Experiences of a REI (NY style)

My successes and failures as I attempt to build my wealth through real estate investing.

Sunday, November 26, 2006

Hello,

Sorry that I have not been posting on this blog much. The reason is that now that I am familiar with the blog page and its set up I have created a new blog that is better organized, and with a lot better information. Please check it out at www.reiknowledge.blogspot.com

Thanks

p.s. all my new posts will be to the new blog

Tuesday, September 26, 2006

Well it has been a rediculiously busy past few weeks for me, but I do have some Updates. I have been working on some numbers for the house that I am trying to purchase from my fiance's family. Here is the work up of the numbers related to the house.

Some Updates
I came about this estimate through various comparables in the surrounding neighborhood. I also adjusted the price per square foot due to the variations in SQFT, and shape of the comparables. That is why my estimate is on the lower range when compared to the Cost/SQFT of the other properties.

Below is an estimate of what I believe it will cost to repair and renovate the house to todays standards.


This estimate is not including repairing the roof structure, which I believe will increase the cost substantially. This Estimate is also based on hiring all the work to be done. In really life I will try and do some of the stuff myself, especially the stuff that one doesn't need a permit for. The only things that I will have hired out are the things that requir a permit, anything that takes significant skill, etc.

Wednesday, September 13, 2006

Running the Numbers on a Property...


These are just some of the property evaluation tools that either I or my partner created after reading different books, and trying to work it out on Excel. My main goal was to come up with one Excel Worksheet that would evaluate the property numbers with the least amount of data that needed to be input. I never really found one that I like so far, but there are some very good ones.


Tuesday, September 12, 2006

Some Much Needed Advice...

Okay, I am in a little predicament, and I would greatly appreciate anyone's thoughts, insights, or advice on this matter. Here it goes...

My soon to be wife's parents own free her (my soon to be wife's) grandmothers house. It is a small 900 sq. ft. house that is in fairly poor condition. It desperately needs new roof framing along with new shingles and such. Along with that it needs updated electric, paint, flooring throughout, and a new tub (her grandmother needed a handicapped tub which unfortunately takes up the whole bathroom). My predicament is that they (her parents) are willing to sell us the house after the remodeling is done, fairly cheaply. But the major predicament is that they would like to keep the house in the family. Which would mean that we (my soon to be wife and I) would not be able to capture any of the equity in the house to place into another house or investment. I do not think it would be appropriate to sell the house back to them (her parents) for FMV if they sold it to us for less. I also do not want to be sneaky about it either. I would like everything out in the open to prevent possible problems.

Here are the numbers to the house...

Comps place similar houses at about $28 - $30,000
* I believe that after all the repairs and remodeling, it would be about $30 - $35,000
Current mortgage on the property is $0
Taxes About $1000 / year

Any advice would be greatly appreciated.
Attached is a basic floor plan of what it is currently like, and what I believe it should look like after repairs.




Again please give any thoughts or ideas.

Finally Pictures...


Hey look at this I finally figured out how to do pictures. It only took me a week to figure it out. Thanks to everyone who helped me with this. So here it is, the mighty 5-unit. I know it doesn't look like much, but it is actually very large, and well maintained. Sorry that I don't have any more pictures to put up of it, but as soon as I do I will post them.

Monday, September 11, 2006

Some Problems...

I have been spending the past few days trying to figure out this whole blog thing, and I can not seem to find any answers. So I am making a request out to other bloggers that may read this blog. If you have any idea on how to attach pictures to your blog, attach excel documents and/or charts to your blog, and maybe even some video to your blog as well. I would greatly appreciate some advice, or the name of a website that may give some meaningful information about these questions of mine. Thanks in advance.

Investing in Duplexes, Triplexes, and Quades

This is a decent book about buying investment properties, especially those that the title mentions. I particularly like the Valuation of Your Property Chapter (Chapter 8).

It goes into decent detail about a few different numbers one should look at when evaluating a deal to purchase. Some such numbers would be...

