Some successes - Posted by Rich-MO
Posted by Rich-MO on April 06, 2004 at 23:47:42:
I have been reading this site for quite some time now, and think it is about time I wrote and contributed a little.
First off, I want to tell you that by reading this site, and listening to all the encouragement, I was able to get away from my ‘offer’ jitters, and start making offers.
Because I was able to finally get past my ‘offer phobia’, I have made many offers, and was able to purchase three of these properties in the last 3 years. I know, I know that doesn’t sound like much, but hey, you have to start somewhere. My first was three years ago, my second a year ago, and I now purchasing my third. With another great possiblity that just came up. Yes, as you can see, the frequency is increasing…as I get braver and smarter. And I must say, that all three of my properties were realtor listed properties, and yes, you can find bargains as long as you are diligent or aren’t afraid to make low (or as I call them, realistic) offers.
My first, was a property that I saw for sale the day it went on the market, I was driving by a neighborhood I was familiar with, and noticed a new realtor sign. I called a realtor (who I had used before), and ask to see it asap. We looked at it two hours later. To make a long story short, the owner had lost his job and was dumping the property as quickly as he could. It was priced at 109K, at least 25K below market value and I knew it. It only needed 1 repair (see below) a few cosmetic changes and a good cleaning. It was a case of being at the right place at the right time. I made an lower offer immediately, but he balked because he knew the price was already below market, so I countered with a full price offer if the owner agreed to pay $2500 of my closing costs. The offer was accepted. Of course, this was my first investment property, so I was real nervous about the financing, but I had two things that worked in my favor, I had a good job, and good credit scores, but very little disposible cash. There were some issues with the siding around the chimney which were revealed by the inspection. So, I renegotiated the contract with the seller (knowing he wouldn’t pay for the repairs from the sale) saying that I would pay him $111,500 for the property, if he agreed to escrow $2500 for repairs, to be paid at closing. When all was said and done, I purchased the property for $111.5K, fixed the chimney myself, had my closing costs paid, and had a home that had at last $20K equity. I sweated through a conforming 95% LTV loan, and my actual out of pocket costs were about $3000. Not exactly “no money down”, but for my first deal, I was pretty happy. Oh, and by the way, although, it wasn’t in the contract, when he left, he left most of his furniture, appliances, lawn equipment etc, which was a nice little bonus for me, and made it much easier to rent. I rented it with a small positive cash flow the first year, refinanced it after one year at an 80% LTV, and enjoyed a nicer cash flow. I just completed my second refinance this year, where it appraised for 160K, and pulled a nice chunk of cash out (in order to finance part of my third property), and I am still enjoying a positive cash flow.
My second property was very similar to the first, except I was able to get a lower price from the seller, not a lot, but it was already below market, and they paid my closing costs. That WAS a “no money down” purchase, but not a real creative one. I was able to get 100% financing for that one, but because of the high interest rate, had to suffer with a slight negative cash flow for the first year (about $1200 total). My original purchase price was 134K, and it just appraised for 165K. I am refinancing at an 80% LTV, and lowering my payment for a reasonable cash flow.
My third house I am closing on this month. This house was what I would call a fixer-upper. It was listed in a neighborhood where equivalent houses (4 bdrm, 2 bath) were going for 15-20K more than the asking price. The original price was 106K, with no takers. They dropped it to 99K. I offered 80K, they countered with 90K. We eventually settled on 85K with them paying closing costs, leaving all of the appliances (including washer and dryer), and escrowing $1500 for electrical upgrades. With about $10K in repairs, the house will easily sell for 120K. My daughter will be living in the house while we do the fixups, and covering the mortgage by splitting the costs with her friends. To finance, I found a lender who would do an 80% first combined with an interest only second, with me supplying 5% (minus the $1500). This of course will come from the money I pulled out of my first home, with plenty left over…I just might take a vacation for once.
Wow, did this get long. I know that my purchases are not that creative, but it worked for me, and I am sure there are others that were/are in the same boat as me, afraid to start, afraid to offer. People like to read about successes sometimes, and since I have done pretty good so far, I thought I would share. I am still looking daily, and you would be amazed how many people approach me now to ask/tell about real estate.
Any investors out there from the St. Charles MO area?