Commerical Land?

I drive by this small strip of frontage land that is mixed use every day going to and coming from work. There are about 10 lots - some with single business buildings, and a few with residential housing units. The single business buildings are all rented out, and usually the business only lasts a year or two, before you see a "For Rent" on the property again. about 4-5 moonths ago, I noticed the two residential properties had an agent's "For Sale" sign in the yard. The buildings were in bad, but livable shape, and I never really thought much more about them. About a month ago, I'd say, I noticed an auction sign in the front of the properties. Again, I thought nothing about it. Within the last couple of weeks, I've noticed a hand-made "For Sale" sign in the front yard. At first, the sign said "$205,000", and then "$198,000", and kept dropping. Driving home yesterday, I noticed the price had dropped to $169,000", which finally caught my attention.

I did some research and found out that the property consists of 4 total lots - three of which front the main road, and one is to the rear of one of the others. This has really piqued my interest now as the zoning for the property is Real/Commercial. Like I said earlier, the buildings themselves are in bad shape, and I would definately tear them down if I were to ever buy the package deal. This led me to research the value on the land itself. It turns out that all four lots, collectively, were assessed at $204,000 (with the lot in the rear being the least valuable, of course). My initial thought was to buy the land, tear down the 2-3 buildings, put in a small office complex (1- or 2-story) with 5-15 "units" total, and rent the space out.

At this point, I would still need to find out who the owner was and if I could first negotiate th terms and/or price to help accomodate my future plans. I would also need to find out if the zoning would allow for what I would want to do. On top of all that, I would also need to find out how much demolition would cost as well as the costs involved to make the necessary improvements (i.e., water/sewer lines, other utilities, actual building costs, etc.).

The lots are in a prime location not too far from a brand new major shopping complex, which would make them ideal for this situation. I'd just need to do a lot more research before jumping in, though. What I'd like to be able to do is try to buy the land with great initial terms that graduate with time, or cut the owner in on some of the future profits.

Lot's to think about.

OT: Managing Blog Feeds

I stumbled across a great RSS/Atom feed reader called Sage an extension exclusively for the Mozilla Firefox web browser. It allows you to click a button, and instantly see which blogs you are watching have gotten updated (along with viewing the content). Since my area's REI club has a group account on Yahoo!, I can also view updates to the message board there as well. Pretty neat! Saves me the trouble of going to each web site independently and looking to see what content has been updated. The only drawback I see at the moment is the fact it doesn't view a blog as being updated when new comments are added.

Real Estate Trends

I was perusing a REI message board recently, and came across the following report which tries to show what real estate markets have done and will do ...

http://www.pmigroup.com/lenders/eret.html

Mums The Word

Well, it looks as though this latest deal isn't going to happen. Yesterday morning, I sent the owner a detailed list of questions I needed answered ASAP. Here it is Wednesday morning, and I haven't gotten anything from him. That's not to say he won't send me an email at the 11th hour, but I'm about a hair's width away from not doing the deal no matter what happens now. On to the next one ...

12, 8, 6, ... 4?, 3?, 2?, 1?, none?

In the wake of events these last 24 hours, I decided to cut down on the number of properties I would take (IF I end up taking any of them) from this latest deal. While the initial quantity really attracted my interest, I quickly realized it would not be feasible to take all 12 properties. After that, I narrowed the list from 12 to 8. Even then, I would be taking on a huge amount of debt (and risk) even though I would conceivable make a nice profit in the end. However, given the circumstances and more analysis, even the 8 properties wouldn't work for me. So, I then tried 6 properties, and again even though they produced nice income at the end, the risk, time, and upfront debt was just too much resources to endure at this time. Plus, given the procrastination and non-disclosure of required information from the seller, I have narrowed the list down even further: 4 properties. The four properties in question would collectively give me an average $3,500/mo cashflow (after enduring some upfront risk/debt) over the course the properties would be owned and/or controlled by me. It was after making this analysis that I decided to just go ahead and break the 4 properties down to 3, then 2, and finally 1. The following table shows the resultant figures of my analysis if I were to keep just the best property, then the two best properties, then the top-3 properties, and finally all four properties:

	Keep 1	Keep 2(a)	Keep 2(b)	Keep 3	Keep 4
Initial Investment	$8,750	$13,750	$17,500	$22,000	$29,500
Net Profit	$49,024	$91,769	$78,603	$121,982	$143,647
COCR:	460%	567%	349%	454%	387%
COCR Annualized	115%	74%	95%	65%	59%
Average Cashflow (Monthly)	$1,816	$2,238	$2,911	$2,975	$3,504
Average Cashflow (Yearly)	$21,789	$26,859	$34,934	$35,702	$42,043

Looking over the figures, I am leaning towards just keeping the one property, or the two properties under the heading "Keep 2b". These appear to give me the best bang for the buck in the shortest time possible. Now, will I even get any of them is the question. :-|

Unbelievable

That's what came out of my mouth when I opened my email this morning and read a response from the owner of the 12 properties. In it, he asked for two things: proof that I have the financial means to pay for the carrying costs on his properties, and his wanting a clause in the agreements I sent that protect him financially in case I default on my end by not paying his mortgages, taxes, etc. That was it.

WTH?!?!?!

Where is the information I've been waiting for for over a week now? Where is the specific information I requested regarding exactly what he pays each month and to whom? Where is the information from his property management company about the leases and when they expire? ARGH!!!!

I then took a 20 minute recess from the whole situation to calm down, and wrote him back. I included a screen shot of my 401(k) and checking account (minus any account details), showing my ability to more than cover the carrying costs on at least six of his properties for several months. I also told him that I have been waiting - patiently - for well over a week now on information from his end, which I need in order to accurately diagnose which properties, if any, I can purchase from him. In addition, I asked him what specific clause he would like for me to include in the agreements that would satisfy him. And, lastly, I told him that my Wed deadline is still in affect, and that if I did not have the information I needed by the EOB on Wed, I would have no other choice but to pass on the deal.

Am I being too forgiving here? :-)

An Exercise in Futility

I have just about given up on this latest deal involving the 12 properties. Last Friday, I went ahead and emailed the owner contracts on two of the 12 properties. I told him to contact me ASAP once he decides what he wants to do. Here it is Monday morning, and not a peep from him.

Originally, I had sent him a contract giving him a 3-day window to respond. During that brief window is when we talked with one another on the phone, and I thought for sure he would have not thought twice about signing over the properties to me. I then revised the contract and added an additional one for another of his properties, thinking that I'd get some kind of response Friday evening at the latest, but nothing.

Maybe I'm just being impatient, but I seriously doubt it. My gut feel says he either has/had another offer he is considering, or his whole situation is a fantasy he concocted in order to get someone to buy his properties for retail price. Regardless, I've put the rest of my business on hold since I first heard about this deal on March 20th, and I can't afford to spend any more time on it.

Final Numbers (Revised)

After realizing I made some miscalculations on my spreadsheet for the six properties I am interested in, I went ahead and fixed the errors, which adjusted my final figures. For whatever reason, I left out the obvious third option: selling ALL six properties using owner financing. So here are the revised figures:

	Option 1	Option 2	Option 3
Accumulated COCR:	226%	305%	559%
Accumulated COCR Annualized:	63%	78%	81%
Total Equity:	$104,300	$53,000	- - -
Total Cash & Equity:	$198,800	$170,500	- - -
Total Accumulated C+E Return:	586%	488%	- - -
Total Accumulated C+E Return Annualized:	122%	108%	- - -
Average Monthly Cashflow:	$3,260	$4,052	$5,029
Average Yearly Cashflow:	$39,117	$48,619	$60,353

Final Numbers

After spending just about every free minute I have analyzing the heck outta these 12 properties, I've come to what I hope are two final conclusions. The first option is to buy 6 of the 12 properties, immediately sell 4 of them via owner financing, and keep two as rentals. As I had mentioned before, ALL of the houses currently cashflow negative, so I'd be taking a huge risk that I can sell the 4 properties within a 3-4 month period. If I have to hold onto them longer, I'm in deep doo-doo. However, with all signs pointing to the area appreciating like mad AND the fact we will be heading into the summer in about 2-3 months soon, I'm willing to take the risk. I also read some write-ups on Realtor.com from local agents who say the average time on market now is <60 days, so that's even more good news - and that's the retail market. My second option is to buy just five of the properties, and only keep one as a rental. I'll actaully have a better COCR doing it this way (as well as a smaller risk), but I'll be losing out on a long-term hold.

Here are some numbers for anyone who cares:

Option #1

Initial Investment: $28,000
This will cover all acquisition costs, closing costs, the birddog fee, and carrying costs. If I still have all four of the properties I plan to owner finance still in my pocket after 3 months, I'll need to borrow some money. I seriously doubt this will happen. But even if things get real tight, two of the properties have enough equity that I can wholesale if need be, but this would be my dead-last option.

2+ Year Projection:
Owners of all four properties cash me out. Now, I know this is probably wishful thinking, but with the terms I'll be offering, I should get some eager buyers who would refinance pretty readily.

Total Net Profit after 2+ years: $109,000
Once the owners start cashing me out, I plan to turn right around and pay off the 2nd mortgages on both the rentals. This will reduce my cash reserves by about $34,000, which would still leave me with $75,000 to buy other properties with. The two big reasons for doing this are (1) both properties will then cashflow positive, and (2) it will eliminate the high-interest loans. I may also consider just doing a refi myself, since the LTV should be well below 80% then, however, the current owner has some real good rates on his 1st mortgages: 6.875% and 7.5%. Who knows what the rates will be in two years.

