$50 into $42,500 I Love Real Estate!

In my book “The Reality of Real Estate Investing” I describe 25 of my deals in detail as “Cases in Point”. To emphasize techniques I teach throughout the book. Below is one of the very first deals I did.

Case in Point # 5, Barry

I was looking through the list of properties approaching the

auction one day and came across the address 1255 W. Barry in the

Lake View area of Chicago. I knew the location was a good one. The

judgment amount was about $2,300. The plaintiff was the City of

Chicago. This information indicated to me that the city was

foreclosing on a demolition lien. Although I was not familiar with

the values, I figured the lot had to be worth at a minimum

$30,000. On the drive by, the lot was not particularly impressive.

It was an overgrown corner lot (25’ x 125’) with some debris.

What was impressive was the area.

There was great evidence of development taking place. I decided it

was worth further investigation. I went downtown to research the

court file. I learned that just over five years earlier a Michael

L. bought a five-unit building on the lot from a David J. on

contract. He signed a mortgage note for $21,000. Apparently

Michael let the building deteriorate until the city tore it down.

I set out to locate the owner Michael. I came up with three

different addresses; however, he had moved from each one. I felt I

was at a dead end trying to locate him.

Then I decided to see if I could locate David J. I went to the

phone book. There were about twenty five names. Half-way through

the list I found the right person. I verified that he was the

holder of the note. I mentioned that it looked like he did not

come out of his deal with Michael L. very well. He said, “Yea, he

never made a single payment and ran the building down.”

I said, “Yes, and the city tore it down and is now foreclosing on

the lot. It looks like you are about to get wiped out.”

“Yea,”“ he said. “I had an attorney pursuing it, but it has

been five years, and he has not been able to do anything; so I

guess I’ll just let it go.”

I said, “Well, would you consider signing over your mortgage note

to me to see if I can do anything with it?”

He said, “For nothing?”

“Well, I would be taking a chance because we do not know for sure

if I will be able to do anything or not.” He said, It would not

be worth my time to meet with you.” I said, “What would be worth

your time?”

He said, “Fifty dollars.”

I said, “OK, I will risk fifty dollars; do you know of a notary

close by?”

He said, “Yes, at the Currency Exchange around the corner.”

“Great, I can be there in an hour. Oh, by the way, I just

noticed that your wife is also on the note. Will she also be

available to sign the paper work?”

“Well, OK, if it doesn’t take long,” he said.

I called my attorney immediately to ask what paper work I needed

to do to have the owners of a note sign over their interest to me.

It was a simple letter of assignment. I got it together and picked

up David J. and his wife, They lived in a newer town home in the

desirable Lincoln Park area of Chicago. He mentioned to me that he

owned several properties and that he had just made a mistake with

this one. We went to the nearest Currency Exchange. They signed,

it was notarized, and I gave them the fifty dollars. My impression

was that they thought I had just bought something that had no

value. I was very hopeful that I was not wasting my time or money.

I was by no means a seasoned investor at that point. In fact, I

would say I was still green. However, I felt good about what I had

just done. Now I needed a partner because I had no money. I knew I

had to hire an attorney to file foreclosure on my note. That would

be $2,000 to $3,000. I had to pay off the city of Chicago $2,300

for their demolition lien, and there was another couple

thousand in back taxes.

The next night I got a call from David J. He told me that he had

gotten a call from an attorney also interested in buying the note

from him. He said, “Maybe you tricked me and I should not have signed over

my note to you. I want you to give it back.”

I responded, “I did not trick you or do anything dishonest.”

He said, “Well, how about we get together and talk about it before I have to

get my attorney involved?” I told him I would have to consult with my

partner and get back with him. I did, and we agreed that I should

talk to him. When I met with him and his wife, he basically

repeated himself, and I did the same. I pointed out that they

thought they were selling me nothing. I only knew I was sticking

my neck out for fifty dollars and hoping I would be able to do

something to make a profit. We left it at that point and said we

would both give it some thought. I never heard from him again.

I offered a 50% partnership to my attorney, since she advised me

on how to secure the note in the first place. She paid off the

demolition fee and back taxes, and we hired a foreclosure

attorney. About two and a half months later the

foreclosure attorney received a request for a pay-off letter on my

note from an attorney representing Michael L. Apparently still as

the owner, he entered into a contract to sell the lot to a

developer for $105,000, who planned to build a row of

town homes.

Remember, the face value of my note was $21,000, and no payments

had been made for five years. After calculating all the back

interest and cost we had into it protecting our mortgage note, a

check was cut to me at the closing for $49,500. Minus the $6,000

my partner had put out in expenses. We were left with

$42,500 to split.

All of this took place within three months. It was not bad for a

guy who did not know much but was willing to risk a little and put

forth the effort to make it happen.

Proves the point as so many of my deals have that consistent, persistent effort = Success!

October 6, 2017

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