All Forum Posts by: Account Closed

Everyone eventually gets to spot where they have no more money to buy with.  This is where your investment philosophy comes in.  Yes, you can sell a house.  Unless you do a 1031 exchange, you're going to have taxes to pay.  And, you're going to have transaction costs, which will be higher if you do the 1031.  And with the 1031, if you do the delayed exchange you'll put yourself under time pressure to both identify your next property (upleg) and then to buy it.

You can also refi.  In this case it sounds like you could refi either house.  You going to create those transaction costs again, points, closing costs, etc.

You could take some of that cash flow and do another deal.  How about partners, private lenders, owner finance, etc.  Alot of ways to do transactions where you might not have to sell or refi.

I remember one time listening to Harry Helmsley (the richest real estate investor at one time, owned the Empire State building among other things) being interviewed.  He bragged about the fact that he had never sold a single property.  Interesting eh?  And from my own vantage point I must say that if you're able to hold the properties I think it's more profitable than flipping in the end.

So really, you have to set your own objectives and goals.  But that house you're thinking about selling, sounds like a good house, and you said it was easy to rent.  I'd say you need to think about that too. 

Here's the thing: if you're going to wholesale (I'm gathering that's what you want to do) you're going to have to understand your market. I would start by calling rehabbers and landlords and asking them if they're in the market for a house, and if so what they're criteria is ie price, condition, beds and baths, how long it takes them to close, do they have to get a loan, etc etc. This helps you to understand what the end buyer want, and also helps to build a list of buyers, and to get to know them. As far as the seller goes, what you're going to eventually understand that the seller is going to have to be a motivated seller. In other words, maybe he has a house in such poor condition that it can't be sold to a regular retail type buyer who has to get a loan. They have no choice but to seller their house to a cash buyer who is in all likelihood offering a severely discounted price. Or maybe they have to sell their house quick for some reason. In any case, you need to study the sellers and the transactions. Go out and look at what these other wholesalers are selling. Walk thru it. Find out what deals sold, for how much, where they were, who the buyer was. Was he a landlord, rehabber? You can find this information out many times int he MLS, the public records, etc. It will take some time and effort, but if you want to understand the market I really can't think of any shortcuts.

As far as your neighborhood?  Well, I don't know Miami, or your neighborhood, but let's put it this way:  the worse the neighborhood the more apt the seller is to be motivated.  It's hard to do very much wholesale type business in a great neighborhood.  Just my opinion.  We all have a little different idea about this, but trust me on one thing, something has to be wrong with the seller or the house in order for him/her to become motivated.  If that isn't happening in your neighborhood, then you've picked the wrong neighborhood to wholesale in.

@John M. 

You make a good point, and may well be right. However, in California for instance, a bank goes through several steps in a foreclosure: 1) they send their letters out to the borrower regarding late payments, what's going to happen etc 2) they file/record a NOD (notice of default) during which they advertise in a public venue, etc If memory serves this is a 90 day period and then 3) the record a notice of sale which sets forth the sale date approximately 3 weeks later. And then finally 4) the trustee sale takes place. This term "preforclosure" is a somewhat more modern type of term. In the real old days (I'm ancient) that term didn't exist. We called the whole thing foreclosure. And REO after the sale (if the bank took the property back). Personally, I wouldn't call the the property a "preforeclosure" for basically all 4 of those steps. Frankly, I've always thought of foreclosure as a process, so I would be apt to call it foreclosure after the bank filed the NOD, because that's the first step in the "foreclosure" process. You seem to say that "foreclosure" is the end of the process, whereas I think it is the process after the point at which the bank takes the formal legal steps to take the house back.

Nonetheless, I think you've made a good point, and "pre-foreclosure" is not a word I have ever used.  But I notice there are others around the web who seem to use it in the same way you did.  Thanks for pointing this out to me.

