Behind on Payments - Case Study

Property Review

CHALLENGE

A hard-money lender (that is, a private lender) called on Realtor Cassie Wells for help. He helped financed a 27-unit apartment complex located at 403 E. 3rd Street in Hope, Arkansas, to a buyer that lived in Arizona. The buyer had only owned it for two years and during that time, the complex went from being completely occupied to completely vacant all while being vandalized. All three buildings needed to be totally redone. The owner had it one the market for six months while only receiving a couple offers but none had closed.

ACTION

The lender called Cassie to ask her opinion about the property and after doing some research, Cassie learned that the complex was originally an old hotel that had been converted into apartments. She had also found that most of the units were only studios and the location of the complex was in a part of town that had no population growth.

Cassie suggested that the lender ask for the keys while she brings in an attorney to help search for a title. Cassie wanted to make sure that the few people who were still living in the complex received proper notice to vacate the property. The current owners, who had the complex listed on the market for $400,000 were told to send out the vacate notices.

After notices went out, Cassie had gone to the city to make sure that they had no plans to condemn the building. However, the city stated that someone needed to start making repairs to the property. Thinking things through, Cassie new that this was going to have to be a quick sale. The place was a mess: doors didn't lock, units were trashed, and there had been a few squatters.

The lender decided to auction off the complex. In the meantime, it was learned that the former owner already received two $350,000 offers, but said nothing to the lender due to the offers being less than what they had owed. In realty, the lender would have taken the $350,000 offer and given the owner $50,000 to walk away.

One of the parties who made an offer realized the property was about to be auctioned. They called Cassie immediately and made a cash offer. The lender was also negotiating with a buyer who wanted to do owner financing. Cassie advised the lender that a lower cash price was better that a higher owner-financed price. The property was closed three days after the contract was signed.

RESULTS

There were too many risks involved in the owner-financed buyer. The buyer wasn't from Arkansas and would have to move in order to work on the property. This situation is called "The Time Value of Money". Money is worth more now than it is in the future. The seller now has no connection to the property and can go and invest in other places.

Off-market property deals need to be acted on quick. In situations like these, Cassie's strong banking relationships came in extremely handy. This deal was successfully achieved without the property ever officially being on the market.