Live and Learn Lesson: When to Submit your Contract to the Title Company

I’ve closed several deals and have intensively researched and followed many other investors’ transactions to avoid those hard lessons that are learned by experience.  They’re inevitable; but I’d like them to be as few and as minimally damaging as possible.

Here’s one for you that I never really processed before now: Do not submit your wholesale contract to the title company before you have your buyer.  Maybe it’s obvious to everyone. And there are exceptions; but mine wasn’t one of them.

Two weeks ago I put a house under contract.  The ARV was $105-115k. The as-is value was about $80k. And I had it under contract for $53k.  A great deal, right?

The unique facet of this deal was that it was currently rented to long-term tenants for slightly below market rent, and the sale of the property was absolutely contingent upon the tenants being able to stay for 3 more years.

So yeah.  I had a difficult time finding a buyer.  And in the end, the seller was so nervous about the quality of the buyer that she backed out.  (I’m sure there are negotiating and deal-structuring lessons in there for me as well, but I just haven’t realized them yet.)

But as soon as I got it under contract, I submitted the paperwork to my closing agent.  It was a great deal…it would close quickly, and I wanted to have the title work ready, since in my experience title companies can get backed up around the holidays.

My mistake.  I’ve always waited until I had a buyer under contract (or an assignment contract signed) before submitting the paperwork, and I should have done that this time too.  Now I have no deal, and a $350 invoice for the title examination.

Boo. But, hey, now this doesn’t have to happen to you!


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Filed under Deals, Education

How to Create an Absentee Owners List on the Cheap

I’ve been sending letters to absentee owners since the beginning of 2012 and I like the results I’ve had.  Each investor will have his or her own opinion, and I tend to agree with other investors that wholesalers should focus on more targeted absentee owners (like vacant houses, evictions and code violations).

But overall, a general absentee owners list is a great gateway, and you will get deals, especially if you approach them using a drip campaign, one where you plan to contact them every 4-6 weeks at least 8 times, if not perpetually.  (My friend Sharon Vornholt says that she keeps mailing to her lists until either 1) she buys the house, 2) someone else buys the house or 3) the seller asks to be removed from the list. )

So how do you find a absentee owners?  Below I’ll give you some different ideas, including free or very cheap options.

1) Make friends with a realtor.  The MLS is a goldmine of info, and depending on where you live you could get a list of absentee owners with it, but you have to have access. You could agree to send your dead leads to a realtor in exchange for information or lists off the MLS.   You could also arrange to be an unlicensed assistant for a realtor: do some administrative tasks for them in exchange for access to the MLS.

2) Ask a title company.  This may be a better option if you already have closed deals or happen to know someone, but call around and explain that you’re planning on buying several houses this year and will bring them your business.  Then ask if they could prepare a list of absentee-owned properties for you.  Title companies have access to this info and they might agree.

3) I use them and have gotten a list of 250 names for about $60.  Not bad.  You can customize the list to only include absentee-owned properties, and use other criteria like sales date, equity amount, zip code, and type of property.

4) Drive for Dollars.  Not only is this a common sense way to add leads (most of us already drive all the time anyway), but the leads you gather are very targeted, which means they are generally much more motivated than a general list compiled from a database.  When you’re out, try going different routes and look for tall grass, closed blinds, lack of personal touches and belongings or notices taped on doors.  Go on trash day and make it easy (no trash cart usually = vacant!).

5) Search your county assessor’s page.  In a pinch, if you have no money for a list and no other option, you can look up records on your assessor’s page.  I don’t personally know of any assessor’s page that includes a search criteria for absentee owners, so you’ll have to look one-by-one, and it will be tedious, time-consuming work.  But I’ve gathered leads before while I’m already on the site, researching other properties.  I’ll quickly look at each property in that same subdivision and add the absentee-owned houses to my list of leads.

6) Pay a VA.  You can hire a virtual assistant to do the research for you.  Depending on which country your VA is from, the amount you pay can range from $2-3/hour all the way up to $10/hr.  I hired a local person to assist me with my mailings and she’ll do some of the more complicated lead-gathering that I do.  But for an absentee-owners list, it’s probably cheaper to just buy a prepared list.

