My First Deal
I thought I would go ahead and post a summary of my first "real" investor deal. I hope you enjoy it.
Property was a messy, cluttered, dirty 3BR, 1BA condo with a detached 1 car garage. ARV was approximetely $225k. Got it under contract for $178,500 subject to their existing $150k mortgage. They owed about $15k in fees and back payments and had a $5,500 pre-payment penalty on their mortgage. I figured the sellers would end up with about $5k left over so that is what I agreed to give them at closing as part of the $178,500.
No significant repairs were required, just paint and carpet and a really, really good cleaning.
As soon as the property was under contract, I figured I would see if it would sell as is with owner financing before I fixed it up. I ran an ad in the local paper for one weekend offering the property as is with owner financing. I got about half a dozen calls and only one young couple came to see the place. They came back a couple times with family and really fell in love with the place. They could see the potential and made me a $200k offer as-is. I got them up to $205k and we had a deal. I did just about no work to the property at all.
I had to come up with about $17k in private money to pay off the overdue condo fees, taxes, water and sewer, etc. to clear title and gave my sellers their $5k. I then closed a couple weeks later with my buyers who got a new bank loan. I got a check from my attorney at closing for $40,427.95.
After paying back the $17k I borrowed, I cleared over $23k. Not too bad for my first deal. I hope this inspires some of you.
Steve in CT
Congrats Steve, good job! Best of luck on the next one.
brookview,
I find it interesting that your user name is the same as a HML located about 12 miles from what you list as a home town.
If you are on the site pimping for them it would be a shame since I had heard a lot of good things about them. If you are them and want to advertise there are better ways to do it.
brookview,
Congrats and thanks for posting the summary of your first "real" investor deal.
brookview,
BTW...I am looking for investors to network with in CT, if interested PM me.[ Edited by RockBros on Date 12/04/2006 ]
Thanks for sharing. Would you mind sharing about the private money loan? I am looking at doing a my first deal soon and was thinking of using a credit card. Any tips on that, or is that totally bad idea? I have some cash, but do not want to use it yet.
Looking at your numbers, seems that you do not account for about $3,500 in your statement here. If you paid the sellers $178K, which is about $28.5K over what they owed, and you picked up their fees of $15K plus $5.5K and $5K to the sellers, that comes to $25.5K. Did I miss something? I am just trying to see how you made this work and if I get a deal like this, I want to make sure I do it right. Thanks gain.
Congrats Steve, I am also in CT (Fairfield County). I am very new to this but excited and ambitious. I am hoping to be able to find a deal, then assign the contracts without any money out of my pocket. Any advice for a neighbor or contact for investors in CT that you would like to share would be great! thanks a bunch!
I have signed estimates from contractor and received comps from realtor. The property was bought at foreclosure auction. The repairs could run a little higher, but since I plan to rent it, the list has been trimmed to get it in liveable condition.
For instance, the house does not have central air, and the kitchen can use updating. However, realtor feels confident I can rent it easily.
If there’s not much equity and it’s barely breaking even as a rental, I might suggest selling it with a L/O, a CFD, an AITD wrap or some other form of owner-finance.
That way you could do it with no qualifying to the buyer, and then charge a little over current market value and a little more in interest/payments.
That’s just one idea. I’m sure others will have some more for you.
Bouyer,
What is the purchase price of the 4 plex? With the $15k to help with closing costs or down payment You should qualify as you said for a loan. VA loans are good but may not be the best deal or cheapest loan for this property. There is a loan for this type of deal if you want to move forward.
Good Luck,
Robert
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There is a group of 6 4 plexes ranging from 115k to 155k, the 1 that I am looking at is 145k. Most of the rent ranges is $450 to $550, the building that I am looking at is 100% occupied at $500. Are you saying that I could probably get a loan without using my VA. I would much rather get a regular loan and not have to use my VA., if all possible
Thanks for replying.
Bouyer
What types of loans could I qualify for? Sorry I dont know my credit score, Im scared to pull it, plus I dont want it to go down any more so I was just going to wait until its a necessity.
I have found...
*Imperfect Credit Loans
*No Doc Loans
- Less than 50% LTV you dont have to qualify for the loan, the property qualifies
*Interest Only Loans
- payments are smaller plus you can get the stability of a fixed rate with the option to pay principal with no prepayment penalty and no negative amortization
*Balloon Loans
- a short term loan amortized as though it were a 30yr loan, but at the end of the short term you owe the bank the entire lump some, tend to have lower interesst rates
*Bridge Loan
- taking money from one property and using it to purchase another property
+Interest Reserve Account
-money set aside to pay payments
Plus I have found some grants...
