5-Unit Update

I've been neck-deep at work, so I've had very little time of late to devote to REI. After putting off running numbers on the 5-unit, I decided to just set everything aside for an hour one day and just do that. I wrote-up three different offers, all of which I doubt will be accepted, but I'm hoping at least the owners will start negotiating. The three offers I presented to my agent were:

Offer #1

All cash offer. The amount is almost $17,000 below the asking price. I did this because my target all-cash offer is actually about $9,000 below asking price. I figure if they shoot it down then I've lost nothing (except a few minutes of my time), but if they counter or accept, the ball is back in my court. The offer will give me an average monthly NOI of about $700. I added a bunch of the usual contingenices, along with the following statement:

Seller Advantages: Total proceeds from sale of property are immediate. No longer burdened with mortgage payments, if applicable. No worries about property management and/or tenants.

Seller Disadvantages: Lump sum payment may include a heavy tax burden. No more income from property. Lower offer.

Offer #2
100% owner financing. Offer price is almost $14,000 higher than the list price. If accepted, the deal should net me almost $400/mo in positive cash flow. As with the Offer #1, I added the usual contingencies, along with the following:

Seller Advantage: No worries about property management and/or tenants. Much higher offer - almost $14,000 more than list price. Steady stream of income. No lump settlement - lower tax burden. No worry that buyer will refinance.

Seller Disadvantages: No more income from property. No immediate lump settlement.

Offer #3
Hybrid financing. I'd put down 20% and have the owner finance the remaining. Offer is about $4,000 higher than the list price. As with Offer #2, the deal would net me an average of almost $400/mo in positive cash flow. Again, I added the following:

Seller Advantages: No worries about property management and/or tenants. Higher offer - almost $4,000 more than list price. Steady stream of income. No lump settlement - lower tax burden. No worry that buyer will refinance.

Seller Disadvantages: No more income from property. No immediate lump settlement.

I told the agent that all the offers were negotiable (and, in fact, short of the owner accepting any of them, I hope they counter). The agent mentioned before the owners were not interested in owner financing, but I wanted to give them a realistic picture of what windfall they can receive by doing it in the hopes they would change their mind. The Seller Advantages/Disadvantages were partly thought-up by me and partly taken from a REI book I have. According to the agent, the owners are elderly and recently moved out-of-state, so I'm hoping by planting a seed of "steady income" in their minds, they'll opt for one of the owner financed routes. But, if not, I made my all-cash offer low enough to leave some negotiating room. We'll see what happens.

BTW, I am still drafting the commercial loan proposal to send to the local bank. The rep told me everything he'd need in order to review. I have all of the information, but I just need to set aside another 60-90 minutes to put it altogether into a nice presentation to send him. If only I had more time ...

TIME

It's bad enough we lost an hour by changing our clocks ahead this past Sunday morning as I don't have enough hours in the day as it is to do everything I need. My JOB is demanding more and more of my time these days due to an ongoing project that is getting a lot of exposure. I haven't been working longer hours, but the hours I do work are 100% used for actual work. I used to take a few breaks during the day to do some REI research, run numbers on houses, answer personal email, etc., but just can't do that now. Even my lunch break has been whittled down to nothing - I eat while I'm doing work for my JOB (usually). As I type this, I'm actually running a couple of builds, and waiting for a coworker to get back to me with an answer. Hopefully, in a week things will slow down a little enough to actually breathe.

And home life is no easier. The twins are starting to walk now, which means they need 100% attention. Before, I could just put them in a playpen and go do some work, but they have smartened-up and realized they'd rather be on the play mats walking around (which means someone has to be there).

It's also spring time (unofficially) here in central Texas and the live oak trees have just about shed all their winter leaves, which means YARD WORK. I have to set aside a full day this weekend (or next) to devote just to cleaning the back yard. I figure the leaves themselves will fill 15-20 bags, easily.

Still, I need to find time to ...

* Run by my CPA's office as my taxes are finished, and they need me to sign the forms for electronic filing (along with paying her for her work).

* Run some hard numbers on that 5-unit. I found some commercial lenders in the same area as the property, but didn't expect their rates to be so high. I still need to figure all my costs and if it still makes sense to buy it.

* Run figures on several properties the other agent I'm working with in that area gave me. She keeps sending my listings for SFR's even though I told her I was only interested in MF properties. However, some of the lsitings she has given me look too good to simply ignore. For example, a 1700sf property located near downtown for $9,000. She said it would be an ideal property to rent out to a business. Another was for $17,000 and the owner has had it listed for over 500 days. No huge repairs are needed (so she says), and it should make a decent rental. There are about 5 others I still ened to look at, too.

* Get my financial portfolio up-to-date to send to those commercial lenders. Unlike residential lenders, the commercial lenders want a more thourough profile of a person's finances, including a personal financial statement. I meant to do this over the weekend, but - you guessed it - NO TIME.

Is that light I see?

... Or a train?

I've been emailing and calling almost everyday in regards to financing the 5-unit complex I'm still looking at. My dilemma is this ... The property falls into "commerical" lending due to it being 5 units or higher. Commerical lending is fickle (I'm finding out) as they have separate requirements for a lot of things. To make matters worse, the 5 unit is so cheap that commerical lenders don't even want to deal with the pain of carrying the note (which I can understand).

After asking around, someone on REIClub.com suggested going to this site to see if there is a lender whose HQ's is located in the general area. I found a couple, but only one was within shouting distance of the actual area I am looking at. So, I called them this morning and talked with a nice lady in the loan department about my situation. The good news is that they CAN help me, but would still need a bunch of paperwork from me in order to secure financing. I asked about business lending and she started on about how the company needed two years of history, blah blah blah. I told her I would be creating the entity now, and that I wished to still get a PG (personal guarantee), but the entity would actually own the property. I'm still not sure if she understood what I was saying after repeating it several times. :(

I gave her the list price of the property and she asked if I'd be putting $$$ down, etc. I told her I could put 10-30% down, but would rather not if at all possible. She said due to the circumstances, they would probably make me put some down (doh! I keep forgetting this is COMMERCIAL property). She then said that due to the loan's low amount, they wouldn't have anything over 10 years (IOW, no 15- or 30-yr rates). These were the rates she quoted me:

* 3/1 ARM @9.75% with 1% annual increases after the 3rd year.

* 5/1 ARM @10.25%

* 10-yr fixed @11.25%

Needless to say I was a bit bummed. I was figuring 9% tops for such a loan and with a term of 15 years. Does this sound plausible to anyone out there that does commercial investing? Again, the loan will be for LESS THAN $50,000, so maybe the higher rates are justifiable to protect their interests.

Edit: I called another one of those banks to probe for better services. The guy I spoke with was pleasant to talk to. I explained my situation to him, and he said there shouldn't be a problem at all getting me a loan. I told him I would probably create a business entity to hold title to that and other properties, but understood that I would still need to PG for the loan. He said it's done all the time and shouldn't be a problem in my case at all. The only drawback I had is that they usually only do these types of loans for VERY short term: THREE years (ARM or fixed). Gulp! I guess there's probably no way around this snag. I asked him what the next step would be, and he said to send him as much financial information on the property as possible, along with my personal financial information. I guess the wheels are in motion now!

5-Unit, PMC #1, and PMC #2

5 Unit

I am still mulling over this property. My realistic figures show I could have a monthly NOI anywhere from about $675 to $850, depending on how I structure things. If I got 100% conventional financing (which may be a stretch), I could get a 30yr note @9% for only $350 or so a month. This would leave me with a minimum of $325/mo in positive CF. But I'm starting to second-guess some of my figures and I really need to get more info on the property itself. The one thing that intimidates me is that it was built in 1900. My version of "old" properties is 1980's, or 1970's at worse. This property predates that by a long shot.

PM Company #1

I finally got a response back again from the man who runs his own PM company in the area the 5 unit is located. He sent me a picture of the two complexes he is selling and the price he wants. Both would be nice buys where I live, but may be a bit overpriced where they are located:

4-plex $119,000

7-unit $239,000

Click on the picture to see a full sized version.

He said he's going to send me more information about the properties, including a pro forma sheet, "soon".

PMC Company #2

Did I finally find a good person to work with? After getting an email from the agent I've been working with on the 5 unit about not finding any PM companies in the area, I did an internet search and found several (which I mentioned before). One of those was PMC #1. The other was a real estate agent. I sent her an email the other day, and we have been conversing like clockwork ever since. I'm getting a better response out of her than I have with ANY agent I've worked with in the past, locally. She is not only a RE agent, but has 10 years of banking experience, land development experience, property management experience, and she says her fiance is the owner of a construction company.

She's already sent me a listing of properties that includes several the other agent there missed. A lot of the properties need work (some need a LOT of work), but I can buy several of these that cash flow out of the box vs. ONE where I live that will be good to CF at all. I'm not getting my hopes up too much as there is still some obstacles to overcome first - mainly financing - but the outlook appears a lot better than it did just a week ago.

Tenant Issues and PM Silence

Tenant

Just as I had thought, it was the 3rd of the month and no rent check was in my hand. I called the tenant up and he said (like he ALWAYS does) that he was JUST getting ready to call me. He said he and his GF were in south Austin looking at houses, and would be back in their rental in the late afternoon or early evening and he could give me the rent check then. He said they'd be out again, but he'd leave the check under the mat. I told him to call me the INSTANT he was back home, and I'd go over.

