The hunt for a bargain property

[pyriel]

I have this little project. To find a bargain property that will provide me positive cash flow throughout the entire lifecycle of the mortgage. My purpose for creating this blog is to teach others on what steps to take to get a cash flowing rental property. I will show the following:

1. How to look for a rental property or flippers

2.How to find aproperty

3. How to conduct a paper analysis for cash on cash return for the investment

3. How to submitan offer/tying up the property

4. How to conduct due diligence

5. How to get financing (I will also talk about what the bank usually look to get a good financing)

6. Closing the property and how to get it rented or sold

I will actually buy a property for this project. Let's go make some money...:^

[Show-me]

Sounds like fun!:^

[pyriel]

1. How to look for a rental property or flippers


Since yesterday, i've looked at more than 100 properties. I went to Multiple Listing Service (MLS) and I also read the newspaper advertising column. I was in luck since Tuesday is the day that real estate advertisementcomes out. I also picked up a couple of local magazines that have real estate advertising.I am pretty well versed with the real estatemarket in my area and I recommend that people who wants to get into real estatedo thisdrill so that they can get a better feel of the market.So far, 3bd 2bt that is around 1100 sf is running about 125-140k in average. This is totally different2-3 years ago when theywere an easy pick for 80-125k. Real estate is definitely going up. I have two properties that I selected and have informedmy real estate agent that I want to see them this Saturday. Here is the breakdown:

1. 3bd 2 bt w/ tenants. Property is located near my other rental properties. Asking price is 128k.

2.4 unit apt with avery big house. 4 unit is divided into 2 = 2 bd 1 bt and 2 = 1 bd 1bt. Place is R2 located in a half acre lot. Place is central andit is within my neighborhood.Asking price is 369k.

Next, i'll be doing the paper analysis to see which one will give me a better return.

[Shaggy]

I can't wait. Thanks for doing this step by step, it should really help!

[pyriel]

I've added two more properties to look at this weekend.

3. $127,500 4bd/3ba 1,357 sf 600sqm, w/huge extension at rear, carport, MOTIVATED SELLER (my favorite friend). place is about 30-45 minutes south from where I live. Most of my properties are north of my place so this is going another direction and could be an inconvenient to pick up rent... I'm lazy...

4. $125k 3bd/1.5ba fully fenced, ceramic tiles, indoor laundry, carport and split a/c. This is about 10 minutes from the rest of my other properties.

My rule of thumb, research 100 properties, pick 10 properties,make an offer on 5, buy 1.Never ever pay the asking price except for extraordinary circumstances like you are in Hawaii and you know that thereis an aircraft carrier thatis about to be assigned there (this is a fact and is currently happening in Hawaii).

I currently have 30k in the bank.This is the left over proceeds from me selling my 4plex that I got for 170k in July and sold it for 250k onOct.I am also in the process of refinancing my 8 unit apt which was bought for 240k in March 2003.Current balance is 198k. I'm looking to refinance for 280k. After everythingsettles, I shouldpocket 65k for that transaction.I also have 50k equity line of credit for the 8 unit apt.This gives me30k + 65k+ 50K = 145k readily available cash to purchase a property.

This power will allow me to buy the property in cash and should give me negotiating leverage with the seller. However,another rule of thumb is that the less money coming from your pocket the higher the return and lower the risk.You can rest assure that I will only use all my cash if I could get a better deal from the dealer. However, as soon as the property is under my name, I will immediately go to the bank and refinance so that I can get my money back. Here is an example, Lets say the sellerwants 125k but there are something wrong with the house such as renovation which would cost about 5k. I'd offer105k-110k, i'd pay all cashwe'd close in1 week. If the property appraised for135k (my real estate agentused to be an appraiser and he always tell me if the property could be appraised higher than the selling price) and the title is mine free and clear, the bankcan lend me 80% of the appraised value which should come out to 108K.If I paid 110k and got back 108k by refinancing, I just lower down my risksince now my cash on cash investment on the property is only 2k.

On top of my head, 108k with 7.5% interest w/30yearsshould give me a mortgage of $600 property tax and insurance should be another$150 for a total of $750. I know that I can rent a 3bd/2 bt for$1100.This would give me $350 positive cash flow per month and$4200per year.Sincemy investment went down to $2k, my cash on cash return on my investment is 210%.This means that I will get all my money backfor the first year(plus more) and every year after thatare all profits.

I hope that you can all seewhat I am talking. I'm open to discuss this for anyone who might have any questions concerning to this post.... Sorry, very lengthy...

[Shaggy]

I have a question. You know about my rental property as we have talked about it before. It is a trailer on an acre. I bought it and paid for it in five years why I lived there. Now it is a rental. Can I still depreciate it now that it is an investment? Is so at what rate? I thought from my accounting classes many years ago it was a 10 year depreciation, but I cannot seem to get the calculation you used on the example spreadsheet you provided.

[pyriel]

Shaggy wrote:
I have a question. You know about my rental property as we have talked about it before. It is a trailer on an acre. I bought it and paid for it in five years why I lived there. Now it is a rental. Can I still depreciate it now that it is an investment? Is so at what rate? I thought from my accounting classes many years ago it was a 10 year depreciation, but I cannot seem to get the calculation you used on the example spreadsheet you provided.
Hmmm... The rules don't changed just because you paid off the property and made thema rental. Something about depreciation, it is constant. This means that if you use 40 years as your depreciation factor when you first bought it, it should still be the same one youshould use while you are having it rented.However, please don't think that you can start all over again since the property is now a rental property. So your depreciation factor should beCost of purchase divided 40 years.Totalfor each year is your depreciation factor.

Please note that my expertiseare buildings, houses, and apartments. I am not very familiarwithtrailers (Our typhoons will toss them in the air in a heartbeat). 40 years is a safe depreciation factor for it covers pretty much all of them. However, it might not be conducive for you especially if you are trying to depreciate your property faster. In some of them you can use 27 years as depreciating factor.:^

[Shaggy]

OK but I have never depreciated it any because for the first five years I lived in it so I could not take a depreciation on it. So I would have to take the purchase price / by say 30 years and then apply that amount for the next 25 years since I was not entitled to the first five. Sound right?

[pyriel]

Shaggy wrote:
OK but I have never depreciated it any because for the first five years I lived in it so I could not take a depreciation on it. So I would have to take the purchase price / by say 30 years and then apply that amount for the next 25 years since I was not entitled to the first five. Sound right?You are entitled on the first five. Depreciation is not just for rentals. It is also for homeowners...:^

[pyriel]

As of Saturday, 8 Oct 05, I visited all properties that I picked. I was going to do the paper cost analysis but decided to wait until after I saw the properties. Out of the 4 properties I looked at, I've decided thatonly onefits my investment rules; #1. (3bd 2 bt w/ tenants. Property is located near my other rental properties. Asking price is 128k).

#2 was eliminated because although it is a good investment, the I would have had to put 30% down payment. Askign price is 369K. Even if I am successful in bringing it down to 300k, I still have to come up with 90k for downpayment + closing fee and appraisal of about 20K. Loan will have to go to commercial because all banks here consider anything above 4 units to be in commercial loans. There is also an issue whether there is a setback problem due to close proximity of the 4 plex and the big house upfront.