*10.433-Rural Housing Preservation Grant
*10.410-Very Low to Moderate Income Housing Loans
*10.417-Very Low-Income Housing Repair Loans and Grants
Those are a few sources that I have come across in my research, but I have never applied for either and dont know the criterias. (Except for the grants)
The grants would be awesome, but the deadlines are up. But next year.....
But I would just like to know what you all think is the best route to go. From the given, or others.
Plus, would my loan type and criterias change if I was thinking about renting the one close to the college out. But quick flipping the other.
But I dont want any penalties if I decide to sell the property. So first time buyer is out the question.
Thanks for any advise that you may have. All will be taking into careful consideration.
Extrodinaire[ Edited by Extrodinaire on Date 10/24/2006 ]
AS long as you are buying right, you can make money buying and rehabbing property without money of your own. I can loan 65% of after repaired value. If you can find a deal 50-60% of after repaired value, you can generally borrower enough to buy and fix.
jane[ Edited by JohnLocke on Date 10/23/2006 ]
The only way to discover the limits of the possible is to go beyond them into the impossible. -Arthur Clarke
The only thing standing between a man and what he wants from life is often merely the will to try it and the faith to believe that it is possible. -Richard M. Devos
There is one quality that one must possess to succeed and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it. -Napoleon Hill
People with goals succeed because they know where they are going. -Earl Nightingale
Business is a great teacher: It teaches you to take risks, go for your dreams, face fears, handle your emotions, deal with difficult people, and learn balance. Go into business and youll be enrolled in the greatest seminar of all time. -Joe Vitale
I am not afraid of storms, for I am learning how to sail my ship. -Louisa May Alcott
Success is not accomplishing but merely trying to accomplish those goals set for thyself, because stating, educating, following through, and learning are all the essentials needed. -Extrodinaire
Extro,
A couple things easily messed up(I definitely did) before you rehab a property are rehab costs and ARV. If a property can be purchased for $15k with an ARV of $130k and only $40k in repairs, why is it still available? Perhaps you can take this deal to someone for a $10k birddog fee, as they will still be able to make lots of money at the $25k price.
Most likely those rehab costs are well under-estimated unless you plan on doing everything yourself. Siding can easily be $6-8k, flooring, trim, plumbing, electrical, foundation, yardwork, roof, windows, drywall(plaster in your case), uneven floors, etc etc can really start to add up.
My recommendation would be to take that deal, wholesale it to another investor and then learn as much as you can about your local market as far as ARV prices, etc. What are you basing your $130k ARV off of?
Chase
Quote:
On 2006-10-25 00:59, Extrodinaire wrote:
The only way to discover the limits of the possible is to go beyond them into the impossible. -Arthur Clarke
The only thing standing between a man and what he wants from life is often merely the will to try it and the faith to believe that it is possible. -Richard M. Devos
There is one quality that one must possess to succeed and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it. -Napoleon Hill
People with goals succeed because they know where they are going. -Earl Nightingale
Business is a great teacher: It teaches you to take risks, go for your dreams, face fears, handle your emotions, deal with difficult people, and learn balance. Go into business and youll be enrolled in the greatest seminar of all time. -Joe Vitale
I am not afraid of storms, for I am learning how to sail my ship. -Louisa May Alcott
Success is not accomplishing but merely trying to accomplish those goals set for thyself, because stating, educating, following through, and learning are all the essentials needed. -Extrodinaire
Extrad I suggest you pay a lot more attention to what bargain is saying. He has experience with this stuff.
First of all, I cannot fathom why you quit your job. Enthusiasm is good but that could be poor planning. When I started doing this I kept my job and did the rehabbing on weekends and nights. I do not do the rehabbing myself anymore because now I have a construction company.
On my first rehab I inspected the property thoroughly and had a home inspector inspect it as well and still ended up with higher than calculated rehab costs due to unforseen issues. So far this year none of my projections have been off. But it took trial and error, lots of reading and lots of research. And learning when to listen to good advice.
With bad credit and no job you are basically out of mainstream money. And with no experience some hard money guys will not lend to you no matter how sweet the deals look because I am sure they see "sweet" deals all the time. Some will want to know your experience in the field. Because ultimately as bargain said they want their money and interest back, not a property to contend with.
If you can try to look for a property that might have a little higher asking price but requires less rehab. Call around to hard money lenders and suss them out. Ask their terms, LTV, if there are prepayment issues, etc And also check around for properties being rehabbed and see if you can get a part time handy man job with one of them. Observe and learn. Starting out slowly is not always a bad thing.
