My Patience Has Worn Thin

It's amazing how in less than a day you can go from feeling on top of the world to feeling thoroughly PO'd. Two things came to a head yesterday that still has me seething.

1. A reminder why I hate dealing with HUD.

In the back of my head, I knew that dealing with HUD again would be like enduring medievel torture. I just didn't think it would happen so soon.

I called (emphasis put in for what I'll talk about later) my agent yesterday around noon to confirm that someone in her office could unlock House #2 for an inspection later this week. Before I can start saying anything, my agent says that HUD returned our package due to an error on one of the pages. She wasn't sure exactly what we did wrong, since she says she doesn't have the original signed paper. I tell her that my day would be busy and that I couldn't get over to her office until 4pm'ish. Keep in mind this was at noon.

So, I get out of work and go to her office to resign a peice of paper. When I get there, she says she just found out that there were other things wrong that need corrected. Ugh. For anyone who is looking to do HUD's, you better have ALL your ducks in order as they have gotten even more picky. It turns out my prequal letter needed completely redone. They said it was outdated, wasn't signed or dated, didn't have specific information they needed, wasn't on letterhead paper, and a whole slew of other stuff. They then said my cashier's check was too old (WTF? - I got it on June 28th) and needed to reference the HUD property number on it.

It's now about 4:15pm and there is no way on earth I can get all this corrected in 45 mins. I tell my agent that I'll stop by my bank and get a new cashier's check with the reference number, and that I'll contact my broker for a prequal letter with all the changes HUD wants. The HUD regional office in San Antonio put a deadline of 12 noon on Wednesday to have all this stuff. Therefore, I need to get everything done ASAP and have it overnighted to them today. That's just f'ing great.

I also stopped by my bank after leaving my agent's office around 4:20pm, but the lobby closed at 4:00pm (f'ing banking hours) and the lanes outside were jam packed. At this point I was fuming and cursing HUD with every expletive that I could think of. I emailed and then called my broker with the news around 6:30pm last night. He said he'll see what he can do. I'm keeping my fingers crossed I can get it sometime this morning, or else HUD will cancel my contract.

2. Integrity of my RE Agent.

Two things really questioned my agents integrity about her yesterday, and I have pretty much decided that IF this deal comes to fruition, it will be the last time I use her. I generally let people do their thing and make judgements on their performance. She is a nice person to talk to and I really felt I picked a winner at first, but things - some small and some big - have happened over the course of two months that really leaves me questioning her integrity.

I mentioned here how I was suspicious of her not submitting all of my offers. I didn't really care too much because my offers would have been overbid anyway. Well, if you recall, I submitted TWO offers last Thursday. One was for House #2 - the other was for a property that was scheduled to go to ALL BIDDERS this past Sunday at midnight. In all the chaos yesterday, I spent a minute or two looking at the results for the second offer. It turns out that someone else won, BUT my offer was never submitted! What's worse this time is that I would have won with my offer. I saw that and instantly had a feeling of letdown and anger at the same time. That in itself was the proverbial straw that broke the camel's back for me. But that's not all ...

Earlier, I mentioned that I was the one that called my agent yesterday afternoon. Even though she had something very important to tell me regarding the HUD rejection, she waited to tell me until I called her. What's even worse is the fact that all the OTHER stuff she said was wrong with my package when I went to see her at 4:00pm was on the same letter she was reading to me when I called her at noon! IOW, she could have told me those things at noon, also, and I could have gotten the work started on getting the prequal letter redone and getting a new cashier's check. Simply inexcusable.

These (and, suprisingly?, other things) are the reasons I am not going with her on any more deals in the future.

Unfortunately, I guess finding a top-notch RE agent IS hard.

The stuff the gurus DON'T tell you.

Wow, I just got off the phone with the electric company who services House #2 to set up service. I was on the line with them for over 30 mins. Geesh. I use the same company for my personal residence electric service, so the $100 deposit was waived, but I still have to pay an $18 "initiation" fee. Before that, I called the water company (which, BTW, was not who the HOA said it was). That call lasted 10 mins. I still have to go by their office, in person, to sign some paperwork and put down a $50 deposit. Before either of those, I made a call with my inspector to set up a tentative inspection. Now all I have to do is call the gas company to see if they service gas to the house (I'm not sure at all), and, if so, to set up gas service.

To top it all off, when I met my agent last Friday to sign paperwork, she said she'd be out of town this Thu & Fri (when I wanted the inspection done). I called her earlier today to see if someone else in her office could unlock the door for me in her absence. Then in the same conversation, she said HUD returned the paperwork because I didn't put my middle initial on one of the lines. Now I have to rush over to her office after work and sign one sticking line on a sheet of paper so she can send it back to them today. Joy.

Yeah, those little things the gurus never tell you about. ;-)

HOUSE #2!!! Whoo-hoo!!!

One thing I've learned in this business is to expect the unexpected. I've learned not to get my hopes up too high as it can take numerous offers before something eventually pans out.

Well, I logged onto the HUD processor's web site for my state this morning and found out my offer won! The downside was the fact that I was the lone bidder, so I (maybe) could have offered something lower. However, given my agent's advice about HUD's theoretical base acceptence of 87% list, I was already at the lowest I could go. Anyway, here are the details:

List Price: $106,000
Offer Amount: $96,300
Net-to-HUD Amount: $92,300 (87% List)
FMV: $125,000 (77% Offer/FMV)
Repairs: (1*)
Year: 2003
Stories/Beds/Baths: 1/3/2
Size: 1,685sf
Exit Strategy: (2*)



1* According to the HUD inspection report, the property is in good condition overall. The only discrepency was mention of a hole in the master bedroom door. I will need to get my inspector in to do a more thorough analysis of anything major. From my own visual inspection, everything looked nice, and all I would need to do is clean the carpet and maybe paint the entire indoors.

2* I'm not really sure what it is I want to do right now. My wife and I both want to rent it out as a long-term investment, but several things are on the table we need to talk about. One of the biggest issues is with House #1. The tenants are expecting to move out sometime in the Oct-Dec timeframe. With HUD closings taking anywhere from 45-60 days, I could be looking at TWO empty houses at once, which would be a blow to our finances - especially with Christmas right around the corner. Second is the fact that property taxes are due in the Dec-Jan timeframe, which will be another financial blow. House #1's taxes last year were a little over $3k. I figure this house's taxes to be about the same, so I'll be looking at forking over $6k for taxes alone right around Christmas (and that's not including the $5k tax bill for our personal residence). I'm thinking of maybe doing a L/O, but still need to set aside some time with my wife to discuss more.

Still Here

I haven't posted in a while because I haven't had a whole lot to post about and I've been too busy with other stuff.

Some Nibbles
I've gotten a few nibbles from one of my loan brokers, but nothing has panned out. Either the numbers didn't work for me, or the potential tenants bailed before closing. This week has been my first in a couple of months where I haven't bid on any HUD homes. There was one with potential, but I decided to just skip the whole process this week.

Homemade Signs
I bought some stencils over the weekend, and plan to make my own bandit signs. Since I am going to target a specific neighborhood (or two), I want my signs tailored specifically for them. I also don't want to spend and arm and a leg for just a few professionally done signs, either.

Web Site Update
I updated my web site about a week ago, but haven't announced it here until now. I toned down the dark blue colors and opted instead for something lighter. The content is the same - I just changed the look-n-feel. Let me know what you think.

New Venture?
I have been toying with a business idea for several months now. I don't want to spill any beans - yet. I still need to work out some of the infrastructure and decide on a specific business model for it. Once(/If?) I get it up and running, I'll post a link to it and start the maddening process of marketing it wherever I can.

The Ups and Downs of Finding Deals

I mentioned this briefly at the end of my last post. It has been a crazy week as far as trying to get deals. Both of those I mentioned last time didn't pan out, although, I got a call from the owner of Deal #1 last night, but he didn't leave a message. While perusing Craigslist yesterday, I came across a property that may work. It's listed for $109k and is worth about the same. What got me interested were two things. First, it is owned by the USDA (of all people) and the post mentions the loan can be assumable. I need to call the broker back and ask the details. Second, while doing some quick research, I found a DOT (Deed of Trust) back in 2001 for $85k and nothing else. So I'm at a slight loss as to why the USDA is putting such a high price tag on the property. Maybe lawyer fees? Maybe added RE commision fees? Other? Something else I need to ask the listing broker. I also submitted a bid for another HUD property. I've been narrowly missing out on these lately and figure my persistence should pay off soon. It's a real nice property at a good price. From what I could tell, it needs -$0- repairs, so I could do some quick cleaning and have it ready within a few days.

Update: I talked with the broker minutes ago on the property listed on Craigslist. It turns out he doesn't know a whole lot about the assumption, but he does know that they'll only give the assumption to people who make below a certain amount (he thinks around $50-60k). He also said the interest rate would be adjusted to current rates. So, it looks like this one is a bust as well. The good thing was I managed to do some fancy talking (which is rare for me) and got some good info out of the guy. I also told him I was an investor and am always looking for properties in this area and to call/email me if he had anything good. Of course, I may never hear from the guy again, but the name of the game in this industry is networking.

BAM! - Another two deals

Deal #1

I'm sitting at work yesterday afternoon, and my cell phone rings. I look at the caller-id and it's someone calling my toll free 866 number (it automatically rings my cell phone). I decide to let voicemail pick up as I'm in no position to answer it. They decide NOT to leave a message, but, instead, call my cell phone number directly (I have it in my greeting message for my toll free number). This time they leave a message, however, it is very short: "Hi, my name is xxxxxx. Please call me after 5:30." so, I'm not even sure if it's someone wanting to unload their house, another investor, or what.

