So here’s the deal…lots of REI stuff going on which explains the lack of post-age.

First:

The mister has spent every minute of his off-time since the hurricane making repairs to our personal residence (mostly fencing and downed trees) and our rent houses (fences, trees, shingles, damage from water blowing in around doors and windows in older homes), none of which was covered by insurance, all of which has to be done pronto to prevent more damage.  No complaining– we are so thankful especially considering the many landlords around here who lost every single investment property. Still, it is a huge drain on both our time and emergency fund.

Second:

We’ve decided to set up with our local bank. They will extend a line of credit to make cash purchases based on a combination of our cash on hand and the equity in one of the rentals. Also, they’ve agreed to convert these purchases to mortgages with the following terms: 7-8% interest fixed with a 7 year balloon, 20% down, 20 year amortization. At the end of 7 years, they will decide whether to continue carrying the loan at the original rate based on our history of on-time payments. This may not be the greatest in the world, but might just be the thing for some of these cheap foreclosures running 30-40K. To make this work, we’ll have to find very good deals indeed.

Another local bank has offered us commercial lending at a lower interest rate with LTV based on tax records. The terms would be: 6-7%, 3 year fixed, 70% Loan to Value (LTV), 20 year amortization.

 Here’s the difference: With the commercial, if we buy right, our out-of-pocket could be zero. For example:

(using 100K just for simplicity)

House Imaginary: Commercial Bank

Price: 50K

Needs: 10K repairs

HCAD value: 100K (county appraisal district value listed on tax records)

Closing costs: 3K

In this case, commercial bank will loan us up to 70K but no more than actual purchase price and repairs. That would be 63K at 7% fixed for 3 years with zero down.

House Imaginary: Regular Bank

Regular bank will loan 80% of either purchase price or appraisal–*whichever is lower.

Or:

80% of 50K equals 40K. Out of pocket expenses: 10K downpayment, 10K repairs, 3K closing cost for a total of 23K out of pocket. Of course we’re talking less expensive houses that need few repairs, but the difference is still proportionally big.

Ideally, we could purchase House Imaginary using the Commercial Bank, make repairs, wait at least a year for seasoning issues, reappraise and get a mortgage with Regular Bank. This would allow us to maximize our current cash, leveraging it into multiple homes with little out of pocket. We’d still need the 20% for a downpayment later, but (hopefully) cashflow would be high enough to accumulate within those 3 years.

Here’s the rub: Both Commercial Bank and Regular Bank want us to keep our rental house checking account with them… which obviously we can’t do. So, I’m trying to decide whether to set up with Regular Bank and just forget Commercial or if there’s enough merit to trying to set up with both, if that’s even possible.

Any thoughts?

Popularity: 7% [?]

Tags: cashflow, foreclosures, landlord tenant issues, positive cashflow, real estate investment, rent houses, repairs

Puppy Palace is a no-go. Basically, we were told that, no matter how good our credit or how well our properties cashflow, we are ineligible for another mortgage because we have ‘too many’– a statement which seriously ticks me off as I thought the old artificial limit of ten was way too low. Commercial mortgages just won’t do in these uncertain times– we were offered 6.5% fixed for three years with a 20 year amortization making the note too high and refinancing a necessity. No way I’m gambling on the mortgage industry three years from now. Our local bank will still finance investment properties for us with 20% down at 8% interest. Nice to keep in mind but not good enough for the houses we were looking at.

Another Investor wants to know what we’re doing next… not a clue. The Mrs.’s brain tends to act like a choo-choo, chugging along in one direction until derailed. And she was seriously derailed this time around. I’m of the opinion that saving the cash is best as AI mentioned unless we can find something with enough cashflow to rebuild the war chest quickly. That would take some serious flowing.

Today, Sandra and I went around town perusing the current foreclosures in town under 70K to get a feel for what’s available.

House #1

2/1//1 detached

1500 sq. ft.

Asking price: 70K

HCAD: 70K (county appraisal for tax purposes)

Days on the market: 11

Market rent: $850/month

Nice older home on a beautiful 1/2 acre lot. New roof, hardwood flooring, garage, workshop and shed. Needs paint and a serious cleaning.

Front yard and view of the street.

One drawer missing in kitchen, otherwise in good shape.

House #2

3/1/1 plus den

1500 sq. ft.

Asking price: 54K

HCAD price: 83K

Days on the market: 115

Market rent: $900

Nice, solid house with vinyl siding and faux concrete rocks thingies.

Nice street– not as nice as #1, but well-kept homes.

LOVE this kitchen. Solid wood cabinets to the ceiling with large pantry. Everything here is in excellent condition.

