All Forum Posts by: Tim Jones

@Karla Yudy

I forgot to tag you when thanking you, so thank you once again!

TJ

Yes, you are correct.  I spoke with my CPA regarding the cost basis and it's like you stated.  I also kept a mileage log and receipts for small items like for sale signs and sharpies....

Thank you for your input!!

TJ

Thanks for your kind words @Nick G.!

Hello BP!

Looking for a little feedback on my first REI deal.

Background: 

Joined BP last year, read a lot of books, and listened to all the podcasts. Got my wife involved (she's the smart one) and we got a HELOC on our house in preparation of REI. We did our best to save and budget.

We sold our last house at the peak and bought our current house in 2009. I also tried to purchase a 4-plex at the same time but the bank pulled out due to the banking credit crisis. I didn't know about things like hard money at the time or I would have found a way to make it happen 'cause it was a great deal (& pains me to think of it today). I had no REI education at the time and was in the middle of a massive remodel down to the studs. I also work a FT W-2 job.

Although I know that just following the Great Recession was the bottom of the last cycle and and some might argue that we're near the top now, I'm still interested and bullish about investing.

Current deal:

I participated in my local county's tax-defaulted property auction through bid4assests.com in April. I downloaded the APN list, researched bedrooms & sq ft, drove by all of the properties that I was interested in, categorized the neighborhoods, etc.

I was out-of-town the weekend of the auction but participated online. Many properties were redeemed the day before the auction and some were out of my price range. These are cash-only purchases so I was limited by the combination of my HELOC and cash reserves. These issues reduced my list substantially for the area I was interested in, my city which I knew very well and in which I feel I had a competitive advantage.

I threw some bids out at the properties but was being quickly outbid and IMO people were paying too much. I'm happy to lose a deal to someone else overpaying though I want to be in the game! I also understand that some of the auction sites auto bid to drive up the price. I was trying to be cautious yet aggressive...if that makes any sense. 

Now for the big mistake:

My city's properties were all snatched up so I started looking at adjacent cities in my county. I hadn't researched these properties nor driven by. I'm familiar with most of the areas but not down to individual neighborhoods (read: no competitive advantage). I was only able to do internet research at this point. I used Parcel Quest, the County website, Google Earth, etc. 

I ended up buying a 1972 3/2 double-wide mobile home on a 6000 sq ft R-1 lot in a residential area full of similar mobile homes. I paid $34,000.00 plus some minor recording fees. I figured rent for this place would be about $600+ a month, netting $250+ after expenses. So upon returning from my out-of-town assignment I immediately drove by my first-ever investment property; I was so excited to see it in person! As I drove up, what did I see? A BURNT DOWN TRAILER!  WTF? What did I do? I listened to all the podcast guests talk about due diligence...why didn't I listen? Now, what do I say to my cautiously optimistic wife waiting for my return from work? How can I make lemonade out of this lemon?

So, after properly beating myself up about it, I thought about what I might have had: A 45 y/o trailer with deferred maintenance. Possibly an inherited tenant? An inherited owner who didn't pay taxes for 5 years? A possible eviction expense?

I decided at this point that I needed to do something to make this work. Life is a matter of perspective, so I had an opportunity, not a problem. I remember a quote from one of the podcasts, "I've never lost money on real estate, I've just heavily financed my education".

The next thing I did was pay $2100 to have the lot cleared out. I considered all of my possible exit strategies: rent it out to someone that has a mobile home; sell the land; finance a mobile home purchase and resell or rent, etc. Without going into my education of permits, permanent MH foundations, title insurance issues, etc., I decided to sell and move on. 

All of my expenses (purchase, lot clearing, wire transfer fees, etc) were borne out of my HELOC, though I had the cash on hand. My thought was to finance this with OPM at a 3.75% interest only payment instead of risking my own cash. I made two payments of roughly $120 (holding costs) until I was able to sell the property.

I was all in for approximately $36,500 and sold it for 39,900, owner financed with 25% ($10k) down at 7% on a 1 year note. I've since received another $10k payment (buyer wants to pay off by x-mas). Interest for this loan could generate about $600. I had listed this on-line and put a sign in the yard (most contacts this way). Part of my education was at the County Recorder's office, County law library, calling title companies, etc which led me to using a Grant Deed and Deed of Trust to sell the property. I used my $39/mo LegalShield account to pass everything by an RE attorney. I did not list the traditional way because of the slim profit margin.

So here's where I need some good analysis: Being an optimist, I look at this as I paid 250.00 and made 4,000, subject to short-term capital gains and in the process I learned A LOT.

What do you see? What might I be missing? Any and all advice is highly appreciated. And thank you for making it to the end of this post!!!!

TJ

@Paul Choi

Welcome aboard! You'e found a great site here at BP! If Merced interests you and you have any questions, feel free to reach out.

Best of luck to you,

TJ

Yes, I'm familiar with it. I would consider that a D rated property. That is considered South Merced; Half the town & the 99 are at an angle....

You generally want to be on the other side of the Hwy...better if you get past Bear Creek.

TJ

Main focus right now is Bakersfield to Fresno. I do see some businesses setting up near the anticipated stop in Merced.

Hello & welcome aboard @Joshua Rustvold!

You've found research central and a great community here at BP. I recommend you listen to the penultimate podcast featuring Swanny.

I live in Merced County and formerly lived in Fresno County (attended Fresno State). I've been in the CV for years but I've lived in the big city too (Main & Garfield in HB!) Haha. 

The CV (& IE) started crashing in '06 and have since recovered. We've had several, several years of appreciation. Deals can be found in ANY market but my point is that we're near the top of the cycle.  Again, listen to Swanny's podcast. This is just my opinion and represents a big picture view to a new investor.

With that being said, it's smart in invest within a few hours of your home. I would look at larger multi-family apartment complexes (15+ units) in A/B/C++++ neighborhoods that you can have professionally managed.  You will scale better this way and minimize your risk levels.  You may want to consider the path of progress of California's high-speed rail (HSR) as well as what's going on in the town that you're investing in. 

Feel free to reach out and connect with me and we can discuss goals, strategies, money, etc.

Best of luck to you!!

TJ

GTS, then try a private eye!