#3 was eliminated because I learned that although the owner is a motivated seller and she is currently off island, she is not hurting financially. Place will also be harder to rent since it is farther away from the city. There is also an estimate of 10-15k of repair that must be done.

#4 was eliminated because I learned that the owner bought the property for 115k a year ago. He went ahead and put a fence around the properties because of his dogs. I feel that the owner will not have any room to negotiate since he is still maxed out with his loan + fencing costs. Place is also located in a ghetto like area so appreciation is unlikely. I like buying a property in a steal with equities imbedded into it.

What is a setback? Setback is the boundary betweent the building and the property point. Here A house must have boundary points of 10 feet in the back, 8 feet on the side, and 15 feet in front. If the house is non conforming, it gets harder to get a financing from the bank. Now it is not impossible to get financing somewhere else but you will have to sacrifice loan term such as ARM instead of fixed, prepayment penalties vs. no prepayment penalties, etc. etc...

I will be going back toproperty #1 this afternoon to relook at the inside of the house. If I like what I see, I will then do a paper analysis for my cash on cash return on investment. If I don't like what I see, I am back to square one and must resume looking for another 100 properties. Happy rental house hunting...

[Quips]

I currently have 30k in the bank.This is the left over proceeds from me selling my 4plex that I got for 170k in July and sold it for 250k onOct.I am also in the process of refinancing my 8 unit apt which was bought for 240k in March 2003.Current balance is 198k. I'm looking to refinance for 280k. After everythingsettles, I shouldpocket 65k for that transaction.I also have 50k equity line of credit for the 8 unit apt.This gives me30k + 65k+ 50K = 145k readily available cash to purchase a property.



Okay, I hear you. Like many people with much experience in a particular field, they tend to take much of their knowledge for granted especially as it concerns how other(s) would understand what they are saying.

The first two sentences tell me that80K was madein three months, over 50 % or 200% return in one year. Nice return: Question: howdid that happen? How does one get such a huge return in so little time?

Anyhow, there was 30K left over from that transaction.Now the next two sentences; an 8 unit apt was bought in Mar. 2003 for 240K, and currently 198K is on the mortgage. I suppose the rental income is being used to pay the mortgage there. By refinancing for 280k, does that mean the property has appreciated 40K over that timeframe? The 50K equity line probably includes the rental income and how that was used to secure equitysince March 2003.

After everything settles, I should pocket 65K for that transaction. It is plain where the first 30K came from, it is not so obvious where the 50k came from, but I gather it came from the rental income.

By refinancing at 280k, the price appreciated after 2.5 years; okay, are you saying then that 40k difference is being counted as increased equity on your property so where does the other 25K come from to make 65K?

Sounds complex.

[pyriel]

Quips wrote:
The first two sentences tell me that80K was madein three months, over 50 % or 200% return in one year. Nice return: Question: howdid that happen? How does one get such a huge return in so little time? Actually, the return is much higher than 200%. I used my VA loan to acquire the 4plex (so no money down) for 160k. I included some of the closing cost and VA also let me borrow 6k more to install energy efficient appliances. So my mortgage went up to 170k. The place needed some renovation so I went to another bank and borrowed 25k to pay for some closing and renovation. As you can see, no money has left my pocket yet. Iclosed on the property on7 Jul 05. I thensold it for 250k. So lets do the math. 250k (selling price) - 170k (loan amount)= 80k - 25k (personal loan from another bank) = 55k - 13k (truck loan from the corporation) = 42k - 12k (I decided to renovate some part of my house = 30k. However, the real profit is 55k or 55,000% within 3 months and not the 200% that you mentioned earlier. Why is it 55,000% and not 200%? This is because I have zero money that came out of my own pocket. All investment within this deal came from OPM. So for zero money investment, I received 55k in return.



Anyhow, there was 30K left over from that transaction.Now the next two sentences; an 8 unit apt was bought in Mar. 2003 for 240K, and currently 198K is on the mortgage. I suppose the rental income is being used to pay the mortgage there. By refinancing for 280k, does that mean the property has appreciated 40K over that timeframe? The 50K equity line probably includes the rental income and how that was used to secure equitysince March 2003. 8 plex was bought for 240k. I put a 10% down and the bank financed 216k. Tenants have been paying for 2 years now and my balance is 198k. So my cash investment that came out of my pocket is 24k + 8 k closing cost = 32k. Property was bought in dilapitated state (this is what I like buying run down places). The property, we believe, is now worth over 400k with no less than 350k. So worst case scenario, the property appreciated 110k within 2 years or best case of 160k (or more?). (I'll talk about how appraisersdo their figures toward the end). As for the 50k equity line of credit that I have with the property, I pay $300 to keep that. They give me checks that I can tap into whenever I feel like doing so. Right now it is just sitting there just in case there is a really good deal that pops out. The $300 yearly fee is tax deductible.

After everything settles, I should pocket 65K for that transaction. It is plain where the first 30K came from, it is not so obvious where the 50k came from, but I gather it came from the rental income. 50k is an equity line of credit usable anytime I feel like it. here is the breakdown for refinancing the 8 plex. Refinanced for 280k - 198k (loan amount) = 82k - 8k (prepayment penalty) = 74k - 9k (closing cost and appraisal fee) = 65k. There is your 65k.Now people always tell me that real estate is risky. But lets look at this particular scenario. I put down 24k + 8k for closing for a total of 32k. This is my cash investemnt for this property. After doing my refinance, I will get an excess of 65k. This means that I will get all my money back within 2.5 years. That is a return on my cash on cash investment of over 200% return. You see? Not only that I got my cash investment back, Iactually doubled them and the money is here right now, ready to be used. Unlike our TSP, IRA, 401k, you have to wait until you retire totouch them. I also was able to utilize the phantom incometo bring down my personal income tremendously. The best part of all of this is thatallpassive income coming from the rental now are all profits or return on investment. My original investment is back in my pocket. Now, i'd like anyone to tell mewhich one is more risky, our TSP, IRA, 401K or real estate investment.

By refinancing at 280k, the price appreciated after 2.5 years; okay, are you saying then that 40k difference is being counted as increased equity on your property so where does the other 25K come from to make 65K?Please read above. I showed you where the 65k came from, where the 30k came from (it is actually 55k but I used some of the money which left me with only 30k), and where the 50k came from (equity line of credit).

Sounds complex. It is not that complex.

[pyriel]

I inspected the place last Sunday and the structure of the house seems sound. The side and the back seems to be to close for comfort to the boundaries and the real estate agent said that she will check on it. My plan is to close off the carport and convert the house from 3 bedroom to 4 bedroom. Why? Section 8 pays $1400 for 4 bedroom vs. $1150 for 3 bedroom. This is a $250 jump per month and $3k per year. Cost to convert carport to extra bedroom is about $3k.

My real estate agent and I agreed that the house is probably worth $110k - $115k. Selling price is $128k. We will be making an offer for $105k and will work our way up once negotiation starts. If our offer is accepted, we just tied up the property. Some people thinks that due diligence is the next step because they want to know more about the property. Wrong! Tie up the property by making an offer but also ensure that you have a way out if you don't like what you find with your due diligence later.

