This morning, I tried calling the collection agency that sent me a letter yesterday that said I owed the City of Danbury over $400. I got voicemail again, so I called the Danbury Tax Collector's office directly. Turns out, the bill is for a tax on my old car for the period from Oct. 1998 to Sep. 1999. I moved out of Connecticut in January of 1998, so this obviously doesn't apply to me.
The Tax Collector's office transferred me to the Tax Assessor's office. I told them the situation and they said I just need to fax them something showing I moved and they could cancel the fee. They also said the collection company is in regular contact with them and they would get an update of my account status.
To be on the safe side, I also told all this to the collection agency when they finally returned my call. He said the same thing, but suggested I also follow up with them about a week after I faxed my info to the tax office to make sure they have the updated status. Since I plan on buying a property shortly, I want to me sure my credit report isn't dinged.
Anyway, the cause of all this, according to the tax assessor, is that I did not cancel my license plates when I moved and registered my vehicle out here. I thought this was all handled by the DMV out here - after all, they confiscated my old plates! Apparently not.
Blast From The Past - Potential Credit Problem
One thing I dislike about living in the West is that many times the companies I have to deal with a headquartered back East and by the time I get home and check my mail, their offices are closed. As someone who likes to jump on problems and get them resolved right away, it frustrates me to be forced to wait until the following day to respond to something I received in the mail. Today is a good example.
I got a letter from a collection agency who claims that I owe the city of Danbury, Connecticut just over $400. This completely boggles my mind. I've never been late on any bill and have spent a great deal of effort to keep my credit spotless. I have no idea what this could be referring to. The letter references a city tax, not state tax, so it's not some error in my old income taxes. I left Connecticut in January or 1998. Furthermore, I never owned property there - I was a renter - so it can't be some sort of property tax that I owe. I don't know what other tax the city, not the state, might collect.
I called the collection agency and got a recording. Even though the recording said they were open until 8 PM, still no one answered, so it looks like I will have to wait until tomorrow to find out what this is about.
I got a letter from a collection agency who claims that I owe the city of Danbury, Connecticut just over $400. This completely boggles my mind. I've never been late on any bill and have spent a great deal of effort to keep my credit spotless. I have no idea what this could be referring to. The letter references a city tax, not state tax, so it's not some error in my old income taxes. I left Connecticut in January or 1998. Furthermore, I never owned property there - I was a renter - so it can't be some sort of property tax that I owe. I don't know what other tax the city, not the state, might collect.
I called the collection agency and got a recording. Even though the recording said they were open until 8 PM, still no one answered, so it looks like I will have to wait until tomorrow to find out what this is about.
The Next Investment
I've decided to get a head start on my New Year's resolution to buy at least one rental property this year for my personal investment portfolio. I think I may even be able to do it with no or very little money out of my pocket.
Over the weekend, I heard an investor / businessman on a real estate investing radio program talk about filled lease option properties that his companies sells. Now, I've been aware of these for a while because I've been on his mailing list for quite some time, however, this was the first time I actually got to hear him speak about it in detail and take questions from listeners. In a nutshell, you can buy a property from his company for under fair market value. The property has a tenant in place who has an option to buy the property at your appraised price after 1 or 2 years. The best part is that, at the close of escrow, you get a year or more of pre-paid rent. This means you won't get cashflow since the tenant isn't paying rent, but instead you get all that rent money up front. And thanks to inflation, money now is always better than money in the future!
My plan is to buy one of these properties with hard money, then refinance to a conventional loan. If the purchase price is low enough, I may even be able to completely pay off the hard money loan, thus getting into the property for no out of pocket costs (except for the 1 or 2 months interest I may have to pay on the hard money loan). My investors in my flipping LLC have agreed to be my hard money lender and earn some interest while they wait for their other funds to because available.
Before I embarked down this path, I had a couple of nagging questions. How should I structure the purchase from a paperwork perspective? Should the hard money lender buy the property outright and have a private note between itself and my company for the loan (the easier route) or should an actual mortgage be created and recorded with my company as the property owner and the hard money lender as the mortgage holder? It's helpful to remember that the goal of this process is to refinance later with a conventional lender, so I need to look at the paperwork from that perspective. Is it easier for a bank to approve a new, cash out mortgage on a free and clear property, which would be needed in the first case, or a refinance of an existing loan?
