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

After whining yesterday about the lack of financing for fixers and the unwillingness of major lenders to fund cash-out mortgages and re-fi’s, Seth over at Flip They House posted about his recent experience with a local lender who offered him a 100K line of credit on generous terms.

Well… I Swanny!

Feeling a little sheepish for not having thought of this myownself… Thanks Seth.

There’s a lovely little dump with Brz written all over it that thanks you too.

On another, totally unrelated note…

…JoJo has bumps. DD3 just pointed out nickel-sized whelps under the fur from paws to neck covering his entire furry self. My latent powers of doggie ESP refuse to cooperate so no idea where or why these bumps are upon him. The usual suspect would be fireants as Somedog tends to dig up fire ant beds for fun when his landscape trimming chores are complete. The only thing certain is that DoDo does not want them touched.

UPDATE: All America rejoices to hear JoJo’s Bumps have Dis-Banded. One Benedryl plus one wet Boxer in my clawfoot tub, plus baking soda and vinegar equals One Backflip (DoDo’s, not DD’s), one sad sorry soaked bathroom, 2 sad sorry soaked dear children and the mysterious dissappearance of bumpage.

Details at eleven.

Popularity: 6% [?]

Tags: local lenders, real estate investment, REI

One reason for switching  blog focus from real estate to navel gazing is the molasses slow pace of our REI interests these days. Having a pretty good chunk of operating capital tied up in one place (that would be the Magnolia House) coupled with the cratering of the mortgage industry left us in limbo-land without a paper umbrella. Our old strategy of buy with cash, fix with more cash, reappraise, then pull out more-cash-than-put-in isn’t going to work any more.

 Clearly a new strategy for growth is in order.

After many, many weeks our mortgage broker donned his superhero costume and strongarmed gently persuaded Wells Fargo to pleazie squeezie stop stalling/nitpicking us to death and close already. So, with latest property nicely leveraged and cash in bank, we begin our journey once again, looking for whatever works in today’s reality.

Yesterday, our long-suffering real estate agent took us through 6 houses in the local snooty school district looking for a 3/2/2 brick to add to our portfolio on the 10/90 plan (10% down, 90% leveraged with at least $300/month positive cashflow after PITI.) Super Chuck (the mortgage guy) believes that, with our good credit and portfolio of nicely performing rentals, he’ll be able to acquire a non-owner occupied investment mortgage for us in the 7% range.

We decided to make 2 offers… but passed on an absolute steal in a great neighborhood because of the amount of cash needed to bring it up to our standards (10% down plus 20K in repairs equals too much cash out of pocket that we can’t get back… at the moment we’re looking only at homes in close to move-in condition.)

Heavy sigh…. watching those rehab deals go to someone else is giving the mister a twitch.

Popularity: 6% [?]

Tags: real estate investment, REI

Once upon a time I was organized. Then a mean ol’ tree landed on our home, rainwater spewed over my closing documents, the file cabinet from Walmart leaked and what do you know… no more organization.

During our refugee days, organization consisted of keeping papers in color-coded laundry baskets where wet papers were left to dry following their rescue. All the while I promised myself daily that the minute we moved back home, new files and a logical filing system would get first attention over decoration.

Didn’t happen.

Then yesterday, I wasted an hour and a half hunting for our survey– a survey that originally cost $450 and who-knows-how-much for another copy, not to mention an hour and a half that could’ve been spent doing more dishes or compulsively scanning MLS and other fun stuff. And while I consoled myself that this would just be another lesson in the REI business school of hard knocks, the bile in my throat didn’t agree.

Finally gave up. Called our old mortgage broker to ask for the name of our surveyor to order another copy. He said, “That’s sitting in our back room. Found it the other day… guess we never mailed it.” Heavy sigh of relief followed by mild irritation followed by a resolution to get organized *this month* before the agony of income tax rolls around yet again.

So, because I’m irritated and do my best writing in states of agitation, you shall be bombarded with my indignation so I don’t fry the poor child-units.

Many pictures to follow as I peruse Office Depot for the most expensive way possible to a life of Organizational Bliss.

Popularity: 8% [?]

Tags: landlord, Record Keeping, REI, rent houses

If you’re interested in DIY projects and the rehab business, I’ve written an article on the subject for the blog over at BiggerPockets titled, “Rehab Pros: DIY or Hire it Out?”