Now, how do you get out of the contract between seller and buyer? In your offer, you must put down "contingencies." contingencies put the seller on notice that you will be looking carefully at specific items pertaining to the agreement and that your final decision to buy is based on those findings. Here are some example of contingencies: 1. Review and acceptance of all financial records, 2. obtaining clear title to the property, 3. Satisfactory inspection of the property, 4.Securig financing acceptable to the buyer 5. Partner's approval 6. This offer is subject to .... You can add more to it if you like but the concept is to put contingencies for you to get out if you don't like what you find with your due diligence.

When I make an offer, I always put in the following"My name and/or assigns, Subject to satisfactory inspection of the property, Subject to buyer securing financing acceptable to the buyer andSubject to partner's approval."

[pyriel]

I added two more properties to look at. I have two prospective section 8 tenants that would like to move in. One requires a 3 bd while the other requires a 4-5 bd. Section 8 pays $1200 for a 3 bd and $1500-$1600 for a 4-5 bd.

5. 3bd/2bt $104k near the rest of my properties.

6. 3bd/2bt bank foreclosed and selling for $90k.

I've decided to buy two properties before the end of this year instead of one that I mentioned earlier. The problem that I am foreseeing here is the price and quality of the properties I am researching and the cash on cash return on my investment. Everything is going up now and it is getting harder to find real bargains. I still need to do the paper analysis and will put that out sometime today. Good luck to all...

[pyriel]

Attached is the paper analysis for cash on cash return on investment if I decide to buy the house #1.The premise here is that I will put 20% down, make an improvement of 10k and rent it out for $1400 per month. For those of you who are following me, please take a look at the attachments and I want you to pay particular attention to the down payment. Try playing around the down payment and repair and see how it changes your cash on cash return. Bottom line, the lower the cash coming out of your pocket, the better the return. So, if you can do the work yourself for maintenance and/or you can get a better financing with lower down payment, do it.

A VA loan with zero down payment (only closing cost) would have provided me with abouttwice the return and get all my money back in less than two years. The cash on cash analysis below will take me 5 years to get my money back with 20% yearly return on my cash investment. Please don't forget that I am not even including phantom income such as depreciation, interest payment and property tax.

Now, usually, I look for properties that will give me a much higher return. However, at this point of time,I don't have a choice. I have from now until December 31 tocreate deduction for the profitthat I received from the 4 unit apartment I sold recently. So far,I've already managed to create a 44k deduction fromthe 55k profit that I made. Butmaybe, i'd talk about that in a different thread. I promisedmyself not to let Uncle Sam touch a penny of that 55k profit. hehehehe

[pyriel]

I made two more offers for 2 different house.

House #5. I offered 83k with 10% down and the seller waives points and closing cost. They should also finance the other 90% without a prepayment penalty.

House #6. I offered 70k all cash to close within 20 days upon acceptance of the offer.

Total offered on the table = 3 houses. How the hell am I going to buy all these? I don't know... Main point is to tie up the property so that I am not competing with anyone.

With house #6, I promised to help a friend. He also put in an offer for 75k, 100% financing to close within 60 days. We think that his offer is weak and the house is already sold pending without any paperwork (at this time). Renovation $ will be about 15k-20k. My real estate agent advised me that he can easily sell the property for 125k. He knows that I do good work with my renovation (I mean my workers). If I get it, I will just resell it to him at cost + closing cost and interest from my other financial backers. Bottom line, I will not make money out of this. Too bad, it would have been a good 30-35k profit within 3-4 months. But that is ok... I am teaching him how he can make real estate works for him...

More to follow...:^

[clester]

Pyriel,I sent you a PM. I have a rather lengthy question.Thanks

[pyriel]

Clester, I wish you luck.

I've spoken with someone who I know have available cash. I informed him that I would like to take his 50k. In return, I will give him 1% per month until I repay him the whole balance of the loan. He will write the contract so that he knows that our agreement will be in his favor. I also told him that the contract should add that I become responsible for all attorneys fees if he ever decides to take me to court. I also told him to adda clause thatif I don't pay my 1% monthly payment on time in two consecutive months that I he can take me to court for defaulting on the loan and I would have to incur an additional 10%of the debt. I am willing to go to 2% per month but I am not about to tell him that.

Now, this could be risky for others but not for me. The reason for this is because of advance real estate which is what I am about to discuss. Let's say that for house #6 they take my offer for 70k all cash payout. I will take his 50k + my 20k = 70k. I now freed up some of my cash for renovation. I will renovate the place within a month and then go to the bank to make a loan using the newly renovated house as collateral. So let's say that it took two months to do all that and I am able to get 80% financing for my renovated property. My real estate agent and I know that a good renovated house within the area can appraise for 135k. 80% of 135k is 108k. My cost to borrow his 50k is 1k for two months. Profit? 108k - 50k = 58k - 1k = 57k - 40k (20k my own money and 20k renovation) = 17k.

I can rent the house for $1100. Since the borrowed money is 80% of appraisal, I don't have to pay for PMI. Just take the cash on cash analysis excel worksheet and plug in the numbers and you will see that there is a positive cash flow for this deal. Notwithstanding the fact that I now have 17k to further help my renovation...

Hope this helps you all figure out ways to come up with ways to make real estate work for you... Next topic will be financial statement as your report card to the bank...

BTW, got another place to live while my cotractors renovate the house. Thank goodness...

[pyriel]

I'm attaching a copy of a financial statement that you can use for you to manage your wealth. This is also a good tool to provide to the bank just before you ask them to prequalify for a loan. What I usually do is call all the banks to see who has the best rate. Please don't be fool with just looking at the interest rate. You must also look at closing cost, appraisal cost, points etc. etc. Remember, and I believe i've shown this in my previous post that the LESS MONEY COMING OUT OF YOUR POCKET, THE HIGHER THE RETURN. That is the bottom line. Once I find out who has the best rate, I usually give them a call and explain to them the property that I wanted to purchase. I then email them my financial statement so that they can see a snapshot of my expenses vs. my income and my liability vs. my asset. One thing i've found out is that 90% of the loan officer that i've communicated with also does not know how to look at financial statement. I've always had to explain to them what they are looking at.

I do my financial statement monthly. The reason why I do this is so I can see which EXPENSE I should try to pay off first. This is important. If you have 3 credit cards balances and you try to pay extra for all of them, it will take a long time to pay them off. Always pay off the minimum to the card that has the lowest interest rate. Pay all the extra money you have to the one with high interest rate. Once you are done paying off one card, go ahead and send all your extra payment to the next card. As of today, I have no credit card expenses (i pay them off in full monthly), I have no car expenses (they are all fully paid), andI have real estate payment but they are being offset by rental income.

The bank doesn't care if your suma cum laude in college. This financial statement is your report card. They will look at your income to expense ratio and if you do not meet that standard, they can either deny you loan or give you loan that is conducive to their term... They are looking at assets that provide income that will offset the expenses. Your asset column should be higher than your liability column. If you find that your liability column is higher than your asset, it means that you fall under the category of middle class financial statement which I will talk about on my next post.