7) Buy a list from your county assessor.  If you’re into Excel or programming, this could be an excellent option for you.  Thanks to the freedom of information act, we have a right to access public records and most county assessors’/appraisal districts’ offices are happy to oblige.  In fact, my county assessor has a ready-made absentee-owners list available for $50.  What made it difficult for me to use was the fact that it was 4000 records long and I’m not very Excel-savvy.  It would have taken me hours to filter for the criteria I wanted (and I actually did end up giving up after several hours!).  Another option to is to buy the list and then hire someone on Fiverr, Elance or Odesk to create Excel macros or create a new spreadsheet based on filtered criteria for you.

This is on my mind because it’s time for me to go through my absentee-owners list and scrub to be sure they’re all still good leads.  It’s such a chore to research each lead manually, and I’m debating on just buying a new list (which would automatically clean out my old, dead leads).  I’ll probably end up doing it myself (with my assistant’s help), but it’s nice to know about options.

How do you get your absentee owned leads?  How do you scrub your lists?


Filed under Absentee Owners, Marketing

Yellow Letter vs. Professional Letter vs. Postcards

I’m beginning to think that a marketing or statistics degree would have really helped the last 3 1/2 years I’ve been trying to unravel the mystery that is direct mail for real estate investors.  In any case, at least my Letters degree taught me how to think critically and connect seemingly unrelated ideas and concepts.  And that’s helped a lot.

For almost two years I’ve tried to figure out the great marketing question most real estate investors try to answer: Yellow Letters or Professional Letters or Postcards?  And I still have no answer.  But I’m beginning to wonder whether I need to.

First, I’ll lay out what I know.  It’s all about gathering information and data, so I’ll give that, even if it’s not as quantifiable as it should be.  Last year I closed on 5 houses, all from a single campaign (meaning that I contacted the same lists over and over).  They received one yellow letter and the subsequent letters (sent every 4-6 weeks) were white, professional letters.

So since I saw a rhythm developing, I thought I’d up my marketing but also outsource it since I’m a stay-at-home-mom to three munchkins and also don’t want to eat, sleep and breathe REI.  So at the beginning of this year I shifted my marketing.  I signed up with Postcardmania (a fantastic company), and switched from professional letters to postcards.  I added a brand new list to my campaign (both to increase leads and provide a “control” group for my marketing experiment with the postcards).

The results were terrible.  Really, truly pathetic.  I even SOSed a friend who is a successful investor about my postcard woes and apparently I’m not the only one.  I had less than 1% response rate and no deals (so far).  The failure could have been for reasons other than my knee-jerk theory that postcards just don’t work. I  have to consider that, because well,  it’s worked for others.  But at the very least, the problem of sorting out why postcards didn’t work for me (design? list?) seems too big for me to focus on for now.

After 6 months of postcards with no deals and scanty leads, I began re-thinking and researching like crazy (usually in forums – the best way, in my opinion, to really find out what works with REI marketing).

And I’m slowly coming to another conclusion all together.

If we know that some people have great success with postcards (and they do), others with professional letters (yep) and many, many others with yellow letters (resounding yes), then maybe the type of mailer isn’t as important as I thought.

I noticed that successful investors tend to mention over and over NOT the types of mailers they send out, but the types of leads they target, or their commitment to follow ups and/or drip campaigns.  Not everyone focused on both, but the successful ones focused on one or the other,  and usually thought it was much more important than the type of direct mail they sent.

Last year I found success in sending a drip campaign of professional white letters to absentee owners over the course of a year.  I don’t think the success came in how targeted my leads were (they weren’t), but in how many times I “touched” them.  The house I bought last January took 5 letters before they called me! 5!

Perhaps what I should have focused on was getting high quality, targeted and motivated leads AND/OR continuing the drip campaign I was already having success with.

Now, I’m not sure how the postcards play into this, honestly, since I did a drip campaign and kept the same lists and added another similar list.  Which brings me to the next idea that I’m beginning to think is important: do only what works for you and chase that alone.

I don’t know why postcards aren’t working for me.  I could probably find out.  But I need to do what already works to find success.  Really, all of us are groping in the dark to find out what works.  And when we stumble on something that works for us, we need to stop, clear our heads of other distracting and tempting paths, and focus only on that. 

