So I was sitting around last night and started thinking to myself about everything we've got going on. Since we decided to jump back into SFR's we've been busy. Just 15 days ago, we owned 5 properties. Today, we own 6 (just closed on one last week), next week it will be 7, On or before Dec 15th, we'll have 2 more properties that we have under contract closed. We'll literally go from 5 to 9 properties in ~45 days.
The total value of the 4 properties is $200k. I've been reading real estate books (and other related books) for about 10 years now. I've read in many places that eventually it can just take off and we've been at this for 4 years and we're buying almost as much property in 45 days as it took us 3 years to obtain. It's an exciting place to be. Of course, I don't have any unrealistic expectations that we can buy 4 properties every 45 days or 50 units next year or anything like that, but we haven't purchased a property in 2014 yet since we were technically saving to get into MFR's, so we had more cash than we normally keep in the bank.
Anyway, it's rather exciting (and a little scary) to be embarking on it. More details to come!
Monday, November 10, 2014
Wednesday, October 29, 2014
Adventures in Foreclosure and REO
In talking with our bank about possible deals, we were brought into a couple of rented REO properties. For those of you who don't know, REO stands for Real Estate Owned by the bank. You'll often hear "REO Department" at the bank for the group that manages these properties. These are properties the bank now owns (usually, but not always, through a foreclosure).
The bank said they had a grouping of properties that they foreclosed on that they thought fit our profile. We looked and sure enough we saw 2 properties that we were willing to move forward on. This is our first purchase in any foreclosure situation so even though those pieces were new to us, it wasn't much different from a normal purchase. There are no agents, your buying from the bank instead of a person or other company, etc. It was a pretty clean process with the bank (except one piece that I'll share shortly). Keep in mind, buying from the bank under REO is much different than trying to buy foreclosure (pre-foreclosure) from the owner or through auction at the courthouse. We haven't bought yet in those 2 manners but if we ever do, you can rest assure I will be writing about it. I'm sure it's much more involved than what we went through.
These 2 particular properties that we wanted to purchase were already turned over to an auction company, which only means we have to pay a 10% buyer's premium to purchase these properties. Typically the bank will not finance this fee. Our properties were low enough in purchase price that it was only a few $K and the numbers still worked great. If this was a million dollar property, it would have been $100k out of pocket to take it back from the auction house. For most that would be a deal breaker so it's ideal to get the property from REO before it's turned over to an auction house.
We have informed our bank that we're interested in these properties and they know the type of property we look to buy so hopefully they will continue to feed us properties that meet our criteria.
The only hiccup we had was that property #2 had a mistake in the legal description. The number of feet from the road was transposed. So instead of saying 45.2 feet from the road, it said 52.4. This nullified the entire foreclosure. The bank now has to re-foreclose on that property (which takes ~45 days) before we can purchase and if someone comes along with a better offer (or worse yet, the owner makes the note whole), we may not even get it. NOTE TO SELF: Always buy title insurance! It's possible this could have gone unnoticed and we could have bought it but not been the "legal" owners. It may have never come up again, but then again, it could have really bitten us. If something this simple and seemingly unimportant can void a title, then imagine the other 1,000's of items that could also do it. ALWAYS PROTECT YOURSELF!
As of the date of this post, we closed on Property #6 (last week) and are just waiting for the other one to finish foreclosure to purchase. We have a couple of other properties in the works so now that we're back on SFR's, you'll see some more postings!
The bank said they had a grouping of properties that they foreclosed on that they thought fit our profile. We looked and sure enough we saw 2 properties that we were willing to move forward on. This is our first purchase in any foreclosure situation so even though those pieces were new to us, it wasn't much different from a normal purchase. There are no agents, your buying from the bank instead of a person or other company, etc. It was a pretty clean process with the bank (except one piece that I'll share shortly). Keep in mind, buying from the bank under REO is much different than trying to buy foreclosure (pre-foreclosure) from the owner or through auction at the courthouse. We haven't bought yet in those 2 manners but if we ever do, you can rest assure I will be writing about it. I'm sure it's much more involved than what we went through.
These 2 particular properties that we wanted to purchase were already turned over to an auction company, which only means we have to pay a 10% buyer's premium to purchase these properties. Typically the bank will not finance this fee. Our properties were low enough in purchase price that it was only a few $K and the numbers still worked great. If this was a million dollar property, it would have been $100k out of pocket to take it back from the auction house. For most that would be a deal breaker so it's ideal to get the property from REO before it's turned over to an auction house.
