My 5th Property (2003)

Well, I am on a role now in 2003. A real buying frenzy. My 5th property was a Duplex in the Hillsboro Village area. This is a very desirable place to live, and represents the ONLY high end investment property I have ever bought. But as always, there is a story.

I actually saw the property in a real estate ad in the Tennessean one Sunday. There were asking $189K for it. I did nothing about it though since I don't ever spend that much...not my thing. Well, a few weeks later I saw the ad again, this time with the moniker "new price" and it was $169K. After consulting with my wife-to-be who explained how good an area this was, I called the agent and got the combo for the lockbox. I think we drove up to look at it that day or maybe later in the week. Well, it definitely was a nice area...surrounded by owner occupied single family homes. And this property was definitely the WORST on the street. To be honest, I was not sure how much longer it would stay standing. AND, to make matters worse, it was set back all the way to the back of the lot because a small creek ran through the front yard. So you almost couldn't even see it because it didn't line up with the other houses on the street. AND it was some kind of Stucco-Cottage Style, which matched NONE of the other houses around it. AND it was built in 1920.

So of course I decided to go inside. Well, it had definitely seen better days, but I had seen worse. It needed some general cleanup and minor fixing, but actually not too bad. Just really dated. It was an up and down duplex, with access to the upper in the backyard. It also had a bizarre shared laundry area behind the bottom unit. The steps and deck for the top was rickety, but we went anyway. Smaller unit, dated just like the bottom. Had a miniature kitchen with a tiny stove and refrigerator that were both VINTAGE 1940's. No kidding, both still functional too!

So of course I made an offer--$125,000. But apparently there was some other bidder who was out of town. I bumped my offer to a best/final of $135,000 and due to lack of response from the other guy, the seller took mine. Now is when the fun started.

Because of the dollar amount I decided to try Cendant Mortage on this one. I will never do that again. After a heavy rain, the downstairs threshold leaked, but I didn't know this. When the appraiser for Cendant came throw, the declared the property to be 'Uninhabitable' and recommended against giving a loan. But ironically, they appraised it $10K more that I was paying, even with the water damage. So Cendant refused to do the loan. I offered to put whatever amount into a repair escrow and explained I would be rehabbing it, but they said no. Under normal circumstances this would have been no big deal. But in this case, all of this transpired THE DAY BEFORE CLOSING.

Well, I got an extension and then got my local credit union who I had been working with to do the loan at slightly worse terms, but less down payment. And we closed without incident 1 week later. Then came the grand discovery. When I called to get the water turn on, they couldn't find a record for the property easily. The agent asked how long it had been off, and I had no idea of course. Well, apparently it had been over 3 years since the records had been archived. So the duplex had not been lived in for more than 3 years. I guess some attorney owned it along with other rentals and this was the last one he was selling off. The money wasn't that important and he didn't have the inclination to fix it, so it had just sat there.

Well, I owe Rachel on this one big time. We sold this property in 2006 for $265,000 without using an agent or any repair requirements. I felt it could fall in at any time, so best to take the money. The lot was probably worth that much anyway. So, a pretty nice profit. Oh, and it stayed rented consistently over the 3 years. Turns out if you grossly undercut the market in a highly desirable area, people are willing to live in less than ideal conditions...the kitchen still floods during heavy rains, but the tenants just cleaned it up and were thankful their rent was low.

My 4th Property (2003)

My fourth purchase turned out to be one of my best. But wait until I describe it. This foreclosure had been listed for several months and I think the price lowered. The area was questionable and the house was worse. when I drove to see it, things looked terrible from the outside. And then I went inside. Entire house smelled like cat urine...worse than anything I had ever seen. And then I went into the kitchen. At the time, thought the floors were the dirtiest ever. They appeared to have a 1/2 inch think layer of dirt caked onto them. I came to discover later that this was dog and cat feces packed down over a number of years! When my wife came to see it, she left immediately and might have thrown up, I can't remember.

So they were asking $25,000 I think and I offered $12,000. They countered back at $15,000 and I offered $12,500 and they accepted. The house also had significant termite and dry-rot damage visible on the front outside. So Johnny came over. Painted, jacked up the house to repair the termite damage, replaced the sub-floors, cleaned up the hardwoods and put down some new vinyl in the kitchen. And amazingly, it looked pretty good. But it still stunk. After trying numerous stuff, we finally got this chemical they use in funeral homes and it did the trick.

House was rented and everything was good. A near perfect tenant just moved out after 3 years and it will be easy to re-rent. The area has improved (and even got a name)--the new NEON district is improving rapidly. The would now likely sell for $60k+. I told my wife it would be the best, just to wait and see--and from a % return, I think it has been.

