The hunt for a bargain property

[pyriel]

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Newspaper here on my side just announced that 7k Marines will be relocated here from Japan. I am changing my strategy and will relook at some of my offers. 2-3 years of bubble just showed up in the horizon here on Guam. Real estate here will start appreciating (i'm pretty sure). I am now going to be ever vigilant in looking at the market to see if there will be a spike in housing prices in the next six months. Godd luck to you all...

 

[pyriel]

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Negotiation for House #5 is back. I offered 90k and they came back with 98.5k. I counter it again for 93k 60 days to close and to allow me to renovate as soon as they accept my offer. We'll see what happens.

I then went to several banks and met with loan managers. I asked them to give me a good faith estimate for two different scenario. First one is for loan of 95k, 20% down, no pmi, 6.5% APR. The other one is for a VA loan 7.5% no prepayment penalty, no pmi, no closing cost.

With the 20% down, I would have had to let go of 19k + 6k (additional closing cost) + 10k repair for a total of 35k. If I rent it out for $1100, I would have received a $500 cash flow every month. This would have given me a cash on cash return of 17% for the money that came out of my pocket. It would take me 5.8 years to get my money back.

With the VA loan 0% down, I would have had to let go of 4k (additional bank fee and points) + 10k repair for a total of 14k. If I rent it out for $1100, I would have received a $300 cash flow every month. This would have given me a cash on cash return of 26% for the money that came out of my pocket. It would take me 3.8 years to get my investment back. Additionally, my exposure to risk was minimized because instead of putting in 35k, I am only putting in 14k.

Which one is a better deal? I hope that at this point of time, you would be able to figure it out.

 

[pyriel]

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I'm still waiting for a reply from my real estate agent about house #5. I went online last Friday and they lowered down their asking pricefrom 103k to 99k. I had mentioned that my last offer was for 93k and immediately called my real estate agent to close this deal as soon as we can.

I will most likely buy two properties (if not three) before the end of the year. I have to create some deductions to offset the profit I received from selling the 4plex last month. Next year, the passive income (extra money) i'll be receiving will be offset by both of my wife's and my TSP contribution of 15k each (total of 30k).

Good luck to all and please don't do what I am doing unless you are very comfortable with the risk. As for me, I know all the risks and have contingencies to overcome them. Thanks for reading...

 

[pyriel]

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Negotiation have broken down again. Bank counteroffered with $98,500 against my counter offer. I have instructed my real estate agent to stand down and not to pursue it.

What we are doing is creating another offer with someone's name on it. Now, this tacticis not against the law. This is how it will work. I will ask my father in law to put in an offer for 90K all cash due by 30 Dec 05. The name that will be in the offer will be "Mr. Jerry Jones (fictitious) and/or assigned" The "and/or assigned" clause is very important because it means that the individual can assign the agreement purchase to somebody else. This will allow other investors to buy the property instead of the individual that wrote the contract.

The premise here is that the bank I am dealing with knows that I am an investor and probably hanging on knowing what I am capable of paying. By introducing other investor to the pot, they might just want to give it to that individual thinking that they are a first time homeowners. We'll see and keep my fingers cross...

 

[pyriel]

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I just want to let everyone know that i decided to pursue this property on 2006. I am currently in Hawaii and I have another travel plans after this so it is pretty hard to pursue something when I am on tdy. I am honing on thisproperty and will utilize my strategy when I get back. Since I am no longer in a hurry, I will keep my options open and may also move on to another property if we are not able to close.

Hope you all have a happy holidays!!!! Missed you all...

 

[Gilligan]

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Thanks for the update, I was wondering what happened to your deal.

Have a Merry Christmas.:^

 

[pyriel]

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Thanks Gilligan. Glad to know that some people are finding my blog useful. When I started this last October, I really meant what i said about closing a deal. However, people need to understand that closing a real estate deal does not happen overnight. I usually look at 3-6 months window. I figure that if I am going to invest and put my signature on the dotted line, I might as well work on lowering down the risk. This is why I think real estate is less risky than playing with mutual fund or individual stocks. At least I can do something about my rental if my old tenant ever decide to move out. Thanks...

 

[ocean]

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Pyriel,

I'm glad that I found you here in the real estate section and your intro in your first TSP talk. I know I can learn a lot from you on real estate than the TSP allocation . I will be 51 years old in 2 months and I think I'm trying to catch up with the real estate investment.