I get home, and around 6pm I give the guy a call back. He says he's in the middle of something, apologizes, and asks if I can call back in about an hour. At 7pm I give him another call. He says he's on disability, but the payments are going to end and he won't be able to afford the mortgage payments. I ask him the usual questions: property size, beds/baths, age, any repairs, mortgage balance, payments, etc. I then tell him that I can't promise I can help, but I'll do whatever I can. I also tell him that there are a number of options he has available to him. As soon as I said that he said that he and his wife talked about it already and do NOT want to stay on the note. <sigh> I told him I'd do some more research and crunch some numbers and get back with him tonight (Wed) with an answer. His problem is that the balance on the note is greater than what the house is worth, so that REALLY limits his options. I can only think of two solutions: Sub2 and Short Sale. The problem with the Sub2 route is that he already - and specifically - said he does not want to stay on the note. The way he said it, too, it's almost as if he knew I was going to bring it up. I seriously doubt I can short sale it as he said he's current on the payments and the place needs no repairs. So, it sounds like another bust. I still need to run some numbers, but when I call him back tonight, I'll flat-out tell him his only option will be a Sub2 (if the numbers even end up working for that).

BTW, he said he got my info NOT from a postcard, NOT from a bandit sign, and NOT from someone else. He got my info from a posting I did on Craigslist last week. This is now two people that have contacted me about this one ad (the other person still hasn't responded to me yet). Interesting.

Update: After running numbers, it appears the property is overpriced by $5k and maybe even as high as $10k. So, it appears even for a Sub2 this property may not be worth it.

Deal #2

After I called the homeowner back, I got on my computer to check my email. I usually don't get on the computer much at home unless I need to look up something, but I'm glad I did last night.

I got an email from one of my loan brokers. I'm on his distribution list along with about 15-20 other people, so they got the same email. He has a deal that is in my farm area with a price that meets my criteria. He said the current homeowner is selling FSBO below market and that he already has a tenant who wants to do a lease/purchase on it. He also included pictures, and from what I can tell, the place looks really nice. I emailed him back immediately and told him that I was interested. A few minutes later, he emails me back and asks what other info I'd like. I tell him the usual: as much financial info as possible and the exact location (he only gave the city). He emails back and says he can get me the info tomorrow. So now I'm eagerly awaiting info on the property.

Update: Well this deal isn't looking good, either. The loan broker gave me some of the info I requrested, but said the L/P he had backed out. He said he could probably get a renter in, but I told him at that price, it wouldn't work. High-end rents for that area are $1,000/mo, but I'd need at least $1,200/mo just to break even. I told him if he found a L/P willing to pay at least $1,200/mo, I would consider the deal again. Such is are the ups-and-downs of REI. :-(

Rejected Again / Are my offers getting submitted?

Rejected Again

I just logged onto the HUD processor's web site for my area to learn ALL of my offers were beaten out. Here were the details:

Offer #1
List Price: $109,000
My Offer: $101,300 (93% list)
Winning Offer: $100,499 (92% list)

My only guess is that the winning offer was made by an owner-occupant. There was actually another offer for $104k that was also rejected, so mine wasn't the highest offer.

Offer #2
List Price: $106,000
My Offer: $92,300 (87% list)
Winning Offer: $103,972 (98% list)

Offer #3
List Price: $109,000
My Offer: $95,300 (87% list)
Winning Offer: $104,491 (96% list)

Are my offers being submitted?

Okay, this is the second group of offers that I've emailed my agent that haven't showed up on the property's history. IOW, when you submit an offer to HUD, they record the offer as being reviewed - ALL offers. They then stamp a confirmation number to the offer for tracking purposes. When you go to review the history for a specific property, it will show ALL offers submitted and reviewed for the property, whether the offer was rejected or accepted.

When I found out none of my offers were accepted last week, I found out by way of looking at the winning bids vs. my bid. I noticed in the history of each property I submitted an offer on, NONE of my offers were listed. I talked to my agent afterward about something else, and noticed the next day one of my offers showed in the history listing (but not any of the others).

This week was the same thing. NONE of my offers showup in the history for the associated properties. I'm not sure if my agent is just not submitting my offers or what. I guess I'll have to call her and find out what is going on. For now, it doesn't matter a whole lot as none of my offers would have won anyway, but if they would and another offer bypassed me as the winner, I'd be pissed.

Another Four HUD Offers

I just sent my agent an email with four more HUD offers:

Offer #1

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Exit Strategy: Owner Finance
Potential Net Profit: $36,000
Annualized ROI: 79%

Offer #2

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Exit Strategy(1): Rent
Potential Cashflow(1): +$100/mo.

Exit Strategy(2): Owner Finance
Potential Net Profit(2): $35,000
Annualized ROI(2): 90%

Exit Strategy(3): Sell Retail
Potential Net Profit(3): $15,000
Annualized ROI(3): 43%

Offer #3

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Exit Strategy(1): Rent
Potential Cashflow(1): +$100/mo.

Exit Strategy(2): Owner Finance
Potential Net Profit(2): $26,000
Annualized ROI(2): 64%


Offer #4

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Exit Strategy(1): Rent
Potential Cashflow(1): +$150/mo.

Exit Strategy(2): Owner Finance
Potential Net Profit(2): $25,000
Annualized ROI(2): 77%

Quick Update On 3 Pending HUD Offers

Two were outbid, including one that I really, REALLY wanted. My other offer was outbid, however, HUD rejected both my offer and the one higher than mine. The higher offer (i.e., Net-to-HUD price) was >85% list price. HUD is getting awfully picky these days. :-(

Loaded Weekend

I had another one of those busy weekends regarding REI. Not overwhleming, but just consistantly busy. Here's what happened ...

Friday
I get an email from the loan broker regarding the possible lease/purchase, asking if I'm ready to make an offer. I reply back, saying I hadn't had time to crunch numbers yet, but will hopefully get an answer by Saturday afternoon. I also make a list of potential properties to go look at on Saturday. Including the lease/purchase deal, I have a total of 8 properties to view.

Saturday
I get a late start, and head out the door around noon on Saturday. I decided to stop by Home Depot first and pick up some stakes for bandit signs. I hadn't put any bandit signs out in forever it seems. When all is said and done, I actually end up with a list of 11 properties (I'll explain below), however, I decided in the course of action not to see one of the houses on my original list (just not enough time).

Property #1 - The first property on my list was decent. It didn't appear to have any problems. Matter of fact, even the carpet looked in good condition. I noticed when I drove up to the property that the next door property had overgrown weeds, but there were signs that someone was living there. When I finish my inspection of the first property, I get in my car, and s-l-o-w-l-y drive forward. When I am in sight of the front door, I notice a couple slips of papers wedged in the door jam and some circulars on the front porch. Bingo! So I stop the car and investigate. It turns out one of the slips of paper was a notice from the water company that they locked the meter due to the H/O not paying their bill. The second slip of paper read: "Travis County Constables Office - Warrant for Arrest". I think that about summed it all up. I wrote this down as Property #2. I wrote down the address, and made some other notes and headed for the next property.

Property #3 - Nice little house in good condition overall. The carpet was lightly stained, but nothing else appeared in need of heavy repair.

Property #4 - Very nice 1-story. It had some nice architectural features inside, and it appeared the previous H/O's took care of the house. The backyard had a fence with two access gates (they usually only have one around here). However, the backyard was kind of small. Still, a very nice house - especially for the price.

Property #5 (Lease/Purchase) - This was the house that the loan broker is trying to push on me for a L/P. It's a big 2-story, and had some nice qualities. I'll talk more about the deal later in this post.

Property #6 - When I finished looking at the L/P property, I was making my way back to the car when I glanced over at the house next door. All the blinds were up and it appeared to be empty. I walked to the front and noticed one of those HUD signs in the window, which I thought was odd as this house isn't currently listed nor had it been in the recent past. I then did an inspection of the property. Part of the wood fence was knocked down, but the property looked in emmaculate condition - like it was just built. Upon further inspection, I noticed the whole kitchen was gone! There were no cabinets and no appliances. It appears the house was never completed. I wrote down some notes, and headed to the next property.

Property #7 - Another VERY nice house. It was situated on a slight incline, so that the person living there had a nice view of the empty meadow in the back. Similar to House #1's views from the back. It also had some nice indoor architectural features, like curved arches and art niches. This house was also kept in good condition by the previous owner. I found out later, though, that the list price was just way too much, and I'd have to pass on the deal.

Property #8 - While heading to the next property, I passed by a 2-story on the same street that appeared abandoned. It had all the earmarks of an abandoned property, except there were no papers on the front porch. I decided to just get the address and get a picture of the front elevation, but not do a formal inspection as someone could still be living there.

Property #9 - Decent 2-story from the info I previously had. However, upon inspection, it looked like it would need some work done inside. The carpet downstairs was heavily soiled and would need to be replaced entirely. The worst thing though was the backyard. Not only was it sloping uphill, but it was nothing but slate rock. Nothing was growing there, and nothing will with all that rock. I made some notes and onward I went to the last house.

Property #10 - This property looked similar to House #1 as far as the floorplan, but there were some noticeable differences. The overall appearance was nice, and it would definately make a promising addition to my portfolio. The only drawback was the backyard. It, too, was sloping upward at a slightly steep angle (I'd say 35-40 degrees) - but it was all grass. I made some notes on it and left.

In-between seeing several of these houses, I would stop and put out a bandit sign, or two, when I exited the subdivision. Most of the houses were located in the city that has the strict bandit sign ordinance, so I didn't get to put out too many. I spent about 3 hours already, so I decided not to see Property #11, and went straight home. Whatever little free time I had Saturday night and Sunday, I used to start analyzing the properties. I only got through with about 6 of them, including the L/P deal.

I also got a call from the investor I've been posting about here lately. He asked if I decided to get the house, and I told him I'd probably pass. He said he passed on it, too, mainly because all the prices were too high (i.e., list price, PITI). I told him I didn't see the broker's justification for such high appreciation rates (i.e., 10% over two years). I told him I know the area like the back of my hand, and the rates have been stagnant for several years now. It may go up some, but 10% in two years is really wishful thinking. He agreed and said the broker is great to deal with, but he's not an investor and doesn't analyze properties like one. I guess this just reinforced my initial thinking that this deal wasn't very good. I'll talk to the broker later today and tell him I'll pass on it.