He also said he wouldn't be buying my home after the lease term was over. He and his GF really liked the place, but it was just too expensive for their budget. (I was thinking, the rent he's NOW paying would be the same, if not more, than the mortgage, taxes, and insurance he'd be paying each month.) He also said that since I was so accomodating on him being late in the past, that he'd go ahead and let me put the "for sale/lease" sign in the yard the beginning of April. (My lease agreement says I can do it 30 days prior to the end of the lease term, which would be May 1st, so this would give me another month.)

I told my wife that since we are having a hard time getting rent checks from this person each month, that maybe we should tell him that if he finds a house sooner, I'll void the remainder of the lease term just to get him out and get the house on the market sooner. She agreed.

Well, I waited by the phone, but got no call that night. The next day, he calls, but I had the cell phone on "quiet" and didn't get to talk to him. He said he left the check under the door mat, but noticed I hadn't gotten it. Hmmmmm - I DID tell him to call me. So, I called him back, left him a VM, and headed over tot he house. Sure enough the check was under the doormat.

Property Management

I wrote in the comments section to Shaun in my last blog post how I managed to find a guy who owns a PM company and may be able to manage any properties I buy in that area. He also said he had two complexes with a total of 11 units he was going to sell, and wanted to know if I was interested. Well, I sent him a reply with some info, and asked him if he could send me as much info about the two complexes that he can, and I'd see if I could purchase them. This was last Wednesday, and I still ahven't heard back from him on anything (managing my properties OR the complexes he wanted to sell). So, starting today, I'll start going fown that list of PM companies in the area and see if they can help me, instead.

No Property Management Company?

After almost a week of not hearing from the agent about the 5-unit complex, she finally called me today. I wasn't able to get to the phone, but she left a VM that essentially said she could not find a property management company local to the 5 unit to manage it for me. She said she talked with other agents in her office, her broker, and even some outside people she knows in the industry, but no one could help. This sucks as I will need someone to professionally manage this complex since it is located out of state. I could leave the guy that's renting the 5th unit in place, but even the agent said he's not really doing any type of management now. That sucks bricks.

Some Updates

House #2

I have been mulling over what to do with this house. It's getting seen, but nobody has made any offers. I was thinking about ripping up the entire carpet and linoleum, and replacing it with ceramic tile and newer (but still cheaper) carpet. My FIL is a retired tile setter, so I wouldn't have to worry about labor costs - plus I've been on enough tile jobs with him to know how to do it anyway. I figure tiling everything except the bedrooms would be around 900-1000sf, and I can get nice tile at Lowes now for $0.78sf. I could lay the carpet myself, since the rooms are rectangular shape (i.e., no curves or corners to work around). It should cost me about $1500-$2500. I was also thinking of throwing in a free appliance or two.

Then this morning I got an email from my agent saying someone is interested in buying the property. They want to see it again, but have their choice down to mine and two others. We'll see.

5-unit Complex

Working with agents back there is S-L-O-W. I send an email, and am lucky if I get a response in 2-3 days. My latest email was asking about PM companies local to the area. The agent said she was going to check with other agents in her office and her broker to see if they have any recommendations. That was two days ago! I guess if you need anything done ASAP, you have to call.

My problem now, though, is fiancing. Being that it's 5 units, it is considered multi-family/commercial, which has it's own quirks. Also, since the price is so cheap, a lot of lenders won't touch it. I've asked around and some people have loans for these types of properties, but want some higher-than-normal rates (9%+). I figure if I can get House #2 sold real soon, I could use the proceeds to hep pay for the 5 unit. Even if I take ot a loan against my retirement, I'd still be a little short. I already asked if the owners would take back some/all of the financing to which the response was "no" (I even said I could pay them MORE than their asking price, but they still balked). I guess if worse comes to worse, I'll refinance House #1 to make-up the difference, but I'd rather just get a single mortgage to cover the whole thing.

5-Unit Update

I got a response from the listing agent about the 5-unit I talked about a couple of posts back. It turns out the 5th unit IS occupied - by the "property manager", who pays NO rent. That's all I know for now, so I have no earthly idea what all this "property manager" does. I figure if they are getting FREE rent (and utilities?), they'd better be handling just about everything, including paying ALL the bills, collecting ALL the rent, handling ALL the maintenance, and just sending the owner a check and summary report each month. Something tells me this isn't the case, but it could be.

Anyway, based on all the information the agent sent me, including the insurance, taxes, and utilities paid last year, along with the rent amounts, I figure this property would have an NOI in the neighborhood of $10k/year. Doesn't sound like a lot, but this place is pretty cheap which makes the debt service pretty low. I figure I could CF about $300/mo, minimum, at the beginning and upwards of $700/mo later based on the type of debt service I'll sock into it. Still a lot of investigating to do before I get my hopes up, though.

Who said deals under $15k don't exist?

2/1 for $15,000	3/2 for $14,900	2/1 for $12,000
4/1 for $9,900	3/1 for $9,900	3/1 for $5,900

BTW, the last property sits on 1.5 acres of land. I can only imagine what the inside must look like. :-O

A diamond inthe rough, or just broken glass?

I finally got an response back from one of the agents I sent an email to in the last week. Shes aid that they've encountered very harsh weather the last couple of weeks, which has almost shut down their area. That's saying a lot since that area is used to inclimate weather year after year. I'm guessing that is one of the reasons (if not THE reason) I'm getting poor responses.

Anyway, I inquired about a certain multi-family property that seemed to sound almost too good to be true. The agent didn't answer ANY of my questions, but rather sent me a brochure on the property. Here is a picture of the property. If you click on the picture it will open up the actual "brochure" I received on the property (I blotted out location information, though):



Some of the data on the brochure came out choppy, but basically the numbers are as follows:

5-unit
List Price: $49,500
Unit-1: $275/mo. (leased)
Unit-2: $355/mo. (leased)
Unit-3: $348/mo. (leased)
Unit-4: $350/mo. (leased)
Unit-5: ?????
Taxes (2006): $409.50
Year Built: 1900

Some of the questions I had for the agent were the occupancy rate, typical insurance premium, why the owner is selling, if the owner was willing to carry back any/all financing, if there was any deferred maintenance, and several other questions. Needless to say, NONE of those questions were answered (fully). A couple of other concerns I have are the age (built in 1900), the yearly water & electric costs (since I'll pay it), and what about Unit-5?

Cold Emailing

With what free time I have, I've been shooting emails off to a bunch of different brokers and agents, regarding properties they have listed that may be worth looking into more. I've noticed that for every 10 (or maybe more) emails I send out, I get one back. Most of the time the property is already under contract (even though it still shows up as "Active" on their web site). What I am disappointed about is the agent I spoke with on the phone a couple of weeks ago. I sent her three emails the first week and I sent her a follow-up earlier this week, but still no response. How do these people stay in business? If I got an inquisitive (and potential) buyer, I'd at least follow-up, if nothing else. I sent one broker and email asking her about a listing, and at least she responded to it - she said it was currently under contract. I sent her a response asking her to let me know if any properties that meet my criteria become available. No response. Geesh! I'm REALLY thinking maybe I should become a real estate agent, work under the tutolage of a broker for two years (one of Texas' requirements), get my broker's license, and open my own shop. :-/

Section 8 Paperwork

I received the Section 8 paperwork from my local housing authority the other day, but didn't have time to go through it until last night. Wow! They sure insepct a lot stuff. No wonder people say their inspections are tough to pass. After reading the entire checklist of items they inspect and to what degree, I believe House #2 MAY fail on several accounts. First, they say the flooring must be safe and free of any hazards that may cause a person to trip. While the flooring in House #2 is safe by my standards, the Section 8 inspector MAY fail it due to the carpet needing stretching in a couple of areas. It's not THAT bad at all, but just a slight indication of the carpet needing stretched may be all the inspector needs to fail me. Second, it says the property must be free of insect and vermin infestation. Again, I'm not sure how stiff the inspector would be as this property seems to attract a lot of spiders - although, it's less now that I sprayed. Lastly, there were several "fist-sized" holes in the garage drywall I never repaired. I figure the cost-benefit just wasn't there to fix them, and they aren't that bad at all. I guess if it ever came down to being the definitive factor, I'd just cover them with something permanent.

The Light Bulb

I remember when the light bulb when off over my head after reading Kiyosaki's Retire Young, Retire Rich. It's like a whole new world opened up for me and I felt both exhiliration for the new opportunities and disappointment that I wasted a good part of my life living within my comfort zone. I guess it's one of those things that some people "get" and others just don't (or won't).

I had lunch yesterday with the co-worker I spoke about recently, who was told he is getting laid off. I decided beforehand that I wouldn't mention any REI or related stuff unless he brought the subject up. I had done so on previous meetings with him, and the whole concept appeared to go through one ear and out the other.

So, I basically spent the first part of our lunch listening to his current life story and what transpired to get him laid off. Basically, he said that he was set up (and knew it) from the beginning by his management. They put him on a project that was destined to fail, and he knew it from the beginning. However, his management chain assured him he had nothing to worry about and they would support him. Well, 6 months later, the project came crashing down, and he was left holding the bag. Now, he says, management is treating the failure as HIS failure, and are - as he put it - lying through their teeth now about all those upfront promises (I guess it's one of those times where promises should be put in writing to CYA). And on and on he went.

The conversation then migrated to his divorce last year and how he just paid his ex-wife the last of the money he owed her for half the house, etc. Doing so left him with -$0- in liquid assets with only his home being anything of worth. I struggled to keep my mouth shut, believe me.