Total COCR: 167.77%
Total COCR Annualized: 52.52%
Total Equity: $104,300
Total Cash+Equity: $179,300
Total Cash+Equity Return: 540.16%
Total Cash+Equity Return Annualized: 121.59%

Option #2

Initial Investment: $27,500
Again, this will cover all acquisition costs, closing costs, the birddog fee, and carrying costs. The costs associated with the additional rental I decided not to get helps me out with the other properties. I could still be in trouble after 4 or so months, but again, I really don't see that happening.

2+ Year Projection:
(Same as with Option #1.)

Total Net Profit after 2+ years: $118,000
Once the owners start cashing me out, I plan to turn right around and pay off the 2nd mortgage on the lone rental I still have. This will reduce my cash reserves by about $17,000, but I will still have a little over $100,000 in reserves. As with Option #1, I may even refinance the rental to pull more cash out for some new deals.

Total COCR: 266.82%
Total COCR Annualized: 74.54%
Total Equity: $53,000
Total Cash+Equity: $154,000
Total Cash+Equity Return: 459.67%
Total Cash+Equity Return Annualized: 109.19%

At this point, I'm strongly leaning toward Option #1. It carries more risk, but the rewards are hard to pass up. Plus, I'll have two rentals cashflowing positive with over 40% equity in each. Not to mention, I'll have just $25k less in my reserves than with the second option. Granted, that could probably be a downpayment on another property, but since I already have one more, it evens out. :-)

Now, I need to go have a chat with a local RE attorney who can set all this up for me. (Yeah, I included attorney fees in both deals - probably not nearly enough, though, I'm afraid.)

New Homes Starts Surge in Austin

I opened the local paper this morning, and on the front page was the following headline:

New home starts up
63% so far this year
Central Texas builders strain to
keep up with demand despite surge
Needless to say, it looks like the real estate market is already heating up in central Texas. Granted these are new home starts and not existing home sales, but the article mentions that houses are flying off their shelves. I can only imagine the existing homes market here is not falling too far behind. The news is great at this time, since I am trying to formulate a plan for this latest deal.

An Interesting Conversation

I sent the owner of the 12 properties a rather lengthy and detailed email yesterday morning. In it, I explained to him that I have never done a Sub2 deal before (through it's entirety, anyway), who I was, what my intentions were for both myself and himself, and some other stuff. All day long I kept checking my email, hoping to get a response, but nothing ever came. I thought to myself that that was basically it. He had written me a few times on Monday, saying he would be expecting me to call him Tuesday evening. I figured I would go ahead and give it one more shot.

So, I call him a few minutes past the time he had put in his email, and got his voicemail. I left a short message for him to call me back if he feels like it. About 7-8 minutes later, my cell phone rings, and it's him. He explained to me that he was with someone when I called, and he was trying to end their meeting. I could tell in his voice and in his words that he probably meant it too as he kept apologizing profusely.

What was funny was the fact that I really didn't have an outline as to what I was going to say or how long we would be talking. Most gurus tell you to let the seller do the talking, but at the end of the conversation, I noticed that I had done about 90% of the talking. We talked for a good 50 minutes. He wanted to know exactly what a Sub2 was, how he could be assured I would continue making the payments, and so on. After an hour of pretty much spilling the beans about me, I realized we had developed a great reporte with one another. He said other investors had called and seemed interested, but he could tell immediately that they didn't care about him or his situation - only that he had some properties he needed to get rid of yesterday. With me, though, he said he could sense that I was sincere in helping him, which may very well open more opportunities for me with this deal.

I told him probably 5-6 times in our conversation that in order for me to fully analyze the deal, I would need the info from the PM company. He said that he himself has a hard time getting information from them, but he would try his hardest. I kept saying that I am at a standstill until I can get those figures, and once I do get them, I can start dealing.

All throughout the conversation he kept saying how easy it was to talk with me and how much a blessing it would be to have me take some/all of his properties. I told him upfront, though, that even if the numbers came out great on all the properties, it just wouldn't be feasible for me to take them all. At most, I told him, I could probably only take 6-8 of them. However, I explained to him that I could distribute his information to other local investors with the hope that one of them can take the remaining properties to which he thanked me again profusely.

Now, I need to sit down and rerun all the figures for all the properties and develop exit strategies for each. If I have a few cycles today, I'll post some of the numbers in the hopes of getting some feedback.

We'll see what happens.

The Saga Continues

Well, it seems the email I sent the owner of those 12 properties lit a fire. He has been sending emails left and right now, regarding one thing or another. The one stickler in this whole deal seems to be me wanting to take the properties subject-to the existing loans. He appears to be apprehensive about the whole thing even after I gave him all these assurances. His latest email says he wants a list of clients have already done this for, so that he can feel a little more at ease. He also said he wanted to sign a document that pretty much puts full respnsibility of the loans on me (even though they will stay in his name). Oops!!! For one, I have never done a Sub2 with anyone yet. I came close a few times, but haven't actually done one. Second, while I'm sure his wanting to sign yet another document giving me full responsibility, I really feel uneasy about doing it. Not that I would let the loan payments lapse, but I fear he may trigger something later that will cause the lender to take notice of the whole deal.

So, what I plan to do is write him a detailed email about the whole situation. I told him I'd call tonight, but I want to give him figures in front of his face first to show him the situation in black-n-white. If he still hems-n-haws, I may just end the deal. As John $Cash$ Locke said in one of his teleconferences (paraphrasing), "I am not so desperate for any deal that I will make a bad deal." These properties are NOT the greatest deals I've seen (or even passed on), so having the edge of not wanting to deal is squarely on my shoulders. This may push him a little more into seeing it from my viewpoint, but if not, oh well.

The Last Straw? (updated)

ARGH! This latest deal is giving me gray hairs on top of my gray hairs.

I called the PM company, thinking they already talked with the owner about my wanting to get information. They didn't. They did answer most of my questions, but in regards to the operating statements from the properties and the rental contracts, I have to wait until they contact the owner to get permission. This really fired me up. So, I am going to write the owner after this post and tell them if they are indeed serious about selling quickly to me or not, so that neither of us are wasting the other's time.

My wife seems to think the owner made up a sob story in order to generate sympathy and have someone buy his properties outright. I am really starting to believe that she is right (or, at least, something similar).

---

Edit: Here is the email I sent the owner just moments ago ...

Mr. [owner],

I was unable to reach the property management company over the weekend, but called them this morning (Monday). Unfortunately, some of the questions I needed answered required your permission first, which I thought they already had.

Perhaps I'm wrong, and I hope you don't take this negatively, but I get the feeling that maybe you aren't as serious about selling these properties as I had initially thought. Except for the updated figures in the spreadsheet you sent last week, I feel the dialog has mostly been one sided. If you feel I am wasting your time with these properties, please let me know. For now, I'll put the situation on the backburner until I hear from you otherwise.

Thank you.

It'll be interesting to see what he says (if anything).

---

Edit(2): I received the following reply to my email just now. I'm still a little skeptical, and will wait to hear from the PM company with my outstanding questions.

steve

i apoligize for the lack of cooperation. i do want to work with you and this
is the number one priority for me. please call me at [phone#] if you
have any more questions.

i will call them back today and tell them off.

thanks

Update and Some Pictures

This owner is really baffling me. After sending him an email with a PDF contract for one of the properties, he sends me a response to one of my EARLIER emails. I really haven't a clue why this person is procrastinating so much, but I'm slowly losing interest in the deals - even though they are good Sub2's with some profit.

On Sunday, my wife and I loaded up the van and the kids and took a drive to see six of the properties. The others are located further away, and none of the kids were very happy with the trip, so we didn't get to see the other six properties. Of the six we saw, four of them have tenants and two are empty. What surprised both of us about the empty houses was the fact that there was no signs in the front yard. You'd think if the owner has an agreement with the PM company, the company would be agressive and put out a "For Lease" sign at the very least. One of the properties was even starting to grow some nasty weeds in the front yard. And that was the only house that had a little window that I could see inside. The other empty house had its blinds drawn shut all around the house.

One thing I've noticed since first being informed about these properties is that I was initially VERY excited about this deal. I'm thinking now since the owner is procrastinating, it has cleared my mind a little to the reality of the situation. IOW, my emotions in this deal have gone from exitement to none-caring. Perhaps this will actually work out best for me in the end.

Here are front elevation shots of the six houses we saw ...

House #1: 2002, 2-story, 2223sf (Rented)


House #2: 2004, 1-story, 1722sf (Rented)


House #3: 2004, 2-story, 2025sf (Rented)


House #4: 2004, 1-story, 1606sf (Empty)


House #5: 2003, 2-story, 2276sf (Rented)


House #6: 2004, 2-story, 2426sf (Empty)

12 Properties - Do or Die

I have been mulling what to do these last 24 hours regarding those twelve properties. I'm analyzed and re-analyzed them more than I should have, and have narrowed the field down to six properties. With no response from the owner, I've decided to just submit a formal contract offer to him and put the ball in his court. It appears to me that he may be getting other offers, but I really can't tell for sure.

The properties themselves are really hard to guage as far as profit. Only one of the six I plan to make an offer on is empty - all the others have tenants. The lone empty property turns out to be the best as far as a Sub2 w/owner financing. Based on the property's financials, if I spent $1,000 in repairs (it was built in 2004, so shouldn't need much) and hold it for 3.5 months, I could make $15,000 on a deposit, about $270/month CF from the loan difference, and pocket close to $22k on the backend for a nice $43k profit. But all this is wishful thinking for now. Time to send the owner the paperwork to see if this is going to be a deal or not.

