REO. Offer rejected by bank.REO. Offer rejected by bank.- REO. Bank countered. I countered. Bank sitting on their price for now.
- REO. Still have not heard back from bank.
HUD. Offer was rejected due to being outbid.- HUD. Offer submitted.
HUD. Offer was rejected due to being outbid.- REO. Currently in 2nd position.
- HUD. Offer submitted.
- VA. Need to talk with loan officer. Requires ~$6k in closing.
- HUD. In 2nd position
- HUD. Submitted offer.
- REO. May become our personal residence. Will make offer today.
- FNMA. Have not submitted offer yet.
- FNMA. Have not submitted offer yet.
Monday, February 28, 2005
Status of My Offers to Date
I just found out another HUD property I made an offer on was rejected due to being outbid. Here is the status on my offers thus far:
A Roller Coaster Weekend
Possible Home for My Family
On Friday, my wife and I met with my RE agent to tour the two large foreclosures. While I hadn't seen the first home myself, I had seen the second from the outside before and thought it looked nice. Well, after we finished touring both houses, both my wife and I fell in love with the first home. It's 3043sf and was built in 1993. The inside is immaculate - it has plantation shutters on all the downstair windows, new carpet, new paint, new applicances, a weathered (but nice) deck outside, a big backyard (faces the gold course and a pond), and has almost everything we've been looking for in an upgrade house. The only exceptions were (1) it had very little storage space, (2) it still needed some TLC in a couple areas, and (3) it has some eyesores in the backyard (a huge electrical box, a make-shift wooden brace holding some electrical panels, and what looks to be a well of some sort [maybe for the pond?]).
We went home and discussed the property more. The asking price is $249,900, which was a reduced price from an original $269,900. I ran comps and figured the house to be worth about $235,000-$240,000 at best. My RE agent also ran comps and came with a figure of $232,000. I had originally wanted it as an investor property, and figured I could offer no more than $197,000 for it to come out with a decent profit.
On Sunday, my wife wanted to ask a few more questions about the house, so she called my RE agent. The agent said she had talked to the listing agent earlier, and told her that the "system" would not even accept offers below $200,000. She said they have already had "lowball" offers that were rejected, and the owner would be hardpressed to offer anything below $10,000 less than asking. My agent told the listing agent that the house comps at only $232,000, which is far below that price, so the house will definately be sitting. One other thing my agent told us was that the new carpet, new paint, and new appliances (~$20,000 worth of upgrades, according to the listing agent) were put in by the 'lender' to make it a quick sale. This is something I've heard almost no lender would do. What I find ironic is that the house has been sitting for almost 200 days - some quick sale.
My wife and I talked a little more about the property, and I decided to go ahead and email my agent with a starting price of $200,000. If the seller rejects it, I may offer $210,000, but with a stipulation that this is my final offer unless they are willing to drop the price more. If they are hellbent on a max of $240,000, then we'll look elsewhere. I'm not about to pay $8,000 over comp price for a foreclosure that's 10+ years old for my family.
Other Properties
I also looked at another prospect for an investor property. It's a big home (2950sf) in a neighborhood that has mainly smaller homes (generally 1600sf on average, but it has a wide range). It's a Freddie Mac foreclosure. Asking price is $136,000. Comps on the house are hard to get due to its size and location. I've gotten figures of $47/sf to $74sf. I usually average all comps and then drop the highest & lowest two and average the remainder. Whatever average is less is what I base my comp value on (among other comps). In this particular case, I only found 5 properties that are even close to this house (and all were still lower in sf). The average from all was $58/sf and dropping the 2 highest/lowest put it at $54.5/sf. So, I went with 95% of the $54.4/sf and came with a price of $153,000.
I figure resale value at about $149,900. After figuring buy, hold, and sale costs, and my profit, I could offer no more than $115,000. I'll probably submit an offer for $105,000 today.
Another property I found, but have not physically looked at yet, is a 1992, 921sf, 2/2 home. I would probably use this as a L/O or rental. It has a list price of $70,000. I figure a resale value of $68k, and estimated repairs at $5,000. If I were going to flip retail, I couldn't offer more than $44,000. I'm looking at an offer of $40,000 to start, but I need to assess repairs first. It's a HUD, and their report shows only minor trim work with a repair escrow of $550.
Daily Listing Format Change
Right when I think I can start martketing my program to convert these daily listings into a spreadsheet format, the listings change their format. Before, all the listings would be on one HTML page, complete with all the details. All I did was parse the input file and get all the parameters for each property. Now, they changed it to where they only give you 10 properties per page, and the listings only show general info (like beds/baths/SF). In order to get the details, you must click on a link located in the general list page. The problem there is that the link is a JavaScript function, and the function is located in a seperate file that is protected from snooping. BAH! Back to the drawing board. But this isn't only difficult for parsing of my program, it is also tedious just to go through normally. For instance, before I could just scroll up/down through the listings to compare, or whatever. Now, I must do a bunch of clicks. Another "feature" in the new format is if a property changes value or is new or is about to go off the market, there is a section in each listing that tells you.
On Friday, my wife and I met with my RE agent to tour the two large foreclosures. While I hadn't seen the first home myself, I had seen the second from the outside before and thought it looked nice. Well, after we finished touring both houses, both my wife and I fell in love with the first home. It's 3043sf and was built in 1993. The inside is immaculate - it has plantation shutters on all the downstair windows, new carpet, new paint, new applicances, a weathered (but nice) deck outside, a big backyard (faces the gold course and a pond), and has almost everything we've been looking for in an upgrade house. The only exceptions were (1) it had very little storage space, (2) it still needed some TLC in a couple areas, and (3) it has some eyesores in the backyard (a huge electrical box, a make-shift wooden brace holding some electrical panels, and what looks to be a well of some sort [maybe for the pond?]).
We went home and discussed the property more. The asking price is $249,900, which was a reduced price from an original $269,900. I ran comps and figured the house to be worth about $235,000-$240,000 at best. My RE agent also ran comps and came with a figure of $232,000. I had originally wanted it as an investor property, and figured I could offer no more than $197,000 for it to come out with a decent profit.
On Sunday, my wife wanted to ask a few more questions about the house, so she called my RE agent. The agent said she had talked to the listing agent earlier, and told her that the "system" would not even accept offers below $200,000. She said they have already had "lowball" offers that were rejected, and the owner would be hardpressed to offer anything below $10,000 less than asking. My agent told the listing agent that the house comps at only $232,000, which is far below that price, so the house will definately be sitting. One other thing my agent told us was that the new carpet, new paint, and new appliances (~$20,000 worth of upgrades, according to the listing agent) were put in by the 'lender' to make it a quick sale. This is something I've heard almost no lender would do. What I find ironic is that the house has been sitting for almost 200 days - some quick sale.
My wife and I talked a little more about the property, and I decided to go ahead and email my agent with a starting price of $200,000. If the seller rejects it, I may offer $210,000, but with a stipulation that this is my final offer unless they are willing to drop the price more. If they are hellbent on a max of $240,000, then we'll look elsewhere. I'm not about to pay $8,000 over comp price for a foreclosure that's 10+ years old for my family.
Other Properties
I also looked at another prospect for an investor property. It's a big home (2950sf) in a neighborhood that has mainly smaller homes (generally 1600sf on average, but it has a wide range). It's a Freddie Mac foreclosure. Asking price is $136,000. Comps on the house are hard to get due to its size and location. I've gotten figures of $47/sf to $74sf. I usually average all comps and then drop the highest & lowest two and average the remainder. Whatever average is less is what I base my comp value on (among other comps). In this particular case, I only found 5 properties that are even close to this house (and all were still lower in sf). The average from all was $58/sf and dropping the 2 highest/lowest put it at $54.5/sf. So, I went with 95% of the $54.4/sf and came with a price of $153,000.
I figure resale value at about $149,900. After figuring buy, hold, and sale costs, and my profit, I could offer no more than $115,000. I'll probably submit an offer for $105,000 today.
Another property I found, but have not physically looked at yet, is a 1992, 921sf, 2/2 home. I would probably use this as a L/O or rental. It has a list price of $70,000. I figure a resale value of $68k, and estimated repairs at $5,000. If I were going to flip retail, I couldn't offer more than $44,000. I'm looking at an offer of $40,000 to start, but I need to assess repairs first. It's a HUD, and their report shows only minor trim work with a repair escrow of $550.
Daily Listing Format Change
Right when I think I can start martketing my program to convert these daily listings into a spreadsheet format, the listings change their format. Before, all the listings would be on one HTML page, complete with all the details. All I did was parse the input file and get all the parameters for each property. Now, they changed it to where they only give you 10 properties per page, and the listings only show general info (like beds/baths/SF). In order to get the details, you must click on a link located in the general list page. The problem there is that the link is a JavaScript function, and the function is located in a seperate file that is protected from snooping. BAH! Back to the drawing board. But this isn't only difficult for parsing of my program, it is also tedious just to go through normally. For instance, before I could just scroll up/down through the listings to compare, or whatever. Now, I must do a bunch of clicks. Another "feature" in the new format is if a property changes value or is new or is about to go off the market, there is a section in each listing that tells you.
Friday, February 25, 2005
Anatomy of an Offer
"Failure cannot cope with persistence" - JackHu, Richdad.com
I saw the above quote in the Rich Dad message forums and thought it was awesome. REI is a numbers game, first and foremost. Failures will far outweigh successes in this industry, but persistence is the key to winning the game.
Before going into the details of one of my most recent deals, I thought I would add a couple of disclaimers upfront:
Disclaimer #1: Every offer/deal is different. I don't care if the deal was acquired the same way, financed the same way, closed the same way, and finalized the same way - every deal is different. A deal is analogous to a snowflake. They may all, look, feel, taste, and smell the same, but they are all unique.
Disclaimer #2: While I have submitted several offers, and have many deals still pending, I have yet to do a successful deal yet. I figure it's only a matter of time with the frequency and volume of my offers, but I haven't had one go all the way through the complete cycle yet.
What I hope to accomplish by this post is a general viewpoint of how I analyze a deal. As I said in the 1st disclaimer, no deal is the same, but a lot of them may undergo the same conditions. Using one particular case, I will hope to show how I found the deal, how I arrived at an offer price, and how I submitted it. So let's get started ...
Find the Deal
Finding a deal isn't too hard - it's just knowing where to look. This particular property was found on the MLS. Now, I am not a RE agent (i.e., Realtor®), so I don't have access to the MLS. I also don't have a relative or friend who is a Realtor®. So how do I get daily listings from the MLS that fit my criteria? I became proactive.
In an earlier blog entry, I showed how I found my RE agent. Short story is I submitted several inquiries on property comps on a free web site. The web site would route my inquiry to a local RE agent, who would then send me an email with comp sales for the subject property. I did this twice, and noticed both times my results were from the same RE agent. A lightbulb went off in my head, and I decided to write an email to this agent, telling her who I was, what I was seeking, and how our relatoinship could blossom to be a win-win situation for us both (the actual email used content similar to Bronchick's RE agent fax letter). And a realtionship was born. I had actually tried this before with another agent but they pretty much ignored my response, so I blew them off as well.
Now that I had my RE agent, I just told her what I was looking for and where. BOOM! Now I get daily listings from her every morning at 4am. Since the lstings are in HTML format, I needed a program to convert the format into a CSV (commo-seperated) file, so I could import the data in a spreadsheet and do all kinds of nice things with it. Being a software engineer, I whipped one up in a matter of minutes. Now it takes me only a few mouse clicks, and I have my daily listings in a spreadsheet. It seems the listings are the same with each agent (at least in mygeneral area), so I may tweek my program more and offer it commercially later (het, more passive income!).
So, now I get daily listings, but what is it I'm looking for exactly? Here is where things start to get a little hazy. I generally look for homes that say "as-is", or "foreclosure", or "fixer-upper", or a miriad of terms first, but I actually look at all the homes and use my 6th sense to weed out potential properties. For example, I will generally look at homes with a low Price-per-SF more than others, but not always.
Research the Deal
Now that I have a list of properties, the next step I do is get on my county clerk's web site and do a makeshift title search. I look to see who owned it during the last tax period and start a paper trial. I'll look for the original deed and deed amount, and work myself up to the current time. I'll hypothesize what the loan balance is currently to guage if this property is worth it (if selling by owner or private seller), or what the lender's obligation is (if it's a HUD/VA/REO foreclosure). Armed with that information, I then decide whether to persue the property or not. For example, it may have an IRS lien that could severely cripple the deal.
So, I have a list of potential properties. What's next? The next step is to pay a visit to the property to asses it's condition first hand. Generally, the listings come with a picutre (or slideshow), but pictures can often be deceiving and don't always tell the whole story. If the property looks like an EXCELLENT candidate (not excellent condition, necessarily, but an exccelent deal all-aound), I'll ask my agent to tour the property with me. If it's a property that is on the cusp, I'll just drive out myself and assess the outside and from what I can see by peeking inside.
Arriving at a Price
As gurus always tell you, you must know the After Repair Value (ARV) of a property. This is the upmost importance. Comps are the lifeblood of a deal. For instance, if you make an offer based on tax assessed values, you may or may not get burned in the end. I know assessed property values in my area vary not only from neighborhood to neighborhood, but literaly from house to house. One house may have an owner that protested his value and the tax office dropped it, while his neighbor has never complained. They may be the same exact floorplan, but be $1,000's different in assesed values. Another thing gurus tell you is to get comps from several different sources, and that's what I do. I relay several sources: (1) my agent, (2) my knowledge of the area, (3) current market prices, and (4) online comps. Generally, they will all be in the same area.
A general rule of thumb all RE investors teach is the 70%ARV-Repairs calculation. This is one of those guages everyone should use when pricing properties for an offer. I use it as a guage, but not necessarily as my end offer price. It really all depends on several criteria, such as exit strategy, financing, taxing jurisdictions (yeah, I go that far), and so on. Even then, I ALWAYS tweek the end results depending on the property itself, area appreciation, area expansion, neighborhood conditions, and so on - a lot of "gut feeling" type of stuff.
For this particular example property, here are the figures I arrived at ...
Type: Bank REO
Description: 2002, 3/2, 1751sf
List Price: $114,500
Repairs: $1,000
ARV Price: $131,000
Financing: 100% financed @8%
Hold Costs: $990/mo
Offer Price: $78,000
Exit Strategy: I would either repair and resell this property, or repair and L/O it. Either way, I figured my pricing based on seeing a profit of $10,000 after 6 months of holding. I also always figure in at least a 5% drop in price so the property can move quicker. This is a judgement call, though. If houses are moving quickly I'll adjust the figure downward. If it's a slow-moving area, I'll adjust the figure upward. (You see how a lot of this stuff is knowing the area and not just numbers?)
