Saturday, January 30, 2010

Over and Out! Finally.

Now, you would have expected that the closing with the experienced investor buyers who had plenty of time to do all their due diligence and get their money together would have been a piece of cake. You, however, would have expected wrong.

On Thursday afternoon, a bit after 3:00, I hear from them that they didn't get the HUD 1 from the Title Company until 8:00 Thursday morning. Therefore, they claimed, their investor wasn't going to be able to get me any money until Tuesday. That was going to cost me an additional 2 points, plus a payment of $1,320 - so approximately $4,000. I told them that I'd extend the contract if they covered my cost. After all, I had already bent over backward to work within their time frame. Also, I had cleared out the unit that people had left full of junk, gotten the current tenants to agree to the new rent, gotten the current tenants to sign their old lease as we didn't have a signed copy & gotten them to agree to make up the security deposit that the old landlord had taken in lieu of rent.

Well, they didn't want to pay the additional $4,000, but wanted me to extend it for free. Now, I'd already paid 2 points to a private lender as well as $1,800 in closing costs, rather than calling a cash buyer to close on the 22nd, in order to be able to work with these guys. To put it in monetary terms, I'd already spent $4,400 of my profit. Now, they wanted me to eat $4,000 more? When I'd first talked to them, they told me they could close in 2 or 3 days. When I got the seller to extend the contract, they told me they could close in a week. When they went under contract, they told me they could close in 2 weeks. Suddenly, 25 hours before closing, they needed more time. I had some serious thinking to do.

What were my options?

1. Let them have an extension and eat $4,000.
2. Keep it myself, along with their non-refundable $3,000 deposit.
3. Call another buyer and sell it to him on Friday before I had to pay the extra points and payment to the lender.

So, I called the other buyer. He agreed to buy it as long as he could just wire $150,000 and I'd pay his closing costs. In order to do this, I had to get the first buyers to release the contract... which they agreed to do as long as I didn't keep their deposit. So, another $3,000 lesson. Get the money released from escrow as soon as it goes hard. And another one, make it clear up front that there will be a high cost for any extension of the contract. It needs to be built in up front.

I wound up closing with my cash buyer who unfortunately wanted his title policy held open. This cost me over $600 because I had already held open my policy, expecting to turn it over to an end buyer and not incur any additional costs on it. The total amount I made of the $20,000 that I expected after all the expenses was about $11,800. It was a very, very expensive learning experience and I felt pretty beat up last night. I know I made money and that's great, but I just didn't feel like celebrating because the cost was so high.

Well, I have 3 short sales lined up and am going to be on the hunt for more wholesale deals. I've learned a lot from this and am certain that my next deal will be so much smoother. My wonderful Realtor tells me that it would be really hard to top how difficult this one has been.

Until next time...

Saturday, January 23, 2010

Proud owner of a triplex... for a week anyway

I've been very, very busy this week. I had to close on the triplex myself because my buyers needed more time to close than the seller was willing to give me.

I found a transactional funder who financed the property for a week. It's costing me 3.25 points (which I thought was 2, but when I read the loan docs, it costs an additional 1.25 points when I pay off the loan). So, with the funder who got the loan approved in 2 days - kudos to her!!! - I was able to close on the triplex on Friday afternoon.

Also, my Realtor wrote a contract between me and my end buyer and I'm paying him extra for all the work that he did to help me. He's been a rock and I'm so happy to have him on my team.

Friday night, I put a "free stuff" ad in Craigslist and spent Saturday morning giving away all the stuff people had abandoned in one of the 2 bedroom units. They literally left a houseful of stuff, as well as 9 leaf sized trash bags of trash (so far). Tomorrow someone is driving up from Colorado Springs to get much of the rest of the stuff (woohoo!).

My buyers are going to close sometime on or before the 29th - hopefully before. And I must say that not going with these buyers in the first place cost me around $5,000. This was a very expensive lesson to learn, but believe me when I say that it is well-learned. And even though it cost me money, I have made quite a few good contacts from it, including 2 more cash buyers and 2 good funders.

I'll let you know what happens next week.

Until next time...