Changes at BiggerPockets

While you’re there, check out all the changes to the website. Josh’s come up with some cool social networking features geared toward investors. Think Facebook for REI (or so my daughter says as I’m much too old to know anything about such things) only with colleagues instead of friends and the ability to write and receive references for those you’ve worked with.

Now would be an excellent time to get in while things are just starting to take off. If you join, you’ll find my profile under the screenname EyeSoreNoMore.

Say hello and let me know you saw it here and I’ll be happy to add you as a colleague

JoJo has only positive things to say about the new features over on BiggerPockets. And he likes my article too, probably because he gets extra belly rubs during writing time.

Popularity: 8% [?]

Tags: biggerpockets, REI

January’s my favorite time of year to hit the bookstore and stock up on REI books. Something about leaving the excess of the holiday season behind  just begs a trip to Barnes and Noble to stock up on hideously overpriced, over-hyped books that call my name with promises of wealth and happiness (in 60 days or less.) I always leave the store with a bag of books and while I try so hard to be careful, there’s always a few clinkers in the mix.

My 2008 bag is sitting beside the couch, so expect a few book reviews in the days ahead. And anything I don’t find helpful to our situation here on the Gulf Coast will be offered gratis’ to whoever’s interested.

Lonnie’s Latest

I’ve mentioned Lonnie’s books before. They’re expensive– $34.95 for a 250+ page paperback and let’s say up front that he’s *not* sending free copies for review. I purchased both Deals on Wheels and Making Money With Mobile Homes several years ago. The binding of both books fell apart in record time, leaking pages all over the place… highly annoying for any book, but doubly so for one at this price point,  but here’s the thing– I kept the pages in ziplock baggies in the drawer by my bed for one reason— they’re that good (and no, I haven’t bought a single mobile home.)

Mr. Scruggs understands money. If you’ve read The Richest Man in Babylon, you’ll understand what I mean– his picture ought to be on the cover. His methods for buying and selling mobile homes and carrying the note distill the principles of compound interest and increase into everyday pictures that even an egghead like me can wrangle. I’ve read, reread, highlighted, underlined and marked up those two books multiple times. Over the last few years I’ve found myself thinking like Lonnie- when opportunities present, the principles in his books drift upwards into my consciousness.  He’s funny, clear, like-able (in print, anyway) and teaches principles that can be adapted to any place, any time, any situation.

And that, my friends, is so very rare in the real estate book market.

Taking the Mystery Out of Money is the book I hoped he’d write. He pulls out all the financial principles of the first two books, drops most of the mobile home talk and expounds profusely on money management and compound interest as the way to financial freedom. And because I can’t say it any better myself, here’s the blurb from his website:

Now Lonnie has a new book out…”Taking The Mystery Out Of Money.” This book teaches you what you never learned in school about money & financing. If you want a road map that will show you how to maximize your true financial potential, read this book. You will learn how to use a financial calculator so you can “punch your way to profits”. You will learn about notes, conventional & hard money loans, interest compounding, CAP rates & much more. This book teaches you the real meaning of how to make money work for you, instead of you working for money.

? How To Use A Financial Calculator
? Power Of Compounding Of Interest
? How Many Doubles Do You Have
? How To Create Notes & Cash Flow
? How To Use Notes To Buy & Sell
? How To Improve Notes For Better Yield
? How To Buy Notes In Pieces
? How To Make Big Yields From Little Deals
? Making Hard Money Loans
? Profits From Prepayments
? Time Value Of Money
? Rule Of 72
? Understanding CAP Rates
? Simple Interest vs Compound Interest
? Difference Between Yield & Discount
? How Much Does That New Car Really Cost?
? New Car Or ROTH IRA?
? Money Is Not The Problem.
? Is Being Poor Heredity?
? Job Security Or Financial security?
? Coulda–Shoulda–Woulda
? Who?s Planning Your Retirement?

So– if Mr. Scruggs had written this book first, I’d have saved $70 plus the heartbreak of leaking paper (a ridiculous statement as I probably would’ve bought the other two books later anyway since I love this one so much.)

Highly recommended, and no, I’m not giving away my copy

Popularity: 9% [?]

