<![CDATA[FI TRAVELGUY - Deal Diaries]]>

<![CDATA[FI TRAVELGUY - Deal Diaries]]>Fri, 01 Jan 2021 00:01:25 -0800Weebly<![CDATA[Deal 3: Harper’s Home]]>Mon, 12 Aug 2019 07:00:00 GMThttp://fiwiththetravelguy.com/deal-diaries/deal-3-harpers-home

The Property: A 2200+ sq foot single family, 4 bedroom, 2.5 bathroom house in Phoenix, AZ

Closing Date: August 1st, 2019

My Mindset: I was living in my quadruplex and was ready to move on. I was ready to be in a better part of town and create some distance with my tenants. Also, my dog Harper needed a bigger backyard, a neighborhood that was better for walks, and we both were wanting more space than the 500 sq ft unit we were in.

Not going to lie, I was not looking for this much space but this is where I thought the best deal was!

How I Found It: I found it on the MLS. It was originally out of my price range and had driven by it while looking at another property that I wanted. When the property I wanted was not budging on moving up the date of having a family member move out I raised my price range a bit it and this one now worked.

The Timeline: I was getting ready for my month long trip to Asia and emailed my realtor on June 7th to just let him know that I'd be leaving on June 24th and coming back July 24th and wanted to start looking when I got back. Welp, the house hunt began on June 9th and I put in an offer on June 12th...

The Negotiation: The house was listed for 260k and had been on the market for 80+ days. The owners lived out of state and had never lived in the house and it had been used as a rental for 17 years. The house was in rough condition - like, dog pee stains on the tile.

Properties in the area with a comparable size were being sold for 325k - 350k, no pee stains though. I offered $255k and the seller paying 2% toward closing costs so I would have more cash available for the rehab. They waited past the deadline but agreed with no counter.

Next came the inspection and the property was in even worse condition than I thought as a window was already broken, there were active termites, and the porch roof needed to be replaced. I asked for another 1% and that was accepted. I eventually had to give that back to complete repairs around the house which I was okay with as I would have preferred less on the rehab than a lower interest rate.

The Financing: I put down 5% as I was an owner occupant and wanted to hold onto as much cash as possible. My realtor's lender was offering me a 4.5% interest rate. I found a cheaper rate and they offered me a 1% lender credit and would reduced my rate to 4.375% and the additional money going to closing cost! Again, trying to keep as much cash as I can.

I used up all the seller credit I could and was only able to buy down the rate and got it at 4.125%

The Plan Moving Forward: I pretty much have to redo everything. This mean I'll have to paint, redo the floors, bathrooms, kitchen counters, some windows. I'll be waiting until the start of 2020 to begin the rehab. This will allow me time to figure out what I want and work on getting my minimum spends for the Southwest companion pass. After that I'll move out and turn it into a rental. Houses in the area at this size can rent for $2200 - $2500 while the mortgage is $1500.

Why I did it: The house was in bad condition but with A LOT of work I would be able to create a good amount of equity. The perfect live in flip for me!

What I learned:

When making a down payment all the money has to come from you.
If the seller doesn’t respond you sign a CURE to say they are in breach of contract and you can get your earnest money back.
People often lack the vision for ugly houses or are lazy. They would rather pay for a $350k finished house than $255 and $20k-$40k in rehab and get all the equity themselves. It's like they want to pay interest on that extra 50,000 for no reason!
You can only use a lender credit for specific things.

]]><![CDATA[Deal 2: Trying Long Distance Investing]]>Mon, 08 Apr 2019 07:00:00 GMThttp://fiwiththetravelguy.com/deal-diaries/deal-2-trying-long-distance-investing

The Property: It is a single family 2 bed 1 bath with a loft and den. The house is in Independence, Missouri, which is about 15 minutes away from downtown Kansas City.

Closing Date: October 19th, 2018

My Mindset: I already had my first deal done and I was getting the itch to get my second property. I was getting priced out of my market and began looking out of state on a whim, and the numbers worked!

My older brother lives in KC, so it kind of made sense. I wanted to ease into out of state investing and was looking for a property that needed minimal rehab and the numbers still worked.

How I Found It: I found it on realtor.com.