Monday, January 18, 2010

Lessons to Learn

So, now there's a gap between when my buyer can buy and when the seller needs to close. I have put down $2,000 of my own money and am looking for the best rate on transactional funding for a week.

I had a very frank conversation with Brad of IRR and he told me that I could have avoided all of these buyer problems if I'd had a tighter process. He's absolutely right... This really is all my fault. I've let the buyers roll all over me and have been far too accommodating when they've asked me to change things in the assignment contracts. I need to get tougher. No more working with anyone until they sign the contracts and put down some money, because if they haven't done that, they aren't really a buyer... and I need to add a clause that says if a buyer defaults after their inspection (like my first buyer did), they have to pay my whole fee. That would certainly make them think a lot harder about backing out when they have money approved. I'm thinking that I need to get IRR's assignment contract.

And, I have to tell you that Bill Twyford, who I coach with on Skype, really has my back. He actually contacted the most recent buyer and chewed him out for backing out at the last minute.

So, I'll let you know how it goes. Until next time...

Saturday, January 16, 2010

Challenging Week

Well, I thought I had the property sold to someone that I know and trust. However, he couldn't find money for some reason or another, so said I should shop the deal. That took about a week, but it was actually very helpful. We got an inspection and we got an estimate from a roofer on what the roof would cost.

Therefore, I pitched the deal at our local REIA meeting, to IRR. I was mobbed at the meeting. All 25 of my flyers got snatched up and 8 other people left me emails or cards. I showed the house to 4 people the next day and accepted the first guy who offered to give me a check. That's where the problems started.

While the buyer seemed to be very eager to buy the property, he had to work with hard money. The hard money lender was awesome. Their appraiser said the ARV (after repaired value) of the property was up to $300,000. A screaming deal when you look at the buyer's purchase price of $150,000 plus his estimate of $27,000 in repairs. Well, they approved the buyer, but the buyer didn't like the terms of the loan, so backed out. He told me at 10:17 Thursday morning. Closing was supposed to happen Friday at 3:00.

Thursday morning I started calling everyone I could think of who had shown interest in the property and who might be able to come up with cash to close the deal on time. The hard money lender called people too. So, I showed the house to a couple of people on Thursday at 3:30. One was the man who had been going to fund the loan for the hard money lender to the first buyer. I'll call him funder guy. The second was partners - one of whom could come up with cash in the short period of time needed.

The funder guy and his wife looked around and left, saying that he would call me later. The partners stayed for 3 hours. They did a very thorough review. They talked about just letting them take over the contract and give me a note for some part of my fee... I wasn't comfortable with the options they were offering because at this point, I would really like to just sell it and move on, so I promised to think about it and call them if I decided to go ahead.

The funder guy called me later and agreed to close on the property on Friday for $145,000. So, I was on the phone with him all Friday morning, sent him documents, my rehab contacts and all that. He signed the assignment contract, after getting me to take out any non-refundable part, since we were doing the deal in just a few hours... and met the realtors and the seller at the property.

So, I'm driving to Golden for the closing, which is a half hour drive and the buyer calls me up 5 minutes before closing time. He tells me that the seller pays $140 a month for trash and between $50 and $150 a month for water (I'll just call it $100 to keep it simple). He thinks that this $240 a month changes the value of the property by $30,000 to $65,000. He steps out of the deal. When I get to the closing offices, where my realtor is, they're on the phone... negotiating a much, much lower price than the one we had agreed to. I told my realtor to tell him we'd get back to him.

We called a buyer who's been interested in the property the whole time, who buys around 10 houses a month and asked if they wanted it since it appeared the deal had fallen apart. They do!!!! So we got the seller to extend the contract, which wasn't an easy thing, let me tell you, because they were highly annoyed at being put off again.

This has been the most trouble I've ever had closing a property. I'm trying to keep the deal alive, but am very worried that it's not actually going to work.

Until next time.

Thursday, January 7, 2010

Holy Cow, It Works!!!

So, the seller of the triplex who had dropped $60,000 off his price on the phone called me the day after Christmas and again a day later. He really, really wanted to get rid of the property.

