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.....