I first noticed real estate investment to the road to success back in early 80's from Robert Allen's seminars. I haven't done anything then. About 8 years ago I bought Carlton Sheets course for No money down in real estate, again I haven't done anything. Only to see the real estate to go up like rocket in the last 5 years. Finally I bought my first 2nd home (townhome) last year and turned into rental this summer. And I bought 2 single family homes (1 of the 2 is 50% mine, and 50% my brother). I have property manager to handle rental for me because I don't want to deal with daily rental activities such as collecting rents and maintenance.

I don't want to ask you a lot of questions now to turn you away but I will eventually do that. You mentioned earlier that you established a corporation to cover all your properties. Before I bought my 2nd rental I established my LLC and wanted to get all my property under the LLC. But when I found out the interest rate from the bank is much higher than the individual rate. I then chosethe individual rate and bought it under my name. How did you do when you start it and how did you change if you started out asindividual. Also this year will be my first year to file the property investment income tax and I will need to look deep in this area. Any advice would be appreciated. Meanwhile congratulate for your continued success with your such a young age.

Ocean

 

[Gilligan]

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Welcome to the forum Ocean, I've only been on here a couple of month myself. I have one small rental but I am looking into building my real estate holdings. Sheets and Allen have some great info. What part of the world are you investing in?

Pyriel, from your"cash on cash" terms, I would say that youare student of Dolf De Roos or Robert Kiyosaki, am I close?

 

[KAPLOWD]

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Suggest reading PENTURBIA by Jack Lessinger, Ph.D.

 

[ocean]

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Gilligan,

I live in New Jersey. Currenly I have 1 rental townhome near Atlantic City and 1 and 1/2 single family homes in Philadelphia, PA. All 3 properties have even cash flow (kind of, -$25 each home each month). This is all I can affort at the moment and hopefully I can getmore properties in the future.

Ocean

 

[Gilligan]

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Kaplowd,

I usually only read RE books by self made millionaires. I did a little Cliff Notes study on PENTURBIA today on the internet. Lessinger is a retired professor. The main point he makes is that the Baby Boomers are retiring and starting to move to rural areas. I live about 1 hour NW of San Antonio and have seen many moving from there to up here. The affordable housing is scarce.



Ocean,

Keep up the good work.

 

[grandma]

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Gilligan wrote:

Kaplowd,
I usually only read RE books by self made millionaires.

You are in the right thread, then!! Pyriel started this `RE 101' class to show how he does this over in Gaum. Go back to the beginning, October 2. You might also benefit by browsing the whole of this RE forum for his other posts, leading up to the creation of this thread. ... started in response to everyone's interest in the step-by-step.

Hopefully, he will get back fromtdy, and pick it up again soon.

 

[pyriel]

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Hello gang. Thanks for the interest on my real estate thread. I recently took over a comptroller position so I had to slow down with pursuing and acquiring more properties. I am still in pursuit of one property that my real estate agent and I have beenwargaming on how to best acquire it. I plan to close that when I get back to Guam. I was in Hawaii last week and I am now in the Philippines paying off my condo.

Gilligan, Yes, I have all of their books and practice what they preach. They do make a lot of sense.I've also read others books from other authors.

Kaplowd, Thanks for the book info. I'll look into it. I do like the correlation of baby boomers and how it affects our market right now to include real estate.

Ocean, I wonder how much did you release to purchase your properties? How long have you had them? I'm sure that they have appreciated in value since you last bought them but you should still look at wargaming them and turning them into a positive income. BTW, when you said, you are -25 per property does this include property tax and insurance and repair and management fee? I kind of look at passive income as income generated after everything is deducted. I'm sure if we put our brain cells together, we could come up with somethingto help you out.

Grandma, I missed you...hugz

 

[ocean]

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Pyriel,

Thanks for getting back to me. Out of the 3 properties, the townhouse in NJ that I bought last year has about 25 - 30% appreciation. The 1 and 1/2 properties at Phily that I bought in this summer remain flat. The negative -$25 per property I think it will be covered by next year lease renewal so I'm not too worry about that. Yes, all expenses are included in my calculation except the unexpected repairs. The immediately benefits for me is the tax deduction of the properties. For now, I will just hold-on these properties for a while before I look for another one in the next year or two.

Good luck and have fun in your new position.

ocean

 

[Gilligan]

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Pyriel, Congratulations on your new position. Any books you would recommend reading? I’ve just completed a couple of Ty Hicks books on RE financing. Have you thought about asking you real estate agent to loan you his commission, that would improve your cash on cash return. Paying off your condo? I have always been taught to live debt free, but De Roos says to never payoff your mortgage and all ways mortgage out when the value appreciates so that you will have more funds available to purchase new income property.