The other side– note open shelving above counter and oversized range hood.

Big pantry…

Lovely greenn dining room…

Den in back with paneling and faux fireplace.

Great bathroom with more wood cabinets.

Big backyard with access from the road behind. Road noise is minimal– perhaps because of the lower speed limit and the mature landscaping.

Hardwood flooring throughout in good shape.

House #3

3/1/1

1300 sq ft

Asking price: 75K

HCAD price: 75K

Days on the market: 451+

Market rent: $900

Nice, solid house in need of some exterior paint and trim repairs.

Typical hideous ’70’s kitchen…

… complete with hideous ’70’s paneling and flooring.

Original bathroom in great condition. The house will fetch higher rent due to better location in nice private neighborhood but needs more repairs, especially to the exterior.

House #4

3/2/1 plus den

1700 sq ft

Asking price: 70K

HCAD price: 105K

Days on the market: 90+ (corrected 11/14/08. According to Sandra, Pink Poo was on the market 11 days when we toured.)

Market rent: $1000 (after repairs– see pix below)

Exterior in great condition–vinyl siding, new roof, beautiful corner lot in same neighborhood as House #3.

Interesting bathroom tile…

…and *the* most hideous toilet in Texas.

Lovely pink carpet to match throughout entire house. The mrs found oak underneath using her lucky blue tennies. These babies have found many a hardwood floor in their five years of service.

Dog Piles of Doom… scattered artistically across pink carpet.

Heavy sigh… *love* this kitchen. Note the vintage stove…

…a bit dirty though.

There was one more house but it was ugly and I’m tired.

Allow Me to Introduce…

This is Bucky. Here he’s trying to digest my shirt.

Apparently, Sandra didn’t have enough to do what with selling real estate and all. She’s now mamma to one orphan fawn…

…who trots into her beautiful kitchen for his bottles. Let’s hope that tile is sealed

Popularity: 7% [?]

Tags: cashflow, foreclosures, landlord tenant issues, positive cashflow, real estate investment, rent houses, repairs

A quickie call to our mortgage broker late this afternoon and the Puppy Palace deal may be history. Today’s market meltdown caused investor mortgages to head over 8% and rising even with the rate cut. Looks like the timing on this just stinks.

 We have until the 23rd to find a mortgage at 7%. Also, we’ll ask the bank that owns the property to carry the note. Other than that, we’re pretty much done.

Ah well…. there’s always another deal another day.

Popularity: 9% [?]

Tags: cashflow, foreclosures, landlord tenant issues, positive cashflow, real estate investment, rent houses, repairs

Unfortunately (fortunately?), lots of activity and little time for typing, so just a quick post with the numbers on Puppy Palace.

These are current as of this morning. There should be enough play that any fluctuations in variables won’t be a problem. Numbers are rounded a touch for simplicity:

Asking price: 115, 500K

Contract Price: 117K

ARV: 155K (taken from comps in the last couple of months)

Down payment: 10% (11,700)

Closing costs: $4000

Repairs: $7500

• $6000 (flooring- includes ceramic tile in the upstairs bathroom)
• $500 (paint)
• $500 (misc. repairs– dirt, repairing fence and front light)
• $500 (misc. upgrades– we’re considering replacing the vanity in the upstairs bathroom when the ceramic tile goes down)

Basic Numbers:

Price: 117K

Down: 11,700

PV: 105,300

Interest: 7.5% (Chuck thinks this may drop if we wait a bit to lock in)

Term: 360 months

Note (principle and interest): $736

Taxes and Insurance: $250

Total PITI: $985

Rent: Conservative- $1400 Optimistic $1500

Cashflow: $415-$515

A Few Notes for the Sake of Those Just Starting Out:

You’ll notice that items such as vacancies, repair costs and management fees are not subtracted from cashflow. While these are very real expenses and must be considered, I didn’t include the computations here for several reasons.

#1 We’ve been doing this awhile and have a pretty good reserve in the business account to cover unexpected costs. It isn’t necessary to calculate this for each house anymore. When we bought our first couple, those expenses were figured to the gnat’s whiskers and no properties were considered unless potential cashflow was high enough to build a reserve at the same time as PITI (principle+interest+taxes+insurance.) BTW, it took a long, long time to find that first deal.

#2 The reason I want such high cashflow from each property is to continue padding the reserve. The greater the number of rentals, the greater the reserve must be. Cashflow from this property will go straight to savings until enough accumulates to cover a year’s worth of taxes, insurance and two months vacancy.

#3 This does not include management costs because I consider the entire amount my reward for being such a lovely property manager. Someday, I’d like to be in a position to hire this out, but that day hasn’t arrived.