Gross Rent Multiplier (GRM) -
GRM = Purchase Price / Gross Scheduled Income
Ex. Property #1 Price: $245,000
Rents: $1,300 X 12 = $15,600/year
$245,000/$15,600 = 15.7 GRM
* One can also use this formula to estimate the cost of an investment property as well

Cash Return on Investment (ROI) -
ROI = Remaining cash after all expenses / initial investiment
Ex. $3,000 / $25,000 (Down Payment) = 12%

Margin -
Margin = 100 - operating expenses plus debt service / gross potential income
Ex. Gross Potential Income (100% occupancy) $31,000
Less Operating Expenses -$5,000
Net Income $26,000
Less Debt Service -$20,000
Cash Flow $6,000

Debt Service $20,000
Operating Expenses $5,000
Total Expenses $25,000
Accordingly: total exp $25,000 / gross potential income $31,000 = 80.6% break even
Thus, your margin is 19.4 % (100% - 80.6% = 19.4%)

Cap Rate -
Cap Rate= NOI / Purchase Price
Ex. $50,000 / $500,000 = .10 = 10%
*One can also use this formula to estimate the value of an investment property as well
Ex. NOI / Cap Rate
$50,000 / .09 = $555,555

Over all I believe that this is a very useful book. I believe that it is worth the read. Again its title is Investing in Duplexes, Triplexes, and Quad by Larry B. Loftis, Esq.

Sunday, August 27, 2006

Possible Short Sale

What my partner had to say about it...
SFH. Brick, 4BR/2.5BA. In ground pool. Landscaped. Whirlpool tub. 3 stories. Newer roof. Newer kitchen. All appliances in kitchen.

I sent this lady a pre-foreclosure letter a few months ago.
She called and said she had a buyer, but they couldn't buy right away.
She needed $12,000 to catch up with the lender, including fees.
I suggested she lease/option the home to the buyer for a $12,000 option fee.

About 2 months later, she called me again.
The lease/option fell through.
She needed to sell, and wanted to avoid foreclosure.
Was I still interested?

She bought the place in March 2004 for $164,000.
She has it listed for $179,000.
She did get some minor flooding through floor drains during 2006 flood.

I tried to do comps.
There is nothing similar in the area.
The place across the street is under contract at $124,900.
It is wood sided, 3/1.5.
Nowhere near as nice.
Realtor had the same problem.

Seller is divorced recently.
Two judgments against her for $48,000.
Shoud be cleared by her bankruptcy.

Financing was 100% VA Loan at 5.25%.
Has assumability clause.
I offered $127,045 with contingencies:
100% Assumable loan to me.
No more than $8,000 in flood damage.
Attorney review of bankruptcy filing.

She has signed contract at that price.
I start dealings with the lender on Monday.
We'll see how this one works.

I plan to fix and flip this one.
My gut feel says I can sell for $160-$175,000 with no big trouble.
Of course, I've been wrong before.

Appartment #1 (Contract #1)

This is what my partner (dad), had to say about this property from the beginning...
Here's my story, it's sad but true...

Everyone knows that you should hold real estate in an LLC. So, in an effort to get started out right, my son and I decided that we should set up that LLC. With some help from the company I work for, we set up our LLC by ourselves. The cost to set one up in NY was $200. In addition, I spent $26.95 for a downloadable Operating Agreement that I modified to fit our needs, plus about $70 for the required advertising and affidavits.

Problem one arises. Did you know that if you start an LLC in NY in 2005, but don’t actually buy a property, you still have to pay a $500 annual fee? Lesson #1: Don’t form the LLC until you at least have a property in mind.

I went home invigorated after the Rich Dad Poor Dad Meeting 2006 in Scottsdale, AZ. We tracked down a few realtors and found two that I like. One Realtor, Lisa, looks for multi-family homes for us. The other, Greg, deals in REO’s and “as-is” homes. In addition, we hired one of my son’s college friends to print and mail pre-foreclosure letters for us.

The RDPD meeting was in late-March, and by mid-April I had looked at several properties. I say “I” because my son was away at school. I made offers on a few of the properties – all lowball offers – but no bites. At Easter, Brenton came home for a break, and we spent a Saturday looking at several multi-families with Lisa.