Lastly, I went out Sunday night to pick up some Chinese take-out for us. On the way home, I saw a "WE BUY HOUSES" bandit sign, so I decided to call the number right then and there. It sounded liken investor that has been doing this for a while. He said he only does flips, and if I sent him anything, it would have to be at a very steep discount. I told him I am also looking for properties and to add me to his buyer's list, which he said he'd do. He sounded a bit ... I don't know how to say it really ... reserved? threatened? It sounded as though he likes to work alone on deals and only flips houses to his brother-in-law, so we'll see if I ever get anything from him (doubtful).

Interesting Offer

I decided to turn down the offer the broker sent me yesterday. It sounded okay, but there were just too many unknown variables. Even he said the cashflow would likely be <$150/mo based on numbers he produced. However, I got an email this morning from him with another offer. The price is REALLY outside my criteria, but the offer may be attractive enough to see past my maximum purchase price. He said he has a family wanting to buy the home ASAP. They want to do a 2yr L/P. It's a brand new construction home located in a nice part of town. Here are the numbers ...

PITI: $1,400
Purchase Price: $153,000
Broker's Comps: $165,000
My comps: $170,000
Monthly Rent: $1,600
Financing: NOO 5yr IO ARM
L/P Term: 24 months

So there would be an immediate $12-17k worth of equity as soon as the place was purchased. The broker claims there would be $200/mo CF, but I figured the worst possible scenario: $0/mo. However, with annual market appreciation rates of 4-5% in the area, coupled with the immediate equity, I could theoritically ask for a maximum $187,000 option price, giving me about $34k in gross profit. I'm thinking I'd probably ask for something more like $175k to make the deal more attractive to the buyers (i.e., give them some equity when they do decide to buy). I told the broker the deal looks promising, but I'd need to run it by my partner first (i.e., my wife), and get back with him.

Offers Made

After a two week drought of submitting no offers, I finally found a few properties. I submitted the offers to my agent a little bit ago, and hope to hear some good news. All three are really decent properties, and one would make an excellent long-term hold. I'll give some more details later.

I also called one of my loan brokers back (the broker/investor who referred me to the agent I'm using). He had called a couple days ago, but I've been just too busy to return his call. We just talked to touch base with one another. It's always good to stay in touch with your inner circle even if you don't have anything worthwhile going on.

I also got my first deal from the broker my investor friend referred me to. The deal is a little high for my blood, but would probably work for someone else. I haven't done any hard number-crunching, but the list price alone is too high for me ($136k). He claims there would be $150/mo. cashflow in the deal, which I can't see given all the unkown variables (i.e., closing costs, interest rate on loan(s), and so on). He says most of the deals he gets are in the $100-150k range, so I'm holding off for something <$125k.

Some Updates

Finally, someone calls, but ...
I got a call from a lady yesterday regarding my latest postcard mailout, and let the voicemail handle it. I had a very busy day yesterday, and wasn't able to call the lady back. I managed to call her at lunch today, but got her voicemail, so I left her a message. From her voicemail, she isn't interested in selling her house at all. What she was inquiring about was my $500 referral fee program. She said her mother is needing to sell her house quickly, and asked if she would get the $500 if her mother sold me her house. Through some digging, I believe I may have found her mother's property, but I'm only about 70% sure from the info she gave me. If so, I may have to pass. For one, it's located in an area well outside my farm area and in a place I know nothing about as far as the housing market. Also, the tax records show it was bought in 2003 and has an assessed value at that time of $92k. The records show the tax assessed value for 2006 is $90k, so it appears property rates have gone down - not a good sign. Of course, for all I know, the lady put $50k down and is willing to just get out without any consideration (hah! - wishful thinking). Additionally, the house was built in the early 1980's. I like sticking to more recently built houses as my time limits me from doing any time-consuming repairs.

I'll wait for the lady to call me back with more info.

Loan Broker
I called the loan broker my investor friend referred me to. He sounds nice (don't they all?), and he gave a good introduction of what service he can offer regarding the strategy my friend spoke of. I asked him about the lease/option part of the deal, and he said this strategy was different, although, his 5 minute explanation still didn't clear my mind any. Simply put, he said he uses a form of lease/purchase, which is different froma lease/option, to handle the transactions. Hmmmmm. I told him I was only interested in a certain area, to which he said he would probably have some leads in the near future. I guess once I see a possible deal, I'll go in person to talk to him more about this strategy he uses. He claims that he has many investors he works with and hasn't had any problems whatsoever with this strategy.

I'm thinking I may run the paperwork by a competent RE attorney first before signing any paperwork.

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Update: I called the lady about her mother's house twice yesterday, but got her voicemail both times. I asked her to call me back as soon as possible, so that I could get the ball rolling, etc. I haven't received a return call yet.

Lunch With Another Investor

I had lunch today with the investor who has sent some deals my way in the past (most namely the 12-property deal that fell through). He recently hooked up with a mortgage broker, whom he thinks was the best thing since sliced bread, so I had lunch with him to find out more. It turns out this particular mortgage broker does what my former broker did, but with more volume. He gets people that have credit bad enough so they can't qualify for conventional loans and provides investors who will buy them their houses. The guy told me he is in the middle of closing a deal now that will give him $300/mo cashflow. The person buying the house just went through a nasty divorce and his ex screwed his credit, so he couldn't qualify. My old broker used to send me the same kind of deals, but in the ~6 months I dealt with him, I got maybe 2-3 such emails. My friend says he gets that many EACH DAY from this broker. They're all around the Austin metro area, but even if I could get 1-2 of these deals every 3-4 months at a minimum, it'd be a heck of alot more than I'm getting now. The only concern I had was that it sounded a lot like a lease/option purchase, which was pretty much outlawed by Texas last year, although, I still need to get more info from the broker himself.

Either way, the lunch turned to be real beneficial, and I'm getting excited at the potential opportunities.

Is $10,000 Better Than None?

I have been pondering something for a while now. Usually when I evaluate a property, I use a strict set of criteria. I won't go into detail about every little thing, but one of the yardsticks I use is how much net profit the property will yield if I buy using conventional financing, hold for 3 months, and sell using a RE agent at $5k below market. Suffice it to say that this does not represent all my acquisition/disposition methods, but usually it's the worse as far as monetary return. In the past, I have always said that I wouldn't even think about buying a property this way unless it gives me at least $15k net profit in the end. However, I'm beginning to wonder if th is is really prudent. I'm looking at a property now that I could potentially make $10k net profit on (using this particular buy/hold/sell strategy). The annualized ROI would be 30%, so it's not bad by any means. I just worry a little, because $10k isn't a whole lot of wiggle room in case the unimaginable happens. Something could happen, and the $10k could easily be wiped out. But maybe that's just that little voice in my head making excuses. I wonder "what if I have been passing on likeable deals where I could be making $10k every three months?" $40k/year would be a nice cushion for future deals, marketing, etc.

Sad Ending to a Previous Deal

For those that have followed my blog, you may recall that huge 12 property deal that never materialized. Basically, the owner lived in California and was (supposedly) having financial problems. He owned 12 properties around the Austin metro area with several being in my 'neck of the woods'. The deal fell through because the owner was not being forthright in delivering needed information and I just felt I was being led around on a leash. The peoperties themselves weren't great by any means, but would have been a decent acquisition to my portfolio (hah!).

Well, I was looking at some listings during lunch today, and what did I find? One of the owner's properties. However, when I read the details of the sale, it said "Bank Repo". Sad - very sad. I did some more searching, but that seems to be the only one of his that shows up (for now). I figure he lost some, most, or probably all of them to foreclosure, but the others are still waiting to be put on the market. I say "sad", because I invested time in talking witht he seller, but he just refused to work dilegently with me. It's evident now that he WAS in dire financial strates, but I can only do so much on my end to help someone. Short of buying a plane ticket to California and twisting his arm, there was very little else I could do to convince the owner to deal with me more.

Oh well, a sad story I thought I'd share.

Mailout and Offer Results

Postcard Mailout
Wow. After getting 5 calls on my first mailout in May, I thought things would pick up or at least stay the same. My mailout in June produced -0- calls. The July mailout started hitting people's mailboxes last Thu or Fri. I received a copy of it in my mailbox last Friday, but I didn't check my mail on Thu, so it could have come either day. Regardless, I have received -0- calls so far, which has me perplexed. I narrowed down my mailouts to only two subdivisions, but the volume was still the same. Perhaps I'm being a bit premature, but when I got the calls in my 1st mailout, they all came within a few days of the mailout hitting the mailboxes. I guess if this fails, I'll cut back on my mailouts even more and do some other marketing. My wife and I have discussed this recently, and decided if the mailouts fail this time (looking that way), we'll print out flyers ourselves and hand deliver to the properties. This will take a lot of time, IMHO, which I don't have. I may enlist the aid of some money-hungry teen-agers in lieu of doing it myself. We'll see.

HUD offer
My last offer was for a property that had a FMV of around $155k. It was listed for $137k (88%FMV), and my Net-to-HUD offer that got rejected was for $112,500 (73%FMV, 82%List). I found out this morning that two people put bids on the property, after my offer was rejected. One was a Net-to-HUD of $117k and the other, which ended up winning, was a Net-to-HUD of almost $133k (and an offer of $142.5k). I'm not too discouraged as I know I have to stay within my criteria in order for the deal to work for me. There are several more properties that are listed as being in the "Lottery Round". They expire this Wed, and, if they are like the last "Lottery Round" properties, should become available to "All Bidders" next week. I have my eye on two of them. We went to see those two this past Saturday on a family outing, and one of them looks better than the other as far as condition (of course, I just did a "peek through the windows" type of inspection). I still need to run numbers to find out an offer price, tho.

Your Cap Rate

I did a check at LoopNet late last week to see what commercial properties are available in my area. In my search, I uncovered a 24-unit apartment complex for sale for $1,250,000. They had a proforma sheet that listed the following:

Total Annual Income ............... $179,222.00
Total Annual Operating Expenses ... $76,299.00
Net Operating Income .............. $102,923.00
Offering Price .................... $1,250,000.00
Cap Rate .......................... 8.23%

For those unfamiliar with cap rates, it's just the "Net Operating Income" divided by the price. Cap rates are another tool investors use to determine a property's worth. The higher the percentage, the better. I've heard that one should really look for properties that have a 10% (or higher) cap rate, but that doesn't mean to say that those below 10% are all bad, either. It's just another tool to use in your due diligence.