So, I figured out what I would be comfortable offering (which was around $108,000), then Skyped with Bill Twyford, who advised me to start at $120,000. The seller had the triplex on the market for $250,000. I got on the phone with the seller (nervous as all get out) and explained that I was embarassed to make this low offer, but the property wouldn't cash flow at $190,000 (which was what he told me earlier was the best he would do). He told me to just tell him the number, so I did. He told me I was a little off. For once, I actually remembered the negotiating tactic of he who speaks first loses... and I shut up and let the seller tell me how much I was off.

He said "$10,000."

So I said "You'll take $130,000?"

He said, "Yes."

So, I told him I had to think about it and would get back to him. I got off the phone, did the happy dance and called back a while later to accept the offer. I called up my fabulous real estate agent to write the offer on the 28th and we had it all signed and sealed up on the 29th.

Meanwhile, I started calling people on my buyers list... people that I was sure could perform. Well, long story short, I spent a few days working with someone who I greatly respect and he couldn't come up with the money and was kind enough to tell me that I could shop it.

So I called Michael Jake to talk to him about it... Now I gotta say that I feel extremely blessed to have access to Bill & Dwan Twyford and to Michael Jake. They are a giant help!

Michael told me how to pitch the deal at the IRR meeting the next night since it has both equity for a flipper (between $60,000 and $90,000) or is an excellent rental property which will cash flow some $1,200 a month. So, I called up my sister to watch the kids, made up my flyer just before the meeting - yeah, it was very badly organized... I put in the numbers, but forgot to put in the property address. I printed 25 flyers, thinking that would be plenty.

I have to admit that the IRR meeting was almost perfectly designed to sell a property. Brad and Andy were talking about getting past your fears of wholesaling and went through the 9 deals they had wholesaled last month. When I got up there with a property, which I must say is an excellent deal, I got mobbed. Literally. They had to restructure the meeting because so many people were running up to the front to get my flyer. Not only did I run out, I took approximately 8 other emails who were interested. And, one lady called me before she left the meeting because it was too crowded for her to get through. Trust me when I say that this was not what I was expecting.

I emailed the flyer to everyone when I got home Tuesday night and called back the lady who had called me first. Wednesday, the calls started pouring in. I showed the property to 4 people between 4:00 and 5:00 Wednesday afternoon & had a call from someone else who wanted to see it after I already accepted the first guy's deposit to assign the contract. Obviously, I had to tell him it was gone.

Now, the guy who I accepted is going through a hard money lender, so has to wait a week to close. The other people there could close faster. I called a Denver investor friend of mine and Bill Twyford (unfortunately after the fact) and got excellent advice to always accept the guy with cash first. Put the other guy in 2nd position.

Still, I feel as if I gave a newer investor a chance to get a great deal. It helped that I talked to the hard money firm he's going through before he ever did, so they're pretty forthcoming about whether they can fund the deal. At this point, it looks like a "slam-dunk." All they're waiting for is the buyer's list of repairs.
Which, of course, I helped with. I sent the buyer some contractor resources, including a roofer who had already given an estimate for necessary repairs.

My realtor told me to make sure the money commitment is firm by tomorrow in order to let the guy keep the deal. One of the excellent new clients he got from my showings really wants it - and they have cash.

So far, this has been a win for a number of people.

1. The seller who is getting rid of a property he doesn't want & getting a profit out of it.
2. The seller's realtor who is getting a commission.
3. My realtor who is getting a commission and a few new investor clients (Did I mention that he's the best investor realtor in Denver?)
4. Me - I'm getting a $20,000 assignment fee.
5. My buyer who is getting a property for $150,000 + $22,000 in repairs that will be worth $262,000 (10% CAP rate on NOI) when it's all fixed up and rented out.
6. The hard money lender who is getting points and interest.
7. The title company who is getting their fees.
8. However many contractors the buyer uses to fix up the property.
9. Some section 8 renters who will get a fixed up place to live in a decent area.

Well, to be fair, the last 2 haven't gotten any benefit yet... but they will.

This is a pretty cool business. The property must close by the end of next week, so I'll let you know what happens between now and then.

Until next time...