Live & Flip

I was unable to refi on my third rental.  I needed another 13k in liquid assets in order to make this happen.  To be honest, I’m not entirely disapointed.  What started out as a good deal has really turned into a sour one.  Mostly due to the amount I would have to bring to closing.  Originally it was just closing costs.  Then fannie mae dropped refi from 80% to 75% and during the long delay to refi the house dropped 10k in value.  Mostly due to investor interest and flippers in my rental area.  In the end I was going to have to bring 15k to the table.  Doable, but not acceptable.

I will sell this place back to the seller as part of our agreement.  He will find another buyer.  He also will find another house I can get into.I haven’t decided yet if I will or not.  My first two rentals have cost me over 6k this year due to vacancies and maintenance.  Its been a great learning experience, but I think I should have had much more cash in the bank before I started owning rentals.  I covered every cost and I am not behind, but I have been very tight these last few months.  Not where I want to be financially.  I was well out of my comfort zone.Overall what an incredible learning experience for the price.  I should still make money on these properties in the long run, and now I know much better how to to get into properties.

My vacant property had the renter move in on the 23rd.  This will be the first month in 5 that my business bank account will be able to cover the mortgages without me having to add funds.  Very exciting to finally have that happen.

On the home front I finally got that big dead pine out of my back yard.  Its really starting to look good back there.  It took me and my father only about four hours to fell the tree and chop it up.  I cut below the soil and the last bit and have filled in with 3 inches of soil  Grass should do nicely there.

I have decided not to sell my house yet this year.  Originally I planned on selling this summer. As they say, life happens and it is just not in the cards yet.  That is fine by me.  It will give me some time to get my finances back to where I want them and do a few more things to this house rather then try and rush them.  To capitialize on the summer market I would really need to get this house on the mls by mid July.  Doable, but to much headache at the moment.

I’m failing a bit at my goal for one blog post a week.  I really just need to set time aside each week.  Lately my time management has not been great.  SO I have to resort to an  update again.My rental is still vacant, but I have a section 8 tenant that is approved and nearly ready to move in.  This is a little property and my new property manager handles plenty of sec 8 tenants.Speaking of property manager, they have taken quite a headache and time sink off my shoulders already.  I estimate I spent over 50 hours working on this rental in one form or another.  Now I can drive by take a quick look inside and see everything is up to my requirements.  Managing properties myself, I simply am not good enough to do the job for my requirements.  In other words, I would have fired myself.  Essentially I did.  So far they have done some needed preventive maintenance and spruced the property up.  They have shown it to over a dozen overqualified folks.   Its just a matter of time before the property is rented again and I can once again build up my bankroll.

I got rid of the broker I was having issues with on my third refi.  I am now back with the 2nd broker.  I will be using him as much as possible down the road.  He is very good and actually returns my phone calls.  What a novel concept.I ran into another snafu unfortunately.   The IRS attached a tax lien to my previous property in search of another gentleman with the same first and last name.  The kicker is, he obviously has a different social and he has a different middle name.  I guess its ok for our govt to arbitrarily put random liens on properties.  I never had any ownership of this property.  So my folks now have a lien against their property for some guy who just happens to have the same name as me.  And these are the people who will now be running GM. Also, the credit bureaus in the their thoroughness attached that lien to my credit file, tanking my credit score and making it impossible for me to refi until it is clear.  30+ days for this to be cleared.  Meanwhile interest rates are climbing.  This will cost me thousands, literally.

To add insult to injury, my house was broken into last week.  Thank god for my security alarm.  It scared away the perp before he could take anything.  I know this because my digital camera was in plain view on my kitchen table less then 5 feet from my now broken window.$100-$200 to get that fixed.If it seems like I have very little faith in people right now, that’s because its true.  Incompetent people are becoming more and more common.  When someone is not held accountable for their actions someone else will pay for their shenanigans.  Till next time.

This is just a quick update on what is happening.

On my rental that had the water leak, I had another issue.  A 30+ year old Russian olive tree couldn’t take the weight off a recent very wet snow storm.  The whole tree fell over.  It appeared to be rotted near the center of the trunk.  I have spent my evenings doing tree removal.  It has taken 3 trips so far and I have removed about 2/3 of the tree.  I went out and bought an electric chainsaw.  Don’t laugh, that little 3 Hp bugger has gone through a relatively hard tree with great ease.  I would have pictures, but when I borrowed the truck from my dad, like a dummy, I left my camera in my car.  Ah well.  I should have the tree out pretty soon.  We had another snowstorm last night and I couldn’t get any work done today.  I will try and get the rest done tomorrow before my mastermind meeting.

