Today I won two separate auctions for two foreclosed properties in Baltimore, Maryland. One for $12,100 and the other for $18,700. They both need work as well. To top it off Im using personal loans to pay for them. I got approved for 12.5k today so the first property is covered but I am still working on getting the second loan which is difficult. Ive done the numbers for both properties and if given the proper cost effective rehab, both will cash flow (and have 15%+ cash on cash ROI) and be great properties to hold. I can admit I was a bit over zealous with the foreclosure auction today. This is actually my first real estate investment and I already realize I made a bit of a mistake being that the funds aren't readily available to even purchase both properties let alone rehab. If anyone would be please share their advice I would certainly appreciate it.
Unless you are willing to go look at these properties with a professional right away, you should forfeit both deposits and chalk the $4,000 loss up to a lesson learned. You are taking out debt to buy speculative property based on a few metrics off a website, likely in a D-F class area that you don’t know. That is not investing, that is gambling. The suggestion that you should take out more debt, or run up credit card balances, just to close on this is reckless.
1-Use your personal credit card to purchase the second property .
2-Use business credit to purchase the second property
3-Go to a site like LendingTree and apply for a personal installment loan and use as the reason to consolidate debt but do not ever put anything real estate related because it will get rejected immediately
4-Borrow against your 401(k) by the second home.
5-Partner with 5 family and friends in buying the second home
Thanks! Ill try using lending tree. I think Im going to contact the auctioneers tomorrow and ask if they could excuse the 18700 property. I would even be willing to pay the 2k deposit just for wasting their time in a way. Do you think ill have a chance?
Hi @Shadonna N. thank you! I just wish I was in a better circumstance with paying. Ive been to Baltimore but I am not completely familiar with the area
Congrats on the purchases. Baltimore has a strong network of investors and pretty good list of hard money and private lenders are out there.
Www.hardmoneychoices.com is the best place to go! In less than a minute you can have your deal put in front of 15 local hard money lenders that I know at no cost to you
Note, these are real lenders and they are local. I've used HML a few times, rates vary based on the property, location, and investor experience.
No, I haven't been in these properties. Im based In New York. I was bidding based on the details on the site (zoning, lot size, taxes etc). I know this property can be turned around into a good investment if saved quickly.
I see you're based in Maryland. Do you have any insight on what I should do?
Yes , drive to Baltimore and see what you have got yourself into . First , if you dont have the funds to buy both , how are you going to rehab even one ?
You may want to post the addresses and ask some who play in the Balto market to give you info on the areas
Today I won two separate auctions for two foreclosed properties in Baltimore, Maryland. One for $12,100 and the other for $18,700. They both need work as well. To top it off Im using personal loans to pay for them. I got approved for 12.5k today so the first property is covered but I am still working on getting the second loan which is difficult. Ive done the numbers for both properties and if given the proper cost effective rehab, both will cash flow (and have 15%+ cash on cash ROI) and be great properties to hold. I can admit I was a bit over zealous with the foreclosure auction today. This is actually my first real estate investment and I already realize I made a bit of a mistake being that the funds aren't readily available to even purchase both properties let alone rehab. If anyone would be please share their advice I would certainly appreciate it.
Congrats!!!
To be honest, I invest in Baltimore and I would not be able to invest without knowing exactly where the property is, hopefully it turns out well.
I am assuming they are in an area where many other boarded houses available, so my suggestion get an alarm for it once you made some investing in it, it is very common materials being stolen.
That’s the first thing I will do after getting the money to pay for the house. I think that would be a happier ending. That assignment fee can be the start of my savings for my first income generating property in the future.
Dont throw in the towel on the second property just yet! If all else fails use hard money to buy and for rehab.
but I also agree that they probably need more work than you thought so get inside those bad boys or peek in windows ASAP. sometimes losing a 2k deposit can save you a ton of money.
UPDATE: the 18.7k property that I didn’t have money for is no longer an issue. Thank goodness. I may lose my deposit but that’s totally fine.
So now I’m only dealing with the 12.1k property that I have a loan to cover. I’m skating the line of assigning the contract like @Joe Norman said or holding the property until I find the funds to rehab it.
I agree @Allan Smith that I shouldn’t throw in the towel just yet but since I need to go back to the books and prepare more, I’m thinking I should get out of this while I’m ahead. Besides that fee I’ll be getting by assigning can be the start of my savings to buy another cheap and thennnn use a loan, perhaps
Unless you are willing to go look at these properties with a professional right away, you should forfeit both deposits and chalk the $4,000 loss up to a lesson learned. You are taking out debt to buy speculative property based on a few metrics off a website, likely in a D-F class area that you don’t know. That is not investing, that is gambling. The suggestion that you should take out more debt, or run up credit card balances, just to close on this is reckless.
@Kaiser J. thanks for the very blunt and constructive feedback. I get it and leaning toward doing that. I’ve been anxious to secure my first deal so I got a little ahead of myself
@Katrina Nicole-Ivy Chill your boots man, assign the contracts. Don’t lose your money. Whosale, wholetail or rehab. Owner finance to an end buyer who want to fix it themselves. Pick up the phone and start calling investors in Baltimore. Jv with a wholesaler in the area. This virtual wholesaling, I hate to have you lose money straight out the gate.