Tags: , book reviews, Lonnie Scruggs, REI

The laminate installer made an appearance today, bringing us much closer to our goal of a Feb. 1st move-in. One more week of push, push, push and hopefully, the Magnolia house will be ready to rent. Ad goes in the paper Monday.

Cabinets Before: Stained, glazed and polyurethaned but sadly, counter-deficit.

And after: Wilsonart laminate installed on counters and backsplash in a faux granite pattern that picks up the red/brown of the terracotta tile and the darker brown from the glaze. (That whooshing sound you hear is a heavy sigh of relief… nothing like picking out $400 worth of permanent material from a 1×2″ swatch…)

The mister had the laminate installed from the floor to the venthood  for ease of clean-up (vent also MIA, but to-be-installed soon).

A closer view taken without flash.

The back of the weenie chip with product details.

Going with a premium laminate added $25 to the total, but the result is very nice and definitely worth the appeal in this rental market. I’d still like to switch over to ceramic tile counters, but that will probably have to wait until I learn to do the work myownself.

Popularity: 22% [?]

Tags: laminate counters, REI, rent house

Here’s the link to an article written for BiggerPockets with the snappy title, “That’s Too Risky! Overcoming A Poverty Mindset.”

Josh doesn’t know yet, but I may be too overcome with Christmas Cheer to write another for next Saturday.

 <Gratuitous Snicker>

Popularity: 10% [?]

Tags: , getting started, REI, rent houses

Confessions of a Former RK Addict

My first real estate investment book purchase wasn’t actually about real estate at all–RK’s Rich Dad books inspired us to action and I will be forever grateful.

Unfortunately, most of the real estate advice and examples were seriously dated, going back to before the humongous tax reforms that changed real estate investment forever back in the ’80’s. I came away with some vague ideas on buying property for nothing down on the courthouse steps, forming an S Corp and hiding out our assets in Nevada.

It took months of re-programing just to pick through the train-wreck on the floor of my brain to form a coherent plan that might someday work in our locale. I feel a bit silly now… if I’d just known that RK’s strength is financial literacy and inspiration, maybe I wouldn’t have gorged on multiplex ownership at the all-you-can-eat buffet.

To The Rescue

Just finished reading Terry Sprouse’s book, Fix Em Up, Rent Em Out, and sitting here wishing I’d had this resource back then. This is just right–concise and tightly focused with a workable plan to get moving forward. Had this been our first intro to REI, we might’ve started 2-3 years sooner.

The first sentence of the introduction targets Terry’s audience like a Patriot Missile: “This book is aimed at the person who has a strong desire to invest in real estate but wants to keep his or her regular 9 to 5 job.” And with that, the cobwebs of my mind cleared–most REI books are a waste of money because they just don’t apply. An innocent newbie could plow through 18 chapters before discovering the intended audience is “twenty-two year old felons from Detroit with ADD and shattered credit who can’t hold a job more than 6 months due to authority issues.”

But I digress…

My favorite chapters have to be Chapter 8:  Renting Out Houses (we’ve been landlords awhile and I still yellowed up the whole chapter) and 11: A Tale of Two Investment Strategies (love, love, loved reading about his experience with these two houses~)

Without breaking a sweat, about 10 people come to mind who could use this book. Good job, Terry– very nice indeed:)

Popularity: 12% [?]

Tags: Rehab, REI, rent houses

Yesterday, the mister wanted to ride around looking for prospects for his birthday. Gotta love that man

We found this little jewel. In general, we’ve avoided  this area as almost everything requires both well and septic which can be a bugger when replacement time comes. However one neighborhood has community water. It’s beautiful- tons of hardwoods in a rolling setting with a nearby creek that doesn’t flood (much)… trailers to stick-built run  50/50.

 This is probably the worst property there:

From MLS:
 

General Description:

SELLER HAS NEVER LIVED ON PROPERTY/NO DISCLOSURE/ SOLD AS IS WHERE IS/ ALL UTILITIES AVAILIABLE FROM CITY/ SINGLE MOBILE NEED TLC/ GREAT PROPERTY FOR THE PRICE/.60 of an acre according to appraisal district1st Bed: 12X10

2nd Bed: 11X9
Connection: Washer
BedRooms: 2 Bedrooms Down
Heating: Other
Cooling: Window Units

2/2, no carport or garage, built in 1982, asking price 13.5 K

The Good– nice lot, beautiful trees.