Property #1 had a lady who “hated the neighborhood, and wouldn’t go outside – day or night” as well as a guy who wandered around mumbling “dust, dust, there is too much dust in the world”. He had actually taped plastic to the ceilings in his apartment to keep the dust away! The house was in rough shape, so we walked.

Property #2 had a lovely blue tarp roof. We couldn’t get into any apartment except one. The lady in that one loved the place. She also explained that everyone in the building was a little nervous about opening doors, ever since the DRUG RAID the night before. She said they took one of the tenant’s boyfriend away, along with drugs and guns. Adios, property #2!

The next place we looked at was a property at 20 Doubleday Street. This was an older 5-family with an asking price of $114,900. When we went through the apartments, they were all neatly kept. The tenants seemed happy to be there. One tenant had been there for 43 years! There were 5 gas meters and 5 electric meters! It was fully rented! BINGO!

So we ran home, and put together an offer. Here were the numbers they listed in the MLS:
Annual Rents -- $26,220
Taxes -- $3,534
Insurance -- $1,358
Heat -- $5,400 (Hey! What about those separate meters?)
Electricity -- $1,168 (Again!)
Water/Sewer -- $775
Cap Rate – 12% as listed

No vacancies. No maintenance. No management.

So I sent the realtor an email. It was sort of a “Letter of Intent”, although I didn’t call it that. I made allowances for 8% vacancy, an increase in taxes, a big increase in utilities, and some room for maintenance. This brought the cap rate down to 8.63%. I made an initial offer of $90,000.

The seller came back with a $100,000 counteroffer. We asked if they would be interest in seller financing. They said “no”, but we came back with the following counteroffer anyway:

1. The first option would be an offer of $95,000** with conventional financing at 80% of the purchase price. We would pay cash for the remaining 20% of the purchase price. This would eliminate the need for seller financing.
2. The second option would be an offer of $97,500** with conventional financing for 80% of the purchase price. We would require the seller to finance the remaining 20% of the purchase price in the form of a 2nd mortgage. The terms for this financing would include us paying the seller 3 points (approx $3,000) on the purchase price at closing, with the 2nd mortgage paying interest at 8% fixed, over a term of 15 years.
3. The third option is an offer of $100,000** with conventional financing at 70% of the purchase price. We would pay 10% in cash at the time of closing. We would require the seller to finance the remaining 20% in the form of a 2nd mortgage. The terms for financing this option would be 0 points paid to the seller at closing, with the 2nd mortgage paying interest at 8% fixed, over a term of 15 years.

** All of the purchase prices outlined above will be increased to cover closing costs. All closing costs are to be rolled into the financing (subject to approval of conventional lender).

The seller quickly accepted option #2, and we signed a contract. I sent it on to my attorney, who read it and said “did you really mean to offer $3,000 plus 8% to have them finance less than $20,000???”

A call to Lisa got us out of this one – sort of. We agreed to go with option #1, but the seller getting $98,500 instead of $95,000. A $3,500 mistake, but still not a bad deal.

Lesson #2 – Have someone with good business sense proof-read your offers before they go out. Of course, I only meant to offer 3 points on the portion they were financing, not the entire purchase price LIKE I WROTE IN THE FREAKING CONTRACT!!!

We updated the terms in the contract, and faxed them off to Rochester for my son’s signatures. Things were looking good now. We’d own the place soon, and my son could work all summer long on fixups, as well as getting some landlording experience.

Doubleday is a short street, only about a block long. There are several multi-families on the block. I ask Lisa to contact all the owners to see if any others are interested in selling. She does, but no one is.

We had a property inspection done, which found a few critical items the seller had to fix, along with a list of things Brenton could do during the summer. Our lender reviewed the numbers and supporting documents, and said we got a great deal. And then things seemed to stall. Among the problems we ran into were:

The loan officer at the lender I was using had an opportunity to move to another branch. She just sort of quit replying to my calls. After a couple of weeks, we discovered what was up, and were given a temporary contact at the bank. Of course that person did nothing. Lesson #3: Be more proactive in communication.