12 Properties - The Plot Thickens

All last night, I kept checking my email, hoping that the owner of those 12 properties would respond. But I never got anything. So, I went ahead and called him, using the number the birddog gave me. The good news was I got hold of him and he (and his situation) seemed legit. He had another commitment at the time I called, though, so I didn't get to talk long. He did seem rather relieved to hear from someone who was willing to help him. From our ever-so-brief talk (it lasted about 5 mins), I managed to get some information, though. He asked me to send him specific questions in an email, and he would answer them as soon as he could. He also said he would call me today sometime to talk more.

After talking to him, my mind just went into overdrive. For the remainder of the night, and each time my wife and I got up to feed the twins, I did nothing but think and think and think about these 12 properties. I finally reached a consensus that instead of narrowing my choices to only 4 properties (and then only 2 of those), I am actually going to try and get ALL TWELVE. I will still do my due diligence (and do a second and third time for good measure), so I'm not saying I'll get all twelve, but I'm not going to limit myself just because most are out of my farm area. One huge reason was that from all the supporting data I've gotten over the last 6 months suggests that property values will be increasing in central Texas - in some cases, by a LOT. Now, I'm not one to speculate, and I'm not going to do so this time, but having that extra bit of knowledge may influence my decision of whether to go or no-go with any/all of the properties.

My only barrier now is time. I'll need a LOT of time to gather info on all these properties and make a precise analytical result on whether I can do them. There are numerous unknowns at this time that I hope to get answers on from the owner, mainly about the rents: amounts and terms. I'll also have to no doubt take out a pretty big loan from my 401(k) for holding/acquisition costs - something my wife has already vehemantly said "NO" to before.

---

Edit: I got an email from the owner a short time ago with only some of the information I requested. He asked that I contact the property management company for some of the other info (i.e., lease dates, PM contract). Some of the other information I requested was just flat-out ignored. One thing he didn't respond to yet was my repeated request that I would have to take these properties Sub2 and if he was okay with me doing so. I'm guessing his refusal to answer the question but continued dialog with me can be substituted for "Yes", although, it would still be nice if he would say so. :-)

Based on the data I got so far, I was able to make a pretty good ballpark estimate on six of the properties. Taking the properties Sub2 and selling via owner financing would give me the following projected net profit figures:

Property #1:  $  20,413.37
Property #2:  $  38,267.80
Property #3:  $  12,399.41
Property #4:  $  11,350.98
Property #5:  $  22,130.99
Property #6:  $  42,806.97
------------  ------------
TOTAL         $ 147,369.52

The other properties are harder to figure out since I am trying to formulate market conditions in areas I have no clue about.

I am a littl euneasy about Properties #3 and #4. I set a minimum profit of $15,000 for each property I purchase for now on, and those two fall below that criteria. If they make-or-break the entire deal, I'll take them, otherewise I'll probably pass on them.

New Real Estate Market Indicator?

I read this article moments ago and thought it was worth sharing to the RE community. It appears that there will soon be a vehicle that insitutional investors can use to guage a real estate market's trend - tradable futures and options. I'm guessing once it rolls out, it will only include larger metropolitan areas, but very interesting nonetheless. Now investors - REAL ESTATE investors - will have another tool they can use to guage their market.

Revised and New Tools

I managed to revise the Sub2/Owner Carry Financing Tool to allow for multiple loans (and to fix some nasty Javascript bugs). I also created a suite of Amortization Tools. You can usually find similar tools on the web somewhere, but I seem to always need them and forget where to find them. This way I will always have a link. I've never found a web-based calculator that finds the interest rate or term, so these are handy additions. Try 'em out!

Follow-up On Latest Leads

I received an email from the birddog about the most recent deals. He sent me a copy of an email he received from the owner in which the owner pretty much spills his guts about the whole situation. It turns out he is a doctor who was told that investing in central Texas was a good option a couple of years back (which it was and still is). Unfortunately, he didn't do his due diligence and never dreamt the property taxes were so high here. Therefore, he's been running cashflow negative since day one, and time has slowly taken it's toll on his finances. I can just imagine being cashflow negative to the average tune of $300 on 12 properties for almost 3 years now. I'd be wiped out, too. The birddog gave me his info (I already had his name and address, but the birddog gave me his email address and phone number). I didn't get the email until I got into work, so I can't call him yet. As an alternative, I sent him an email with my info and for him to call/email me ASAP so that I can try to help. Part of me is a little uneasy about the situation, but being a little cautious is a good thing. I'll hopefully get to see how bad a shape this guy is in soon, and whether I can swing any deals.

BTW, three of the four properties in my farm area already have tenants. One is empty (I'm guessing from the info I got). Unfortunately, even from the owner's email, it sounds like he's still cashflowing pretty bad. I just need to find out how much the rents are, how long the contracts are for, how behind the owner is, and so on in order to get a clearer picture of the situation.

My exit strategy would be to let the leases run their course and then sell the properties via owner financing. I would like to keep at least one for long-term growth, even if it cashflows negative at the onset. I can always refi later with better terms.

Edit: Here is the email I sent to the owner ...

Mr. [owner's name],

I was referred to you by a gentleman in Austin, TX, who said you are in need of getting rid of some properties. I am a real estate investor who buys properties in this area. I read your story, and I am heartbroken that your life has taken a turn for the worse - financially as well as physically and emotionally. With God's help, you will pull through this.

The information he gave me was enough to build a good financial picture of your properties, but in order to get a complete picture, I would need more information. Looking over the financials I have, it appears the properties are cashflowing negative by $200-$400, depending. I don't have the rent amounts, but rental comps in the area support my figures.

The existing loans on the properties make buying conventionally out of the question. I would not only be cashflowing negative, but also be upside-down on the properties - IOW, owing more than they are worth. As an investor, you can understand that this does not make sound business sense for me. However, depending on concrete financial data, I can still take ownership of your properties subject-to the existing loans. What this means is that the loans will stay in your name, but I will make the payments each month. This benefits you in two major ways. First, barring any underlying title issues, we can close on the properties in a matter of days. Yes, THAT quickly. With a conventional loan, we'd have to wait 30-45 days for the lender to get all the paperwork submitted. Second, since I will be making the payments on time every month, and since the loans will stay in your name, your credit goes from being bruised to being repaired. I cannot guarantee when I will sell the properties once I take ownership, but since I make my profit selling, I can assure you I will be diligent about trying to sell them quickly.

If this sounds like an avenue you would like to pursue further, please reply to my email with as much information on the four properties in [location] as possible, including, but not limited to, lease amounts, when the lease contracts end, any stipulations in the lease I should be aware of, if you are behind in any of the loans, and, if so, by how much, and if the lenders have already started the foreclosure process. Again, I am a real estate investor, but I first like to think of myself as someone who can help people like yourself overcome their real estate problems.

You can visit my web site at [web site] for more information about our services. You can also contact me via this email address. Or, you can call me direct at [phone#] anytime. Do not procrastinate - contact me TODAY.

A Birddog Sends Me a Boatload of Deals

The birddog who sent me info on this deal sent me an email last night regarding 12 possible properties from the same owner. It appears the owner - who is from California, I might add - went on a buying spree in 2003 and 2004 in the area and bought these 12 properties. He's now fallen on hard financial times and needs to get the unloaded. Of the 12 properties, though, only four were in my farm area. The others were located in far south and west Austin.

The birddog did a nice job of analyzing the properties, too. He sent me a spreadsheet with the property specifications and the financials - loan amounts, interest rates, etc. I still did my own research to verify the information AND to make sure there were no problems. It turns out the info the birddog sent was about 99% correct, and the properties don't appear to have any liens slapped on them, which was good news. Unfortunately, after doing some due diligence with the financials, all four of the properties would be alligators going the buy-n-hold route - even if I took them Sub2. The cashflow goes from a high of -$340/month to a low of -$176/month.

I then decided to run the financials through my Sub2/OCF tool, but the tool only supports single mortgages (work item). Each of these properties carries two loans, so I had to do it manually. From my analysis, only two of the four properties would make ideal candidates. The other two properties are "iffy" in that the subdivision they are both in has seen depreciating market values the last couple of years. I figure the area will start appreciating the next couple of years, but I'd hate to guess and put myself at risk.

For the first property, I determined it I could make a profit of at least $20,000 (and probably a few thousand more). The second property was slightly better with an estimated profit of $25,000 (or more). The two "iffy" properties would net me $15,000 each, BUT that's if the area appreciates at least 3.5%/year over the next couple of years. Seeing as how two properties would put a dent in my wallet already, I figure the risk and upfront costs just wouldn't make those two worthwhile. As it is, I figure even if I take the first two properties Sub2, I'd still need to fork over $12k in holding and acquisition costs. Once I get buyers in, though, that expense should turn into a nice $8-12k initial profit. I'd also experience a total of about $520/month positive cashflow from the loan differences, and then get a nice payday when the buyers refi the loans in two years of about $11k each.

Of course, I immediately replied to the birddog to get me in touch with the owner (it appears from some of the info he had). I'll need to take some of my profit and use it to pay the birddog, too. If he keeps sending me deals like these, we will definately have a good partnership.

Website Finished!

I finally completed the last of the work items I had for my website, so it should be fully functional now. My next order of business is recording my voicemail message, and I'll be set to mailout my postcards!

100 Fastest Growing Counties of 2005

Is your's listed?