The Bad–probably indicative of the overall condition.

A 2/2 trailer in this neighborhood would probably rent for $500- $550/month so it’s worth a look-see.

More to follow.

Popularity: 8% [?]

Tags: REI, rent houses, trailers and land

Digging through the pictures and financials of our first rent house prompted a seriously soppy trip down Memory Lane. It’s a bit of a conflict as such sentimental dribble should probably be reserved for babies and new puppies but as we have neither at the moment, this will have to do.

When it came time to write this week’s article for Bigger Pockets, no matter how deep the excavation, I just couldn’t dredge up anything even mildly professional. So, if you’re new to investing and want some light reading, the post is here. Honestly,  I thought it way too silly for a serious real estate blog like Bigger Pockets, but Josh the Editor seemed to think it was okay despite the marshmallow fluff.

JoJo the Longsuffering. This is what happens when the Brz’s have too much time on their hands.

Popularity: 13% [?]

Tags: getting started in real estate, REI, rent houses

This first purchase tossed us way outside our comfort zone.

Here’s where we were mentally at the time of purchase:

Note: If you notice something missing, leave a comment and I’ll edit the post.

• ARV for the house was 110K.
• Asking price: 100K  
• Offered 82.4K which was accepted without counter. We learned at closing that 2 bids came in the same day and ours was $500 higher.
• We estimated repairs would cost 18K and take 3 months (stop snickering)
•  We planned to reappraise and cash-out refi to pay off the credit cards. The difference would come out of the remainder of our income tax refund.
• Market rent for a 3/2/2 in this neighborhood and school district was $1100-$1200/month. We were hoping for $150+ positive cashflow.

Taken during our 18 month tenure from my favorite spot in the backyard.

Here’s what actually happened: (Numbers are rounded to the nearest hundred)

• Purchase price: $82,400
• Down payment: $0
• Closing costs: $2600 (borrowed from family, paid back with income tax refund)
• Repairs took twice as long to complete- 6 full months, almost to the day
• Repairs and Rehab: $23,700 paid for with credit cards and a signature loan from the credit union (to pay the cabinet guy, tile installers and roofing contractor– less expensive than a cash advance on the credit cards)

Holding costs: (paid out of the monthly household budget)

• Utilities for 6 months: $400
• Mortgage for 6 months: $3900

Fortunately, there weren’t many surprises during the rehab. We blew the budget on upgrades– like switching from the $100 builder grade toilets to the $220 29-golf ball Champion byAmerican Standard (if you know what this is, my condolences… you are one serious rehab junkie). Flooring went from an estimate of $1600 for vinyl peel-n-stick tile to $2900 for ceramic tile.

And so on, and so on…

At the time, I was visiting a forum full of hard-core real estate investors. One of the regulars asked, “Do you intend to keep this house? Then DIRT: Do It Right The First Time” (yes, I know this doesn’t spell dirt, but this guy was really smart and really helpful and very successful and I wasn’t about to correct his acronyms.) “Spend more for durable materials that will last indefinitely. In the long run, you’ll save by replacing less often and reducing the number of repair calls.” So we did and I’m not sorry. (Please note: Not every house will support the level of upgrades we made. If ARV is only 50K, peel-n-stick tiles might be more appropriate.)

Funny How Life Intervenes

After the tree hit the trailer, we refinanced to shave $100 from the monthly payment. At that time (about 7 months after purchase) the house appraised for $120K. We eventually got a check from the insurance company that paid off the signature loan and credit cards. We lived in the house 18 months and quickly found a tenant who signed a 6 month lease for $1100/month. When he moved out, we rented to our current tenants who pay $1150/month. Our cashflow is $400/month… very nice. Recently, we had the house re-reappraised (for 130K) and opened a 30K HELOC to make cash offers on other properties.

So how did we do? I dunno and I’m not sure I want to.  The situation ended up being most unusual.

In every way imaginable it’s been a profitable venture– starting with how much we learned about ourselves, our abilities and limitations and each other. We call the house Rehab 101– much cheaper than college tuition.

Could we have done better? Maybe– but I’m not complaining

Christmas at the rent house. Pretty nice digs for refugees.

Popularity: 11% [?]

Tags: getting started in real estate, real estate investment, REI, rent house