Our attorney seemed to quit communicating with the seller’s attorney who seemed to quit communicating with the lender’s attorney. Information and documents just didn’t seem to flow from one to the other. Lesson #4: Collect all the data and documents myself, and make sure they get to the proper people.

Every time I had a question for the seller, I had to call Lisa, who had to call the seller’s agent who had to call the seller for an answer, who called Lisa, who called me. Way too many intermediaries. Lesson #5: Meet face-to-face with the seller early in negotiations, and contact them directly with questions.

Then comes June 2006, and major flooding here in Upstate NY. Fortunately, nothing happens at the property, but the area comes to a halt. Banks, hotels and hospitals are flooded. Roads are flooded or washed out. Many homes are washed away or ruined. Later, this is called a 500-year flood. This is after many people just recovered from 2005’s 100-year flood. Lesson #6: Sometimes, when you think that things “can’t get worse”, they do.

In late June, I meet my new loan officer. Nice guy. He’s new to the bank, and is going on vacation next week. Lesson #7: See lesson #6.

I’ve grown concerned with the idea of having to sell many of my stocks to finance the 20% down payment. I have a lot of gain in these stocks, and I’d prefer not to pay taxes on those gains. So, I hatch an idea to use the account as collateral for a line-of-credit at the bank. I’m told that they can do this “with no problem”. “How much do you want”, they ask. I say $50,000. They say $35,000. OK, I’ll take it. Lesson #8: There really is more than one way to skin a cat!

Mid-July hits, and I’m told we should close on the 21st! I wait and wait, but no call from my attorney with a final date and time. Finally, I receive an email stating that he is waiting for approval from the lender’s attorney and that he somehow missed getting the Certificate of Occupancy and Certificate of Compliance from the seller. Looks like no closing for a few days at least.

July comes and goes. Still no closing date. I call and email my attorney. He says that the bank has required a survey, since this is a commercial property (over 4 units). He’ll take care of that. But the lender’s attorney is only in the office on a limited schedule. His wife is having twins, and has gone into the hospital with complications. Lesson #9: Always require full physicals of attorneys and their immediate families.

Shortly after this, the wife delivers the twins prematurely. She is doing OK, but the infants aren’t in such great shape. The lender’s attorney will be out of the office for the foreseeable future. They assign a new attorney to the case. She leaves for vacation the next day. Lesson #10: Those jokes about attorneys…they aren’t really jokes. I’m thinking about how a batch of them might taste “with Fava beans”.

The new attorney returns. I know this because I receive a short email from my attorney. It says, “bob-got letter from bank's lawyer asking for all kinds of stuff. need to talk. will track you down.” In all reality, the attorney didn’t need all that much. The prior attorney had most of it, but she just didn’t know it yet. Closing day is drawing near! Unfortunately, so is the date that Brenton has to return to college. I’m assured that we’ll close before then.

Somewhere during all this, I called my insurance agent to secure insurance for the new property. He comes back with “about $2,800”, but he isn’t sure how quickly they can firm up the quote. Mind you, the seller listed insurance at $1,358! I call Lisa, who calls the seller’s agent, who…well, you know the rest. She gets the name of their insurance company. I call them, and lock in insurance, with no inspection, at $1,582. This is based on a higher replacement value than the seller had. Lesson #11: Get insurance quotes early, and shop around.

It’s August 9th, and we’re at my attorney’s having Brenton sign Power-of-Attorney forms because he has to go back to college in the morning and we still haven’t closed. While I’m there, I pick my attorney’s brain on a Short Sale deal I’m working. There is a bankruptcy involved, and he gives me a few warnings about potential problems. Lesson #12: Never put the Fava beans in before you are done picking an attorney’s brain.