No problem, and nothing to be ashamed of. We’ve all been there and you’ll learn from this experience. I’m sure your next deal will be fully vetted and much more successful because of this!
@Katrina Nicole-Ivy Apologies for being blunt, but if you didn't have the money to buy both OR do the rehab on one, you shouldn't have bid on them. I understand that you are anxious to get into investing and yes when you see a deal, you need to be able to react, but you need to have the resources to carry it out.
Doing renos remotely is hard, you don't know the area, haven't seen the house and don't have a team on the ground to work with. If you go ahead with the rehab, make sure you have a plan and budget and stick to it. Don't be tempted to do high end finishes. If the house is $12K, make it clean, safe and use simple finishes.
@Katrina Nicole-Ivy can you post the address of the one you may keep? I own two in Baltimore, purchased in auction like you--pictures only, other than that, sight unseen. After winning, my partner and I went to check them out and decided to take the $2500 deposit loss on one of the three we won (hence we only have two). The ones I purchased are over 100 years old: immediately had to replace a roof for $5K, next the boiler for $6K, there was a flood in the basement last winter and I had to put in a sump pump and replace the hot water heater since the flood got so high (another $2K)...all of that before even being able to rehab it to increase the rent. The other property only had a $600 issue with the furnace.
The hardest part of my dealings in Baltimore are that I live an hour away and it seems almost impossible to find a contractor. My plumber charges more, like way more, to go out there and my hvac guy won't even consider it, so I had to pay way more than I like for some of those repairs since I couldn't use my normal people.
I say all that to say that as a first investment, I would caution people to stay clear of auctions unless they are comfortable with a surplus of reserves because its very difficult to assess how good/well maintained the major systems of the property are from photos. When I'm finally able to rehab the one when the current tenant moves out, I'm not sure how I'll even go about finding a contractor to do it and I don't even want to being to think about how much that would cost retail.
Some things I picked up along the way:
Many house in Baltimore have lead paint issues. They take them very seriously. Research this, thoroughly. Not to scare you, but it could present financial ruin for you if ignored or handled incorrectly.
Check out trulia for crime stats. Baltimore like most cities varies not just block by block but end of block to end of block--one end of the block can look like Sesame Street and just ten houses down can be a war zone.
Be aware not just of the house you are interested in, but also note the number of vacant/boarded up homes on that block. Most people don't want to live next door to a vacant and could present a problem with finding a good tenant.
Don't trust sites like zillow rental estimate (at least for Baltimore--I've found it to be more accurate where I normally invest)--you will have to do a lot of research to determine what a house will rent for using a variety of sources.
Look into purchasing the Section 8 Bible. You may not plan on going the Section 8 route--I didn't. But I found that a lot of the concepts in that book apply when you purchase a house in a class C or lower neighborhood. The authors, I believe, invested in Philadelphia, a city comparable to Baltimore.
Also if you can't wholesale the $12K one you intend to keep, definitely make the trip to check it out in person. Instead of losing $4K, it may be possible to salvage that one, do enough to make it habitable and find a renter on the lower end of the price range that will cover your loan servicing. Also, I'm a licensed realtor in Maryland and DC and can list it for you if you complete the purchase--you may be able to sell retail and get all your money back from the sale if the wholesaling approach doesn't work out.
If I can be of any assistance, shoot me a message and best wishes for you investing journey :)
I've been a Baltimore investor for 20 years and actually live in the city. I'm also the co-founder and president of a local investor association where we educate investors of all experience levels.
Baltimore can look very attractive due to the low cost of properties, but most people don't realize that you can still lose your shirt on a $10,000 property, especially given the very pro-tenant laws and regulations which govern the rental business in the city. Also, Baltimore real estate values can change drastically from block to block. I live in an area where the houses are priced at $400K and above. But 2-3 blocks away, there is a lot of crime and houses can be bought for for $20K-50K. That's just how this city is and if you're not aware of this, you will lose money. I've seen this happen way too many times as out-of-town investors get suckered into deals that look good since the numbers are so low compared to most other parts of the country.
The blunt advice you got about not investing remotely and especially not getting overly anxious to do your first deal was accurate. I see too many people get the real estate bug and make your mistake of doing something rash just to get their first deal done.
However, I would not write off these deals until you do you due diligence. There could be a (small) chance that these properties could be assigned and I'd be happy to look over whatever information you have.
Feel free to contact me and good luck with these properties.
@Kaiser J. thanks for the very blunt and constructive feedback. I get it and leaning toward doing that. I’ve been anxious to secure my first deal so I got a little ahead of myself
Do not forfeit your deposit... If you can't fund these projects then you should be able to assign them, and only if you cannot do either of those should you consider losing that deposit so hastily.
Now, get on to facebook and join the Baltimore Investors Network, and you'll find all the help you need - people to look at the properties for you, contractor recommendations, and should you need it - BUYERS and lots of them - should you decide to sell. All the local people responding to you here on BP are also members of that facebook group.
@Katrina Nicole-Ivy So how did this work out for you? I thought that if you won an auction that the cash was due immediately and if you didn't come through you would lose your deposit and could be sued for specific performance? Maybe that's incorrect but otherwise how would the auction site safeguard against this sort of thing happening?
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