"To find the best deals, you must look past what everyone else sees (or smells)"

My Real 3rd Property (2003)

My 3rd property (I don't really count the last one) came from one of only two trips I have ever made in my life to one of those real estate investment groups. But there is was, a stack of fliers laying on a table advertising a small house for sale by owner. And it was just down the street from that last one I had just sold the contract on. So I grabbed a flier after the meeting was done and headed home. When I read the details, I realized that there could be an opportunity here. Memory fails me a little, but I think that the guy was asking $35,000 for the house, maybe it was a little less. Anyway, I called the seller the next day and got some details, then drove out to see it after work.

Wow-this house had seen better days. Most of the windows had been broken out, the walls and floor had holes all the way to the outside...and then there was the basement. I would like to say that I inspected the foundation and floor joists, but I didn't. Not because I didn't want to, but because I couldn't. The basement was so full of junk from floor to ceiling that I could barely even open the door.

So I knew I needed to buy this house, but not for the asking price. I offered the seller $25,000 cash for the house as-is. Turns out this guy had bought a whole portfolio of properties from another investor using seller financing and had negotiated to allow for individual deed releases so he could sell some. And he definitely needed to sell this one as it was beyond what he could repair himself. It had been vacant for some number of years and needed alot of help. I felt bad for the seller, because he had bought the portfolio with high aspirations, but was in way over his head on the payments and not much cash flowing in since several were vacant and needing major repairs.

He countered back at $30,000 but I said "no". That was the same price as the one down the street and it was in much better shape. I told him $27,500 was the best I could do, take it or leave it--he took it. Along with the house he also gave me the name of a good handyman, and this proved out to make the deal even better.

The handyman named Johnny did all of the work. We replaced all the windows, flooring, cabinets, gutted and rebuilt the bathroom, pressure washed everything, hung shutters, painted exterior trim and probably alot of other small stuff I am forgetting. Most importantly, we cleaned out the basement. This in itself took more than a complete construction dumpster to get rid of. All told, I put about $8,000 in materials and labor into repairing it, including appliances. Like I said, Johnny was the best part of the deal!

I love this house as the area has appreciated as I expected. The same tenant has been there for over 3 years now. It is probably worth $70,000 or more now. I got a loan once it was all done it and it became nothing out of pocket investment.

My 3rd Property...Sort of (2002)

My third foray into real estate investment came shorty after the prior house purchase. I had met a realtor somewhere and told her that I was looking for cheap fixer upper houses. Well, turns out she was fairly new to being a realtor, but had stumbled upon an estate sale. Without a network of investors to pitch these opportunities to, she called me up out of the blue to tell me about 2 houses involved in a court ordered sale. I met her and went to look at both. They both needed work, but had a lot of potential and were in up-and-coming areas of East Nashville. I asked what the court required for them and was told $60,000 for both. I agreed and we wrote up the offers.

Now is when things got dicey. The court came back and said $30,000 for one and $35,000 for the other. Apparently they had forgotten to factor in closing costs and realtor commissions. Again, I agreed to this, but now getting a little nervous. After about a week, I had heard nothing back and was getting nervous. I called the agent and she called me back the next day with bad news. They would sell the one for $30,000 but the other would go to a family member. I upped my offer to $40,000 in order to get it, but this didn't help. Family got preference for what was established as fair market value. I locked in the contract on the worse of the two and was still somewhat happy.

But I never ended up closing on it. A couple days later, I got a call back from the realtor. She must have had at least one other investor because she told me he really wanted the house and I could assign the contract to him if I wanted. I think she was trying to keep him happy too, probably regretting not pitching it to him first. I called him up and we struck a deal where I assigned the contract to him for $5,000. He tried to low ball me at first offering $2500, but I stuck to the fact that I could rehab it myself and make much more. There was plenty of profit for both of us at $5000--he finally agreed.

This would be my first contract assignment, and it was fairly successful. And I learned a lesson here. Don't give away your deals, but always be open to a quick profit with no risk. A lot of people will hand over deals for $1000 or less, in part because they are afraid to take the risk themselves or don't have the financial means. There is a time and a place for contract assignments. In my opinion, you should not do them unless you getting at least 33% of what you could have made rehabbing or reselling yourself. But if you cross that mark, then why not take the profits risk free? Turns out this house had some nice appreciation, but nothing beats a $5000 return on zero dollars invested...do the math.

"Houses cost alot more when you are the second person to write a contact--so don't wait around"

My 2nd Property (2002)

Almost 6 months passed until I decided to pursue another investment property. Not necessarily because I wasn't looking, but nothing seemed to jump out. Then I stumbled across a decent looking foreclosure on the mls. It was a 2 bedroom (had a 3rd bedroom sort of) house on a decent street in an improving area. There were some long time owner occupied homes around it, which contributed to the quietness of the street relative to others around it. Probably what scared people off the most was that it backed up to government housing projects on other side of the alley behind it.

They were asking $49,000 for the house. After an inspection with the listing agent, I offered $37,000. They countered back at $45,000, and I rejected it and held to my offer. For a couple months I sat back and bought nothing else. But then I noticed that same house was still for sale, except that they had lowered the price to $43,000 now...interesting?