This is the first time I've done a deal involving bank loans from the hard money lender's perspective, so this is fairly new to me. Back in 2002, I purchased my very first rental property using hard money and then refinanced through a bank to pay it off, so I went back and checked the paperwork for that deal. In that case, the hard money lender actually took title to the property and gave me a private contract stating he would sell the property to me for a certain price. So when I "refinanced," what actually occurred was a sale from the hard money lender to me.
I also called and spoke to my friend Les, a real estate investor and former mortgage broker and that call settled the issue. He said it is much easier to do a refi of an existing mortgage than to get a brand new mortgage on a free and clear property - the bank's lending standards are much lower. Additionally, he pointed out that, on jumbo loans (loans for more than $417,000), the most cash back you can get is $200,000. The properties I am looking at are less than that, but it is a good piece of information to know.
Now, it's just time to find a property!
Over the weekend, I heard an investor / businessman on a real estate investing radio program talk about filled lease option properties that his companies sells. Now, I've been aware of these for a while because I've been on his mailing list for quite some time, however, this was the first time I actually got to hear him speak about it in detail and take questions from listeners. In a nutshell, you can buy a property from his company for under fair market value. The property has a tenant in place who has an option to buy the property at your appraised price after 1 or 2 years. The best part is that, at the close of escrow, you get a year or more of pre-paid rent. This means you won't get cashflow since the tenant isn't paying rent, but instead you get all that rent money up front. And thanks to inflation, money now is always better than money in the future!
My plan is to buy one of these properties with hard money, then refinance to a conventional loan. If the purchase price is low enough, I may even be able to completely pay off the hard money loan, thus getting into the property for no out of pocket costs (except for the 1 or 2 months interest I may have to pay on the hard money loan). My investors in my flipping LLC have agreed to be my hard money lender and earn some interest while they wait for their other funds to because available.
Before I embarked down this path, I had a couple of nagging questions. How should I structure the purchase from a paperwork perspective? Should the hard money lender buy the property outright and have a private note between itself and my company for the loan (the easier route) or should an actual mortgage be created and recorded with my company as the property owner and the hard money lender as the mortgage holder? It's helpful to remember that the goal of this process is to refinance later with a conventional lender, so I need to look at the paperwork from that perspective. Is it easier for a bank to approve a new, cash out mortgage on a free and clear property, which would be needed in the first case, or a refinance of an existing loan?
This is the first time I've done a deal involving bank loans from the hard money lender's perspective, so this is fairly new to me. Back in 2002, I purchased my very first rental property using hard money and then refinanced through a bank to pay it off, so I went back and checked the paperwork for that deal. In that case, the hard money lender actually took title to the property and gave me a private contract stating he would sell the property to me for a certain price. So when I "refinanced," what actually occurred was a sale from the hard money lender to me.
I also called and spoke to my friend Les, a real estate investor and former mortgage broker and that call settled the issue. He said it is much easier to do a refi of an existing mortgage than to get a brand new mortgage on a free and clear property - the bank's lending standards are much lower. Additionally, he pointed out that, on jumbo loans (loans for more than $417,000), the most cash back you can get is $200,000. The properties I am looking at are less than that, but it is a good piece of information to know.
Now, it's just time to find a property!
Five Things You Don't Know About Me
It appears I've been tagged not once, not twice, but three times for this particular topic. Thanks, I suppose, to Building An Empire, Savvy Saver, and TheLandlordBlog for this dubious honor :-) Sorry about the delay - my day job company shuts down for the week between Christmas and New Years, so I fell behind in my blog reading for a while and just now found out about this. Wait, does that imply I only read blogs while at work? Umm.. That's not what I meant at all! Anyway, on to the five things you probably don't know about me...
1. I've got a bachelor's degree in Electrical Engineering with an emphasis in Computer Design (as in designing actual computers, not designing things with computers), but I've been working in the software / database field for the last 10 years or so.
2. I'm a foodie. I love to cook and try new recipes, but my food experiences are limited because I hate seafood - except for clam chowder and fish sticks. I actually read more food blogs than real estate blogs (15 versus 10).
3. I own a $600 ice cream maker (which was paid for entirely with passive income *grin*).
4. My deepest, darkest secret - I'm a lapsed Debbie Gibson fan. Excuse me, a Deborah Gibson fan. Shake your love!
5. I'm pretty shy. I have a hard time meeting people. And since so much of REI is about building relationships and networking with other investors, I tend to make things hard on myself by doing more things on my own than I should.