Then after talking almost non-stop for 30-40 minutes, he asked how I was doing, how my family was doing, and if I was still doing this real estate "thing". I couldn't restrain myself any longer, and out blurted a 15-20 minute presentation on REI once again, only this time I included some other points like expanding your comfort zone, taking risks, and basically telling him this may be a blessing in disguise for him. I told him that his $250,000 house was completely paid off, and he was sitting on a gold mine. But he'd have to act quickly while he still has a job in order to tap into the equity and do something with it. I also mentioned how he could sell the house and buy 2-4 more with it and get MORE cash each month by doing so. I aso told him he could sell his house with owner financing and get an almost guaranteed $2000-$3000 month from it. And on and on.

At first, he seemed interested, but I could see as I was talking that the invisible force of staying in his comfort zone was slowly muffling his ears. Undoubtedly, most of what I said must have sounded like a late-night infomercial to him, and within an hour after our conversation, disgarded. I also sent him some links to a few of my favorite REI web sites, but I'm thinking that email will sit or get deleted as if it were spam.

I guess some people fail to realize the opportunities that exist for them, but it takes THEM to capitalize on them. I figure I'll get an email in a year or two from him, saying he got a job as a manager at a Home Depot or something. :-(

Sounds of Silence

Hmmmmm. When I talked to the agent out-of-state last week, I had the feeling she would send me a list and treat it as a viable relationship. I guess I realized it wasn't going to be all roses when it took her two days to get me the initial listing of properties. I then sent her THREE emails in response to the listing. That was last Thursday and I still ahven't gotten a response. Keep in mind it was her suggestion about communicating via email, unless something urgent came up that required immediate communication.

Anyway, there were two properties on her list that passed my initial test (which I wrote about in my last blog entry), plus another one that may be worth checking into more. I sent her some questions regarding each of them, but have gotten nothing. True, it could be she is gathering all the information and will send it in a single email, but I thought I'd at least get a response like "I'll get back to you" or something.

Possible Deal

I started getting feeds from the agent I wrote about recently, and may have a possible deal. It's not a diamond-in-the-rough by any means, but could CF nicely if the numbers work. It's a duplex located withing a stone's throw from a college (actually, right across the street). It is fully occupied and the description says the owner has an additional house for $40,000 (it doesn't say if it's next door, next city, or next state - I'm guessing it's close by, tho). It also says there were new appliances and A/C work done. Here are the numbers:

Gross Potential Rent ..... $ 20,400
Vacancy Loss (2mos) ...... $  3,400
Gross Potential Income:    $ 17,000

Management (10%) ......... $  2,040
Maintenance (5%) ......... $  1,020
Insurance ................ $  1,278
Property Taxes ........... $  1,420
Other (3%) ............... $    612
Gross Operating Expenses:  $  6,370

Net Operating Income ..... $ 10,630

If I can get the owner to take back some or all of the financing, I should be able to CF positive about $150-200/mo. on it, but that's a big "if". I may also be able to buy the additional house and lower the overall price in the package deal (another big "if"). I sent the agent an email asking her several questions regarding the properties, so we'll see what happens. If it requires me to put down money and get conventional financing, I doubt I would break even each month.

Edit: Found another deal in about the same location as the one above, but it's just an SFR. It says the owner will consider any offer, and says the property will be sold in "as-is" condition. I emailed the agent to see why they're selling, if they are interested in providing financing, if there was any major things wrong with it, could I have more pictures of the inside and out, etc. We'll see.

You're Fired!

Ok, not ME (thank goodness - at least, not yet). A friend and coworker whom I posted about here a few times IM'd me yesterday to say he got his proverbial pink slip. I haven't spoken with him in probably 6-7 months, but I knew he had changed management chains during that time. He didn't give me the details, but just to say after 28 years of loyal, dedicated service to the company, they decided to lay him off 2 years shy of our company's term for retirement.

If that wasn't bad enough, he went through a divorce last year, which left him flat broke. Well, almost, anyway. He doesn't have any more liquid assets, but I think he still has the house.

Anyway, this should be a wake-up call to most people who still rely on their JOBs for a future paycheck and security. This ain't your parent's world anymore. What's sad about this guy's predicament is that he his not young (late 40's), so finding another JOB in his field of work will be hard - let alone finding one with comparable pay. And worse still is the fact that I talked to him numerous times about investing in real estate to help facilitate his income now, and provide income later when he is no longer working. My advice, unfortunately, went on deaf ears.

We plan to meet for lunch next week, which I'm sure will be a one-sided conversation (his) about what he plans to do. I have a feeling if I mention REI again, it will (again) be put on deaf ears. He says the company will give him a "see ya" bonus with the kick out the door, which he says equates to 3 months of salary, but that won't be paying any bills 6 months from now.

Section 8?

Over at the The Landlord Blog, Anesia had a recent post about her troubles with Section 8. If you recall, I wrote in my blog several weeks ago about my agent's broker telling me that the housing authority in a nearby town handles Section 8 for the city both my properties are in. I hadn't followed up with her advice, but I decided to call them today and get some info. The gentleman said he would send me some literature on the process, but told me the whole process is pretty simple. He then went on to explain it to me over the phone. He asked some questions about the property (House #2), and said their cap for it would be about $1,240/mo. Of course, my eyes lit up - that is until he said that the price includes a utility allowance of around $256/mo. He then said that it would depend on the renter's income level (they would pay up to 30%) and some other things, but it could be lower.

As you can see, I'm fishing the idea of holding House #2 as a rental. I already have it listed for lease, too, but wanted it to sell more than lease. I'm still running some numbers, but if I can get it refinanced, I may - just may - be able to CF positive as a rental. The problem again, though, is the need for cash. I'm about $8k in the red on this house, too, so it would take a significant amount of time to make that up even with $100-200 in positive CF each month. I could do a cash-out refi, but I think the amount needed to get me back in the black + closing costs would put me back in the red each month. Plus, it goes against my goals for this year, which is something I want to protect.

Anyway, even if it doesn;t work out for this property, I can at least start the ball rolling (education-wise) on future properties.

4-plex and a Phone Call

Regarding the properties I found recently out-of-state, I decided to finally give the agent who had the 4-plex listed a call at lunch today. No one but the secretary was in the office, so she transferred me to their other office, and I spoke with a nice lady. She said the 4-plex I wrote about a few posts back was currently under contract, unfortunately. Rats! But, we got to talking for a few minutes about other things. I told her I was originally from the area, went to school close by, etc., and small talk like that. I asked if she could email me any properties she finds on the MLS (or otherwise) that were multi-family under $500,000. She said she'd be happy to do it. So, now I have a real estate contact, who can send me prospective properties in that area, saving me the burden of doing manual searches myself. Whoo-hoo! I guess that's one manual labor item I can take off my list now. :-)

Reality Check

I usually avoid posting about actual numbers in my posts from my properties, but thought I'd buck the trend this time to show any prospective RE investors how realistic owning a property can be. I have figures from House #1 in various folders in the file box specifically for it (BTW, it took be an entire weekend over the holidays to get everything filed correctly for both houses - something I kept putting off). This past weekend, I decided to gather every piece of paper that was a debt or an income for the house, along with the date, and put it in a spreadsheet. I actually kept better records the first year I owned the property - I had everything in a spreadsheet, along with a full description of the item. I just needed to add last year's items and this year's. Before, I had some things for the CPA in her folders, some things for tenents in their folders, etc.

Well, the bottom line is I am still in the red on this house. I knew I was before I had even started this project, but I wanted to see just exactly how much in the red I was. It turns out my estimation of $10,000 wasn't too far off. After everything - and I do mean EVERYTHING - was accounted for, I am in the hole on House #1 a grand total of: $10,362.

Now, before I get a lot of flame mail from other investors telling me what a piss-poor investor I am, I wanted to add two things ... First, I have not included any tax write-offs associated with House #1 in this bottom-line figure. Without pulling my 1040 (and associated schedules) from last year's filing and getting my stuff to the CPA and having her get my stuff for this year's filing, I don't have a clue as to what the numbers will be. I am guessing that I could probably deduct another $4,000-$7,000 from that $10,362 figure, but that's just a top-of-my-head guess. Second, as much as it pains me, I plan to sell the property this summer. I made an offer to my tenant already, but something tells me he won't buy it (Hmmmm - I wonder why?). If he does (for the price I quoted him), I'd make about $34,000 at the closing table. Other deductions and additions would put the final net profit figure at about $23-25k for House #2. BUT, the price I quoted him was really a bargain for the house this coming summer (especially with news of how hot the central Texas market is getting). I figure I could realistically add another $3-8k on top of that quoted figure, putting my net profit around $30k. Again, this doesn;t figure tax deductions (or even capital gains hits from selling it).

The ROI is a little harder to pinpoint as my cash out-of-pocket has really yo-yo'd month-to-month for the time I owned it. Costs before getting a tenant in the property was about $8,000, but it has risen as high as $12,000 last year, so I'm not really sure what figures to use and the time period to calculate the ROI.

As far as House #2 goes, it's slowly getting to be a pain. If I sold it TODAY, I'd still make about $10k after everything is counted (except income tax deductions, etc). But, I'm figuring a Feb or even March close now, which would dent my profit by a couple $1,000. Still, my goals this year are to buy/sell several more homes and only make about $8-10k profit at a minimum, so I'm not panicking. This - along with my House #1 sell - should pay off some debt plus give me cash reserves to buy other properties that will cash flow nicely.