We have informed our bank that we're interested in these properties and they know the type of property we look to buy so hopefully they will continue to feed us properties that meet our criteria.
The only hiccup we had was that property #2 had a mistake in the legal description. The number of feet from the road was transposed. So instead of saying 45.2 feet from the road, it said 52.4. This nullified the entire foreclosure. The bank now has to re-foreclose on that property (which takes ~45 days) before we can purchase and if someone comes along with a better offer (or worse yet, the owner makes the note whole), we may not even get it. NOTE TO SELF: Always buy title insurance! It's possible this could have gone unnoticed and we could have bought it but not been the "legal" owners. It may have never come up again, but then again, it could have really bitten us. If something this simple and seemingly unimportant can void a title, then imagine the other 1,000's of items that could also do it. ALWAYS PROTECT YOURSELF!
As of the date of this post, we closed on Property #6 (last week) and are just waiting for the other one to finish foreclosure to purchase. We have a couple of other properties in the works so now that we're back on SFR's, you'll see some more postings!
Monday, October 27, 2014
The hunt for MFR's hits a stall
So after almost a year of saving up money and looking for MFR's, we've decided that we'd abandon that idea for the most part. We've been looking up and down in Memphis and Jackson and haven't been able to come across any deals that get us anywhere near what we were looking for. We didn't expect to get the same level of cash flow from an MFR that we do our SFR's but the obvious benefits of fewer properties, accounting, mortgages, closings, ease of capital use, etc would outweigh 25% less cash flow. However, we haven't been able to find any deals that justify the amount of lower cash flow. Along the way, we kept coming across some really good SFR deals. We kind of pushed them to the side unless they were great. Well, we came across a couple of great ones.
While we're not abandoning MFR's, we are no longer looking. We got feelers out to people that we are looking to invest and if something should come back to us that meets criteria, we'll be all over it. The opposite of that basically happened with SFR's. We owned 5 SFR's and of course throughout our first few years, we made contacts, met people, etc. While looking for MFR's, SFR's kept falling in our lap (without looking). It's kind of amazing to see that process develop. When you think about it, we kind of went dormant for a little while. We had realtors, bankers, etc calling us. The course of this past year kind of confirms what I've read over the years prior. Once you're in, you're in. Maybe I'll write more on it later, but I just wanted to point out how cool it is to see that process unfold.
I've got a few more posts coming about the happenings of the last month or so. I've got a couple of decent stories coming you're way!
While we're not abandoning MFR's, we are no longer looking. We got feelers out to people that we are looking to invest and if something should come back to us that meets criteria, we'll be all over it. The opposite of that basically happened with SFR's. We owned 5 SFR's and of course throughout our first few years, we made contacts, met people, etc. While looking for MFR's, SFR's kept falling in our lap (without looking). It's kind of amazing to see that process develop. When you think about it, we kind of went dormant for a little while. We had realtors, bankers, etc calling us. The course of this past year kind of confirms what I've read over the years prior. Once you're in, you're in. Maybe I'll write more on it later, but I just wanted to point out how cool it is to see that process unfold.
I've got a few more posts coming about the happenings of the last month or so. I've got a couple of decent stories coming you're way!
Saturday, June 14, 2014
The hunt for MFR's continues
The hunt for MFR's has been underway for a few months. We're not having great success. It's challenging to say the least. Many have said and I've always known it to be true that there are exponentially less properties from an MFR perspective than there are from an SFR perspective. I've done searches city wide and gotten ~20 MFR's back as result. I've then done a 3 mile radius search for SFR's and gotten back 200 results. The difference is definitely exponential.
I'd be lying if I said I wasn't considering going back to SFR's. The market is still ripe and great values are still everywhere. We're still in the hunt for MRF's but it will definitely be interesting to see what the next couple of months hold for us.
I'd be lying if I said I wasn't considering going back to SFR's. The market is still ripe and great values are still everywhere. We're still in the hunt for MRF's but it will definitely be interesting to see what the next couple of months hold for us.
Saturday, April 12, 2014
100% Rented - Nice Feeling
In 2013, we bought 3 properties. We got them all rented pretty quickly but the first one we bought in 2013 went vacant for about 4-5 months at the end of the year. April 2014 is the first month where all of our properties have been fully rented in a while. Fortunately, with the properties we own we can be vacant on 2 of them and still pretty much break even. You always want to have 0% vacancy but there will be times when it's not the case. Hopefully we can run at full capacity for a while, build up that bank account and get our first Multi-Family this year. There isn't much to report as we've been pretty stagnant trying to build up some cash for that big purchase. We'd like to buy one on our own before we go looking for capital.
