I recently sold an investment property that I had acquired a couple months ago. The sale was unanticipated, but when the opportunity presented itself, I thought that it would be best to move forward.
You might recall my post from earlier Super Bargain: The $10 Real Estate Transaction. I had received a call from a gentleman in Kansas who had obtained a parcel at the County Tax Sale back in 2008. The parcel happened to have a four car garage sitting on it. However, the lot was tucked way back behind some other properties and adjacent to a bombed out fourplex. The county did not know that the parcel had a garage on it until this year and his tax burden increased 5-fold because of the new higher valuation. The garage had been taken over by squatters and looked like a tent city.
There were several factors that contributed to purchasing this property at such a low price:
1. The market value of the garage was tough to determine because of non-existent comparables. The county assessed it at $16,000 but it needed some repair.
2. At such a low price point, marketing it with a realtor would be a non-starter. Most agents would not want to put up with the hassle of marketing this property for the paltry commissions involved.
3. Property managers would be equally disinterested because the total rental income from the garage would be around $180/mo. Most property managers charge 10% of gross rents. Being paid $18/mo. for dealing with four separate tenants wasn't a winning option either.
4. The seller was absentee and the property was a liability rather than an asset to him. It cost him money each month rather than generating revenue.
So, with this in mind I agreed to eliminate his problem and pay his property taxes. That is when I got to work. I dressed up in my church clothes, typed up a serious sounding vacate notice, and marched over to the garage to post it on the premises. For good measure, I also notified all the tenants in the fourplex just in case they happened to know who might be using the space. Of course, many of them denied knowing anything about the stuff in the garage. I also offered to rent the space to them for $45/mo. if they didn't want to move their stuff.
To my surprise, as the deadline approached for vacating, I got a call from a tenant and she agreed to pay the rent. We signed a lease and I collected rents for two months. That is when a good friend of mine called and out of the blue asked if I had a garage for sale.
My original plan was to sell the garage in a few months when the fourplex came up for sale in an effort to piggy back on the interest and hopefully have the buyer of the fourplex purchase my garage also. However, my friend needed some storage space today and didn't want to pay out the nose for rent on a storage shed he didn't own.
We put a deal together. I agreed to sell the garage for $10,000 with seller financing for 5 years on a 6.25% note. He put $1,000 down which covered property taxes, title insurance, and closing fees. The monthly payment is about $175/mo.
This is a classic win-win deal for both transactions. I didn't want the headache of fixing up the garage and my friend didn't want to pay for something he wasn't going to own in the end. Based on rent-to-value ratios, I sold the garage for about half of its retail market value on a generous seller finance contract. The payments I receive will be nearly equal to what I could rent the garage out for each month. Everyone is happy. When I acquired the garage, I cured someone's headache who did not have the time or money to cure the problem himself.
These are the types of transactions you want to put together.
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