Speaking of mastermind meeting,  one idea the folks suggested was offer free firewood to anyone willing to remove the tree.  They mentioned that this has worked before on craigslist.  I think I will have to try that next time.   Tree removal is very time consuming.

Last nights storm also appeared to have snapped two branches on my lilac tree (bush) in the back yard.  I trimmed this tree significantly last fall.  I hope it survives with the loss of these branches as well.  Either way, now it looks very spindly.

Still no word from my mortgage broker.  He keeps asking for information, but is apparently unable to pick up a phone and call the right people to get said info.  I will likely not use him again if I have a choice.

My 2/1 rental is still vacant even though there were supposedly 3 different folks lined up.  I will be calling again tomorrow to find out what the hold up is.

Tonight I am working on property management for that rental.  I have built a list of 36 different property management firms in the Denver area.  That is just the web based ones.  I used a few different places to get the list.  Biggerpockets.com, craigslist, and google.  If I didn’t find them based on those three, they need to work on their seo, because I spent several hours building the list and searching the web.

That’s all for now.

Now that springtime is upon us I can’t help but play in the yard.  Yard work drives me.  Inside the house is ok, but my time is best spent in the yard.  In my backyard I have two cloths line poles that are likely original.  There is also a concrete path that follows the lines.  The layout is similar to most homes in the area.  Since I have a modern dryer in the house, there is no need for the line.  If I ever had to dry closes outside, I have string and a tree.  One pole is near the house and will be in the path of my future patio and the other is still a big freakin ugly pole sitting in the middle of my yard.

Over the weekend I spent about 6 hours digging.  I had to dig about 5-6 foot diameter hole around the pole.  Apparently folks dried their cloths in tornadoes back and the day and needed 2-3 feet of concrete for a 6 foot tall pole.  Bastards.  The poles were far to heavy for me to lift and the prospect of a hernia wasn’t exactly appealing.  I had to rock the poles back and forth until there was an air pocket underneath.  I filled the void with dirt and rolled the pole on top.  I did this until I was able to finally roll them out of the hole.  I filled the holes and reseeded.  I also used dirt from one to fill voids in my yard.  My other projects will be used to fill the holes closest to the house.  For now, watch your step.

BTW, thanks to Wendell for helping me spread the dirt.

I finally got the non-paying tenants out of one of my houses.  I poorly managed this one and let the tenants slide way to long.  I should have had the eviction papers on them by the 15th of march.  Instead I listed to their excuses.  First time landlord mistake that I have been warned about 100 times.  I guess I just had to learn the hard way.

Apparently the tenants decided it was my fault they didn’t pay and left a few surprises for me when I went back into the house the following day.  Two 3 inch diameter holes in the wall, an unplugged fridge with food still inside, trash in every room, stains on the carpet, a hole in one of the doors, and stains on the walls.  Not bad for only three months.  Actually, I feel I got off rather lucky.  They could have done far more damage and it is the smallest of my three units.  Less work to fix up.

This week, I am patching the walls, repainting, having the carpets steamed, having the place cleaned out and generally getting it ready for new tenants.  I have 3-4 prospective tenants waiting to rent this place.  I am thinking about raising the rent to $1000 a month.  Up $50 from previous rent.  We’ll see how that pans out.   I would normally just repaint the patch on the wall, but unfortunately I couldn’t match the paint exactly.  I will repaint the entire wall in each of the bedrooms and the bathroom.  Since the paint color is very close, I should be able to get away with one coat.

The cost of my poor management and bad tenants will be as follows.

~$1400 for 6 weeks missed rent.

~$400-$600 repairs (Paint, patch kits, new door, cleaning, steamed carpets)

Total of around ~$2000 dollars for one bad tenant and I got off light.

While this house is still in Denver, it takes me an hour 1 way to get to it.  I will be putting a property management firm in place once I get new tenants.  The ~$100/month will be more then worth it.  I figure my inaction on getting these tenants out in early cost me nearly $1000. Plus, the hours I wasted this month running back and forth could have been put to far better use working on my other plans.  Its time to put the management into more capable hands.