[pyriel]

Negotiation for House #1 and #5 fell apart.

For house#1, seller decided not to do a counter offer. If you all can recall asking price is 128k and I offered 105k. They came back with 122k and i countered with 108k.

For house #5, bank foreclosed and selling for 103k. I offered 83k, 10% down and they finance the rest. They countered with 103k.

I informed my real estate agent to wait another 30 days and given them my last offer again. He is to do that until the properties are sold or they decide to consider my offer. The only other offer I have that is in the table is House #6. I offered 70k all cash. Property is foreclosed and owned by Fanie Mae. Something about Fannie Mae and Freddy Mac, these two behemoths are slow movers. It could take weeks or months before I get an answer from them. So far, our offers has received no response for two weeks now... We'll see.

Pice of advice. Do not ever buy a rental property to meet seller's price unless you've done your numbers crunching. Although I could have met sellers' offers for both properties, I decided not to do it. One, I am looking for a bargain and I am willing to wait. Two, it would have eaten some of the profits or cash on cash return on my investments. Three, my recourse to dump the properties would have been less than satisfactory because I would have been buying them high. Always remember that there will always be another deal waiting. Good luck..

[pyriel]

Newspaper here on my side just announced that 7k Marines will be relocated here from Japan. I am changing my strategy and will relook at some of my offers. 2-3 years of bubble just showed up in the horizon here on Guam. Real estate here will start appreciating (i'm pretty sure). I am now going to be ever vigilant in looking at the market to see if there will be a spike in housing prices in the next six months. Godd luck to you all...

[pyriel]

Negotiation for House #5 is back. I offered 90k and they came back with 98.5k. I counter it again for 93k 60 days to close and to allow me to renovate as soon as they accept my offer. We'll see what happens.

I then went to several banks and met with loan managers. I asked them to give me a good faith estimate for two different scenario. First one is for loan of 95k, 20% down, no pmi, 6.5% APR. The other one is for a VA loan 7.5% no prepayment penalty, no pmi, no closing cost.

With the 20% down, I would have had to let go of 19k + 6k (additional closing cost) + 10k repair for a total of 35k. If I rent it out for $1100, I would have received a $500 cash flow every month. This would have given me a cash on cash return of 17% for the money that came out of my pocket. It would take me 5.8 years to get my money back.

With the VA loan 0% down, I would have had to let go of 4k (additional bank fee and points) + 10k repair for a total of 14k. If I rent it out for $1100, I would have received a $300 cash flow every month. This would have given me a cash on cash return of 26% for the money that came out of my pocket. It would take me 3.8 years to get my investment back. Additionally, my exposure to risk was minimized because instead of putting in 35k, I am only putting in 14k.

Which one is a better deal? I hope that at this point of time, you would be able to figure it out.

[pyriel]

I'm still waiting for a reply from my real estate agent about house #5. I went online last Friday and they lowered down their asking pricefrom 103k to 99k. I had mentioned that my last offer was for 93k and immediately called my real estate agent to close this deal as soon as we can.

I will most likely buy two properties (if not three) before the end of the year. I have to create some deductions to offset the profit I received from selling the 4plex last month. Next year, the passive income (extra money) i'll be receiving will be offset by both of my wife's and my TSP contribution of 15k each (total of 30k).

Good luck to all and please don't do what I am doing unless you are very comfortable with the risk. As for me, I know all the risks and have contingencies to overcome them. Thanks for reading...

[pyriel]

Negotiation have broken down again. Bank counteroffered with $98,500 against my counter offer. I have instructed my real estate agent to stand down and not to pursue it.

What we are doing is creating another offer with someone's name on it. Now, this tacticis not against the law. This is how it will work. I will ask my father in law to put in an offer for 90K all cash due by 30 Dec 05. The name that will be in the offer will be "Mr. Jerry Jones (fictitious) and/or assigned" The "and/or assigned" clause is very important because it means that the individual can assign the agreement purchase to somebody else. This will allow other investors to buy the property instead of the individual that wrote the contract.

The premise here is that the bank I am dealing with knows that I am an investor and probably hanging on knowing what I am capable of paying. By introducing other investor to the pot, they might just want to give it to that individual thinking that they are a first time homeowners. We'll see and keep my fingers cross...

[pyriel]

I just want to let everyone know that i decided to pursue this property on 2006. I am currently in Hawaii and I have another travel plans after this so it is pretty hard to pursue something when I am on tdy. I am honing on thisproperty and will utilize my strategy when I get back. Since I am no longer in a hurry, I will keep my options open and may also move on to another property if we are not able to close.

Hope you all have a happy holidays!!!! Missed you all...

[Gilligan]

Thanks for the update, I was wondering what happened to your deal.

Have a Merry Christmas.:^

[pyriel]

Thanks Gilligan. Glad to know that some people are finding my blog useful. When I started this last October, I really meant what i said about closing a deal. However, people need to understand that closing a real estate deal does not happen overnight. I usually look at 3-6 months window. I figure that if I am going to invest and put my signature on the dotted line, I might as well work on lowering down the risk. This is why I think real estate is less risky than playing with mutual fund or individual stocks. At least I can do something about my rental if my old tenant ever decide to move out. Thanks...

[ocean]

Pyriel,

I'm glad that I found you here in the real estate section and your intro in your first TSP talk. I know I can learn a lot from you on real estate than the TSP allocation :). I will be 51 years old in 2 months and I think I'm trying to catch up with the real estate investment.

I first noticed real estate investment to the road to success back in early 80's from Robert Allen's seminars. I haven't done anything then. About 8 years ago I bought Carlton Sheets course for No money down in real estate, again I haven't done anything. Only to see the real estate to go up like rocket in the last 5 years. Finally I bought my first 2nd home (townhome) last year and turned into rental this summer. And I bought 2 single family homes (1 of the 2 is 50% mine, and 50% my brother). I have property manager to handle rental for me because I don't want to deal with daily rental activities such as collecting rents and maintenance.

I don't want to ask you a lot of questions now to turn you away but I will eventually do that. You mentioned earlier that you established a corporation to cover all your properties. Before I bought my 2nd rental I established my LLC and wanted to get all my property under the LLC. But when I found out the interest rate from the bank is much higher than the individual rate. I then chosethe individual rate and bought it under my name. How did you do when you start it and how did you change if you started out asindividual. Also this year will be my first year to file the property investment income tax and I will need to look deep in this area. Any advice would be appreciated. Meanwhile congratulate for your continued success with your such a young age.

Ocean

[Gilligan]

Welcome to the forum Ocean, I've only been on here a couple of month myself. I have one small rental but I am looking into building my real estate holdings. Sheets and Allen have some great info. What part of the world are you investing in?

Pyriel, from your"cash on cash" terms, I would say that youare student of Dolf De Roos or Robert Kiyosaki, am I close?

[KAPLOWD]

Suggest reading PENTURBIA by Jack Lessinger, Ph.D.

