Offer accepted - Waiting on closing date.

Since our last post, we have made a few more offers. Offer number 9 on a 3 unit building in Gardner MA was accepted at $108,000 and we have signed the purchase and sale agreement. Closing was scheduled for 12/30 but the recent ice storm has pushed the closing out to the week of Jan 5th.

The property is 5600 sq ft with 3 very large units. There is off-street parking for 6+ cars. We expect to get about 2800 per month in rent.

There are currently two tenants in place but one is schedule to move prior to the closing.

Our loan has been approved and we have a commitment letter. The insurance has been taken care of and we are waiting on is the survey and title work to be completed by the closing attorney.

Third offer

We still haven't heard anything on our second offer. The property was a Fannie Mae property and they might all be a bit busy with the meltdown going on in the financial world so we have let that offer expire.

We did submit an new offer on another duplex. This one is a true mirror duplex. 7 rooms each side. 3 maybe 4 bedrooms upstairs. Living Room, Dining Room, and huge eat in kitchen. Over 3150 square feet plus a completely finished basement with 2 more large bedrooms and a full bath. Our initial offer is $127,200.

Credit improved

With the help of my mortgage broker we did a "quick score" Now my middle and high score are over 720 and I qualify for 10% down on 2 unit properties.

Second Offer

Second offer submitted but I am in an a multi-offer situation. Which means I am waiting to hear from the bank on wether they will accept my offer or the other buyer.

Dealed failed on inspection issues

Sunday we had an inspection done. The inspector flagged a lot of items and we took over 3 pages worth of notes. Most weren't deal breakers. There were dead roaches (my pest control guy said he could deal with that), broken windows (again not something I was worried about), soft wood under toilets etc etc etc.

The one thing we were uncomfortable with was the small split in a heating pipe we found behind a drop ceiling. Due to finding one we expected more so today I had my heating and plumbing contractor go over to the house with me. We removed covers from baseboard heating and found more splits, we carefully examined the pipes in the basement and found even more along with bulges which all indicated that the pipes have frozen. We also pulled the cover off the furnace and my contractor thinks the holding tanks in the furnaces are cracked. What we didn't find which didn't make any sense is signs of water damage. The drop ceiling had minor stains, None of the walls showed any signs that I would expect if the pipes froze and the thawed spraying water all over the place. It is odd, the property only came on the market in April of this year and it hasn't really been cold enough since. The pipes must have froze prior to the bank taking over it. They went ahead and winterized it but it was already to late.

I could deal with bugs, bad carpets, kitchen cabinets which looked like they had seen better days and a yardful of trash, but to replace the heating system for both units and re-pipe the house is way more than I want to spend. My plumber figures 25K - 30K to make all the needed repairs.
So I canceled the deal. My broker said the bank might come back and try to get me to buy it by lowering the price and adding funds to cover the repair. If they do I might consider it, but we have moved from "cleanup and light renovation" to "major rehab" and I didn't want to that as my first deal.

I am going to look at 2 new buildings which just came on the market. I already have financing in place and my mortgage broker said the credit reports they pulled are good for 90 days. I already raised my cash for my down payment so I have money in hand also. Just a matter of finding the next property.

All total I spent $360 on inspections but it was money well spent, as I was refunded my $500 earnest money and I learned a valuable lesson. I did look at the pipes prior to putting in the offer, but I didn't check in every room and I didn't carefully trace the pipes back from the heating system. The next one I am going to be like Sherlock Holmes and get my big magnifying glass out to carefully inspect the pipes prior to making an offer.

Offer accepted!

Late last night IndyMac accepted our offer. We now have to signed the purchase and sales agreement and IndyMac's addendum. We also have 7 days to complete our inspections. Closing is scheduled for Oct 3rd.

Submitted my first offer.

OK so I have crunched the numbers on at least 15 - 20 properties. I have visited over 12 of them and I have selected one to submit an offer on. I will be working with my R.E. Broker to draft the offer letter and expect to submit it on Monday.

