy. Maybe the bank can send a signed copy?”
Title company: “I think that could work, let me know what you can do.”
Off I went…
The great race
I had never had adrenaline like this hit before. It was otherworldly. I left work immediately (thankfully my hours were flexible) and head directly home as fast would be legally allowable to get my pink carbon copy. On the drive home, I call the closest TD bank. After getting transferred a few times, I get someone who knows what they’re doing on the phone.
TD Bank: “We should be able to generate a copy of what the title wants from your pink carbon copy. No problem.”
I get to my house, get the copy and get over to the bank. It’s now 3:15 pm. I’m in the bank. I find the teller I was talking to, stating my name and helping them recount the situation.
Teller: “Not a problem, we can handle it!”
Awesome. I wait a few minutes. A supervisor comes over. Then another supervisor. Then the teller disappears with the supervisors and comes out a few minutes later.
Supervisor: “I’m sorry sir. We need to get the original copy of the check before we can do anything.”
At this point, I am furious. The original check was at the title company, an hour away. Not only did I waste a ton of time driving in the opposite direction of the title company but now the bank was wasting my time even more by keeping me there. It is now 3:30 pm. I was stunned by another recent reversal.
Storming past the teller with the goal of getting out of the bank quickly, I raced to my car. Immediately, I call the title company and explain the situation. I tell them I am coming right to the title company office and I will take the original to the nearest TD bank to them and get this check signed. During the call, I told them I will be there by 4:30 or earlier. I hop in the car and do my best to sanely/speedily make the hour drive when it was approaching rush hour.
Arriving promptly at 4:30 pm, I get the original check from the title company representative, sure enough, it wasn’t signed. I beg the representative that I will fix this as soon as possible and to not close the title company before I get back. Thankfully, she took sympathy on me and agreed to keep the door open. Calling the nearest TD, I explain the situation. They say…”No problem!”. Like I haven’t heard that one before…
I arrive to this new TD by 4:45 pm, check in hand. I go to the teller who recognized my voice from the call. They begin to work on the check situation.
Then two supervisors walk over and soon the whole group goes into the back office. They come out a few minutes later and explain that they can’t do anything with this check because it wasn’t released from their office. Un-flipping-believable. I adamantly explain my situation and how critical this check and why it needs to be signed by 5 pm today in order not to lose out on this property.
They disappear into the back again, returning shortly with a signed check. Immensely grateful, I thank them for saving the day. I quickly drive the check back to the title company and hand it to the title representative, arriving at 5:01 pm.
The title representative received the check and thanked me for the effort. All I could say was “Let’s not do that again.”
I was told there was nothing else to hold up the deal. All documents were in and signed. Down payment was accounted for. Finally, and this time I actually mean it: the condo was ours!
Stay Tuned for Acquisition of the Condo (Part 2)!
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