[ocean]

Gilligan,

I live in New Jersey. Currenly I have 1 rental townhome near Atlantic City and 1 and 1/2 single family homes in Philadelphia, PA. All 3 properties have even cash flow (kind of, -$25 each home each month). This is all I can affort at the moment and hopefully I can getmore properties in the future.

Ocean

[Gilligan]

Kaplowd,

I usually only read RE books by self made millionaires. I did a little Cliff Notes study on PENTURBIA today on the internet. Lessinger is a retired professor. The main point he makes is that the Baby Boomers are retiring and starting to move to rural areas. I live about 1 hour NW of San Antonio and have seen many moving from there to up here. The affordable housing is scarce.



Ocean,

Keep up the good work.

[grandma]

Gilligan wrote:
Kaplowd,
I usually only read RE books by self made millionaires. You are in the right thread, then!! Pyriel started this `RE 101' class to show how he does this over in Gaum. Go back to the beginning, October 2. You might also benefit by browsing the whole of this RE forum for his other posts, leading up to the creation of this thread. ... started in response to everyone's interest in the step-by-step. http://i4.photobucket.com/albums/y106/triso/cashfall.gifHopefully, he will get back fromtdy, and pick it up again soon.

[pyriel]

Hello gang. Thanks for the interest on my real estate thread. I recently took over a comptroller position so I had to slow down with pursuing and acquiring more properties. I am still in pursuit of one property that my real estate agent and I have beenwargaming on how to best acquire it. I plan to close that when I get back to Guam. I was in Hawaii last week and I am now in the Philippines paying off my condo.

Gilligan, Yes, I have all of their books and practice what they preach. They do make a lot of sense.I've also read others books from other authors.

Kaplowd, Thanks for the book info. I'll look into it. I do like the correlation of baby boomers and how it affects our market right now to include real estate.

Ocean, I wonder how much did you release to purchase your properties? How long have you had them? I'm sure that they have appreciated in value since you last bought them but you should still look at wargaming them and turning them into a positive income. BTW, when you said, you are -25 per property does this include property tax and insurance and repair and management fee? I kind of look at passive income as income generated after everything is deducted. I'm sure if we put our brain cells together, we could come up with somethingto help you out.

Grandma, I missed you...hugz

[ocean]

Pyriel,

Thanks for getting back to me. Out of the 3 properties, the townhouse in NJ that I bought last year has about 25 - 30% appreciation. The 1 and 1/2 properties at Phily that I bought in this summer remain flat. The negative -$25 per property I think it will be covered by next year lease renewal so I'm not too worry about that. Yes, all expenses are included in my calculation except the unexpected repairs. The immediately benefits for me is the tax deduction of the properties. For now, I will just hold-on these properties for a while before I look for another one in the next year or two.

Good luck and have fun in your new position.

ocean

[Gilligan]

Pyriel, Congratulations on your new position. Any books you would recommend reading? I’ve just completed a couple of Ty Hicks books on RE financing. Have you thought about asking you real estate agent to loan you his commission, that would improve your cash on cash return. Paying off your condo? I have always been taught to live debt free, but De Roos says to never payoff your mortgage and all ways mortgage out when the value appreciates so that you will have more funds available to purchase new income property.

Grandma, thanks. It looks like Pyriel is well on his way. He sounds like the Donald Trump of Guam. Before long he will be writing his own RE books

[pyriel]

Gilligan wrote:
Pyriel, Congratulations on your new position. Any books you would recommend reading? I’ve just completed a couple of Ty Hicks books on RE financing. Have you thought about asking you real estate agent to loan you his commission, that would improve your cash on cash return. Paying off your condo? I have always been taught to live debt free, but De Roos says to never payoff your mortgage and all ways mortgage out when the value appreciates so that you will have more funds available to purchase new income property.

Grandma, thanks. It looks like Pyriel is well on his way. He sounds like the Donald Trump of Guam. Before long he will be writing his own RE books

Here are two of my secret weapon books. Since reading these books, i've pretty much changed my outlook on buying properties for rentals (and sometimes for flipping).

http://69.10.163.104/jaysbook.html

I've started off with Kiyosaki which gave me the bigger picture on where I stand as far as my finances is concern. DeRoos came in and helped me realize the effectiveness of improving properties and how it affects appreciation. Decima helped me realize that I can get cheap propertieswith higher returnswith my investments.This means less risk for me. My other recommendation is to have everyone take a two week tax course.The learning curve is just so powerful that one can realize how to maximize gains as well asincome whether it is personal or through business.

[pyriel]

My real estate agent and I executed our plan I wrote down on post #24. I spoke with my mother in law to utilize her name for this proposal. Proposal is for 88k 20% down 30 days to close. Why are we doing this again? My last proposal is for 93k. I want to see what would they counter offer for another individual's proposal. This would also let me see if they are just playing hardball with me since they know that I have several properties. If they take the bait and give a nice counter offer (up to 95k) I would then close this deal. The contract will state "Name of the individual and/or assigns." This little clause will allow the individual to pass on the purchase to another individual and the seller can't do anything about it. In this case, she will pass it on to me. Our way out from this deal is 1) "Subject to getting financing acceptable to the buyer" 2) "Property is to appraised equal to or more than the purchase price" 3) "Buyer have 21 days to conduct due diligence"
I will be calling several banks today to compare rates, points, closing cost etc, etc. I will be posting them later for everyone to see. Once I pick a bank, I will then list down how to get financing and what the banks are looking for. Some people think that they must look for property first before they try to get financing. In reality, they should already be shopping for banks or lenders at the same time that they are looking for property.

[cowboy]

The contract will state "Name of the individual and/or assigns." This little clause will allow the individual to pass on the purchase to another individual and the seller can't do anything about it.

Interesting how lawyers get around things! What would we do without them. I'll have to remember this the next time I see one of these little contracts. So you think the lender is not coming down because you are the buyer? So is the bid in the mother-in-laws name higher then the previous bid that you tried to buy the property with. I am assuming you made an offer and they countered to 98,500 and you did not pursue it. Now you are interested in it again and so are you offering more in the new bid then the last.

[pyriel]

Interesting how lawyers get around things! What would we do without them. I'll have to remember this the next time I see one of these little contracts. So you think the lender is not coming down because you are the buyer? So is the bid in the mother-in-laws name higher then the previous bid that you tried to buy the property with. I am assuming you made an offer and they countered to 98,500 and you did not pursue it. Now you are interested in it again and so are you offering more in the new bid then the last.

The bank already owns the property since May 05. I have three real estate mortgages with this bank including a line of credit of 50k. They are aware of my financial status and have a ready made prequalified application if I ever decided to purchase any property. So that is what we (my real estate agent and I) are thinking. Mother in laws bid is actually lower 88k vs. my previous 93k. The premise here is that if they don't accept the new offer and/or do not give us a counter offer, it means that the bank is set in selling the property at the selling price. It also keeps me in the game and continue to know what is going on with this property.
But here is a problem for them. The bank is not in a business of owning real estate. They are in a business of providing loans so they can get paid interest. As of today, they have already lost $4,800 for possible interest they could have received if they were able to sell the property in May 05 based on $98,500 selling price with 6.5 interest amortized for 30 years. So you see, they will not be able to hang on to this property very long since they are losing out $530 every month.
I can buy this property in cash but the cash on cash return percentage will go down tremendously and will tie up cash that I can use for a fast moving property. That opportunity only comes every blue moon...