I did release a new version of my real estate calculation spreadsheet. I fixed a couple of cosmetic items and added a new section for misc income so it applied a little better to larger properties with supplemental income. Here is the link to it. For a limited time, offer $2 for the spreadsheet and I'll accept the offer.
http://www.ebay.com/itm/190905341882
I did release a new version of my real estate calculation spreadsheet. I fixed a couple of cosmetic items and added a new section for misc income so it applied a little better to larger properties with supplemental income. Here is the link to it. For a limited time, offer $2 for the spreadsheet and I'll accept the offer.
http://www.ebay.com/itm/190905341882
Monday, March 17, 2014
An update on 2014 goals
Below are the goals copied from my post a few months ago. The updates are in red. I think we're doing ok so far!
These goals are on our must do list:
-- Re-finance Property #1 and pull out $10-$15k in capital - Done, but we only got 8.2k. Not horrible but a little less than we wanted. See previous post for details.
-- Shop our insurance around with a broker and make sure we're getting the best rate. - Done! Turns out we're getting a pretty good rate so we're staying where we are.
-- Add a 4th member to our LLC (my other brother who is almost out of college). - Done!
-- Adjust our monthly Contributions to go up by a total of $900/month over our current contribution level. - Done!
-- Purchase our first Multi Family Property(ies): - Still looking for that first purchase.
-- For a total of 4 units minimum.
-- A goal of $315/month cash flow per $100k spent**. - We'll see after we make that first purchase!
-- A total cash flow increase of $1,000/month (across new purchases). - We'll see after we make that first purchase!
These goals are on our "Nice to Have" list (in order of importance):
-- Refinance Property #2 for $10-$15k in capital. - No movement yet.
-- Purchase more Multi-Family property (above and beyond 4 units) - No movement yet.
-- If needed, package our 5 houses (or some combination thereof) and shop them around. - No movement yet.
-- A 1031 exchange is most likely necessary so we need to purchase a multi-family with the nearly $40k-$50k we’d expect to get from selling this package within 180 days. - No movement yet.
-- This could easily run into 2015. - Unsure yet, but most likely will.
Our main focus now is finding that first MRF purchase. I'll keep everyone updated!
These goals are on our must do list:
-- Re-finance Property #1 and pull out $10-$15k in capital - Done, but we only got 8.2k. Not horrible but a little less than we wanted. See previous post for details.
-- Shop our insurance around with a broker and make sure we're getting the best rate. - Done! Turns out we're getting a pretty good rate so we're staying where we are.
-- Add a 4th member to our LLC (my other brother who is almost out of college). - Done!
-- Adjust our monthly Contributions to go up by a total of $900/month over our current contribution level. - Done!
-- Purchase our first Multi Family Property(ies): - Still looking for that first purchase.
-- For a total of 4 units minimum.
-- A goal of $315/month cash flow per $100k spent**. - We'll see after we make that first purchase!
-- A total cash flow increase of $1,000/month (across new purchases). - We'll see after we make that first purchase!
These goals are on our "Nice to Have" list (in order of importance):
-- Refinance Property #2 for $10-$15k in capital. - No movement yet.
-- Purchase more Multi-Family property (above and beyond 4 units) - No movement yet.
-- If needed, package our 5 houses (or some combination thereof) and shop them around. - No movement yet.
-- A 1031 exchange is most likely necessary so we need to purchase a multi-family with the nearly $40k-$50k we’d expect to get from selling this package within 180 days. - No movement yet.
-- This could easily run into 2015. - Unsure yet, but most likely will.
Our main focus now is finding that first MRF purchase. I'll keep everyone updated!
Infinite Returns!
So one of our goals for 2014 was to re-finance the first property we ever purchased. While we had hoped for $10-15k back on that re-finance, it turned out to be $8.2k instead. The appraisal came back lower than we were expecting, but such is the life of SFR investing. Even though we've increased rent $200/month since we purchased in 2010, the appraisal in 2014 was actually 5k LESS than it was in 2010. Yes, we contested it, but it did no good. Again, no one wants to negate an appraisal in the SFR market nowadays. It's a good reason we're venturing into MFR's this year so we have some control over value. But I digress.
In 2010, we put $7k down on this property. We refinanced and just had $8,200 deposited into our bank account. what does this mean? We now have $0 invested in this property. In fact, we were basically paid $1,200 to buy this property (we just had to tie up some money for 4 years). You could even take a step further and say not only were we paid $1,200 to purchase the property, but we were given 15% equity as well.