My county, Williamson County, TX, came in at #45 with a increase of 4.8%. I have a gut feeling that for 2006, and, especially, 2007, the numbers will be much steeper, too.

Website Updates

Here is how my time is prioritized at the moment:

1. Family (when at home), otherwise, work.
2. Sleep/Eat
3. Other

I'll tell you right ow that #3 is almost non-existent. What little time I have is almost 100% devoted to #1 and #2. Forunately for me, the project I was on at work started winding down recently, and I've had a lot of extra time, so I've spent my breaks and lunch time updating my web site. I haven't landed the updates to the actual web site, but I'll try to do it this week some time.

Things I've done since the web site went live:

1. Completed all "popups".
2. Completed content for all pages (except "About Us").

The issue I need resolved before landing the updates is to create a MySQL database. My subscription gives me 10 databases, but I only need one to house two tables. Without the database set up, the "Buy Yur House" section is broken, since it relies on the two tables to function. Originally, I was going to house all images within the DB itself, but that got rather cumbersome. So now I just house the images in the filesystem and reference the relative paths in one of the tables. I think in the interim, I'll just cut-n-paste the static content from some samples I have to illusterate what it would look like.

I also need to create three PHP files to handle form submission. One will be when a user requests more information on a listed property. The second will be when they want to contact "me" in general. The third is a monster. It's a large form the user fills out in detail about a property they want to sell me.

Lastly, I need to get my banner professionally revised. The logo now looks pretty ... uhm ... dull.

Hopefully, all this will be done soon. Now, time to go to sleep (or was it work? or was it to feed the twins? or was it to eat?). :-P

Perils in Buying Online Real Estate

I came across this article today, which basically says that the recent real estate boom has caused unethical people to gather money from unsuspecting buyers (mainly novice real estate investors). Usually, the seller will post a listing on a reputable site, like eBay, but give false information. The buyer thinks they are getting a bargain, but, in fact, are getting taken to the cleaners instead.

While I feel bad for these people who have been taken advantage of, the first rule in this business is to do your due dilignence! Evidentally, these people saw dollar signs and forgot to check if the listings were even real.

What really gets me is that these people would put down large amounts of money for something they (or someone they can trust) have not even laid their eyes on. Dumb - very dumb.

Website is Live!

I went ahead and created an account at GoDaddy.com. Since I already had the majority of my web site already written, I waited a few hours until my account went live to upload the content. Well, I just finished uploading my content and my web site is now live on the internet.

You can view it at http://mnsres.com!

As always, let me know what you think.

Disclaimer: Some portions of the web site are still under construction, and you may receive incomplete content or an error message.

USPS Postcard Mailouts are S-L-O-W

I figured it would take a few days to get a sample postcard I submitted at usps.com, but it's almost been a full week now! I submitted the order last Thursday. Last Friday, I get an email saying it's in production. Last Saturday, I get an email saying my order was completed and being sent to my local post office for delivery. I checked the mail yesterday (Tuesday), and I STILL hadn't gotten it! Maybe it's because I only submitted one postcard? Maybe because I am a new customer? Maybe if I submit 300+ like I plan to do, it will be faster? Anyone know if it generally takes them a week (or longer) to send the postcards out from start-to-finish? I guess I'm just too impatient.

Decisions, Decisions

House #1
I got a call from my tenants last night regarding them getting some of my mail. Specifically, it was all from my insurance underwriter. Argh! I apologized to the lady and told her I could meet her this weekend to pick it up. In the mean time, I'll call the insurance office and try to get them straightened out to where I REALLY live. I then asked her if everything was going alright to which she replied they finally purchased some land. I knew the day would come, but it was disheartening all the same. It won't be long now until I lose these great tenants. I figure it will still be a while before they get their house built, so I'll still have some rent checks coming in for a few months.

After chit-chatting a little longer, I hung up and told my wife the news. She still wants to rent the place out even after they leave, but I'm also considering on doing an owner finance sale. I quickly ran the numbers and figured I could profit $45-50k in two years, however, with recent news of an impending boom in central Texas, I may hold off. I think I'll just take my wife's advice and continue renting the place out. My only hope is I find someone as great as these current tenants have been.

Business Items
I swear I've been REALLY dragging my feet getting my systems in place. I've researched things for my marketing until I'm blue in the face. I've finally decided on the following items:

1. Toll-free Number - I have a cell phone used primarily for business, but I want a 1st-line of defense to incoming calls, and use my cell phone for other business matters. So, I've decided to get a toll-free number that will have a nice greeting and allow the caller to leave their information, or to call my cell phone if they want me to come over NOW. I narrowed down the choices to Freedom Voice and Kall8. I think Freedom Voice offers more for the money, but I don't need a lot of bells-n-whistles, so I'm thinking of going with Kall8. Cost: $5/setup, $5/month, 6.9 cents/min, for a repeating 1-866 number.
2. P.O. Box - I'll get one of these, so that I don't expose my home address on any marketing material. It just so happens my in-laws already have one that they rarely use, and said I was more than welcome to use it until I get my entity established and get my own. I figure the main thing people will want to know are my phone number and web site address, anyway. Cost: $0.
3. Web Site - I have known for a while that GoDaddy.com is one of the cheapest ISP's out there, and I can't find anyone else to host my stuff cheaper for what I need (just HTML & PHP hosting). I also have a great web site name in mind that's available. Cost: $39.12 for 1yr hosting and $8.95 $1.95 for domain setup.

So total startup costs: ~$51 (+tax). Not too shabby. I'll also spend about $115/month for my postcard mailouts, and I'll need to set up and appointment with a RE attorney to make sure I have all my bases covered, so there will be other recurring costs. I'll try to get the toll free number and web site started today.

Web-based Sub2 w/OCF Estimation Tool

Originally, I wrote a program that takes user input and displays what estimated profit there is in a subject-to deal that is sold using owner-carry financing. I then converted it into a spreadsheet format. Now I converted it into a web-based form that anyone can use. It uses Javascript and CSS (both of which, I admit, I'm not very savvy with). I can't guarantee it is 100% accurate, and I know for a fact it doesn;t have a lot of error checking, so user beware!

The form is located here.

Be aware that the text input boxes shaded in light gray are REQUIRED items, and the darker shaded input boxes are computed fields that are read only. Let me know what you think (good and bad). :-)

New Birddog - New Deal - Same Result

I got a couple of emails over the weekend regarding REI. All but one were people who got my name from a message board somewhere wanting answers to questions. The other individual said he is a newbie in my area, and had a deal for me. After asking him for more info (note: all I need is a person's address, and I practically know everything about them regarding their property), he sent me the info and said he didn't want to do the deal, but would like to learn how I did it.

I spent about 15 mins researching the property's info online, and determined it wasn't much of a deal. The birddog said he is meeting with the owner this week to get more info, but that the owner just wanted out of the property - no consideration whatsoever. It turns out, though, his property isn't a candidate for ANYTHING. Not a rental. Not a w/s flip. Not a retial flip. Not even an owner-carry financing deal. I determined the MOST profit that could be made from the house would be to wrap it with my own note and add a premium on the price and interest rate. Even then, I'd be looking at only $6,000 for TWO years worth of work and risk. No thanks.

I gave him a detailed response and told him to let me know if he had anything else. We'll see.

Postcard Mailout Details

I finished researching the courthouse records for the subdivisions I will be targeting with my postcards. All-in-all the entire process took me about 2 hrs. I had a lot of automated processes in place that eliminated most of the tedious work. I also learned more about real estate records in the state of Texas that will help me down the road. Here were the statistics on the subdivisions:

Sub       Total  Foreclosed       Valid  Properties
 #   Properties  Properties  Properties   w/Lien(s)
===  ==========  ==========  ==========  ==========
 1          208           2          83           1
 2          228           4          87           8
 3          433           6         345          15
 4          163           0          50           0
 5          113           0          85           0
 6          438          10         268          22
 7          402           0         314          40
 8          541           5         288          16
     ==========  ==========  ==========  ==========
          2,526          27       1,520         102

My first mailout will hit those properties that have existing leins as this may be homeowners who are just starting to get into trouble. The remainder of the mailouts will be all evenly divided and distributed so that every homeowner is mailed a postcard every four months. Therefore, my mailouts will look like this:

Mo  S1  S2  S3  S4  S5  S6  S7  S8  Ttl    Cost
==  ==  ==  ==  ==  ==  ==  ==  ==  ===  ========
 1  21  22  87  13  22  67  79  72  383  $ 115.93
 2  21  22  86  13  21  67  79  72  381  $ 115.33
 3  21  22  86  12  21  67  78  72  379  $ 114.72
 4  20  21  86  12  21  67  78  72  377  $ 114.12

So I'll be averaging around $115/mo for my postcard mailouts. It's a little higher than I had wanted, but will more than pay for itself with just one solid deal. I'll keep a record of the number of calls I get and deals I make, so that I can tweak the marketing a bit to suit my needs. I hope to generate at least 10-30 calls a month, and make at least one deal every other month, but I'll have to see. I'm also going to start a flyer and door hanger campaign to those same subdivisions on a periodic basis as well as others.

A $20,000+ Lesson

Once you are in this business long enough, I'm sure you will have a story of the proverbial big fish that got away. Unfortunately, mine has already happened.

I posted in detail recently about a deal that I initially passed on, but decided later it would be a good fit for a Sub2/Owner-Finance. Even then, I sat on my hands for a few days before taking any action. Well, my ignorance and procrastination paid off: the property was sold on the retail market recently - to someone else! I don't know for how much, nor does it matter. What matters is by not jumping in immediately and picking up the deal, I essentially "lost" over $20,000.

