BiggerPockets

Hassan,

Good luck.

You said a friend asked you for advice and it sounds like you have a good game plan, but have you actually invested before or is this your first try?

Ok, back to the task at hand, finding some potential deals...

Based on what the majority of qualified home buyers in my slice of the Atlanta market can easily afford and want, I'm doing a search for 3 to 5 bedroom homes, with at least 2 full baths that were built no earlier than 1975. many of these buyers can easily afford to pay $1,000 to $1,300 a month in monthly mortgage payments, including taxes and insurance (PITI), which translates into homes with an after repaired value (ARV) of about $150k. I'll want my total cost of acquisition to be no more than 60% of the ARV and will want the repairs on each house to cost no more than $15k, so I'm going to have get them really cheap.

Now that I know what I want to buy and what I plan on doing with the houses after I have repaired them (my exit), I can now start looking for deals.

My first stop will be the multiple listing service (MLS). Now I am not a realtor, so I can't pull the data myself; but I can and did ask a realtor friend of mine to pull a list of homes for sale in the area desired and download it to an Excel spreadsheet for me. I asked her to do a custom search for homes based on the following criteria:

Bedrooms: 3+
Full Bathrooms: 2+
List price range: $20,000 - $180,000*
Counties: Dekalb and Gwinnett (GA)
Zip codes: 30039, 30058, 30087, 30088, 30078
Special circumstances: All
Public comments: All
Status: Active, Expired, Sold*
Expired date: within past 180 days
Sold date: within past 180 days

I also want the property addresses with the listing agent phone and fax numbers as well. In case you're wondering why I want a list of houses with list prices up to to $180k as well as those sold, is so that I can validate that the cheap houses I'll be looking at are in areas with higher sales prices when the homes are in good condition. I look at the expired listing cause the sellers may be more willing to negotiate than on a new listing. The reason I go 180 days back on the expired and sold listings is to remove duplicate postings and to confirm that the expired listing have not yet been relisted or sold.

Based on my criteria, I find 49 active and 48 expired in the MLS. Most of them are bank owned so I know that I'll have a decent chance of finding a deep discount deal.

The next place I'll look is online on the HUD website. In this search I'll use most of the same criteria as for on MLS, except for the fact that I want them to already be asking for low prices, under $80k. A quick search leads to 74 leads.

The last place I'm going to look is on websites of the wholesalers in my market and on craigslist. After viewing about 5 wholesaler sites and craigslist I find 5 more worth looking at.

The next steps are to take a good hard look at the lists to eliminate suspects and cut the overall list down to about 25 houses. Then I'll do some basic research to get the list down to about 15 houses. Out of the 15, I'll take a look at about 10 and probably make offers on 5 or 6 so that I can buy one this month, one in feb and another in march.

I'll discuss how that goes a little later this evening. If you've been following this and have any questions, please post them now, so I can address them asap.

Very interesting, Hassan. I will keep an eye on your progress.

Originally posted by Jeffrey Koenig

What is this early profit?

When you finance a deal with a private lender you'll want to pull out some cash to cover the costs of keeping you alive. So if you are able to borrow at 60% LTV and your total cost are just 50% LTV, doesn't it make sense to pull out that remaining 10%? especially since you don't know how long it'll take to get that retail home sold.

Ok. Looking at the list of properties on the MLS, Craigslist and from other investors I have cut the list of potential candidates down to about 33. I did this by looking at the asking prices and who the owners are. If the asking prices were higher than 90k I dropped them (what's the point if they aren't close to where I need them to be now?); also if the property owners are regular people then I dropped them as well, as the debt that they owed was higher than the amount I was willing to pay for the houses.

One last thing, I also dropped houses in areas that I don't like or don't want to travel to, like Buford or Sugar Hill, GA. I have never bought or sold any houses out in those areas and neither do I know much about those areas; that being the case they had to go.

