BACKGROUND: The house was in Oklahoma near Tulsa. The homeowner took out a Home Equity Conversion Mortgage (reverse mortgage) in 2011 and when the borrower died the loan went into default. The children had no interest in the property. The property was vacant, in fair condition but needed updating (1980's style) and had a ton of trash in the house.
ACQUISTION: We purchased this note for $93,000 with an UPB (Unpaid Principle Balance) of $168.362 (full payoff of around $171,000). The property value was around $160,000 at the time of purchase and the market was going up in that area.
LIGHT REHAB: The house looked like a throw back to the 1980's and needed to be updated. The entire house was stripped of all the wallpaper and walls and trim repainted. The kitchen had minor updates and we installed new appliances (we did not change out the countertops or replace the cabinets). The lighting was updated in all rooms. The carpet floors where replaced with high end LVP (luxury vinyl plank) and we replaced the entire roof. In the bathrooms, we simply replaced the flooring, painted the walls and reglazed the old tiles.
DISPOSITION: We sold the property outright for $210,000 and net profit was $74,707 after all costs were paid. The ROI was 80%! These costs include the initial price of the note, attorney fees, court costs, publication fees, property insurance, property taxes, rehab labor, rehab materials, real estate commissions, initial property trash out, final cleaning after rehab completed and so on.
SUMMARY: First, this was a great return but we cannot expect this in all markets at all times. Second, we don't do big renovations projects (like full gut of bathrooms and kitchens, etc) since it takes too much time. The market at the time of sale (2021) was going up and we had a pricing tailwind. Today the market values are flat to slightly down and so the note purchase amount has to reflect that fact.
Get these articles sent to your inbox directly by signing up for FREE newsletter!