more activity - buying the REOs

While SFH #3 was being rehabbed another property that I had my eye on came into my price range and I was able to buy it - this was SFH #4. It was in need of a bit of rehabbing but it was a great price and could bring a good deal of rent. At the time that I wanted to buy this, the mortgage industry had started tightening a bit and I was no longer to get a 100% loan to buy so I pursued a hard money loan for this property. I shared the hard money details with my brother and he suggested that he should loan me the money and we could create a win-win scenario.

Tip: If you choose to borrow money from a friend or family member to buy property I strongly suggest that you have the person lending file a lien against the property and a promissory note with the county clerk at the time of the loan. This will help greatly when it comes time to refinance that loan.

I took several bids on the rehab for this property and chose a company that I had been recommended to by a fellow investor (I had seen their work). Sadly, the GC lost most of his good workers and could seem to hire any more skilled labor. Needless to say, I had a new group of boobs working on this property. They did below average work on everything and they couldn't fix anything correctly. I got the property to an acceptable state after about 6 weeks and rented this property to a great family. Unfortunately, I am still trying to refinance this property into conventional financing after about 8 months.

At the beginning of June, I found a great 3/1 SFH (#5) in the same neighborhood that had been remodeled in 2005. The place looked great and didn't appear to need much work. It ended up that it needed a new furnace and water heater and paint. I used a traditional hard money lender who charged 3 points and 15% I/O. After $3ooo and 1 month of disjointed work I was able to rent this property and refinance into conventional financing which allowed me to cashflow at $250/mo.

I found a great 3/1 HUD property (#6) around the 1st of August. It, as are many of the properties that I buy, was misrepresented in the listing. This property needed a new kitchen and a lot of work in the basement (new ceilings, plumbing, furnace, and wall new walls). Additionally, it needed all new carpet, paint and appliances. I used a hard money lender that I found who would not only lend the purchase price but also the rehab costs. I used a rehabber that I nearly used for SFH #4 but his schedule would allow it. He is the brother of a mortgage broker that I use and he and his crew did a great job, and completed it on time. The rehab took about 4 weeks to complete and I was able to rent this property within 2 weeks after that. After I get conventional financing on this one it will cashflow at $300/mo.

Currently, I have under contract a 2/1 that needs sewer repairs ($6500) and I am waiting on the seller/bank to let me know if they will reduce the purchase price of $59K to compensate for this repair. Other than that, the property needs no fixup and will rent for a cashflow of $200+/mo. I am also waiting to hear back on an offer of another 2/1 which needs no repair and with cashflow at $300+/mo. Finally, I am waiting to hear back from my hard money lender to see how many properties he will allow me to buy simultaneously because there is a bank owner 5-plex which needs only about $5K in repair and will cashflow at $1000+/mo if I am able to buy it at the price I want ($900 if I pay asking price).

I'll log in later to give some general commentary on the market in Denver and what I foresee for my portfolio in the coming months.

Cheers!

10 months later... a quick update on #3

So the closing for SFH #3 went quite well - unfortunately that was the last thing that would go well for about 8 weeks. I hired a contractor which was a friend of my realtor and seemed to be a competent worker. In the end, I had never yelled so much at anyone on the phone that I have to this incompetent boob. He was so, so horrible and he tried convincing me that he had done a good job for the money that I had paid him. He was cheap, and I got what I paid for. In the end, after 2 months of working on a 2 week job he finished and then my most excellent g-friend and I went in afterward and fixed a lot or crap that was either undone or done wrong. I rented the property to a nice family for $950/mo and they've been great. As of today (Nov 2007), I've only had to repair one thing that the jackass contractor/hack (Vince) screwed up. It cost me $700 to fix the plumbing leak that he created which leaked through a ceiling in the basement. "Very esoteric" as the dumbass used to say. All is well now, the property is stable and is in long term financing. The cashflow on this property is $200/mo.

SFH #3 - closing tomorrow

I'll close tomorrow on my 3rd rental property. This in the one I mentioned in the last post. I've changed my thinking a little on this one due to a time constraint. I am not going to attempt the rehab of the basement myself, but rather, I am going to hire a contractor to do it for me. I am waiting for the bids to come in for the basement bathroom and 2 bedrooms, but my guess is that it will cost me about $4,000. There just is no way that I can do this on weekends and evenings for 2 weeks and have a renter move in on March 1. Either way, it's a kick ass deal on a bank owned property and I will cash flow on a terrible 100% loan which will be refinance in 3-4 months - then I will cash flow even more!

I'm still working on my goals for 2007. I really need to set those in concrete so that I can divide and conquer them. I have a lot of them in my head but they totally need to be written down so that they will be a slam dunk.