Now, the $78,000 figure would actually mean a profit of almost $27,000 after 6 months. Why the difference? Again, it's a judgement call, but I like to make my first offer less than my MAO (maximum allowable offer). In this case, I could buy the property for about $95,000 and still see a profit of $10k in 6 months. But as gurus always say, "Always ask for less than you are willing to spend." For one, you just may get it! But, also, it gives you room to negotiate. Yeah, a lot of times your first offer will mean no offer in the end, but like I said earlier - it's a numbers game.
Financing
Make sure to always get your financing in order before you start making any deals. In many instances, the seller (a bank, the government) will require a prequalification letter before even accepting an offer. So it's better to have all your financing available upfront. Can't get a prequal letter from a loan officer because of bad credit, etc.? Find a hard money lender (HML) or private money lender (PNL) to get one for you. A lot of times, financing is the barrier to all newbie's REI careers. This is the thing that stops them cold in the process. Always get your financing in place before anything else, and this won't become a problem later on.
Submitting the Offer
In this particular case, I gave my offer price to my agent and she wrote-up the contract, I signed it, and she submitted it. Nothing could be more painless. I never heard anything for over a week, so I inquired about it. After my agent talked with the listing agent several times, the bank finally countered my offer at $108,500. I asked my agent to resubmit a counter for me at $86,000. This would put my 6 month profit at almost $19k. Unfortunately, the bank said they would not lower their offer of $108,500 - yet. They want to test the waters first. No big deal. Never get emotionallly caught-up in any one deal. Just make your offers, and move on to the next one. Again, it's a numbers game. If you stare too closely at one property, several others will fly by you. Just make the offer, and move on. If your countered, reassess your position, counter (or decline), and move on.
I hope this brief overview of making a deal helps someone out there. I have picked up a lot of knowledge in my short 6 month REI career, but I am still learning myself.
I saw the above quote in the Rich Dad message forums and thought it was awesome. REI is a numbers game, first and foremost. Failures will far outweigh successes in this industry, but persistence is the key to winning the game.
Before going into the details of one of my most recent deals, I thought I would add a couple of disclaimers upfront:
Disclaimer #1: Every offer/deal is different. I don't care if the deal was acquired the same way, financed the same way, closed the same way, and finalized the same way - every deal is different. A deal is analogous to a snowflake. They may all, look, feel, taste, and smell the same, but they are all unique.
Disclaimer #2: While I have submitted several offers, and have many deals still pending, I have yet to do a successful deal yet. I figure it's only a matter of time with the frequency and volume of my offers, but I haven't had one go all the way through the complete cycle yet.
What I hope to accomplish by this post is a general viewpoint of how I analyze a deal. As I said in the 1st disclaimer, no deal is the same, but a lot of them may undergo the same conditions. Using one particular case, I will hope to show how I found the deal, how I arrived at an offer price, and how I submitted it. So let's get started ...
Find the Deal
Finding a deal isn't too hard - it's just knowing where to look. This particular property was found on the MLS. Now, I am not a RE agent (i.e., Realtor®), so I don't have access to the MLS. I also don't have a relative or friend who is a Realtor®. So how do I get daily listings from the MLS that fit my criteria? I became proactive.
In an earlier blog entry, I showed how I found my RE agent. Short story is I submitted several inquiries on property comps on a free web site. The web site would route my inquiry to a local RE agent, who would then send me an email with comp sales for the subject property. I did this twice, and noticed both times my results were from the same RE agent. A lightbulb went off in my head, and I decided to write an email to this agent, telling her who I was, what I was seeking, and how our relatoinship could blossom to be a win-win situation for us both (the actual email used content similar to Bronchick's RE agent fax letter). And a realtionship was born. I had actually tried this before with another agent but they pretty much ignored my response, so I blew them off as well.
Now that I had my RE agent, I just told her what I was looking for and where. BOOM! Now I get daily listings from her every morning at 4am. Since the lstings are in HTML format, I needed a program to convert the format into a CSV (commo-seperated) file, so I could import the data in a spreadsheet and do all kinds of nice things with it. Being a software engineer, I whipped one up in a matter of minutes. Now it takes me only a few mouse clicks, and I have my daily listings in a spreadsheet. It seems the listings are the same with each agent (at least in mygeneral area), so I may tweek my program more and offer it commercially later (het, more passive income!).
So, now I get daily listings, but what is it I'm looking for exactly? Here is where things start to get a little hazy. I generally look for homes that say "as-is", or "foreclosure", or "fixer-upper", or a miriad of terms first, but I actually look at all the homes and use my 6th sense to weed out potential properties. For example, I will generally look at homes with a low Price-per-SF more than others, but not always.
Research the Deal
Now that I have a list of properties, the next step I do is get on my county clerk's web site and do a makeshift title search. I look to see who owned it during the last tax period and start a paper trial. I'll look for the original deed and deed amount, and work myself up to the current time. I'll hypothesize what the loan balance is currently to guage if this property is worth it (if selling by owner or private seller), or what the lender's obligation is (if it's a HUD/VA/REO foreclosure). Armed with that information, I then decide whether to persue the property or not. For example, it may have an IRS lien that could severely cripple the deal.
So, I have a list of potential properties. What's next? The next step is to pay a visit to the property to asses it's condition first hand. Generally, the listings come with a picutre (or slideshow), but pictures can often be deceiving and don't always tell the whole story. If the property looks like an EXCELLENT candidate (not excellent condition, necessarily, but an exccelent deal all-aound), I'll ask my agent to tour the property with me. If it's a property that is on the cusp, I'll just drive out myself and assess the outside and from what I can see by peeking inside.
Arriving at a Price
As gurus always tell you, you must know the After Repair Value (ARV) of a property. This is the upmost importance. Comps are the lifeblood of a deal. For instance, if you make an offer based on tax assessed values, you may or may not get burned in the end. I know assessed property values in my area vary not only from neighborhood to neighborhood, but literaly from house to house. One house may have an owner that protested his value and the tax office dropped it, while his neighbor has never complained. They may be the same exact floorplan, but be $1,000's different in assesed values. Another thing gurus tell you is to get comps from several different sources, and that's what I do. I relay several sources: (1) my agent, (2) my knowledge of the area, (3) current market prices, and (4) online comps. Generally, they will all be in the same area.
A general rule of thumb all RE investors teach is the 70%ARV-Repairs calculation. This is one of those guages everyone should use when pricing properties for an offer. I use it as a guage, but not necessarily as my end offer price. It really all depends on several criteria, such as exit strategy, financing, taxing jurisdictions (yeah, I go that far), and so on. Even then, I ALWAYS tweek the end results depending on the property itself, area appreciation, area expansion, neighborhood conditions, and so on - a lot of "gut feeling" type of stuff.
For this particular example property, here are the figures I arrived at ...
Type: Bank REO
Description: 2002, 3/2, 1751sf
List Price: $114,500
Repairs: $1,000
ARV Price: $131,000
Financing: 100% financed @8%
Hold Costs: $990/mo
Offer Price: $78,000
Exit Strategy: I would either repair and resell this property, or repair and L/O it. Either way, I figured my pricing based on seeing a profit of $10,000 after 6 months of holding. I also always figure in at least a 5% drop in price so the property can move quicker. This is a judgement call, though. If houses are moving quickly I'll adjust the figure downward. If it's a slow-moving area, I'll adjust the figure upward. (You see how a lot of this stuff is knowing the area and not just numbers?)
Now, the $78,000 figure would actually mean a profit of almost $27,000 after 6 months. Why the difference? Again, it's a judgement call, but I like to make my first offer less than my MAO (maximum allowable offer). In this case, I could buy the property for about $95,000 and still see a profit of $10k in 6 months. But as gurus always say, "Always ask for less than you are willing to spend." For one, you just may get it! But, also, it gives you room to negotiate. Yeah, a lot of times your first offer will mean no offer in the end, but like I said earlier - it's a numbers game.
Financing
Make sure to always get your financing in order before you start making any deals. In many instances, the seller (a bank, the government) will require a prequalification letter before even accepting an offer. So it's better to have all your financing available upfront. Can't get a prequal letter from a loan officer because of bad credit, etc.? Find a hard money lender (HML) or private money lender (PNL) to get one for you. A lot of times, financing is the barrier to all newbie's REI careers. This is the thing that stops them cold in the process. Always get your financing in place before anything else, and this won't become a problem later on.
Submitting the Offer
In this particular case, I gave my offer price to my agent and she wrote-up the contract, I signed it, and she submitted it. Nothing could be more painless. I never heard anything for over a week, so I inquired about it. After my agent talked with the listing agent several times, the bank finally countered my offer at $108,500. I asked my agent to resubmit a counter for me at $86,000. This would put my 6 month profit at almost $19k. Unfortunately, the bank said they would not lower their offer of $108,500 - yet. They want to test the waters first. No big deal. Never get emotionallly caught-up in any one deal. Just make your offers, and move on to the next one. Again, it's a numbers game. If you stare too closely at one property, several others will fly by you. Just make the offer, and move on. If your countered, reassess your position, counter (or decline), and move on.
I hope this brief overview of making a deal helps someone out there. I have picked up a lot of knowledge in my short 6 month REI career, but I am still learning myself.
The Chameleon that is REI
I tell you, so much can happen in a matter of hours or even minutes in this business.
First, three (and not two) of the latest offers were HUD's pending a waiting period, so half my new offers will have to wait until Saturday at midnight before they are "officially" submitted.
Second, the property the bank countered on is not budging from their new price (so sayeth my RE agent). They are going to see if they can get any offers on their $108k price first. I told my agent to go ahead and resubmit a new offer of $86k anyway, so they have my offer in their records. I checked the daily listings this morning, and sure enough the bank has listed it at $108,300. I figure someone will swipe this up as it is a good buy at $108k (IF you don't have to worry a lot about fees and whatnot, like I do).
Third, I stopped by one of the Freddie Mac foreclosures on the way home. This house is BIG. It's 3400sf with a 3-car garage. I peeked in the windows, and the inside is very nice. It has light beige paint on the walls, a beautiful staircase, a nice fireplace, and detailed woodwork (crown moulding, chair railing) - and that's what I could see on from the outside. My agent said they dropped the price from $265k to $250k, and would probably bite on lower offers. She mentioned submitting an offer for ~$179k (almost 70% of list price), but I could probably bid higher if need be to make a profit. I still haven't run comps on the house, but its in a nice neighborhood that is seeing houses sell rather quickly (which makes me wonder why this house hasn't sold). It has been on the market for 200+ days. I told my wife about it, and she is wanting to see it as a possible future home for us!
Fourth, of the two offers I submitted, only one went through on fax yesterday, so I had to resend the contract this morning. Two things I'm finding I desperately need in this business: a cell phone and a fax machine. I don't have either. I use the fax machine at work, but I can't continue that practice as things will definately be picking up.
First, three (and not two) of the latest offers were HUD's pending a waiting period, so half my new offers will have to wait until Saturday at midnight before they are "officially" submitted.
Second, the property the bank countered on is not budging from their new price (so sayeth my RE agent). They are going to see if they can get any offers on their $108k price first. I told my agent to go ahead and resubmit a new offer of $86k anyway, so they have my offer in their records. I checked the daily listings this morning, and sure enough the bank has listed it at $108,300. I figure someone will swipe this up as it is a good buy at $108k (IF you don't have to worry a lot about fees and whatnot, like I do).
Third, I stopped by one of the Freddie Mac foreclosures on the way home. This house is BIG. It's 3400sf with a 3-car garage. I peeked in the windows, and the inside is very nice. It has light beige paint on the walls, a beautiful staircase, a nice fireplace, and detailed woodwork (crown moulding, chair railing) - and that's what I could see on from the outside. My agent said they dropped the price from $265k to $250k, and would probably bite on lower offers. She mentioned submitting an offer for ~$179k (almost 70% of list price), but I could probably bid higher if need be to make a profit. I still haven't run comps on the house, but its in a nice neighborhood that is seeing houses sell rather quickly (which makes me wonder why this house hasn't sold). It has been on the market for 200+ days. I told my wife about it, and she is wanting to see it as a possible future home for us!
Fourth, of the two offers I submitted, only one went through on fax yesterday, so I had to resend the contract this morning. Two things I'm finding I desperately need in this business: a cell phone and a fax machine. I don't have either. I use the fax machine at work, but I can't continue that practice as things will definately be picking up.
Thursday, February 24, 2005
Whew! What a day - and it's only noon!
Been playing gnip-gnop with my agent all morning via email on several issues.
First, I went ahead and submitted four of the six offers to her this morning (I can't submit the two HUD's yet). She sent a reply saying she has been eyeing some Freddie Mac foreclosures in my neighborhood, and wanted to know if I was interested. I haven't even heard of these before, so I responded I would have to look more into the numbers first - especially since they have an asking price around $250k. She said if they sit a long time, they usually take a lower price - even 70% asking.
Second, she neede my SSN in order to submit the other HUD properties. She asked to call her vs. emailing her the information. I just now got off the phone with her on that account as I've been in meetings most of the late morning.
Third, she says one of my offers from last week was countered by the bank. This was the property that had an offer higher than mine when I submitted it, but they backed out making me the only bidder. The original list price was $114,500, with an ARV of $131,000. My original offer was $78,000. Now they dropped another $8,500 to $106,000. I told my agent to counter their offer with an offer of $86,000. I figure I can still come out with $10k+ on this deal with an offer of $95k, so I have another $9k of room to bargain.
After work, I'll swing by her office and fill out the docs.
I called my wife to tell her the news. She didn't sound very enthused, but she didn't give me any grief, either. I told her I'd go over the paperwork when I get home, so as not to leave her in the dark.
Damn this is getting fun!!!
First, I went ahead and submitted four of the six offers to her this morning (I can't submit the two HUD's yet). She sent a reply saying she has been eyeing some Freddie Mac foreclosures in my neighborhood, and wanted to know if I was interested. I haven't even heard of these before, so I responded I would have to look more into the numbers first - especially since they have an asking price around $250k. She said if they sit a long time, they usually take a lower price - even 70% asking.
Second, she neede my SSN in order to submit the other HUD properties. She asked to call her vs. emailing her the information. I just now got off the phone with her on that account as I've been in meetings most of the late morning.