I thought I was doing that with postcards.  It’s taken me 8 months to see that I’ve lost nearly all of my momentum, and I should have not let it lose any at all.  So I’ll need to go back, start sending professional letters again, re-gain my momentum, and only once that ball is rolling could I consider stepping aside and really looking into figuring out what went wrong with postcards.

There’s a phrase I came across in a Bible class I took in college: the “day of small things”.  It describes what it took for the Israelites to rebuild their city.  Our broken nature might naturally gravitate toward big bursts of effort, or seeking excitement and distraction, but to build anything substantial, it takes “not despising the day of small things”.   We must put one foot in front another, again and again, every single day.  Faithfulness has fruit, apparently.

Staying focused is so hard for me, but it takes focus to be consistent, and it takes consistency to build momentum.  I’ve felt that my success with REI has been a boom and bust cycle since I started in 2009 (not just felt – it’s in my marketing and deal statistics!). And I believe that’s from a tendency to become distracted with perfecting my marketing (or business model, or this or that) rather than focusing only on building the momentum of the particular strategy I have already discovered works for me.

What are your thoughts on types of direct mail pieces?  Do any of my ideas resonate with you? Do they agree or contradict your experience?  I’d love to hear about it.


Filed under Education, Marketing

Breakdown of Closed Deals in the Past Year

I’m one of those dorky people obsessed with detective novels.  I love a great mystery and all that.  (My absolute favorite is the Lord Peter Wimsey series, by Dorothy Sayers.  If you like mystery, read this!)

I look at my marketing as a mystery to be solved.  I’m constantly trying to figure out the perfect marketing strategy, and I’ve learned that you never know when a piece of information that initially seems irrelevant turns out to be critical in discovering the truth.  So I try to collect as much data about my campaigns as possible.

In that spirit, I’ve come up with a breakdown of the 5 deals I’ve closed in the last year.  You can take a closer look below.

My Impressions:

  • Follow Ups Matter: 4 deals out of 5  received 2+ letters from me before they called.
  • Are spring and fall busier times than winter and summer?
  • Are older sellers (50+) more motivated than younger ones?
  • Free and clears might be a better criteria for my absentee owners, rather than out of state with equity.
  • Are Absentees better than Probates? 4/5 deals closed were absentee owners
  • Vacant houses are gold.
  • I wish there was a way to know about problem tenants before the eviction process.

What do you think?  Am I missing any key pieces of information that could be important?  Which information do you pay attention to?  What have you noticed when you’ve looked at trends in deals that you close?

#1 Barclay House
3/1/1 in solid middle class neighborhood
ARV 100k
Repair level: moderate cosmetic
Seller demographic: single, female, age 50+
Seller motivation: desperate
Seller circumstances: moved out of state for job 5 years ago
Seller financial situation: not in default, but close to it, mortgage of 60k
House situation: occupied by “squatting” tenant buyer
Exit Strategy: Executed L/O then executed option and sold to investor
Mailing List: out-of-state absentee owners with equity
# of Mailings before calling: 2
Date called: 3/23
Date of closing: 4/25

#2 Elmview House
3/1.5/2 in lower middle class neighborhood
ARV: 75k
Repair level: full cosmetic
Seller demographic: son of owner, a widow
Seller motivation: motivated (difficult to tell)
Seller circumstances: father passed, mother moved out of state to live with son
Seller financial situation: owned free and clear, some city code violations
House situation: vacant and vandalized
Exit Strategy: Wholesale (double closing)
Mailing List: probate
# of Mailings before calling: 2
Date called: 8/1
Date of closing: 9/24

#3 Beech House
3/2/2 in middle class/upper middle class neighborhood
ARV: 115k
Repair level: none, completely remodeled
Seller demographic: married, mother of previous owner
Seller motivation: Very motivated
Seller circumstances: Bought house for son, who was injured and unable to make payments
Seller financial situation: owned free and clear
House situation: Currently occupied with long term tenants
Exit Strategy: Cash offer rejected, owner finance offer accepted
Mailing List: Out-of-state absentee owners with equity
# of Mailings before emailing: 1
Date emailed: 6/4 then 7/25
Date of closing: 9/25