I also did some reading in several commercial message boards and through several free commercial investing articles, written by some of the leading people in the commerical investment business. One article in particular caught my attention. It was written by Ray Alcorn, who moderates the commerical message board at CREOnline.com. The article (called "What's it Worth? Deriving Your Capitalization Rate") outlines a different way to calculate the cap rate using YOUR specific criteria. Basically, the steps are as follows:

1. Determine the true NOI (Net Operating Income). The proforma, and other supporting documentation, is nice, but you should always double-check the numbers yourself to ensure you have the true NOI.
2. Determine your financing for the property. How much will your loan(s) be and at what rate and terms? How much do you plan to put down? And so on.
3. Determine the rate of return you wish to make on your investment: 10%, 20%, 30%, more?
4. Calculate YOUR cap rate.
5. Determine YOUR offer price.

Here's an example using the proforma sheet from the apartment complex above, and hypothetical data for the rest of the calculation. After doing my research, I find the figures in the proforma are accurate - i.e., the NOI is $102,923. Suppose I can only put down 10% for the purchase of the property. I can get an 80% loan @8% for 20 years, and a second 10% loan @13% for 20 years. For the 10% downpayment, I want a 20% rate of return. Using Ray Alcorn's formula, I can then arrive at a cap rate:

Cap Rate = (LTV Debt ratio * mortgage constant) +
           (LTV equity ratio * equity constant)

Since I will have two loans, my will include an additional LTV calculation. I'll need to figure the "mortgage constant" for both loans before anything else. Ray says this is done by dividiing the monthly payment of the loan by the debt service itself. Since the figure is constant, it doesn't matter what the debt service amount (and, consequently, the monthly payments) are, just as long as the interest rate and term stays the same. For the 1st loan, we can use a debt service of $10,000. The mortgage constant would be:

$10,000 @8% for 20 years
mortgage constant = monthly payment / debt service
mortgage constant = $83.64 / $10,000.00
mortgage constant = 0.083644

For the second loan, the mortgage constant would be:

$10,000 @13% for 20 years
mortgage constant = monthly payment / debt service
mortgage constant = $117.16 / $10,000.00
mortgage constant = 0.011716

Now we have all the information we need to arrive at OUR cap rate:

Cap Rate = (LTV Debt ratio1 * mortgage constant1) +
           (LTV Debt ratio2 * mortgage constant2) +
           (Equity ratio * equity constant)
Cap Rate = (0.8 * 0.083644) + (0.1 * 0.011716) + (0.1 * 0.2)
Cap Rate = 0.0669152 + 0.0011716 + 0.02
Cap Rate = 0.0880868 (or 8.81%)

Now that we gotten OUR cap rate, we can arrive at a purchase price:

Purchase Price = NOI / Our Cap Rate
Purchase Price = $102,923 / 8.81%
Purchase Price = $1,168,427

Therefore, an offer price of $1,168,427 would fit more inline with our objectives and financing. But again, Ray stresses that this is just a figure to use to aid you in your decision, and not a figure you should use to base your decision on entirely. HTH!

No News Is Good News? (Updated)

I submitted another HUD offer this past Tuesday. Yesterday (Wed), I kept checking the HUD processor's web site to see if my offer was accepted or rejected. All day long the site kept showing "No Offers have been reviewed for this property" and even the outstanding property count for the entire state of Texas stayed the same. Even when I got home, I checked and the same thing. Wierd.

Later last night, I checked my email and noticed two messages: one from my agent and one from her assistant. It turns out my agent had to go to the emergency room Tuesday night and was unable to submit my offer on time. She said she had her assistant check to see if the property as still available on Wed, and, if so, to submit the offer for her. I guess that's one reason I didn't see any update on the property's status, but I still can't believe NO offers were reviewed at all by HUD in the ENTIRE state of Texas! Maybe yesterday was some federal holiday or something???

Anyway, I send my agent an email wishing her a speedy recovery. I told her I appreciated her persistence in getting my offer submitted in spite of her health issues, but to never feel she has to do it in the future. My offer SHOULD be reviewed today (I'm hopig, at least). I have a bad feeling it will be rejected as I've noticed a lot of HUD properties in my area have been bidded on, but HUD has rejected all the offers. For example, there was a property listed for $63k that needed extensive work (roof, foundation, etc), and had an ARV of only $80k. The highest offer was a Net-to-HUD for $53k, but HUD rejected the offer. Ouch! Even the property I bidded on twice two weeks ago is still available.

---

Update: I just learned my offer on the HUD foreclosure was rejected. A slightly higher offer would still be good, but it's a little out of my price range even at the offer I already submitted. Since mine was the only offer so far, I figure this property will sit like the other one I had two rejected offers on.

OOPS!

I found a HUD f/c in my area yesterday that went into the "All Bidders" category. somehow, I just totally overlooked the property in my initial research last week. It turns out the property was listed back in May, and whoever won the bidding there, decided not to follow through with the purchase. That's how it came back on their site. It was listed yesterday for $106,000, and had only one (failed) bid on it for $83,000 this time. I quickly ran some numbers, and figured the property was worth around $123-125k. So I immediately emailed my agent to make an offer for $90,000, and kept cursing at myself for not bidding on this property a day earlier. This morning, I get an email from my agent saying I won the bid. Whoo-hoo! But not so fast. I double-check with my HUD processor's web site, and find that someone else actually won. Huh?!?! So, I call my agent, and she's all excited. I tell her the processor's web site shows that someone else won, and she says she'll double-check. Sure enough, she read the confirmation email wrong and said I did, in fact, lose the bid. It turns out two other people bid higher than me. :-(

What makes me mad is that this is my fault. I totally overlooked the property over the weekend, and I could have bid $90k YESTERDAY and WON. Instead, I lost. I've now bid on 5 properties with this agent (6, if you count the two bids on the same property two weeks ago). When I was making offers last year with my previous agent, I went through something like 16 offers before getting one accepted, so I'm not feeling too bad.

Onward and forward.

Curses. Foiled again.

Well, I just learned my two outstanding bids for HUD foreclosures got shot down. I was actually biting my nails wondering what I'd do if I had won both, and then come to find out I didn't get either. Curses!

What really has me puzzled is I had the highest Net-to-HUD on one of them, yet lost. The ONLY plausible solution I can find is that the winner was an owner-occupant. My Net-to-HUD on this property was $103,500, and the winning bid's Net-to-HUD was $96,500 - a full $7,000 LESS.

Oh well. Back to the drawing board. Hopefully I'll get some nibbles later this week from my postcard mailout.

YAPM and Some HUD Bids

YAPM (Yet Another Postcard Mailout)
I sent out my third postcard mailout this morning. Since I now know it takes almost a week from the day of scheduling to the day the post office puts the cards in the homeowner's hands, I scheduled the mailout for tomorrow ot go out next Friday or Saturday. I was going to do a major overhaul of the postcard, given my lackluster response in the previous two mailouts, but I instead only changed three things. First, I changed the boring title from:

Discover how we can buy your house as-is on the date of your choice
... to ...
STOP FORECLOSURE!!!
Complete with the capitalized RED letters. The second thing I did was use RED in several other places. I fear my previous postcards were getting tossed without so much as a glance from people because of the monotone black-only color and type. Hopefully, the shortened, but extremely bolded new title. along with the red color will grab more attention. The last thing I did was to focus on only two neighborhoods. Previously, I was spreading my mailouts too thin by covering an entire zip code. I realized that if I continued with this approach, I would need to up my ciculation a LOT more. Instead, I narrowed my farm area down to those areas where foreclosures seem to occur the most.

We'll see if these changes spark a better response rate. They better as my wife was really hesitant on me sending out any more postcards. :-(

HUD Offers
I am in the process of submitting two offers for HUD foreclosures. These were two of the properties that were listed in the lottery round the previous week. I wouldn't mind getting either one, but one appears to be a real good find, if I can get it. The other is listed just slightly below FMV, but it's going price is low enough that adding it to my portfolio as a rental will provide positive cashflow each month. I'm just waiting for my RE agent to get back to me. I asked her to run a CMA on one of the properties as my figures keep showing the FMV to be really high.

Rejected Again

I figured with the holiday weekend, I wouldn't hear about my resubmitted offer on the same HUD property until today (Wed). However, I logged into my HUD processor's web site Monday morning, and they had already reviewed my latest offer. It was rejected as well. I upped the amount by $7k, which was still about $7-9k under the theoritical 80% list price minimum I heard HUD allows, so it didn't surprise me. The house was listed about $6-7k OVER FMV, and needed at least $5k in repairs, so that was my final offer. Not too suprising, either, was the fact that my two bids were the only ones for this property so far. I guess other prople saw the high list price and repairs and already knew it wasn't worth it. I thought so, too, but figured I didn't have anything to lose. I'm guessing that property will sit a while before HUD gets their act straight and realizes it's priced WAY too high.

The other two HUDs I have my eye on come available to the public next week. I'll get with my agent today or tomorrow and get my offers ready to go out the minute I can bid. Both of those properties are in good locations and have less-than-FMV list prices, so I may get outbid. But then it's all a numbers game anyway. I got lucky with House #1, but that was after submitting a lot of offers first. We'll see if my luck comes a bit quicker this time. ;-P

Back On the Market

I decided to take a trip out to the HUD property which I submitted an offer on Wed that was then rejected. There were three concerns made in the HUD inspection report: soiled carpet, hole in wall, and water pressure dropping. Of course, I couldn't do anything about the last item, but I wanted to check out the other two. It turns out the carpet is soiled in spots throughout the house. However, the hole in the wall turned out to be only 1-2" wide, which isn't a big deal. There were two rooms, though, that would definately need repainted as the previous owner used ... well ... rather bold colors. I'm still debating whether or not to up my bid and resubmit. The plumbing is still a concern as it sounds like there may be a leak somewhere. Someone may wondering why the heck would I even still be interested in it? One thing I picked up in Richard Roop's audio was trading sweat equity for a downpayment. IOW, sell the home via owner financing and offer a downpayment, but also stipulate the property needs some minor repairs, and you are willing to trade some/most/all the repairs in lieu of a downpayment. This saves you the burden of having to use YOUR time, YOUR money, and YOUR resources on something that could better be used elsewhere. Often times, according to Roop, you can even come out AHEAD as the repairs needed can sometimes cost more than the downpayment! Genious! So, if I originally offer a $5k downpayment, I can leave the house as-is and advertise that I'll trade the $5k downpayment for sweat equity (or whatever the term is he used). Replacing the carpet would be about $2-3k itself. Painting, probably another $200-$2,000, depending on how much they want doen and if they do it themselves. Plumbing, I'm not sure, but I figure AT LEAST a couple $100's. I'm still thinking about it, tho.