[James]

Pyriel,

What internet site do you use to best search the MLS? There are many sites out there that stear you towards properties listed by their favored agents.

[Gilligan]

[QUOTE=pyriel]
They are in a business of providing loans so they can get paid interest. As of today, they have already lost $4,800 for possible interest they could have received if they were able to sell the property in May 05 based on $98,500 selling price with 6.5 interest amortized for 30 years.

Pyriel, Looks like you and the bank are only 5.5k apart. I dont know what the closing cost are in Guam. You might offer to meet them at their $98,500 if they will pay all the closing. I used this once a few years ago and got the other party to come to my price.

[pyriel]

[QUOTE=pyriel]
What internet site do you use to best search the MLS? There are many sites out there that stear you towards properties listed by their favored agents.


Pyriel, Looks like you and the bank are only 5.5k apart. I dont know what the closing cost are in Guam. You might offer to meet them at their $98,500 if they will pay all the closing. I used this once a few years ago and got the other party to come to my price.

There are MLS by regions, states, and/or nationwide. I usually go through regions provided by my real estate agent. It list all properties being sold in Guam and it didn't matter who is the real estate agent selling it. Bottom line is that real estate agent gets 50% of 6% of the selling price if they are not the broker for that property.

I've decided to meet the banks counter offer of 99k. There are multiple reasons why I made this decision, 1) there are no other property here on Guam below 100k that will cost me 10k or less to repair 2) cash on cash return, although not spectacular, is still competitive 3) there is another bidder out there that thinks the same like me and I am trying to beat him.

I went and check out all the banks on guam and came up with two candidates to purchase the property. I have 31k to play with so that is more than enough to purchase this property. I went to a total of 6 banks the two that I like is GGEFCU and Community First Bank (CFB). CFB offers 95% financing with 4.5 closing cost. GGEFCU offers 80% financing with zero closing cost. At first glance, I was going for CFB thinking that less money that comes out of my pocket the better, but when I did the number I was wrong. Please see my attched worksheet. I will most likely go with GGEFCU.

[pyriel]

This is embarassing as a moderator. I don't even know how to attach a file... help...

[pyriel]

This is embarassing as a moderator. I don't even know how to attach a file... help... Hmmm... excel file is not a valid extensions file for uploading? Tom, can you help? Thanks...

[pyriel]

My offer of full price of 99k was accepted by the bank. Bank also offered to give it to me via VA loan. Hmmm... They did the number for me and they are willing to include majority of the closing cost to the loan. Interest rate 7.5% 30 year amortized and monthly payment is 869.00 a month which will include property tax and insurance with the monthly payment. I did the number against two of the best offer I got but I am having a problem attaching it here... It would be nice to show everyone the difference between 20% down, 10% down, and no down, with different interest rates and closing. Hopefully, I can attach it sometime this weekend.
In the meantime, my due diligence is ticking. My real estate agent and I will be looking over the property tomorrow and start listing the things that needs to be fixed and how much it will probably cost me... Standby...

[Gilligan]

Professor Pyriel,
I have started the DeCima reading assignment and the 100-10-3 lab assignment, I should have that completed by the end of the year. Could you PM that spreadsheet to me? Thanks for keeping us posted.

[pyriel]

Professor Pyriel,
I have started the DeCima reading assignment and the 100-10-3 lab assignment, I should have that completed by the end of the year. Could you PM that spreadsheet to me? Thanks for keeping us posted.
Thanks Tom for increasing the excel size file allowed in attachment.

Gilligan, keep it up... practice makes perfect... Next thing you know, you'll be able to tell (within your head whether a real estate agent is giving you bogus information about a property being a good investment).

My real estate agent is currently sick and we have not had a chance to take a look at the property. I do have 15 days to do my due diligence so I am not worry about it. What i've been doing is getting all of my paperwork ready. I have a financial statement readily available and I am now printing out all of the supporting documents such as LES, TSP balance, IRAs, Checking and Savings account balance, two-three copies of all of my credit card bills (i always tell them that my credit cards have zero balance or I am paying them off every month so they want to see at least three billings) and VOE. The rest, they should be able to get that from my credit report. The difference between making a loan here on this tiny island vs. the mainland is the expediency and loan mortgages competition. Here I am stuck with what bank we have. In the mainland, they are practically giving out loans with zero down and closing. Makes me wish I live there.

I've attached the cash on cash return investment on the best three banks that I researched. It seemed that I will be dealing with Bank #3. They are offering me a great deal (please see attached). With less money coming out of my pocket + higher cash on cash return, I definitely and most likely take their offer. I'll be leaving TDY for the Philippines for 3 weeks, then will head to Indiana for another week so my wife will have to do the closing by herself. I'll set everything up before I leave... More to follow...;-)

[mlk_man]

Hey Py, I think I found ya a house!

[pyriel]

Hey Py, I think I found ya a house!
Milk, Selling point of the house is the magnificent view. The house has unlimited potential for investment especially for those who are thrill seekers. I would definitely contact skydiving companies and form a partnership with them. They can use the house as a base camp before they jump off the cliff for skydiving. They can then store their gears there so that they don't have to be lugging in back and forth. Now, the problem is how the heck am I going to get insurance for it...;-)

[pyriel]

I think everyone know within this board that I am an advocate of real estate investing. I am not saying that real estate investing is bette than market timing. But I have alot more flexibilities in lowering down my risks and increasing my profits. With the things i've learned within the past few years, I am not only lowering down my risks but in some instances, actually eliminating them. Returns such as 15%, 50%, 100%, 1000% are now achievable and have become realistic instead of a dream. In fact, I was able to prove that with the deal I made with the 4 unit apt where I received 50k (or 50,000%) in profit without forking any money from my pocket (please see other posts). Many people do not share my sentiment but others out there that have actually tried it, knows that it is possible. I would like to share one of Robert Kiyosaki's commentary investment write up for Yahoo. I hope that it helps many of you as well... P