It is a bank-owed 2 unit, 8 total bedroom property. It was under agreement but the previous buyer couldn't get funding and it went back on the market this week. Asking price is $124,900 and I plan on offering $109,912 to start. Even at $124,900 I think it is a good deal because average rents for a 4BR in this area are around $1200 a month. It is on a quiet street close to the major highways and shopping. The other properties nearby seemed well cared for and there are only houses on one side of the street. The other side of the street is the back of a large warehouse and associated fenced in parking for the warehouse.

I don't plan on wholesaling so I am mostly concerned that the offer letter have contingency clauses for professional inspection and mortgage.

How specific should I be in the offer letter? I can afford the full asking price, but I don't want to pay that much. I also can afford to do 80% LTV and cover closing but I would rather do 85% or 90% LTV and have the seller cover closing costs.

I think I want the contingency clause to state "Mortgage of at least 85% LTV with an interest rate no higher than 7.75% with a 30 year amortization period". I have already been "pre-approved" for better terms than these, but nothing is certain until the closing is over.
Also should I bother asking a "Bank" to cover closing costs on an REO? Do they ever do that?

Any other things I might be over looking?

Thanks for all the help and support you guys have given me over the last month. I can see the light at the end of the tunnel. Lets hope it is not the train coming.

Funding search going well

Just got another pre-approval letter from a lender. Based on credit scores etc they will do 85% LTV on a 2 unit property and 75% on 3 or 4 unit properties. I had hoped for 90% LTV on duos but it is a start and better than the other deal I got which was 70% on any type.

I am going to keep talking to brokers and seeing what I can find.

If anyone knows of a good broker who can still find 90% LTVs or programs with 80/10 or 75/15 please let me know.

Started a new REI group for the Lowell Area

I had made a number of posts on different forums such as Richdad.com and Realestateinvestor.com looking for a local mentor to help me get started. I got some good advice and did meet and talk with a couple of people but I am still looking for that one experienced investor who will take me under their wing and help me with my first few deals.

A number of people recommended that I join and Real Estate Investors club in my area. I did some research and there are a few clubs. One seems to be based about 35 minutes away in the Leominster area. I will most likely attend some of their meetings. There is also a landlord association which seems very interested and I will also go to that one, but I was hoping to find something close to Lowell where the members would be familiar with my target market and be able to advise me and potentially partner on larger deals.

After some research I found a couple of groups operating around Lowell. One seems to be closely linked to a network marking company called Financial Destination out of NH and meets in Chelmsford MA and in NH. I have been involved with Network Marketing in the past and it is not something I want to get involved with again.

Another one in Andover seems to be tied to the Advent Wealth Improvement Network and sounded to much like an infomercial for me. The leaders/founders offer a lot of expensive education and seems eager to sell to new members.

A third group which operates out of Waltham and seems to be focused more on Boston.

None of these groups where what I was looking for. So I started my own.

The group will be for discussion of real estate investing in the Greater Lowell Massachusetts region. Anyone who is interested in real estate investing is welcomed to join.

My goal is to provide both an online and a face-to-face community where like-minded individuals can network and discuss topics related to real estate investing.

Hopefully I will find some members and it will grow into the kind of group I was looking for.

Also if you know of an active group in Massachusetts that I missed please let me know.

Monitoring my credit

To get started, I wanted to keep a close eye on my credit. I signed up with 3 different monitoring sites. TransUnions Truecredit.com (watchout there is a trucredit.com also), I also signed up with Equifax.com and CreditReport.com.

I dropped Creditreport.com as the other two are very quick to send me alerts and after 7 days with Creditreport.com I didn't get a single report. I found out that they are not associated with a particular agency but an independant site. So it seems like they have a big delay.

I had an account with Experian which I got through my copy of MS-Money but I need to upgrade my MS-Money software to renew it.

Basically what I have learned is if you balances on any particular credit card break the 80% mark you take a big hit on your credit. I used one card for vacation a couple weeks ago and charged about 4K on it and I watched my score drop by 65 points because it had a low limit. I have paid it back down so now I want to see how quick my score will bounce back up.

Continued story of a first time investor

Today I had a conversation with a mortgage broker. He painted a bleak picture. If your have been following this blog you know I want to get started in REI now that property values are low and there is a large supply of REO property.