Well, I got on the HUD processor's web site for my area first thing this morning, since HUD releases their new foreclosures every Friday. What did I find? ALL those properties that were in the "Lottery Round" earlier this week!!! Whoo-hoo! It turns out my agent was wrong when she said they must have been snatched-up by someone. And, instead of the normal 2-week owner occupied only period they usually give, they are all only 1 week now.

What a Day

Yesterday probably added 100 grey hairs to my head and reduced my life expectancy by a few years. Just a completely stressful day on all accounts. It's bad enough Wednesdays are my busiest days at work, but I was trying to call my loan broker and his partner, trying to figure out what my wife wanted to do about the prospective houses, trying to keep my RE agent informed of what was happening, and trying to keep my sanity all along. It's no wonder newbies give up ... it's a lot of hard work, and I haven't even gotten a house under contract yet! :-)

Here's what happened ...

Loan Brokers
Sent broker email first thing in the morning. Got a response back later saying he's still working with his partner in getting me 100% financing, and it may be "another day or two." Not good, since three of the four properties get out of the "Lottery Round" the following day. Call him back and tell him to get me something TODAY. He sends me an email a little later with a prequal letter for 100% financing - FINALLY! The rates are piss-poor, but with my high DTI, it didn't surprise me. Doesn;t matter anyway as my plans are to turn right around and refi at 80%LTV. Sent email to broker asking him if my plan of getting the 100% loan and refi'ing at 80%LTV will work with my credit, DTI, etc. He asks me to call his partner directly as he may not be relaying my information correctly. By this time, it's mid-afternoon. I try calling and calling, but only get the guy's voicemail, so I leave a message. I also send him an urgent email, as I want to understand my options before making any offers. By the time I leave work, I still haven't received an answer. Great.

RE Agent
I give my agent heads-up on the four properties I'm interested in bidding. I also tell her that I'm trying to tie up some loose ends as far as financing goes, but I'll keep her informed. I ask her questions about the "Lottery Round" HUD instituted on several of these properties, and she says once that period is over and the properties are still available, anyone can bid on them. That explains why I needed to get the financing in order as the "Lottery Round" ended at 11:59pm on Wednesday. When I finally get the 100% financing prequal letter from my broker, I call my agent and tell her I have the letter, and will just need to get the $1k cashier's check, and we can meet in the late afternoon. After talking numbers over with my wife (I'll talk about that next), I call the agent back and ask if she could meet me at 4pm to get the paperwork signed, etc. She agrees. Whew! I leave work at 3:30pm, stop by my credit union to get the cashier's check, and meet her at 4pm, sign a few papers, give her the check (which she photocopied and returned to me), and am headed home by 4:20pm. While signing paperwork, we were talking and she explains that HUD agents AND their families cannot bid on HUD foreclosures. She says she didn't realize this when she became a HUD authorized agent, and it's the main reason she doesn't want to do HUD's anymore (along with buyer's not getting their financing straight and HUD dragging their feet with closings).

Wife
Sometimes I feel I'm taking two steps forward and three steps back with my wife regarding REI. I've tried explaining to her the different things I'm doing as far as acquiring properties and exit strategies. Either I don't communicate well, or I just need to sit down for an hour or two and start all over. For example, last night we were talking about House #1, and she asks if the houses I bid on would cashflow $300+/mo like House #1. I told her that House #1 doesn't cashflow $300+/mo as we need to pay property taxes at the end of the year and insurance premium once a year. All that figures into the monthly cashflow, too. For some reason this doesn't click. She just sees us paying $760/mo for the loan and getting a $1,100 check from the renters each month and figures that's the cashflow. :-( We also just paid $3,300 for property taxes in January and $750 for insurance in March, so that $340/mo positive cashflow is suddenly reduced to $2.50/mo. And that's not even considering maintenance (thank goodness there hasn't been a need for it yet), vacancy loss (again, not a concern yet, but will be), and management fees (we do our own management). If all that was added into the equation, we'd be negative an easy $200 or more each month. I doubt even the depreciation and other tax benefits would bring it above water, either. So trying to get her to understand why I submit offers the amount I do is hard to say the least. ALL of the properties I bid on would be cashflow negative from the get-go, but there is more to life than positive cashflow. I also told her we have over $40k in equity in House #1 already and that figure is growing each month thanks to market appreciation and the renters paying our debt down. Now imagine getting another house like that, and then another, and another. Another thing I'm having trouble getting her to realize is that we need to separate REI from our personal lives. IOW, we need to act like House #1 is a business. Get it deeded into an LLC. Set up a bank account solely for the LLC. Any profits/losses are a concern of the LLC and not us, personally. Right now, I believe she not only sees the $300+/mo phantom cashlow as actual cashflow, but also sees it as personal income. I got a lot of work ahead of me. :-(

Update: I just checked the HUD processor's web site for my area, and my outstanding offer was reviewed and promptly rejected by HUD. I kind of figured it would be as it is only 70% of the list price, and HUD theoretically has a floor limit of around 80% of list.

Bidding Once Again

I remember back when I went throught the HUD foreclosure process with House #1, I swore I would never touch a HUD f/c again. It was just too much of a headache. Well, I just got done sending my RE agent an email with a bid on four HUD foreclosures. All but one of the bids were WAY under the list AND market value price. The other one is actually above the list price by $5k, but it's market value is higher, too. I actually like the property in more ways than I can tell you, so I'm keeping my fingers crossed that I am the winner. My bids on the other properties were so far under market value that even if I am the winner of more than one property, I'll still come out way ahead.

I still need to meet my agent sometime today to sign the paperwork and give her the earnest money deposit HUD requires. It just so happens, though, that Wednesdays are my absolute worse days to be running errands. Maybe I'll just call in sick this afternoon???? :-(

HUDs, HUDs Everywhere & Other News

HUD Foreclosures
Wow. For those who didn;t know, HUD always releases their latest foreclosures on Fridays (at least in Texas, and I believe this is a national thing). Last Friday was no exception. So I logged onto my HUD provider's web site and looked at the latest crop in my farm area. Interestingly, there weren't any, which I thought was odd as there is usually at least 1-2 every week. On Sunday, I decided to log onto the web site again to check up on some information about one of the houses that goes to "All Bidders" on Monday. When I get there, I notice there are FIVE new listings. Huh?!?! Upon further examination, I notice the initial bid period on all these new properties ends THIS Wednesday. Double Huh?!?! The properties themselves are in a bid period called "Lottery Round". From the processor's web site, "Lottery Round" means:

Before Government properties are made available to the public, they may be listed in the Government Lottery Round. As part of its effort to assist communities with their housing needs, HUD has designated Revitalization Areas, and offers a limited number of properties in specific direct sales programs. These programs include the Officer/Teacher/Firefighter/Emergency Medical Technician Next Door Program or Non-Profit Program. To assist families displaced by Gulf Coast Hurricanes, HUD is currently offering properties for sale at a discount to (1) evacuees currently leasing homes from HUD and (2) other evacuees interested in purchasing HUD-owned homes located throughout the U.S.

So, it appears these homes will go to "All Bidders" after this Wed, but could go to "Owner Occupied", too. Guess I'll find out. Another interesting bit of news ... there were 1,448 HUD foreclosures listed in the state of Texas this week - 1,448! This is by far the most I have ever seen. Matter of fact, I had never seen more than 1,000 until just a few months ago. Seems like more and more people in this state are having to foreclose. :-(

RE Agent & Broker
I stayed in touch with both my new RE agent and loan broker. My broker is trying really hard to get me 100% NOO financing, but with my slightly high debt-to-income ratio, I'm sure he is having a hard time. If I can get 95% or even 90%, I'd be content. What I don't want to do is have to put 20% down and use money I have earmarked for possible Sub2's in the near future. I also gave my agent heads-up about a couple of the new HUD listings. One in particular is a gold mine. It's almost identical to House #1 as far as the financials go. It's listed for $95k, but is worth about $125k. I ran through an owner finance scenario, and figured I could make anywhere from $30k-$50k, depending on varying circumstances. My wife and kids and I all took a Sunday drive to go look at it and several other HUD foreclosures. My mouth was watering even more when I peeked into the windows of that particular house and noticed how clean it was. It was built in 2004, so all the fixtures, W/H, HVAC, etc., should be in top working order. It even still had blinds on the windows (which were all up, thank goodness). The only bad thing I saw was the carpet needed replaced throughout, which would set me back a couple thousand $$$'s, but that was it. I'll talk to my agent today more about it and other things. My broker emailed me late Sunday saying he hoped to get word from "his guy" about getting me 100% NOO financing in "the next couple of days." I sure hope it's sooner rather than later.

Some Good News and Some Bad News

Good News
The loan broker I've been dealing with, who is also a RE investor himself, sent me an email the other day in which he gave me contact info for one of the biggest HUD agents in the area. So, I took a few minutes out of my busy schedule yesterday and gave her a call. She was exceptionally easy to talk with, which was a definate plus right off the bat. She said she may be steering away from HUDs in the near future as conventional buyer's are increasingly having a hard time coming up with any money to buy the houses. I told her that I already purchased a HUD as an investor last year and understand the process, which she laughed and said was "a pain" herself (and I agreed). She asked for my property search criteria, and I gave it to her. I'm not lying, within 5 minutes of hanging up the phone, I received an email from her with the first client gateway search of properties. One of the biggest HUD agents in the area, easy to talk to and FAST - I'm definately liking this relationship already!

