The Old Man and the Knife

So yesterday I get this call from the ad I run in the paper. Man tells me his sister has died and dad wants to just sell the house. He'll take 65k. I go look at the house, and I figure it's worth around 75k fixed up. It needed paint and a little TLC, but not much. Total cost would have been round 5k. I tell him that b/c of the circumstances and the pain associated with the house I wouldn't even want to insult the man (since I'd only offer in the mid 40s) and that he should check out a RE auctioneer instead. He said that the least his dad would take is 55k. I tell them I'll check it out.

I go home, reverify my numbers and call the son back that afternoon and tell him the best I can do is 47500. "I'll tell my dad tomorrow morning. It's been a long day for him." That's fine... selling your dead daughters house can be a bit trying.

Next day I get a phone call. "Dad will sell it for 50k." I say I'll do it for 50k, but all the appliances stay. "Let me talk to dad." Son calls back and agrees to the price. We agree to meet at 3:30 to sign the papers. IN AN HOUR the dad calls back and says he's decided to sell it to his other son for the same price he agreed to with me.

So I don't know which is worse... that the old man went back on his word with me or that he originally was trying to get as much money out of his son as he could. Either way the knife in my back is killing me.

A New Twitter Follower

So Armando Montelongo is following me now on Twitter. If you recognize that name, he is the Austin, TX flipper on Flip This House. He stepped into the staring role after issue with the Charleston, SC based team had creative conflicts with A&E. They lost the show, A&E picked someone else and everything went down hill after that.

I'm sure the guy is making lots of money even in a market where banks have closed their doors to people looking to buy houses - investors and regular buyers alike.

What really got me was his new website where he is pimping his book... and his 5 ebooks. Housing isn't cutting it for him... the flippers want easier money and that's to pimp knowledge no matter how it's shaped.

First off, I only take ebooks that are free. 2nd I've read enough books, websites and forums at this point that the same information is repackaged and sold back to me with just a new ribbon.

For all you people out there who are getting into this, please take this advice to heart. Do NOT spend $1000s of dollars on tapes or seminars or books. For around $100 you can get a lot of the knowledge you need in a handful of books and then FIND A MENTOR. They will help answer any questions you have and keep you out of the trouble you are afraid of getting into. When the hard times come a book will just sit on the shelf and collect dust.

The basic knowledge is important and knowing the tricks of the trade are very helpful, but you should spend your money wisely.

A few of the books I've read:

Landlording On Auto-Pilot by Mike Butler
Retire Rich from Real Estate by Marc Anderson
The Pre-Foreclosure Property Investors Kit by Thomas Lucier

I would read them in that order as well. I'll review these books in the coming days so you know why and what to expect if you chose to buy them.

Flip Home Purchased

Closed on my auction house this morning. It was a rush yesterday to get everything in order. My fault from the beginning. So in an effort to avoid that in the future I'll be creating a check list. It's easier for me to not remember what to do and just check items off in a box once they are complete.

I'll be posting video here of the remodel that is starting up. Demo began and landscaping is planned as well for the first week. I'd love to knock out the inside first, but since the gas, electric and water have been off in the property for over two years we have to pull permits to get them on. And since it involves government I expect it to be slow. So no painting since there is no water to clean the brushes and no electricity for some of the other necessary tasks associated with demo.

Lots of fun.

The Short Sale Blues

@danmelson over at searchlightcrusade.net wrote a terrific article for buyers on why NOT to buy Short Sale properties.

For all of you who are not sure what that is, a short sale is typically when the seller is unable to make their house payments, all other options have been excluded and the house must be sold. However, the situation is that the seller owes more than the house is worth. There are a number of scenarios where this becomes possible, but for this article it isn't relevant.

When buying short sales, you sign a purchase contract for an agreed price with the seller and then submit it to the bank for approval. The bank then requests tons of paperwork from the seller, and even documents from the buyer, to make sure a short sale is necessary. Then the bank let's the offer sit on a desk for an undetermined amount of time before they finally look at it. This time could be 10 days. It could be 3 months. One I am working on is current sitting at 3.5 months.

The bank is not obligated to take accept the contact at any point in time. This leads to any number of issues for the buyer. Long term mortgage locks, missing opportunity on other properties, no guarantee on purchase... the list goes on and on.

For this reason a Realtor is wise to avoid the short sale.

I offer a 2nd option that can benefit all parties and avoid dealing with the bank.

If all parties are willing, the buyer runs a title search. If it is found to be clean and everything looks good a price on the house is determined. A contract is written up by an attorney where the seller quit claims the property to the buyer. The buyer then owns the property, but the mortgage is still in the sellers name. The buyer then refinances the property and a pays off what is owed to the bank.

Of course it is not that simple... maybe you give the seller some concessions to do this, the amount owed to the bank must be less than the value of the property, if the bank discovers that the deed has been quit claimed to someone other than the person on the mortgage they can call the note due (though I have NEVER heard of a bank doing this), the Realtor would have to be compensated for what I would consider procuring the sale...

The quick of it all is the property is put into the buyers name per a pre-existing contract between the two parties, then refinances the property to pay off the current bank loan.

