Busy Weekend

25 Duplexes?!?!
I decided to take last Friday off, so that my wife and I could take our daughter to San Antonio for a break. We wanted to take her to Sea World or the Zoo since early summer, but the heat has been brutal. Only now is it comfortable to do anything for long periods at a time outside in south-central Texas. So we took a family trip to the Zoo in San Antonio. My wife is officially 3 months away from delivering, so she had to ride a scooter around. :(

It was a little late when we got home, so I held off checking my email until Saturday. When I did get around to checking it, I noticed I got an email from my old RE agent, telling me about 25 duplexes that are being offered nearby. She said the duplexes aren't listed yet, and wanted to see if I would be interested in any/all of them. I had another busy Saturday doing things around the house, but took time to run numbers. The agent attached some PDF's that included pictures and a financial statement about each group of duplexes. Group #1 showed an annual cashflow of $1,686 (or about $141/month). Group #2 showed an annual cashflow of $4,319 (or $360/month). Group #3 showed an annual cashflow of $3,215 (or $268/month). Needless to say, my heart was pumping. However, I wanted to rely on MY numbers rather than someone else. Doing so, I noticed that my agent left out two very important figures: vacancy loss and maintenance reserves. Even though most of the units are currently occupied, who's to say when the lease runs out, the tenants will walk? I usually put in a figure of 8.33%, or one month, of the gross rent for vacancy loss. I also put in 5% of gross rent for maintenance reserves - especially for older properties, which these are. Doing so brought the cashflow down considerably more.

I then called up the RE agent, and we chit-chatted for about 10 minutes. In doing so I learned a couple of things. First, the Group #2 suplexes had a better cashflow, but they also required some maintenance. She didn't elaborate too much, but did say their roofs needed replaced, and needing carpet and paint, along with the need for new appliances. So that would definately bring the cashflow down a lot in the early years. They were also built in the mid-1970's, which was well beyond my criteria. I still held out hope, though, as she mentioned some of the properties could be purchased with no money down. I thought this to mean the owner would carry back financing. Nope. She clarified that to mean she can get the sellers financed for 100%. Bummer. Usually 100% financing comes with a steeper interest rate. So I reran the numbers a third time, and came out cashflow negative on the Group #2 duplexes. The Group #1 and #3 duplexes were slightly newer (early 1980's), and had fewer repair issues, but I reran the numbers on them as well, and again came up cashflow negative. I guess doing your own due diligence does pay off (a lesson for everyone out there - don't take someone else's figures as facts!). When I was talking to her on the phone, I set up an appointment for Wednesday to see them, but now I'll have to cancel.

Driving for Dollars
I found some other properties over the weekend that seemed promising for retail flips. My wife, daughter, and I went out to see them. The first was in bad need of repair, and my wife instantly opted out on it. The second one was really nice. It was built in 2002 and looked pretty clean inside (from peeking in the windows). It's definately a keeper. Interestingly, right next door was another nice looking house that had high weeds growing in the yard. Upon further inspection, I noticed the place was empty, except for about 10 full garbage bags on the kitchen floor and a vaccuum cleaner. Strange. I later found out it is in preforeclosure. It's in that stage where the bank has booted the people out, but haven't listed the property yet. I smell an opportunity! And this wasn't even one of the properties on our "to see" list! The last property was cute and pretty new (2003). It's also on my list as a definate opportunity as well. So driving around, we found three worthwhile properties.

While driving home, we passed by another house that seemed nice and clean. It was an FSBO that offered owner financing, so I jotted the number down and gave the person a call. The voicemail answered and it said something like Hi. This is John Doe from Doe Properties ... I knew right away that it was another investor. I hung up without leaving a message.