#4 Toledo House
2/1/1 in middle class neighborhood
ARV: 110k
Repair level: moderate cosmetic
Seller demographic: widowed, age 80+
Seller motivation: Very motivated
Seller circumstances: Long term absentee owner, unable to take care of house, with bad property manager
Seller financial situation: owned free and clear
House situation: occupied by non-paying tenants (grandsons of “property manager”)
Exit Strategy: Cash offer rejected, owner finance offer accepted
Mailing List: Out-of-state absentee owners with equity
# of Mailings before calling: 5
Date called: 10/1
Date of closing: 11/4

#5 NW 17th House
3/1/1 in middle class neighborhood in transition
ARV: 100k
Repair level: full gut rehab
Seller demographic: married, age 60+
Seller motivation: Motivated (difficult to tell)
Seller circumstances: co-owner of childhood home with sister, who had a stroke
Seller financial situation: owned free and clear
House situation: vacant, a hoarder house that needed bio-hazard clean up crew
Exit Strategy: Wholesale (double closing)
Mailing List: Out-of-state absentee owners with equity
# of Mailings before calling: 5
Date called: 10/24
Date of closing: 1/7


Filed under Deals, Education, Marketing, Planning

End of Year Questions to Ask Myself

While I’m waiting for my New Year’s Eve dinner to arrive (Vietnamese pho!), I’ve been thinking about the year.  Tomorrow I’ll have a bit of a retreat (at Starbuck’s, the only place open apparently) to reflect more fully. I’ll spend at least half the day (if not the whole day), asking questions, trying to answer honestly, and then loosely planning out the year based on my conclusions.

Tomorrow I’ll try to answer these questions:

What have I liked about the year? 
What has worked? 
What success have I seen? 
Which goals did I fail? 
Did I surprise myself? 
Did a technique surprise me?
Did plans change? 
Was I happier this year?  Why or why not?
What was most stressful?
What did I enjoy doing the most?
Which activities made me the most money?
Which activities lost me money? Time? 

What can I do to create more time? More peace?
Which aspects of my business do I want to keep?
Which aspects do I want to do less of?
Do I need to introduce new methods?
What is my main goal for the year?
What do I want my business and life to look like end of 2013?
Which circumstances am I in control of?
What can I do to simplify?
What do I value most?

How many houses do I need to sell this year to achieve my goals?
How many more house do I want to sell this year than last year?
Do we want to buy more rentals?
Do we want to do more rehabs?
Should I expand my market? Change my market?
How often and what kind of marketing will I use in 2013?
What is my operating budget for the business?
Which money spent in 2012 was most useful (in generating money or saving me time)?
Which new tasks can I outsource this year?
Which tasks do I WANT to outsource this year?
What main things need to change in my business to get it to work for me?
What can I realistically do and still be happy?

I hope to walk away caffeinated, clear-headed, budget and goals in hand, ready to start the year with as much force as I did the last.  Happy 2013 friends!


Filed under Motivation, Planning

Picking a Database for Your Mac (Part 1)

How do you organize your leads and marketing campaigns, and keep track of response rates and other business stats?  I’m glad that I’m at least doing those things, but I have to admit that I’m doing them very poorly.

From the beginning this is how I’ve done it:

Every person who called or emailed me got a Property Information Sheet.  It’s actually a pretty great form.  I fill out all of their personal and contact info, along with information about the property, their motivation and mortgage.  I have a space to note all conversations with them.  I write down comps and calculate the ARV on the back.  My sheet is a tweaked hybrid of Vena Jones-Cox and Sharon Vornholt’s info sheet.  If you’d like a copy of mine, just email me.  I’d be happy to share!

Then I go enter their response on my Marketing Stats worksheet in Excel.  The first tab is my summary page, where I can see in one glance the total number of mailings I’ve done, total pieces mailed per campaign, number of responses, offers and deals and I have a formula that calculates the response rates.

I used to also keep close tabs on the cost for each campaign (broken down into category), along with time spent to prepare it (also broken down by category).  I haven’t done this in a while, though.

