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Sunday, May 31, 2009

Seller Financing

My #1 favorite way to buy. If you haven't seen this interview with Donald Trump on Larry King you should check it out.

Tides are Changing

I have been simultaneously running a small window sales company and using the income to sustain my lifestyle needs and invest the rest into real estate. As of Friday I am no longer in the window business and am 100% full time in real estate. I had a situation where some product was delivered to a job site and about $50,000 of it needs to be replaced. This will wipe out all of the commissions I have earned and still not been paid on this year. No point in continuing to work for free so I am done with it.

A very stressful week indeed, but I have always had the philosophy that things will work out. They always do. So far this weekend I have lined up some amazing deals;
1 - short sale on a nice Orange County house.
1 - a $120K free & clear property that the owner walked away from 8 years ago and is now asking $40K for, but said she will accept less.
1 - an updated house with a $96K 30 year 5.5% fixed loan that will rent for $1,100 and an owner who can no longer make the payments so she is moving in with mom. She has offered to sell the house to me with all the furniture included.
1 - an offer from a successful REO buyer to do a deal together in my city of Riverside. It is an REO that needs rehab. Looks like it should net between $30-$40K on a retail sale.

If everything works out I will get a nice spread on the short sale and pick up 1 or 2 more rentals & pocket some decent cash on the flip.

Friday, May 29, 2009

The Truth About Money

Dancing with the Prom Queen

I am sitting in my sun room contemplating the path I have chosen to follow. While in Orange County today I noticed one of my friends has a very expensive brand new Mercedes. A very nice car indeed. As much as I would like to drive such a vehicle, I can't really imagine myself ever driving a car that expensive even if I did have the burnable cash. So I have been thinking that maybe because I don't picture myself with such luxuries, does that affect my ability to afford them? Is it really true that we actually can think ourselves rich?

There have been many opportunities to purchase such frivolous items. Once, I closed a deal that netted me $40K so on the urgings of my wife, we went down and test drove a nice two-seater at Fletcher Jones. After I finished driving it around the block I handed the keys to my wife and told her to take it for a test drive. She didn't want to because she was afraid of damaging it. I told her she really should take it out because as long as she was with me, it was her last opportunity to ever drive one again. The salesman just looked at me with his jaw hanging open like a trout. I just couldn’t part with that much cash for a hunk of metal that I would drive around in to look at beat up old houses. My Gram trained me wisely. She used to say expensive cars are for every body else to enjoy and I believe she is right. I don’t need to stroke my ego with a car that is going to end up as a piece of junk some day. I would rather parlay that cash into another rental home.

I see my friends in other businesses far exceeding my current position. I know my assets will out live the income from their companies. The day they stop showing up and unlocking the door is the day the checks stop showing up in the mail box for them. I believe this is what drives me to keep rolling my snowball.

I try to live a frugal life. I scan over my credit card statement every month to see where I could have saved money. I don't eat out very often. I don't hardly ever carry cash on me and I am terrified of ATM machines. I give my dogs 1/2 a biscuit each instead of a whole one. I use old jars as cups. I recycle my dental floss. Just kinding. That is way too disgusting. I think I will post to my mastermind group about frugality and see just how cheap we are collectively. You want to talk green? Just hang out with a group of real estate investors. We recycle everything!

However, I am waiting for that Mike C day. Just when I think I have made yet another outrageous decision, the clarity hits me that I am no longer required to play the game. I can stop going in circles and sit on the sidelines if I choose. I can buy that pizza joint if I want or open that bar just for fun.

Real estate investing is an amazing...job?, profession?, life path? I don't know what to actually call it. A hobby that has the potential to pay well I guess. I have seen no other business that can provide you with such sweeping life changing moments the way putting together a fine tuned real estate deal can. I don't know if it is addicting or just the hard driven desire to achieve my goals that keeps me searching for the next deal. I noticed recently during a slow period, that I was actually depressed because I didn't have any deals lined up for escrow. I had a sort of fear about where and when the next deal would come. Sure enough though a deal comes along that is so amazing I can't even believe I am the one that did it! Trying to comprehend the sheer concept of such a great deal leaves me at pause. I have read books about buying such properties and to actually do it is such an awesome feeling. Of course, I have purchased properties sub2 in the past and I will even go so far as saying more than a few. I once bought a house sub2 $700K in loans so $178K is nothing scary. It is the terms that make this such a killer deal. A very good friend of mine said buying a rental property in Orange County is like dancing with the prom queen.

