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Wednesday, November 20, 2013


False Evidence Appearing Real - That is what I was told the acronym F.E.A.R. stands for. I think fear drives people to do, or not to do, a lot more than the desire to achieve success. Let's look at a few examples;

I invest primarily in California. To the outside observer, one would think I either -
     A) have tons of liquid cash or
     B) I don't know what I'm doing and missing much better opportunities out of state.

I disagree on both points. The median home price in the county in California where I invest, at the time of this blog post, stands at $225,000. My average rental in this market comes in at about $1,200. On the numbers, at face value, I couldn't possibly get a decent return paying $225,000 for a $1,200 income stream.

As an investor, it is my job to seek out opportunity and what I am looking for is an undervalued property in a solid rental market. It takes time and energy, and I rarely 'find' a great deal. What I do find is a property owner who has both equity and motivation that I can work with to create a good deal. I also don't look at property priced around the median value. My typical rental property has a market value in the $125K~$200K range and if I have to pay all cash, I'm buying that property for $70K~$120K. I finance them through a local hard money lender using their long term rental program. Those loans have a 9.9% interest rate, but the APR comes in at closer to 18%. And they still cash flow. Right here in California.

Many of my associates are taking packages of those financed houses and refinancing them through local lenders using their LLC or C corp. They get 30 year amortization, due in 15, with interest rates around 5%.

Dealing with Squatters and the CA Courts

So, I had my day in court today for the MSJ (motion summary judgement). The tenant, who now suddenly needs a cane to walk, but didn't the 2 times I met with him before, and his wife showed up. The wife lied her ass off. Quite amazing. She said she has a rental agreement, but it is packed away in boxes somewhere. The only answer to the MSJ is a valid rental contract which she failed to produce. That should have been the end of it right there. And she claims she paid her rent on the 28th to her other landlord (her mom). I have an estoppel from her mom saying there is no rental agreement and that there is no rent being paid. She also told the judge that every time I talked to her it was only "Get out, get out, get out." I only spoke to her once and that was before I even opened escrow. The conversation was quite pleasant. She then said I never asked about a lease or requested any rent. I had my phone records showing I called several times, but the calls were only 1 min as I only got voice mail and never received a call back. I sent her an estoppel with a self addressed, stamped priority mail envelope, but on one of my two visits to the house, her husband told me she wasn't going to mail it back to me.

The judge made the mistake several times about the time line for notices which my attorney kept correcting him on. He said several times that the posting had to be 9 days: 3 days notice, plus 5 days for mail, and then some other random B.S. about notice procedures. The attorney asked him where he came up with 5 days for mail and the judge said that 5 days should be considered a reasonable time to expect mail to arrive. He added, "We can have a gentleman's disagreement on that one." He also kept stating that "As a foreclosure" and the attorney corrected him multiple times that it wasn't a foreclosure. It was obvious the judge was looking for any reason he could to side with the tenants.

After, I was talking with my attorney in the hall and this other attorney came over and was visibly upset that the judge made those comments. She was quite unhappy with the proceedings, very verbal about, and she wasn't even my attorney. Then she told me this judge hates MSJs and was fishing for any reason not to side with me. The only fun part was when my attorney told the judge they are squatters.

I think if I were to go this route again, I'd skip the MSJ. I can't imagine any CA judge siding with the plaintiff on an MSJ. And I did try cash for keys before we went down this road, but the wife made it clear they weren't leaving. Just thought I'd share the experience in case any of you were thinking of going this route if you have an eviction with scumbag squatters to deal with. So, what I've learned from this experience is that there are some advantages to living in a third world country. :)

Sunday, November 10, 2013

Creative Real Estate on a Sunday Morning

I received a call from a seller on Friday. She has a $150K 3/1.5 house in a decent area of town. I'd put it at a C+ neighborhood. She was asking $130K cash and told me it is turn key - claims she put a lot of money into it.

I ran my numbers and told her if it is really turn key and doesn't need anything for rehab, I was at $125K so we were close. I figured I could actually sell it for $160K and would try to buy it for $120K which would net me about $15K. I decided to meet her at the house because I had to be sure it doesn't need any work and I wanted to get a wet signature on the contract. I also was going out to check up on a rehab so I had to be in the area anyway.

I met her at the house yesterday. The house was nice, but absolutely dated. After looking it over and commenting on how nice it was (used to be her house so you have to respect it), I proposed a seller financed deal. I offered her $130K with 10% down, 30 year am, 5%. I told her if she wanted all cash now, I was somewhere closer to $100K-$110K. She liked the idea and said she had to think about it.

For you calculator heads, what is the payment?

Rents are $1,100. What will the cash flow be?

She called back this morning and countered with $140K, 20% down, 5%. I immediately declined stating that the return on my 20% down would be unacceptable.

My counter to her, which was accepted was $140K, 10% down, 5% int, $625 pmt.

What will the term be?

Would you do this deal if she says yes? Why?

What would you do, other than changing the terms I have offered, to make this 'more better?'