Wow.. found this blog of a guy in Utah who bought an investment property in Florida. This was his first investment property, bought at the peak of the housing bubble and, as you might imagine, things didn’t quite turn out the way he had hoped.
Reading this, I am struck by several things. There were a huge number of red flags that should have alerted him that something wasn’t right. First, he got into this investment after hearing about it from a friend, who also invested. (I’d like to hear how his friend’s investment turned out.) The deal was a company supposedly buys a bunch of houses at foreclosure and sells them to investors in bulk. (Red flag. The company claims investors come to them and say “I need 50 houses.” No investor I know does that.) What the investors don’t buy, they sell to individuals like this guy. The company selling the houses will also be the management company and find tenants, collect rent, etc. and that the properties are government subsidized and have an occupancy rate of 90%. (Red flag.) The selling company tells him that loans for investment properties will only knock down his credit score by 50 points. (Red flag.) The company will provide down payment assistance. (Red flag.) Later on, he discovers, the company already had the house they wanted to sell him picked out – he didn’t even get to choose the house he was buying. (Red flag.)
Possibly the biggest red flag came when it came time for him to actually get the loan. The “down payment assistance” provided by the company involved them wiring the 20% down payment into this guy’s bank account. He had to sign paperwork saying he wouldn’t move the money or withdraw it, etc. Folks, this is fraud! The company basically is putting this money into his account to fool the lending bank into thinking he has his own money available for investing. And of course, when closing actually rolls around, the amount he needs to come up with is a little more than the amount the company fronted him, so he needs to add in a few thousand of his own money as well.
The selling company also promised him a $5,000 cash incentive and a $5,000 escrow account that could be used for repairs to the house, etc. Although he did get his $5,000 incentive, the $5,000 escrow account never showed up. And of course, that promise was never made in writing. Then the property management company sold his account to another management company. At least the new one sounds like a real management company. Of course, then the repair bills started coming in, tenants stop paying rent, etc. etc. You know the story. It comes time to evict and he makes the mistake of not treating this like a business. He wants to give his tenants more time to pay the rent. Eventually, he did start the eviction process and, lo and behold, the tenant comes up with the rent. This happens multiple times. No surprise to anyone who has done this before. Eventually, the tenants played this game one time too many and actually got evicted. They moved out but, of course, trashed the place before they left. That’s all he’s posted so far, but I’m pretty sure how the next bit goes...
I know he got into this at the height of the real estate bubble. Those were heady times. I also made stupid mistakes. But really, the number of red flags in this deal would have even scared me off. He hasn’t finished writing his story yet and I’m curious to see how it turns out. Anyone want to take bets on if he still owns the place or not? I’m sure he’s underwater on his mortgage, so selling may not be an option. The title of his series is “Life As A Landlord,” so maybe he’s still got the property. Anyway, it sounds like he’s learning a lot.
Shaun Gets Nostalgic
I recently spent some time reading Savvy Saver’s blog – particularly her posts about her 4-plex and how that investment has been going for her. She’s had it for 4 years now and it seems to be going well. She and her husband are managing it themselves, so they do have the occasional tenant headache they have to deal with, but all in all, it seems to be doing well for them. I am encouraged that they have held the property this long and that they didn’t jump off the REI bandwagon like so many others have done.
Reading all that has made me slightly nostalgic. Passive investing in nice, but truthfully, I do miss having a more hands-on approach to real estate investing. I really enjoyed rehabbing houses. (I didn’t really enjoy dealing with tenants that much though, so I don’t feel the urge to become a landlord again.) My passive income from hard money lending is nice and I actually am making more per month than I was typically getting from my rentals. Of course, I am also missing out on some of the benefits of property ownership, the biggest being the depreciation write-offs. The flip side is that I don’t need to worry about 1041 exchanges or any of the more complicated tax stuff that goes along with those write-offs.
Still, looking back over all the real estate investing I’ve done, I do miss the hands-on rehabbing stuff. I tend to enjoying creating order out of chaos, which is basically what you are doing when you are fixing up a foreclosure that has been trashed by the previous owner. Hard money lending is truly passive and requires little of my time (thanks to my partner), but it doesn’t make for exciting blog posts.