Bad News
The loan broker himself has been dragging his feet a little bit. In my initial conversation with him over a week ago, I asked if I could get a pre-qual letter. After several emails and some miscommunication (he thought I didn't need it until I found a specific property), I FINALLY received the letter this morning with an email. It turns out that he can only find 80% financing for me at this time due to our debt-to-income ratio, which I admit is a little high. He said that even if I find a property I can buy <80% FMV, I would still need to come up with 20% of the purchase price. This was a big blow. I was hoping only to put down 10% at the most for any property, but 20%? - ouch! Since most of the properties I'll be making bids on will be in the $100k area that means I'll need $20k in cash.

I can tap into the equity of both my personal residence and House #1, but Texas (or maybe it's nationwide?) requires a minimum of 20% equity be left in a home before getting a HELOC, so I could only get any equity AFTER the 20%. I'll double-check this with the loan broker just to verify. I have about $1k in my personal residence after the 20% and ~$9k in House #1, which would make up half the money I'd need. I can also draw money out of my 401(k), but not sure of all the rules and regulations associated with it yet. Either way, I wasn't expecting to come up with such a huge downpayment for any future investment home, but it's something I'll need to deal with. If I use 20% of my own money, and then turn-around and refi to pull the money back out, it may be just a short-term hassle (and may not even hurt me much when tax season rolls around).

Unbelievable. Simply unbelievable.

In my previous post, I mentioned how there have been 5 foreclosures in the past 6 months in one of the subdivisions in my farm area. I actually err'd in my research. There were more than 5 foreclosures in the last 6 months (I'm not sure how many, but I know it was more than 5). The surprising bit of news is that there were 5 since the beginning of May/2006! Unbelievable. Five in less than two months! Most were in the first two weeks of May, which just missed my first postcard mailout. The remaining occurred in-between. Since it takes no more than 3 weeks to foreclose in Texas, I figure the others were too late to save anyway (not impossible, but probably really hard). This bit of news just makes the drive to do all the things in my last post even more.

A New Approach

Still no calls from my latest postcard mailout, and I decided I needed to do something different. My farm area covers an entire city just outside of Austin that includes 17 subdivisions. I have spread myself thin each month trying to cover as many people as possible, but also trying to limit the amount of cash I spend on the marketing. To date, this approach hasn't gotten me anything.

So, I decided to do a little investigating in the properties in my farm area to better facilitate my marketing approach. It turns out that in the last six months, 10 of the 17 subdivisions had -0- foreclosures in them, while the other 7 had a minimum of of one foreclosure. That certainly narrowed down my audience, but I decided to go a bit further. Of those 7 subdivisions, 2 of them had an exccedingly high number of foreclosures compared to the other subdivisions AND to the total number of properties in their respective neighborhoods. One, in particular, had FIVE foreclosures the last six months. It also has a little over 300 properties, so the rate of foreclosures-per-total per month was 0.8%, or 10%/year. Astounding. The second subdivision on the list came in at a little lower: 4%/year. The remaining 5 subdivisions were ranked substantially lower (the next was <1%/year).

Therefore, instead of spending all this time, effort, and money on hundreds of properties that probably won't amount to anything, I've decided to spend all my time, effort, and money on just these two subdivisions. The total number of households within those subdivisions that match my newly expanded criteria is a little less than 300. Seeing as how I was sending postcards to twice that number each month, I will not only spend less, but cover more potential people in need.

So, my new marketing approach will look like this:

Phase-1: Revise postcard. Remove a lot of the small font type, and replace with larger fonts and color to make it more attentive. Anticipated Cost: Adding additional color will increase postcard cost slightly - not sure how much yet.

Phase-2: Send postcards out once a month to half the homeowners. This way I'll cover everyone in two months. My old approach was covering everyone in 5-6 months, which would lose my branding. This way, people will get it engrained that I am the person they need to see. Anticipated Cost: ~$45/month.

Phase-3: Get 100 bandit signs made with new content. My old bandit signs were actually a little hard to read (white on red) and had my cell phone on them. The new signs will be black on yellow and have my toll free number on them. I'll probably change the slogan from "WE BUY HOUSES" to something else - still deciding. I'll place these at all entrance/exit points to the two subdivisions. The reason I may change the slogan is simple ... Most bandit signs are placed in areas where traffic is either congested (4-ways) or moving too quickly. Signs in those areas need to be short to get the message across quickly. Since mine will be placed in "slower", less congested areas, I am able to add more content to my signs. I'll still keep the verbage down to a minimum, and may just add a couple more buzz words. Anticipated Cost: ~$200.

Phase-4: I am in the process of revising my website, also. It will have a "softer and warmer" (yeah, I watch a lot of HGTV) look instead of the deep colors it currently has.

Hopefully, with this new marketing approach, I'll get at least one deal every 2-3 months. I figure I won't get 100% of the troubled homeowners calling me, but even 25% would land me a deal or two every few months, which was one of my goals for next January.

We'll see how it goes.

Mailout and New Loan Officer

Mailout
Well, as expected, the postcard mailout I was hoping to land in everyone's mailbox last Friday did indeed land in everyone's mailbox this past MONDAY, instead. It is now mid-afternoon on Wed, and I have yet to get a single call. Of course, all this silence really has my wife (and me, too, actually) wondering if the postcard mailout is a good thing. I keep telling her (and myself) that all it takes is one solid deal from these mailouts, and it will more than cover the cost for years to come. But having a silent cellphone isn't much comfort.

I may have to shift gears a lttle and change the postcard to be simpler. As it is, there is a lot of information I've crammed onto the card, and people may not even see any catch-words before sending it to the trash bin. I may just put a few buzz words and a large font "STOP FORECLOSURE" or "WE BUY HOUSES" instead just to see if it generates more calls - heck, ANY calls. :-(

To my surprise, my wife also mentioned that we should try other forms of advertising given that this method isn't doing the job. I usually got at least 1-2 calls every time I put out bandit signs, and I may do that again in addition to some other things.

New Loan Officer
I finally got to talk on the phone to the loan officer I mentioned briefly before here. I asked him some interview-type questions, and he answered each one superbly. He also gave me a good introduction on how involved he is with real estate. It turns out he's pretty much run the gambit - lease/options, sub2's, rentals, flips, owner financing, you name it - and has been doing this for over 20 years. He only recently (in the last few years) started doin the loan side of things. He asked me about me goals and what I've done so far, and said I seem to have the whole idea down solid, which was good to know.

I will need to fill out a loan app in order for him to get the ball rolling. During lunch, I filled out most of it and realized that we still have a long, hard road ahead before we can think about financial independence. We own about half-a-million in various assets (mainly our two houses), but also carry a lot of debt. The good news is that our networth really spiked upwards when we landed this investment property, and I hope it continues.

@#$%! Mailout and New Loan Broker

Mailout
Judging when my mailouts actually get mailed out is almost impossible. I uploaded my list of homeowners to USPS.com last Tuesday. The earliest date it gave me to actually mail it out was the fallowing day (last Wed), so I chose that day, knowing full well it would take 3-4 days to actually get the things processed and mailed to the people. Therefore, I was thinking the postcards would reach the hands of the homeowners last Friday or Saturday, at the latest. Nope. On this mailout, I actually had USPS.com mail me a copy as well. As of Saturday, I still hadn't received it, and I amd livid. I *hope* the postcards get mailed out today, which is what I believe will happen, but that just blows another month of me trying to get the postcards out by the weekend. Now, I'm thinking I need to log onto USPS.com on FRIDAYS and schedule the mailout for the following MONDAY just so people will get it by the NEXT FRIDAY (or Saturday). Simply ridiculous.

New Loan Officer
After months of procrastinating, I felt I had to start the ball rolling on financing. One of the things I keep running into on the limited amount of calls I'm getting from homeowners is their reluctance to do a Sub2 closing. I can understand this, but that doesn't mean I'm going to not do them at all. I just felt the need to have financing available in case this happens again to a property that meets my criteria. I can really only think of two instances where this would have occurred in the past, but those are two properties I'll never have a chance of getting now.

I know I mentioned recently about filling out an app with one mortgage brokerage company, but I gave up on them. If they don't have the decency to monitor their online traffic, it speaks volumes to me about their service.

So, I did the next best thing. I asked other investors in town who they would recommend. It seemed everyone had their personal favorite, but this one person seemed to stick out more than others. So, I sent the guy an email yesterday (Sunday). Within hours, I got a reply back. I will try to call him tomorrow to go over my needs and what services he can offer me. He says he's been a RE investor for over 20 years, so that alone should be a huge plus.

Update: CPA
About an hour or so after posting the above, I finally received a reply from the email I sent my CPA the day after Memorial Day. She was rather brief, and gave no mention of why she took so long to respond. It's ironic that I was actually going to email a guy I met at REIClub.com, who is a CPA and was more than willing to take me on as a client. The only downfall in that relationship would be that his offices are in Dallas and I'm just outside of Austin. Therefore, we'd have to do a lot of long-distance calling/faxing. While I still don't have exciting vibes about my current CPA, I think I'll continue to use her for a while longer to see if thinks work out better. Maybe I (and moreso my wife) am just setting the bar too high on a lot of things - including my inner circle.

Email, and Postcard Mailout #2

Email
I had a discussion here a long time ago on using emails to converse with people. I just can't understand why people don't seem to want to use it. I realize picking up the phone and talking to a "live" person is the best vehicle in getting information conveyed, but flat out ignoring emails has become almost routine for me.

Last Friday, I sent my old CPA an email. I still haven't heard from her.

This past Monday, I sent an email to the attorny's office I spoke about recently, asking some questions. No response.

Also this past Monday, I filled out and sent an online loan application to the lender I talked about recently. No response.

On Sunday, I sent an email to an ad for a HML I saw in a local circular. The guy responds in a matter of hours.

So FOUR emails sent, and only ONE response. Terrible. I thought if anyone would have responded by now it would have been the lender regarding my loan app. I realize last week was probably a holiday week for a lot of people, and maybe even this week, too. But surely I would have gotten a better response rate from those two companies.

