The yard was overgrown with tall grass, rampant weeds and hedges that had grown out of control. The first step of rejuvenating the property was to cut back the hedges, remove the garbage and furniture littered about and cut the grass.

There was a small patio on the side of the house off of the living room. The screens had been torn and part of the framing had been damaged. After replacing the screens and repairing the damaged post we gave the patio a new coat of paint.

The garage, like one of the bedrooms on the second floor, was completely covered in dog feces. Apparently this had become the new home of the gigantic German Shepherds after they had been removed from the bedroom. Some of the feces in the garage had been left for so long that they had become a solid rock attached to the cement floor. What initially seemed like a “quick” cleaning job became a labor intensive project as the contractors had to use hoes to break the feces apart. Once the garage had been cleaned out, the floor and walls were coated with water-repellant sealer and painted. The final result was a useable area that the future homeowner could use as either a garage or a large pantry/storage space.

Stay tuned as tomorrow we will show the before and after pictures of the horrendous bedrooms.

Today we will begin discussing the actual renovations of the Brown Street property. We will include before and after pictures of various projects within the property. To see larger detailed pictures, you can click on the thumbnails.

The first two days of the renovation project were light on work, but were very important before moving forward. The house was completely sealed and flea bombs were set off each day to mitigate the heavy infestation. On the third day we removed all of the trash, excess furniture, clothing and food from the house and emptied them into a full dumpster. On the fourth day we sealed the house and set off the final series of flea bombs.

Living Room and Dining Room

The living room and dining rooms required the least amount of work in the house. After a thorough cleaning we were able to sand and refinish the wood floors and paint. The finished product looked remarkably better considering the relatively little amount of work that was required.

Living Room, Before, Angle 1

Living Room, After, Angle 1

Living Room, Before, Angle 2

Living Room, After, Angle 2

Check back later today when we show the exterior before and after pictures.

Today we will be discussing the general condition of the Brown Street property we are purchasing as a short sale.

The general existing condition of the Brown Street property was poor, to say the least. Though the property was sound structurally, the homeowner had been living in filth for quite some time. Her medical condition made it almost impossible to care for her children and maintain the house, so after several months it had become dirty and decrepit.

The house had four bedrooms, but there were 8 people, including the young children, living there. There were beds in the living and dining rooms because one of the bedrooms was so completely covered in dog and cat feces they couldn’t sleep with the smell. The homeowner kept the two largest German Shepherds I have ever seen in one of the bedrooms at all times, and they were never let outside to use the bathroom.

The contractor, Jim, and I noticed after one of our visits to the house that we were completely covered with fleas, which had severely infested the house.

The kitchen cabinets and drywall were covered in mold which had grown from a small leak in the kitchen plumbing. The tiled kitchen floor was cracked and the counters were warped, also from the excess moisture in the room.

The walls were dark with dirt and there was a visible coating of dirt on almost every surface, from the hardwood floors to the window sills. The house was littered with stained furniture, had clothes strewn about and old trash bags and food in virtually every corner.

Tomorrow we will begin showing the before and after pictures of the renovations, so be sure to check back!

As mentioned in yesterday’s post, Pam, the Brown Street property homeowner, was very willing to help sell her home through a short sale process. She understood the short sale benefitted her by reducing future issues with the mortgage company. More importantly in her situation, utilizing the short sale option gave her a definitive date and process so she could effectively find housing for her children.

One benefit of purchasing a property through short sale with a willing buyer is that the seller is typically very helpful in terms of letting you know about potential hidden problems. In this property, for instance, there was a serious foundation leak. Since we inspected the property during a particularly long dry spell, we wouldn’t have known about it without her firsthand knowledge. However, we would have found out a week after the sale when the basement flooded and we had 3 inches of standing water.

Our contractor surveyed the property thoroughly and with Pam’s information he was able to determine a work estimate of $18,600. This included quite a bit of minor repair work, such as replacing broken gutters and a few broken windows and sills, but also some fairly substantial items such as new cabinets and counters in the kitchen.

As a rule of thumb, I always add 25% to any work estimates I receive in the event there is hidden damage or repairs that need to be addressed. In virtually every project I’ve ever been involved with there is at least one issue that arises after you begin renovations, and it is better to be financially prepared to address issues ahead of time.

The amount owing on the property according to the court documents was $116,000. Taking closing costs, renovation costs and carrying costs into account, I needed to purchase the property at $90k to make a suitable profit. I obtained written permission from Pam to begin negotiating with the bank and contacted the mortgage company immediately. The mortgage company was not originally receptive to any offers.

During my discussions with the mortgage company, the “loss mitigation associate” took a decidedly different tone as soon as mold was mentioned. As soon as I noticed her change in tone, I asked if I could send pictures. I immediately sent pictures of the mold covered kitchen cabinets, and also took the opportunity to show pictures of the broken windows, damaged walls and generally filthy condition of the property.

After seeing the pictures, the mortgage company agreed that a short sale was an option for the property. However, since they had already begun foreclosure proceedings against the homeowner, they imposed a 30 day deadline to have the deal finalized or they would continue with the sheriff’s sale.

The mortgage company ordered their BPO and I made sure to attend the inspection. I had all of the pertinent information concerning the property condition printed in an outline for the agent to take back to the office. This included information about the basement leak that wasn’t readily apparent.

Several weeks went by as I waited for the mortgage company to determine if they would agree to the sale. During the negotiation process, I had to leave to attend a wedding. The weekend of the wedding happened to fall on the same week of the mortgage company’s deadline. The wedding was on a small island off the coast of Virginia, which has a population of only a few hundred. Needless to say, with such a small population and being off the coast, I had no cell phone reception at all. I enjoyed the wedding, but assumed the entire weekend that I had missed the opportunity of the Brown Street short sale.