Third, she says one of my offers from last week was countered by the bank. This was the property that had an offer higher than mine when I submitted it, but they backed out making me the only bidder. The original list price was $114,500, with an ARV of $131,000. My original offer was $78,000. Now they dropped another $8,500 to $106,000. I told my agent to counter their offer with an offer of $86,000. I figure I can still come out with $10k+ on this deal with an offer of $95k, so I have another $9k of room to bargain.
After work, I'll swing by her office and fill out the docs.
I called my wife to tell her the news. She didn't sound very enthused, but she didn't give me any grief, either. I told her I'd go over the paperwork when I get home, so as not to leave her in the dark.
Damn this is getting fun!!!
My RE Agent and Possible Offers
My RE Agent
I sent my RE agent an email early yesterday with a list of the six prospective properties that I may be submitting bids on today ot tomorrow. Upfront, though, I asked her again if she was confortable with me submitting multiple bids on a weekly basis, and if not, if she preferred I knock the offers down or submit on a more spread frequency. I also thanked her for her help. Here was her response:
I also feel she is right about the frequency of offers slowing down after I get a couple under my belt. For one, the retail business requires a upfront funding that takes money out of your hands. Not a lot, but enough to limit the number of offers you can do. Also, once fall is in full swing, people tend to buy less houses as opposed to the spring and summer. I'm hoping I can get my wholesaling business to net me $5k-$10k per month to help offset a lot of the costs. Once I have cash reserves around $100k-$150k, I won't be worrying too much about limiting the frequency of offers, and I'll start submitting more again.
Possible Offers
My agent also gave me a rundown on the six properties I asked about. Here is the status with a revised offer on each:
Offer #1
Type: HUD
Status: On 10-day hold period.
Description: 2002, 3/2.5, 1952sf
List: $112,000
Repairs: $1,000
ARV: $134,000
My Sell Price: $129,000
My Offer Price: $103,750
Offer/List: 0.93
Offer #2
Type: HUD
Status: On 10-day hold period.
Description: 1980, 4/2.5, 1080sf
List: $75,000
Repairs: $15,000 (guess - still need to assess)
ARV: $85,000
My Sell Price: $84,000
My Offer Price: $47,500
Offer/List: 0.63
Offer #3
Type: VA
Status: No offers?
Description: 1997, 4/2.5, 2036sf
List: $121,000
Repairs: $1,000
ARV: $136,000
My Sell Price: $131,000
My Offer Price: $102,750
Offer/List: 0.85
Offer #4
Type: VA?
Status: Pending, but accepting backups.
Description: 1997, 4/2.5, 2623sf
List: $123,500
Repairs: $1,000
ARV: $132,000
My Sell Price: $129,000
My Offer Price: $101,500
Offer/List: 0.82
Offer #5
Type: REO
Status: Pending, but accepting backups.
Description: 1984, 3/2, 1601sf
List: $99,900
Repairs: $15,000
ARV: $117,000
My Sell Price: $112,000
My Offer Price: $72,500
Offer/List: 0.73
Offer #6
Type: HUD
Status: No offers
Description: 1982, 3/2, 1356sf
List: $95,000
Repairs: $5,000
ARV: $100,000
My Sell Price: $99,900
My Offer Price: $70,000
Offer/List: 0.74
I sent my RE agent an email early yesterday with a list of the six prospective properties that I may be submitting bids on today ot tomorrow. Upfront, though, I asked her again if she was confortable with me submitting multiple bids on a weekly basis, and if not, if she preferred I knock the offers down or submit on a more spread frequency. I also thanked her for her help. Here was her response:
Hi Steve,I'm thankful to have such an enthusiastic and understanding RE agent on my team. I still don't want to submit more than 6-7 offers in any one week, though - at least not until I get a property or two bought-and-sold through her. She understands my position (new RE investor wanting to start building an inventory), which I understand is hard for RE agents to absorb. I told my wife last week that the first property I by and sell via my agent's services, I would send a complimentary gift to her for her help (i.e., gift basket?).
Please be assured that this is what I do, this is what I love to do, and it's exciting to me to work with you in launching your real estate portfolio. Look at it this way: after you get going, things will slow down as far as submitting offers, but at this point you are trying to build a base before prices tick up for the summer selling season.
I also feel she is right about the frequency of offers slowing down after I get a couple under my belt. For one, the retail business requires a upfront funding that takes money out of your hands. Not a lot, but enough to limit the number of offers you can do. Also, once fall is in full swing, people tend to buy less houses as opposed to the spring and summer. I'm hoping I can get my wholesaling business to net me $5k-$10k per month to help offset a lot of the costs. Once I have cash reserves around $100k-$150k, I won't be worrying too much about limiting the frequency of offers, and I'll start submitting more again.
Possible Offers
My agent also gave me a rundown on the six properties I asked about. Here is the status with a revised offer on each:
Offer #1
Type: HUD
Status: On 10-day hold period.
Description: 2002, 3/2.5, 1952sf
List: $112,000
Repairs: $1,000
ARV: $134,000
My Sell Price: $129,000
My Offer Price: $103,750
Offer/List: 0.93
Offer #2
Type: HUD
Status: On 10-day hold period.
Description: 1980, 4/2.5, 1080sf
List: $75,000
Repairs: $15,000 (guess - still need to assess)
ARV: $85,000
My Sell Price: $84,000
My Offer Price: $47,500
Offer/List: 0.63
Offer #3
Type: VA
Status: No offers?
Description: 1997, 4/2.5, 2036sf
List: $121,000
Repairs: $1,000
ARV: $136,000
My Sell Price: $131,000
My Offer Price: $102,750
Offer/List: 0.85
Offer #4
Type: VA?
Status: Pending, but accepting backups.
Description: 1997, 4/2.5, 2623sf
List: $123,500
Repairs: $1,000
ARV: $132,000
My Sell Price: $129,000
My Offer Price: $101,500
Offer/List: 0.82
Offer #5
Type: REO
Status: Pending, but accepting backups.
Description: 1984, 3/2, 1601sf
List: $99,900
Repairs: $15,000
ARV: $117,000
My Sell Price: $112,000
My Offer Price: $72,500
Offer/List: 0.73
Offer #6
Type: HUD
Status: No offers
Description: 1982, 3/2, 1356sf
List: $95,000
Repairs: $5,000
ARV: $100,000
My Sell Price: $99,900
My Offer Price: $70,000
Offer/List: 0.74
Wednesday, February 23, 2005
Offers Still Oustanding
In my initial batch of offers I submitted via my RE agent, two were almost immediately rejected. I hadn't heard anymore about the other two, so I emailed my RE agent yesterday afternoon for an update. Later last night, I checked my email, and she had replied. She said the listing agent told her that the one with a higher offer than mine backed out due to financing, and that my offer is still being considered. My other offer on the other property is also still in the running. The good news is that both have survived a week of scrutiny and haven't been rejected yet. The not-so-good news is they haven't been accepted yet. Without checking, I believe they were both bank REO's. I had told my RE agent when I submitted them that they were my initial offers, but not necessarily my final offers. I left about $5k-$10k of bargaining room in my offers as I've heard banks usually don't take the first offer (unless it's exactly what they want or more).
Two interesting things about these offers that every new investor should know. First, both my RE agent and loan officer said that banks will not bargain. I have stuck with my guns on these, and although I don't have a deal yet on either, the banks have not rejected my offers yet because I submitted lowball offers. Second, with the one offer, my RE agent told me before I submitted it that another offer was pending for a higher price than my own. She suggested I submit it with a higher offer price or not submit it at all. I told her to go ahead and submit my offer, because it was what worked for me, and I may get lucky and the other offer may bail out for some reason. Sure enough, the higher offer on the one property bailed because of financing. Lesson learned is to always stick to what you want, and not what other people say - even professionals in the business.
On a side note, I've tasked my wife to start designing my business cards. I could probably design and order them today, and get them by Friday, but I want to get her more involved in my venture. She has always been interested in desktop publishing and whatnot, so this may be more fun for her than work for me. The only obstacle is she is right in the middle of doing some spring cleaning on our house, so has limited time.
Two interesting things about these offers that every new investor should know. First, both my RE agent and loan officer said that banks will not bargain. I have stuck with my guns on these, and although I don't have a deal yet on either, the banks have not rejected my offers yet because I submitted lowball offers. Second, with the one offer, my RE agent told me before I submitted it that another offer was pending for a higher price than my own. She suggested I submit it with a higher offer price or not submit it at all. I told her to go ahead and submit my offer, because it was what worked for me, and I may get lucky and the other offer may bail out for some reason. Sure enough, the higher offer on the one property bailed because of financing. Lesson learned is to always stick to what you want, and not what other people say - even professionals in the business.
On a side note, I've tasked my wife to start designing my business cards. I could probably design and order them today, and get them by Friday, but I want to get her more involved in my venture. She has always been interested in desktop publishing and whatnot, so this may be more fun for her than work for me. The only obstacle is she is right in the middle of doing some spring cleaning on our house, so has limited time.
Tuesday, February 22, 2005
Offer #5 - "Not Considered"
I was just informed my HUD offer was "not considered" due to another offer being higher. I had really hoped I would get this property as it had a nice profit margin, but I guess someone else thought so, too. That makes a total of 5 offers through my RE agent, with 3 being shot down, and 2 still outstanding. Oh well, each 'no' is one step closer to a 'yes'. ;-)
I figure the 6 offers I spoke about in the previous entry may all get shot down as well. But it's all a numbers game. I submit offers that work for me, and if they don't work then it's on to the next one.
My gut feeling is that the majority of these homes are in pretty good condition, meaning $1k in repairs or less. These are probably the ones the RE agencies are all harvesting. They buy at almost retail and resell for a slim profit. They don't have to worry about margins as much since they ARE the broker/agent. They probably even have worked out good rates on financing, so they can bid even higher. I figure the only way I'll get one of these properties is if it is in terrible shape. The RE agencies want a quick turnaround, and don't want to waste time and money on repairing the properties. I guess I'll focus more on those and less on the low-maintenance types.
I figure the 6 offers I spoke about in the previous entry may all get shot down as well. But it's all a numbers game. I submit offers that work for me, and if they don't work then it's on to the next one.
My gut feeling is that the majority of these homes are in pretty good condition, meaning $1k in repairs or less. These are probably the ones the RE agencies are all harvesting. They buy at almost retail and resell for a slim profit. They don't have to worry about margins as much since they ARE the broker/agent. They probably even have worked out good rates on financing, so they can bid even higher. I figure the only way I'll get one of these properties is if it is in terrible shape. The RE agencies want a quick turnaround, and don't want to waste time and money on repairing the properties. I guess I'll focus more on those and less on the low-maintenance types.
Another Round of Offers
Here are some potential condidates for offers. I will probably submit these through my RE agent later this week ...
Offer #1
Description: 2000, 3/2.5, 1952sf, HUD/VA
List Price: $112,000
Repairs: $1,000
ARV: $129,000
Offer Price: $95,000
Offer/ARV Ratio: 0.74
Offer/List Ratio: 0.85
Offer #2
Description: 1982, 3/2, 1356sf, HUD
List Price: $95,000
Repairs: $5,000
ARV: $100,000
Offer Price: $70,000
Offer/ARV Ratio: 0.70
Offer/List Ratio: 0.74
Offer #3
Description: 1984, 3/2, 1601sf, REO
List Price: $99,900
Repairs: $15,000
ARV: $112,000
Offer Price: $66,500
Offer/ARV Ratio: 0.70
Offer/List Ratio: 0.59
Offer #4
Description: 1980, 4/2.5, 1080sf, REO
List Price: $75,000
Repairs: $10,000
ARV: $84,000
Offer Price: $45,000
Offer/ARV Ratio: 0.54
Offer/List Ratio: 0.60
Offer #5
Description: 1997, 4/2.5, 2036sf, VA
List Price: $121,000
Repairs: $1,000
ARV: $130,000
Offer Price: $95,000
Offer/ARV Ratio: 0.73
Offer/List Ratio: 0.79
Offer #6
Description: 1997, 4/2.5, 2623sf, REO
List Price: $123,500
Repairs: $1,000
ARV: $130,000
Offer Price: $95,000
Offer/ARV Ratio: 0.73
Offer/List Ratio: 0.77
Offer #1
Description: 2000, 3/2.5, 1952sf, HUD/VA
List Price: $112,000
Repairs: $1,000
ARV: $129,000
Offer Price: $95,000
Offer/ARV Ratio: 0.74
Offer/List Ratio: 0.85
Offer #2
Description: 1982, 3/2, 1356sf, HUD
List Price: $95,000
Repairs: $5,000
ARV: $100,000
Offer Price: $70,000
Offer/ARV Ratio: 0.70
Offer/List Ratio: 0.74
Offer #3
Description: 1984, 3/2, 1601sf, REO
List Price: $99,900
Repairs: $15,000
ARV: $112,000
Offer Price: $66,500
Offer/ARV Ratio: 0.70
Offer/List Ratio: 0.59
Offer #4
Description: 1980, 4/2.5, 1080sf, REO
List Price: $75,000
Repairs: $10,000
ARV: $84,000
Offer Price: $45,000
Offer/ARV Ratio: 0.54
Offer/List Ratio: 0.60
Offer #5
Description: 1997, 4/2.5, 2036sf, VA
List Price: $121,000
Repairs: $1,000
ARV: $130,000
Offer Price: $95,000
Offer/ARV Ratio: 0.73
Offer/List Ratio: 0.79
Offer #6
Description: 1997, 4/2.5, 2623sf, REO
List Price: $123,500
Repairs: $1,000
ARV: $130,000
Offer Price: $95,000
Offer/ARV Ratio: 0.73
Offer/List Ratio: 0.77
Some Ramblings
President's Day
My wife reminded me yesterday before I left for work that it was President's Day, and that most government offices, banks, etc., would be closed. Therefore, I probably wouldn't hear anything about the HUD home I made an offer on over the weekend. Sure enough, I got no phone call or email from my agent. Hopefully, I'll hear some good news today.
Marketing
I decided to go full force on my marketing tactics starting this week. As I said in my previous blog entry, relying solely on one avenue in this business for properties will get me no where fast. So, I am going to call up some places today and research (and try to order) the following:
My wife reminded me yesterday before I left for work that it was President's Day, and that most government offices, banks, etc., would be closed. Therefore, I probably wouldn't hear anything about the HUD home I made an offer on over the weekend. Sure enough, I got no phone call or email from my agent. Hopefully, I'll hear some good news today.