From the remaining properties I went to the MLS to view photos of the properties and to get some details on what I am working with. 3 of the properties were so ugly that even Ron Legrand wouldn't touch them (badly designed), 2 others were listed as pending sale; I'll monitior their statuses. From the remaining properties I printed out the MLS listing pages and the tax records from the county tax assessors websites for review.

From the HUD properties list I did the same steps and have come up with about 10 that will be of interest. My next steps are to go out today to take photos, to inspect the properties for repairs and to see if I like the neighborhoods (don't want houses in areas that homebuyers wouldn't feel comfortable in). In that regards I'm looking to make sure that the repairs are no more than $15k, that the houses don't have a weird feel to them, that the neighborhoods are not in obviously high crime areas and that the properties are not located on any main roads or near industrial areas.

Here are just a few of the ones that I'll be looking at:

3440 centerville rosebud road, snellville, ga 30039
3103 deshong dr, stone mountain, ga 30087
293 bicentennial drive, stone mountain, ga 30087

Before I leave of course, I have to plan my route with mapquest or google maps. I'll let you know later today how this works out and what I saw. I'll also discuss how I'm going to find some private lenders.

Til next time, have a great day...

Ok, Thursday is my day for finding a couple of private lenders. I'll do this via networking at a couple of real estate investing and business events. Basically I'm just going to run my mouth and let folks know what I do and what I'm looking for. I'll pitch the following deal for funding a property on a flyer like this with an attached photo and appraisal (if some of you more experience investors could take a look at my numbers and the scenario, I would appreciate the feedback): The bold sections are my comments to you.

This is where I insert a color photo of the property

2852 QUINBERY CT, SNELLVILLE, GA

Estimated After Repair Value (ARV): $135,000

Situation: This is a property that I need funding for. It is a 3 bed, 3 bath, frame home, built in 1985, needing a bunch of mostly cosmetic repairs of about $18k. Market rent is estimated at $1,200 per month. It's a bank owned property that I'll be closing around January 30, 2009. I expect it to take between 6 to 12 months to resale at full market value (ARV) to an owner occupant buyer. I also have the option of offering it on a lease to own basis to buyers with minor credit issues that can be repaired.

Purchase price: $38,900

Est. Repairs needed are as follows:

Interior paint 1,500
Exterior paint 2,500
Carpet 2,500
HVAC 3,000
Front & rear deck 2,000
Appliances 1,000
Landscaping 500
Plumbing 1,000
Gutter repairs 1,000
Misc 1,200
Roof repairs 1,000
Flooring 800
Total Est repairs 18,000

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I'll let them know that I am seeking funding at either of two levels:

Option 1: Private credit partner for a purchase and repair hard money loan for $53,892 which will cover acquisition, rehab and their points. The credit partner will secure the hard money loan and I'll service the debt with an additional $29,000 that I'll secure to cover the down payment, costs of marketing, closing costs, misc expenses and holding costs for 12 months (assuming that I don't have a lease to own buyer paying rent over that period). In return the credit partner will receive an agreed upon fee to be paid in two parts; at closing and when the property is resold.

Combined debt structure will be as follows:

After Repair Value $135,000
1st Position loan $ 53,892
2nd Position loan $ 29,000
Total Proposed debt $82,892
Combined LTV 61%

I let the private credit partner decide how much the deal is worth to them so that we can negotiate an appropriate fee. I also give another option:

Option 2: Private lender will fund the deal completely at 60% LTV ($81,000), I'll manage the entire project, repairs, marketing and resale. In return private lender will receive a 1st position mortgage deed, a certified appraisal, title insurance, property insurance, and a personally backed promissory note with the following terms: 60 month term, 10% interest only accruing payments, minimum guaranteed interest 6 months (if the house sells in less than 6 months a minimum 6 months interest is paid out; if it takes longer than 6 months normal accruing occurs). Target resale price is $135,000 with anticipated 6 - 12 month period for resale to a home buyer securing a third party mortgage loan.