My strategy was to get started with 3 and 4 units where cash flow could cover mortgage, taxes, hazard, and expenses plus still generate some cash. I was targeting $75 - $150 per unit after expenses and loan payments. These types of properties seem to be readily available, but funds are hard to come by.

An example of this is a 3 family in my target market it was listed for 188K I think it could be purchased for $170K. Unit 1 is a free standing 7 room 3 bedroom house, unit 2 is a first floor 4 room 2 bedroom and unit 3 is a second/third floor 7 room 5 bedroom. Once it was fixed up I would expect it to generate about $2800 per month in gross.

The mortgage broker said most of his lenders want at least $34K and a couple want $51K as a down-payment. They also want to see six month of cash reserves for all mortgages in the buyers names so in my case this would include my primary residence and the new investment property. This would be another 27K that I would have to have in liquid assets. Add in loan application fees, a 2.5% broker sucess fee the real estate broker wants, appraisal fees etc. I need to have about $80K in cash to buy a $170K building. Not a great cash-on-cash return.

Do I have a flaw in my analysis? Are others seeing the same thing? I am thinking maybe I should delay investing now and stock pile cash and pay off debt. Which seems to be counter to how you accumulate weath.

Found out some good information today.

Hello as a first time investor who is actively searching for my first deal, I have been doing some reading on the steps etc. Earlier I posted my action plan and got some wonderful feedback.

One of the areas my reading and feedback recommended was to pick a market and get to know it. I have selected my market as a large nearby city which has a large rental population. It actually has more renter occupied units than owner occupied.

Once I had my market defined I wanted to narrow it down to key sub-markets or neighborhoods to focus on. As a first timer I feel I am limited somewhat. I don't have the experience or knowledge to handle a full rehab and many of the sub-100K properties are vacant, nor do I have the funding connections or resources to purchase a well run mature property.

To help focus my search I started doing some research on the neighborhoods. I browsed the local police website, I looked for community sites etc. I had hoped my real estate broker could help me with insight into different streets etc, but they said they are limited and can't tell me if an area is good, bad, dangerous etc as it would be considered "steering" and it is illegal in our state and could cost them their broker license.

They did recommend something that I had not seen in any of the books I have read yet. Instead of focusing on the location focus on the tenant type. This might be common sense to some but as a first timer this was an eye opener. I had considered location, facilities, funding, and many other things to narrow my search but before today I never stopped and said I want my tenants to be X.

My homework now is to think about if I want to go with low income government sponsored tenants, students, medical workers or some other tenant demographic.
So I hope this helps someone else and please send me your feedback and comments.

Action Plan

My last post outlined my situation and why I want to invest in real estate. In this post I want to list some of the actions I think need to be taken and get feedback on priorities and if I missed any steps.

Some action items I might work on at the same time so they are not a hard and fast road-map by any means just things I think that need to get done.

Action 1 find a mentor or like minded people to learn more about real estate investing in northern Massachusetts.

The first thing I want to accomplish is to meet people who have accomplished what I want to do. I know books and the Internet are full of people who have supposedly applied the techniques in books from Sheets, Legrand, Kiyosaki and others and made millions, but I want to meet people locally who have overcome the challenges that I see ahead like finding good properties to buy, locating cash for the deals, and managing properties to generate monthly income.

Action 2 continue to learn about investing and managing properties

Kind of related to item 1. I am sure there is a whole lot I don't know and a couple of people told me that in Massachusetts if your not a careful landlord you can get yourself in a big financial mess.

Action 3 turn DWS Properties into an LLC.

Right now DWS Properties is an idea and an email address. I want to make it a true limited liability corporation so that in the future I can use it to provide some buffer between my personal assets and my investments. I am just worried that as a first time investor lenders might not want to deal with a new LLC but want a personal commitment.

Action 4 expand my network and locate professionals for the following services.

Would like to find real estate brokers, mortgage brokers, a real estate attorney, insurance agent and a home inspector that I could work with as needed.

Action 5 locate sources of funding both conventional and alternative that I could qualify for.

