Regarding the seller in my previous blog entry, the husband never did call me back. Not sure why he even called me in the first place as it sounded from his wife that he wanted to sell the property. I guess people have their reason for calling and then not calling.
The HOA Management Company
I checked the mail on Saturday, and lo-and-behold I get another infraction letter from the management company where House #1 is located. It seems the tenants had their trash can located on the side of the house, instead of "out of public view" as the rules state. This REALLY pissed me off. Why? The letter was dated the 15th and postmarked on the 16th. I got it on the 17th. It took them less than TWO days to send me a notice of infraction, yet it took them TWO WEEKS to send me a pool key, and TWO MONTHS to send me a copy of the deed restrictions. And the copy of the deed restrictions I got was missing every other page! You better believe I'm going to call them as soon as their office opens.
To digress a little, in Texas, when a new subdivision is being built, the homebuilder monopolizes the HOA. They elect themselves as the sole member of the board of directors and set stipulations that give them control until the entire subdivision is completely built. This is perfectly legal. Therefore, homeowners have no say-so whatsoever as far as the direction of their own neighborhood until the homebuilder relinquishes their control over the HOA board of directors. The subdivision House #1 is located is still not completely built out, so the HOA is still completely controlled by the homebuilder. This makes it next to impossible to get anything done on a homewoner's end, and also means the management company will stay put as long as the homebuilder says so. Therefore all my complaining will be for naught, I'm afraid. I could possibly get a neighborhood petition going and hire a lawyer to sue the management company, but I'd be spending dollars to make cents in this case. @#!$*&!!!!! It's just frustrating!
Missed Opportunities
After helping my in-laws move their belongings into storage most of Saturday, I spent a little time on REI. I have Conti & Finkel's Making Big Money Investing in Real Estate, but haven't read it in a long while. I decided for a change of pace to read their book, and suddenly realized I may be missing some opportunities. The book is all about Purchase Option investing (aka, Lease/Options). As I was reading, I realized that I could still be making a profit on no-equity properties using lease/options. Of course, the kicker down here in Texas is that they just recently outlawed L/O's, for the most part. I remembered getting some emails from LeaseOptionLoopHoles.com that show several ways to get around the recent Texas legislation.
A light bulb then went off in my head, and I started revisiting a couple of the deals I passed up due to there being no equity.
For example, the first deal I received was from the man who owed about $87k on a house worth about $87k. Rents in the area were around $750-$850 for likeable houses. It also needed about $1k in repairs. From the information I gathered, the loan payment was about $607.23. Taxes were another $207.23. Now, if I take the house over Sub2, I would leave the existing insurance in place, so as not to trigger a red flag with the lender. The bad thing would be I would need to get additional insurance under my name - about $45 for the existing insurance and another $45 for the new insurance, or $90/mo for insurance. The wonderful things about L/O's are (1) tenant-buyers (TB's) put down a hefty deposit, (2) they generally pay more each month in rent than average, and (3) since the house will be theirs at the end of the option period, if they elect, they are required to do all (or the vast majority of) the maintenance.
Therefore, I can ask for a large deposit, up the rent from the norm by $100-$200/mo, and ask the TB's pay all maintenance under $200 each month. Unless something major happens, like the HVAC goes out (which it won't, since the owner told me it was replaced not too long ago), I won't have to worry too much about maintenance. I can also use the deposit to cover my bill for upfront repairs. And, lastly, I can receive the added rent amount as CF. As an additional bonus, I can up the option price in case the TB's exercise the option, since it will be in the future. Here are the monthly numbers:
Loan: $607.23Since rents are around $800 on average, I can add $195 to that making the final rent $995/mo. My CF would only be about $10/mo, but I would be enjoying the fact that I have renters in paying down my debt, maintaining my property like it was theirs, getting a nice upfront non-refundable deposit, and knowing that at the end of the option period, I will either get another bonus if the TB's exercise the option, or get another TB in.
Taxes: $207.23
Insurance: $ 90.00
Vacancy: $ 82.22 (8.33%)
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Total: $986.68
Of course, the downside is not knowing if I can get someone in the property for those amounts. Therefore, the best thing to do in this circumstance is put an ad out for the property (everything but the location) and see if anyone is interested. I can then tell them it is currently under contract, but I can keep their name if the (fictitious) deal falls through. Depending on how many interested buyers I can get and whether I can get the house wrapped-up in the meantime, I'll either tell everyone the property sold, or tell them the (fictitious) contract fell through and is now available. ;-)
The other stickler is getting around the Texas law, but I have been studying some techniques that won't cause too much inconvenience for the TB's while still appearing to look like a L/O.
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