I called the agent back and told him to resubmit my offer of $37K, and he did. This time they accepted it. Nothing changed from two months prior, other than the bank must have decided they just needed it sold. This time, I got conventional financial through Wells Fargo, I bank that has always been good to me. I put down 10% and got a fixed rate 30 year loan, but it had PMI on it. This would end up being the last time I used a "traditional" lender. While everything went fine, I resented the PMI and having to put money down.

The house needed a little repair, so I hired up a handyman I found on the internet. With no experience rehabbing, I learned a couple lessons. The first is to check out references and quality of prior work. The second is to always get 3 quotes. For about $2500 labor, he painted the interior, installed carpet, tiled around the fireplace, cleared brush and overgrowth from the yard, fixed some leaks around the porch roof, and a few other smaller items. He was supposed to fix a railing on the staircase, but since I paid him before this was done, it never got completed--third lesson.

All told, it wasn't really a bad deal, but the quality of work was below average. Rachel and I spent a weekend cleaning up the kitchen and putting up blinds and a couple things like that. I had a new stove and refrigerator delivered and it as ready to go.

Since I had a full time job, I decided to hire a property manager for this one too. I basically took the first one that called me back. She had a hard time renting it for the $600 I was targeting, so after a couple months of vacancy, I had it lowered to $495 and it rented in a week. Since then, it has really been pretty easy to keep rented, so I think the market in that area finally caught up with my expectations.

The house is now worth at least $50,000 as-is, an appraisal says more--but I don't beleive it. If I put $6,000 int0 updating cosmetically, it would probably bring $70,000+ for it. I have attached a picture as the property looked when I bought it, still basically the same today from the outside.

"Only buy at your price, never fall in love (with a house that is!)"

My first property (2001)

I bought my very first property in November of 2001. Even though I had owned a home for several years, I had always been afraid to step into real estate investments. This was odd, since I knew I wanted to be involved in real estate since I was a kid. Monopoly was always my favorite game, and it was my dream to play a real life game when I grew up and had the money.

But I was still scared of the commitment. However, with a lot of encouragement from my new girlfriend (now my wife!), I went to look at a 1 bedroom, 550 sqft condo that was for sale in a decent but not great complex. OK, really the complex was probably pretty much lower class, but I thought it had potential. They were asking $25,000 for the unit and it had been on the market for several months. I met the listing agent after work and he showed me the inside. It was horrible. It appeared that nothing had been updated since the 60's when it was built...not even the carpet. The unit was rented for $350 per month to an older lady who had been there for a while. I offered $18,000 Cash to the agent, unsure if this was an insulting offer or not, but it seemed to be a safe low-ball. The seller of course rejected this offer, but I held to it, claiming that the condition of the unit did not warrant more. After a couple of days, to my surprise they decided to accept my offer. I closed a month later and bought the property using money from an equity line on my house. The seller actually had a note on it and was forced to come out of pocket for a few thousand at the closing table.

Five years later now and I still own this first property and it is still my favorite. The same old lady rents it, although I have bumped it up to $375 per month now, which is well below the market of $500+. But she pays every month on time, so why rock the boat. I did put a regular note on it a few months later, actually getting US Bank to finance it as a second home and took a little out to cover the closing costs I had paid. It became my first of several "nothing down" purchases. The unit is now worth probably $25,000 which is less than others in the complex, but is due to the condition. But still not a bad return and really good considering I have nothing in it and someone else is essentially paying my note. At the same time, I feel good about this one because I know someone who can't afford much is getting to live in a safe complex that is convenient to work. It is not always totally about the money.

And I learned my most important lesson in real estate investing from this very first purchase. I have quoted it to many people, many times since then and will do it again now.

"If you are not embarrassed by your first offer, then it's too high."

Today I quit my day job....let the fun begin!

OK-Actually I told my boss that I intended to resign last Wednesday, but it actually took until the end of the week to agree upon the terms. I will officially accept tomorrow morning. I plan to stay on until the end of March, in order to make a smooth transition to my replacement. It was with a heavy heart that I resigned from NewellRubbermaid. I have been with them for 9 years, most of my professional career. I have worked for 3 of their divisions and moved to 3 different states for them. I leave as an upper level manager within the finance department. My pay is very good and the company has always treated me well as I built a career with them. I guess that is why it is so hard to really be leaving.

We basically have 3 months to pack up our life here in Charlotte and return to Nashville, TN. Except that this time, it won't be a corporate move....it's on our dime. So we will be watching the costs a little more carefully I think.

I can tell you that I am very scared of the change. It is a big risk. Where will the money come from when I stop getting a check every month? Even though I have been involved in real estate for over 5 years now, this is the first time our livelihood will depend on it.

I have enough money saved up to ensure we can live for a quite a while and be fine, but ultimately I must be successful in real estate investing or it's back to the 9-5 gig for me. In the posts to follow, I will detail my current real estate holdings and experiences in order to catch up to date...stay tuned.