Save the Family Home: From Foreclosure to Family Ownership

By Equity Trust Staff1 Comments

Equity Trust client, Rex of Illinois, shared this story and we just had to share it. Read about how he helped a family remain in its home while also boosting his own retirement account.

Foreclosed homes have long been attractive targets for real estate investors looking for value. But there is a human cost to that value — a family losing their home. One investor, Rex from Illinois, decided to make an investment that left a lasting impact on a family in need — a deal that Rex would later call “the most fulfilling” of his 300+ real estate transactions.
 
Rex had been using his self-directed IRA to invest in distressed, single-family homes for over 10 years. A few years ago, he came across a unique home on the Rock River in Sterling, Illinois.

The home had been foreclosed upon and was for sale by an online auction company.  After reviewing some information on the property, Rex decided to drive by to take a look.  It was obvious as the home was occupied, he decided to knock on the door.

This Beautiful House is still a “Home”


Rex was astounded as he walked up the sidewalk to a gorgeous view of the Rock River, set against the backdrop of a nearby city skyline to the south. The home was an elegant, two-story brick building overlooking the river. As he stood on the porch admiring the view and considering his investment’s potential, Rex noticed something that would change the course of his deal. Next to the entry was a plaque bearing the family name.
 
It became obvious this house was still a home.
 
“It was sad looking at that proud plaque knowing this family’s home was in trouble,” he said. There was no answer when Rex knocked on the door, so he left his card.

A few days later, he received a call from the homeowner. They talked a bit about her circumstance and she invited him to walk through the home.

Rex met Lily, the homeowner, the next day. “The home was built in 1906 and was very nice inside with beautiful oak woodwork throughout,” Rex says. “Being located on the north side of the river allowed the sun to shine through the lovely south windows from sun up to sun down.”

Lily was in her late 60s, her husband had passed away several years ago, and they had lived in the home for 40 years.

Rex learned that ten years ago the home was free and clear and Lily’s son had mortgaged the home.  The son had moved south and the parents remained in the family home. In the meantime, Dad had passed away and recently the home had gone into foreclosure.

Lily had told him that even though she still worked the home needed too many repairs and she had plans to move to a small rental home nearby.

The home had a bad roof and the original Octopus gravity gas furnace.  The furnace looked nice for its age. The interior of the home was in very good shape and well cared for.


Family Effort – Amazing Results


Rex told her he intended to bid on the home but she could stay another month rent-free until the home’s purchase closed with the investment from his IRA. Rex was determined to keep the home in their family, despite a few challenges.

After Rex's IRA won the bid, he asked if Katie might have interest in owning the home. Lily called back later and said yes, Rex asked to have Katie call him back.  After speaking with Katie they decided to meet at the home.

Katie holds a degree, has a good job and was determined to rebuild her life back home in Illinois. He liked her drive and attitude so here is the deal they put together to save the family home:
  • Katie met with a “friendly” home lender in town who is very good at credit challenges.  He put a Credit Improvement Plan together for Katie and she is expected to qualify for a home loan.
  • Rex signed Katie up with a Rent-to-Own (RTO) Agreement at $650 per month and agreed to update the roof and furnace. 
The roof was completed in June of 2014. The heating company found the inner case of the old furnace cracked and needed to be replaced. It also had no gas cutoff if the pilot light was blown out by the gusty river winds.  The furnace was a hazard.  The new furnace went in right away.

Rex likes to see his rent-to-own customers pitch in with some kind of improvement to the home. Katie agreed to put up a new porch railing.  She provided the labor and Rex bought the materials. “She got it done with some help and admitted to some swearing, with a new appreciation for the building process,” Rex says.

Part of Katie’s credit improvement plan is paying off any personal debt.  Rex’s IRA just funded a
$3,600 payoff of a past collection and some medical bills.

Once approved for the home loan, Katie is buying the home for $20,000 under market from Rex’s IRA.

Why is Rex doing this?  To help a family with their housing needs and payment streams.  As outlined below:
  • His IRA is receiving $650 per month rent per the RTO agreement
  • A monthly payment from the small loan to pay off the collection at 15-percent return
  • $1,500 down payment from Katie
  • Home sale to Katie for a $20,000-plus profit at closing
Here is the breakdown of income and expenses for just the home owned by his IRA.
$30,000 Purchase price at auction
$17,000 Rehab costs plus property taxes for one year
=$47,000 Total investment

$7,800 Rent received at $650 per month
$69,900 Sales price to family
=$30,700 Total net income to IRA - 65 percent ROR projected at a 12 month holding period if needed. 

(The above did not include the small loan 15-percent return to be received over the next two-plus years.)


Moment of Truth – Closing Day


After a year of renting, Katie purchased the home from Rex’s IRA for $20,000 less than market value. It was a joyous moment for all involved, perhaps best summarized in an email from Rex the day after closing.
 
“We closed the sale yesterday. It was a very joyful time together. Both mother (Lily) and daughter (Katie) were there. Katie mentioned she thought many times this would never happen with all the borrower home-loan hurdles and recent changes in her life, but today the family owns their home again.
 
The home is 100% repaired and good to go for another generation or more! After perhaps 300+ home transactions in my career THIS is my most fulfilling. What a fun day!
 
Thanks to Equity Trust for providing the platform and education that helped this transaction occur.”
 
Instead of taking a purely business-focused, transactional view of his investment, Rex chose to recognize the humanity of the people whose home he purchased. In doing so, he made a profitable IRA investment, earning a 65-percent ROI, and a family was able to afford and remain in their home of 40 years.
 
 
The above case study is for educational purposes only. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. Information included in the above case study was provided by the investor and included with permission. Equity Trust Company does not independently verify all information provided by third parties.