Grandma, thanks. It looks like Pyriel is well on his way. He sounds like the Donald Trump of Guam. Before long he will be writing his own RE books

 

[pyriel]

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Gilligan wrote:

Pyriel, Congratulations on your new position. Any books you would recommend reading? I’ve just completed a couple of Ty Hicks books on RE financing. Have you thought about asking you real estate agent to loan you his commission, that would improve your cash on cash return. Paying off your condo? I have always been taught to live debt free, but De Roos says to never payoff your mortgage and all ways mortgage out when the value appreciates so that you will have more funds available to purchase new income property.

Grandma, thanks. It looks like Pyriel is well on his way. He sounds like the Donald Trump of Guam. Before long he will be writing his own RE books

Here are two of my secret weapon books. Since reading these books, i've pretty much changed my outlook on buying properties for rentals (and sometimes for flipping).

http://69.10.163.104/jaysbook.html

I've started off with Kiyosaki which gave me the bigger picture on where I stand as far as my finances is concern. DeRoos came in and helped me realize the effectiveness of improving properties and how it affects appreciation. Decima helped me realize that I can get cheap propertieswith higher returnswith my investments.This means less risk for me. My other recommendation is to have everyone take a two week tax course.The learning curve is just so powerful that one can realize how to maximize gains as well asincome whether it is personal or through business.

 

[pyriel]

My real estate agent and I executed our plan I wrote down on post #24. I spoke with my mother in law to utilize her name for this proposal. Proposal is for 88k 20% down 30 days to close. Why are we doing this again? My last proposal is for 93k. I want to see what would they counter offer for another individual's proposal. This would also let me see if they are just playing hardball with me since they know that I have several properties. If they take the bait and give a nice counter offer (up to 95k) I would then close this deal. The contract will state "Name of the individual and/or assigns." This little clause will allow the individual to pass on the purchase to another individual and the seller can't do anything about it. In this case, she will pass it on to me. Our way out from this deal is 1) "Subject to getting financing acceptable to the buyer" 2) "Property is to appraised equal to or more than the purchase price" 3) "Buyer have 21 days to conduct due diligence"
I will be calling several banks today to compare rates, points, closing cost etc, etc. I will be posting them later for everyone to see. Once I pick a bank, I will then list down how to get financing and what the banks are looking for. Some people think that they must look for property first before they try to get financing. In reality, they should already be shopping for banks or lenders at the same time that they are looking for property.

 

[cowboy]

Real estate Clause

The contract will state "Name of the individual and/or assigns." This little clause will allow the individual to pass on the purchase to another individual and the seller can't do anything about it.

Interesting how lawyers get around things! What would we do without them. I'll have to remember this the next time I see one of these little contracts. So you think the lender is not coming down because you are the buyer? So is the bid in the mother-in-laws name higher then the previous bid that you tried to buy the property with. I am assuming you made an offer and they countered to 98,500 and you did not pursue it. Now you are interested in it again and so are you offering more in the new bid then the last.

 

[pyriel]

Interesting how lawyers get around things! What would we do without them. I'll have to remember this the next time I see one of these little contracts. So you think the lender is not coming down because you are the buyer? So is the bid in the mother-in-laws name higher then the previous bid that you tried to buy the property with. I am assuming you made an offer and they countered to 98,500 and you did not pursue it. Now you are interested in it again and so are you offering more in the new bid then the last.

The bank already owns the property since May 05. I have three real estate mortgages with this bank including a line of credit of 50k. They are aware of my financial status and have a ready made prequalified application if I ever decided to purchase any property. So that is what we (my real estate agent and I) are thinking. Mother in laws bid is actually lower 88k vs. my previous 93k. The premise here is that if they don't accept the new offer and/or do not give us a counter offer, it means that the bank is set in selling the property at the selling price. It also keeps me in the game and continue to know what is going on with this property.
But here is a problem for them. The bank is not in a business of owning real estate. They are in a business of providing loans so they can get paid interest. As of today, they have already lost $4,800 for possible interest they could have received if they were able to sell the property in May 05 based on $98,500 selling price with 6.5 interest amortized for 30 years. So you see, they will not be able to hang on to this property very long since they are losing out $530 every month.
I can buy this property in cash but the cash on cash return percentage will go down tremendously and will tie up cash that I can use for a fast moving property. That opportunity only comes every blue moon...