Marketing
I decided to go full force on my marketing tactics starting this week. As I said in my previous blog entry, relying solely on one avenue in this business for properties will get me no where fast. So, I am going to call up some places today and research (and try to order) the following:
- Business Cards
- Bandit Signs
- Vehicle Signs
- Voicemail Service (preferably local)
Monday, February 21, 2005
Running on One Cylinder
I was thinking last night about how far I've come over the last several months with REI. I've gone from totally clueless in October to relatively knowledgeble in several facets of investing as well as the residual by-products that come with it. While I have come a long way, all that is for naught at the moment as I have yet to wrap-up a deal yet. In fact, counting the two FSBO's I did in January and early February, I've only submitted offers on a total of six properties to date. Now, I know I have ventured further than most by making offers, but I still feel like I'm running fast in a bog of mud. While pondering my "career", I came to realize that each step I take in this business seems to be on one cylinder. Let me explain ...
My first two offers were with FSBO's. Each of those deals I analyzed and re-analyzed probably a dozen times. As I talked about then in my blog, I committed a big 'no-no' by concentrating my efforts too much on a single deal. Additoinally, as I am finding out now, I am concentrating too much of my time on just one avenue of the business. With the FSBO's, I would travel my farm area or look on the internet for prospects. With my latest efforts, I am relying on HUD/VA/REO properties via daily listings from my RE agent. In both instances, I concentrate on the task at hand, whilst ignoring other lucrative ways to get my business going.
What I need to do is stop talking about biz cards, bandit signs, car signs, etc., and start ordering them, and, better yet, START IMPLEMENTING THEM AS AN ADDITIONAL BUSINESS STREAM. Relying solely on FSBO's or HUD/VA/REO listings or any other single method is like running in a car race with only a single cylinder.
My first two offers were with FSBO's. Each of those deals I analyzed and re-analyzed probably a dozen times. As I talked about then in my blog, I committed a big 'no-no' by concentrating my efforts too much on a single deal. Additoinally, as I am finding out now, I am concentrating too much of my time on just one avenue of the business. With the FSBO's, I would travel my farm area or look on the internet for prospects. With my latest efforts, I am relying on HUD/VA/REO properties via daily listings from my RE agent. In both instances, I concentrate on the task at hand, whilst ignoring other lucrative ways to get my business going.
What I need to do is stop talking about biz cards, bandit signs, car signs, etc., and start ordering them, and, better yet, START IMPLEMENTING THEM AS AN ADDITIONAL BUSINESS STREAM. Relying solely on FSBO's or HUD/VA/REO listings or any other single method is like running in a car race with only a single cylinder.
Another Rejection, Another Offer, Some Other Prospects
Another Rejection
I found out last Friday that Offer #1 was rejected. In a way, I was kind of glad, because it required some significant amount of repairs. I really don't think I have the time or resources right now for a big rehab job. So that makes two of my first four offers shot down. I'm still waiting on word from the other two (I believe they are both bank REO's).
Another Offer
Also last Friday, I met with my RE agent to tour three properties. One was the proposed offer #5 from my previous entry. After touring the property, I felt I could increase my offer price and still come out with a nice profit. The inside only required a few cosmetic repairs (i.e. slightly scratched paint, stained carpets), from what I could see, but I'll have a professional inspector tour the property if my bid is accepted.
All the bedrooms are upstairs as are the two full baths. There is a powder room on the first floor, and the common areas are all carpeted. Some things I noticed this time around were that blinds were installed, a nice refrigerator, a washer (but no dryer?), and a nicely detailed kitchen. I did notice that the countertops were faux corian (formica made to look like corian). Also the back porch is both covered and has an exhaust on the "roof", which I thought was unusual.
After getting back to the RE agent's office, I offered $118,500 for it. Unfortunately, since it was a HUD, I needed a cashier's check (or money order). I had to wait until the next day to get one at my bank. No big deal, because biddings on the house didn't end until Saturday at midnight. It just meant I had to make another trip to the RE agent's office to make the bid. Hopefully, I'll here a 'yea' or 'nay' today (According to my agent).
Some Other Prospects
I am starting to get a little overwhelmed with all the daily prospects I am seeing. As I said above, I toured two other properties with my RE agent last Friday, plus the HUD listings for the week came out this past Saturday. So many properties to analyze, and so little time. The two properties I looked at last Friday were both older homes. The first looked in fair-to-bad condition. It had some rotting wood on the siding, some holes in a couple of cabinets, some rotting in another cabinet, terrible paint in some rooms (bright pink, bright yellow, and dark blue), a lot of stains in the carpet, and so on. I would estimate repairs at $10-$15k at least.
The second property looked great for its age. There was new ceramic tile in all the common areas (albeit a blue-grey tile), like-new appliances, nice landscaping, and an overall good appearance. The only problem I saw was a crack in the ceiling drywall in the hallway. The crack is about 2-3 ft long and maybe 1/8" at its widest. It also goes down one wall to the top of a doorframe. I would definately ask the inspector about this if I persue the property. I figure this property would make a good rental or L/O. I'll do some more analysis and probably submit a bid later this week.
I also found a property via a listing last Friday. I went to look at it by myself yesterday (Sunday). Its a nice 3/2 in a slightly newer subdivision. It was built in 2002 and the asking price is $112,000. I'll probably submit a bid on it as well later this week.
I found out last Friday that Offer #1 was rejected. In a way, I was kind of glad, because it required some significant amount of repairs. I really don't think I have the time or resources right now for a big rehab job. So that makes two of my first four offers shot down. I'm still waiting on word from the other two (I believe they are both bank REO's).
Another Offer
Also last Friday, I met with my RE agent to tour three properties. One was the proposed offer #5 from my previous entry. After touring the property, I felt I could increase my offer price and still come out with a nice profit. The inside only required a few cosmetic repairs (i.e. slightly scratched paint, stained carpets), from what I could see, but I'll have a professional inspector tour the property if my bid is accepted.
All the bedrooms are upstairs as are the two full baths. There is a powder room on the first floor, and the common areas are all carpeted. Some things I noticed this time around were that blinds were installed, a nice refrigerator, a washer (but no dryer?), and a nicely detailed kitchen. I did notice that the countertops were faux corian (formica made to look like corian). Also the back porch is both covered and has an exhaust on the "roof", which I thought was unusual.
After getting back to the RE agent's office, I offered $118,500 for it. Unfortunately, since it was a HUD, I needed a cashier's check (or money order). I had to wait until the next day to get one at my bank. No big deal, because biddings on the house didn't end until Saturday at midnight. It just meant I had to make another trip to the RE agent's office to make the bid. Hopefully, I'll here a 'yea' or 'nay' today (According to my agent).
Some Other Prospects
I am starting to get a little overwhelmed with all the daily prospects I am seeing. As I said above, I toured two other properties with my RE agent last Friday, plus the HUD listings for the week came out this past Saturday. So many properties to analyze, and so little time. The two properties I looked at last Friday were both older homes. The first looked in fair-to-bad condition. It had some rotting wood on the siding, some holes in a couple of cabinets, some rotting in another cabinet, terrible paint in some rooms (bright pink, bright yellow, and dark blue), a lot of stains in the carpet, and so on. I would estimate repairs at $10-$15k at least.
The second property looked great for its age. There was new ceramic tile in all the common areas (albeit a blue-grey tile), like-new appliances, nice landscaping, and an overall good appearance. The only problem I saw was a crack in the ceiling drywall in the hallway. The crack is about 2-3 ft long and maybe 1/8" at its widest. It also goes down one wall to the top of a doorframe. I would definately ask the inspector about this if I persue the property. I figure this property would make a good rental or L/O. I'll do some more analysis and probably submit a bid later this week.
I also found a property via a listing last Friday. I went to look at it by myself yesterday (Sunday). Its a nice 3/2 in a slightly newer subdivision. It was built in 2002 and the asking price is $112,000. I'll probably submit a bid on it as well later this week.
Friday, February 18, 2005
Revised Offer on House #5
My original offer on house #5 was $86k (low) and $96k (high). After doing more research, I think this house is a real bargain at an even higher offer price. Let me explain ...
The subject house is in a still-developing subdivision. It was built in 2002, and has a warranty deed signed August/2002 with a note for $154,523. Now, prices in the area have actually dropped over the last few years, but only by about 1-2%/yr (definately not 22%+ in 2.5 years as the list price would indicate). Brand new comparable homes in the same subdivision are selling for $68-$69/sf, and likeable homes on the same street are selling for about $75/sf. Using a worse case scenario and even taking 10% off that price would yield:
90% of (2,472sf x $68/sf) = $151,286
Now, going further, I took ANOTHER $6k off that price to make the ARV price $145,000. My exit strategy would probably be either flip retail or L/O. If I flip retail and get a 100% loan @8%, I'd be paying about $1,300/month in holding costs (which includes tax, insurance, utilities, HOA, PMI). Selling costs of 8% would then leave me with an after-sell profit of $14,000 if sold immediately, or almost $8k if held for 6 months.
Again this is using a VERY conservative ARV price and an offer price the same as the list price. I figure with the are growing over the last 6-9 months, and an expansion continuing for a while, this house could probably sell within 6 months for $160k+ easy, making the profit exceedingly higher.
I will be going out there today with my RE agent to assess the inside, but from what I could tell this is a real clean house (the kitchen even has a fridge that looks brand new and corian countertops). From what I saw peeking in the windows on the first floor, the carpets and walls look to be in great shape.
The subject house is in a still-developing subdivision. It was built in 2002, and has a warranty deed signed August/2002 with a note for $154,523. Now, prices in the area have actually dropped over the last few years, but only by about 1-2%/yr (definately not 22%+ in 2.5 years as the list price would indicate). Brand new comparable homes in the same subdivision are selling for $68-$69/sf, and likeable homes on the same street are selling for about $75/sf. Using a worse case scenario and even taking 10% off that price would yield:
90% of (2,472sf x $68/sf) = $151,286
Now, going further, I took ANOTHER $6k off that price to make the ARV price $145,000. My exit strategy would probably be either flip retail or L/O. If I flip retail and get a 100% loan @8%, I'd be paying about $1,300/month in holding costs (which includes tax, insurance, utilities, HOA, PMI). Selling costs of 8% would then leave me with an after-sell profit of $14,000 if sold immediately, or almost $8k if held for 6 months.
Again this is using a VERY conservative ARV price and an offer price the same as the list price. I figure with the are growing over the last 6-9 months, and an expansion continuing for a while, this house could probably sell within 6 months for $160k+ easy, making the profit exceedingly higher.
I will be going out there today with my RE agent to assess the inside, but from what I could tell this is a real clean house (the kitchen even has a fridge that looks brand new and corian countertops). From what I saw peeking in the windows on the first floor, the carpets and walls look to be in great shape.
Thursday, February 17, 2005
House #2 - Offer Rejected
I just got word that my second offer got rejected. My agent said the listing agent informed her that both my bid of $50k and another bid were rejected by the bank. She said the other bid had "too many concessions" and my offer was "too low" for them. She also said the bank has already lowered the price from $98k to $93.5k and are pretty much sticking to their guns. I comp'ed the house at about $92-$93k, so I figure the bank will be sitting on this one a while. Just for me to break even, I would have to offer no more than 80% ARV, or about $73k, - and that's with $0 in repairs - so this one is definately out.
Onward and forward.
Onward and forward.
Meeting with Loan Officer
I was finally able to meet with the loan officer my RE agent referred me to late yesterday afternoon. I cam away from the meeting both excited and a little disappointed. I got the prequalification letter, which was one of the main reasons for my visit, and he talked about different loan types and processes of refinancing that sparked an interest for me. After telling him my objectives, he said that the best (but not only) thing I could do for buy-and-sells was this:
Another plus I found out when speaking to him was that he is an investor himself and he also deals with a lot of investors. He told me he partnered with his brother-in-law last year and bought 5/4-plexes. He closed the deal in mid-December 2003, and didn't have to pay his first loan payment until February. He said he collected prorated rent for December, full rent for January and February, paid the first loan payment in February and still had $22k in his pocket. IOW, immediate cashflow. He also said there were a flurry of other options he could do that we could discuss later.
At this point, your are probably asking why I also came away a little disappointed. Well, this came about when we went to discuss a few of the offers I just made with my RE agent - specifically Offer #1 (the major rehab). I told him the list price was $63k, but had an ARV of about $92-$93k. I also told him it needed a complete kitchen, new flooring, new appliances, maybe a new roof, etc., which I estimated at about $20-$25k. I also told him that after all my calculations, I offered $30k for it. Since this was an REO, he said the bank would immediately trash my offer - they wouldn't even counter. He said banks don't like to bargain. They'll just sit on a property until they can get a "reasonable" offer, which I gathered from him talking was no more than 5-10% less than asking price - regardless of repairs. I was taken aback by these comments, because every investor I know says banks (1) will go lower to unload inventory and (2) will offer substantially lower knowing there is a lot of repair work. After talking with him and running numbers, he suggested I submit another offer for $60k - just $3k less than asking. He said I could get a 100% loan, make repairs, refinance and cash-out some equity to pay repairs and hold costs, and resell for a nice profit. I was thinking at this point "What profit?" I buy for $60k, put $25k in repairs, add 3-6 months hold costs, add selling costs, and I'd be in the red on this property.
So, while I like most of his pitch, and will probably use him for some deals, I have to be careful in ignoring some of his advice and go with my own instincts. I respect his position and sevices he can offer me, but I'll have to make my own decisions when it comes to purchases. The last thing I need when just starting out is to have cashflow negative properties in my inventory.
But I got a prequal letter, which again was one of the main reasons for going. Now I can submit bids on HUD and VA properties.
- Get a purchase contract signed.
- He would get a 100% ARM that would carry an 8-9% rate for the purchase price.
- Close on the house.
- After 1-2 weeks (or when the repairs are done), refinance the house at a lower rate with the ARV price to cash-out some equity.
- Sell the house and get the remaining equity.
Another plus I found out when speaking to him was that he is an investor himself and he also deals with a lot of investors. He told me he partnered with his brother-in-law last year and bought 5/4-plexes. He closed the deal in mid-December 2003, and didn't have to pay his first loan payment until February. He said he collected prorated rent for December, full rent for January and February, paid the first loan payment in February and still had $22k in his pocket. IOW, immediate cashflow. He also said there were a flurry of other options he could do that we could discuss later.