Guess it's time to pick up the phone. My first question to all of them will be, "Did you get my ...?"

Postcard Mailout #2
I scheduled my second postcard mailout for today. With the way the system works, the postcards will actually go out this Friday or Saturday (I hope). Of course with my luck, they'll probably get delayed and go out next Monday. With only 5 calls, one voicemail, and no deals on my last mailout, my enthusiasm for getting one or more deals this time isn't as great. But I need to continue getting my name and message out there as I found out another FIVE properties in my farm area were foreclosed the last several months.

OT (sort-of): Whoo-hoo! A $200/month Raise!

That was actually sarcasm.

After FITW, SS, Medical, 401k, and just about everyone else, that'll prob translate into $100/month take home, if I'm lucky.

I know, I should be happy (ecstatic?) about getting another carrot - I mean, raise. However, I was actually expecting something a lot bigger given all the work I've done for my organization and company the past year. But then, this is the shell game that is the working world of the corporate drone. This is THE very reason I am trying so hard to become financially independent - to be free from the revolving door of anticipated monetary fulfillment, just to be disappointed yet again. I keep telling myself to keep doing my day job at a sustainable pace, and concentrate more and more on my RE investing "hobby", and one day I'll be free from these shackles. Hopefully, sooner rather than later.

With the arrival of the twins earlier this year, our monthly net income dropped a lot (diapers, formula, clothes, and so on DO cost a lot for babies - now multiply it by two). I was hoping that I would not only get a raise, but have it compensate for the lost monthly income as a result of the twins. Well, one out of two ain't bad. I guess I could look at the bright side and say "I still have a job!"

Yes, sarcasm again.

A Sharp Rise in Housing Prices for My Area

I started keeping data on housing prices in my area since last October, and I'm starting to see a sharp increase in numbers after pretty much no activity. Here are some of the statistics:

Area #1 (ALL)

Month     Count   $/SF  %Month   %3Mos.   %6Mos.   %Oct05
--------  -----  -----  ------  -------  -------  -------
Oct 2005    633  81.05    ---     ---      ---      ---
Nov 2005    598  80.76  -0.36%    ---      ---     -0.36%
Dec 2005    542  81.10   0.42%    ---      ---      0.42%
Jan 2006    506  81.16   0.07%    0.14%    ---      0.14%
Feb 2006    452  80.57  -0.73%   -0.24%    ---     -0.59%
Mar 2006    416  80.34  -0.29%   -0.94%    ---     -0.88%
Apr 2006    286  80.85   0.63%   -0.38%   -0.25%   -0.25%
May 2006    276  81.15   0.37%    0.72%    0.48%    0.12%
Jun 2006    681  87.32   1.53%    2.57%    3.11%    3.73%

The preceding shows that prices stayed stagnant up until this month (June). Since last October, prices have risen on average 3.73%. This may sound petty to some, but in central Texas we have seen nothing but slow (if any) growth for about 5-7 years. Therefore, these numbers are something to get excited about.

Here are some other figures:

Area #1 (4beds,1story,1500-2500sf,built 2000-2006)

Month     Count   $/SF  %Month    %3Mos.   %6Mos.  %Oct05
--------  -----  -----  -------  -------  -------  -------
Oct 2005     88  74.01    ---      ---      ---      ---
Nov 2005     85  74.64    0.85%    ---      ---      0.85%
Dec 2005     77  74.79    0.20%    ---      ---      0.20%
Jan 2006     74  74.83    0.05%    1.11%    ---      1.11%
Feb 2006     64  75.38    0.73%    0.99%    ---      1.85%
Mar 2006     59  74.73   -0.86%   -0.08%    ---      0.97%
Apr 2006     40  77.88    4.22%    4.08%    5.23%    5.23%
May 2006     39  78.05    0.22%    3.54%    4.57%    5.46%
Jun 2006     27  80.72    3.42%    8.02%    7.93%    9.07%

Even more incredible (this happens to be the criteria for House #1, BTW).

I'm thinking a lot has to do with it being the beginning of summer, but more still must be the economic factors everyone seems to keep saying about the area. House #1 had a FMV of around $135k-$138k late last summer. Going by these figures, it is worth roughly $145k right now. Good time to acquire some discounted houses in the area and resell via owner finance. ;-)

Goals: Week of Jun 5-11

Meeting w/Local Attorney/Title Company - Since I am in meetings most of the day, I fired off an email to the attorney's office I spoke about in my preivous post. I briefly told them who I was, what I do, and how they could possibly help me. His office provides both legal assistance and title services, so I (hopefully) won;t have to shop around for both.

Mortgage Broker - I filled out an online loan application for prequalification to the company I discussed in my last post. I specifically told them my background and what I was looking for in a mortgage broker.

Postcard Mailout #2 - At lunch, I went through my DB of homeowners and created a mailout list. I'll submitt he mailout tomorrow and put tomorrow as the "wish" date for the mailout (since it take about 4 days to actually process, this should be ready for the weekend).

Research Properties - Thanks to my creating some much needed programs, I can now find and funnel properties that meet my criteria with a few clicks of the keyboard. I just add my criteria to the programs, and get a report back instantly on any matching properties. Definately saves me a lot of time.

Busy Weekend and Now a Busy Week

Past Weekend
My wife decided to use this past weekend to get caught-up on household chores, so my time spent with REI was minimal, at best. I did manage to do a few things to keep the wheels moving, but certainly not enough to produce any deals.

We've been getting a free monthly "magazine" in the mail the last 6-7 months that talks briefly about happenings in the area. It's actually a good source of information on what things are coming up in the future in the area. The whole 2nd half of the "magazine" is devoted to ads. I was looking through it quickly yesterday and noticed an ad for "Private Capital Funding", so I thought I'd send the guy an email asking more about his services. To my surprise, I got a reply back in just a few hours. Basically, he's a hard money lender that acts as a liason between RE investors and private investors. From what I gather from his email and web site, he lends hard money to RE investors, but gets his funding through private investors. He pockets the difference in interest rates paid by the RE investor and paid to the private investors as well as the points paid by the RE investor. Not a bad way to make additional income. The only issue I had was his terms. I know most HML's have outrageous terms, so I wasn't too surprised: 4-5 points, 14% int rate, 6-12 mo. IO payments. Ouch! He said he can close in 7-10 days, and quicker if need be. I guess if I really, REALLY need the funding I can give him a call.

I found another property that seems to be an REO. I called the listing agent's phone #, but only got his VM. I also sent him an email, but haven't gotten a response back from either. It isn't a fantastic deal, but certainly doable.

I sent an email to my old CPA just to keep in touch. I haven't received a response back from her, either. I guess since last week was a short one due to Memorial Day, a lot of people may have been on vacation. We'll see.

Upcoming Week
I have a busy week ahead both at work and with REI. I was referred by another local REI to an attorney in town that specializes in closing owner financed deals. Whoo-hoo! Now I won't have to worry once I go down that route. I still need to contact him about Sub2 deals to see if he can help me with the front end.

Another thing I need to do is get in touch with a good mortgage broker. The attorney I just mentioned has a web site in which he recommends a certain broker. I need to contact them to see how they can help me (and my future buyers).

I didn't realize it until this past weekend, but I need to get the ball moving on my next postcard mailout. The last one was sent on May 12th, and I want to keep them about a month apart. Since the USPS takes about 4 days to process the order (ok, not USPS's fault, but their processor who takes their time), I need to submit the order NLT tomorrow to get the things out by the weekend. I still need to go through my database and review the candidates for the next mailout. Late last week, I realized I was skipping an entire nieghborhood in my farm area, so I had to add them those homeowners to my DB. That increased the size by 130 entries.

BTW, when I was coming home from work last Friday, I saw "We Buy Houses" bandit signs staples on just about every telephone pole for a mile stretch near my house. I've seen this guy's bandit signs before, so he isn't new. What irritated me was his approach. He just goes hog wild with the signs and staples them willy-nilly on every pole he can. I realize he probably gets a deal or two doing it, but it really is an eyesore and makes the rest of us who use stakes - sparingly - look bad, too. On Sunday, my wife and I had to go out and buy a few things. We passed by that same stretch of road, and not a single sign was hanging, which put a smile on my face.

Why I Do This

Okay, there are a lot of reasons why I got into real estate investing, but once a month I am joyfully reminded of the bigger picture. Yesterday, I received my rent check for June on House #1 for $1,100, which I'll deposit as soon as I write this. My taxes and insurance are NOT escrowed, so that means I'll pocket roughly $400 of positive cashflow this month. Calculating in taxes and insurance, I'll still have positive cashflow (barely), but the good things are (1) the mortgage is getting paid down by my tenants and (2) House #1 is slowly appreciating (about 1.4% since last year, adding another $2k in equity).

Missed Opportunity

About a week ago, I was perusing the HUD foreclosure web site for my area (BidSelect.com), and came across a couple of properties that seemed promising. One was listed for $104,000 and had a FMV of about $118,000-$120,000. Not the best deal in the world, but certainly doable. The owner occupied only period (OOOP) expired at midnight this past Sunday, and I thought maybe it wold be bid up like the rest. Since Monday was a holiday, I saw no action on it. However, I logged onto the site around noon yesterday, and the property was already sold. It only had ONE bid on it and it was for $98k (with a net to HUD of $93k)! I could have shot myself. I guess another lesson learned: don't assume anything. From what I could tell it had no problems and only required minimal cosmetic repairs (<$1,000). Again, it wasn't the best deal out there, and I'm keeping my eye on the second property even more now. It is listed for $105,000 and is worth about $125k. It's in the same neighborhood as House #1, so it would be convenient for me. The OOOP ends this coming Sunday, and I'll have to hook-up with a RE agent in order to submit an offer. I'll also need to get with a mortgage broker beforehand to see what I can qualify for. I figure owning House #1 for over a year now should look favorable on my credit report, but we'll see.

BTW, I got another two calls over the weekend from my postcard mailout earlier in the month. Unfortunately, neither one left a message, tho.

Prosper.com + REI-Exchange = $$$ ???

