Just a few days ago we managed to get a house under contract! The house is a duplex home with a lower and an upper unit. The upper floor is a two bedroom unit with a large kitchen, full bathroom, and washer and dryer. It will need a little work to bring up to rental shape.
The lower floor is a 1 bedroom/efficiency unit with a mostly open layout and a separate kitchen. There is access to the basement where there is a full bathroom and a second washer/dryer set.
We had been targeting the same area as Foundation House in order to try to create a cluster of impact homes, and this property is only a 5 minute drive away. The proximity will be helpful in allowing us to build community over time.
The house has already had some significant improvement completed, especially on the lower unit which is close to rent ready. It was originally listed at $225,000, but was probably a little overpriced during the hot market this summer. Now that the market has cooled off for the winter, they have been steadily dropping the price to try to sell, most recently down to $189,000.
Since there is not a lot of movement in the market at the moment, we put an offer in for $180,000 with an inspection contingency (meaning we can back out of the deal if an inspection turns up issues that we are concerned about). The seller replied that they were holding at their original price of $189,000. Since we were not in any kind of a pressure situation, and after discussion with our fantastic realtor team, we told the seller that $180,000 was our final offer.
On Christmas Eve, we heard the news from our realtor team that they officially accepted the offer, putting the house formally under contract.
Paying in cash
One of our key purchase strategies is paying for houses in cash. When anyone makes an offer on a house, and that offer is accepted, the house is considered “under contract”. The sale of the property has not occured, but the contract is an agreement between the seller and buyer that the sale will occur on a future date (called the settlement date).
While the house is under contract, there are a number of ways that the deal can fall through. For example, there is often an official inspection of the home by a licensed inspector. If there are any serious concerns, the buyer can leave the agreement and have their initial deposit returned. This is called an “inspection contingency”.
Another common contingency is a financing contingency in which the buyer can back out of the deal if they are not able to secure a mortgage for the property. Many deals fall through this way. However, if the buyer is going to pay in “cash”, meaning they are not going to be getting a mortgage from a lender, then the seller does not have to worry about the financing falling through at the last minute.
For this reason, buyers (like Compound Impact) who are able to pay “cash” for a property have a significant advantage over another buyer who will need a mortgage to purchase the property.
We do not fundraise the entire purchase price before purchasing a property. Instead, we fundraise about 25% of the property value and use short term loans (which last only a few months) to obtain the remainder of the “cash” needed to purchase the property.
What happens in a few months? Don’t worry, we’ll get to that soon!
Now that the house is under contract, we will have a licensed inspector walk through the property to make a formal report on it’s overall condition. As long as there aren’t any major issues, we’ll move on to settlement in about a month, at which point the official sale of the property will occur.