This is commonly referred to as "infinite returns". It means the function that calculates cash on cash return now returns an error :). Sure it took 4 years to accomplish this, but it's a huge milestone for us. We now have a property returning a positive cash flow and we have absolutely no money invested in this property anymore. If anyone is looking for a reason to invest in real estate, here it is!
In 2010, we put $7k down on this property. We refinanced and just had $8,200 deposited into our bank account. what does this mean? We now have $0 invested in this property. In fact, we were basically paid $1,200 to buy this property (we just had to tie up some money for 4 years). You could even take a step further and say not only were we paid $1,200 to purchase the property, but we were given 15% equity as well.
This is commonly referred to as "infinite returns". It means the function that calculates cash on cash return now returns an error :). Sure it took 4 years to accomplish this, but it's a huge milestone for us. We now have a property returning a positive cash flow and we have absolutely no money invested in this property anymore. If anyone is looking for a reason to invest in real estate, here it is!
Saturday, January 11, 2014
Goals for 2014
So after meeting with my Dad and Brothers over the holidays, this is what we've come up with for our 2014 goals. The list is below.
These goals are on our must do list:
-- Re-finance Property #1 and pull out $10-$15k in capital
-- Shop our insurance around with a broker and make sure we're getting the best rate.
-- Add a 4th member to our LLC (my other brother who is almost out of college).
-- Adjust our monthly Contributions to go up by a total of $900/month over our current contribution level.
-- Purchase our first Multi Family Property(ies):
-- For a total of 4 units minimum.
-- A goal of $315/month cash flow per $100k spent**.
-- A total cash flow increase of $1,000/month (across new purchases).
These goals are on our "Nice to Have" list (in order of importance):
-- Refinance Property #2 for $10-$15k in capital.
-- Purchase more Multi-Family property (above and beyond 4 units)
-- If needed, package our 5 houses (or some combination thereof) and shop them around.
-- A 1031 exchange is most likely necessary so we need to purchase a multi-family with the nearly $40k-$50k we’d expect to get from selling this package within 180 days.
-- This could easily run into 2015.
** We discussed several options for how to measure "success". We batted around ideas about property numbers, unit numbers, profit, cash flow, etc. When we finally settled on cash flow as the ultimate indicator, but we then had to determine how to measure it. We batted around $X/unit/month, $X/property/month, and $X/month per $Y spent. We ultimately settled on cash flow for money spent. We've been making a pretty good killing in SFR's so we wanted to at least continue that success. We added up our 5 SFR's and determined that we make $312.50/month for every $100k we spend (that includes loan amounts and cash out of pocket). I've personally never heard of doing it this way but it makes sense to us. We just wanted to make sure we were cash flowing as well with our MFR's as our SFR's and this is the best way we could think of doing it. Maybe 10 years from now, we'll look back and say how could we have been so dumb, but I hope not :).
These goals are on our must do list:
-- Re-finance Property #1 and pull out $10-$15k in capital
-- Shop our insurance around with a broker and make sure we're getting the best rate.
-- Add a 4th member to our LLC (my other brother who is almost out of college).
-- Adjust our monthly Contributions to go up by a total of $900/month over our current contribution level.
-- Purchase our first Multi Family Property(ies):
-- For a total of 4 units minimum.
-- A goal of $315/month cash flow per $100k spent**.
-- A total cash flow increase of $1,000/month (across new purchases).
These goals are on our "Nice to Have" list (in order of importance):
-- Refinance Property #2 for $10-$15k in capital.
-- Purchase more Multi-Family property (above and beyond 4 units)
-- If needed, package our 5 houses (or some combination thereof) and shop them around.
-- A 1031 exchange is most likely necessary so we need to purchase a multi-family with the nearly $40k-$50k we’d expect to get from selling this package within 180 days.
-- This could easily run into 2015.
** We discussed several options for how to measure "success". We batted around ideas about property numbers, unit numbers, profit, cash flow, etc. When we finally settled on cash flow as the ultimate indicator, but we then had to determine how to measure it. We batted around $X/unit/month, $X/property/month, and $X/month per $Y spent. We ultimately settled on cash flow for money spent. We've been making a pretty good killing in SFR's so we wanted to at least continue that success. We added up our 5 SFR's and determined that we make $312.50/month for every $100k we spend (that includes loan amounts and cash out of pocket). I've personally never heard of doing it this way but it makes sense to us. We just wanted to make sure we were cash flowing as well with our MFR's as our SFR's and this is the best way we could think of doing it. Maybe 10 years from now, we'll look back and say how could we have been so dumb, but I hope not :).
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