My other two rentals are much closer, less then 10 minutes away.  I have good tenants in both, so I see no need to go that route there just yet.Plus I can use those two properties as a carrot to dangle in front of the management firm.  This allows me to find a good company before putting all my eggs in one basket.

I thought now would be a good time to check up on what I have accomplished and take a look at where I am headed.

My own home.

-I contacted a buyers agent.  Found a house (3/1) in an older neighborhood.  I picked up the house for 90k with a VA loan.  Current market value is 125k. 

-Minor repairs throughout.  Replaced the locks.  Bringing the lawn back to life.  It looks pretty good actually.

-Security system.

-Replaced the original furnace circa 1954.

-New gate.  Slightly fancier then surrounding gates, but it goes well for a cottage feel.

Plans:

The house could be resold without additional work, but there are some things I would still like to do.

-Replace the windows 3k?

-looking into French doors when I replace one of the back windows. 1k?

-move washer to utility room 1k?

-refinish cabinets 1k?

-add dishwasher $300?

-remove dead trees from back yard $500?

-foundation work 3-5k?

-back patio. 1.5k?

-mud jack the front patio. $500?

-front and back minor landscaping 1k?

total = 10-15k

The biggest items are the foundation, cabinets and windows.  Everything else can either be dropped or minimized.

Rentals

-This year I started acquiring rentals. I now have 3.

-4 houses in 9 months exceeded my wildest expectations this year.

-picked all the houses up with very little down.  Purchased each with hard money and did an immediate refi.  Since the properties were purchased below 80% current market value my cost consisted of little more then closing costs.  Although Fannie Mae pulled some quick changes and raised my costs slightly 5% for each house is not to bad at all.

Plans:

-Hold the houses for at least one year.  Sell one or more for cash and either use that towards my self storage goal or use it to purchase more houses.  Either way is fine by me.

Flips

-Soon I will begin working on financing to flip properties.

-I’ll go into my flip criteria in another post.

Blog

-The blog initially started out covering the fixes on my own house, now it will cover just about any business venture I pursue.  Since this is my open journal, I want to look back and see my accomplishments.

Ok so the last two are future oriented only, but that ok.  I’d rather look to the future, because its very hard to move forward when looking behind you.

On Tuesday night I had another great mastermind meeting.  What is mastermind?  A mastermind group is a gathering of like minded folks looking to better themselves. Not to impressive looking in, but its an amazingly powerful tool if used right.  Here’s how it works.

On a regularly scheduled interval.  Say once a week, you meet up either in person or via phone conference like we do.  The group then goes into a brainstorming, motivational, goal setting, problem solving, life enriching session.  Each group functions differently based on group needs.  Our group goes over the accomplishments from the previous week, goals for the following week and discusses problems anyone has and potential solutions.  Then one universal rule for nearly all masterminds, its confidential.  You have a group of trusted folks that you can really share your ideas, goals, and setbacks with.

We usually accomplish what we need to in about an hour.  We record meeting minutes in our private forum.  Each person posts their goals for the week and if they complete them or not.  Believe me, peer pressure is a great thing in this setting.  I find myself very motivated to work on goals when I have stated them to the group.  We also have a section to discuss any challenges each member faces.  Other group members suggest solutions.

Its hard to describe how amazing this type of thing can be, but each member of our 9 person group is focused more and they accomplish more.  I strongly suggest looking into a mastermind group to help you achieve your goals in life.  Gather together 6-7 other motivated folks who concentrate on solving problems rather then dwelling on them.  Meet at a scheduled time, work out needs of the group and see where it takes you.  So far its been an incredible experience for me.  By the way, not everyone has to be in the same industry.  In fact, we found that our very dynamic group backgrounds has helped us think outside the box much more then if we were all in the same industry.  It has also got us to at least understand a bit more of the life of someone doing something we may know little about.  If your looking for more info, I suggest you login The Fastlane to Millions forum and see what other folks are saying about it.

This month really hasn’t gone great as far as my rentals go.  I have one non paying tenant that I will be evicting.  I have the deposit at least, but still chaps my hide I haven’t received one payment from them.  The gentleman I talked to last time ended up being thrown in jail himself.  Hard to make money for rent behind bars.