#4 We do most repairs upfront and have few to zero repair costs. Part of this is due to management and a solid lease and part to the mister’s obsessive eye for anything that can and will go wrong along with his ability to repair/replace and upgrade before move-in of the first tenant with the goal of zero repair calls. Doesn’t always work out that way. A house put into service that is older or in disrepair will have higher repair costs and lower tenant satisfaction.

#5 In this district, at this time, we don’t have to figure vacancy. We call this our Hot Pocket: a relatively small area where certain types of homes are in such low supply and high demand that a well-maintained home will rent for a premium (the properties are also called HP’s for obvious reasons.) If they’re fixed up with durable materials (ceramic tile or other hard surface flooring, semi-gloss paint, etc), we  send in the cleaning crew the moment someone moves out and have a signed lease with prorated rent before the crew arrives. At the moment, we have 2 Hot Pockets. This will be #3. I’d love to have at least 10.

This is atypical for rent houses in general, but many folks have Hot Pockets nearby even if the market is down overall. For our other homes in other areas, we figure one month per year vacancy although we do our dadgummedest to keep our tenants once we find them.

More later…

Popularity: 8% [?]

Tags: cashflow, foreclosures, landlord tenant issues, positive cashflow, real estate investment, rent houses, repairs

Our local market hasn’t slowed a bit. Apparently, it didn’t get the memo.

Of late, the mister and I have been stalking a nearby neighborhood full of new-ish homes in the hoity-toity school district of choice, hoping to find a 3/2/2 or larger brick in close to move-in condition. The Bee House is a fairly typical, if somewhat distressed,  example.

 Most are 5 years old or less, 1450 sq. ft. or larger, starting at 130K and rising,  brick with hardiplank and builder grade everything with an occassional upgrade to bathrooms or kitchens. Rents start at 1300 and rise accordingly topping out around $1500/month. In our experience,  homes like these, in this district, stay rented without vacancies… none, zero, zip, nada. Very nice little perk.

The Part Where We Get Happy and Start Throwing Offers About…

House First: 

Last Friday, a foreclosure listed on a nice culdesac at an asking price which would cashflow according to Brz standards. Being a speedy (and slightly OC) business woman, I arranged a tour with Sandra asap. By the time we arrived, 2  offers were already on the table.

Here’s the details and a few pix:

• 4 bedrooms/2 and a half baths/2 car garage
• Story and a half: master down, 3 bedrooms, 1 small, full bath upstairs
• 2000 sq. ft.
• Brick and hardiplank siding
• Asking price: 115K
• After Repair Value (ARV): Comps running around 155K
• Repairs needed: Carpet and Paint plus misc. totalling less than $500

Storm damage… but overall, a lovely brick home with lots of curb appeal.

And more storm damage. It’s possible this might be fixed by the neighbors before closing.

Very nice floorplan with the utility room and master downstairs… this is  from the entry, past the dining and kitchen into the living room. The mister thinks the carpet may be salvageable but a laminate  or one of the wood-look vinyls would be nice downstairs.

The kitchen with ceramic tile, laminate counters and appliances. Everything’s in great shape.

Nice half-bath downstairs by the master bedroom and staircase.

The trusty financial calculator has run enough numbers for this ‘hood to know when a deal comes along. Apparently, certain locals without financial calculating skillz can also spot a deal. This same floorplan is selling for 155K in similar condition. And, fortunately, things are still selling well here.

If we were to purchase this house, we’d like to paint everything with two-tone semi-gloss paint, replace the carpet with laminate or other wood-look flooring downstairs and a nice, dirt colored carpet upstairs. Also, the mister gets quite worked up over upstairs bathrooms and would like the waterproof and tile the floor even if the current flooring is okay (which it is). A few minor repairs (the light fixture out front, some dirtwork in the back yard and repairing the fencing) and this place would be good to go.

After arriving home, the mister received a call complete with squeaky uptalk and much hand-waving. An offer for about $1000 over asking price went out pronto at which time the mrs. noticed another foreclosure newly listed… in the same neighborhood, on the same street, 10K less than House First. Too dark by this time for a repeat visit, Sandra and I convened onsite the next afternoon.

House Second:

Details and Pix:

• 3 bedrooms/ 2 bathrooms/ 2 car garage
• Single story
• 1770 sq. ft.
• Brick and hardiplank
• Asking Price: 102K
• ARV: 150K
• Repairs needed: Paint, flooring for all previously carpeted areas, baseboards throughout! (very strange), repairs of about $200 tops

Sandra checking out the utility room. Love the 10 ft. ceilings and the art niche in the entry.