Let this be a lesson to every newbie and seasoned RE investor alike - next to fear and time, procrastination is your biggest obstacle. If you find a deal, make it happen. Don't sit on the sidelines doing other things. It's too easy to NOT do something than to DO IT.

This is one lesson I'll forever remind myself about. :-(

Research

Richard Roop, the REI marketing genius, says that the best list to have is one that you make yourself. Interestingly, while building my postcard mailout list, I'm finding this to be true. I have been scouring the online courthouse records of properties in eight subdivisions I will be targeting. Most of my research is automated, so it doesn't take me that long. So far, I have processed 6-of-the-8 subdivisions and found a total of 15 foreclosures since last fall alone - 15! This is astounding. My initial thought was "what if I could have intervened into these homeowners' lives before their property got to the point of foreclosure?" Fifteen! From a total of about 1,000 properties.

Also, I came across a couple of properties that are on the brink of preforeclosure. In Texas, they don't file a Lis Pidens, per se, but I've learned how to scout properties that are prime candidates for pre-preforeclosures - that is, properties where the homeowner is just starting to get into trouble. I'll send out letter to those particular homeowners today.

As far as the postcard mailout goes, I goofed a little (ok, a LOT) in my initial cost estimations. It turns out I was blanketing each homeowner once a year, when I really wanted to hit each one every 3-4 months on a continuous basis. Right now, my list includes almost 1,000 homeowners with another 500-700 to go. Breaking this down into 3-month intervals will have me sending out around 500-600 postcards every month, which will cost me anywhere from $150-$180/month. That's a lot different than the $35/month I was originally thinking. I'd like to keep it at 3-month intervals so that my name and message become 'branded' into people's minds. If I only do it once or twice a year, people will easily forget me and my message.

Staged Postcard Mailouts

I am in the process of writing a mailout schedule to numerous subdivisions in my farm area. So far, I have six subdivisions with another two more to go. I've broken down the mailouts monthly and staged them so that 1/4th of each subdivision is covered in each 3-month period. This not only helps get my name out on a periodic basis, but really saves me from having to do bulk mailings 1-2 times a year and having to come up with a lot of money. With the monthly mailouts, I am so far averaging about $23, which is VERY affordable. As I said, though, I still have another two subdivisions to go, and one of those is rather large. Regardless, I don't see myself spending more than about $35/month on my postcard mailouts. Hopefully I can start getting the phone ringing as it has been pretty silent lately.

Argh! My Insurance Company

I really, really, REALLY must find a new insurance carrier for House #1. I just seem to be doing too much of their work. For one, it seems every time my note gets transferred to another lender (this has happened three times now), I get a letter stating they have no record of insurance and will use their own if I do not provide proof within x-number of days. Okay, this may not be the insurance carrier's fault per se, but all this should be handled 'behind the scenes', IMHO. Each time, I must then contact my insurance agent's office and have them call the new lender with the information.

Now, I get a voicemail from my agent's office stating they have not received $76 from the new lender to continue coverage, and the policy will be cancelled on March 5th if payment is not received. I then call the agent's office back and get their voicemail (which is another peeve of mine - they NEVER answer the phone, so I ALWAYS have to leave a message). It turns out my insurance company had it in their records that my coverage is escrowed, so therefore billed the lender. Argh! I told the lady that it isn't - nor ever was - escrowed. She said she will mail me out a bill today, but by the time I get the bill and pay it via snail mail, the policy may be cancelled. She then suggested I call a 1-800 for the insurance company and pay via the phone ASAP to avoid cancellation. Argh! More needless work for me to do.

Maybe I just need more sleep. :-P

Travis County to Increase Property Values A LOT

I meant to post this the other day.

I read a story on the front page of the local paper the other day saying that the Travis County (where Austin, TX is located) Tax Assesor will be increasing the property values by an enormous amount next year. I'm going by (failed) memory here, but I believe they said most properties will have their values re-assessed by an average 20% MORE. More expensive homes will see an increase of upwards of 40%!!! This is incredible. Texas, and the I-35 corridor especially, has been under constant news about undervalued property values. I guess the Travis County Tax Assessor has taken notice and appears to single-handidly be making a decision to get "in-line" with the rest of the nation.

Since most of my activity involves Williamson County, I'm anxious to see how (not if, but how) this will affect property values there. I'm guessing the days of "cheap" properties in central Texas are behind us now.

Status on recent prospects and my CPA

There were two prospective properties I was interested in earlier this week. The first was a deal I passed on early in January, but I decided to go ahead with after doing some more calculating. I still haven't heard back from the owner, so I'm guessing either she is no longer motivated, found another buyer, or is still cotemplating what to do next. I'll send her a follow-up letter next week to make sure.

The other property I was looking out was put on the market one day and was sold the next. It wasn't a great property by any means, but there was some definate profit to be made to someone who knows what they are doing. I'm guessing a savvy investor bought it for less than the asking price.

I met with my CPA after work yesterday to finalize our 2005 taxes. It turns out she did already e-file our return, but said in order for the IRS to initiate the refund, they would need the form she had us sign. So it may be another week or so before we get our refund. I figure about half of the refund will go towards paying down some of our CC debt associated with House #1. The remainder will be split between personal stuff and business marketing. I plan to start sending out postcards on a regular basis to several neighborhoods starting next month. I want the mail-outs to be consistant, too. For instance, I'll hit on-third of a neighborhood once every three months. This will cover the entire neighborhood four times a year, which should get my name out to people. I figure each postcard mail-out will have negligable costs, and those costs can be written off as business expenses anyway.

My only worry is that I won't have the time required to actually go meet with sellers for a while. What free time I have now is used to either sleep or get caught-up with personal matters.

On a side note ... I got in contact with a relative in Indiana. Her husband is a relatively new CPA, and I may try to forge a business relationship with both of them. I've noticed properties in and around where they live are cheaper than down here - at least the distressed ones are. I figure there is an opportunity to get some properties up there and have my relatives living there help me find, acquire, manage, and sell them for me. We'll see.

OT: USB Memory Sticks

I used to use a 128MB memory stick to hold all of my REI information on, but it got filled up quickly. I also housed XAMPPLite on the memory stick to hold all my database files. Everyone so often I would back up the data, and luckily so, because every so often the data would become corrupt. I have since moved up to a 1GB memory stick to hold the information, and still do backups. Today I found out over half the data on my stick was corrupt, and my last backup was over 9 days ago. Ugh! So now I've essentially lost 9 days of data for my business. I'll need to become more attentive on running my backups on a more consitant basis. :-(

Two Possible Deals

I have two deals I'm currently working on. The first was the deal I spoke about in my blog entry the other day. I sent the owner a nice letter on how I could help her if she is still wanting to sell. We'll see what happens.

The second deal is something I stumbled upon while going through my daily MLS feeds. It's a home listed as "needing TLC" (which we all know what that means). The listing also says the owner is motivated and to bring all offers. The asking price was low for a comparable house in the neighborhood, which first caught my eye (by about $15,000). I did a preliminary check on my county's online courthouse record site and found the initial loan was for $126k for 20yrs. Doing some quick calculations, I figure what they are asking for is probably the same as the balance now on the loan. I'm not sure where they will be getting the funds to pay the Realtor fees.

I ran the figures into the program I talked about and figured I could net a little over $18k on the deal doing a straight Sub2 with a backend owner-carry finance (and repairs only being negligable - haha). The problem, though, is that it is listed, and we all know how most Realtors react to creative deals. I will no doubt have to go through my own agent to try and strike a possible deal with this one.

First Call From My Car Signs

I've had my magnetic "WE BUY HOUSES" car signs on my vehicle now for nearly 8 months now with not so much as an inquiry from anyone. Today, though, I got a call from a person who saw my car signs for the first time. Whoo-hoo! However, the bad news is that he wanted to know if I not only buy pier-and-beam style houses (which I don't) AND if I can move it off the land (definately NOT). Oh well, at least I got a call. :-)

Deal or No Deal?

As I said in my previous blog entry, I created a tool to help me evaluate whether a property is a good candidate for taking Sub2 and selling via owner-carry financing. I put the tool through a test with the most recent deal I passed on. The deal was for an SFR that was built in 200. It was a 3/2 with 1500sf, and only required paint and possibly carpet. The owner was willing to let it go for just some "u-haul" money in order for her to get an apartment. The double-edge sword was in the existing financing. It had a 15yr loan vs. the normal 30yr loan, which made the payments a lot higher, so renting it our would mean negative cashflow for a few years. Putting the figures in the tool, though, showed it was an ideal candidate for Sub2 with owner-carry financing:

Deed of Trust: Sep/2003 for $126,500
Loan: 15yr @4.75% (approx)
PITI: $1,500/month
FMV: $120k-$125k
Repairs: $1,250
Marketing: $500
Taxes: $363.59/mo.
Insurance: $54.16/mo.
PMI: $95.18/mo.

