on November 17th, 2009
Over the years I have purchased many HUD Homes. I was feeling good about making an offer on a house recently so I decided to make another offer on a HUD Home near downtown Dallas. Now this is out of my comfort zone for sure. I have never purchased a house in this area before. The thing about real estate though is you can often jump out of your comfort zone and if you land on your feet you might just make yourself a lot of money.
When I bought my third house it was a townhouse. I was very scared and thought long and hard about it. And it was only 35k. Eventually you just have to realize that you only have so much downside potential. It is certainly worth more than zero. So then what is it worth? Well who knows what the rock bottom price was but it definitely wasn’t less than 20k or so. So ultimately I was taking a 15k risk which I can live with. If I lose 15k I will be pissed but I am not going to go bankrupt or anything. I can bounce back. I have since made probably 75k off of this neighborhood alone. I have owned 4 properties in this exact neighborhood and will buy more if they come available.
So I have ventured near downtown Dallas. When I don’t have any investments going on I often broaden my horizons. I step out of my normal boundaries in search of deals. I have no choice I either put my money to work or I make nothing. I would rather make something than nothing if the investment looks sound and requires no more extra work on my end.
So the one thing I don’t like is comps are a little harder to come by in this area. No two properties are alike. One townhouse community is nothing like the other community down the street. You are basically comparing apples to oranges and if you do this you often get lemonade. A recipe for disaster in the making. Just like with my 35k purchase years ago I am having a hard time with this one. I have thought long and hard over this one and I have decided my downside risk is very low. Extremely low even which made me pull the trigger. I fired in at 60k and have a feeling I will be getting this one.
My exit strategy is about 7-8k in work and list it way below market for a quick sale. I could probably sell it without doing any work but why would someone buy from me for more than the bank is asking? I plan on giving the townhouse a nice face lift and updating it to todays standards. Even though it was built in 1984 it is defintely looking dated. I am going to put in new light fixtures, granite, paint, and probably redo the bathtub and tile surround. I don’t plan on doing any of the work and think I will get out for around 7-8k or so. I could probably do this remodel in about a week to 10 days. It is definitely very minor. I will then list the property at 99k and hope for a quick sale. If it sells quick and for 99k it will yield about a 22k profit after all fees and expenses. I would be insanely happy with that result. This property is on the tax roles at 135k and should probably be listed at about 115-120k but I want a fast sell.
One mistake I believe I have made in my investing career is pricing all of my houses at the absolute top of the market. While I have had some that have sold for nice prices I have also had some sit for a long time. I will never go back and run numbers but in my head I can tell this was a mistake. If I would have priced my properties slightly below market they would have sold faster I am sure. This would have resulted in a NET gain over the method I used. Holding expenses add up quick and end up costing you tons of money. For example I sold a house about a month ago. It took me about 9 months to sell it and I dropped the price 20k over that period of time. If I would have dropped that price originally I would have ended up making about 8k more in profit. That is how much the holding expenses were and that was on a sub 100k property. Another example that even proves my point and hurts very badly. I sold a house this year for 375k. I held it for just under a year. If I would have just listed it at 375k to begin with I would have made about 30k more in profit. That is some serious money.
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.
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.