Central Texas RE Market Booming

I read this article in Sunday's AAS paper, and a mortgage broker sent me the link to the online copy of it (note: the link sets some cookies that only allows you to view it once - you can delete all the www.statesman.com cookies or use another browser/computer to view it again). Basically, it shows how well central Texas did last year in the RE market and how things are poised to boom (which most of already knew anyway).

What I found ironic about the article is that they start off talking about the very city I am investing in: Hutto. It had an astounding 60%+ sales increase from 2005 to 2006 (although it only appreciated 3.9% during that time frame). As the story points out, many developments have been made and are in the works to make this area appreciate rapidly. Just 3-5 years ago, it was a quiet little town with almost no retail shopping and only a few subdivisions. Now it has a large retail strip center, Home Depot, several restaurants (fast food and sit down), and some major players coming to the area in the next year or two (HEB, Holiday Inn, Lowes).

If I thought the competition was tough before, I ain't see nothing yet.

Pet Peeve #2753

Email.

I wrote about this a couple years ago, too. Why do people have email addresses for the public to send them questions, comments, suggestions, etc., WHEN THEY DON'T EVEN RESPOND WHEN YOU SEND THEM ONE! It just irks me that in this day and age of technological advances, people are so quick to jump on the "latest and greatest" must have gadget and then they don't even use it.

I sent FOUR emails to FOUR different brokers/agents on Sunday and another email to another broker yesterday, regarding the properties I found. I didn't use a "Contact Us" online form, but actually dug for their direct email address. (Actually, I did try to send one email that way, but their stupid online form kept crashing internally every time I'd hit the Submit button.)

It's the dead of winter in WV right now, so I know these people aren't busy as all get out. Stranded and unable to get to their email? Possible, but in this era of "on demand" everything, I think they'd find a way to communicate.

I guess I'll have to do it the old fashion way - call them.

I prefer emailing over phone, though, mainly because with a phone call the person is obligated to drop what they are doing and listen to what you have to say (IOW, do a brain switch). With email, they can set aside a part of their day to devote themselves solely to answering emails (IOW, when they want - not when the other side wants). Oh well.

Another Prospect

I found this 4-plex while perusing the area I was talking about in my last post. As with the other properties, I emailed the listing agent to get more info. However, using the numbers from the listing, I arrived at the following numbers:

Gross Rental Income ...... $ 21,060
Vacancy Loss (2mos) ...... $  2,106
Gross Potential Income:    $ 17,550

Management (10%) ......... $  2,106
Maintenance (15%) ........ $  3,159
Taxes .................... $    990
Insurance ................ $  1,485
Other (5%) ............... $  1,053
Gross Operating Expenses:  $  8,793

Net Operating Income ..... $  8,757

I bumped up the maintenance due to my not knowing the full condition of the property. According to the listing, it is fully occupied, so I figure it is at least in livable condition. Taxes and insurance were a guess (I asked the listing agent for that info as well). So, I tried to be on the high-side of realistic calculations.

I figure if I can get the owner to take back some or even all of the financing, I should only have a total debt service of about $7k/yr. This should net me about $2,000/yr in pretax income. This is located in a state that has an income tax, so I'd need to find the ramifications of that as well.

BTW, it's located a half-block from a local college.

Out-of-state Investing

Like Shaun, I have been seriously considering investing out-of-state. Actually, I've been looking ever since I started REI, but haven't been really serious about it - until now. There are several reasons why I'm taking a stab at it now - mainly, because competition is getting really tough in my area from other investors (mainly California investors who are uprooting to "the next big thing"), but also becuase where I'm looking at is a place I know like the back of my hand. Instead of trying to find diamonds-in-the-rough (exclusively) in my area, I'll be looking for investment opporutinities that many would find ... well ... boring. Yet, if it cash flows nicely, who cares!

Three properties I found already include the following:

• A mobile home park for $60,000. Granted, it only has three MH's (which are included in the purchase price), but the rents equate to almost $1,000/mo. I sent the listing broker an email over the weekend, asking for more info. If I can get the seller to take back some/all of the financing, I could possibly CF a few $100's each month on it. A lot of if's for this one, and I still need to run hard numbers.
• Fourplex for $120,000. Completely renovated and new everything, almost. The proforma shows an NOI of >$15k/yr, with a pretax CF of $7k/yr (based on their hypothetical financing model). I emailed the listing agent on this one as well, and asked about owner financing (which the ad says the owner is willing to do).
• 8-unit Apartment Complex for $180,000. Lots of upgrades recently as well. Currently 100% occpied with a monthly gross rent of $2600. Again, I emailed the listing agent about owner financing. Plus, I still ened to run hard numbers on it.

So some opporunities for decent CF on these three. I figure the three together could provide approximately $1,000/mo. CF, but, again, I need to run some serious calculations on them. If the owners are flexible then I won't have to worry about qualifying for a conventional loan, either, which will definately help.

House #2: Lots of visitors, but no offers

My agent emailed me yesterday to say the place was viewed another 4 times this week already, but still no offers. She did say someone gave her a verbal offer of $98,000, which was laughable (I'm guessing another investor). I emailed her today and told her to drop the price $2,000 to see if anyone bites. If no offers in the next two weeks, I'll have to think of something else.

RE Attorney

It's funny how things sometimes happen without much effort put in place.

I mentioned in a recent post about calling a local RE attorney to see what services they could offer me as far as owner financing properties and acquiring properties subject-to the existing financing. You may recall the attorney's rep told me they handle owner financed closings, but they don't do Sub2 closings, which was a little disappointing.

Well, I had also posted a message on one of the REI boards I frequent back in December about owner financing, etc. A responder there had sent me a private message last night, which I didn't respond to because they left a similar response on the message boards themselves. So, I responded to them on the message board. About an hour later, I get a private email from a local RE attorney who says he can also help me with owner financed closings. I emailed him back asking for his services and asked if he could also handle Sub2 closings. He responds with a list of things he can do and what he charges. He also says he can do Sub2 closings for me, AND he can service the new loan (i.e., have the buyer pay him, and he pays my original loan company, pays himself a small fee , and then gets my my share). He also asks for a fee when the buyer sales/refinances (10% of the equity spread), which I didn't particularly like, but it's not a huge amount. I told him I'd have to get back with him, since I'd have to look over the numbers first.

So, a small fee upfront, a fee to service the loan, and a backend fee. I didn't ask him if he had a specific timeline for his loans, but I'm sure that works into the equation, too. It all sounds good that he can provide a one-stop shop for all my needs, but I don't want to get mired in fees, either.

(Slightly) OT: Corporate Employee Ratings

Ah, it's that time of year again. Time to update and submit my yearly "How I walked on water" report to my management to see what kind of bonus I'll receive (if any). I imagine almost all medium and large businesses have some sort of employee rating system that defines - or, at least, suggests - how well the employee did the preceding year to help the company. I had to do it in the military every year, and I have to do it each year for my current company. While syntactically different, they are semantically the same.

For my current company, we have to write a summary in the 1st quarter of each year of what all we plan to do to help the company for the rest of the year. At the end of the calendar year, we then submit a follow-up to what we planned to do and basically tell management how we should be the next CEO. I understand the purpose of such a rating system (mainly to CYA of the corporation itself), but after having lived through so many of these things, they are to me essentially a huge waste.

Case in point: this past year.

Without devulging the details of my company's rating system, I'll just say that your management - after going through all the strenious work of reading your input, their own input, etc. - give you a 1-5 number with "5" being "your fired!" and "1" being "he/she really DOES walk on water". In my almost 10 years with this company, I have never gotten a "1" (or "5" or "4"). What I find not only in my company, but in other company's is a lot has to do with corporate politics and what is referred to as the "buddy system".

A rating of "3" in our system basically means you did what was expected - nothing more, nothing less. A "2" means you went above what was expected. I got a "2" a few times early on, but have since always gotten a "3", which I thought was needed in some years, but not last year. Last year, I really busted my chops and got things done - usually far ahead of schedule. In fact, I received not one, not two, but THREE commendations (a formal award a fellow employee can give someone) for helping out people outside my area. My reward? another "3" rating.

That really rubbed me raw, but what really angers me is that management doesn't even follow the mandated rating system the way they are supposed to. You see, you aren't rated against other people in your area, per se, but are rated against others at the same level as yourself. I think I mentioned that I work alongside people with Ph.D.'s and such. I am just about the only person at my level working in my organization (they have formal levels here, which begin at "6" - I am a "7" and most of the people I work with are "9's" and "10's" with a couple of "8's" in the mix). So, instead of rating me against other "6's", I feel - (and maybe I'm wrong) - that I am getting rated next to those people higher up. Of course, when I mention this to management, my assertions are met with denial.

Of course, I can always hope in lieu of a good bonus, I'll get a promotion! ..... Okay, you can quit laughing now.

But then that's the life of a corporate drone. Just another reason to get out of the "rat race".

Some Stuff

Like Trisha, we had a terrible ice storm rumble through central Texas earlier this week that literally shut down the entire region. I had to work from home for 2.5 days as south Texas has no real way of dealing with such inclimate weather (except throwing down some sand). Even so, I've been too busy to write in my blog, so I figure I'll submit some updates now while I have the chance ...

