All Forum Posts by: Tom Mole

@Donna Salmiery, when you say the property was "on the market for 200 days", how was it marketed? Was it listed with on the MLS? If so, the price drop may have been just the impetus needed to stimulate a sale. In that case, you just learned that when the price is right speed counts.

However you may have just gotten a lesson is some of the trickier side of this business. For example, the listing broker may have already had a "handshake" agreement with the buyer BEFORE the price drop. Sometimes this happens for technical reasons, but ultimately by the time it does you're already a day late to the party. Maybe you could contact the broker and ask how this property sold so quickly after sitting stagnant for 200 days. You won't likely get much more than an introduction to that broker, but use that. Explain what you do and ask if that broker might be willing to help you find another deal like that one.

Other times, real estate agents and FSBO investors create a "faux" listing in the hopes of attracting buyers. When you call wanting to make an offer the property you're interested in will have just gone under contract a couple of hours before. That's because that property wasn't really for sale in the first place. The person listing the sale is really just trying to build his buyers list. He now has you contact info and what you'll bite on. Realtors are not really allowed to do this, but....it happens.

I'm always suspicious when I go to make an offer on a property that has been sitting idle for a long time, but just happens to be under contract when I go to make an offer. I don't fight it and I don't "just move on". I look to get into the game they're playing. I realize they got me, so I tell them that I'd be interested in investing with them going forward. Perhaps they can find another deal just like this one and I can be on the short list to buy.

Once you know how the system works, you can work the system.

Good job! Go find another one to lead off the new year.

Happy holidays!

Well, a hardy welcome to you, @Michael Hill, and a belated welcome to you, @Michael Lee. Congrats to each of you for joining the BP community. You're the right place!

Michael, since you're just starting out you may want to read virtual cover to virtual cover the "Ultimate Beginner's Guide to Real Estate Investing". It's great place to start.

Next, download all of the podcasts starting with the latest. Listen to them all, in your car, while you're out walking the dog, when you're taking a break from a nagging wife, whatever. There's a lot of fantastic content there and its all FREE! @Joshua Dorkin and @Brandon Turner are like a couple of adorable frat brothers. Their guests have a wealth of experience that can guide you through the treacherous water in the beginning.

Tap into the weekly BP webinar that Brandon hosts. Lot's great topics and mostly targeted at folks just getting started. In fact click on the education tab above and just step through all of it. There's nothing there that you don't need, books, webinar, educational programs, etc. and (almost) all free.

Finally, troll the blogs and forums. If you have a particularly burning question, don't be shy about posting it in the appropriate forum. Most of the folks out here won't bite. Those that do usually get bitten back by a still bigger dog, so you're in a safe place.

Whatever else you do never ever stop learning and taking action (in that order).

Happy holidays!

Yep, that IS the big picture. They say God is in the details, but we can dissect that one item at a time.

So how do you feel about it? Are ready to talk to your friend?

By "rental expenses" I understand you to mean "operating expenses". That would typically include, 

• Taxes
• Insurance
• Maintenance
• Management
• Utilities
• Repairs

I call this TIMMUR for short. By repairs I mean routine month to month repairs, though I would suggest you keep a budget for cap-ex repairs in that number. I would also keep vacancy in mind as an expense, not a reduction of income like so many people do. It's just a way to keep the books, but I think it's the smartest way. I would tuck vacancy under my Management expenses.

Have you tried out the BP Deal Analyzer yet? @Brandon Turner tells us every week that it is the cat's meow for analyzing a project without forgetting something truly important. This could be just what you need to take to your friend.

@Jacob Pereira, take care at the auctions. It looks easy, but there are sharks in the water! It's easy to get "caught up" in the action and forget that this is NOT a game. 

• Full disclosure: I have never gone to a TX auction and I'm not particularly familiar with foreclosure law in your state.

Here in Los Angeles county they hold auctions every business day, often at multiple venues. I have gone to those auctions many times, not to bid, but rather to experience the process. I seem to learn something new each time. I'm so glad I never bid there without becoming a lot more seasoned.

Honestly, I've seen a lot equity created at the auctions, but I think there are better ways to create that equity. Auctions are easy, but very cash intensive. Unleveraged capital is not working hard enough for my tastes.