The Timeline: It took me a little more than four months from the time I started working with a realtor until I closed. I found my realtor through a real estate community website called, BiggerPockets. My realtor was awesome in that I would find a house and she, at times, would simply say ‘I drove down the street and didn’t like the vibe so I didn’t even go in. This was the 4th house I offered on. The other three I had offered at or above asking price but was a multiple bid situation.

The Negotiation: The house was listed at $89,000 but had been on the market a while. I offered $83,524 and it was accepted. The house had some structural issues and concerns about water flow on the front lawn toward the house. We went back and forth and settled on the seller giving me $2,400 toward closing. But, my lender told me that I can't receive more than 2% toward closing which meant I ended up getting $1,670.48 toward closing. That sucked but count that as a learning experience.

The Financing: I used a conventional loan with 25% down at 5.375%. If I had put down 20% I would have had an interest rate of 6%.

The Numbers: This time I was more prepared and knew exactly what the numbers would be.

Improving the Numbers: When I bought the house there was a tenant already in place who was paying $850 a month. I used rentometer, craigslist, and Zillow rent and was seeing that $900 was the average rent for this type of home in the area. My property manager was worried that would be to much of an increase and they would leave right before the winter months. We went back and forth and settled on getting to $900 by increasing the rent to $875 with a $25 pet fee.

The Plan Moving Forward: The house has a den area that once the current tenants move out I will convert into a third bedroom and create more livable space in the basement. Once that is done I will try and refinance and pull out some of, but hopefully all, my money from the deal.

Why I did it: First, I wanted to see if I was capable of buying a house without ever seeing it. I actually went to see it a week after I closed but at that point it was already mine. Second, I wanted at least two properties before I bought a single family for myself. Third, it gave me at least $100 of cash flow after expenses. Lastly, it had a den area that will allow for some forced appreciation.

What I learned:

It is possible to buy a property out of state and not see it first.
Life is a lot easier if you know your numbers and stick to them.
Find an agent who is trying to help you and not force a sale.
The seller can only give you 2% toward closing cost on a rental property.
Trying to find a house you can convert will help to refinance.
Looking back at this deal now, in 2019, I realize some things I did to make it work. The difference between a 20% and 25% down payment is a difference of $50 a month. Yes, I like the fact that there is a den that I can convert to a bedroom pretty easy but if I would have put down 20% my "cash flow" would have been $75. I wouldn't have liked that. Also, I was willing to pay extra on my down payment because I wanted a better rate and to increase my cash flow number when talking to people. You know, sound like a cool real estate investor. But, if I refinance I will be getting a different rate anyways and if I don't refinance into a different rate it will take me 7 years to recoup the extra money I made in a downpayment.

]]><![CDATA[Deal 1: Head First Into Real Estate]]>Mon, 25 Mar 2019 07:00:00 GMThttp://fiwiththetravelguy.com/deal-diaries/deal-1-head-first-into-real-estate

The Property: It's a quadruplex that is broken into three separate buildings. There is a 3 bed 2 bath unit, a 2/1 unit, and two 1/1 units in a shared building. The 3/2 was originally two 1/1 units that were converted more than 15 years before I bought it. It is located in Phoenix, AZ.

Closing Date: October 5th, 2017

My Mindset: I had just finished reading real estate books and listening to roughly a billion podcasts. I was eager to start real estate investing! A house hack seemed to make the most sense for me and had the best long term upside. I had also recently moved back home and was living with my mom. I was trying to move fast! I was looking in a few areas that were either close to public transportation, shopping centers, or mountains.

How I Found It: It was on the MLS (Multiple Listing Service). My realtor would send me emails daily and I saw it the night it came on the market. The next morning I drove by the property and told my realtor to make an offer at asking price that day.

The Timeline: It took me a little more than two months from the time I moved back to be able to close. This was the second house I made an offer on. The first was a triplex that had less potential, was in a worse area, and was only 50k less. The agent strung us along and eventually provided his own buyer at my offer price. I actually lucked out.

The Negotiation: I offered to buy the house at the asking price of $319,000. My realtor noticed one of the units had a damaged roof. The seller wanted to split the cost of the new roof and claimed it was 11k. I didn’t know my numbers and trusted my realtor. I was also eager to get a deal done and agreed. The new sale price was $324,500. There weren't any plumbing clean outs and the seller agreed to give me 3k toward closing costs.