At this point, your are probably asking why I also came away a little disappointed. Well, this came about when we went to discuss a few of the offers I just made with my RE agent - specifically Offer #1 (the major rehab). I told him the list price was $63k, but had an ARV of about $92-$93k. I also told him it needed a complete kitchen, new flooring, new appliances, maybe a new roof, etc., which I estimated at about $20-$25k. I also told him that after all my calculations, I offered $30k for it. Since this was an REO, he said the bank would immediately trash my offer - they wouldn't even counter. He said banks don't like to bargain. They'll just sit on a property until they can get a "reasonable" offer, which I gathered from him talking was no more than 5-10% less than asking price - regardless of repairs. I was taken aback by these comments, because every investor I know says banks (1) will go lower to unload inventory and (2) will offer substantially lower knowing there is a lot of repair work. After talking with him and running numbers, he suggested I submit another offer for $60k - just $3k less than asking. He said I could get a 100% loan, make repairs, refinance and cash-out some equity to pay repairs and hold costs, and resell for a nice profit. I was thinking at this point "What profit?" I buy for $60k, put $25k in repairs, add 3-6 months hold costs, add selling costs, and I'd be in the red on this property.
So, while I like most of his pitch, and will probably use him for some deals, I have to be careful in ignoring some of his advice and go with my own instincts. I respect his position and sevices he can offer me, but I'll have to make my own decisions when it comes to purchases. The last thing I need when just starting out is to have cashflow negative properties in my inventory.
But I got a prequal letter, which again was one of the main reasons for going. Now I can submit bids on HUD and VA properties.
Wednesday, February 16, 2005
Offer #5: HUD/VA
While I haven't yet submitted this offer, I wanted to give the particulars about it. It is probably my second favorite (the first being the major rehab).
Type: HUD/VA, 2002, 4/2.5, 2472sf SFR (same area as offer #3 and #4).
List Price: $120,000
ARV: $140,000
2004 Assessed: $141,070
Repairs: $2,000
Monthly Costs: $1,135
Sell Costs: $11,290
MAO = (0.7)140,000 - 2,000 = $96,000
First Offer: $86,000
Very nice home in a nice neighborhood. If I was an expeienced investor with a lot of cash, I would offer more for this property. I never got inside, but I was able to peek inside. It has a beautiful kitchen, complete with a regrigerator and corian countertops. Since this is a HUD/VA, I don't believe there is any counterofferings allowed. They just get the bids, review them, and either take the highest or start the process over again. However, before anything, I need to get a prequal letter. Hopefully, I'll get in touch with the loan officer today and he can fax the letter over to my agent. She can then draw up the paperwork, and I can swing by there after work to sign the docs.
Damn. This is getting exciting!
Type: HUD/VA, 2002, 4/2.5, 2472sf SFR (same area as offer #3 and #4).
List Price: $120,000
ARV: $140,000
2004 Assessed: $141,070
Repairs: $2,000
Monthly Costs: $1,135
Sell Costs: $11,290
MAO = (0.7)140,000 - 2,000 = $96,000
First Offer: $86,000
Very nice home in a nice neighborhood. If I was an expeienced investor with a lot of cash, I would offer more for this property. I never got inside, but I was able to peek inside. It has a beautiful kitchen, complete with a regrigerator and corian countertops. Since this is a HUD/VA, I don't believe there is any counterofferings allowed. They just get the bids, review them, and either take the highest or start the process over again. However, before anything, I need to get a prequal letter. Hopefully, I'll get in touch with the loan officer today and he can fax the letter over to my agent. She can then draw up the paperwork, and I can swing by there after work to sign the docs.
Damn. This is getting exciting!
Offers made on 4 Houses
I have been analyzing several properties from the lists I get each morning from my realtor over the past week. I have been procrastinating on submitting the offers out of (1) fear/anxiety and (2) because I have no financing in place. Regardless, I finally just made the offers and will see what comes.
There were 5 offers altogether, however, one of the offers was a HUD/VA home that required a prequalification letter. I may submit the offer today, if I can get the letter from the loan officer I spoke about in recent blogs. Here is how things transpired ...
I had already been analyzing the bejeebers out of four of the properties over the last few days. I devised several exit strategies for each, and did my best in determining resell value (ARV), repair costs, holding costs, etc. When I opened the list of properties from yesterday, I found one that was perfect. It had a list price of $63,000 and an ARV of about $95,000. I called my RE agent later and asked her the details, and she said it was a mess inside. It required a whole new kitchen, new flooring, the roof was in bad shapre, new HVAC, and new water heater. When I found all that out, I knew I had to submit an offer for this one property at least.
I decided, though, to just go ahead and submit an offer on all five of the properties. So, I sent my agent an email with the property informatoin, my offers on each, and some detailed info required for title work. She responded that she would send the contracts via email, and all I would ned to do is look over and sign them, and then send them back to her. At this point it was about 3pm, and I had come in early, so I left for home. I had to stop off at the grocery store to pick up a few things, but made it home about 3:45pm. When I got home, I thought maybe it would be better to just go by my agent's office and sign the paperwork there, so I did.
I called my agent, and told her I was on my way. Luckily, her office is only a few miles away, so it only took me about 15 mins. to get there. I met her, she went over the documents, and explained I would need a prequal letter for the HUD/VA home (which I didn't have). She asked if I had gotten hold of the loan officer she referred me to, and I explained I had tried over the last several days without any luck. She then called him right then and there! Unfortunately, she got his voicemail, also. So, that property is on hold for now until I can get a prequal letter. After signing the docs, she immediately faxed them to where they needed to go and I left with a feeling of both excitement and fear - but I made a big step.
Here are the particulars on the offers I made ...
Offer #1
Description: Private Seller, 1984, 3/2, 1278sf SFR. This is the property that needs the new kitchen, etc. I haven't even seen the property yet, but figured I would need to make an offer immediately, before other investors see the opportunity. It is located in an older part of town, but has potential to make profit as a rehab.
List Price: $63,000
ARV: $93,000
Repairs: $20,000
2004 Assessed: $102,616
Monthly Hold Costs: $685
Sell Costs: $7,440
MAO = (0.7)93,000 - 20,000 = $45,100
First Offer: $35,000
At the beginning, I will always try to offer $10k less than my MAO. This way I have room to bargain up to my MAO - plus, like so many gurus teach, I just may get it!
Before meeting with the RE agent, I decided to knock another $5k off the initial offer. I reran some repair figures, and still came out to about $20k, but I wanted to leave some additional "space" in case repair costs exceed what I think they will be (all gurus say to add another 20%, but I added 25%). The RE agent said it was just listed this morning, and she doesn't think it has any other offers yet. Nothing like getting a major rehab as my first property. :-|
Potential Profit: $30k-$35k
Offer #2
Description: REO, 1984, 4/2, 1434sf SFR. Located in the same neighborhood as the offer above. From my outside inspection, it looks like it has some rotting boards that need replaced, a new garage door (although it may still work), and some other cosmetic repairs. Although I hadn't seen the inside, I added an additional $7,500 for a water heater, and appliances - just in case, for a total of $10k in repairs.
List Price: $93,500
ARV: $106,000
Repairs: $10,000
2004 Assessed: $110,450
Monthly Hold Costs: $790
Sell Costs: $8,480
MAO = (0.7)106,000 - 10,000 = $64,200
First Offer: $54,000
Again, I readjusted my initial offer price down a few thousand to an even $50,000. The agent said she had shown the property to some prospective buyers in the past, and the inside doesn't need a whole lot of work. She also said it has a couple of offers outstanding that are higher than mine. But I told her to go ahead and submit my $50,000 offer anyway, just in case.
Potential Profit: $28k-$35k
Offer #3
Description: REO, 2002, 3/2, 1751sf SFR. Located in a newer subdivision in another town close by. I went to look at the property over the weekend, and seemed very clean inside and out.
List Price: $114,500
ARV: $130,000
Repairs: $2,000
2004 Assessed: $119,800
Monthly Hold Costs: $1,026
Sell Costs: $10,400
MAO = (0.7)130,000 - 2,000 = $89,000
First Offer: $79,000
Just like the previous offers, I lowered it a little more before submitting the offer. My initial offer is now $78,000.
Potential Profit: $26k-$36k
The agent said that there were 3 offers higher than mine already, and wanted to know if I wanted to raise my offer. I told her to go ahead with my offer. Since this is the first time I've made an offer on an REO, I don't want to get burned making an offer that will have me being in the red.
Offer #4
Description: REO, 2003, 3/2, 1387sf SFR. Located in the same general area as offer #3. I also saw this house over the weekend, and it seemed to be in pretty good shape (being a 2003, it should be).
List Price: $105,900
ARV: $108,000
Repairs: $2,000
2004 Assessed: $113,008
Monthly Hold Costs: $945
Sell Costs: $8,640
MAO = (0.7)108,000 - 2,000 = $73,600
First Offer: $68,000
Since this was a relatively newer home, I decided to fudge the numbers up on my initial offer. I first calculated my initial offer at $68,000, but decided at the last minute to knock another $1,000 off, making my offer $67,000. My agent said that it has been sitting for a week, and there were no offers yet - mine was the first one.
Potential Profit: $18k-$27k
Conclusion
While I would like to have one or two of these properties come through, I really don't expect any of my offers to be accepted. I think MAYBE one or two might counter, but even that's wishful thinking. My main point in doing these offers was to give me experience in the process. In just a short 12 hours, I learned a huge amount about the REO process, submitting offers through agents, analyzing and reanalyzing offers to fit my needs (no matter what others think), and so much more.
My only fear at this point is if 3 or 4 of the offers get accepted. I don't have the cash reserves to really handle buy/hold/sell costs for 3 or 4 of these properties. I guess if that happens, I'll just have to eat my earnest money deposit(s). Because if I can get just one property, I will still come out way ahead.
There were 5 offers altogether, however, one of the offers was a HUD/VA home that required a prequalification letter. I may submit the offer today, if I can get the letter from the loan officer I spoke about in recent blogs. Here is how things transpired ...
I had already been analyzing the bejeebers out of four of the properties over the last few days. I devised several exit strategies for each, and did my best in determining resell value (ARV), repair costs, holding costs, etc. When I opened the list of properties from yesterday, I found one that was perfect. It had a list price of $63,000 and an ARV of about $95,000. I called my RE agent later and asked her the details, and she said it was a mess inside. It required a whole new kitchen, new flooring, the roof was in bad shapre, new HVAC, and new water heater. When I found all that out, I knew I had to submit an offer for this one property at least.
I decided, though, to just go ahead and submit an offer on all five of the properties. So, I sent my agent an email with the property informatoin, my offers on each, and some detailed info required for title work. She responded that she would send the contracts via email, and all I would ned to do is look over and sign them, and then send them back to her. At this point it was about 3pm, and I had come in early, so I left for home. I had to stop off at the grocery store to pick up a few things, but made it home about 3:45pm. When I got home, I thought maybe it would be better to just go by my agent's office and sign the paperwork there, so I did.
I called my agent, and told her I was on my way. Luckily, her office is only a few miles away, so it only took me about 15 mins. to get there. I met her, she went over the documents, and explained I would need a prequal letter for the HUD/VA home (which I didn't have). She asked if I had gotten hold of the loan officer she referred me to, and I explained I had tried over the last several days without any luck. She then called him right then and there! Unfortunately, she got his voicemail, also. So, that property is on hold for now until I can get a prequal letter. After signing the docs, she immediately faxed them to where they needed to go and I left with a feeling of both excitement and fear - but I made a big step.
Here are the particulars on the offers I made ...
Offer #1
Description: Private Seller, 1984, 3/2, 1278sf SFR. This is the property that needs the new kitchen, etc. I haven't even seen the property yet, but figured I would need to make an offer immediately, before other investors see the opportunity. It is located in an older part of town, but has potential to make profit as a rehab.
List Price: $63,000
ARV: $93,000
Repairs: $20,000
2004 Assessed: $102,616
Monthly Hold Costs: $685
Sell Costs: $7,440
MAO = (0.7)93,000 - 20,000 = $45,100
First Offer: $35,000
At the beginning, I will always try to offer $10k less than my MAO. This way I have room to bargain up to my MAO - plus, like so many gurus teach, I just may get it!
Before meeting with the RE agent, I decided to knock another $5k off the initial offer. I reran some repair figures, and still came out to about $20k, but I wanted to leave some additional "space" in case repair costs exceed what I think they will be (all gurus say to add another 20%, but I added 25%). The RE agent said it was just listed this morning, and she doesn't think it has any other offers yet. Nothing like getting a major rehab as my first property. :-|
Potential Profit: $30k-$35k
Offer #2
Description: REO, 1984, 4/2, 1434sf SFR. Located in the same neighborhood as the offer above. From my outside inspection, it looks like it has some rotting boards that need replaced, a new garage door (although it may still work), and some other cosmetic repairs. Although I hadn't seen the inside, I added an additional $7,500 for a water heater, and appliances - just in case, for a total of $10k in repairs.
List Price: $93,500
ARV: $106,000
Repairs: $10,000
2004 Assessed: $110,450
Monthly Hold Costs: $790
Sell Costs: $8,480
MAO = (0.7)106,000 - 10,000 = $64,200
First Offer: $54,000
Again, I readjusted my initial offer price down a few thousand to an even $50,000. The agent said she had shown the property to some prospective buyers in the past, and the inside doesn't need a whole lot of work. She also said it has a couple of offers outstanding that are higher than mine. But I told her to go ahead and submit my $50,000 offer anyway, just in case.
Potential Profit: $28k-$35k
Offer #3
Description: REO, 2002, 3/2, 1751sf SFR. Located in a newer subdivision in another town close by. I went to look at the property over the weekend, and seemed very clean inside and out.
List Price: $114,500
ARV: $130,000
Repairs: $2,000
2004 Assessed: $119,800
Monthly Hold Costs: $1,026
Sell Costs: $10,400
MAO = (0.7)130,000 - 2,000 = $89,000
First Offer: $79,000
Just like the previous offers, I lowered it a little more before submitting the offer. My initial offer is now $78,000.
Potential Profit: $26k-$36k
The agent said that there were 3 offers higher than mine already, and wanted to know if I wanted to raise my offer. I told her to go ahead with my offer. Since this is the first time I've made an offer on an REO, I don't want to get burned making an offer that will have me being in the red.
Offer #4
Description: REO, 2003, 3/2, 1387sf SFR. Located in the same general area as offer #3. I also saw this house over the weekend, and it seemed to be in pretty good shape (being a 2003, it should be).
List Price: $105,900
ARV: $108,000
Repairs: $2,000
2004 Assessed: $113,008
Monthly Hold Costs: $945
Sell Costs: $8,640
MAO = (0.7)108,000 - 2,000 = $73,600
First Offer: $68,000
Since this was a relatively newer home, I decided to fudge the numbers up on my initial offer. I first calculated my initial offer at $68,000, but decided at the last minute to knock another $1,000 off, making my offer $67,000. My agent said that it has been sitting for a week, and there were no offers yet - mine was the first one.