Tenant

I went with Shaun's advice and printed out all the forms needed for the tenant's girlfriend to stay at the place legally. I then went over to the property, and, of course, no one was home. I prepared for such a thing, so I stuffed all the documents in a manila envelope, sealed it, wrote a note on the front and wedged it in the door. I told him to have his GF sign the paperwork (I notated where on the forms themselves), and to return the forms to me when he pays me on the 19th. Well, today is the 19th and - surprise! - I haven't heard a peep from him about the forms or the moeny he still owes me, although, I haven't checked the mail today yet. If I don't see anything in the mail box when I get home, I'll be giving him a call.

Update: I talked to the tenant a little bit ago and he said he was getting the check as we spoke (he just wanted to make sure of the amount). I told him I could come by after work this evening and pick it up, which he OK'd. He also said that his GF would not be staying in the house full time. Matter of fact, she was currently under lease at an apartment, so she would have to stay there fulltime until her lease was up. He said he just wanted to give me heads-up that she would be staying at his place from time-to-time.

House #2

Hmmmmm. I haven't heard from my RE agent in probably two weeks, so I thought I'd shoot her an email to check up. She said the house was shown six times since Jan 6th, including yesterday, which kind of surprised me. I figure 3-4 of those days no one went out there due to the icey conditions, so that means about 6 people in 8-9 days. Not bad. I had thought about adding a $2,000 buyer's agent bonus to the listing to get more traffic, but recended after hearing that bit of good news.

Missed REI Club Meetings

I completely missed both REI club meetings this month. I knew about the first one, but had to work late and just didn't feel like going. The second one I thought was next Thursday, but it was actually last night - that was the one I really wanted to attend as it is more geared toward networking (the other is more about speakers and sales pitches). :-(

Book

This is definately going slower than even I thought it would, although, I have slowly evolved the material into something a bot more to my liking. I'm sure before the thing is finished (IF it's ever finished), it probably wil undergo several more changes. Once I get it it to something worth bragging about (haha), I'll discuss more what it's about. The other book idea is on hold indefinately. I just need about two weeks of complete isolation, and I'd probably get 990 of the 1,000 thinks on my to-do list completed. Oh well.

RE Attorney and Tenant

Talk w/RE Attorney

I traded emails last year with a rep for a local real estate attorney, trying to get a meeting set up. Something would always seem to come up, and I never did get a chance to talk with him. Well, yesterday I had a few minutes to burn, so I called him again. This time I was able to talk directly with the person I needed to. I was fully expecting to say, "Hi - can I set up a time to come in and talk to you about your services and how they may be able to help me?" - instead I got what amounted to a sales pitch. I mean the guy just started and wouldn't stop about everything he could do for me. The only time I could get a word in edge-wise is when he asked me a question. This didn't come across too well for me, but listening to what he could do was a bit uplifting.

Basically, he said that due to the legislation Texas passed in late 2005 that made L/O's all but illegal, it narrowed down the options for investors to basically owner financing the property (which is what I wanted to do in the first place). He said his office can handle all the paperwork and once he got my and my buyer's info, closing should occur within a week - two at the most. I had expected to pay around $2,000 for closing costs, but he said my only costs would be $1,500 (he said the buyer would pay $1,500, also). Not bad, I suppose. I figure once I do an owner finance deal through his office (or maybe two), I'll have the info needed to do them on my own (via a title company) for less.

I then asked if his office handled subject-to closings. His exact quote was "Subject-to's work in California, but not in Texas." Needless to say I was a bit put off by his response as people do them here all the time. And, he was supposedly a RE attorney many investors recommend. So, I may go with him if I can't find someone else, but I still need to call another attorney who I know handles subject-to closings AND owner financed closings. Although, I would need to see what he charges, too.

Tenant

I got an email from the tenant yesterday - the first one ever. He basically apologized, profusely (again), and said he was so thankful I (and my wife) let him pay late (even though he paid the late fees). He said it would never ever happen again (we'll see), and he will have the remainder of the deposit on the day we agreed. Oh, and he said he wanted to know if I had a problem with his girlfriend staying with him. Ugh. So, I responded with a few bullet items with the first couple regarding other things I wanted to clear-up first. I then told him that I wouldn't have a problem with another person staying there, but she would need to fill out a lease app first - even if she wasn't going to contribute financially to the rent each month.

Judging by how slow he does things, I am going to go over there after work today and drop off the app in person and tell him he has 24 hrs to get it back to me.

Tenant (again)

Hmmmmm. I remember giving the tenant to House #1 a form with all the utilities and phone numbers, so that he could get everything setup. He did tell me that he set up the gas, and I transferred the water accoutn myself. Also, a few days after he moved in, the electric company sent me a bill up to the time he moved in, so that account was transferred, too. That only left one more mandatory utility he had to set up: the sewer.

In my city, the sewer, garbage, and water are all paid through one bill to the city. House #1 resides in another town where everything is split out. Sewer is maintained by the city and water is supplied by a MUD (municipal utility district). The MUD and the city have an agreement that if the user does not open a sewer account, they'll turn off the water. Anyway, when I spoke to the tenant last Friday, he said he "believed" he set up the sewer account, but wasn't 100% sure. Of course, to me that meant "no", so I called the city today to verify. Interestingly enough, they showed it as having NO ownership. IOW, when the old tenants left, they marked them off of the account, but never put me back on! After getting that straightened out, the lady said she was going to send a letter to the tenant telling them they have three days to connect service or they'll stop the water. She also said she'd backtrack the bill to start on Dec 9th (the day I told her he moved in, which he did).

Since I used -0- gallons of water in-between, she said I won't be charged anything. Whew! Some of these utility companies charge monthly fees regardless of use, so I was surprised.

If memory serves me correctly, the city charges a $100 deposit for sewer. Anyone want to bet I get an excuse on the 19th regarding the security/pet deposit the tenant is supposed to give me?

Tenant Update

So, I get off work a little after 5pm last night and was just getting ready to call the tenant to tell him I'm on my way over, wen suddenly my cell phone rings. It's the tenant. After formal introductions, he tells me that he can't get me the check that evening as he promised. His excuse this time was he just now got to the bank and the lobby was closed. I asked if the drive-thru was open and he said he went through it, but the teller said she couldn't process the transaction to get him the cashier's check. I let out a frustrated laugh and told him he was already on thin ice being late one day, but now two? I also told him that this should have been his first priority of the day, and not something that he put off until the end of the day. He asked if he could bring the check by my workplace first thing in the morning. I work about 13 miles from where I live and it's probably a good 18-20 miles from House #1. I told him that he was quickly running out of favors, but I'd let him give me the check in the morning. However, if he had another excuse - even if it WAS valid - I would have no other choice but to take the next step (I didn't mention "eviction", but I think he got the message).

When I got home and told my wife, she was livid. Her patience fuse is about 1/100th the length of mine, so she basically hit the ceiling when I told her. Immediately, she said to start the eviction. After talking with her more, she settled down somewhat, but I became angrier about the whole situation. So, I called tenant to give him another blunt warning. Of course, I got his VM. I left him a stern message stating about the situation and told him that when he gets the check tomorrow to be sure to add TWO days of late fees to it (he was legally two days late at 7:00pm last night and I called shortly after that).

Well, the next morning I hadn't heard from him, so I wasn't sure if he got my message. I figure if he didn't (or did and said he didn't), I would tell him he would need to get the check in the CORRECT amount or I wouldn't accept it. In our conversation after work yesterday, I told him to meet me at a convenience store near where I work between 10-11am and no later, and to call me when he gets there. About 9:45am, I get a call from him. He's all apologetic, and says he has the check with the full amount. I tell him to meet me at the place we agreed to at 10am. I jump into my car shortly after, and sure enough, he's there. We make small talk, he hands me the cashier's check for the full amount, and we part ways. I told him this was the last time he was to be late , as I was finished with favors and excuses. Based on his demeanor, I have a feeling he either understands the consequences now, or is so used to screwing people over like this that he know how to act like it. Time will tell. At least I got a valid check for the full amount (plus late fees). Right after our meeting, I deposited the check and headed back to work.

We'll see what happens on the 19th and the beginning of each month. I'm not holding my breath, tho.

Tenant Problems Already

Well, maybe anon was right about this tenant. Either that or the tenant just needs a dose of reality. I mentioned several times before here how I STILL have not received the Inventory and Condition form from the tenant. I told him when we signed the paperwork that I only give tenants a week to fill it out and return it to me. This way, in case they damage the place and say it was already like that, I have proof to the contrary. Of course, I always make it a point now to take a bunch of pictures of the place before renting it out. Not sure it would hold up in court, but it sure wouldn't hurt.

Anyway, on 12/27/06, I called the tenant to reiterate my need to have the form returned. He said due to the holidays, he misplaced the form and gave me a verbal "ok" that the place was in good condition. I told him that wasn't good enough, and said I could get him another copy. The next day, I emailed him the copy (he requested emailing it, since he works rotating shifts). As of yesterday, I still hadn't gotten any response. Yesterday was also the last day for him to pay rent without being charged a late fee. So, I sent him an email both about the form (again) and the fact it was the last day for him to pay rent without being charged a late fee. The 7:00pm deadline came and went without any response.

This morning I called him and he answered almost immediately. I asked him about the form and if he realized rent was now late. He said he was going to send the rent out yesterday, but lost the Lease Agreement (now he lost TWO documents) which has the address to mail the rent checks. I told him if he has my phone number, which he said he does. I asked him why he didn't call me then. He said he was starting to do that right when I called - hence the quick answer on the phone. I told him since it was the first full month's rent, I'll wave the initial late fee but ONLY if he can get me the check today. He said today was his day off and he can either drop it off to me or I can swing by. I told him I'd swing by after work (this will give me a chance to see the inside of the property, too). I also plan to give him another copy of the Lease Agreement.