I have a tab for every single mailing I do.  I copy and paste my leads each time I mail them, and they get a new tab.  I delete the ones who have been removed.  When it’s time to do a mailing, I copy and paste the list onto a new excel sheet and manually remove the ones who need to remain on my list but who are follow-ups (and get a different letter or no letter from me).

It’s just not working for me.

You can see how quickly this can get complicated and waste time.  I have 20 tabs on my marketing worksheet (including my Summary tab), meaning that I have done 20 mailings this year.  It’s really hard to keep track of, and a near disaster each time I want to update my list, access information or do a mailing.

I’ve been looking for a change.  I mentioned in my interview with Sharon that I’ve been inspired lately by Tim Ferriss to set up my business and my life to reflect my values and goals: to make my life simpler in order to have more TIME for me and my family.

If I want to go to Starbucks or Barnes & Noble to get some work done in the evenings, when my husband is watching the kids (and this happens 2 nights a week, usually), here’s what I need with me:
-my Macbook laptop
-my Actives binder (with property info sheets)
-my Follow-Ups binder (property info sheets organized by which months I’m scheduled to follow up with them)

Seriously!  It’s so heavy.  It’s at least as heavy as when I was in high school toting around 5 textbooks!  It’s pretty ridiculous to be doing the same thing in 2012, especially considering that my little brother’s high school has phased out textbooks in favor of laptops. o_O

So, even though there might be tons of investors out there with a great paper or Excel system, mine just isn’t working.  And I want to get rid of paper anyway.  Just keeping my papers organized wastes a lot of time.  Add to that how often I’m hunting for papers and well, going digital will help me a lot.

Also, since I’m trying to simplify the workflow process, I’ve been hiring other people to help complete tasks, and I’d like to have a database that other VA’s (Virtual Assistants) can access as well, since that will hold basically all of my business info.

So not knowing anything about databases (what is a given, what is doable, etc.), this became my wishlist for a database:
-Can be in the cloud or have mobile access
-Multiple people can access it
-Leads are separate from their group, and can be in several groups at once
-I can attach files and documents to a lead
-It can sync with Mail Merge (or a similar program)
-It can sync with Gmail
-Works just as well on Macs & PCs
-It’s not expensive

In the next post, I’ll explain what my options are and the advantages/disadvantages of each.

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Filed under Marketing, Planning

Interview with Sharon Vornholt

Hi friends,

I wanted to post here the interview I did with Sharon Vornholt of Louisville Gal’s Real Estate Blog.  Sharon is a real estate investor who has a wholesaling business and I’ve learned so much from her blog and articles.

She asked me to spend some time talking with her about my REI story.  You can see her post here (which also has a link for the podcast), or you can watch the interview below.

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Filed under Education

Liquidated Damages: Know How to Use Them!

I’m working on a rehab right now for our second rental property.  It’s nothing too extensive – mostly just cosmetic.  I’m using a smaller contractor to do the repairs and painting.

And it’s just not working out.

Has that happened to you before?  I don’t have a lot of experience doing rehabs, but I do have a fair amount of experience with contractors.  Most of my family on both sides are small business owners, and my grandparents owned an interior design store.  My mom says that she always heard my grandpa say that “you can find a contractor who does good work, has reasonable prices, and shows up on time – but not one who does all three”.  It’s the running joke, isn’t it?

So this contractor was the first two.  He’s reasonably priced and has done great work so far, but has not done what he said he would do.  I’ve had to practically stalk him to get him to show up or answer my questions.  He and his guys have gone completely MIA several times.

I. Just. Don’t. Understand.

Last week I sat down to talk about when his work would be complete.  The contract stated it would be done the 18th and it was already the 20th – and he had at least 2/3 of the work to go!  He promised it would move faster than I thought, but then I heard they were letting a helper go and it would be ONE GUY working on the house.

Eventually we faced off and I canceled the contract based on his (several counts) of breaching the contract.  He wanted to be compensated for his work.  I said that considering that I’ve already paid him 40% of the contract price and that he’d done about 30% of the work, I thought we were square.

Obviously not.  He had his attorney call me, he was going to place a mechanic’s lien and sue me, etc. etc. I’m fighting the panicky feeling I fight when anyone male or in authority (or, Lord have mercy, both) is upset with me.  But I just couldn’t see how he wanted more.