Potential Profit: $18k-$27k
Conclusion
While I would like to have one or two of these properties come through, I really don't expect any of my offers to be accepted. I think MAYBE one or two might counter, but even that's wishful thinking. My main point in doing these offers was to give me experience in the process. In just a short 12 hours, I learned a huge amount about the REO process, submitting offers through agents, analyzing and reanalyzing offers to fit my needs (no matter what others think), and so much more.
My only fear at this point is if 3 or 4 of the offers get accepted. I don't have the cash reserves to really handle buy/hold/sell costs for 3 or 4 of these properties. I guess if that happens, I'll just have to eat my earnest money deposit(s). Because if I can get just one property, I will still come out way ahead.
Tuesday, February 15, 2005
Service These Days
My wife and I have commented over the last few years how service in just about any industry in America has steadily gone downhill. For example, you go to a restaurant or fast food joint and order your meal, and either the order is wrong, it takes forever, its cold when it arrives, the server has an attitude, or a combination of things. Another example is calling up companies or doctor's offices or whatever, and come away from the conversation like you aren't a customer, but rather a bother to them. Going one step further, we've even called companies and either been put on hold forever or get a voice mailbox - and even when we leave a message, we get no return call!
It just amazes me that service these days has digressed to a point where I, the customer, feel that these people are doing me a favor instead of vice-versa. My connection to this rant and REI is this ...
In January, I found an FSBO and gathered as much info as I could about it. I found a local investor via a free weekly local paper. The ad had a phone number and web site. I called the phone number and got a voicemail system. I decided to try the web site, and left my info. The investor returned my email a couple days later, and, in turn, I sent him the info on the FSBO. A few days later, I get a reply from the investor thanking me. I email him back asking some questions. No response. A couple weeks later, I get a $5 check in the mail for my referral, but still no response from my questions. I send him another email, asking some more questions. No response.
The latest example is this local senior loan officer I've been trying to contact that my RE agent referred me to. I sent him an email last week, and got a response almost immediately, asking me to call him to set up a meeting. I called three times last Friday, and he was either on the line or away from his desk. Then yesterday (Monday), I called and he was on the phone again. This time I left him my name, home phone, and a brief message. I thought I would have a message from him on my answering machine - or at least an indication that he called (I have caller ID) - but when I got home, I got nothing. I checked my email this morning, and nothing there either.
It just fathoms me how people do (and stay in) business. Or, maybe I'm just unlucky in this area. Here I am offering my services and money, yet no one wants to come to the table. I'm just at a loss.
I will say that I sent an email to an HML in Dallas, and he responded promptly. His company is DHLC Investments. His rates look pretty good for a hard money lender, and I would definately like to do business with him in the future.
It just amazes me that service these days has digressed to a point where I, the customer, feel that these people are doing me a favor instead of vice-versa. My connection to this rant and REI is this ...
In January, I found an FSBO and gathered as much info as I could about it. I found a local investor via a free weekly local paper. The ad had a phone number and web site. I called the phone number and got a voicemail system. I decided to try the web site, and left my info. The investor returned my email a couple days later, and, in turn, I sent him the info on the FSBO. A few days later, I get a reply from the investor thanking me. I email him back asking some questions. No response. A couple weeks later, I get a $5 check in the mail for my referral, but still no response from my questions. I send him another email, asking some more questions. No response.
The latest example is this local senior loan officer I've been trying to contact that my RE agent referred me to. I sent him an email last week, and got a response almost immediately, asking me to call him to set up a meeting. I called three times last Friday, and he was either on the line or away from his desk. Then yesterday (Monday), I called and he was on the phone again. This time I left him my name, home phone, and a brief message. I thought I would have a message from him on my answering machine - or at least an indication that he called (I have caller ID) - but when I got home, I got nothing. I checked my email this morning, and nothing there either.
It just fathoms me how people do (and stay in) business. Or, maybe I'm just unlucky in this area. Here I am offering my services and money, yet no one wants to come to the table. I'm just at a loss.
I will say that I sent an email to an HML in Dallas, and he responded promptly. His company is DHLC Investments. His rates look pretty good for a hard money lender, and I would definately like to do business with him in the future.
Monday, February 14, 2005
Another Speed Bump: Money
I tried calling the loan officer my RE agent referred me to last Friday, but he was either away from his desk or on the phone (per his assistant). Thus, I was not able to speak to him about the types of services he could offer me. In the meantime, I found a hard money lender located in Dallas via Joe Kelley's blog. I ran some numbers, and using the HML would set me back about $1,500 more compared to my initial calculations using a traditional lender. Of course, the advantage of using the HML is time. I could close in a matter of a week or so with a HML, but would have to wait 3-6 weeks with a traditional lender. Of course, I could use my 401k and/or get a HELOC to fund the majority (if not all) of cash needed for a property, but I would be tying up all of my reserves for just ONE property. And if that one property happened to sit for long time, I would be at a standstill.
So, I called the loan officer again today, and got his voicemail (again). This time, I left him a message to call me back at home. I should get home around 3:30p-4:00p today, so I should have ample time to return his call (if he answers the phone). With this being Valentine's Day, I will be tied-up for the rest of the day.
Note to New Investors: Line up your financing before you look for properties. In my case, I've spent most of my time looking for good deals, but ignored the financing part. Now that the deals are showing up, I have to scramble to get the funds to make an offer.
So, I called the loan officer again today, and got his voicemail (again). This time, I left him a message to call me back at home. I should get home around 3:30p-4:00p today, so I should have ample time to return his call (if he answers the phone). With this being Valentine's Day, I will be tied-up for the rest of the day.
Note to New Investors: Line up your financing before you look for properties. In my case, I've spent most of my time looking for good deals, but ignored the financing part. Now that the deals are showing up, I have to scramble to get the funds to make an offer.
Saturday, February 12, 2005
My Insurance Agent and the Importance of Networking
After work yesterday, I had a couple of errands to run. One was to talk with my insurance agent about my homeowners policy. Long story short, I negotiated the annual premium down about $58 the week after Christmas and paid it on the spot. Shortly afterward, they kept saying I still owed $38. So, I just wanted to clear the whole matter up.
I met with my agent and he tried to resolve the problem. After about 10 mins., he finally figured out the problem. It seems my insurance company has a discount attached to the age of a home. After five years, the dicount decreases a few percentage points. It just so happens my home turned five years old on January 9th, and that was the cause of the additional $38 fee. It should have been caught when I talked with my agent's assistance after Christmas, but its just one of those things.
But that's not the reason for this post.
After settling that matter, I asked my agent if he had time to discuss RE investment matters as it relates to insurance coverage. We talked for almost an hour. He used to be a CPA, but doesn't practice any longer (insurance takes all his time). However, he does know some very competent CPA's who deal with investors. I gave him an idea of what I wanted to do (buy-n-hold, buy-fix-sell, etc.), and asked about coverages in each particular circumstance. He gave me some good information, but said each circumstance is different in regards to coverage, in most circumstances. I told him I'd touch base again once I actually get a property that requires coverage.
The good thing is I now have some solid leads on REI-savvy CPA's. Not to mention, he also gave me some leads on some other investors (big time investors) and some other RE agents who do investing on the side.
It just goes to show you that networking does pay off. Also, the echo of "you can't do everything yourself in this industry" is also becoming more prominant.
Yet another milestone has been overcome.
I met with my agent and he tried to resolve the problem. After about 10 mins., he finally figured out the problem. It seems my insurance company has a discount attached to the age of a home. After five years, the dicount decreases a few percentage points. It just so happens my home turned five years old on January 9th, and that was the cause of the additional $38 fee. It should have been caught when I talked with my agent's assistance after Christmas, but its just one of those things.
But that's not the reason for this post.
After settling that matter, I asked my agent if he had time to discuss RE investment matters as it relates to insurance coverage. We talked for almost an hour. He used to be a CPA, but doesn't practice any longer (insurance takes all his time). However, he does know some very competent CPA's who deal with investors. I gave him an idea of what I wanted to do (buy-n-hold, buy-fix-sell, etc.), and asked about coverages in each particular circumstance. He gave me some good information, but said each circumstance is different in regards to coverage, in most circumstances. I told him I'd touch base again once I actually get a property that requires coverage.
The good thing is I now have some solid leads on REI-savvy CPA's. Not to mention, he also gave me some leads on some other investors (big time investors) and some other RE agents who do investing on the side.
It just goes to show you that networking does pay off. Also, the echo of "you can't do everything yourself in this industry" is also becoming more prominant.
Yet another milestone has been overcome.
Friday, February 11, 2005
Mortgage Broker
When I first established a relationship with my RE agent, she mentioned that she knew of a mortgage broker who dealt a lot with investors, and could probably get me some good deals regarding financing. Up until now, I haven't given it much thought, but seing as how I will probably need a financeer for the REO's I'm looking at, I figured I better get in touch with this person to see his services.
I sent him an email right before I left work yesterday afternoon. Here is the entire email for your viewing pleasure (names ommitted to protect the innocent):
It's amazing all the work I've done to this point to get the ball rolling on my REI venture, yet I still haven't made a succesfull deal yet. Hopefully, with my perceverence, I'll get one under wraps soon.
I sent him an email right before I left work yesterday afternoon. Here is the entire email for your viewing pleasure (names ommitted to protect the innocent):
Hi Mr. [Name],I wasn't exactly sure what kind of response I would get (if at all). I left work, and went to go look at the one REO I couldn't find the previous day. When I got home, I unraveled, ate dinner, played with my daughter, etc. Later in the evening, I thought I would check my email. Sure enough, I had gotten a response from the mortgage broker. He had sent a reply to my email within an hour of me sending it. Although he didn't really answer my questions about current rates, he does sound like good lead if I need money. Here was his response:
I was referred to you by [My RE Agent] from [My RE Agent's Company]. I am a real estate investor, and wanted to touch base with you on services you could offer me. Primarily, I am looking for financing that requires very little, if any, out-of-pocket expenses on my part upfront. [My RE Agent] mentioned you have good rates on 100% investor loans as well as interest-only loans. I would like to get more information on these as well as any other investor-type loans, like 103% financed loans and repair loans).
I'll give you a better understanding of my position. I plan to buy properties on the wholesale market. Most of the properties will require repairs of some magnitude, but not all. If the property does require rehabbing, I'll get a crew in to repair it to retail marketable condition. I will then sell the property on the retail market. While it is impossible to predict repair and holding lengths for any property, I would estimate the majority would go from wholesale purchase to retail sale in a matter of a few months to no more than a year. I understand many lenders have seasoning issues that require the owner to hold the property for 6 months to a year or more. Seeing as how I would like to unload the properties as quickly as possible, holding them for uneccessary periods of time would work counterintuitive to my needs.
Please let me know what services you have available for my investment needs. I would also like to know the going rates for these types of loans as well as underwriting costs/fees. I realize rates and fees fluctuate daily, but I want to get a better understanding of how to position myself when purchasing properties.
I look forward to doing business with you.
Regards,
[My Full Name]
Steve,I'll be busy today after work with other things I've scheduled, but I'll try to make room today to AT LEAST give this person a call. I also have to still set up a meeting with my insurance agent to discuss rates he can offer me on rentals and houses that are not owner-occupied/empty.
We do in fact have many investor loans that don't require any down payment. In fact I closed a set of 5 four-plexes for a group of investors in December that resulted in them getting about $5,000 at closing and they had over $35,000 in their account from collected rent before they had to make their $13,000 payment in Feb, giving them a $22,000 cushion without ANY out of pocket expense.
The scenario that you describe is one that I have thought through with several of my investor clients. I have started to implement a system of financing that results in them being able to buy a property without any money out of pocket and then within only a few weeks refinance that property in order to get cash out for repairs and other cash-flow needs. You're right about a lot of lenders requiring seasoning before selling or refinancing, but we have relationships with lenders who don't require any seasoning, and offer VERY competitive rates. Give me a call and let's schedule a time to get together and talk about your specific situation. I could go on and on about what I've done for other people, but I can't know what I can do for you until I know what your credit and financial situation look like.
I look forward to hearing from you.
Thanks,
[Name and Number]
It's amazing all the work I've done to this point to get the ball rolling on my REI venture, yet I still haven't made a succesfull deal yet. Hopefully, with my perceverence, I'll get one under wraps soon.
Thursday, February 10, 2005
Scrutinizing Profit Calculations
With the latest properties I found, I decided to build a spreadsheet to analyze different criteria. From Ron LeGrand to the modern gurus, everyone always seems to teach the same profit calculations:
(1) MAO = 70%ARV - repairs - fees
(2) MAO = ARV - 25,000 - repairs - fees
MAO = Maximum Allowable Offer
ARV = After Repair Value
"repairs" = cost of repairs, if any
"fees" = Birddog/referral fees, if any
Now, the "70%ARV" is supposed to include costs to buy the property, costs to hold the property for at least 6 months, and costs to sell the property retial. I have used these exact calculations in the (few) offers I've made to date. However, when analyzing the calculations more, they are really a conservative estimate on costs (which is good).
Let me explain with an example ...
One of the properties I am looking at now is an REO with a list price of $93,500. I went out yesterday by myself to look at the condition of the property, and it looks like it could use about $5,000 in repairs (mainly rotting wood on the chimney). I haven't run cmps, but lets say the house has an ARV of $109,500. Using the calculations, I have:
(1) MAO = (0.7)109500 - 5000 - 0 = $71,650
(2) MAO = 109500 - 25000 - 5000 - 0 = $79,500
Since the MAO in (1) is lower, that should be my offer. Now before I show some extrenuous calculation, I want the readers to know that those two calculations should be used in practically all circumstance, because (1) they give room for underestimating and (2) they are quick to do - especially when you are working in volume.
I thought these numbers were interesting, but I wanted to see what would happen in the real world with real rates and figures, and set about making a spreadsheet on this property with projected forecasts. Here is what I found ...
List: $93,500
Assessed: $110,450
ARV: $109,500
Financing: 103% Loan @6.5% (should be higher?)
Buy Costs: $0 (rolled into loan)
Insurance: 0.5%/yr (based on assessed value - higher?)