I have 2 people that I know who are looking for properties in the same area as I am. I am looking at 10-20 properties per week, so I am actually birddogging for these 2 people. They use the same realtor as me so we've worked out a deal that any property that I send them to and they buy, I will get a finder's fee of about .75% of the purchase price. That seems pretty decent considering I am looking at the properties anyway.

I really need to switch gears and move my strategy into the realm of 'creative real estate investing'. I am loving the fire sale that we are having here in the Denver metro area with foreclosures but the turn around time for me to get these properties is driving me nuts. It takes about 4 months for me to find, offer, close a deal. That is only 3 houses per year... not quick enough for me. I bought 100 bandit signs in October '06 at the CAREI convention - they've been sitting around my house for too long. As soon as I get a voicemail/fax system set up on my Mac and the stakes to plant these signs I am going out of my comfort zone to get people to call me. I should be able to get all of this rolling within the next 2 weeks. Also, I'm in the middle of coming up to speed with Quickbooks Pro and general accounting principles... zoinks! I'll have my business all set up in Quickbooks shortly and I can get my accountant all of the reports/details that he wants.

Sorry for the disjointed garble tonight. I'm on the verge of really seeing growth this year and it's hard to get my thoughts together. Cheers.

Long time, no see

It's been 11 1/2 months since my last post.... zoinks! Here's an update of what has transpired in the last year.

1) I finally got an appraiser in Nampa to appraise that 2 house property at $180K and purchased it for $180K with $9K down and $5K in closing costs and prepaids. The $14K came from a refinance on my primary residence which is a questionable move but I thought it was a good risk at the time. I closed on April 11, 2006 with a 30 year fixed interest only first mortgage (7.25%) and a 30 year fixed interest only second mortgage (10.375%). I will most likely refinance this into an 80%-90% LTV once the property appreciates to $190K-$214K. It looks like the Boise/Nampa area is kicking butt in appreciation as of November 2006, but we'll see what a dopey appraiser can do for me here in a couple of months.

It took a 2 1/2 months to rent the main house at $800/mo and it took 12 days to rent the carriage house at $450/mo. So far the property has been a bit troublesome with flakey renters. I am currently in the process of evicting my main house tenant after 4+ months of late rent and partial payments. I am on my second renter in the carriage house, the first renters were a young married couple who broke the lease early and tried to skip out on some back rent. I was able to recoup the back rent by writing a credit threatening letter to the renters and sending a copy to their parents. I am in the process of looking for a property management company to manage the main house and I need to contact the seller because there are a few minor repairs that he promised to do which have yet to be done.


2) I joined the local real estate investors club (CAREI) and attended a number of meetings and classes. Through this club I met several real estate investors, realtors, and mortgage brokers. I found that there are several other groups in the Denver metro area which offer REI classes - some free, some not. I ended up meeting my current realtor through a guy named David Kerschen who suggested that I attend some free classes taught by a team of realtors at Your Castle Real Estate. Charles Roberts is my realtor and he's been a great resource for buying investment properties in Denver. The reason that I find him to be such a good realtor is the fact that he is an investor originally who became a realtor after aquiring 20+ properties.

3) In September of 2006 I closed on a 2/1 SFH in Aurora, CO (a suburb of Denver). I had been searching for bank owned homes under $100K in the north Aurora area and I found 1745 Dayton Street listed for $65K. Thinking that it was going to be a 'shitbox' (coined by Jason Byrne) I went over to the property expecting nothing. To my surprise the house was in great shape (rentable immediately) and the square footage was measured incorrectly. I put in a full price offer and went under contract within a few days. With this being my first local purchase I decided to do a little work on the house to make it a more attractive rental. My great friend Boyd Jacobson and I painted the interior and I fixed a couple holes in the wall with my other great friend Terry Neff. I installed my first (and hopefully last) kitchen sink and faucet. My excellent girlfriend Sarah and I built a very sturdy crawlspace cover and then we all called it 'done'. The house was rented 1 1/2 months after I closed on the loan at $825/mo.

I refinanced this property in January 2007 after it appraised at $130K. Charles Roberts had clued me in to this strategy and it made absolute sense as long as I could keep a good chunk of equity in the property. The bank had essentially listed the property at 50% of it's true value. The few repairs that we did had no inpact on increasing the value. I was able to pull out a good deal of cash and keep $26K in equity in the property. I used the cash to pay down all of my consumer debt except my $28K student loan. My debt to income (DTI) ratio should be sitting pretty now and I'm hoping that my credit score goes up. With the rent on this property I am breaking even from a cash flow perspective.