For the owner-carry portion, I would sell the house at a slight premium ($129,900) and request at least $5k down (more like $10k) with an interest rate of 9.5% on my 30yr loan. Running all the figures into the tool, I got the following:

Original Loan                 New Loan
-------------------------     ------------------------------
Amount ..... $ 126,500.00     Amount .......... $ 124,900.00
Rate .......         4.75%    Rate ............         9.50%
Months .....          180     Months ..........          360
PMI ........ $      95.18     Term (Mos.) .....           24
Payment .... $     983.96     Payment ......... $   1,050.23

Acquisition/Holding Costs     Other
-------------------------     ------------------------------
Taxes ...... $     363.59     Months to Sub2 ...          30
Insurance .. $      54.16     Months to Hold ...           3
Repairs .... $   1,250.00     Downpayment ......    5,000.00
Marketing .. $     500.00
Other ...... $   2,500.00

Original Loan Balance - At Acquisition ........ $ 111,139.43
Original Loan Balance - End of Hold ........... $ 109,500.86
Original Loan Balance - End of Contract ....... $  95,669.14

New Loan Balance - End of Contract ............ $ 123,283.11

Monthly Cashflow .............................. $      28.91-

Profit Recapture
---------------------------------------
Downpayment .............. $   5,000.00
Monthly Cashflow ......... $     693.84-
Holding Cost ............. $   8,740.67-
Difference From Loans .... $  27,613.97
                           ------------
                    TOTAL: $  23,084.28

So this is a very good deal after all. The ONLY thing that I don't like is the monthly negative cashflow. But this can be offset by asking for a larger downpayment. If I ask for $10,000 down instead of $5,000, I will still make a nice profit AND won't have as much risk:

Original Loan                 New Loan
-------------------------     ------------------------------
Amount ..... $ 126,500.00     Amount .......... $ 119,900.00
Rate .......         4.75%    Rate ............         9.50%
Months .....          180     Months ..........          360
PMI ........ $      95.18     Term (Mos.) .....           24
Payment .... $     983.96     Payment ......... $   1,008.18

Acquisition/Holding Costs     Other
-------------------------     ------------------------------
Taxes ...... $     363.59     Months to Sub2 ...          30
Insurance .. $      54.16     Months to Hold ...           3
Repairs .... $   1,250.00     Downpayment ......   10,000.00
Marketing .. $     500.00
Other ...... $   2,500.00

Original Loan Balance - At Acquisition ........ $ 111,139.43
Original Loan Balance - End of Hold ........... $ 109,500.86
Original Loan Balance - End of Contract ....... $  95,669.14

New Loan Balance - End of Contract ............ $ 118,348.03

Monthly Cashflow .............................. $      70.96-

Profit Recapture
---------------------------------------
Downpayment .............. $  10,000.00
Monthly Cashflow ......... $   1,703.04-
Holding Cost ............. $   8,740.67-
Difference From Loans .... $  22,678.89
                           ------------
                    TOTAL: $  22,140.00

I checked the courthouse records, and it appears the owner is still living there (although, the online courthouse records are about 2-3 weeks behind in most cases). I've already started drafting the owner a letter, so we'll see what happens. Stay tuned.

Getting back into the swing of things

Caring for a couple of newborns is tough. Once you've gotten used to the sleep deprivation (hint: you never REALLY get used to not having enough sleep), you must then contend with the reality that everything else in the world is put on the backburner. One "luxary" my employer has for new dads is the fact they give you two weeks of paid leave (on top of any other vacation/personal days you accrue). I not only took those two weeks off, but also took an additional two weeks of vacation.

Even though 99% of my time off was spent caring for the the newborn twins in one capacity or another, I still managed to squeeze in a little time for REI. One major accomplishment was getting ALL of my tax documentation to our CPA. She said she'll e-file it (more on that in a minute), and we should get our refund in 7-10 business days. Since I have a lot of supporting documentation to include, she said she'll need to file a "paper" version as well later. I also spent some time writing a program to calculate whether a property is a good candidate for a Sub2/Owner-Financing. After doing so, I recalculated the most recent deal I turned down, and realized it was probablya good deal after all (I'll talk more about this in a separate post).

Now back to the CPA ...

My wife and I are considering using another CPA in the future. The one we currently have is okay, but we both notice she doesn't have a good track record of returning emails/voicemails in a timely fashion. We also notice several miscommunications in our dealings with her. As far as the poor response level, we can go literally days (and one time almost a week) without hearing back from her. In a professional business, this is totally unacceptable. As far as the miscommunication goes, the latest fiasco involved the e-filing. She had sent me an email early last week saying she only needed my bank info to send out the e-file. I called her up, and gave her the info. Several days passed, and I sent her a follow-up email to confirm the e-file was sent. After three days of no response, I finally got an email saying we need to sign an authorization form for the e-file. Huh?!?! All she said she needed was my bank info in order to "press the button for the e-file." Stuff like that is what I mean by miscommunication. Two reasons we got her were (1) she was close by, and (2) she seemed to understand REI as it relates to accounting needs. Time to shop around.

OT: I'm Back

Wow. Hard to believe it's been almost three weeks since my last entry. I've been extremely busy with our newest additions. The twins arrived on 1/24. They weighed 6 lbs. 5 oz. and 7 lbs. 4 oz. - no wonder my wife was in such a miserable condition the last month of her pregnancy!

I remember the sleep deprivation I had after my daughter was born and it seems to be even worse with the twins. They seem to have a conspiracy against us at times as one will be fast asleep and the other is up crying. I think the most we've slept in any 24hr. period since their birth has been 5 hours - with an average of about 4 hours. Somehow, I've gotten used to the little amount of sleep (I don't know how, though).

As far as REI goes, I've still managed to keep parts of my business going. I have an automated system that queries daily MLS listings and produces a report. It will also flag any properties that meet my strict criteria as potential leads. So far, I've only gotten one property to meet my strict crteria and it was purchased the day iot came on the MLS.

I also gathered all my tax documentation for 2005 and will be giving it all to my CPA to process and file. I am lost in all the IRS jargon, so I'll let my CPA prepare and file my personal return this year. Based on my expenses/income from our business and my 2004 return, she estimates we'll get back a sizeable amount. I certainly hope so.

Home prices even more overvalued

Here is yet another in a long line of reports suggesting a lot of housing markets in the nation are WAY overvalued (and some even undervalued by a good amount).

The Top-10 Overvalued Markets:

1. Santa Barbara-Santa Maria CA - 86%)
2. Naples FL (72%)
3. Modesto CA (71%)
4. San Diego CA (70%)
5. Stockton CA (64%)
6. Riverside-San Bernardino CA (64%)
7. San Jose CA (61%)
8. Sacramento CA (59%)
9. Vallejo-Fairfield CA (58%)
10. Los Angeles-Anaheim CA (57%)

The Top-10 Undervalued Markets:

1. El Paso TX (-26%)
2. McAllen-Edinburg TX (-21%)
3. Fayetteville NC (-18%)
4. Memphis TN (-18%)
5. Augusta GA (-17%)
6. Little Rock AR (-17%)
7. Pittsburgh PA (-14%)
8. Indianapolis IN (-14%)
9. Dallas TX (-14%)
10. Houston TX (-13%)

It's no real surprise that 9 out-of-the 10 overvalued markets are in California. What is also not surprising for those who've been following the trend is that Texas has 4 out-of-the 10 top undervalued markets, including the top two. Last I heard, the Austin-San Marcos-Round Rock area was about 5-6% undervalued, so we are probably in the top-20 or top-25 undervalued markets. If that wasn't enough to get the swarms of California real estate investors in this state. :-/

On Hold

This Wednesday is D-Day (aka, "Delivery-Day"). For about the past month, my wife and I have both expected her to deliver the twins any day now. On Wednesday, my wife is scheduled to deliver, regardless if the twins want to come into this world then or not. :-)

Over the past 2-3 weeks, I've switched gears from concentrating a lot of my free time to REI to concentrating on our soon-to-be arrivals. I have only one bandit sign that is still hanging, and haven't gotten a call since that last deal I talked about a week or so ago. I'll definately be out-of-commission until this time next week, and I fear that it will probably be longer than that. I have a couple of systems in place to keep a small part of my business going, but the major marketing and deal-making parts will definately be put on-hold for a while.

I'll try to post when I can in the next week or two, but I doubt I'll have the time (and what time I do have will be spent on sleeping, I'm sure). ;-)

Happy investing everyone!

Poised for a Boom

I was watching the local news last night, and they did a short segment on the area housing market. Basically, it was the same old "real estate market is undervalued" mantra, but one thing stuck in my head. The reporter was asking a local Realtor® a few questions, and ended the segment with a question "The bottom line?" to which the Realtor® answered "If you are going to buy a home in central Texas, now is the time." Now this wasn't really news to me or others in the local area, but it did drive home a simple fact: the Texas real estate market is poised for a boom. Appreciation rates have been pretty stagnant the last five years, and only now are seeing positive growth. One local investor I spoke with recently said market appreciation has averaged about 4% since last year, which seemed rather high to me from what I've seen. While I am not big on speculation, I do think that now is the right time to buy real estate in the Austin metroplex. I've seen a lot of growth in the area in the last year, and with the addition of Highway 45 and TX130, things will only get better.

Maybe I shouldn't be passing on some of these deals so quickly. :-/

Investor, Recent Deal, and an Old Deal

Well, it turns out this investor I've been talking about recently is very experienced. I did some google searching, and found lots of information about him that definately leads me to believe he has been doing this for some time. While doing this research, I also gave hin the info of the deal I passed by last week. After a day or two, he got back with me and said it wouldn't work for him either. So it's good to know my due diligence resulted in the same conclusions as his: no deal.