How to you feel about making offers on REO's on the day that went to auction? You may well find some banks that just want to be done with the property, but no one bid at the auction. Make them a considered offer. you likely won't have to pay cash and you'll have a reasonable escrow period to raise financing and do inspections. Now this way you could use your capital to leverage a LOT more acquisitions. More acquisitions, more profits. Just saying....

How does negotiating a short sell with the distressed homeowner before the auction strike you? You could use your ready capital to impress the lenders and capitulate a settlement. Once your offer is accepted you could get financing and again leverage your cash for greater profits.

And so it goes. Does any of this sound appealing? Do you have any questions? Feel free to contact me. If there's anything I can do to help, it will be my pleasure.

Happy holidays.

@Bobby, I believe you said that you'd be renting the property out. You need to be able to get enough from rents to pay the expenses and the debt service. Cash flow is what is leftover after that. Make sure that it will be a positive number. So the JV partnership would be paying the mortgage.

That being said, the fastest, cheapest solution would keep the mortgage in the seller's name. He should be OK with that as long as you have enough income from this project. In that case it shouldn't keep him from buying a home in Charleston, which is likely going to be his biggest concern.

What are the terms of his existing debt? Could you get better terms with a new loan? A new loan will necessarily mean a new appraisal. Would the property appraise for enough in it's current condition?

Perhaps your friend could carry the debt on his personal credit for as long as it takes to rehab the property, get a tenant in and season the rents. If he can hold out at least until then, you'll be in a much better position to negotiate a refi with the bank.

It sounds like fun!

So, @Bobby Holley, how much would you offer on this property if it weren't your friend? This may be your friend's home, but this is business, not friend-ness. Treat your business as a business. If after you figure out your numbers, you feel compelled to be "nice" to your friend, well, I can't blame you.

BTW, why wouldn't your friend have a problem selling at a "friendly" price? Why is your friend leaving for Charleston? Isn't he getting a better job? Maybe he wouldn't really mind you took this dumpy property off his hands quickly for a lower purchase price. Well, have you asked him?

Are you concerned that you might regret your decision either way. Look for another path. Does he need the money from the sale of the property right away? If you're friend wants a higher price than you as an investor can pay, would he consider a JV partnership? It might work like this. You put the title into a land trust or LLC. You fix it up and rent it out, You operate it and take the cash flow as compensation for operating the project. When you sell the property the proceeds are split in some TBD equitable fashion.

Probably he will want the proceeds of a sale right away (most seller do, or at least think they do). So, how much does he owe on the property? What would his transaction and tax costs be if he were to sell? What would be left after costs if he got his price from someone from the retail market sector? Could you offer him that for a greater share of the equity in a joint venture?

The bottom line is that you don't want to piss off your friend yet you don't want to be taken advantage of. This is a bit of tight rope, which is why we usually don't advise doing business with friends. How good are you with running the numbers? Can you boil it all down to digits? If not, do you know someone who can? This would take the friendship issue off the table. The numbers don't lie and they are not swayed emotionally. With numbers it's just business.

A fair price is simply one that all the parties can agree to and still sleep well at night.

Happy holidays!

@Kyle Bigger, I understand your pain. I mostly see it in newbies trying to break into foreclosures without losing their place in Heaven. I felt like you do until I met a fellow BP member from So Cal., @Arturo Olivas. Look him up. Have a chat. I think you'll like him and what he does. I do. (Tell him Tom Mole referred you. He'll like that! :)

Arturo has a rather humane way of dealing with people who find themselves in a financial well. He offers to JV with homeowner, rehab the property and sell it at the top of comps. He then splits the proceeds after all expenses something like 70/30 in the owner's favor. He actually creates value then give a part of that back to the homeowner.

So, do they still lose their houses? Well, generally yes, but they were going to anyways to you, a retail buyer or the bank. What they get out of the deal is the profit that you feel you're stealing. I would argue that you didn't create the homeowner's situation, so its not stealing and no one is holding a gun to their heads, but I hate waking up at night wondering What Would Jesus Do? as the kids from church used to say.

I must say I respect everything @Jay Hinrichs says. It sounds like you live pretty close to him. I would offer to meet this man between here and there and buy him dinner. He's a reasonable guy and I'll bet he could help regain your composure. (I'd just like to meet for kicks, but I live too far off.)