A few weeks ago, I was at a financial conference giving an investing talk. A hand from the audience shot up as I talked about returns on investments of 50 percent, 1,000 percent, and infinite returns. "That's a load of rubbish," shouted the person attached to the hand waving in the air.
I asked the participant to clarify what he thought was a load of rubbish.
"You can't get such high returns," he replied angrily. "I'm a financial planner, and I've never seen anyone achieve such returns."
"What kind of investments do you recommend for your clients?" I asked.
"I recommend a well-diversified portfolio of cash, stocks, bonds, and mutual funds," he replied indignantly. "That's why I ask you: How can you get such high returns from these investments?"
"Because I don't invest in those investments," was my reply.
No Honest Advantage I don't think too highly of investments such as savings, stocks, bonds, and mutual funds, as my articles have made clear. I have written about the importance of having control over your investments -- how professional investors can invest with higher returns and less risk simply because they have more control. People who invest in paper assets -- such as savings, stocks, bonds, and mutual funds -- have very little control (see "Why Business Smarts Are Investing Smarts").
Beyond the issue of control, there's something else even more important for some professional investors. One of the problems I have with savings, stocks, bonds, and mutual funds is that I don't have an honest advantage over other investors. In this area, if I do become creative and find an advantage, I run the risk of going to jail or paying stiff fines, whereas finding an edge in other kinds of investment doesn't carry such legal risk. For example:
1. With registered securities, trading on insider information is illegal. When investing in a business or in real estate, insider information can give you a legal competitive advantage.
2. With paper assets, you have very little control over your greatest expense -- taxes. When investing in a business or real estate, you can gain a legal, competitive advantage by paying less in taxes, which increases your return on investment.
Creativity Puts You Ahead
When it comes to savings, stocks, bonds, and mutual funds, the government, via agencies such as the Securities & Exchange Commission, does its best to keep the playing field level and the rules fair. It's important they do this since so many amateur investors are involved.
At the same time, the SEC's tight rules tend to take away as much creativity as possible. With businesses and real estate, legal creativity is your advantage. The more legally creative you are, the greater your return on investment.
Recently, I bought 10 acres of land for $100,000. Since the land is already zoned for mobile homes, my plan is to simply subdivide the property into approximately 50 lots and sell each lot for $25,000. Do the math, and you'll see that the 10 acres are worth a gross of $1.25 million, which is not a bad return on a $100,000 initial investment. The legal advantage is the mobile-home zoning, an advantage all the other land in the area does not have.
Seeking an Edge
Another property recently came up for sale that's more complex and interesting -- a whole town for sale in Nevada for $12 million. We estimate the town's single family homes alone are worth $26 million. The remaining buildings and land, including a golf course, we estimate to be worth another $10 million.
Our plan is to raise the $12 million, plus an additional $2 million to fix up the single-family homes, and then sell those homes for $26 million. We then pay back the investors and split the potential $12 million dollars in gross profit. The rest of the town would belong to the five of us who put the deal together. That would be our real return on investment.
This all sounds easy in theory, but there's one serious problem, which is the reason the town's price is low. We suspect there are environmental problems, which the Environmental Protection Agency would pounce on, levying heavy fines, once we own the town. Before investing any money, a friend of mine who specializes in polluted properties will evaluate the risks. If the contamination is too high, we won't invest. If the contamination is low and we can solve the problem, we stand to make millions without putting a dime into the venture.
These are two examples of how a little skill and creativity can be used for legal advantages. So here are four lessons I want to leave you with:
1. Be careful about who gives you investment advice. If your advisor thinks an 8% return is a good return, you may want to look for another advisor.
2. Someone else's problem can be your opportunity.
3. Take the time to cultivate a stable of friends who know how to solve tough problems.
4. Learn to invest in investments where you can achieve an honest, legal advantage over other investors. When it comes to investing, why play on a level field?

Another property recently came up for sale that's more complex and interesting -- a whole town for sale in Nevada for $12 million. We estimate the town's single family homes alone are worth $26 million. The remaining buildings and land, including a golf course, we estimate to be worth another $10 million.
Our plan is to raise the $12 million, plus an additional $2 million to fix up the single-family homes, and then sell those homes for $26 million. We then pay back the investors and split the potential $12 million dollars in gross profit. The rest of the town would belong to the five of us who put the deal together. That would be our real return on investment.
This all sounds easy in theory, but there's one serious problem, which is the reason the town's price is low. We suspect there are environmental problems, which the Environmental Protection Agency would pounce on, levying heavy fines, once we own the town. Before investing any money, a friend of mine who specializes in polluted properties will evaluate the risks. If the contamination is too high, we won't invest. If the contamination is low and we can solve the problem, we stand to make millions without putting a dime into the venture.
These are two examples of how a little skill and creativity can be used for legal advantages. So here are four lessons I want to leave you with:
1. Be careful about who gives you investment advice. If your advisor thinks an 8% return is a good return, you may want to look for another advisor.
2. Someone else's problem can be your opportunity.
3. Take the time to cultivate a stable of friends who know how to solve tough problems.
4. Learn to invest in investments where you can achieve an honest, legal advantage over other investors. When it comes to investing, why play on a level field?

[pyriel]

I've decided to go with bank 3 utilizing my VA certificate which i've used before. For those who are not too familiar with VA loan, once you use your certificate, you can't use it again until the mortgage is paid off. Then they will hit you with higher points. The reason why I chose to go this route is because of 1) less money coming out of my pocket 2) they willl be lending me more than the purchase price 3) as i've been saying before less money coming out of my pocket also lessen my risks (this is what Kiyosaki was talking about). 4) Infinite returns 5) immediate returns since money is here and now and not something that I will have to wait for when I reach 59.5 years old.
Just to make something clear since I am now buying this house using my VA certificate; I PLAN ON LIVING IN THIS HOUSE! Ok I said it. Now, I've provided my intent as required by law. What happens later once I purchase the property; well no one may know for sure. What I am certain is that if I find out later that the property is not conducive to the standard of living that I have set to raise my family, then I am open to relook other options to take care of that situation. I may move out and have it rented, I may sell the property, or I may just suck it up and live there. But that is the future and i'll wait in making that decision once I reach that crossroad.
All documents have been provided to the bank. I will leave for tdy tomorrow for a month. I did my final due diligence inspection today and provided my real estate agent what I found and to convey that to the seller. I had 15 days to do my due diligence. Wife has my power of attorney so she can do the closing. I know what needs to be fixed and will contact my workers when I get back.
See you guys later...

[Gilligan]

Pyriel,
I found you another rent house. I’ll call the Skipper and see if the SS Minnow can tug this to you.

http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&item=4443031072&rd=1&sspagename=STRK%3AMEWA%3AIT&rd=1

If that link does not work just type in item number 4443031072 on ebay.

Gilligan

[pyriel]

Thanks Gilligan, all i need is a big motor and a water proppeller so I can sail from one island to another island within Asia;-)

Appraisal is being done and should be complete by next week. That is the last leg of the requirement for me to close this deal. A key note. Surveyor did did not cath the overhang on one side of the house which made the house nonconforming. I brought the issue to the appraisal and he said that I am right but he would follow what the surveyor had put down and will not cite the overhang issue with his report.
I have decided to buy the property even though there is a setback issue. There is a possibility that I might not be able to sell the property later on if another appraisal catches the setback. However, I am willing to take that risk because 1) I can fix the overhang issue for a couple of thousand of dollars, 2) i'm buying the house real cheap 3) the cash on cash return is there. For VA, they are allowing me to borrow extra 6k to purchase energy efficient appliances. Since this will bring up equity and appraisal value for the house, i've decided to take it and put it in the loan. I should be able to close this deal by this week (my wife will probably do it since im tdy) or next week when I get back.
P

[pyriel]

Wow, the last time I updated this was 12 March. Time sure fly fast. Well, the bank and I still haven't closed. Apraisal came in for $112k. I'm sure that after I do my renovation that it will appraised for $125k. Real estate here is increasing slowly still. The house have termites and I've already had one of the company here fixing it. Good thing about Guam houses, they are made of bricks and cement so the only damage is minimal and concentrated in one of the bedroom. Termite work will cost me additional $600 so I will have to add that on with my closing/purchase price. I hope to close this week but if not, I really have to close it next week. I will be leaving for the Philippines again and then off to Austin, TX for a couple of days.
My friends and I found this 4235sm R2 lot that is ripe for a business that we are thinking of building within the next 5 years. It currently has a price tag of $300k so we are currently doing the numbers on that.
I'll be doing a renovation by August in one of my properties in the Philippines to start a business by January 07. This is why I am going back and forth in that place.
If I survive all of these and I don't push myself into bankruptcy, I will most likely hunker down and rebuild my cash reserve. We have a business that my friends and I want to build in 5 years and I estimate the cost of that to be $3.5 mil. We'll see... That will be another blog...