The Financing: I used an FHA loan, which only required me to put down 3.5% with an interest rate of 3.75%.

The Numbers: I didn't know them like I should. I didn’t look at what the rents should have been, projected my rents, expenses, or my cash flow. I looked only at what the rents were and what the mortgage was going to be. My only thought was I wanted a house, so get me in and I’ll learn!

Here is how the numbers broke down when I bought it and where they are now

How I Found It: It was on the MLS (Multiple Listing Service). My realtor would send me emails daily and I saw it the night it came on the market. The next morning I drove by the property and told my realtor to make an offer at asking price that day.

The Timeline: It took me a little more than two months from the time I moved back to be able to close. This was the second house I made an offer on. The first was a triplex that had less potential, was in a worse area, and was only 50k less. The agent strung us along and eventually provided his own buyer at my offer price. I actually lucked out.

The Negotiation: I offered to buy the house at the asking price of $319,000. My realtor noticed one of the units had a damaged roof. The seller wanted to split the cost of the new roof and claimed it was 11k. I didn’t know my numbers and trusted my realtor. I was also eager to get a deal done and agreed. The new sale price was $324,500. There weren't any plumbing clean outs and the seller agreed to give me 3k toward closing costs.

The Financing: I used an FHA loan, which only required me to put down 3.5% with an interest rate of 3.75%.

The Numbers: I didn't know them like I should. I didn’t look at what the rents should have been, projected my rents, expenses, or my cash flow. I looked only at what the rents were and what the mortgage was going to be. My only thought was I wanted a house, so get me in and I’ll learn!

Here is how the numbers broke down when I bought it and where they are now

Improving The Numbers: I looked into, and called around about, installing a RUB system (Ratio Utility Billing) to decrease the expense of water I was paying. The companies I was calling said they didn't work with a property this small. I also didn’t look that hard because with the rental increases I was giving, it seemed like a lot all at once.

When I took over the property I had planned to get into each unit and rehab them. I was going to begin with the 3/2. I gave them a notice to vacate and they countered by offering to pay $1200 a month. I agreed. Welp, that was easy! Unit D was on month to month and had 5 pets and I implemented a pet fee of $25 per pet. They agreed and that increased their rent to $892.25. I eventually got rid of the couple in Unit A and is where I live now. I say got rid of because they stayed past their lease ending and their unit was absolutely disgusting. I attached a couple of pictures of what it looked like after they moved out so imagine what it was like with them there. Everything was covered in dust and smoke residue. It is a lot better now!

When the lease was up for the person in Unit B, I offered her to stay but would increase her rent to $725 and she was fine with that. Once I got to the point that I was almost done with rehabbing Unit A I was looking to where I wanted to go next. Unit D was going to be my best option as they were still month to month. I had told the tenants in Unit D that I was going to substantially increase their rent. At that point I was thinking I would be happy if they stayed but was okay if they left. They decided to stay.

The Plan Moving Forward: At this point I don’t have any real issues with the tenants and feel lucky about that. I’m enjoying being able to save money every month by living for free. The person in Unit B will be moving out at the end of April so I will move into that unit and begin rehabbing that. I'll be holding the property for the next couple of years to see what I want to do. If I sell it before the 5 year mark of owning it I will be able to avoid capital gains tax since I will have lived in the house for 2 of the past 5 years.

Why I Did It: I knew it was either now or never. If I bought a single family to live in, it would’ve taken me a long time to save for a rental property or grow as fast as I wanted. Now I was able to go from 0 to 4 units just like that.

What I Learned:

You have to just go for it. Ain’t no body got time for analysis paralysis.
I did not know nearly as much as I thought I did.
I should have run the numbers before hand.
Real estate is very forgiving.
This reaffirmed in me that you are the only one looking out for you. I trusted my real estate agent when it came to the roof. I now know that what I paid, or agreed to, is more than what a roof should cost. Also, the previous owner used a $1,000 insurance deductible to pay for it.
I don’t like being so far out of the negotiations.
An inspection will turn up a lot of things but that does not mean it is not a good property or not live able.
I presented myself as the property manager and I’m glad I did.

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