Shortly after this, I get a call from the bank. They have received a letter from Schwab stating that they will not allow the account to be pledged as security. I call them, and find out that they require $1,000,000 in equity and no margin before they will consider this. I have neither. I call the bank, and argue my case. They mull things over for a day before coming back with a solution. They will still give me a line-of-credit for the same amount, but I’ll need to give them a second mortgage. Lesson #13: Be persistent. Stubbornness will yield you great benefits.

August 22nd is closing day! I hang up and call them right back, just to make sure I am on with the right attorney. In the time since my first walk-through, a tenant has left. When I talk to Lisa to firm things up (we were planning on some repairs to that apartment, plus a furnace conversion), I find out that it has been re-rented to a couple displaced by the flood. And this is at an increase in rent!

The day of the closing, I do another walk-through, this time with both Lisa and the seller. Everything is in great shape. In fact, he has put in some new electrical in the basement. The apartments are all still spotless! Where did these tenants come from???

The morning before of the walk-through, I look through the legals in the local paper. 40 Doubleday is in foreclosure. During the walk-through, I look at the property next door (22 Doubleday). It is a similar structure, although not maintained as well. The seller says that someone just bought the place a year ago, a he died recently. Hmmmm???

I go home, and do a quick search on the MLS. A 2-family at 44 Doubleday – the last house on the street – is for sale. A check the next morning finds a 3-unit (2 houses) at 14 Doubleday is for sale. Both of these were bought by out-of-area buyers within the last year. 14 Doubleday got a new roof before the owner decided out-of-town remodeling was too hard.

So…I’m looking at all these places next Wednesday. Before things are done, we may own the better part of the block! These places were all bought real cheap by the last owners, so I’m hopeful I can work some seller financing on them. I may be open to partnering with someone too. If you’re interested, drop me an email at Bob@HomeProRentals.com – just put Doubleday in the subject line or I may delete you.

Lesson #14: Never, ever, ever, give up! The seeds you plant in your daily dealings will eventually grow.

Lots of Activity

The past few weeks have been very busy. There are a bunch of new appartments on the market that we are looking to hopefully purchase. My partner is going to take a look at them this Wednesday the 30th. When I get the details I will post them here for everyone to see and read.

Updates

Offer #3 - We were out offered by about $2000

Offer #4 - This deal disappeared and we thought that it was a no go. But after about a month the homeowner called us back. So we are moving forward with this deal as well. We have all the paperwork and numbers that we need from the home owner, all we need to do now is go through the bank, and find the money to do this deal. I will be posting more about this as time goes on and new information arises.

Contract #1 - This 5 unit building has been a major pain in the butt. But after a long time we finally closed on it. I will be posting the full details when I get everything organized. I hopefully will have some pictures as well for everyone to look at.

LONG Time No See...

Sorry that this blog has been pretty slow, or non-moving the past few months. I was extremely busy over the summer months. I had 3 jobs, and worked many many hours. But now that I am back I plan on taking full advantage of it. So again, I am sorry for not posting in a while.

Sunday, June 04, 2006

Offer #4

4/1.5 House. Well maintained, and looks nice. Owner bought the house about 2 years ago with a 100 percent VA loan. She is in foreclosure. We are planning on a short sale this deal. We shall see.

Offer #3

3/2 House. Well maintained, and looks nice. It is currently rented (tenant has been there 5 years). Owner passed away in a flood, and son currently lives in Germany. He is asking $25k, and we are offering $17k.

Contract #1 Update...

Okay this property has definitely been an up and down deal, but I believe that we finally came to an agreement on this one. In the end we are going to pay $98k for the place, with 20 percent down (our money). The seller is going to make the repairs to the building that were mentioned in the inspection. Hopefully that is the last of the negotiations for this deal.

Goals for 5/7/2006 - 5/17/2006 Updated...

1. Make list of people to call for when I get home. (RE agents, Title companies, inspection agents, etc)
- Done

2. Come up with a flyer to be placed around town to attract possible deals.
- Done

3. Lay out my plan of attack for the summer.
-Done

4. Organize packets for lease/options, and subject2 purchases.
- Done

5. Come up with a phone screening sheet.
- Done

6. Start reading Start Small, Profit Big in Real Estate.
- Done