4) I just got my second bank owned 2/1 SFH under contract for $85K (as of January 24, 2007). This one is a tad bit smaller than the Dayton property but it has a full (unfinished but framed) basement. The bank remodeled the upstairs with wood floors, new kitchen, new bathroom, and 2 tone paint throughout - it looks great. The only work that it needs is new copper pipe ($400), new water heater ($300), and I am going to finish one of the basement bedrooms with Boyd ($1000). I am scheduled to close on February 13 and I should have it rented by March 1. I am currently advertising it on Craigslist for $900/mo. My strategy on this and the Dayton property is for a long term hold. I will end up refinancing this property in about 4 months to get a better rate. I may or may not pull cash out of this one, it depends on the new appraised value.

That is what I've been up to. I have to say that it is much more exciting for me to find under valued properties than it is for me to work my day job. While the foreclosure rate in Denver is so insanely high I am scrambling to buy as many bank owned properties as I possibly can. The nice thing about the Denver market is that our vacancy rates are steadily going down and average rents are rising. Combine this with an under valued (50%-70%) property and you can build a great portfolio. I tend to do internet searches for SFH's and 2-4 plexes 5-7 days per week and I end up looking at 5-8 properties every week. I have a fairly extensive process that I go through to determine if a particular property is a gem or if it is just a shitbox.

I will post details of 2007's goals and some of the things that I do to determine if a property is a gem in my next post. Until then.....

Bronchick REI Seminar

Last Saturday my buddy Scott and I attended a one day REI seminar hosted by a local attorney and investor named Bill Bronchick. As a newbie to the REI investing world I found this seminar to be very helpful for some of the basics of getting started - it was entitled "Getting started in Real Estate investing" after all. There was a decent amount of meat in the seminar but, as I am hearing from several bloggers, the real meat is in their wares - what they are selling. I decided to buy 1 of the 2 products that Bill was promoting called "William Bronchick's Real Estate Library". It was a little pricey but I've been reading it for the last 4 days and have to say that it is full of a lot of well organized material that I will use in the next few months as I start to put together a short term cash flow system with distressed owners/properties. I am really excited about flipping properties as a dealer. I will keep you posted as to the progress that I have with flipping and going through Bill's 4 part course. The nice little bonus to this is that if I can flip one property in the next 2 months and net at least $7,000 then I will get the price of the product refunded to me. Bill is also on the board of the local CAREI club and I had attended one of their meetings about 2 months ago and got some great info on fix and flips. I'm not really interested in fixing anything right now except for my bottom line. Continued education is a great thing!

Investing in Idaho

I took a trip with my awesome girlfriend Sarah to Idaho in September of 2005 to visit some family and relax a bit. It turns out that Sarah's dad is an agent in the Boise area and we spoke for about an hour about REI in the Boise area and what the market was doing. According to the local papers the appreciation rate for Ada and Canyon counties is ranging between 8.5 - 12%. This seemed very appealing to me since the local appreciation rate is somewhat dismal in Denver. Currently, CNN Money is projecting the 2006 appreciation at 8.7% for the area in Idaho that I visited.
So I asked the dad (DB) to keep an eye out for good deals in the area. In late November a rehabber friend of his asked him to put a recently rehabbed property on the market - DB called me and offered it to me before it went on the market b/c he thought it was a great deal. It was a property with 2 houses on it - both were mostly rehabbed and were in very good condition. I had my brother who lives in the area check it out for me and he gave it a thumbs up. DB thought that I could easily get $1500/mo for both houses which would easily cover a zero down deal on the asking price of $180K. After researching rents a little myself I determined that I could get closer to $1250/mo which would result in a negative cash flow of $100/mo. Not great, but not terrible b/c I would be doing a buy and hold strategy for this property. So I put an offer on the property in mid-December and ran into some financing snafus b/c I wanted a payment around $1350. We cleared up the snafus and for about 3 weeks we have been waiting for the underwriters to get an appraisal. Why the delay in the appraisal??? Well, it turns out that this is one of the only properties in the area that has 2 houses on it and they are finding it really hard to find comparables. The best that they can do so far is $170K! This is really concerning me b/c if the bank doesn't think it is worth the asking price then maybe I should adopt the same thinking. That is were it stands currently. I should know something this week. At this point I am ready to take my earnest money back and walk away. Any comments are appreciated.

Update on Colo. Springs and New Builds

Ok. So I've not posted for many many weeks. I'm a slacker like that. Some updates on the recent REI activity. I was all set to put an offer on one of the Colo. Springs properties (3/2 condo) back in late November but someone beat me to the punch. The other properties just didn't seem to jive with the numbers or the neighborhoods. I checked on the new build market in El Paso and ABQ about 2 weeks ago. It wasn't a great effort - I just checked the agent's web site where I was told there would be new product after the first of the year. Well, there wasn't any new product for these particular builders/neighborhoods. I will check again in a few weeks but I am putting this on a back burner for now. I did some research on the RD Forums and on other REI/money web sites, it seems like the ABQ market may be becoming saturated with new homes and flipping may not be as easy as I would like it to be. El Paso still looks promising.

