Morrow Case Study
We bought this one from a wholesaler who purchased it at a substitute trustee sale public auction. Our earnest money deposit had to match his auction deposit, which was $31,000. We were also responsible for the back taxes, environmental liens and the extremely high water bill that came with the property. We also needed to insure the property as if we owned it as soon as we took over the contract, even though the closing was months away as we waited for the courts to approve the purchaser contract substitution. Its just the nature of the beast when buying property at substitute trustee sales in Maryland.
Project Challenges and Obstacles
As you can see from the before pictures in the gallery, there was a lot of mold in this house. The roof was leaking and there were plumbing issues as well. we needed to do a lot of demo and mold remediation before we could even start the rehab. After this was done, the rehab went smoothly. There were no major floor plan changes and the house was otherwise in good shape.
We purchased this one for $119,000, which includes a $21,000 wholesale fee to the wholesaler. (This is why we advocate that all rehabbers should have an active wholesaling strategy as part of their business model. A $21,000 profit on a house that required no major project management on your part is a nice profit indeed. The rehab came in at $54,000. We got lucky on this one and received multiple offers, one of which was a cash offer of $250,000, as is with no contingencies. (Guess which offer we took?) Our profit after carrying and sales costs (this one was hard money financing) was $32,500.
We have bought substitute trustee sale properties before, but this one really highlighted why due diligence is so important when considering thes as projects. You really need to get a handle on what water bills and liens might be facing you once you buy the property at auction. Water bills can be looked up online in many cases. Also it is usually possible to find out if the previous year’s property taxes were paid. It might also be wise network with a title abstractor, someone who works for title companies and researches title, to hire him or her to research liens for you before you bid at the auction. It will cost anywhere from $100-$150, but it might be worth it to have this information before going into the auction.