@Brian Burke makes a good point worth considering. Often these properties are dumps because of the people who currently own them. They don't know or they don't about taking care of their property. Some of them are really not very nice people, but what about the nice people that purchase your rehabs. People that maybe are looking to start a family or an older couple that want to live in a place that they don't have to "fix up"? Are you not providing value to them? What about the community at large? When you rehab a property in the neighborhood and sell for top dollar, don't the property values go up just a bit for the rest of the neighborhood?

The bottom line is this, this is the real estate business. Real estate is your passion, so this is your passion. Don't quit, adapt! I'll tell you what, teach me to be as successful as you are and I'll help you make a good profit while still maintaining your humanity. I believe with a passion that I can make that commitment.

I hope this helps some. Happy holidays!!

@Raj Kumar, I have to agree with @Lance Wakefield. What is your exit strategy? You do have one, right? Did you originally intend to cash flow this property or were you looking for capital gains? Do you want to keep your cash flow? Has your property valuation change up or down? What happens to your numbers when your current loan adjusts.

So, why are you looking to refi or sell? Do you need the capital or are you just avoiding the adjusted loan terms? If you need the capital for continued investing, you could sell, but you'll have capital gains tax and transactions costs that will take a significant bite. However, if your property will appraise high enough to create equity, you could refi and avoid the taxes and transaction costs while conserving much of your cash flow.

If you don't need the working capital right now, refi for a low fixed rate and enjoy the cash flow. If you're truly well capitalized, you might consider adding cash to your refi to lower your LTV and getting a better interest rate. I can't recommend this as it lowers your ROI and increases your exposure, but it might be right for you. Every investor is different. At least you know the option is out there.

So, bottom line, what should you do? You should weigh the options and make your own decision. Do not let anyone decide for you. If I can help you consider the options, feel free to contact me.

Happy holidays!

@Tiffany Cunningham, I'm gonna go out on the limb here, but I suspect that you violated the cardinal rule of negotiation and you did it with a professional negotiator. Did you perchance start your negotiation with your maximum offer?

I don't think the problem is the value of the property. This guy knows that Mom's house is a disaster. He just needs to get the best price possible. You said this guy sells used cars. If he's any good at his job, it's a habit for him to reject the first offer. It's in his DNA. He just can't say "yes" to the first offer.

Most newbies tend to be timid about offering very low prices. If that's you, you're gonna need to get over that as quickly as possible. You may have to walk on this deal. The well may be poisoned at this point. Whatever else you do, never, never, never go over you MAO price. So, when is OK to offer above your calculated MAO? Never!

Since you're not going over your MAO, you need to leave some room for negotiation. If you're initial offer is too low to get Mr. Seller interested, you DO NOT yet have a motivated seller, so go find one who is motivated.

An offer MUST be an invitation to have a conversation. If your offer is accepted OR rejected without discussion, then you made a bad offer. If the seller doesn't counter your offer, then you offered too much, guaranteed, every time. If your offer is too low to stimulate a conversation, then offer a little more. If it's still too low, offer a little bit more. If you hit your MAO, move on.

May I suggest a book you may want to read? Look for a book called "Getting More" by Stuart Diamond. If you read and practice it, you'll get a lot more deals accepted.

Now, I did say I was going out on a limb. If I just crawled out onto the wrong limb, then ... never mind. Hopefully someone will find this post useful. 

Any questions come to mind?? Feel free to contact me.

Happy holidays!

@Olivia C., it sounds like you're really looking for a RE investing group to place your investment capital. I got the part where you say you're not interested in a REIT, though I'm clear on your reasons. Would a crowdfunding platform appeal to you?

You might look into commercial real estate syndications, but to be fair most of them DO use professional property management. I personally would not want to buy into a syndication where the manager is "playing" PM as well. I can see no downside to having a professional PM.

As I reread your post I get the sense that you want to find a small team of partners where your role in this team would be to be the money person. Is it accurate to say you'd be more comfortable if you can keep a more personal touch with the investment and all the players.

As much as I would like to recommend someone for you to talk to directly, that is not allow in an open forum. Send me a PM. Let me know if I have a solid read on your needs. If not, set me straight and I'll see if I help find what your looking for.

Happy holidays!