on November 15th, 2009
For the last four years I have made well over 90% of my income from investing in real estate. For the most part this has consisted of buying a house that is in horrible condition, repairing it and bringing it back to life, and selling it for a profit. Putting laziness and complacency aside I have done very well. This year I have not bought a single house though. At the beginning of the year I believe I had four houses in inventory and they took forever to sell. Not only did they take a long time to sell I got way less for them than I anticipated. This basically made me very scared about the market.
Before this year I had an average turn around time of only 5 months. So from the day I bought the place, all rehab, on the market, and closing was only 5 months. This year however that number has bumped all the way up to 8 maybe even 9 months. So on even a low end house that is an extra 3-5k in holding expenses. Even worse than the cost of owning it is the stress it causes. You are constantly wondering will this thing ever sell? Will I have to lower the price? Am I going to lose money? This has also made me very scared of the market.
For the better part of the year most of my money has been tied up. The money I did have I was just too scared to put it into play. I had to keep my risks low and thus I have not purchased a property this year. In the business I am in if you are not buying houses you are not making money. Simple as that. In the area of investing I am in there is a saying. You make money when you buy, you get paid when you sell. That is absolutely 100% true. So in essense you can argue I have not made a dime this year.
I finally put my first offer in on a house last week in probably 5 months. It was a good feeling and while I thought it was a long shot I was excited and hopeful I would get the house. I will give you guys some stats on it. It is a bank owned property. They were listed at 70k and it had only been on the market for 15 days. The house is a wreck. Someone went in and decided they didn’t like the floor plan and just demolished about half of the inside. I have no idea what they were thinking I just have to go on they were on crack. Not only did they do stupid stuff they did it in a shoddy manner. Even if I wanted to use their remodeling I couldn’t as it is just idiotic.
Normally I can walk a property in 5-10 minutes and know exactly what my remodeling plan is and about how much it is going to take. This property took me 40 minutes because I just couldn’t figure out what this jackass did to the place. My plan is to bring it back to the original floor plan and it was very difficult figuring out how it was layed out.
I get home and come up with right about 20-23k to put this place back into the condition it should be. That figure is with me not lifting a finger and subbing everything out. At first I want to make a 40k offer but you have to fire in at a number that the bank will even consider countering. If the property had been on the market for 6 months I would consider 40k a reasonable starting offer. Since it is a fresh listing though I decided to go in at 47k with a goal of getting at 50kish. I fire in at 47k with a 10k Earnest Money Deposit. I also make my offers with no option period and no inspection period. I want the bank to know I am serious, I have already inspected the property, and I won’t be backing out without losing 10k. Does this help? I don’t know but I would assume it does.
They fire back at 68k and then the next thing I know they have multiple offers. I hate multiple offers. People start bidding crazy amounts during multiple offers. In fact I have even just backed out before during multiple offers as I rarely win them. I have won a few though so I decide I will go ahead and fire in again. Before the multiple offer subject came up I had it in my head I would pay a max of 55k if I had to. I believe this place is worth 120k but I am running all my exit numbers on 100k to be super safe. I don’t feel like wasting my time and not making any money as I have done on a couple of my last deals. So with all these numbers in place I will walk with 15k in profit if it sells for 100k and I have an upside potential of about 20k. So in theory I could walk with 35k which would be a home run deal in my opinion.
I will probably know tomorrow about this deal. The deadline was today.
I hope I get it.
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on November 10th, 2009
How in the world did I come up with the idea of buying an apartment complex? Well I consider myself an opportunist. If a good opportunity presents itself I will consider making an investment. It doesn’t just have to be real estate. If I come across a huge invetory of products at a steep discount I might consider purchasing it. If a business pops up for sale that I think I can turn around and sell down the road for a nice profit I would highly consider it. I have gotten into the habit of browsing the business section on craiglist lately. I go off into tangents when I don’t have any real estate deals happening. As an investor if you aren’t putting your time or money to work you are losing money. When I don’t have any deals taking place I often look for other deals outside of my main money niche. So this brings us to craigslist. I like to puruse through there seeing if anything strikes my fancy. For example a Quiznos popped up the other day that the owner was only asking 44k. I contacted him and he seemed responsive but all the sudden fell off the planet earth. Who knows if he was serious but for 44k it sounded like a good idea.