Taxes: 2.5%/yr (based on assessed value)
Utilities: $100/mo. (conservative estimate)
PMI: 1%/yr (based on loan amount)
Sell Costs: 8% of Sell/ARV Price
Monthly Financing: $507.80
Monthly Insurance: $46.02
Monthly Taxes: $230.10
Monthly Utilities: $100.00
Monthly PMI: $66.95
TOTAL MONTHLY/HOLD COSTS: $950.88
Sell Costs: $8,760.00
Earnest Money: $500.00
If I were to buy the house for the MAO (minus my earnest money deposit), my monthly profit would be:
However, I could fudge the numbers such that my asking price could be higher and still have a good profit:
One other thing that I want to caution is that the calculations in the beginning of this entry are more for Wholesaling than retailing. IOW, they are mainly used for people who desire to wholesale to rehabbers/retailers. What I am doing is showing how to nudge numbers for retailing. Sometimes in order to get a property, you may have to bid higher than the two MAO calculations. Just run the numbers to see what kind of profit you would like to make in the end.
(1) MAO = 70%ARV - repairs - fees
(2) MAO = ARV - 25,000 - repairs - fees
MAO = Maximum Allowable Offer
ARV = After Repair Value
"repairs" = cost of repairs, if any
"fees" = Birddog/referral fees, if any
Now, the "70%ARV" is supposed to include costs to buy the property, costs to hold the property for at least 6 months, and costs to sell the property retial. I have used these exact calculations in the (few) offers I've made to date. However, when analyzing the calculations more, they are really a conservative estimate on costs (which is good).
Let me explain with an example ...
One of the properties I am looking at now is an REO with a list price of $93,500. I went out yesterday by myself to look at the condition of the property, and it looks like it could use about $5,000 in repairs (mainly rotting wood on the chimney). I haven't run cmps, but lets say the house has an ARV of $109,500. Using the calculations, I have:
(1) MAO = (0.7)109500 - 5000 - 0 = $71,650
(2) MAO = 109500 - 25000 - 5000 - 0 = $79,500
Since the MAO in (1) is lower, that should be my offer. Now before I show some extrenuous calculation, I want the readers to know that those two calculations should be used in practically all circumstance, because (1) they give room for underestimating and (2) they are quick to do - especially when you are working in volume.
I thought these numbers were interesting, but I wanted to see what would happen in the real world with real rates and figures, and set about making a spreadsheet on this property with projected forecasts. Here is what I found ...
List: $93,500
Assessed: $110,450
ARV: $109,500
Financing: 103% Loan @6.5% (should be higher?)
Buy Costs: $0 (rolled into loan)
Insurance: 0.5%/yr (based on assessed value - higher?)
Taxes: 2.5%/yr (based on assessed value)
Utilities: $100/mo. (conservative estimate)
PMI: 1%/yr (based on loan amount)
Sell Costs: 8% of Sell/ARV Price
Monthly Financing: $507.80
Monthly Insurance: $46.02
Monthly Taxes: $230.10
Monthly Utilities: $100.00
Monthly PMI: $66.95
TOTAL MONTHLY/HOLD COSTS: $950.88
Sell Costs: $8,760.00
Earnest Money: $500.00
If I were to buy the house for the MAO (minus my earnest money deposit), my monthly profit would be:
Asking Price: $71,650
Months
Held Profit
------ ----------
1 21,682.42
2 20,909.92
3 20,138.01
4 19,366.68
5 18,595.95
6 17,825.81
7 17,056.27
8 16,287.33
9 15,518.99
10 14,751.26
11 13,984.13
12 13,217.62
However, I could fudge the numbers such that my asking price could be higher and still have a good profit:
Asking Price: $78,500
Months
Held Profit
------ ----------
1 14,588.70
2 13,778.04
3 12,968.02
4 12,158.65
5 11,349.93
6 10,541.85
7 9,734.44
8 8,927.68
9 8,121.58
10 7,316.14
11 6,511.37
12 5,707.27
One other thing that I want to caution is that the calculations in the beginning of this entry are more for Wholesaling than retailing. IOW, they are mainly used for people who desire to wholesale to rehabbers/retailers. What I am doing is showing how to nudge numbers for retailing. Sometimes in order to get a property, you may have to bid higher than the two MAO calculations. Just run the numbers to see what kind of profit you would like to make in the end.
Wednesday, February 09, 2005
Possible Properties
As I previously mentioned, I got a cold over the weekend. I should have stayed home Monday, but decided to go to work instead - mainly because work doesn't stop, but just piles up. So Monday and Tuesday night, I got home, took some meds, ate some soup, and rested. Wednesday morning, I went through my email and gathered listing from last Saturday on up. I found several possible deals, and I'll probably submit them to my RE agent. Two are private sellers, and four are REO's.
Property #1: Private Seller
This is probably the least exciting of the bunch. It's a 3/2 built in 1985. Asking price is $103,500. The online records show a deed in 1998 for $82,550 (I'm assuming the owner probably put down another 20% at closing). The 2004 assessed value was $109k. The property is being sold "as-is". I'll run comps, but will probably not offer more than $73,500 for it.
Property #2: Private Seller
This one seems to have better potential. The owner lives out of the area. It's in an older section of town, and was built in 1978. It's also a 3/2 with a list price of $93,500. The deed was signed in 2001 for $114,093 (ouch!). What my research uncovered was there was a lien slapped on the property in late 2004 because of a safety/health voilation. It didn't specify exactly, and the paragraph it cites in the city ordinance isn't in the current ordinance. So I'm guessing this property has real potential as most retail buyers would pass knowing its history. The 2004 assessed value was $110k. Without running comps or seeing the property, I would probably ask for 60-65% of assessed value at max (about $65-$70k).
Property #3: REO
2003, 3/2 for $105,900. Pictures seemed to indicate the place is nice, but one never knows what foreclosed owners have done. 2004 assessed value was $113k. I'm thinking of offering about $75k, less repairs.
Property #4: REO
2002, 3/2 for $114,500. This also looked like a nice property from the outside. 2004 assessed value was $119,800. I'd probably offer $79k - repairs.
Property #5: REO
1984, 3/2 for $93,500. This property looked okay for its age. The asking price is probably the best in the bunch relative to its assessed value. I'm thinking $73k - repairs.
Property #6: REO
1974, 3/2 for $64,900. This property is actually located a little further out in a rural town. I am having a hard time understanding the list price, since (1) the 2004 assessed value was $49,916 and (2) other houses in the immediate area had 2004 assessed values of $45-$52k. And this is an area that is growing slower than others. Using Steve Cook's ARV formulae, I am figuring of offering no more than $25k - repairs.
Readers have probably noticed that I based my offers using assessed values. First, before I make any offers, I will do more due diligence to arrive at an ARV. Second, while assessed values are not a good guage most of the time, I've noticed in my research that they are not usually too far off in my farm area - especially for homes 15+ years old and 2-3 years old and newer. Even outside those ranges they are only off by +/-5% (usually).
Property #1: Private Seller
This is probably the least exciting of the bunch. It's a 3/2 built in 1985. Asking price is $103,500. The online records show a deed in 1998 for $82,550 (I'm assuming the owner probably put down another 20% at closing). The 2004 assessed value was $109k. The property is being sold "as-is". I'll run comps, but will probably not offer more than $73,500 for it.
Property #2: Private Seller
This one seems to have better potential. The owner lives out of the area. It's in an older section of town, and was built in 1978. It's also a 3/2 with a list price of $93,500. The deed was signed in 2001 for $114,093 (ouch!). What my research uncovered was there was a lien slapped on the property in late 2004 because of a safety/health voilation. It didn't specify exactly, and the paragraph it cites in the city ordinance isn't in the current ordinance. So I'm guessing this property has real potential as most retail buyers would pass knowing its history. The 2004 assessed value was $110k. Without running comps or seeing the property, I would probably ask for 60-65% of assessed value at max (about $65-$70k).
Property #3: REO
2003, 3/2 for $105,900. Pictures seemed to indicate the place is nice, but one never knows what foreclosed owners have done. 2004 assessed value was $113k. I'm thinking of offering about $75k, less repairs.
Property #4: REO
2002, 3/2 for $114,500. This also looked like a nice property from the outside. 2004 assessed value was $119,800. I'd probably offer $79k - repairs.
Property #5: REO
1984, 3/2 for $93,500. This property looked okay for its age. The asking price is probably the best in the bunch relative to its assessed value. I'm thinking $73k - repairs.
Property #6: REO
1974, 3/2 for $64,900. This property is actually located a little further out in a rural town. I am having a hard time understanding the list price, since (1) the 2004 assessed value was $49,916 and (2) other houses in the immediate area had 2004 assessed values of $45-$52k. And this is an area that is growing slower than others. Using Steve Cook's ARV formulae, I am figuring of offering no more than $25k - repairs.
Readers have probably noticed that I based my offers using assessed values. First, before I make any offers, I will do more due diligence to arrive at an ARV. Second, while assessed values are not a good guage most of the time, I've noticed in my research that they are not usually too far off in my farm area - especially for homes 15+ years old and 2-3 years old and newer. Even outside those ranges they are only off by +/-5% (usually).
Monday, February 07, 2005
FSBO - My Offers
I spent a little time yesterday (when I wasn't asleep), and some time today at lunch, running numbers to formulate a couple offers for the FSBO. The one thing the owner stressed was that she wanted all the money ASAP - or, in her words, no longer than 5 years. I know there are probably an infinite amount of ways to construct such a deal, but I just narrowed it down to two options:
Option #1: All Cash
I told the seller on Saturday that my first inclinations for an all cash deal would mean I could not purchase the house for more than the lower $90k's. After calculating buy, hold, and sell costs for both a retail flip and L/O exit strategy, I could only come up with $92,500 as my best all cash offer. For a retail flip, this price would net me anywhere from $10k-$16k, depending on number of months held. L/O was harder to guage, but I based it on a a worse-case scenario of being vacant for 6 months and the T/B'er not buying at the end of the option term. This gave me a net profit of only $500 with a $93,000 purchase price.
Option #2: 80% Cash / 20% Owner-carry
Surprisingly, this option didn't fare much better - in fact it fared almost exactly the same: $93,500. Due to the shortness of the term the seller gave me to work with, and my lack of cash reserves, I would have to offer this price in order to match the profit in Option #1.
I told the seller this was the best I could do with the limited term she gave me and her wanting as much cash upfront as possible. I gave her a general description of what I was hoping for ($10k-$20k down and owner-carry the rest for 15-20 years), and that I could match and even surpass her asking price with the offer, but it would be up to her. I really don't see her saying 'yes' to any of my deals - at least not in the near future. If she has a problem selling her house 3, 6, 12, or more months down the road, I asked her to please remember me and I could revisit the numbers.
Oh well. At least I've gotten over the fear of talking with complete strangers and making deals based on their needs and my needs. Each "no" I get means I'm getting closer to my first "yes".
Option #1: All Cash
I told the seller on Saturday that my first inclinations for an all cash deal would mean I could not purchase the house for more than the lower $90k's. After calculating buy, hold, and sell costs for both a retail flip and L/O exit strategy, I could only come up with $92,500 as my best all cash offer. For a retail flip, this price would net me anywhere from $10k-$16k, depending on number of months held. L/O was harder to guage, but I based it on a a worse-case scenario of being vacant for 6 months and the T/B'er not buying at the end of the option term. This gave me a net profit of only $500 with a $93,000 purchase price.
Option #2: 80% Cash / 20% Owner-carry
Surprisingly, this option didn't fare much better - in fact it fared almost exactly the same: $93,500. Due to the shortness of the term the seller gave me to work with, and my lack of cash reserves, I would have to offer this price in order to match the profit in Option #1.
I told the seller this was the best I could do with the limited term she gave me and her wanting as much cash upfront as possible. I gave her a general description of what I was hoping for ($10k-$20k down and owner-carry the rest for 15-20 years), and that I could match and even surpass her asking price with the offer, but it would be up to her. I really don't see her saying 'yes' to any of my deals - at least not in the near future. If she has a problem selling her house 3, 6, 12, or more months down the road, I asked her to please remember me and I could revisit the numbers.
Oh well. At least I've gotten over the fear of talking with complete strangers and making deals based on their needs and my needs. Each "no" I get means I'm getting closer to my first "yes".
FSBO Update
Prelude
Not sure if I mentioned the particulars about the property, but I'll (re)post them here:
List Price: $114,900
Year Built: 1979
Beds/Baths: 3/2
Size: 1,667 SF
Comps: $118k-$122k
Deed: 1989
Current Loan: VA Loan (1989 for $44050)
Friday, February 4th
As promised, I called the seller of the FSBO at 7:00pm. She answered this time. I talked to her a little bit about non-house stuff, and then asked her the good and bad about her property. She said practically everything had been updated in recent years. The only problems she was aware of is the vent in the master bathroom doesn't work, and the carpet may need replaced. Unfortunately (or fortunately?) for me, the seller was a heavy talker. We must have talked for about 45 mins total. We talked about her property, the economy, insurance companies, lawyers, corporations, and so on. It's interesting how some people will just tell a stranger their life story. I asked her that I didn't want to get personal, but why was she deciding to sell the house. She said she had been out of work for three years, and was living off her 401k (motiviation?). Her field of study is accounting, but there are just no jobs in the area for a 62 yr old single woman. She had gotten offers from a town about an hour north of here, and she decided she'd better move now, while the offers are still available (motivation?). I told her if I could meet with her the next day at 1:00pm for a walk-thru of her house. She said it was fine. After talking my ear off, I finally had to end the conversation (politely). Unfortunately (as I found out the next day), I should have told her I was an investor and my intentions.
Saturday, February 5th
I meet the seller at her house. The house itself looks about what I'd expect a 1979-built house to look like. The only eyesore was it needed a little curb appeal. There was no landscaping out front to speak of, and the wood trim was painted a peachy-pink color. Contrary to her saying it was recently painted inside and out, the paint outside looked a little faded. I knocked on the door and she let me in. I introduced myself, and she proceeded to give me a tour of the house. I didn't see any problems with the house, so I would estimate repairs at <$2k. She said ALL the applicances were staying, including the refrigerator and washer&dryer. Even though all the appliances would come with the house, they all looked rather worn, so I may have to figure new ones in the price.
After giving me the tour, I told her that I wouldn't be buying the house for myself, but rather, I would be buying it to rent out. I also told her that if I were going to pay all cash for the property, I would have to pay much less than the listing price. I also said that I could work with her situation, and come up with a plan that could be feasible to both of us. After telling her all these things, she seemed a little taken aback (which made me wish I had mentioned this the night before on the phone). I told her I could probably pay her her asking price (or more), but it would mean she would have to carry back some of the financing, with terms of 10, 15, 20, or more years. She said that she would want ALL the money as soon as possible, and the longest term she would want would be 5 years (at least I got that out of her). I told her that I would run some numbers and get back with her with several options. If she liked any of the options, we could negotiate further. As I said previously, she is a talker (Except when it came to financing the deal). Somehow we got to talking about her family history again, and I spent the next 30 mins listening to her open up. Finally, I just couldn't take anymore, and politely told her I had another appointment to go to (note: this gives her an indication that I may am looking at other properties). I thanked her for her time, and told her I would call or email her with the options I came up with.