I also had some downtime yesterday (while my daughter and wife took a nap) to revisit a deal I passed up last summer. I still don't know why I'm so hung up on this one property - maybe because it makes a good trial to base my figures on??? Anyway, I played with some numbers and figured the most profit I could hope to make from the deal would be $12,000, and this was with a lot of wishful thinking. For example, I would have to sell via owner-carry with an 11% loan. Not sure if that would even be feasible in my market even for people who can't qualify conventionally. during the two year loan term (it has a balloon at the end), I could either invest the monthly CF elsewhere or reinvest it in the form of added principle payments. It turns out, by reinvesting the monthly payments, I would pocket an additional $1,000 after two years in debt paydown / equity buildup. Again, there were just a lot of uncertainties, though, that could really put a dent in the net profit that I would need to iron out first. Still it really exercised my brain in owner-carry financing.

Experienced Investor?

Recently, I met a local investor online at one of the REI web sites I frequent. The person seems very knowledgeable with REI, and I felt he would be a great person to not only learn from, but to flip deals to that I don't want. In reading both his direct emails to me and posts on the message board, I got the feeling he has done many deals in his career. He said his strategies are to buy Sub2 and sell via owner-carry financing, which is EXACTLY what I want to do.

The other day, I was looking at our county's courthouse records and an idea hit me. I thought "why don't I look up the entire history of all courthouse records with this person's name to see how many and what type of deals he has done." When I did a search of all records - not just real estate - from 1983 to the present under this person's name, I got only two records: the first one is where he submitted an assumed name (DBA) and the second was a personal residence. I tried his name and DBA for both grantor and grantee, but same thing - the ONLY real estate records that came back involved his lone personal residence.

My first thought was that maybe he hides the transactions in a land trust, but I remembered in one of our conversations that he specifically said he doesn't use land trusts. I guess two other alternatives would be that (1) he has never done any transactions in the county in which he lives (doubtful), and/or (2) he owns a corporation (that was created outside this county) that buys the properties (very possible).

I really believe he is a genuine RE investor from the way he talks, but I'll tread softly until I know how much real-life (and not book-smarts) he has regarding RE investing.

OT: Healthcare Sucks Today!

I'm going to go against the grain here a little and post something that has very little to do with RE investing - healthcare in the United States today. Now this is only my opinion from my own personal experience - others may very well have a differing viewpoint.

As most of my readers know by now, my wife is expecting twins any day now, so we've really had to deal with the medical industry pretty close the last 9+ months. Much of what I have to comment about in this blog entry deals with the healthcare we've (well, really she) has received in that timeframe.

There are two major issues I have with healthcare (costs and quality of service), and they are so closely related to one another that it boils down to really one problem: money. To digress a bit, when I was talking with our CPA at our last meeting, we got on the subject of healthcare. I work in a Fortune 500 company that is global and is pretty solid by most standards. I still have to pay a pretty good chunk each month towards my medical, dental, and vision plans. Up until a few years ago, I would pay a modest co-pay each time I visited a healthcare provider on top of the monthly payments. Any overages above 10% were paid by my insurance company. Sice then, my coverage has morphed into me paying about 3x more a month, and my co-pay is now a straight percentage (which is usually a lot higher than with the old way). When talking with my CPA, I learned I actually have it pretty damned good. She was saying her and her husband (who is a teacher) pay over $600 a month for BASIC medical-only coverage. I about fainted! Besides education (especially for college), medicine has got to be the fastest growing industry out there in terms of costs.

But that's just one issues.

The other issue I have is with the quality of service. Now, before anyone jumps on my back about who is to blame: doctors, administrators, insurance companies, etc., I want to say that my sister is a physician and I've had countless talks with her about this point-blank. The thing is it doesn't matter who is to blame - what matters is there is a serious problem with quality of service today and it seems no one who can do anything about it really gives a damn. What happens is that doctors are coupled with insurance companies due to the differing medical plans patients have. They have to hire complete staff in order to handle all the insurance claims and general paperwork. This cuts into their bottom line, so they need to see more and more patients - usually overbooking their day. This causes both poor quality of service, since they get behind due to longer-than-expected visits, emergencies, etc. Who is ultimately put on backburner in all this is the patient themself, though. And, again, I have firsthand knowledge, especially over these last 9+ months.

Thus we're paying more-and-more money for less-and-less quality of service. Point the finger to whomever you feel is to blame, but I think we can all admit there is a definate problem today in the healthcare industry.

My most recent examples?

1. We went to see my wife's OB/GYN for a scheduled appointment. We rushed to get there on time, since it's a 20 mile drive one-way, and the office has a 15 min past your appointment time limit or they will reschedule you. We sit in the waiting room for a good 30 mins before they call us back. The nurse then does vitals on my wife, and tells us we have to wait for the doctor, who is running behind. An hour - yes, hour - later, we see the doctor. My wife brings a VHS tape so they can videotape the sonogram. They have only allowed us to tape the sono a few times as they are usually in too much of a rush. Bingo! Same thing today. The doctor is behind and does what she needs to do and leaves. Total time with patient: 10 mins. My wife had some questions, also, but my doctor said she could only answer a couple of them, and to have my wife talk to the physician assistant with other questions.

2. My wife also sees another doctor about her pregnancy (lon story). just about the same thing there, too. Rush to get there, wait for a while, and feel like we are being put through a speedy buffet line when we do get to see the doctor.

Okay, now back to the real intention of this blog ...

Duplexes For Sale

I've covered the story of the following duplexes before in some earlier blog entries. I thought I'd show everyone the exact properties I was talking about. I guess my "instinct" about these properties may have bee justified as they are STILL for sale - even after several price drops. One, in fact, was off the market for a short period, but is back on. The area isn't what I would call very nice at all. I recall in Bronchick's Flipping Properties that one criteria for a property would be if you would feel safe in the area at night. Simply put, I wouldn't!

Property #1
Property #2
Property #3
Property #4
Property #5

Sub2's Illegal?

Wow. Nothing amazes me more than people who are in the real estate profession everyday, and know less than I do about stuff. So, I finally got a call back from the title agency I called the other day. I had asked three detailed questions, and the lady answered all three. Here is basically what I asked and the response I got from the lady at the title company, who was forwarding the answers from her "veteran" closer:

Q: Does your company do double-closings?
A: Yes. Just make sure all the paperwork is squared away before hand, etc., etc.,

Q: Does your company handle closings with seller financing involved, and what documents will you need from me and my buyer?
A: Yes, we do closings involving seller financing. She wasn't sure what documents I was talking about, though, so that answer is still in limbo.

But the kicker was my third question ...

Q: Does your company handle closings where the buyer is taking the property subject-to the existing financing? Keep in mind, when I asked this question, I had to explain the difference between "subject-to" and "assumption".
A: No, we don't do those types of closings. In fact, those types of transactions are illegal in the state of Texas. Huh?!?! I didn't say anything after that point except "Thank you for getting back to me."

Okay, not only are subject-to deals NOT illegal in the state of Texas (or any other state, that I know of), but they happen all the time - every day. There is even a line on the HUD-1 settlement statement specifically dealing with subject-to financing (Line #503, I believe). Now, the lender CAN call a loan taken Sub2 due at their descretion, but there is ABSOLUTELY NOTHING ILLEGAL ABOUT IT.

The lady asked if I'd like to come ina talk face-to-face with them further to which I said 'yes', but that 'I would call them'. Ugh.

Hard to say "No Thanks"

This most recent deal was really an act of not taking a property emotionally for me. I tried just about every scenario imaginable to make this deal work, but the numbers would always come up negative for me. Straight rent, owner-carry, refi, you name it, and I tried it. The problem is that the 15yr existing note just elevates the monthly payment so much that everything I've tried to do creatively just wouldn't work. I thought maybe taking Sub2, renting it out for going rental price, and refinancing in a year to a 30yr note would enable to at least make a profit on the backend, but even that went south - quickly.

I finally called the owner last night as promised and explained to her that the financials just didn't work out for me. I told her that I knew other investors that MAY be interested, but I couldn't promise her anything. She thanked me for at least trying, and I felt so bad, I told her that if it came down to crunch time and she absolutely HAD to sell it to please call me and I'd do whatever I could to help her out - even if it meant a loss for me (I couldn't believe I said this). She just sounded so kind in her communication with me in both phone conversations that I knew she would be easy to work with.

I'll try to fish her property to some local investors to see if anyone with strong cash reserves can help her out. I hope for her sake they can, but we'll see. Dang!

Another Deal

As I said in my previous blog entry, I got a call from a lady wanting to sell her house. My guesstimations were pretty much on spot (actually, a little higher, except I didn't factor in PMI in the loan). After talking with the lady, I found out both her and her sister bought the place, and her sister moved out last month to her own place. The lady said she can't continue staying there, since the payments are too high for just her. I told her I was an investor, and couldn't buy houses at retail price. She said that she didn't want any money for the property - she just wants to get rid of it. I figured the balance on her loan was around $113,500, and was surprised when she said it was currently $111,700. The deal will be very slim no matter what exit strategy I employ. I would almost have to take over her payments as a conventional loan would cost me $$$, especially, since the LTV is so high (~90%). I guessed she was paying about $1,386/mo (PITI), and she confirmed she is paying $1,400/mo.

So, what to do ... what to do ... I want this property badly for three main reasons:

1. It's a 15yr loan. This means the equity build-up and debt pay-down will occur a LOT faster than with a 30yr loan. It also means the payments will be higher, too, which is part of the problem I'm having on an exit strategy.

2. Based on the date of the loan, the fact it's only 15yrs, the monthly payments, taxes, insurance, and PMI, I figured the interest rate is <5% (actually, I figured 4.75%). With that kind of interest rate, it makes #1 above a lot more attractive.