Nice, nice kitchen with upgraded cabinets, ceramic tile backsplash, porcelain tile floors and lack-of-baseboards.

Dark green paint in the living room. The fireplace could use a little love. And some baseboards…

This place is nice… very nice. High ceilings throughout, coved ceilings in the bedrooms, and custom touches like the jacuzzi tub and leaded glass front door. The yard is just the right size, the fence endured Ike and the backyard has a big covered patio. Once the flooring is replaced, this one will rent for the same amount as House First.

Update: We scrambled to get an offer in on House First on Saturday. Today, Sandra sent a note saying we have a signed contract. Sweet~

House First to be designated Puppy Palace from here on…

… for obvious reasons. Not so obvious are the crater-sized holes with which the previous owner’s pups decorated the backyard. Note the plywood covering the neighbor’s upper window– a sure sign pictures were taken shortly after Ike.

Our offer on House Second is still pending.

Popularity: 9% [?]

Tags: cashflow, foreclosures, landlord tenant issues, positive cashflow, real estate investment, rent houses, repairs

When does a seasoned investor offer *more* than asking price? When that house comes on the market on a Friday afternoon and the offers begin stacking up by Saturday. And that investor knows without consulting her trusty calculator that said property is seriously undervalued and worth 30% more the minute the paint dries.

Even so, it does go against the grain just a touch. Our higher offering only raises the note by $11/month so it seems a bit silly to quibble over a thousand here or there.

I’ve spent the last two days making offers on two homes, both foreclosures, both built in 2006, both on the same street. The mister did not have time to take a look which makes the mrs. an itsy bit nervous. But if these work out, it will fulfill the Tractor/Truck Challenge which makes her way jubilant.

Busy, busy with faxing etc. but pictures to follow soon even if we aren’t high bidder(s).

Sandra the Longsuffering on the left who asked today, ‘just how many of these pictures am I in, anyway??’ And I said, ‘Every stinkin’ one and I’m posting them all on the blog with your full name, address and GPS locating device.’

Psych…

Popularity: 8% [?]

Tags: cashflow, landlord tenant issues, positive cashflow, rent houses, repairs

All this hurricane stuff is getting old. Seems like it’s time to do some business. Unfortunately, Ike is still affecting just about everything, slowing us to a snail’s pace with all things real estate. And watching the banking industry implode hasn’t helped much either.

But Baby! It Has Such Lovely Curb Appeal…

A cute triplex on a lovely, tree-lined street in town has been on the market over a year. Asking price started at $130K. The mister and I took a tour when the price dropped below 100K. After running the numbers, we passed politely due to major structural issues. While we don’t sweat the big stuff, the price has gotta be almighty good before we bite. This puppy has major foundation issues (at least 10K for all those concrete piers), roof plus eaves and soffits totally rotted, and termites so bad they’ve taken to eating the hardwood flooring– never encountered *that* before. Oh! And did I mention the stairs only Spiderman could love? Ugh…

Unfortunately, the previous owner tried to hide all the major problems with coats of thick plaster (to hide settlement cracks) and tons of paint. He prettied up the place just dandy without dropping a penny for repairs… (heavy sigh)

On the bright side, the property is located on one of the nicest streets near the historic district and the only local junior college that serves 3 neighboring counties. Rising gas prices forced students who once commuted to move to town, so rents are up. Each 1 bedroom 1 bath unit has its own garage with washer/dryer connections, (termite eaten) hardwood floors and tons of parking– all hard to come by in this part of the city. Plus, the floorplans are roomy with big kitchens full of cabinets and lots and lots of closet space.

Yesterday, the price dropped once again from 80K to 60K. After running the numbers way-back-when, we believe the sweet spot’s around 45K. Never, ever would’ve thought it would have come down from the stratosphere even this close to the vicinity of reason. With a conservative estimate of 30K for repairs, and rents hovering around $450/month this baby just might be profitable… if we can find the funding.

Maybe it’s time to dig the superhero costume out of storage. First order of business would be a fly-by to see how the place held up to Ike. If that roof’s still there, it’ll border on the miraculous.

Front- Unit 2… doesn’t look so bad in the pix, does it? That would be because previous owner was handy at hiding stuff.

Back view… oh! the unseen rot! But asbestos shingles which termites will not eat and the State of Texas still lets us keep.

Garage with Unit 3 upstairs and unmatched garage doors. Mailbox for upper unit on the far right.

Spidey’s Stairs of Doom and one of the dozens of trees that probably beat the place to death during Ike.

Popularity: 6% [?]

Tags: local lenders, real estate investment, REI