When I returned to Pennsylvania on Monday, I called the mortgage company and was pleasantly surprised to find that they had approved a 60 day extension to complete the transaction.

After another week of negotiations with the mortgage company, they finally agreed to sell the property for $82,000. I had originally offered $75k but would have agreed to the sale with a purchase price as high as $90k. I had verbal confirmation from the mortgage company, but they informed me it would take several weeks for them to prepare the paperwork for the sale.

Because the paperwork with the mortgage company would drag on for so long, I made a decision on this project that I may end up seriously regretting - I made the decision to begin the renovations of the house prior to the contract being signed by the mortgage company.

This presented several potential risks:

1. If the mortgage company decided to decline the sale at a later date, I would lose any renovation costs I incurred
2. The mortgage company may have requested an additional inspection after I had repaired the property and increased their sales price, which would have eaten up the potential profit I was to earn.

This was an incredibly risky move and one that, admittedly, was not wise. Realistically there was almost nothing to gain by moving forward with the project early, and plenty to lose. To learn how this situation played out, check back each day until the conclusion of the project. Tomorrow we will show pictures of the before condition, as well as discuss the planned renovations.

Today we will begin explaining the progression of a completed short sale project in Harrisburg, Pennsylvania. We will cover all aspects of the project in detail from the acquisition of the property all the way through to the sale and humorous aftermath. Each day we will post new details, including before and after pictures, so feel free to check back daily to see how the project progressed.

The project we are discussing today is a 4 bedroom, 2 bath single family home in the suburbs of Harrisburg, Pennsylvania. In an effort to protect the privacy of the previous and current owners, we will refer to the property simply as the Brown Street property.

The Brown street property was found by canvassing pre-foreclosure leads in Harrisburg. I have found that using the internet foreclosure leads is sometimes useful. However, I have also found that in most markets they have either been sold to too many investors, or they are so dated that the effective time left to contact the bank has already ended. Depending on the laws and availability in your area, you may benefit from visiting the courthouse and collecting information on foreclosure leads in person. This is the only way to ensure the information you are receiving is correct, up to date and relevant.

Unlike most investors, I do not send the standard small postcard card saying “I will buy your house” or “stop foreclosure!” I typically write a sincere, empathetic letter explaining that I understand the stressful situation the homeowner is in and that I am available as a free resource for any questions or assistance they may need. I am also very honest, explaining that it is my goal to purchase houses from those homeowners who are no longer interested in maintaining their homes , but that it is also my goal to help alleviate the stress that is involved in these situations.

This advertising methodology obviously cuts down on the amount of letters I can send, but it lets the potential sellers understand that I am willing to listen and help them as well as looking to make a profit. Because of the blunt and somewhat condescending nature of some of the postcards I have seen, it is easy to understand why many homeowners would not be interested in working with investors during such a stressful time.

From my carefully written letters I get a much higher call back percentage, usually 20-30%, so the extra time and effort involved is worth it in my opinion. Most of these calls are from individuals who had fallen on a little bad luck and who are interested in keeping their homes. I take the time to carefully listen to them and usually advise them that their best option is to call the bank and speak with the loss mitigation department. I have gotten many thanks from people who were able to keep their homes who may not have been able to.

The owner of the Brown Street property, who we will call Pam, contacted me and the first words she said was “I just want to get rid of this house.” She had had decent paying, steady employment and had maintained the family home and finances for several years. Her husband had also been working and contributing to the bills. However, at the same time her husband was laid off, Pam began experiencing medical problems and was forced to stop working. She knew she could no longer afford to pay for the home and raise her children. As a side effect of her medication, Pam’s condition also made it very difficult to care for her 6 children (who lived in the home) or keep the home in fair condition.

I am explaining the household circumstances because I personally feel each short sale situation is made up of more than just the hard numbers. There are human components that go into making a successful project.

It is important to remember that though you are technically buying the property from a mortgage company, the homeowner has a great deal to do with how readily the bank will deal with you. The homeowner will have to submit a hardship letter, provide income verification and possibly even medical records. If you do not have compassion with the homeowner they can make the sale difficult or impossible for you.

I met with Pam for several hours and discussed her situation. Because she had already decided she could no longer keep the house, our conversation focused on the strategy of negotiating with the mortgage company for a short sale, as well as what accommodations could be made for her children. During our conversation I made sure to listen to Pam’s concerns and address each one of them. She was comfortable with my explanation of the process and was willing to help as much as she could in the short sale negotiations.

Tomorrow we will discuss the actual financial figures involved in the transaction, including the purchase price and how the short sale was negotiated. Be sure to check back tomorrow!

Investor Tools Online was created and implemented in March of 2002 as a resource for real estate investors throughout the United States. As our community grew we offered a host of various investor tools and resources. Members enjoy our site because it is a tight-knit community of investors who are eager to share experiences and advise new investors.

Currently the site is undergoing a major renovation, much like one of our investment properties! Because of the heavy volume of visitors and the desire to add new features, we have temporarily suspended the existing site. We anticipate a relaunch of the site, complete with new features, articles, tools and expert advice on July 1st, 2008.

In the meantime, please enjoy our daily blog of investment advice and real world examples of property investment projects. We will be detailing an actual property investment (short sales, house flipping, rental properties, etc.) each day which will include investment strategies, financial notes, marketing ideas and - everyone’s favorite - before & after pictures.