Lastly, he said that due to the high deposits the utility companies charged him, he wouldn't have the other half of the security deposit until two more weeks. I told him all these excuses weren't looking favorably and I hope this would not become a trend as this would be the absolute last time I would do him any favors. So I told him he had until the 20th to give me the remaining deposit.

I realize I should be more strict, but I'll give him the benefit of the doubt this time. If I don't have the form and/or check tonight then the proverbial $%@& will hit the fan. I've already read-up on Texas law regarding evictions, so I know what I can and cannot do just in case.

2007 Goals

I scribbled a lot of these down before the holiday season, but have not had the time to sit down and think really hard about my financial goals for 2007, so some of these may not happen and others not listed may happen. I tried to be as realistic as possible given my current position with family, work, and things I know will occur this year both within and outside of my hands.

Write a book - I actually have an idea for two books, but I know my time alloted for penmanship will be as rare as hen's teeth. I've scribbled notes down for one of the books on various peices of paper, so I'll try to gather those notes and add some more substance to create a book. I don't think it will be a full-fledged book like many you see at B&N - in fact, it will probably be an eBook distributed electronically.

Sell House #1 and House #2 - I think these were foregone conclusions, but thought I'd add them anyway. I have excellent credit 750+, but my debt-to-income (DTI) ratio stinks. Selling both homes will bring my DTI to something much more attractive. It will hurt seeing both houses gone in more ways than one, but in the long run, I think it will be for the best. This way I will be able to qualify for better loan rates on future homes purchased conventionally.

Buy-n-Hold 2 Homes - Now that I have a firmer grasp on HUD foreclosures, I'll be more savvy in my buying strategy. This will narrow down my already narrow criteria, so I doubt I'll buy more than two HUD homes. If I manage to get three (or more) - all the better. But I want to be realistic in my goals.

Buy-n-Sell 2 Homes - In order to reduce my out-of-pocket expenses buying conventionally (both with closing costs and down payments), I want to buy and sell at least two homes for pure cash reserves. I'm not sure exactly how these homes will be purchased yet, but I want to set a goal for buying and selling at least two for at least $20,000 net profit (total). At this point I want to get more into note holding (see below), so perhaps one or all of these types of sales will be seller financed deals.

Learn more about Land Trusts - I've always been intrigued by land trusts, and want to talk to a competent RE attorney more about them to see if they would be worth doing.

Learn more about Note Buying/Selling - As mentioned earlier, I want to get more involved in paper assets - specifically, the buying and selling of RE notes. I believe there is good cash flow to be made in holding and selling notes - both from my own acquisitions and from just note buying/selling itself. I understand there may be some restrictions without being licensed, so I'll need to talk with people who do this.

Create a Functional Buy/Sell System - My marketing initiative in the middle of last year flopped big time. At the time, I just decided to trash the idea indefinately, which ended up being the rest of the year. Looking back, I now see where I could have made a lot of improvements to the marketing. I've almost completed my new marketing plan, which I hope will get my phone ringing a lot more this year with motivated sellers. Instead of just sending bland postcards out to select individuals and mentioning my phone number and web site name, I'll add much more pizazz to the marketing and make it more persistent. I've included a monthly budget, which I hope I can maintain. If I start getting solid leads, I may have to revise some of my other goals. :-)

Network More - I need to branch out and get my name out there to people - not just motivated sellers, but other investors and professionals in the business (i.e., agents, brokers, attornies). One way I plan to do this is to join both my local REI clubs. I may not go to every meeting, but hopefully I can go enough times to become a noticeable to other people. Already, I plan to meet with two RE brokers this month.

Get my RE License? - I'm really debating this one. The one hurdle I had was getting confirmation that I can still buy HUD foreclosures being an agent. I received an email from my HUD processor before the holidays that said it was possible, so that cleared the way. Now, I'm just wondering how I'll fit the study time in my already overbooked schedule. More importantly, I need to really see how advantageous getting my license will be. For now, I can see absolutely no downfall.

And, finally ...

Create at least One Business - I talked briefly with my CPA last week about this. She said she would have to review my goals, financial position, etc., and see what business model would work for each of my situations. She said an LLC would probably work for buy-n-holds, but would need more info regarding my note buying/selling, property management, and other ventures. I guess as the need arises, I'll be talking with her a lot more about it. I'm not going to go hog-wild and say I'll create three businesses, if I really don't need them. However, given my uneasiness about holding properties in my name, I will definately create at least one LLC to hold the two properties I plan to keep as rentals this year.

More Updates

Title Company

I finally got things squared away with the deed. The paperwork showed up on my county's online system on Dec 20th, coincidentally, but the deed still didn't show the legal description. I called the title company again and after being on hold for a good 5 mins was told they will need to file an "Exhibit A" to the deed on file with the description. This will make everything official finally. Whew! Guess next time I'll be even more careful at the closing table.

RE Agent

I finally got my agent straightened out about the listings, flyers, and sign. I saw the "For Lease" listing online with the correct verbage. The flyers were also changed to my liking, and she put a "For Lease" sign along with the existing "For Sale" yard sign. She also added "owner financing available" to everything.

CPA

I met with the CPA twice now in the last week to go over my financial situation. It looks like I'll be getting back almost my entire federal withholding from the year thanks in part to the twins, the new property, and the fact I paid the property taxes for House #1 back in January (among other things). I also talked to her about entity creation, owner financing, note buying, etc.

Oh yeah ... One of the things I am seriously going to look into this coming year is note buying/selling. There may be some issues with being licensed (one of the things I need to check into), but I see it as a whole new stream of income. Nothing like getting cash flow without actually owning a property. :-)

5 Things You Didn't Know About Me

Well, Trisha decide to tag me to talk about some things people may not know about me. My list is probably more boring than hers (and others), I'm sure ...

1. I have lived in 6 different states (Michigan, Texas, West Virginia, Pennsylvania, Virgnia, and North Carolina) - two, on seperate occasions (Texas and West Virginia). My step-father was an insurance salesman, so we moved a lot in my youth.

2. I'm agnostic. Down to the core, my pilosophy, ideology, religion, or whatever you want to label it would probably be partly Aristotilian, partly Taoist, and partly a mixture of probably everything else. Most people are offended with other people's beliefs if they aren't the same as their own, but I always respect what other people choose as their idealogical foundation, whether it be theist, atheist, agnostic, or anything else. Some of my closest friends are Catholic and Methodist and we routinely trade barbs with one another. How much better the world would be if everyone respected others in this way.

3. I'm a college football nut. As you can imagine, I'm pretty much glued to the TV now with bowl season in full swing. When I was in my early 20's, I would bet on the games each week, and actually did pretty good. As I matured, the attraction to betting on the games faded, but not the attraction of the games themselves. So from August until the following January, you'd probably find me in front of a TV on Saturday afternoons. :-P

4. I used to have a mild form of Social Anxiety Disorder. I used to do everything imaginable to avoid social gatherings. I would pretend to be ill to avoid Christmas parties, or other business gatherings. I would become physically ill if I had to give a speech to coworkers or for a college class. I would have to be dragged by friends to go out to clubs or other social gatherings when I was single. And so on. I'm still not a raging extrovert, but I can definately say I'm a lot more social now than before. It's ironic, but diving into REI and being forced to interact with others on a near daily basis has actually been a blessing in this regard alone.

5. Okay, I actually mentioned this in a recent post, but I grew up mostly in small, unincorporated town in West Virginia. My family was poor - not poverty poor, but not too far off, either. We moved around a lot (see #1 above), but the majority of my youth was spent in this place. To fully set the scene, we also lived in a mobile home. My mother and step-father always made sure we were well cared for, though. It has definately given me a real sense of humility. In their defense, me and my siblings ALL turned out very well. I am an engineer, my older sister is a Doctor, and my other sister is an insurance agent - all of us graduated from college despite both my parents only having a high school education.

Some Updates

Title

I hadn't received a call back from the title company rep, so I called her back to see what was being done. She said she's been calling the county clerk's office and claimed the person there told her the system has been down since mid-November. I find that hard to believe, but I couldn't get any straight answers out of the clerk's office myself. I called the lady at the title comapny back yesterday and the receptionist said she was out until the new year. Great. I did a little more snooping, and think this may all be okay anyway. We'll see come January.

CPA

I met with my CPA yesterday, but didn't bring any paperwork with me. I've just been too overloaded these past few weeks to go through all my paperwork. She said based on the info I gave her, she guesses that it would be best to pay the property taxes in 2007 vs. 2006 for ALL of my properties as I could be taking a big capital gains hit in 2007 if I sell both of my investment properties. She said I can get her all my paperwork to her next Wed and she would have a better idea. Since next Friday is the last day for me to pay my property taxes for 2006, I didn;t really give her a lot of time. :-(

RE Agent

I stopped by House #2 for the first time since I met with my agent about listing it. Her sign in the front yard just says "For Sale" - no "For Lease/Rent" anywhere visible. I picked up a flyer from her box and was even more disappointed as it was 75% advertisement for her business and 25% marketing for the house. Even the 25% wasn't very exciting. It was basically a picture of the front elevation with a few blurbs underneath. No price, no "For Lease/Rent" headings, nothing about me offering owner financing, nothing about me offering it as a lease/purchase. Needless to say, I was VERY disappointed. Later, I did a search on the local public home search web site (http://austinhomesearch.com), and the property was listed - however, the description still doesn;t have "owner financing available" in it. Worse yet, it is STILL not listed in the "For Lease" section. The entry in Realtor.com isn't any better, either. I guess it's time for a phone call and.or email. This is just one more reason why I want to get my own license. As the old saying goes, "if you want something done right, you have to do it yourself." Geesh!