Good luck to you
Hi to the both of you,
Thanks for the help. I have really been thinking about those very issues. With the house being so old and all. I realize, even though it may look like a good investment from the outside, I never know what kind of mess im going to find once I get inside the deal. Even though I did add in my miscellaneous, it may still end up more than I planned. Like you have said, the contractors arent always exact. And I really dont want to get in too far over my head on my first deal, as far as the rehab is concerned.
So,
I have been looking for younger houses, at still not so expensive prices, in good markets. By the way, I always do my, in depth, due diligence before I ever think about purchasing a property. I used to be a Supervisor and a Quality Assurance/Control Assistant, so im used to doing a lot of research and paper work. Plus I was a nerd in school(took honors classes, including Calculus). So this is right up my road.
I just feel as though no one is going to pay me what I am worth. That is why I choose not to work. But, I actually had to quit my job because my cars motor went out and the distance was too far for anyone to take and pick me up. I can get it back at any time, I just choose not to because I know that I can do better. I have worked hard all of my life, although I am only 23, but I refuse to work like that for the rest of my life. Thats why I have taken a step outside my comfy little box.
I am not at all simple-minded as far as just thinking conventional wisdom. I am very creative, so I will make a way out of none. To find the gold, you have to dig for it. So Im going to dig and dig and dig until I find what im looking for. "If I dont find gold, ill take oil!" I just figured you guys could help me since this is the creative investor.
As far as Bargain goes, I realize that he has been doing this for a while and I respect that. I have listened and heard what hes had to say, but that was just not what I was looking for. I was looking for some advice and all he gave me was more reasons to procrastinate. When I hear all the time "No Money, No Credit" so I have no reason for that.
I was just trying to get you alls advice on what I should do in my situation. I have been talking to a lot of people and done a lot of research on this, but I dont know it all, so I figured it wouldnt hurt to see what you all had to say. I really have no problem with listening, when someone has something to tell me. You probably wouldnt believe me, but I actually listen more than I talk. Thats how you learn, and im all about that!
Knowledge IS the key to success!!
Extrodinaire
Extrodinaire, I live about 30 minles from you and would be interested in taking a look at the properties with you, if you are interested. They sound "too good to be true" but maybe we could work out something that would benefit both of us. I have done one rehab and have purchased another one to begin on. Lots of advice/comments available on this site, some good, some not so...just take what you can use and throw back the rest!
Hey, Extro,
Altho 76 may sound a bit cold & callous - he is right. All areas of RE investing do take time, dedication and perserverance to succeed.
Oh, I forgot to mention good contacts, marketing costs and a decent transportation!
The type of rehab you are proposing, creating a legal third unit, will certainly increase the appraisal and for some lenders would probably be sufficient to justify a cash out refi.
"Seasoning" is a term used to describe a lenders requirement that you own the property for a period (generally six months) before they will refinance it for a higher amount. The reason for this is that a certain criminal element buys houses then flips them to a "straw man", who then flips it to another "straw man", with the price going up substantially each time- until the bank has lent far more than the house is worth, at which point the team (buyer, appraiser, straw men) bails on it, pocketing the difference between the initial purchase price and the final loan. To help prevent this banks prefer to wait at least six months before making a bigger loan on a property, unless it is justified by some serious rehab.
Chris
Hello AshanPD,
I just finished reading 3 books by Russ Whitney.
The most informative one was Millionaire Real Estate Mentor, which I purchased from www.Amazon.com for about 8 -15 dollars used. ISBN # 0-7931-6686-1
I found it easy to read, full of strategies and examples of how to purchase properites in specific ways and why. It also had success stories that were interesting.
I have also found several books at the local library.
Happy Investing!
Karin
What kind of REI are you interested in?
For Buying and renting I would suggest Rental Houses for the Successful Small Investor:
http://www.amazon.com/Rental-Houses-Successful-Small-Investor/dp/0966469119/sr=8-1/qid=1167761621/ref=sr_1_1/002-9407557-1315261?ie=UTF8&s=books
For rehabbing, nothing beats "Buy It, Fix It, Sell It...PROFIT," by Kevin Myers.
And it looks like 47 Amazon customers agree:
http://www.amazon.com/Buy-Sell-PROFIT-Kevin-Myers/dp/0793169380
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Also, Bob Bruss just posted his recommended year-end list of the "Top Ten Real Estate Books of 2006."
Check it out:
http://realestatebooks06.bobbruss.com/realestatebooks06/
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Good suggestions monkfish, I just got "Buy It, Fix It, Sell It...PROFIT" last week and looking forward to learning from it.