On my other property there was a water leak from the water heater in the basement.  It caused a decent amount of water damage.  I take partial blame for this one.  My tenant mentioned water leaking at the same time they had issues with the dishwasher.  I assumed (yes I know about assumptions) that they were from the same source.  Nope.  I go over after she calls me on Thursday and take a look at the leak.  She couldn’t identify the source.  It took me all of 5 secs to find water leaking from the water heater drain.  It was plain as day.  Oh well.

Since the leak has been going on for over a week, I didn’t want to take any safety chances here.  I called a specialist to come in and remove the water, and spray to prevent any mold.  I got 2 estimates.  First was $1000 dollars, the second was a recommendation from my home warranty company.  Estimate $2400 dollars.  That was an easy choice. So they are currently in the drying process.  I need to call them first thing on Monday morning to make sure things went well and there were no hidden charges.

Thankfully the water heater repair just cost me the $50 copay from my home warranty company.  The home warranty has already payed for itself twice over on this property.

To add insult to injury this month, I found out my first insurance payment was not payed due to a communication error between me and the lender.  So two properties needed the insurance payed in full.  Another $700 dollars.   Turned out to be a $2400 month for my properties.  Not fun.  I knew I would have months like this.  I was just hoping it wouldn’t have happened so soon.  Oh well, I have to keep telling myself “Your a landlord now dumby, you knew what you were getting into.”  Fair enough.  Hopefully the next few months go better.

As I continue to learn the game of Real Estate,one item keeps cropping up over and over again.  Networking.  I am beginning to believe that is the single most important aspect to do well in this field.

Networking is how you find the folks to get started, how you find the members of your team, how you find deals and sell deals.

Let me give you a scenario that just happened to me about 30 minutes ago.   I get home and notice that the abandoned property to the north of me has a truck parked out front and the front door of the house is wide open.  So I wait.  Note: never, ever go into a place where someone could be waiting for you. I already had the license plate jotted down just in case.  Eventually a gentleman comes out.  I introduce myself and inquire about his presence here in a very casual tone.  I don’t want to put folks on the defensive when I first talk to them.  It makes it very hard to get extra facts later you may need. It turns out this gentleman secures and eventually cleans out properties for the bank. I now know someone who knows the condition of property before it goes to the auction block.  I let him know a few more details about what I am trying to do.  I got his business card and I let him know that I will pay a finders fee for properties that he can bring my way.  I just made a new contact.  That simple.

This may not pan out, but it could turn into a very good way to pick up properties.  He may throw me a 50k deal, you just never know.  Never waste an opportunity to network with folks.  You may not see them again for months or even years, but they could be the key to your future success.

Just make some contacts.  Contacts are how I met my first investors, how I bought this house, how I bought my first rentals.  Thank god for the gift of gab my folks gave me.  If your the shy type, I strongly urge you to find any way you can to break out of your shell.   Effectively meeting folks is one hell of a tool to have.

My last post I mentioned all is going well with the rentals.  Well, I finally ran into my first SNAFU.  To be honest its not a big deal yet, but since its my first major issue (other then repairs) its kinda of a big deal for me.

I have not received payment for rent on my 2nd rental.  Since there was a bit of confusion as I transfer responsibility to me from the last owner, I had to be sure rent was not sent to him first.  Rent certainly wasn’t sent there.  Little hard to send rent while sitting in jail.  Yep my tenant went to jail and lost her job.  Her husband called today.  I got the sob story, but he sounded more bewildered then anything. He mentioned he didn’t know she was even in jail for the first few days.  She’s out now btw. Long story short I gave him till the 16th to pay in full for March plus the 10% late penalty as agreed upon in the lease.  I choose the 16th since that is right after payday.  He has little time to go waste the money elsewhere.  I documented everything we talked about in case I need it for future reference or legal help.

While I am still new to this game, I did get the impression he is sincere about paying on time.  Nothing really ran up warning bells to me.  This might be rookie optimism, we will see.  This is my first non-payment, I hope this does not turn into my first eviction.  I’m not looking forward to that inevitable month.

Don’t worry I didn’t forget to post on my property purchase info, but I want to update these small events before I forget about them.  I want to also be able to look back and see my progress as a rookie landlord.