Sunday, February 6th
After my meeting with the FSBO yesterday, I started feeling a cold come on in the evening. When I woke up today (Sunday), I had a full blown cold. I figure the seller had a cold (although it didn't look like it), and I caught it when I was at her place. I went to the grocery store in the morning, but spent the rest of the day in bed - in and out of sleep. While in bed, I came up with a couple of options to purchase the FSBO, but it would have to come at a steep discount. Whether buying and flipping retail or buying and L/O'ing, I figure my absolute max price would be $95,000. For flipping retail, this would give me ~$15k profit after buy/sell costs, and probably $1,150/mo. holding costs. L/O'ing would give me ~$150/mo cashflow, and I could sell with an option price of about $123k (one year contract). After buy/sell/hold costs, I would probably have a net gain of about $18k or so. but both of these options were calculated using 5/1 ARM's @4.75%. I am going to call a lender today and see what the going rates are for short-term 103% financed loans - both PI and with interest-only.
Not sure if I mentioned the particulars about the property, but I'll (re)post them here:
List Price: $114,900
Year Built: 1979
Beds/Baths: 3/2
Size: 1,667 SF
Comps: $118k-$122k
Deed: 1989
Current Loan: VA Loan (1989 for $44050)
Friday, February 4th
As promised, I called the seller of the FSBO at 7:00pm. She answered this time. I talked to her a little bit about non-house stuff, and then asked her the good and bad about her property. She said practically everything had been updated in recent years. The only problems she was aware of is the vent in the master bathroom doesn't work, and the carpet may need replaced. Unfortunately (or fortunately?) for me, the seller was a heavy talker. We must have talked for about 45 mins total. We talked about her property, the economy, insurance companies, lawyers, corporations, and so on. It's interesting how some people will just tell a stranger their life story. I asked her that I didn't want to get personal, but why was she deciding to sell the house. She said she had been out of work for three years, and was living off her 401k (motiviation?). Her field of study is accounting, but there are just no jobs in the area for a 62 yr old single woman. She had gotten offers from a town about an hour north of here, and she decided she'd better move now, while the offers are still available (motivation?). I told her if I could meet with her the next day at 1:00pm for a walk-thru of her house. She said it was fine. After talking my ear off, I finally had to end the conversation (politely). Unfortunately (as I found out the next day), I should have told her I was an investor and my intentions.
Saturday, February 5th
I meet the seller at her house. The house itself looks about what I'd expect a 1979-built house to look like. The only eyesore was it needed a little curb appeal. There was no landscaping out front to speak of, and the wood trim was painted a peachy-pink color. Contrary to her saying it was recently painted inside and out, the paint outside looked a little faded. I knocked on the door and she let me in. I introduced myself, and she proceeded to give me a tour of the house. I didn't see any problems with the house, so I would estimate repairs at <$2k. She said ALL the applicances were staying, including the refrigerator and washer&dryer. Even though all the appliances would come with the house, they all looked rather worn, so I may have to figure new ones in the price.
After giving me the tour, I told her that I wouldn't be buying the house for myself, but rather, I would be buying it to rent out. I also told her that if I were going to pay all cash for the property, I would have to pay much less than the listing price. I also said that I could work with her situation, and come up with a plan that could be feasible to both of us. After telling her all these things, she seemed a little taken aback (which made me wish I had mentioned this the night before on the phone). I told her I could probably pay her her asking price (or more), but it would mean she would have to carry back some of the financing, with terms of 10, 15, 20, or more years. She said that she would want ALL the money as soon as possible, and the longest term she would want would be 5 years (at least I got that out of her). I told her that I would run some numbers and get back with her with several options. If she liked any of the options, we could negotiate further. As I said previously, she is a talker (Except when it came to financing the deal). Somehow we got to talking about her family history again, and I spent the next 30 mins listening to her open up. Finally, I just couldn't take anymore, and politely told her I had another appointment to go to (note: this gives her an indication that I may am looking at other properties). I thanked her for her time, and told her I would call or email her with the options I came up with.
Sunday, February 6th
After my meeting with the FSBO yesterday, I started feeling a cold come on in the evening. When I woke up today (Sunday), I had a full blown cold. I figure the seller had a cold (although it didn't look like it), and I caught it when I was at her place. I went to the grocery store in the morning, but spent the rest of the day in bed - in and out of sleep. While in bed, I came up with a couple of options to purchase the FSBO, but it would have to come at a steep discount. Whether buying and flipping retail or buying and L/O'ing, I figure my absolute max price would be $95,000. For flipping retail, this would give me ~$15k profit after buy/sell costs, and probably $1,150/mo. holding costs. L/O'ing would give me ~$150/mo cashflow, and I could sell with an option price of about $123k (one year contract). After buy/sell/hold costs, I would probably have a net gain of about $18k or so. but both of these options were calculated using 5/1 ARM's @4.75%. I am going to call a lender today and see what the going rates are for short-term 103% financed loans - both PI and with interest-only.
Friday, February 04, 2005
FSBO - Snubbed Again
As promised, I called the FSBO from the previous night again. And, again, I got the answering machine. This has me a little perplexed, because I left a message stating I would call her "at around 7:00pm", and I did just that. I thought maybe she was busy at that particular moment and tried again at 7:05p and 7:15p - but STILL got the answering machine. The only things I can figure are she is either out of town, works at that time, or had a previous engagement. I left her another message stating I would try calling again tonight (Friday) at 7:00pm. I may actually call her at lunch time today from work just to see if she's home then (and works at night). When I leave her these messages, I simply tell her: My wife and I are looking for a house and came across your ad on the internet. We are very interested in your house, and would like to get some more information and a possible tour. I guess I should leave a return number, but I don't have one yet for REI. The only numbers I have are our home land line and my wife's cell phone. (I know, big mistake not having a cell phone!)
Thursday, February 03, 2005
FSBO's and Time
FSBO #1
Last weekend, my wife and I took a two-hour trip looking at houses around my farm area. During that trip, we found two FSBO's (well, actually only one - I found the other on the internet). When I got home last night, I decided to start calling both of the FSBO's. I called the first FSBO, which was the one I found on the internet. After four rings, I got an answering machine. Instead of leaving a message, I decided to hang up. I figure the owner either wasn't home, or has been inundated with calls from RE agents, etc., and now screens her calls. She sounded like an older lady (50-ish). This was about 7:30pm. I decided to give it another 45 mins or so and try again. Around 8:30pm, I called her again, and again the answering machine. I left her a short message saying I saw her listing on a web site and was interested in learning more. I told her I would give her a call tomorrow (today), and touch base with her.
FSBO #2
Between the two FSBO #1 calls, I tried calling the second FSBO. After dialing the number, I got that annoying signal followed by the message "the number you are trying to reach has been disconnected ..." I did some address and revers phone number lookups, but could not verify the phone number. I figure either I wrote the phone number wrong, the number really IS disconnected, or I was completely off base and wrote both the address and phone number down wrong. I'll drive by tonight or over the weekend and verify.
Summary
At the rate I'm going with my REI venture, I figure I'll get my first deal sometime this fall, and become a financially independent by the year 2075 (sarcasm intended). I need to step up the game and get my marketing going as I feel I'm just spinning my wheels.
Time
As Joe Kelley mentioned on one of his earlier blog entries, the enemy I have is time. It seems I only have an hour or so each night to research, formulate my strategy for properties I find, and make calls. The weekends aren't any better as its then I have to really spend time with family. For me, I feel I need to get the ball rolling with sellers calling me instead of vice-versa. Too much of my time is spent locating properties and analyzing them when it should be spent talking with motivated sellers.
Last weekend, my wife and I took a two-hour trip looking at houses around my farm area. During that trip, we found two FSBO's (well, actually only one - I found the other on the internet). When I got home last night, I decided to start calling both of the FSBO's. I called the first FSBO, which was the one I found on the internet. After four rings, I got an answering machine. Instead of leaving a message, I decided to hang up. I figure the owner either wasn't home, or has been inundated with calls from RE agents, etc., and now screens her calls. She sounded like an older lady (50-ish). This was about 7:30pm. I decided to give it another 45 mins or so and try again. Around 8:30pm, I called her again, and again the answering machine. I left her a short message saying I saw her listing on a web site and was interested in learning more. I told her I would give her a call tomorrow (today), and touch base with her.
FSBO #2
Between the two FSBO #1 calls, I tried calling the second FSBO. After dialing the number, I got that annoying signal followed by the message "the number you are trying to reach has been disconnected ..." I did some address and revers phone number lookups, but could not verify the phone number. I figure either I wrote the phone number wrong, the number really IS disconnected, or I was completely off base and wrote both the address and phone number down wrong. I'll drive by tonight or over the weekend and verify.
Summary
At the rate I'm going with my REI venture, I figure I'll get my first deal sometime this fall, and become a financially independent by the year 2075 (sarcasm intended). I need to step up the game and get my marketing going as I feel I'm just spinning my wheels.
Time
As Joe Kelley mentioned on one of his earlier blog entries, the enemy I have is time. It seems I only have an hour or so each night to research, formulate my strategy for properties I find, and make calls. The weekends aren't any better as its then I have to really spend time with family. For me, I feel I need to get the ball rolling with sellers calling me instead of vice-versa. Too much of my time is spent locating properties and analyzing them when it should be spent talking with motivated sellers.
Wednesday, February 02, 2005
The JOB - Part II
Well, I managed to finally leave work last night at 10:30pm. Including travel time, I spent a total of 15 hrs dedicated to my JOB. If that isn't incentive to master REI, I don't know what is. It's days like that really opens my eyes to how enslaved I (and most of us) are to the "paycheck". Several times last night, I felt like saying 'The hell with it' and leave the office, get in my car, and drive home. But I really can't. I am a corporate slave.
It burns me that my company got a "free" 7 hours from one of their employees (since I am salaried, I don't get overtime). It burns me that I had plans, and they were all scratched because 'we have to get this done today!' But most of all, it burns me because I just spent 5 (additional) hours of my life - time I can't get back - working for someone else, and at the same time not enjoying what it is I wanted to do: be with my family.
Needless to say, I will be ramping-up my venture even more now.
It burns me that my company got a "free" 7 hours from one of their employees (since I am salaried, I don't get overtime). It burns me that I had plans, and they were all scratched because 'we have to get this done today!' But most of all, it burns me because I just spent 5 (additional) hours of my life - time I can't get back - working for someone else, and at the same time not enjoying what it is I wanted to do: be with my family.
Needless to say, I will be ramping-up my venture even more now.
Tuesday, February 01, 2005
The JOB
Well, I got into work this morning at around 8:30. The one luxary about my JOB is that the times can be somewhat flexible. But there aren't too many other positives. I usually come in around 8:30am, eat a quick 15 min. lunch (my preference), and leave around 4:30-5:00pm, depending on workload and whatnot. I always try to put in at least 40 hours (hah!) a week, but always end up working at least 45/week. Tonight I wanted to get off at the same time and do some personal stuff at home. I also wanted to call the FSBO from yesterday.
Both ideas can be nixed now.
While I type this, it is going on 7:30pm, and I'm still at work! I will probably be here at least another 30 minutes, if not longer. If nothing else, this just gives me more incentive to get cracking in REI, so that I can kiss these kinds of days goodbye forever.
Hopefully, the FSBO will still be available for me to call tomorrow.
Both ideas can be nixed now.
While I type this, it is going on 7:30pm, and I'm still at work! I will probably be here at least another 30 minutes, if not longer. If nothing else, this just gives me more incentive to get cracking in REI, so that I can kiss these kinds of days goodbye forever.
Hopefully, the FSBO will still be available for me to call tomorrow.
I'm Dragging My Feet
Although I've made steady progress over the last couple of months, I feel that I'm dragging my feet way too much. Yes, I've constructed a buyer's list. Yes, I've got a RE agent on my team. Yes, I'm out looking at houses and generating leads.
But I haven't made a deal yet!
My biggest problem has been a lack of marketing. I keep saying I need to do this and that, but days and weeks later, I haven't done anything. I see myself relying too much on the feeds from my RE agent, instead of taking it upon myself to get sellers calling me. I admit I've learned more in the last 3-4 weeks than in the previous 3-4 months, but it does me no good if I can't capitalize on my education.
For example, in early December, I went to the local REI club's monthly meeting. I had to cut out early due to personal reasons, but I've already missed January's meeting, and will miss tonight's (February's) meeting as well. My fear now isn't what to say to sellers on the phone, but that I'm slowly having life lead me instead of me taking control of it.
Last night, I made plans to call the FSBO I found yesterday, but went hope late and with a nagging headache to boot. I wasn't in the mood to talk to anyone, let alone a complete stranger to make a pitch. Tonight, I hope to give her a call. I have to.
I've also decided to get off my butt with marketing and designed my own business card. It's bright yellow with bold black lettering that says:
WE BUY HOUSES
CA$H
Any Condition. Any Area.
xxx-xxxx
I'll order them tonight at home. I am also going to order magnetic signs for my car as well as bandit signs. This marketing procrastination is really slowing me down. I know what to do, I just need to get some leads coming in. And they aren't going to come in without me letting people know I have a service available.
But I haven't made a deal yet!
My biggest problem has been a lack of marketing. I keep saying I need to do this and that, but days and weeks later, I haven't done anything. I see myself relying too much on the feeds from my RE agent, instead of taking it upon myself to get sellers calling me. I admit I've learned more in the last 3-4 weeks than in the previous 3-4 months, but it does me no good if I can't capitalize on my education.
For example, in early December, I went to the local REI club's monthly meeting. I had to cut out early due to personal reasons, but I've already missed January's meeting, and will miss tonight's (February's) meeting as well. My fear now isn't what to say to sellers on the phone, but that I'm slowly having life lead me instead of me taking control of it.
Last night, I made plans to call the FSBO I found yesterday, but went hope late and with a nagging headache to boot. I wasn't in the mood to talk to anyone, let alone a complete stranger to make a pitch. Tonight, I hope to give her a call. I have to.
I've also decided to get off my butt with marketing and designed my own business card. It's bright yellow with bold black lettering that says:
WE BUY HOUSES
CA$H
Any Condition. Any Area.
xxx-xxxx
I'll order them tonight at home. I am also going to order magnetic signs for my car as well as bandit signs. This marketing procrastination is really slowing me down. I know what to do, I just need to get some leads coming in. And they aren't going to come in without me letting people know I have a service available.
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