[Gilligan]

Apraisal came in for $112k. I'm sure that after I do my renovation that it will appraised for $125k. Real estate here is increasing slowly still.

$112k/$99k, looks like you will have $13k equity at closing, that’s a great return especially with no money down and the bank paying all of the closing.

[pyriel]

$112k/$99k, looks like you will have $13k equity at closing, that’s a great return especially with no money down and the bank paying all of the closing.

We closed yesterday and I now owned a new (old) property. The quest for a bargain property is almost over. I say that it is almost over because I still have to fix it and have it rented. Here are the numbers to show what have I invested in this property.
Total loan to the bank is 108,465.00 (6k is for me to buy energy efficient appliances)

Out of the 6k I will purchase the following:
refrigerator
stove
typhoon shutter (also serves to cool the house)
airconditioning

Money came out of my pocket:
deposit = 500
upon closing = 4506.18
appraisal & reinspection fee = 600
Total = 5606.18 (this is my investment)

Additional repairs:
change tiles througout the entire house
change two front doors
change two security doors
redo the kitchen cabinet
repaint inside and outside of the house
clean the surroundings

First monthly payment is 6/1/06 for 822.60. So I need to get the house fix and hopefully rented before that. I am now racing against the clock...
Stay tune... This is almost over...

[pyriel]

Money came out of my pocket:
deposit = 500
upon closing = 4506.18
appraisal & reinspection fee = 600
Total = 5606.18 (this is my investment)

Additional repairs:
change tiles througout the entire house
change two front doors
change two security doors
redo the kitchen cabinet
repaint inside and outside of the house
clean the surroundings

Shopped around for a contractor and I found one that will change the vinyl tiles into ceramic tiles, fix all plumbing, do some plastering, changing two security doors, fix parts of the kitchen cabinet, and do the yard cleaning for $2650 labor only. We've decided not to replace the two front doors and my brother, who happens to be a painter, will be waterblasting, sealing the roof with elastomerics, and painting the inside and outside of the house. I've already bought the tiles (16x16) for 50 cents each (they were on clearance sale). Total cost with tile spacers is $600. I have about 15 thinsets leftover from my last project so I only have to buy a few more. All in all, i might make it to my final 10k investment that I allocated for this project. We'll see what happens...

Note: For rental properties, please ensure to change all faucets into one lever option instead of the three lever option (hot/cold/changer) Why? Because this is one of the culprits on why tenants call you all the time. The three lever option might be cheap but they break easily... just some pointers... P

[pyriel]

Hello all. I'm in the coffee shop in one of the metropolis hangout in the Philippines. I love it here... In the meantime, workers continue to make renovations to my little project at home. I should be back on Guam on Friday but i'll be leaving again for Austin on Monday. I am only mentioning this because I want to relate what is happening to my next discussion and this is about contracting.
It is imperative as a real estate investor to get to know the prices of commodities that will be needed to make repairs. If you have ever done a renovation contract, I would suggest to do one for "labor only." (at first). This is so that you can get familiarized with the cost of materials being utilized for your renovation project. You can save alot of money just buying the materials yourself before you start a project and pay someone for labor only. Also hanging out with them and learning by asking and having tell you how are they doing things will also help you tremendously. So that next time, you may be able to gauge how long and how expensive a particular renovation could cost.
Just like with this site. The more we hang out here, the more we become comfortable with moving our funds (although we don't always get the best result hehehe). Get to know your hardware store and know the cost of your needed commodities. This will result in lowering down your investment which would allow you to get a higer cash on cash return.
P

[Gilligan]

Pyriel,
I was surprised to see that you could buy 16X16 ceramic tile for .50 cents each. I thought that material prices in Guam would be higher. Here in Texas material for a 2,100 sq ft house cost $39,999 plus the concrete slab which cost $1 sq ft for the concrete OR $3.50 sq ft (labor and material) for a contractor to pour it.


http://sutherlands.com/fredericksburg.htm
Click on the sales paper then click on pg #18.

[mlk_man]

Gilligan, I grew up not too far from you in the Lake Buchanan area. Loved it there!

[Gilligan]

Gilligan, I grew up not too far from you in the Lake Buchanan area. Loved it there!

Mlk_Man,
Lake Buchanan is a nice area, however the wildflowers are not as colorful this spring because of the lack of rain. Several baby boomers from Austin are buying lots there to live when they retire. Instead of building houses they are getting these park model mobile homes. Sure the little houses are nice looking but some cost over $200 a square foot. A 10 x 20 can cost $40,000. One of my relatives talked to a salesman of the log park models and he averages selling one per day.

http://www.lonestarparkmodels.com/

[pyriel]

Hmm... its been awhile since I last updated this. As i write, I am currently in DC area in my hotel room. all renovation to the house were completed in early part of June. Until now, it is sitting vacant not because there are no renters looking for a 3bd 2 bt house but because i've been busy doing something else.
I finally got off my butt and put an add in the newspaper for 3 days. It states, "2bd 2bt nwly ren. hse w/new ACs, fridge, stove furn. typ shtrs util incl. $1478 sec 8 ok" I had to show it to 8 different people and I finally chose one. She gave me her voucher for GHURA but I had to go to this TDY in DC. So I am writing this in my hotel room at 1 am because i can't sleep.
I'm only going to be here for 3 days so i'll be back on Guam by Friday. I'll do the voucher and give it back to my future tenant by Sunday. GHURA will then set up an appointment to inspect the place and if it pass (it should) we will then have a contract signing and my future tenant will move in to the property before end of July.
In the meantime, I am paying the mortgage out of my own pocket for the month of Jun and July. I would have had it rented earlier if i don't have to leave so often.;-) My next trip is on 8 Jul for the Philippines again... So what am I getting out of this deal... I will most likely get $1438 and will set aside 300 for utilities. That gives me a remaining balance of $1138. I am paying $850 for mortgage to include escrow for real property tax and insurance so this will leave me with $288.00 per month... That is $3456 per year. With 8k expenses for fixing up the place, 3k for downpayment, and 2 months of rent of $1700 this total to $12700 investment that came out of my pocket. This comes up to about 27% cash on cash return on my investment.

Later, I will create another thread to show you the true return on equity or investment. I am sure that it will freak everybody out once they find out what the return on investment this one little project will be giving me year after year after year. Too bad, i can't manage my TSP like a real estate.;-)
P