3. It has about $15k-$20k of equity. Percentage-wise this isn't good ($112k/$128k = 88%), but the equity amount is still nice - especially given #1 and #2 above as it will only go down quicker.

The problem being a straight rental is this ... Rents in the area range from $950-$1200, with comps of $1,000 closer to this property. I could rent it out with a higher price tag, but it may sit longer, too - negating my efforts. At $1,000/mo, I'd have negative cashflow to the tune of $400/mo. Ouch! The good news is the property is located to a new university extension, so I could cater the property to students, since it has 4 bedrooms and 2 baths.

Another thing I could do is sell via owner-financing. I really need to see a lawyer about this first, though, as I still have some reservations about it - especially since it will have an underlying loan that could be called by the lender (this sense of fear is exacerbated knowing the original loan only had a 4.75% interest rate). If I did this, I could sell it for $135k or so. Even at that amount, I'd still have to ask for a high downpayment ($10k or so) and/or a very high interest rate (10% or so) on the new note.

The good news in all this is that (1) I still need to see if the lady is willing to let me take over the payments, and (2) she said she doesn't necessarily have to sell quickly (I specifically asked her if she needed to sell within a few days or could wait for 30-45 days, if need be, and she said she could wait). So I could realistically sign a contract for a 30-45 day close, which would give me more time to arive at a decision.

Wow - What a difference a day makes

I drug myself into work yesterday after being on vacation for a little over 19 days. I was feeling a bit down as I really hadn't done much to help my REI career over that time, and knew my free time would again be cut short soon with the arrival of my wife's and my twins. By the time I went to bed last night, however, several things happened to me regarding REI that really lifted my spirits:

Tenants - We hadn't received the January rent check from the tenants yet, and our lease agreement stipulates it is due no later than the 3rd of each month at 5:00pm. It wasn't like the tenants to be late paying, so I blamed it on the holidays. Sure enough, when I got home, the rent check was in the mailbox. Whew! I would have hate calling them to sort that mess out. Another thing in our lease agreement is that they are to give us 30 days written notice if they plan to move out. To digress, they signed a 6-month lease that is renewable month-to-month unless WE or THEY give the other party 30-days written notice. We hadn't received anything from them, so I called them last night to touch base. After informal chit-chat, I reminded them about the stipulation in the lease agreement. They said they were aware of it, and - get this - asked me if they could stay for a few more months. I replied, "Sure. That is your option", while dancing happily on the other end. As I said before, they have been EXCEPTIONAL tenants, and I would have hate seeing them go. What I really like, too, is the fact that I'll be getting more rent checks for a while. If they do decide to bail in the April/May/June, this will be excellent as it heads into the prime renting months anyway.

Title Company - One of my goals that I have REALLY procrastinated on doing is calling title companies to see how their services can help me in my venture. Over the holidays, I posted a request for recommendations for title companies on the local REI club message board. I hadn't gotten a response, so I never thought anything more about it (okay, I got sidetracked on other stuff). Yesterday, I get a call from a lady who works for a local title company, saying a gentleman gave her my name/number and said I was looking for a title company to help me. I waited until I got home and called her back. Turns out she heads the marketing portion of the title company, and wasn't the exact person I needed to speak with. I gave her some questions, and she said she would forward them to their head closing agent, who would call me back. She also asked if I could come in to talk, which I said "yes", but it wouldn't be until this Friday or next Monday (I got too many meetings scheduled at work on Wed and Thu). Since this was a referral from someone who saw my message in the REI club message board, I feel confident they work with investors, and can help me.

Possible Deal - I also got a call from an owner who wants to sell their house. Again, they left a message, and while their voice and demeanor didn't sound like someone who was motivated, they did give me enough information to figure out their history. When I got home, I ran some numbers and found the following:

Description: Built in 2000, 1500sf
Deed of Trust: 09/23/2003 for $126,520 (15yr note)
Comps: $125,000 - $130,000 (depending on # of bedrooms, etc.)

After doing some more digging, I figured their current situation looks similar to this (based on a loan for $126,520 @6% for 15yrs):

Loan Balance: $113,500
Loan Payment: $1,070/mo.
Taxes: $263/mo.
Insurance: $53/mo.
Total Monthly Debt: $1,386/mo.

That's probably a little too high to rent out, but I could still get it and sell via owner-financing for a nice profit:

Purchase Price: $135,000
Interest Rate: 9% (30yr)
Downpayment: $7,000
Cashflow/Month: $16

The monthly cashflow is out of the range I'd like ($200 min), but the fact that the existing note is for 15 years means the debt paydown will occur more quickly, leaving me more backend profit. After two years, I could be looking at:

Downpayment: $7,000
Cashflow (Total): $384
Equity Balance: $132,980 - $99,600 = $33,380
Total Profit: $40,764

Of course, that doesn't account for acquisition costs (~$2,000), holding costs (~$4,000), and repairs ($0?). All told, I could still be looking at $30,000 in profit, minimum, in two years. Of course, I have to see what the seller's needs are first. :-)

Another Deal - I have another deal in the works, which I want to keep mum about right now. If things work out, I may reveal some of the details, but we'll see.

Birddogs/Investors - I've been in touch with a couple of birddogs and two investors that work my area. Both birddogs are new to REI, so I'll have to "mold" them into my criteria. The investors appear to be both knowledgeable and easy to work with (first impression). One of them even owns a coffee house in a nearby town.

CPA - I faxed our CPA a copy of our 2004 tax returns (she said she needed them to better understand our financial history for tax purposes), more mileage info, and the total of our water/sewer bills for 2005 (part of the home deduction write-off).

All-in-all it was a very uplifting day for me. I just hope things pan out today, and I can close a lot of these open items. Stay tuned!

Some 2006 REI Goals

Here are a few of my short-term and long-term goals for 2006 regarding REI. I have to admit that I'm not sure if some of these can be attained in the timeframe I've given them due to the soon-to-be arrival of our twins, but I'll revise them if needed later ...

Web Site - One huge goal of mine in the next 1-3 months is to create a web site that people can use to correspond with me and to know what I'm all about. As I start accumulating deals to offer end-buyers, I'll also post the details of the properties there, too. I'll try to keep the web site professional, but also simplistic. I've seen a lot of RE investor web sites that are full of distracting images, fonts, and whatever else. I really like Bginvestor's web site as it is clean, professional, and to the point without all that annoying eye candy.

24hr Voicemail Service - I have a cell phone I use mainly for business, but I just have a basic greeting and my voicemail. I'll probably keep my cell phone, but I want to have a 24hr recorded voicemail that can handle multiple mailboxes for my business. I'll also use a professional to say the message, so it sounds better (i.e., my voice is terrible on the phone). Another advantage will be for bilingual and even Spanish-speaking ONLY homeowners as I will have a separate line for them to listen to.

Monthly Deals - While having monetary goals is essential, I want to mimic Richard Roop's advice of looking more at the number of quality deals you get each month. If you get make an effort to tailor your marketing and other strategies in attaining a certain number of deals each month, the money will come right along with it. By year's end, I want to be in the position of making at least one quality deal a month. If I can get one quality deal per month by year's end, it will give me about $5k-$8k/month on average in cashflow. This would allow me to sustain my family in the interim in case I lose my JOB, which is one of my ultimate goals for the end of the year.

I have a slew of other goals with their own milestones, but those three were the my main short- and long-term goals for the year. As things progress throghout the year, I'll add/revise the goals. Happy investing!

Just when things were ramping-up

Wow. That was a very quick 19+ days of vacation. While I wouldn't say I hate my JOB, I do hate the fact that I have to do the daily commutes, work the 40+ hr/week JOB, and have to rely on keeping my skills current to get a bonus, raise, or even to keep my JOB. Coming into work this morning was hard - very hard. I had a lot of expectations about my vacation beforehand, but I let the holidays and personal projects take up the majority of my time, which I guess isn't really all that bad. I had really wanted to do at least one deal before coming back to work, but even when I found time for REI, I never seemed to devote enough energy to finding any deals.

Result?

I'm basically back to square one. I did use a lot of my time gaining information about Sub2 deals and seller financing, though, so it wasn't all a waste. I really feel more knowledgeable in those areas, but I still need to set aside time to talk to a competant RE attorney to make sure my documents are in order and I do things correctly. Another 'to-do' item is to call some local title companies to get feedback on their sevices and see if they can help me in various ways.

However, nothing is going to be as much a barrier in my life as when the twins arrive sometime in the next few weeks. A lot of my time on vacation was spent caring for our almost 3-yr old daughter as my wife is almost 35 weeks now and can do almost nothing. Our daughter is a handful, and with two newborns, free time will be - as my mother used to say - as rare as hen's teeth. I am in no means going to just give in and put REI on hold indefinately, but I don't want to go the other extreme and say things will be the same as before, either. While I really like to be self-emplyed and even own my own self-sustaining business one day, I have to admit one of the perks of my company is they give their male employees two weeks of paid time off when their spouses give birth. I seriously doubt, though, that any of that time off will be used for REI, but I'll try my damnest to put forth the effort. :-)

I've started writing my goals for the new year, and one of them is to be in the position by year's end to have enough cashflow + reserves in place to at least be able to sustain my family, if the threat of losing my JOB ever becomes a reality. Early on in my REI career (okay, early last year), I had said I wanted to quit by Jan/2007. While that is still an attainable goal of mine, I thought it best to provide a addendum for at least being able to sustain myself outside of my JOB.

Now to find the time ...