How I Bought a House with No Money

I was driving through my hometown going down a street I had never been down after two years in the area. Normally I would have been on my way to work hanging a gutter, but the heat had gotten to me (100 degrees in July in Oklahoma) so I was trying to hustle up some easier/inside work.

Now, normally I drive around on my way to work looking for vacant/distressed properties, but there was a limited amount of town to drive on that journey. So, I took the opportunity of the altered schedule to just meander. After two years of doing property preservation, years of back roading, and looking for HUD houses, I’ve gotten pretty good at spotting vacant houses. This one almost got past me because of the way the road goes up the hill, but I felt it. My peripheral caught the fact that the woods ended, but the overgrowth didn’t, and there was a house there behind it.

A big house...

I looked like an owl trying to look at it as I drove by, which was very unsafe considering I was topping a blind hill in a neighborhood! But I couldn’t look away. It was so big! And the yard was even bigger and SO overgrown as it hadn’t been mowed all year. I immediately said out loud, “That could be Tammy’s house on the hill!” That’s important, but not for the purposes of this story. I got to the intersection, whipped the van around and went right back. I confirmed my initial suspicion that this was indeed a vacant and distressed property. And that the yard was HUGE (and that it was three feet tall)! I took mental note of the address and cross street (I’ve found that addresses aren’t always accurate as we’ll touch on in a minute!) and went on about my day bidding jobs I never got.

When I got home I went to the county assessor website and checked the address. No such address. So I Googled it. There was the house, but listed under a different address. So I checked that address on the assessor website. BINGO! Out of state owner, only one on record—a quick Google search, and I had a phone number and address for the owners. I was about to call when my wife walked in the door.

I told her to hop in the van, and we headed straight for the house. When we topped the hill she said, “Pull in I want to walk around it!” It was obvious the house had had been empty for a long time. Animals had gotten in and torn stuff up. The back door was open and the ceiling was moldy! We went back to our 500 square ft weekly rate apartment and looked at the Google pics some more. I did some research and math on it, and KNEW this was a deal.

The next morning we decided to look at it one more time before calling the owner. This time when we got there, the next door neighbor was out front working in her flower beds. We decided to see if she knew anything—boy did she!

Nobody had lived in the house for at least two years, and the owners didn’t have anyone to take care of it. She asked if we were interested in fixing it, and I told her we would like to make an offer on it, as we were looking for a house. We are independent contractors, so the repairs wouldn’t be an issue. She was excited, having rehabbed her father’s house herself after getting it for $15,000. After some more questioning about our intentions and background, she said, ”You know, I think they’d just about give it you. I heard she tried to donate it to the city but they wouldn’t take it. You need to talk to so and so. He lives in that house right over there, and he’s the city code enforcement guy. Call down to the city and ask for him.”

After a couple of trips to city hall, just missing him every time, we finally reached him by phone. Thus ensued the second interview, in better words, interrogation of the day! He was concerned that we were possibly slumlords looking for another property we could pick up cheap and rent out in unlivable conditions. He had showed the place to other “contractors” that were worried about the foundation and said they would just tear it down and build new, but that it wouldn’t be worth paying anything for. After 20-30 min of assuring him that our intentions were to live in the house ourselves and raise our kids there, He finally said “Well, I don’t have time to show you the place today, but here’s the phone number of the owner. I bet she’d just about give it to you. She tried to give it to the city, but we don’t need another lawn to mow. She’s supposed to be getting the lawn mowed sometime this week. Let me know what happens.”

At this point I had to take 30 min to calm down! This was freaking amazing, and I hadn’t even talked to the owner yet! Ooooh, I’m getting excited all over again! The synchronicities were starting to be very obvious.

I called the owner and told her I got her number from the guy at the city. I told her I had spoken with the neighbor. I then told her I wanted to make an offer on the house. She said “How much do you want to offer?” I said “How much do you want?” To which she replied “Well, I’d like $300,000 but we both know that’s not happening!” And we laughed. She asked if I had walked it and knew how much work there was to do to it. I said no, I had peeked in the basement but that was it. She said, “Well go check it out and call me back with an offer.”

It took us an hour and a half to walk the house and write up the repair list! My first thought was $25,000 would be fair considering the 31/2 lots it sits on. I ran through the list and came up with a worst case estimate of $138,000 to rehab, if I had to pay for all the labor and replace the central H&A. Looking at the comps, the ARV is $150,000. So right there, my first price was no good!

After going over it and over it, I finally called her back the next day at 2 PM. She said, “Well?”

I said, "I’m having a really hard time coming up with a price. I love the house, and I want to fix it and I want my kids to live in that house while they go to high school, but it’s going to cost me $138,000 to rehab it. A house right around the corner just sold for $138,000 that’s 500 square ft smaller, and another one is listed at the same price. I don’t want to tell you I’d give you $5 for the place, but that’s the reality of the situation.”

She told me she figured the repair costs at $100,000 to which I said, “I get where you’re coming from, but I have to estimate this as though I’m hiring all the work out. Of course I’m going to do most of it myself, but I have to cover my bases from the start. Besides, as long as the place has been empty, if the central air doesn’t work, that’s $10,000 right off the bat.” And here’s where everything started to fall into place.

She proceeded to tell me that her parents bought the land for $25,000 in the late 70s and cleared it themselves. Then in 1980 they built the house. They lived there for a long time, I don’t know that she specified. They passed and she got the house. She had since moved out of state, and rented it out a couple times. After the last time she just left it empty, basically wishing it would go away. It was a pain to manage it from so far away, what with repairs and crappy tenants. By the time I came along it was costing her more money than she would ever get out of it. Taxes were $1500 a year. Every time the city mowed it was $165, and the neighbors keep their yard immaculate, complaining to the code enforcement guy every couple weeks. The property, as much potential as was there, had become the liability Robert Kiyosaki warns us about in Rich Dad, Poor Dad.

Finally, she said “The tax assessor has it valued at $15,000 would you pay that for it?”

My heart started racing as I said, “Yes, we can do that. Now just so you know, I don’t have $15,000 in the bank and I’m going to have trouble getting a loan in its present condition.” In reality, I had $2 and a ⅛ tank of gas. And credit score in the low 500s.

Her next words sounded like angels sang them with a full orchestra behind them. “I’ll carry the note. How much can you pay a month? $250? I want you to be able to work on it.”

I stammered “Uhh…”

She quickly said, “Talk it over with your wife and call me back with whatever you decide.”

I hung up the phone. Tammy and I agreed on $250, after I threw out a higher number. I didn’t want to tank the deal by seeming greedy! I get nervous like that sometimes, and I get myself over extended when there was no reason to.

So I called the lady back and said “We’ll do 60 payments at $250 each.” She agreed and asked if we would mind going through an attorney and splitting the fee. Of course I agreed without hesitation!

That’s how I negotiated the purchase of my amazing 2500 square ft, three bed, three bath house with finished basement and second kitchen.

• Purchase price: $15,000
• Legal fees: $80
• Zero down (3’ lawn mow in 100 degrees!)
• Zero percent interest
• 60 payments (5 years) of $250
• ARV $150,000
• Repair estimate: $50,000 (making it REALLY nice)
• Profit potential: $84,420

WOW!! It still blows me away!

So there’s my story, I hope you enjoyed it!