Comfort and Joy?

I got an email from my agent over the weekend saying she shows the previous owners as still owning the home. I know our county's tax online system is always a few weeks behind, but it's been almost two months since we closed, so I do a little investigating. First, I do a search on our county's online records (different from the tax records search), and don't see the deed or DOT's recordings for the property. Uh-oh. I then look in my closing documents for the house and notice the Special Warranty Deed that HUD issues the buyer at closing is completely missing the legal description for the property. Ugh. This doesn't look good. Now it appears I have TWO problems, and I can't do anything until Monday when everyone is open again.

After calling this person and that person and getting transferred here and there (I think I told everyone how fun HUD's were - right?), I finally got hold of the person who has my file and is responsible for the recordings. Unfortunately, she's not there and will have to call me back. Oh joy.

I'm sure this will all get resolved quickly (ha!) and easily (hahaha!!!).

House #2 - Day #1 - Already an interested party

I'm not even sure my agent has put the house in the MLS and/or put a sign in the yard, but she just called me to say that a person may be interested in doing a lease/purchase. She said the lady just went through a divorce and her credit is bruised, but says she makes "very good money" (my agents exact words). She says she needs about 6-12 months to clear-up her credit, and is looking for a place to live in until her credit is good enough to purchase the home with conventional financing. I told my agent that "yes" I'd be willing to do a L/P, but would need some time to talk to my wife and run some numbers first. She said "no problem" since the lady may not even end up liking the house when she shows it to her this afternoon. Another thing my agent mentioned was that the lady inquired as to what, if any, of the lease amount each month could go towards the purchase. Hmmmm. I'll have to think about that one.

2006 REI Year In Review

Summary: I didn;t achieve anything near what I wanted this year in regards to real estate investing. At the beginning, I had hoped to acquire at least three additional properties. I also wanted my marketing to get traction to the point that in January of 2007, I would be averaging a deal every two months. That, too, never materialized. So, here is was my 2006 REI Year in Review:

House #1 - I had fully expected the tenants to move out sometime in the beginning of the year. However, it took them a longer-than-expected time building their own house. They finally moved out at the end of October, which was a good thing for me. I immediately put it on the market as both an FSBO and FRBO. I had a few interested parties at the beginning, but nothing panned out. I eventually got a tenant in that is also wanting to buy the property at the end of his lease term (end of May/2007). Rent is $50 more than with the previous tenant, so we are making about $375/mo, between the rent and loan. Factor in taxes and insurance, though, and we are probably only making about $75/mo positive cash flow.

Marketing - I had I hopes of starting a marketing campaign that included sending post cards out to several neighborhoods. I had all the figures layed out, along with how the campaign would recycle households ona 3-4 month basis. My initial thoughts were to get 1-2 deals in the first three months. It turned out to be a MAJOR disappointment, though. I received VERY few calls, and -0- deals. After about the thrid month, I decided to shelve the project, indefinately. I had spent close to $250 in actul costs and gottent $0 in return.

I also wanted to start hitting a subset of those neighborhoods with bandit signs. Again, I had high hopes, but nothing panned out. Matter of fact, several of my bandit signs are STILL hanging in a few of those areas, and I STILL haven't gotten a single call.

I think I'll revisit both these marketing avenues again in 2007. I was using USPS to both create and mail my original postcards, but I may fork over some more moeny and have them done more professionally-looking. I also want to start a door hanger campaign. Lastly, I want to get new bandit signs specifically for those areas I target in the hopes they will draw more deals.

Time - In all fairness to what I wanted to do, but didn't, I believe a good portion of my failed goals were due to one thing: lack of time. I realized going into 2006 that my time would be limited with the twins' arrival. I never expected that my free time would be almost ZILCH, though. 2007 should be a little better, but not a whol lot, in respects to free time. The twins should slowly migrate from the almost constant holding to being a little more independent - not a lot I can assure you, but a little more. In fact, we are already witnessing it to a degree. Of course with every additional minute of free time, other factors come into play. I'm still deciding whether to get my RE sales license, and, if so, that will probably consume any free time I may acquire this coming year (and, perhaps, even a lot of non-free time).

Knowledge - I can't even begin to lst all the knowledge I acquired this year in REI. Almost all of the information I gathered was acquired through doing and not reading. Every book I've read on REI has been beneficial in getting me to where I'm at now, but even combined those books are probably a fraction of 1% of the knowledge I've gained by doing - most of which through my own trial and errors.

New Acquisitions - Even though I fell way short of my goal of acquiring at least three properties for the year, I did manage to pick up one. I bought it at about 77% FMV, which isn't bad. The bad thing was that I couldn't get the kind of financing I really wanted due to various factors, so I still may not make out like a bandit on this one. If I sell it in the next couple of months, I'll probably only make about $8,000-$10,000 after all expenses are accounted for. I could live with doing several of those each year, but they definately won't lead me on the fast track to financial independence, though.

House #2: Listed

I met with the agent last night to finanlize the listing of House #2. Afterwards, I had "investors remorse" (my term) - I kept thinking of the money I'll be losing in commissions, how I should have continued listing it myself, and so on. But I just need to sit back and relax for a few weeks without the worry of talking with potential buyers/tenants. I think that will be well worth the 3-6% I'll lose in fees.

I decided to go ahead and list the property for sale and for rent as I mentioned before. The agent ran a quick rental analysis of the area and said my lease price is actually not too much higher than the going rate for comps in that subdivision. I had listed it high with the notion that if I get a tenant then the rent will be so high that I'll at least cash flow. My wife and I both want to sell, but cash flow would be good, too. At this time of the season, I'm more likely to get a renter than a buyer anyway.

So, we both went by the property after signing all the paperwork, so I could show her the place and point out things I repaired. It was already dark outside, and the lighting in the house really made the drywall repair jobs stick out to my dismay - but she never saw it, so maybe it was just my already knowing about them. I also pointed out areas in the carpet that still had some stains and other areas where the carpet needed stretched. Almost simultaneously, we both said that if a buyer balks, we can always throw in an allowance at closing to seal the deal. All in all, she seemed to like the property and said it is priced right and should have no problem selling or renting.

Oh, while at her office, I met the broker again. I had sent her an email earlier in the day with some RE agent questions, but she had never responded. At the office, she apologized and said she had a very busy day, yadda, yadda, yadda. But she was very interested and sitting down with me when we both had more time to go over my questions and to talk about it more. She definately sounds like someone I'd like to work with/for, but, again, you just never know.

As soon as the listing goes out on realtor.com, I'll post a link on my blog.

Also, I haven't heard from the tenant since we closed the deal last week. He was supposed to send me a condition report of the property within 5 days, but I haven't goten it. However, I haven't checked the mail in two days, either, so it could be sitting in there. I'll check the mail after work and if it's not there, I'll give him a call.

Some Updates

First, I'm back on track with my CPA. I told her we could meet early next week to go over all my needs for the year. Second, I received an email from my agent overnight in which she basically apologized profusely for not getting back with me. I decided rather than waste more time and resources, I'd go ahead and use her to list this property. So, I sent her an email ignoring her last response, and told her we want to list it "For Lease" as well as "For Sale". The lease price is higher-than-normal for that neighborhood, but we'd rather sale than rent it. If we do get a qualified tenant in then at least we'll be cash flowing positive for 6-12 months. I told her I'd like to meet her tonight to finish all the details. She said she could open her office up after hours tonight and we could finalize the deal. I seriously doubt I'll get any offers until Jan, but you never know. I also sent her broker an email with some questions about being an agent. She seemed easy to talk to and would probably be nice to have as a broker, but that's going by first impressions and a 45 min chat. As the old saying goes you never know a person until you work for them. Lastly, I decided to hold-off on the RE agent thing until I can get some more information. Specifically, I want to know if being an agent restricts me from purchasing HUD properties. According to the HUD processor's web site for my region, I'm only prcluded IF my broker is a contracted HUD Listing Broker, but doesn't necessarily say 'yea' or 'nay' to my direct question.

Realtor®

I guess every RE investor when they started out, asked themselves if being a RE agent would be worthwhile. By some accounts I'm sure many newbies in the field have even asked if they HAD to be a RE agent in order to buy/sell properties.

I, too, have considered the pros and cons of being both an investor and an agent. With the recent follies of my RE agent, I was once again drawn into the "should I get my RE license" foray again. This time, though, I haven't been more sure in my life of being one. Actually, aside from a hefty up-front cost in education, fees, and whatnot, and the occasional cost for education and renewel fees, I really don't see much of a downside. On the contrary, I think the pros far outweigh the cons, IMHO.

Another reason I am thinking about this so heavily now is time - both my time (which is more valuable to me now than money) and the time of the year. Thankfully, the two will coincide soon to enable me to persue my short-term goal of being a real estate agent. While I will still be considered working next week, my boss has already informed me that I can work from home, if I want, and to not expect too much in the form of actual work, since all the projects will be in hibernation until after the holiday season and most people will be or are already gone for the year. So, I can actually come to work and do some work, but also use some of the time for studying for my license. I'd prefer working from home in most cases, but there are just too many distractions to get ANYTHING requiring thinking done there, so I'll probably just come into work all next week. I'll be on vacation the week of Christmas, so I can probably get some study time in those days as well.

