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. After reviewing information about the property, Rex decided to drive by and look at his potential investment.
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.
Lily, who was in her late 60s, explained how her home of 40 years went into foreclosure after her husband passed away. Though still employed, Lily’s home needed more repairs than she could afford and she planned on moving to a small rental nearby.
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. Then, when his IRA won the bid, he worked out a deal with the homeowner’s daughter, Katie. Katie had just moved back to Illinois three months earlier to start a new job at a local health facility and was interested in owning the home.
Rex was determined to keep the home in their family, despite a few challenges. He set Katie up with a home lender to create a Credit Improvement Plan so she could qualify to own the home. Then, he structured a Rent-to-Own agreement for $650 per month, tax-deferred to his IRA.
Rex’s IRA provided $17,000 for the home improvements, including a new roof, furnace, and cosmetic repairs. He likes to see his rent-to-own tenants pitch in with improvements to the home, so Katie agreed to put up a new porch railing. She provided the labor and Rex’s IRA bought the materials. “She got it done with a little guidance from my team. Although she admitted to some swearing, she walked away with a new appreciation for the building process,” Rex said jokingly.
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.
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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.