I would rather have 10 such properties in Orange County than 20 better ones in Riverside. Maybe even 30. I truly enjoy living in Riverside, but Orange County is one of those special places to live. There are few places on Earth that provide such an unmatched quality and opportunity in life.

Back to thinking yourself rich for a moment; I can see myself in a place where I will no longer need to raise the capital from private investors to do deals or be overly concerned if I don't have XX amount of income lined up. But I want to enjoy being here today. I don't want to wish my present away. Outside of all the crap that goes on in the World (I try not to watch the news, but can’t help to check out the Drudge Report every so often) just being here in California and having the people that I have surrounded myself with is an absolute paradise every day.

Tuesday, May 26, 2009

Memorial Weekend Update - To Have and To Hold

Exciting weekend; I picked up a 3/1 in Anaheim for $5,000 cash sub2 the seller's 1st & 2nd totaling $174,000. The house needs about $45,000 to rehab it for retail and I think I could sell it somewhere between $300K~$320K. It has a big deep pool in the backyard that needs to be sand blasted and re-plastered. I am not a big fan of pools ever since the last one I rehabbed and I don't know if re-doing this one will net me a decent return on my money.

Here is the real problem: Sure I could use the $40K profit I will split with my partner ($20K each), but I just bought a house in Anaheim for under $200K!!! If I got the $20K in cash it would just get used up lubricating the corporate machine. This property will rent for $1,800 and if I redo the pool I could probably get closer to $2,000. On a rehab for rent I think I could get it done for under $25K. I would probably cave in the pool and that would save $7~8K alone. The house needs a ton of work, but the roof and water heater are new! I definitely have to gut the bathroom, but I might be able to salvage the kitchen. My retail strategy includes bringing in a private money person I have lined up for $50K. That means at the close of escrow my partner and I will each get checks for about $21K. This money of course is to be used for the rehab, but it is still nice to do a no money down deal AND get paid at the close of escrow. However, I do not believe in pulling out profit before I sell because profit is only realized when the property closes escrow. Everything else is speculation. I think this is a big mistake some investors make. I believe the old saying "you make your profit when you buy" is totally incorrect and actually just plain stupid. How do you make money buying something? The only thing you do when you buy something is spend money. I have reworded this statement and hope you will agree my way makes much more sense; "you establish your profit potential when you buy, you realize your profit when you sell."

If we do not take the private money and instead rehab for rent I think we will each be out of pocket about $15K. We have another deal that we haven't been able to sell yet, but if we get it sold soon we will take the money we recapture from that deal and use it to fund this long term hold. We will have a cash flowing rental in a great location. Decisions, decisions.....

Monday, May 18, 2009

Everything Stinks

Man time goes by fast. The World is crazy these days; swine flu, high unemployment, a democrat President that spends money on every thing under the sun. Strange times to be alive that is for sure!
I have Oak Meadows in escrow and we are supposed to close on Wednesday. The buyer’s agent emails me and asks for an extension. Not good. We have already given him 1 extension and now he wants another 2 weeks. I think he is going to have to start paying per diem. My partner and I have $100,000 of private money in that deal plus $100K+ of our own. I don’t like being in this situation and can’t believe I am back here again. Now I have to minimum pay my dang credit card so I have money to pay my mortgage and bills. I hate doing that because I don’t like to pay interest.

My Wallace court property had some serious issues. The septic system failed and sewage started flowing down the street. The city has pulled my water meter because of the mouthy gangster tenants. Now they won’t have water until Wednesday (about 2 days). I could probably get it turned back on if I call which I will do later today. I have a company hooking me up to the public sewage system. The total cost will come in somewhere around $8,000. The permits are about $3,500 and I got a check in the mail today from the state for $3,200 (tax refund). Looks like the state is covering the cost to connect to the system! I have a few other deals going, but nothing amazing. I have a house in Anaheim that I hope to get under contract. Needs about $40K in work and the owner owes about $180K. It should sell somewhere in the range of $300-$320K.