Here is the cost flow:

Purchase price: 38,900
Repairs Estimated $18,000
Additional funds needed $24,100
Closing costs, Maintenance, marketing and Misc expenses
Total funding needed $81,000

I start with 10% interest and work upwards to the max that I'm willing to pay. I never make monthly payments cause that's negative cash flow. If the lender doesn't like either of the two options presented, I bring up 3rd and 4th options or pass.

I also give them comps on the property; whats actively for sell on the MLS and what has sold over the past 12 months. This lets them see that the value is there.

Active listings and sold properties

Active Listings
Address ML# List Price Bed Bath Built Status
2971 QUINBERY DR 3698844 $148,000 * 3 3/0 1984 Active
3718 TRENTON DRIVE 3786744 $144,900 3 2/1 1983 Active
2724 Mountberry Drive 3803838 $138,900 4 2/0 1986 Active
3838 TRENTON DR 3807440 $137,000 3 2/1 1986 Active
2717 Mountbery Dr 3831656 $134,900 3 2/1 1986 Active
3698 Trenton Drive 3797339 $120,000 4 2/1 1985 Active

Sold Houses
Address Date sold Sale Price Bed Bath Built Dist
3822 Holland Dr 9/15/08 $108,000 3 2 1984 0.10
3075 Arden Way 5/30/08 $140,000 4 2 1982 0.35
3768 September Way 4/30/08 $125,000 3 3 1985 0.28
3830 Menloe Way 4/25/08 $140,000 3 2 1984 0.16
3843 Holland Dr 2/18/08 $140,000 3 3 1984 0.13
3692 Holland Dr 1/25/08 $143,000 3 3 1985 0.27

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From the 3 networking events I'll be attending I expect to find at least 3 potential private lenders / partners. I'll let you know in the next edition how that works out.

In the mean time I still need to finish viewing properties and start making offers.

Take a few minutes to look at the numbers again, let me know if you're having any issues following this...

Hassan,

Thanks for your posting of progress steps.

Do you have hard numbers for those repairs? The numbers seem very low to me.

Around here for example, an "apartment grade" painter is going to charge me $200 per day on the job, and a house is going to take a couple of weeks to paint in and out with 3-4 guys working. So the number you quote sounds like paint materials not labor.

Have you been tracking your personal time investment? It may be interesting to see how much time you need to do these deals. Perhaps add to the the tracking any project management or work you will be doing yourself.

Most of us want to grow our businesses and until they do grow, we wear many hats. Knowing what the time requirements are of 'each hat' or department, will aid you when you need to hire that person who will later wear the hat.

Alternatively, you will be able to look back and see if you made a fair dollar amount for the time you invested.

Best of luck and keep posting.
Diane Menke

Already got it under contract.

Originally posted by Calvin Neely

Hassan, Thanks for the report. I look forward to reading more. I am a realtor and have access to the GAMLS so I looked up some of the properties you mentioned. One not on your list (you may have already eliminated it) is 3842 Holland Dr. It is currently listed at $48,300. It needs carpet, paint and other repairs that may exceed your 15K budget. However, it is closer to your target purchase price.

In that subdivision there have not been many homes sold recently. You are planning on a 6-12 month marketing time which is right for that area. Keep us posted.

Getting the 2852 Quinbery Ct. property for your price will be a challenge. That is a steep drop from the listing price. Best of luck!

Originally posted by Tom C

There really isn't any huge difference to bidding on a HUD then a REO. Your broker submits the bid on line and then, if accepted, they over night your paperwork and your proof of funds. You do not have to do anything more. Sounds like your broker wants you to do the work for them.

I usually don't use a realtor to buy. In this case I just started to consider HUD properties. Never bothered to look at HUD's til now. In normal times I deal with private sellers and regular REO's primarily. These aren't normal times

Great job, Hassan. The mls didn't show it under contract but the Pemco site does. It is great for investors that can get properties at these low prices but it is killing the values of non REO homes. Oh well, time to go find some more great deals! Keep us posted.