While perusing the message board in REIClub.com last weekend, I came across a post from someone who was semi-touting a web site called REI-Exchange.com. The concept seems so common sense, I'm wondering why no one has done this before. I won't go into details - mainly, because I'm still sponging information as we speak - but it appears to be a place where RE investors can go to both "buy" and "sell" their real property. Underneath, a person doesn;t actually buy/sell properties in the traditional sense, but they buy/sell shares of the properties. The company, REI Exchange, handles all the management, so investors need only submit their bids on properties they want to buy (or submit offers to sell). Again, I am still trying to understand all the fine print to get a better feel, but my intial findings are pretty exciting.

So, if you have a lot of money sitting around that you would like to park in a financial vehicle that could potentially bring you a good return, this may be the place for you. It appears your mney could be tied-up for a while (6-18 months?), but the returns can be 25%, 50%, 100%, 500%, and more, depending.

And then something hit me ... Why use my money to buy shares and get a nice profit in the backend?

Prosper.com will allow a person to borrow money from other people (instead of a bank). Why couldn't a person get a loan from Prosper.com and then turn right around and buy shares of properties at REI Exchange? Of course your questions are probably the same as mine ... What fees will I incur? How can I guarantee I (my money) will be protected? How can I determine that I can indeed make a profit doing this? Are there any laws preventing this approach? When all is said and done, wold I be better served using the money for something else? And so on ...

If anyone has more time than me and would like to elaborate on their findings, please post them here and/or shoot me an email. From my early research this appears to be a way to reap infinite ROI without rehabbing, talking to Realtors, qualifying at a bank, looking for deals, etc., as everything is pretty much done at a computer screen.

Status of Latest Deal & Mailout, and Some Prospects

Latest Deal
After running the numbers a few more times, I was able to validate my initial concerns for this deal. The numbers were just too tight for anything other than a Sub2. So I called the homeowner back Friday evening and explained to her the situation. I felt in our initial conversation that she didn't seem too motivated even thought she said she would have to be out by the end of the month. Sure enough, I explained to her that the only way I could purchase her property would be to take over her payments. She asked for clarification of what I meant, and I basically told her that the loan would stay in her name. Her immediate response was that she would never do such a thing. I tried persuading her of the consequences, but she held her ground. I thanked her for her time, and wished her the best of luck in selling her property.

Mailout
I'm really disappointed in the response I've gotten on my first postcard mailout last week. So far I have gotten only three calls, however, just one of those left a message. The other two I'm thinking were people who were curious about my ad and/or who had a property they wanted to sell retail. After listening to my voicemail greeting, they probably got the hint that I was not in the retail buying market, and, therefore, never left a message.

Perhaps I'm just being impatient, but I had thought I would have gotten more than just a single call by now. I still plan to do two more mailouts in the next two months, which will pretty much cover my farm area. Hopefully, the exposure will start generating calls, which will turn into a lead or two.

Prospects
My wife has been on a garage sale binge for about two months now. So, we've been getting up early on Saturday mornings and going out for a few hours to garage sales. I hate it because the weekend is about the only time I can sleep in these days. However, I've taken the opportunity to use the time to scout for potential deals. This past weekend was the first time actually found anything promising - actually, THREE properties. After we got home and got settled, I did a little research on the properties. None had any "For Sale" or "For Rent" signs in the yard even though they were in pretty nice neighborhoods, but they just had that 'no one has been living here for a while' look. Two of the three were owned by people who lived out-of-state (California, specifically - hmmmmm). The other was owned by someone who lived on the same street.

Sometime this week, I'll send all three my postcard to see if any would be interested in selling. One of the three was bought a few years back and has a DOT for only $70k, so I'm guessing they put 20-25% down when they bought it. It's worth about $135k right today. PErhaps an equity split?

Numbers on Current Deal

I called the lady back who left me a message yesterday. For whatever reason (I'm guessing being out of practice), my dialog with her sounded like a complete 'noob'. After hanging up, I could've kicked myself if I could with what I said and how I said it. I just kept losing focus on what I would try to say next, and get caught-up in a lot of "uhmmm... let see... uhmmm..." - just totally out of character for me.

But to the real crux of the conversation ...

She said she had her property listed a few months back, but had to list it for a price that was higher than people were willing to pay (her words), because she had to include RE agent/broker fees. Sure enough, I looked back in my database of properties and it was last listed in mid-March for about $5k more than it's worth. I asked her why she was selling and if she needed to sell ASAP or did it matter. She said she is getting married soon, and needs to sell the place before the end of May, since she will be living out-of-state with her soon-to-be husband. I didn't feel like she was REAL motivated, but you never know. However, "end of May" is less than two weeks away, so she could be getting desperate

I had done some research beforehand and saw a DOT dated in 2003 for $112k. She says she bought the place for $113,990, which leads me to believe she only put down about 1.5% at closing for it. It has a 30yr term, but the interest rate is what has me interested in this: 5%!!! I also asked her if the insurance and property taxes were escrowed, which they were. The total monthly payment for everything was $965/month, which was definately attractive. The only worry I had was that the neighborhood is located in a place that has seen stagnant (and even declining) market growth the last few years. But the Austin/RR area as a whole hasn't appreciated much, so I'm not TOO worried.

Anyway, here are the numbers ...

Current Loan Balance: $108,000
Interest Rate: 5%
Fair Market Value: $113,000
Repairs: $0 (according to owner)
Monthly PITI: $965
Fair Market Rent: $950-$1,100

Based on the numbers, I would need to take this property Sub2 without question. I don't have the funds available to make a full cash offer, and getting a conventional loan would put me upside down. If she is willing to do a Sub2 purchase, I would estimate about $1,500-$2,000 for closing costs and repairs. Another $2,500-$3,000 for anticipated carrying costs, although, being the summer months, I may be able to rent it faster. A rental analysis shows the neighborhood is mostly inhabited by homeowners, but has a larger than normal rental market (which is good). Running the numbers in my rental spreadsheet, though, shows I'll be cashflowing negative slightly.

I also ran the numbers selling to a buyer with owner financing. The results were a lot better. After two years, I would profit a little over $20k with an annualized 110% ROI. I can definately live with that. :-)

Some calls

I finally started to get a couple of calls from my postcard mailout. Unfortunately, the first person never left a message and the second one doesn't look to good - even if I buy it with $0. Running the numbers, it appears the only way I'd make a profit would be to buy Sub2 with almost no money out-of-pocket, hope there aren't any repairs at all (at least not over $1k), and sell it within three months max via owner financing. Even then I'm only looking at around $12k profit in two years at the very best, which is borderline for me.

Ah, the good ole USPS

You'd think I would have remembered this from the sample I mailed myself a while back ...

I set the "Scheduled Delivery" date for my postcard mailout for last Friday. What the selection should say is "Date you ant us to start processing your order" as that is when the USPS send teh info to their local processor. Of course, MY particular processor takes their sweet time printing the order (how's 3-4 DAYS sound?). So, my plans for getting the postcards in the homeowners' hands over the weekend went out the door. Now they'll be getting them either today (Monday) or tomorrow. Not a huge deal, but still. Argh!

Mailout Scheduled

I uploaded the postcard template and list of addressees to USPS.com and scheduled the mailout for this Friday. I'm hoping for a 3-5% response rate, and at least one good deal from the bunch (more would be better!). We'll see how it goes.

Mailout

After literally months of delays and procrastinating, I am finally ready to do my first postcard mailout. I have it scheduled for tomorrow so that the addressees will recieve them this Friday or Saturday (hopefully). I targeted all homeowners that have leins currently, and/or have had leins in the past. I also targeted those people who have NOD's currently, and/or who have had them in the past. Both those groups comprised of about 41% of the mailout. The remaining 59% were homeowners chosen at random. I created a database that keeps track of all the homeowners, including which ones were sent a postcard and when, etc. I managed to scale back my distribution list so that I can cover everyone in three mailouts. And, while I would like to get 5+ deals out of each mailout, I plan this to be realistically more like 1-2 every three months. I'm hoping to get AT LEAST 3-4 decent deals per year out of these mailouts, and keep 1-2 properties as rentals, 1-2 as owner financing, and 1-2 I'll sell retail. If my expectations aren't met, I'll rethink my delivery content and formatting, and try a different approach.

On a side note ... I logged into my general email account yesterday, and noticed the RE agent I used for House #1 started sending me daily MLS feeds again. I haven't spoken with her since probably last October. She didn't send me a message or call, either, which has me scratching my head as to why she starting resending me these feeds.

It's Been a While

Wow, hard to believe my last post was slightly over two weeks ago. I haven't had much to report, since I've been swamped at work and home. I keep telling myself that I need to stay focused so that I can be financially free and not have to worry (as much) about work, bills, work/family conflicts, etc.

I did get back to my mailout list, which has taken me a few days to revamp. At first, I was going to just do a mailout to every homeowner in my farm area over a stretch of 6 months, but I figured (1) it would still cost me a good amount of money to do and (2) the 6-month gap I'd be hitting the same homeowners is just way too long. Marketing is about getting your name and product in the face of the consumer so they can come to you first with their needs. A better ploy would be to hit the same people on a tighter schedule - like 2-3 months. In order to do this, though, my mailout would have to suffer a bit. It was then that a light bulb when off in my head and I realized I didn't need to be sending postcards out to people I couldn't really afford to help anyway - the high-end properties. So, I queried my mailout list for only those homeowners whose homes were appraised at $125k or below. This reduced my mailout list significantly and allowed me to go from a 6-month cycle to only a 3-month cycle. Sure, I will likely lose out on deals >$125k, but my farm area is so satruated with SFR's <$125k, I don't think the loss will be that huge.

Unfortunately, I had wanted to get this final list completed by Monday or Tuesday of this week, so that the homeowners would get them tomorrow (Friday) or Saturday in time for the weekend. Marketing experts say that sending product advertising to homeowners on the weekend is more effective than on the weekdays (i.e., people tend to have more time to read through the mail). Therefore, I may hold off sending the postcards out until next Monday or Tuesday, however, I doubt it will make THAT much of a difference myself.