Alot depends on what you mean by "tanked".  I'm assuming you have paid your current mortgage on time.  That should have helped.  If I were you, I'd pay the medical bills.  Once they're paid your credit score will start to improve.  Then, I'm with Hattie.  I'd take my cash and head down to a smaller local type bank that portfolios some loans.  That said, I'm betting that you can buy a house cheap in central Ohio, maybe for cash.  So I would educate myself, learn what I need to learn.  A big rehab is not the place to start in my opinion.  But if you could find something that just needed some cosmetic type work, a little painting etc., maybe you could pick that up and turn into a rental.  Even if you used all your cash, if you pay those medical bills off, your credit score will start to improve and then you could refi your rental, and pull your cash back out.

Just thought I would point out that there is a distinction between current expenses, and what I call deferred maintenance.  Current expenses are going to be things like lawn care, or fixing a plumbing issue, legal expenses etc.  These are the routine expense items that regularly occur across your properties.  Then there is the deferred maintenance.  I use this term to indicate things I know I will have to spend in the future, that I want to reserve now, typically for me mostly capital expenditure type items.  Examples would be furnace, AC, roofs, and painting (painting isn't strictly speaking a capital expenditure according to the IRS, but I categorize it that way internally.)  OK, so the current expense items I pay out of ongoing rent.  The things I want to reserve are the big capital items.  So for instance, let's say my furnace and AC are going to approximately cost me $4000.  Let's say that I assume that the furnace AC units are going to last 15 years.  So I want a set aside monthly of $270.  Further, I want to estimate how old my furnace AC already are.  So if they were for instance 7 1/2 years old, I'm going to want to put $2000 into my set aside.  So in other words I'm going to start my deferred type account by allocating $2K, and then setting aside $270 per month for the future expense of replacing the furnace and AC.  I do the same thing for my roof and exterior painting.  And I do this on every property.

When you stop to think about it, these large items aren't necessarily a percentage of your rent.  They cost certain identifiable amounts which you can plan for.  I figure the exterior paint may last 10 years.  The roof 20 years.  And as someone said, if you're doing this on every property the odds are that you won't have everything break down at once.  So if you haven't allocated the full amount, and something happens, you can always use the money for one of the other properties, and then replace it as your rent comes in.

The ongoing expenses I don't reserve for because they typically aren't going to be so large that I can't handle them basically from the rent.  Again though, the deferred maintenance set aside is going to be large enough that I can borrow a little from that if something unusual happens.  And too, as someone said, I've always got the credit card to even things out if the rent isn't quite what it needs to be.  Just make sure you pay your credit card bill off every month.

You're only going to be able to wholesale by buying a house that needs work.  You're buyer is going to be someone who wants to rehab it.  So you're definitely going to need equity.

@Phil G. 

I've never bought a membership interest myself, or corporate shares, some of the ways people have tried to assign property.

But, it seems to me that a title company could still search the title up to the LLC, and then give title insurance. One thing though, buying an LLC interest would obligate you to anything incurred by the LLC. I'd want to have some paperwork in place that addressed that issue.

Alot of the upside down deals have turned into "short sales".  Here the seller agrees to a price less than the loan amount, but the bank has to approve.  So this would be sale without equity.

If the loan is one that you could take over subject to, then the seller might not need equity.  There are ways to do the no or low equity deals.  Whether you are looking at those is going to depend on what type of investor you are.  If you're only doing rehabs, then you're going to need a house with equity, either equity that the owner has, or equity that was created when the bank foreclosed the loan and took the property back.

@Mitchell L. @Joseph Cox 

Just thought I'd mention that to my way of thinking "foreclosure property" doesn't necessarily mean REO. I took "foreclosure" to mean that he was dealing directly with the seller. If I'm dealing with the bank, I call them REOs. Maybe Vience could clarify.

Equity is important, because if there is no equity then the seller cannot lower the price.  If it's already a good deal, that one thing, but if the purchase price needs to be lower to pencil out for you, then the seller can't do it.  Sometimes you can do other things though with properties that don't have equity, a subject to transaction for instance.

In general though, the more equity, the more latitude the seller has to either lower prices or do some other type of special terms.  Years ago I worked an area where alot of the homeowners were old enough that they had paid their mortgage off.  Because of that, I was able to do some owner finance.

Obviously high equity might give you a chance to buy cheaper.  But that doesn't necessarily mean the seller is going to do that.  They still have to be motivated.