This is a simple multi-step process to buying the property from a seller who is NOT underwater on their mortgage yet is unable to refinance on their own or sell the property otherwise while avoiding the bank. I would HIGHLY recommend you consult a real estate attorney to ensure all parties are equally protected during this process.

Just a thought. Now get the flip out there.

Rule #4 - Partners Is A Dirty, Dirty Word

Since Cain killed Able human beings have been unable to see eye to eye... and it's all gone down hill from there.

Partnering up with someone is only one step further into the fray.

There are many positives going through your head about partners-

Partners divide risk. Partners are sounding boards. Partners bring fresh points of view. Partners will do half the work. Partners bring skills.

The truth is taking on a partner is a fear based decision that can be overcome in other ways.

People usually take on partners b/c...

-their confidence in what they are doing is not great

-they are not sure of their own abilities to get the job done

-they don't know where to turn if times get desperate

-they won't have to do all the work

I had a partner on my first property. I wanted to divide the risk since it was my first house. I wanted someone to look to when things got bad and HOPE they knew what to do next. I wanted the skills they brought to the table to save us money while we did the work (see lesson 3).

In the end, a lack of communication, different ideas on how things should be done, effort extended and a HOST of other reasons taught me the reason I brought him along was b/c I was afraid.

I've watched too often as differences in opinion, personality and strategy tear partners apart and ruin a perfectly good idea and/or business.

Then what is the solution?

If you are going to do this you will absolutely need to surround yourself with competent individuals and mentors who will be there when you have questions. When you get into trouble you can turn to them and ask what they think you should do. Check out your local REIA or online message boards.

You can hire a mentor to guide you. Many of these people for a fee will walk you through each step of your scenario.

Plan ahead and educate yourself. You can combat fear (which is many times just the unknown) by giving yourself reasonable guidelines to meet and material that will give guideposts as you go along.

Within the first month I found myself realizing it wasn't answers I was lacking, but the infinite number questions I didn't know to ask. You can't get the answers you need if you don't know the questions to be asking.

I would recommend getting to know a confident, seasoned individual WITH SCRUPLES who will be happy to walk beside you until you get your sea legs.

Until then, get the flip out there!

Rule #3 - If You Can't Cut A Check You Shouldn't Be Doing It

This rule is a bit confusing when said so I need to clarify it since it is one of the most important.

I do not use my own money to rehab homes. I do not use my own money to buy homes. My money stays in my pocket to buy things for me. Not houses.

Use other peoples resources. Banks, loan sharks, credit cards, home equity lines and private lenders are many ways to do this. In the end, whoever you pay the least amount of money to or fits your scenario best is who you should use.

Do NOT use your own money. I don't even recommend using your friend's or family's money. Unless they understand your business, and it is likely they don't, it is inevitable that they will always be wondering what you are doing with the cash.

The second part of the statement "...You Shouldn't Be Doing It" means if I catch you spending your time using a hammer, paint brush, drywall, tile... ANYTHING that can be done by a paid employee... is grounds for a stiff smack across the face.

Say this to yourself... you are NOT a drywaller. You are NOT a painter. You are NOT a carpenter. These are jobs that you pay people to do while you go find another job for them to work on.

"But I'll save money if I do it myself."

SMACK!

No... you spend your TIME saving hundreds when you should be out looking for deals to make you THOUSANDS. Spend the money and do it right the first time. YOU go out and look for another deal.

Those ridiculous shows on TV show people doing all sorts of work when they should be looking for another property. Working on the house will at the very least wear you out. At the worst, it will burn you out.

So really Rule 3 should be called "Contractors Work On Houses, I Do Not" or "Subs Make Hundreds, I Make Thousands"...

As you can see, I need a new way to state Rule #3. What are your thoughts? What should I call it? Leave your comments below!

Rule #2 - Take The Money And Run

I learned this rule early... on my first house in fact, but only after much grief.

My partner (rule 4) and I had purchased a nice 3br 1ba home in a high demand area. We got it for around $150k with an ARV of $215k.

The first day we put it on the MLS through my real estate company 60dayrealty.com (@60dayrealty for you Twitter followers). Listed it for $175k in as-is condition. In 24 hours we had an offer of $170k.

After my partner and I spoke we decided to decline their offer. I told the Realtor we were not offended by the offer, but had just purchased the property and fully believe the home was worth the $175k we were asking.

We all thought they would counter back at full price and the deal would be done. We were VERY shocked to find out they walked away.

My partner and I weren't too upset b/c we were excited about the possibility of doing the rehab and gaining an even greater profit out of the house.

Essentially we walked away from $10k each for doing no work. Nada. Zip.

Needless to say, we spent the next 3 months managing subcontractors, buying supplies, and doing a lot of the work ourselves. A lot of long, not to mention late, hours. We spent around $25k to fix it up and sold it for $205k with no Realtors involved in the transaction.

For our hard labor, stressful nights and bloated costs we made not $20k, but a whopping $25k! We walked away from $10k and beat the hell out of ourselves for 3 months to make an extra $2500.

Stu. Pid.

This rule doesn't ALWAYS apply of course. With experience you can tell if the fix up and profit is far worth the rehab instead of the wholesale.

In my world though, I live by rule #2. It worked very well on the next property I sold.

Thoughts? Disagreements?