This is the action item that stumps me the most. With my home I found a mortgage broker who helped me locate both a first mortgage and a second mortgage so that I could buy it with very little cash, but he has moved on and I have lost touch with him. I would like to locate a couple of mortgage brokers and even some lender contacts so I know what i need to do to get funding for these deals.

Action 6 review a number of deals.

One common thread in a number of books is that it often takes a lot of looking to find the right deal.

That is the action plan for now. If I think of others I will add to this list. Please post your comments.

Getting Started

Getting started can be the hardest thing to do...

I have always been interested in real estate. When I was in college, I rented an apartment from one of my business teachers, and thought that owning real estate might be a good idea in the future. After college the idea of property ownership wandered to the back of my mind. Instead I created a computer consulting business and spent six years watching that grow and then fail.
With the failure of my own company I needed to do something to make sure my new family was taken care of, so I went to work for the largest computer company around and have been there now for over twelve years. The early days were exciting and I climbed the corporate ladder quickly, but soon I felt stuck, my health suffered, and my marriage broke up.

Four years ago, I found a book at the airport called Rich Dad / Poor Dad. I didn't agree with everything in the book, but a lot of it rang true. I was getting married again and my new wife also liked some of the ideas in the book, so we established goals to first become financially stable, then to be financial secure. We made some good progress on the stable aspect. In our first year together we were able to clear all the debts pending from my first marriage and even clear an IRS obligation from the failure of my business. We paid down what the book called our "bad debt", which was mostly credit cards, a small car loan and a couple of student loans. Neither of us had ever purchased any properties. We were long term renters. We purchased a home with an 80% first and a 20% second, which although the book consider a home a liability, we looked at it as providing us with stability for the children as we don't want to move again until they all finish high school around 2016. In 2005 we refinanced the second mortgage to pull cash out and pay off the IRS obligation I mentioned earlier.

Although we look back and feel that we accomplished many of our goals, we did miss a lot of our them. We had wanted to buy real estate by 2006 so we could start moving our income from coming from our jobs to being generated from investments. We started doing some research, mostly reading real estate forums and doing searches on Realtor.com, we could not find any properties available which would provide a positive cash-flow without a substantial down payment investment. There seemed to be a lot of other investors who had read the same books and the value of the properties for sale were much more than the rents could cover. It seemed like most three unit properties were going for 300K to 400K and only produced about $3,000 in gross rent. So we drifted away from thinking about real estate on a day to day basis and instead focused on the kids and work.

2007 was the year we finally got tired of battling our health issues as both of us were dealing with the health complications which come from being very heavy. We spent most of 2007 and 2008 working with our local hospital and through lifestyle changes and surgery that issue is currently under control, but another 18 months have passed and still no investments in real estate.

Which brings us to today, August 2008, the real estate market has crashed and property values have dropped. We haven't been personally impacted as much as some people because we have high enough earnings to cover both of our mortgages. Mainly we have seen our equity vanish, but we think our home is still worth more than we own on it.

Overall we feel that some of our stability has disappeared as my wife's company just laid off over 200 people and although she wasn't one of them who knows what the next wave will bring. This has caused us to renew our interest in moving away from being dependent on our paychecks and trying to create income from other activities. To get started again I have re-read some of the books I have and I have made some posts on a few forums to try and find someone who has been successful at what we want to do and see if we can get some pointers on how to move forward. It would be great to find someone who was in a situation like us and was able to get investment properties or at the least could tell us if it is even possible to find money to obtain them.

Our current situation is we still have two mortgages on our primary residence as I mentioned above. Our credit card debt has grown again but we feel it is still at a manageable level. We continue to bring in about a strong net amount each month but our expenses have gone up so there is not a lot left over. We both still have excellent credit with both of our score over 720.

Some people have said we are not in a great position to start investing that we should pay down our credit card debt and save, but I feel if we don't do it now we might never do it.

I hope to use this blog to get advice and to post our progress. Stay tuned, in my next post I will detail what I think my steps are going to be to get started.

P.S. I am also posting selected entries from this blog on http://www.realestateinvestor.com as I have found that to be a good source for finding advice and knowledgeable people willing to help me get started.