I’m still on several mailing lists for rehab and foreclosure properties. I’m starting to see the real estate market pick back up in my area (or at least, it appears to have stopped falling). I’m getting the itch to rehab again. Unfortunately, I don’t think I’ll be able to scratch that itch any time soon. We just remodeled our house, which used up most of my credit line. I’ve recently switched jobs and I don’t yet have a feel for how busy I will be here. (Coordinating rehab projects sometimes takes a bug chunk out of my day, not to mention visits out to the property.) Most of my funds are tied up in hard money deals. But I am glad I have a self-directed IRA. Once I have enough funds in there, I could start using that money for either rehabbing or renting property. That day is a ways off though, but it is something to keep in mind.
I remember reading once that financially savvy people know there are many ways to make money whereas those with less financial knowledge think a paycheck is the only way. I see lots of ways and it’s difficult to choose. I guess that’s a good problem to have.
Reading all that has made me slightly nostalgic. Passive investing in nice, but truthfully, I do miss having a more hands-on approach to real estate investing. I really enjoyed rehabbing houses. (I didn’t really enjoy dealing with tenants that much though, so I don’t feel the urge to become a landlord again.) My passive income from hard money lending is nice and I actually am making more per month than I was typically getting from my rentals. Of course, I am also missing out on some of the benefits of property ownership, the biggest being the depreciation write-offs. The flip side is that I don’t need to worry about 1041 exchanges or any of the more complicated tax stuff that goes along with those write-offs.
Still, looking back over all the real estate investing I’ve done, I do miss the hands-on rehabbing stuff. I tend to enjoying creating order out of chaos, which is basically what you are doing when you are fixing up a foreclosure that has been trashed by the previous owner. Hard money lending is truly passive and requires little of my time (thanks to my partner), but it doesn’t make for exciting blog posts.
I’m still on several mailing lists for rehab and foreclosure properties. I’m starting to see the real estate market pick back up in my area (or at least, it appears to have stopped falling). I’m getting the itch to rehab again. Unfortunately, I don’t think I’ll be able to scratch that itch any time soon. We just remodeled our house, which used up most of my credit line. I’ve recently switched jobs and I don’t yet have a feel for how busy I will be here. (Coordinating rehab projects sometimes takes a bug chunk out of my day, not to mention visits out to the property.) Most of my funds are tied up in hard money deals. But I am glad I have a self-directed IRA. Once I have enough funds in there, I could start using that money for either rehabbing or renting property. That day is a ways off though, but it is something to keep in mind.
I remember reading once that financially savvy people know there are many ways to make money whereas those with less financial knowledge think a paycheck is the only way. I see lots of ways and it’s difficult to choose. I guess that’s a good problem to have.
February Apartment Financials
Before I get into the latest financials for the apartment, let me say the Chez Cliff blog has shut down. Cliff started out blogging about REI and, after being laid off, moved into a consultant role and steered his blog in that direction (very similar to what Kenric has done.) Cliff's last post mentioned that he didn't want to be posting on his blog just to post. I can understand that. It's easy to fall into the trap of feeling like you have to post something every week or every X days. I've felt that way too, but my desire to post informative items tends to outweigh that desire, so I can resist that urge, it seems. (Case in point: I noticed I didn't post at all last month.) A while ago, I wrote a post musing about where all the old bloggers that I used to follow went. Many have given up on their blog and / or (presumably) moved on from REI. I'm sorry to add Cliff to that list. But it's pretty clear that he's not abandoning what he was doing. In fact, it's obvious he is enjoying his new consulting business. He just got tired of blogging. It's sad to lose another blogger that I regularly followed, but I understand Cliff's reasons and I wish him the best. (P.S. I'd link to his old blog, but he seems to have taken it down. That's a decision I personally disagree with. Even if I didn't want to blog anymore, I'd still leave the blog up - simply because I think it's got a lot of useful information that people might learn from, even if no new content was being added.)
On to the latest apartment news.
The February numbers are in and the financials continue to improve. February showed a $2,600 increase in revenue from January and more than a $7,000 improvement over December. This is not quite as big a jump as management expected (last month they said they expected a $5,000 revenue increase), but it's still nothing to sneeze at. This month, managment says they are expecting a $2,000 increase in March.