So there you have it... Five things you probably never wanted to know about me! My turn is done. Time for Eric, and Gualberto.
1. I've got a bachelor's degree in Electrical Engineering with an emphasis in Computer Design (as in designing actual computers, not designing things with computers), but I've been working in the software / database field for the last 10 years or so.
2. I'm a foodie. I love to cook and try new recipes, but my food experiences are limited because I hate seafood - except for clam chowder and fish sticks. I actually read more food blogs than real estate blogs (15 versus 10).
3. I own a $600 ice cream maker (which was paid for entirely with passive income *grin*).
4. My deepest, darkest secret - I'm a lapsed Debbie Gibson fan. Excuse me, a Deborah Gibson fan. Shake your love!
5. I'm pretty shy. I have a hard time meeting people. And since so much of REI is about building relationships and networking with other investors, I tend to make things hard on myself by doing more things on my own than I should.
So there you have it... Five things you probably never wanted to know about me! My turn is done. Time for Eric, and Gualberto.
MSNBC.com Story on HomeVestors
Newsweek spoke with John Hayes, CEO of HomeVestors in an msnbc.com exclusive interview. It's a bit of a fluff piece, but he does briefly address the real estate slowdown, TV shows like "Flip This House", and the misconceptions of people wanting to flip houses.
The point I find interesting is that he says a franchise costs $49,000 plus an additional "couple hundred thousand" in capital to get started. Since this is a franchise, franchisees will also be required to pay a percentage of their profits back to HomeVestors. Personally, I think this is a bad deal for anyone wanting to flip houses. You can do the same thing on your own and save yourself the $49,000 franchise fee and the ongoing payments to HomeVestors. If you use hard money, you can even get started without the "couple hundred thousand" capital investment. What HomeVestors really offers is marketing - their signs are all over town and their "We Buy Ugly Houses" slogan is well known. However, I think anyone can spend some time locating and networking with other investors in their area and come up with enough deals on their own.
One good thing Mr. Hayes mentions is that it is a misconception that you are going to make $50,000 on a house and that a more reasonable profit to expect would be in the $15,000 range. He states a franchisee might buy 25 to 30 homes a year, which I find a little on the high side. If you follow the 100-10-1 rule of house buying (look at 100 houses, make offers on 10, buy 1), you're not going to buy that many in a year. Given his figures, I think his system might encourage the purchasing of properties with marginal profit potentials.
(I like the pictures at the start of the article.. Notice the satellite dish looks good in the "before" picture and broken in the "after" picture! Also notice the trees in the background. The "before" picture looks like it was taken in winter because the trees have no leaves. The "after" picture has trees with lots of leaves, so it was probably taken in spring or summer. In case anyone thinks rehabbing is a quick job, this picture should show it takes at least a couple months.)
The point I find interesting is that he says a franchise costs $49,000 plus an additional "couple hundred thousand" in capital to get started. Since this is a franchise, franchisees will also be required to pay a percentage of their profits back to HomeVestors. Personally, I think this is a bad deal for anyone wanting to flip houses. You can do the same thing on your own and save yourself the $49,000 franchise fee and the ongoing payments to HomeVestors. If you use hard money, you can even get started without the "couple hundred thousand" capital investment. What HomeVestors really offers is marketing - their signs are all over town and their "We Buy Ugly Houses" slogan is well known. However, I think anyone can spend some time locating and networking with other investors in their area and come up with enough deals on their own.
One good thing Mr. Hayes mentions is that it is a misconception that you are going to make $50,000 on a house and that a more reasonable profit to expect would be in the $15,000 range. He states a franchisee might buy 25 to 30 homes a year, which I find a little on the high side. If you follow the 100-10-1 rule of house buying (look at 100 houses, make offers on 10, buy 1), you're not going to buy that many in a year. Given his figures, I think his system might encourage the purchasing of properties with marginal profit potentials.
(I like the pictures at the start of the article.. Notice the satellite dish looks good in the "before" picture and broken in the "after" picture! Also notice the trees in the background. The "before" picture looks like it was taken in winter because the trees have no leaves. The "after" picture has trees with lots of leaves, so it was probably taken in spring or summer. In case anyone thinks rehabbing is a quick job, this picture should show it takes at least a couple months.)