After an afternoon of ill-will, angry words and non-sequitur lines of argument – I relented.  I just wanted a happy Thanksgiving, you know?  I ran over to the house and left a check for him for $400 more than I think I should have paid him.

The reason I’m forced to do what I don’t want to do is because of this little bitty clause I left out of our contract.  Liquidated Damages.  My lawyer says that if isn’t spelled out in the contract what happens when he misses a deadline or otherwise breaches the contract, it’s difficult for me to win in court (in Oklahoma at least).

So learn from me.  Whether you’re getting work done on your personal home, a rental property or doing a flip:

1) Have a contract.  Don’t go on a handshake.  Write down every single expectation you can think of. Exactly which materials will they use?  Exactly which work do you expect them to do (be as specific as replacing outlet covers)?

2) Spell Out Payments.  Will he get a deposit?  Progress payments?  Will you hold back 15% for touch ups after they finish painting?  Will labor be paid separately from materials?  Can you use a check?

3) Include Liquidated Damages.  Spell out exactly what will happen if he doesn’t do what he says he will do and vice versa.  Will he be fined a certain dollar amount every day he’s late?  Do you reserve the right to hire another contractor to finish the work after a certain period of delay?  Can you backcharge him for the difference?  Can you cancel the contract without recourse if he fails to meet any part of it?

These things will go a long way with a difficult contractor.  Remember that the law favors the “little guy”, which I assumed was me but, unfortunately, is him.  My attorney reminds me that the judge sees him as a struggling individual living day-to-day with mouths to feed, while I’m an LLC, sitting pretty with cash to burn on contractors.  That might be true in some cases, but not many that I’ve heard of and certainly not mine.

So go to the trouble to make a detailed contract, and be willing to deal with the awkwardness of discussing expectations at the beginning of the relationship.  In the middle of a disagreement, reminding him of what you both agreed to in writing is so much better than dealing with an angry contractor, his attorney and work left undone.

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Filed under Contractors, Contracts, Education, Ethics & Etiquette

Why I Stopped Using Yellow Letters

I know dozens of NR [New Rich] who don’t accept Western Union or checks as payment.  Some would respond to this with, ‘You’re giving up 10-15% of your sales!’ The NR, in turn, would say, ‘I am, but I’m also avoiding the 10-15% of the customers who create 40% of the expenses and eat 40% of my time.’ It’s classic 80/20.
– Tim Ferris, The Four Hour Workweek

When I started marketing in 2010, I heard a lot of buzz about the yellow letter.  You know – The Yellow Letter.  That keyword alone gets 4400 hits a month in the US on Google.  Lots of investors use them and have great success, and when I started marketing again at the beginning of this year, I started with yellow letters too.

The yellow letter is a great way to grab the attention of a homeowner.  You usually send it to owners of vacant properties, or at least absentee owners.  It’s got a vague, bare bones message with a bold call to action.

They tend to get great response rates.  With the one and only yellow letter campaign I’ve sent this year, I got 15.2% of homeowners to call me back.  That’s Uh-Mazing.  Typical response rates for direct mail are in the 1-3% range.

The Yellow Letter is short, mysterious and bold.

But guess what?  All were tire-kickers.  They just wanted to know what they could get for the house; they didn’t need to sell.  And that makes sense, doesn’t it?  They were calling to figure out who I was, what I do, and why I wanted to buy their house.  Because I didn’t tell them.  They were NOT calling because they necessarily wanted to sell their house.  They were calling because they were curious.

On the one hand, having a compelling call to action is great for marketing.  You want that clincher, right?  You want something that pushes them over the edge to give you that call or to go to your website.

But if they’re not calling because they want your product, then you’re wasting your time (at least, that’s been my experience).  And how can they want your product if they don’t KNOW what your product is?

After talking to hundreds of homeowners this year so far, I’ve decided that weeding out those who are not motivated and/or only want full market value is essential to me running a successful business that makes money and serves others.

Using a professional or white letter helps me do that.  I use the professional letter (or postcard) to explain exactly who I am (an investor), what I do (buy houses as-is), and why they should sell me their house (close quickly, no repairs to make, can offer cash).