Occupancy inched up another percentage point to 94% while rent concessions dropped by about 10%. Marketing and retention costs also dropped by almost 20%. Perhaps this is a sign the economy in Texas is improving. We received almost $50,000 back from the escrow impound account after the yearly escrow analysis. This is a one-time gain and the money was used to pay off some old bills that were not paid during the leaner months of last year. Overall, for the first two months of the year, we are running about $40,000 ahead of our budgeted income. Granted, that large chunk of change from the escrow impound refund helped us, but moving foward, I think we'll be in better shape. As mentioned last month, our March loan payment will be about $8,000 a month less due to our property tax valuation appeal from last year. That will definitely improve the bottom line. I'm crossing my fingers, but it looks like we might have turned the corner here.
In other news, I have completed the rollover of my Roth 401(k) into my self-directed Roth IRA. As soon as my partner finds a new hard money loan, I'll put those funds into action.
On to the latest apartment news.
The February numbers are in and the financials continue to improve. February showed a $2,600 increase in revenue from January and more than a $7,000 improvement over December. This is not quite as big a jump as management expected (last month they said they expected a $5,000 revenue increase), but it's still nothing to sneeze at. This month, managment says they are expecting a $2,000 increase in March.
Occupancy inched up another percentage point to 94% while rent concessions dropped by about 10%. Marketing and retention costs also dropped by almost 20%. Perhaps this is a sign the economy in Texas is improving. We received almost $50,000 back from the escrow impound account after the yearly escrow analysis. This is a one-time gain and the money was used to pay off some old bills that were not paid during the leaner months of last year. Overall, for the first two months of the year, we are running about $40,000 ahead of our budgeted income. Granted, that large chunk of change from the escrow impound refund helped us, but moving foward, I think we'll be in better shape. As mentioned last month, our March loan payment will be about $8,000 a month less due to our property tax valuation appeal from last year. That will definitely improve the bottom line. I'm crossing my fingers, but it looks like we might have turned the corner here.
In other news, I have completed the rollover of my Roth 401(k) into my self-directed Roth IRA. As soon as my partner finds a new hard money loan, I'll put those funds into action.
Self-Directed IRA Is Now Profitable
Last year, I started the process of converting one of my IRAs to a self-directed Roth IRA. It took about 5 months to get it all set up, but it's been rolling along for a while now. I'm pleased to say that, as of last month, it has become profitable. What I mean by that is I incurred about $3,500 in setup expenses to get the everything transferred and the LLC set up. With last month's hard money payment, I have now recouped all those setup expenses and the IRA is now out of the red.
I also recently changed jobs and am now working on rolling my Roth 401(k) from the old job into my self-directed IRA to give me some more capital to invest with.
I also recently changed jobs and am now working on rolling my Roth 401(k) from the old job into my self-directed IRA to give me some more capital to invest with.
HML #15 Closed And Apartment January Financials.
Escrow closed on this property on Monday, so hard money loan #15 was paid off. Looking for another place to invest now.
The January financials for the apartment have arrived and, as we expected, things continue to improve. Occupancy increased to 93%, up from 88% in December. Revenue increased by $5,000 and management expects the same increase for February. Our property tax impound amount will drop by about $8,000 per month with the March payment following our successful property tax valuation appeal last August. The property still lost money in January, but occupancy is heading up and expenses are heading down, so we are moving in the right direction. For January, our budget called for an $8,500 loss and our actual loss was closer to $11,500, so we are $3,000 off of our budget. If trends continue, we should be looking good for February.
The January financials for the apartment have arrived and, as we expected, things continue to improve. Occupancy increased to 93%, up from 88% in December. Revenue increased by $5,000 and management expects the same increase for February. Our property tax impound amount will drop by about $8,000 per month with the March payment following our successful property tax valuation appeal last August. The property still lost money in January, but occupancy is heading up and expenses are heading down, so we are moving in the right direction. For January, our budget called for an $8,500 loss and our actual loss was closer to $11,500, so we are $3,000 off of our budget. If trends continue, we should be looking good for February.