Pre-Construction out of state

After reading a few detailed posts regarding investments in pre-construction by iggyigette on the RD forums I decided to start poking around. I called 2 builders in the Albuquerque, New Mexico area and I emailed a realtor in El Paso, Texas with builder ties. The first builder in Abq was one that iggyigette had recommended. He told me that they only have a few units left and it turns out that they were in my price range (under $150K). He also told me that they do not sell/lease back the models. The good news is that they will be starting a couple of new communities in January/February, I will watch their website to see if they have anything viable in 4-8 weeks. Ideally, I am looking to put down $1K-3K earnest money and have a build time of 8-12 months. What I would like to do is purely speculative, I would like to sell the new home upon completion and cash out on the appreciation. Alb is currently experiencing ~18% appreciation. iggyigette did warn me that the rental market in Abq is a little bloated and I may have a problem renting the home if I need to take it beyond closing for a while. The second builder in Abq gave me a lot of good information but I waited until the very end of the call to ask if there were investor restrictions. They will not sell to investors and they informed me that the majority of builders in the area have the same policy. I did get some good information and the woman was very nice. I haven't had too much contact with the El Paso realtor but I hope to get a lot of details in the next few days. I am really itching to close a deal... but it has to be well thought out and it must be a good deal with a solid exit strategy for me to pull the trigger.

Rental property in Colorado Springs

Last Thursday (12/1/5) I drove 70 miles to view 5 rental properties in Colorado Springs that looked to be moderately promising. They are in a good rental area, the southeast part of town, and they were 3/2 and 2/3/1 condos in the $100K range. The 3/2 condos were REO properties so I expected there would be at least a little rehab necessary. It turns out that I only got to view 3 of the 5 properties - one of the REOs had the door standing wide open and a basement light on... a little too spooky for my agent and me. one of the 2/3/1 condos just plain cancelled.

The results: the 2/3/1 condos were virtually the exact same layout with some minor price difference but the major difference was that one condo owner felt compelled to do a variety of repairs (wall patching, wall installation, etc.) without the benefit of a professional contractor - it looked like crap. The better of the two 2/3/1 condos is listed at $106K and has an 18 year (stated, not documented) rental history with only 5 months of vacancies. The rate that the last renter paid (the lease ended last week) was $750/mo, again, this is stated, not documented. The only concern was The one 3/2 REO condo that I viewed was in the process of being rehabbed by the bank. If they rehab the kitchen in addition to all of the other areas I think that this will be a moderately good deal. It was listed at $100K with no rental history. The one thing that concerns me about this condo is that the community that it resides in has more of an apartment complex feel (as opposed to the neighborhood feel at the 2/3/1 condo). I am going to get some current mortgage quotes from about 4 different mortgage companies that I am looking at using. I have worked the numbers and it will be hovering around a break even. I will not invest at a loss, I really don't want to afford a loss and this is a bit difficult to avoid while I am doing 100% financing until I can get some cash out deals under my belt. The loans that I am hoping to get are long term (15 or 30 year) fixed but I may have to settle for interest only loans. The loan that I do not want is an adjustable rate - I am already seeing my HELOC on my primary residence go crazy.. I don't need another one of those with the Fed making the adjustments that it is making.

The beginning

I've created this blog to serve a couple of purposes. Primarily it is a record of my dealings in the real estate investing arena so that I can share my experiences and lessons with others (and myself when I forget what I have been doing). Additionally, I will use it as an accountability tool for me because I am inherently lazy and I am a professional procrastinator.

Some background on me: I took an insane amount of time to graduate with an undergrad degree and finally emerged with a computer science degree in 2000. The market for geeks was booming and I had my choice of 6 different companies to work for. 1 1/2 years later I was laid off from my technical consultant job as the tech industry began to crumble. 5 months of looking for a job finally paid off when I was hired as a glorified help desk guy at a Denver hospital. Great stability in the healthcare industry - but you know what they say about stability and security.

I was introduced to the Rich Dad books by a great friend of mine who actually had never read the books but heard that they were a great series. I have been reading 4 or so of the RDPD books over the last 10 months - in addition, I've nearly completed several other related books like The Wealthy Barber (Chilton), Flipping Properties (Bronchick), The Automatic Millionaire (Bach), Lease Options and Subject-To Deals (Patton). I say "nearly completed" because I am almost always in the process of reading and starting about 4-5 books.

I had been lurking on the RD forums for the last 6 months and only just recently started participating. It is a great resource for creative REI ideas.

At this point, I own a small condo in Denver that is my primary residence. I am in the process of looking for a rental property in the S/E part of Colorado Springs - about 60 miles south of Denver. I am also looking for a rental in the Boise area and I've just started considering pre-construction in a couple of communities out of state.

That's where I stand. I am excited and scared to be heading down this road but I know that I am having fun so far and I have a lot to learn.