With the professional letter, most people who call me know who they’re dealing with and are serious about their intention to sell.  My response rate is much lower (5-10%), but still very good.  Giving up a higher response rate is worth less time answering phone calls and filtering out bad leads.

For me, using professional letters/postcards is the equivalent to putting out a sign in front of your store front. It needs to be easy-to-read and clearly convey what kind of business you have.  You want to spend your time serving customers, not explaining your business to passers-by who are simply curious about your shop.

Right now I’m in the process of converting many of my letters to postcards, which seems like a GREAT idea since I can almost completely outsource the entire process.  (Tim Ferriss would be so proud!)  Down the road, I’ll get back to you on how the postcards compare with the professional letters.


Filed under Absentee Owners, Marketing, Planning

Rental Deja-Vu

Last September I mentioned that we bought our first rental, which ended being here in the Tulsa area, and not in OKC, where we consider home.  It was unique because, not only is it an amazing already-remodeled-with-long-term-tenants-and-property-manager-in-place-with-owner-financing turn-key rental, but also because I got that property with my OKC marketing.

Two weeks after closing on that house, I got a phone call from an elderly lady about a letter I sent her. She has a house in OKC  she wants to sell, but – and here’s the deja-vu! – she was more interested in selling a house she owned in Tulsa first and would sell it with owner financing.

We negotiated back and forth, and finally struck a deal.  It took two weeks for her to get the contract back to me, but we finally closed last Friday! WHOOP!

To add to the bizarre deja-vuness of this deal, we also plan to keep this property as a rental, since we acquired it with owner financing – too good to pass up.

Here are the details of the deal, for those who are interested in seeing  what kind of owner financed deals are possible right now:
A 2/1/1 with 1365 sqft, and huge extra den with fireplace.
-The ARV of the house is $100-110k.
-It was in rough but still decent shape (the disgusting, pet-stained carpet was the worst), but the kitchen has new cabinets and the bathroom was recently updated.
-Quick research told me I could rent it for anywhere from $775-925/month
-I made three different offers: all cash (very low), short-term owner finance (3 years), long-term owner finance (7 years)
-We finally settled on a purchase price of $70,000 with $2k down, principal-only payments of $350 for 3 years and I pay closing costs.
-Did you catch that I got this deal with an interest rate of ZERO PERCENT?  The monthly income was more important to her than interest, and when I explained that to maintain my minimum cashflow requirements, I could offer either lower payments and higher interest or higher payment and no interest, she went with the latter.
-That means in 3 years, when the full balance is due, I will only owe around $56,000 on a house worth $100,000.

The reason this deal was worth keeping (instead of wholesaling) is the terms.  Since we want rentals as part of our long-term plan, we couldn’t pass this up.  We don’t have $50-60k sitting around to invest, and didn’t want to have to qualify for a loan or put a huge down payment down.  This was a great way for me to acquire a property that could cashflow, without a lot of money up front, and with plenty of equity from the get go.

The cashflow won’t be amazing at first.  Here’s how it breaks down:
$850     Rent (confirmed by property manager as the conservative rental rate expected – possibly more)
-$350    Debt Service (to previous owner)
-$120    Property Taxes
-$90     Property Insurance
-$127    Maintenance/Vacancies (15%)
-$62     Private Investor (who is funding the rehab; 1 year note)
=$101 Profit

This isn’t smokin’ hot cashflow, but I know that I will not lose money in the next three years while I’m building that equity and payment history.

The payment history is important because in 3 years, I’ll refinance the loan balance.  This is fantastic for me, since I won’t need to get a new loan; I can refinance since I already have a loan on the property with the previous owner.  Since I’ll have already established payment history, have proof of consistent cashflow, and have 50% equity in the house, I won’t have to put down a large amount or jump through (as many) financial hoops,

Other people have pointed out that in 3 years this would also make a great flip, which we may do.

I’m quickly falling in love with owner financing.  It’s so much simpler and cheaper than getting a loan, and can be easily structured  to make both you and the seller happy. Give me a few more deals, and I’ll probably be able to tell you about any disadvantages of owner financing as well.  😉


Filed under Absentee Owners, Motivation, Planning