BiggerPockets

Lending process

Saturday, June 12

Cindy and I finally closed two real estate deal in Memphis this week. All I can say after going through this process is "Current lending process is taking a long long time".

We located and started to process those two deals back in February. We communicated with banks back and forth numerous times over past 4 months. Every section of the lending process took much longer than we expected. They asked us for more and more documents including updated and new documents. Personally, we have pretty decent credit score andwe had no problems qualifying loans past several occastions. However, we had hard time in this time. We spoke to several investors and all of them are currently experiencing the same.

Lending situation are pretty tough right now. At the same time, it can be a great opportunity since not many people can obtain the loan while few people can enjoy investing in current great real estate market.

Due Deligence Part 2

Saturday, May 01

As Cindy suggested, we actually went to Memphis TN to see the actual properties in this beginning of Feb. We went for two main reasons: Inspection of the target property and neighborhood and talking (interviewing) the property manager.

1. Inspection of the target property

We realized that this process is one of the most crucial steps in the real estate process. We plan to purchase two properties. From the number (based on the calculation) stand point, one of two properties we chose was totally made sense. Cashflow from that property looked great. However, we changed our mind after seeing the actual property and its neighborhood because the location was not really the place what we were imaging. There were not so many houses around that area. Also, house was surrounded by many trees that possibly caused damage to the property. We would never realize this without visiting actual place.

2. Interview with property manager

During the property due deligence with property manager, we asked the followings:
1) What service they do and cover
2) How many properties they currently manage
3) What kind of authrities property manager possess
4) How do they deal with their tenants, how they qualify
5) Current memphis rental market

More importantly, we wanted to know what kind of personality and motivation that property manager has. We have heard that it is depending on property manager who either makes or breaks the real estate investment. So, we tried to understand his peronality and motivation while we are talking to him and asking the questions. As far as we felt, he is very enthuristic and seems to be the guy who actually put his effort into what he is doing.

Based on due deligence (both cash flow calculation and physical visit of the property and neighboorhood), we decided to go for 2 SFR properties in Memphis area. Next step is the lending process. But, I didn't imagine that this lending process would take such a long time.

Due Deligence Part 1

Saturday, May 01

After we selected the properties we liked, we started to perform actual due deligence for the list of the properties we would like to consider. We did:

1. Cash flow Analysis - Annual net cash flow, ROI, Cash on Cash returns, Cap rate

2. Comparable price of the other properties near the subject properties

First, we used excel spreadsheet to calculate the investment performance of the each property we were interested. This includes net annual cash flow, ROI, Cash on cash return, cap rate, debt coverage ratio and so on. And we list all those information in sequence so that we can compare which properties are performing better than the others. We screened out several properties that are not yielding very well.

Second, we also compared screened properties with other comparable properties in the area in order to assess if market value of the comparable properites are higher or almost same as properties we may invest. Through this process, we screened several properties that is below market value of the comparable properties. After this process, we chose two properties that satisfy both 1st and 2nd requirements.

When I said to Cindy that we will buy those two properties based on those assessment. She told me that we should go to Memphis to see the actual properties. I thought it was not really necessary until we actually decided to go there. I fully realized that physical due deligence of the properties is one of the most important things investors have to do...

Our Journey has begun!

Saturday, May 01

At the end of December 2009, after studying investment in detail including reading books (tons of books), taking classes, and meeting with other real estate investors (Real estate investment club etc), Cindy and I decided to take our first step towards financial freedom: investing in our first real estate deal. Among bunch of real estate investors we met, we decided to invest our first real estate investment with one particular experienced real estate investor. He is currently focusing on Memphis real estate market and we were convinced that Memphis market has been great area since it experienced market decline only twice within 30 years. Therefore, it is a very stable real estate market.

We were also thinking about finding the deal by ourselves. In fact, we looked at Calfornia real estate market around 6 months back. We did detailed reserach including actual tour of the properties, visiting city halls, and contacting the real estate brokers. However, we didn't proceed to the next step at that time since we learned that California real estate market wouldn't be a favorable one and it is extremely difficult to go through all the aquisition process without proper education and sufficient network/contacts. So, right now we decided that we will go through the real estate acquisition process with an experienced real estate investor by purchasing a property from him.

I remembered that Cindy and I went to his office on December 31st 2009 very well (I remember this because he worked even on the last day of the year when everyone was cerebrating the new year). We were very nervous because we discussed about 1st potential real estate investment deal which was a big purchase for us. As soon as we reached in his office, we started to discuss about:

1. Our financial situation (Budget)
2. Overview of Memphis real estate market
3. His investment strategies
4. List of his properties in Memphis market for our review.

After we reviewed the property list, we liked several of them. He showed us the property fliers with property detailed information including his cash flow analysis. Cash flow schedule seemed great. After wrapping up the 1 hour discussion, we knew that our next step was to do our own due deligence!!!