Believe me, I will not be taking this lightly at all, so don't think I'll just study off-n-on those two weeks, pay my exam fee, take the exam, and pass. I know it will take a LOT more studying than that and a LOT more time. The requirements in Texas are:

150 Core Credit hours in the following for prelicensing ...

Principles of Real Estate I (30hrs)
Principles of Real Estate II (30hrs)
Law of Agency (30hrs)
Law of Contracts (30hrs)
Additional Core Course (30hrs) *

(*) - I'll probably take either the Marketing or Property Management course.

And, another 120 credit hours (4 courses) in either from this list, or from previous education. Now, this point really got me as they define "previous education" from these course. Having a Bachelors degree seems ot me like I will cover most, if not all, of those requirements. It all depends on when I submit my package to TREC for review (this occurs AFTER I take the core courses, though) as to what they'll accept or not.

Hard to Find Good Help

Over on the Live, Learn, Invest Blog, the author wrote a recent post about how some real estate agents don't have a clue. In my brief, 2-year stint in REI, I concur wholeheartedly. Anyone who has read my blog from the beginning will attest to all the unprofessionalism I've received from perceived professionals in this business be it agents, loan brokers, loan officers, government officials, or whoever. It seems I'm a magnet for attracting these types of people. Usually, I'm one to give a person the benefit of the doubt, and it has burned me in the past. I still think most people are honest and hard working, but our lives are always intertwined with interference that make perfection a fantasy.

Last week, if you recall, I sent an email to my CPA asking her when we could meet to discuss my accounting needs for this tax year. It's now Wed of the following week, and I haven't gotten any response. True, she may be away from her computer, so I decided to send her a follow-up email. (For those wondering, she always preferred emails over phone calls.) We'll see if I get anything. If nothing comes in my mail box by this weekend, I'll start looking for someone else. {sigh}

Update: I decided to check my "spam" folder for my email to see if by chance the agent or CPA sent me a response that got flagged as spam. Nothing from the agent, but the CPA sent a response earlier today that GMail thought was spam. Looks like I can scratch finding another CPA off my list. Whew!

The real big deal is with my current agent. I had full intention of sending her an email first thing yesterday to list our property. When I checked my email, she had already sent a follow-up to see how I was doing, if I needed anything, etc. Nice. I responded that I wanted her to list House #2, and gave her the info. I specifically told her that I wouldn't get out of work until at or after 5pm and if she had a problem with meeting in the evening. In her response she said:

"We can meet tonight and I can get the key from you."

A little while later, she sent me an email with all the forms I needed to sign. I spent my lunch period signing the forms.

Well, just as I thought, I got out of work about 5:10pm. I headed home to grab a quick bite and to call my agent to see if we could meet. When I called, I happened to look at a clock which said 5:50PM. After several rings, her VM picked up and I left her a message asking her if she still wanted to meet tonight or to put it off until tomorrow or another day. I left her my name and number and asked her to call me back as soon as she could. An hour went by with no response ... then two hours ... then three hours. I checked my email just in case she sent me something there. No response there, either. Right before going to bed, I checked my phone and email again. Nothing. As I write this at 10am on Wed, I still haven't heard a peep from her.

Update: Well, I finally got a call back from the RE agent at 4:40pm today. She said she only got her VM now (huh?). Okay, I'm not saying she's lying, but I'm not seeing any dedication coming from her. I mean (as I say in the next paragraph) she should have called me to see if we were going to still meet last night (i.e., staying on the ball). I'm still not sure what I'll do. I figure less than 2 weeks from Christmas, the market will be pretty much flat anyway for the next 2-3 weeks, so it's not like I'm in a hurry to get her to list it.

I just don't understand it. My wife is a stickler for people in professions such as this to be on the ball, and she flat out suggested finding another agent NOW. She used to work with a commercial broker as his assistant, and said no matter what, she would always call people back that very same day - whether she had an answer for them or was still finding them the info. She said even if I hadn't called and left her a message, she STILL should have called me back to see if we were still meeting, or what I planned to do - IOW, be on top of the deal. I've said it here before and I'll say it again, I should open a business - ANY business - and it would be successful for one reason: CUSTOMER SERVICE.

As far as the agent is concerned, I'm not going to contact her until the end of the day or if she contacts me beforehand. If she doesn't have a good excuse, I'll either find another agent or try the flat fee listing service (of course, knowing my luck the service will have an agreement with this agent to list the property).

House 2: Listing w/Agent

After another weekend with no offers (lots of interested parites, but no offers), my wife and I have decided to list House #2 with the RE agent I met recently. I'll meet her at the property tonight to give her the paperwork and key. I asked her to send me a CMA in order to get a better idea of what to list the property for. My research shows the house can go for around $125-129k, but I may have to lower it to the lower-$120's in order to sell faster - especially at this time of the year. The builder has the exact same floor plan in their inventory for $140k, which is WAY too much, if you ask me - I don't care if he's including a free washer, dryer, fridge, and/or beer-making machine, that's just too much for that area, IMHO.

I had thought about listing it myself via one of theose flat-fee listing services (about $600-700 after everything is said and done), but I just want to relax for the next few weeks to month. I've been at this REI thing for two years now without really taking any kind of break. I think I'll do that starting next week.

CPA

I'm so busy these days, I almost need to hire an assistant to keep track of everything I need to do. I've thought off-n-on about meeting my CPA now for months. It's one of those things I keep procrastinating about. Last night, I realized we are already heading into the throws of December, and I haven't even talked with my CPA since earlier this year! So, I sent her an email asking her when we could meet, but haven't gotten a response yet. I actaully met a real good CPA on one of the REI sites I frequent. From his posts, he seems to know his stuff when it comes to entity creation, applicable laws, and other CPA stuff as it pertains to real estate investing, because he is a seasoned investor himself. The only problem is he lives in Dallas. I've talked to him before, and he said he is willing to take me on as a client, but we'd have to do a lot of emailing and/or faxing of documents, long distance calling, etc. With time running out this year, I think I'll just go with my current CPA for this year's stuff, and maybe use the other CPA for next year's stuff. We'll see.

BTW, I think I'll do what Shaun did and post my thoughts of what I did and didn't accomplish this year, along with what I want to do next year.

House 1: Leased

I met the potential renter at House #1 last night to fill out all the paperwork for leasing the house. He reiterated that his credit should be repaired in 2-3 months, and would like to buy the house as soon as he can get a loan for it. However, I have a minimum term of 6 months on my rentals, so he'll have to wait until the end of May to buy it anyway. I had to go to the house to fix the toilet, too. The fill valve was leaking where the water intake goes into the tank. It probably only needed a washer, but the whole fill valve, hose, flapper, and arm looked in bad shape, so I just replaced the whole thing with a new one for $8. Leak fixed.

I am going to meet him at the property again tonight to pick up the 1st month's rent, 1/2 the security deposit, and 1/2 the pet deposit (he has a cat). We agreed he'd split the deposits up over the first two months, so he'll give me the remaining half with next month's rent check. Of course, all that will go to pay for the taxes that are due on the house by Jan 31st.

Since we were able to rent House #1 by ourselves, my wife wants to forgo hiring an agent to market House #2 for now. I told her the traffic has been almost non-existent for that house, and I doubt I'll get any more interest doing it myself, but you know women (no offense, ladies). :-)

I figure House #2 will sit until at least after the Christmas holiday season, but you never really know about these things.

Update: Met the guy at the property last night and gave him the keys and a copy of all the paperwork. In return, he gave me a nice check. Can't beat that!

Quick Update

Been extremely busy at work, at home, with REI, and with another venture I hope will open some doors. I've had a flood of people interested in buying and renting both houses since my last post, but no one seems to want to take the plunge. I think I finally convinced my wife we need a RE agent to sell them as I just don't have anymore time to devote to marketing/selling them myself. I have a meeting later this afternoon after work to interview a new agent. She actually works (and lives!) in the same area as both houses, so she may be a good fit as a future resource. She is also HUD-qualified (at least the HUD site says so - something I'll ask), which should help in future HUD acquisitions. I'm also going to meet a prospective client at House #1 who is interested in buying or leasing the property. He says it looks great from the outside, but he wants to see the inside to make a final decision. I also got an email from a birddog I met recently, who sent me two leads. One looks promising - the other looks too high. I need to run hard numbers on both to see if either will work.

See what I mean about busy? And that's just the REI part of my life. :-P

Edit: Met with the agent AND the agent's broker for well over an hour. Sounds like this will be a good fit, but I've said that before. The good thing is that the broker understands RE investing to a "T", since she invests herself. She's also a member of the city's Planning&Zoning Commission, so she has firsthand knowledge and said she can pass along any info to me. She also said that I was right in that the city does not have a housing authority, but said I could still rent via Section 8 by using a nearby city's housing authorty office. This was both new and exciting news to me as it opens up new doors for rentals.

Another bit of very good news ... The couple that saw House #1 tonight fell in love with it. They want to move in NEXT week. He says his credit is dinged from a divorce almost two years ago, but should be straightened out in 6 months. They want to lease it for 6 months and then buy it using a conventional loan. Also, they'll be renting it for $50 more a month than my previous renters. Whoo-hoo!!! I still need to verify his employment and make sure neither is feeding me BS, but they certainly seem like they are honest people.