Alright back to my point at hand. I was browsing CL and I stumbled upon an apartment complex. It was about 80 doors and they were only asking around 800k. Without any other knowledge this just seemed like an amazing deal. Usually when you have little to go on other than those two figures in real estate there is a catch. Usually the catch is something like the property needs an insane amount of work, or it backs up to a railroad track, or it is next to a crack house, etc.
Now before coming across this I have never considered buying an apartment complex. The thought has seriously never once crossed my mind. I do a certain type of investing because it suits me. I don’t have to deal with anyone, heck I don’t even deal with the end buyer. I just list the house on MLS and have a buyer’s agent locate the buyer. In my entire real estate investing career and even dating back to years before I got started when I tried to get started I never liked the idea of being a landlord. I despise the thought of it really. Hence the reason I have never thought of buying an apartment complex let alone a single family house to rent. There was something about that apartment deal that changed my outlook. That one thing that changed it was something we call Money. It just started racing through my head. I could just see these piles of money floating out of the sky. I wanted it.
I start looking into this deal and running numbers. What is 80 times $500 a month? Ok that number comes out to 40k a month in revenue. How much would a loan be on 800k at 7% interest? Ok that number comes out to 5k. WTF am I missing something? This deal is a no brainer in the making. And here begins the wonderful journey into learning everything there is to know about apartments and investing in them.
When I got started in real estate I had time on my side. I got the bug and knew I wanted to flip houses. I had half-heartidly tried to get into investing a few years prior to when I finally did enter the market. I didn’t really try very hard and I guess just didn’t have a huge interest in it. It was the reason I didn’t pull the trigger. Fast forward though and this time I had an interest. I was blowing through my savings. I had lived the previous two years just living it up without any income. It was a great lifestyle one I highly recommend if you have the ability. Two things rapidly changed this scenario for me though. I loaned out 30k to a family member and I invested another 25k into a business venture. Bam there goes 55k at the drop of a hat. I was quickly depleting my life savings and had no choice but to replace living off savings with an actual income.
I got the bright idea that I would buy a condo and it would cost the same as my rent was costing. I would find a good deal on that condo and it would be my first chance to get into real estate. I came across a condo that I thought was a very nice deal. Hindsite tells me it was actually a horrible deal and I would have lost a ton of money on it. Thank goodness I didn’t buy that money pit. I did however quicky buy two single family homes with a partner and it was the start of a beautiful relationship with real estate.
See what I said about tangents. I swear the older I get the more ADD I get. It seems to be getting bad these days even though I never remember having it up until just recently within the last couple months. Alright so with all that time on my side I studied my butt off. I learned all you could by reading. There is only so much education you can get from reading though. The way I can describe it is like this. You can read all you want about investing and you will probably get a high school education. You will get your undergrad degree from doing your first deal. That is how important it is to actually go get a deal under your belt. This is when you really learn about investing in real estate.
I have no doubt buying an apartment complex will be much the same. The only difference is I am finding it very difficult to find great information on buying apartment complexes. I went to the bookstore today. There must have been 200 books on investing in houses. There was “ONE” book on investing in apartments. And I have to tell you I sat there for 30 minutes and read most of that book. I learned very little from it and while I felt a bit guilty for sitting there reading it I was happy I did not purchase it.
It is good and bad that there is little information on apartments. The bad side is it will be harder for me to learn what I need in order to make a purchase. The good side is the entry level is much harder for your average person. This means that there is more than likely less competition going after deals. So in theory if I work hard I should be able to find really good deals.
Alright so as I investigate into this apartment deal further I quickly realize it is already under contract. This guy just posted it on CL and it was already under contract? This greatly annoyed me as the guy was clearly just trying to drum up a buyer list or something. I did however learn that this apartment was vacant and boarded up. So I am guessing not only was it 800k to purchase you were probably going to have another $500,000 to $1,000,000 in additional investments repairing the place and bringing it back to life. Then you have the duty of leasing all the units. This could probably still be a good deal and something you might make a small foture on if you do it properly.
That was probably a few weeks ago when I came across that and I have studied a lot since then. I need to start a plan and put it into action in order to move forward. I will talk more about that later.
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on November 10th, 2009
It’s funny because I never thought I would even consider buying a doublewide or singlewide property. Who wants to own something that only depreciates over time. You are guaranteed this.
So what gave me the bright idea that this would be a good investment. A few months ago my brother decided to sell his doublewide. He had owned it for probably 4 years and for the last couple years it just sat there rotting away. Finally he decided to just let the thing go before it rotted to the ground and at least get some of his money back. This thing finally sold after a few months on the market. All we did was put a sign out front and a random person would call every once in a while and it eventually sold. Some guy with cash bought it and moved it onto his property.
So here I am without a rehab to work on and I am scouring through MLS trying to find my next deal. I am scanning through property after property when all the sudden I come across a doublewide on about 2 acres. The price looks very attractive and what I like best about it is I can easily pay cash for it and not be too concerned about tieing my money up. I believe it was around 20k. I start thinking all about this trailer and what my exit strategy would be if I purchased it. I quickly come to the conclusion that I am going to buy a trailer, make the repairs and be into one for around 25k or so. I am then going to sell this via owner financing for 50-60k. I will hope for around a 5k down payment and finance the rest for 10 years at 10%. I won’t break down the math for you but I will say it looks amazing on paper.
The next day I get up and I am ready to head out to this trailer to take a look at it. The one down side to trailer investing is they all seem to be around 1 hour away from my house. I don’t mind driving to get a good deal but I can tell this is going to be rather annoying if I am hunting these things down frequently. I pull up the trailer on MLS and bam it is under contract. WTF. This sucks. So there goes that idea right back to the back burner.
I really believe in this method and I like that I don’t have to tie up too much of my money. I want to do a trailer deal. I want to do one even at the expense of not making an amazing deal. See with something like this no matter how much you research online you really get your education when you make a deal happen. Everything you have learned up to this point pales in comparison to actually doing a deal. So I head back to the MLS and start scanning away again at properties. Ahh here we go here is 2 properties way the heck outta town. Looks like I have another round trip ahead of me chasing some pie in the sky. I get out to the first property. This thing is in the middle of nowhere timbuktoo. Most cars would have a hard time even making it down the road. Pot holes all over the place I am wondering if my truck is even gonna make it. Nothing like rolling down the street in an escalade on 22’s wondering if the next pothole is gonna blow a tire. YeeeeHAW!. So I pull up to this place. I don’t even need to go inside as I know what to expect by the looks of the outside. This place just needs to be torn down. I have seen it all when it comes to single family houses. I have done rehabs that your average person would freak out at. I have made haunted houses into the best on the block. This trailer takes the cake though. I think you would be throwing good money after bad if you did anything other than just tear this P.O.S down.
I head out from this one and realize I am just out in the boondocks. I am driving down country roads wondering if I am gonna be taken hostage by some country folk never to be seen again. What if my car breaks down? This is scary out here with these shanties for houses. This next trailer is only 12 miles from this one but on these roads you might as well realize it is gonna take 45 minutes to make that trek. UGH this was a mistake. Stupid trailer business what am I thinking how do I want to buy one of these. I finally get out to this trailer and it looks good. I mean for a trailer it looks great. Only needs a few minor repairs and this thing is ready to go. I balk at the price though and figure it is just too far outside of town. I don’t make an offer.
A couple weeks later I am looking through MLS and I come across another trailer. Once again this thing is an hour away but it is near a lake that I have had my eye on for a while. I desperately want a lake property and this is an excuss to go check out this lake. I have never been to this lake and even though it is under developed currently I think it could be nice. I head out there and just as I am getting there it is getting dark. I have to decide do I go look at the lake or find the property. I know the property doesn’t have utilities on so I must make a decision. It turns out looking at the property wins. I don’t get to see the lake. This trailer I am looking for nowhere to be seen. Out in the country google maps is not that precise. It thinks this road is the next road over. As it turns out the trailer is hidden behind another trailer and I miss it a couple times. Finally after spending another hour driving in circles I finally find the place. It is pitch black outside now. Luckily I have brought a flashlight and take a jaunt around the property. It is newer and appears to be in good condition. Other than the annoying dog next door I want this trailer. I think it would be an excellent initial investment into the world of doublewides. It blows my brothers trailer away and I am gonna bid just under 13k for it. Seems like an amazing deal to me. I put my offer in and it turns out they won’t accept it. They want 15k or no deal. I am just too scared of making a mistake so I back out.
Looking back I wish I would have went ahead and gone up to 15k. The property only needed another 5k in work so I would have only had an outlay of 20k. I feel like I could have sold it for 50k. It doesn’t take a genious to look at that math and realize it was a great deal. Just the learning experience…I want that learning experience.
I am pretty confident I will purchase a trailer within the next 3 months. I just want to see how that business plays out and see what it is all about. I don’t mind tieing up 20-25k to learn about it.
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