Archive | April, 2012

Recent activity and considering investors

22 Apr

Hey guys.  Life is pretty hectic these days.  I’m a new dad, with a 6 month old son

(gratuitous picture, can’t help myself)

Between the little guy, real estate,  and other hobbies, I’ve been slacking a little on this blog.  I do plan to blog more regularly, so don’t give up on me.

Last week, I officially closed on 22624 Mylls.    The final purchase price was $61,000 and some change, and it will be rented for $1000/month on May 1st to a friend of mine.  That’s not quite within my 2% guideline (purchase price /monthly rent), but I really liked this house and didn’t sweat the difference too much.

The house on Greater Mack is also being rented for $1000/mo.  For both, I took less than what I could probably get per month in order to get it rented immediately.  Locking up the extra month’s rent seems better than gambling on higher rent especially if you like the tenants you are putting in there.

I have also committed to a government contract type investment.  I have two friends, Will and Jamison, who were roommates from college that I do a lot of business through.  Both are my age and like-minded, motivated entrepeneurs.  Jamison made a lot of money running gold parties, long before they were cool.  Now, he runs his owns small investment/VC company.  Jamison approaches me with all kinds of different inventions and ideas.  For some reason, he thinks I have a lot more money than I do, no matter how many times I tell him otherwise.  He still ends every pitch with, “So can I mark you down for $500,000?” Anyway, he came to me a couple weeks ago with a new business plan.

He is raising 1.1 million for a company that will bid on a specific government contract to build a medical device that moves handicapped people from their hospital bed to their wheelchair and vice-versa.  The U.S. government is requiring that contracts only be given to disabled veterans .  So Jamison, has linked up with a disabled vet that has all the proper paperwork and strong business background.  The vet will run the show and bid for the contract. I am essentially an angel investors.  I have a lot of details, which I will spare you guys, but the gist is that the government is guaranteeing like 18 million dollars worth orders, and our bid would net us a 400 – 500% profit over 5 years if all goes well.  Since the company must be headed by a disabled veteran to bid, we only have one adversary bidding against us.

Overall the way I feel about this deal is that  its probably great, but its still is a lot riskier than anything I’ve done before.  Not only are there a lot of logistics, there is a small risk of getting Madoff’d.  I’ve never met with the guys that’s gonna be in charge and have only known my investment buddy for around one year.  Obviously, I’m very confident it’s legit, but nothing if for certain.

I am often in these type of situations where an outsider might call me crazy for my trust of people and my lack of due diligence.  But I tend to look at things differently. For example, I often size up potential renters over the phone, and if they seem honest, I’ll let them go check out my houses without me there.  Saves me time, at the risk is they steal my appliances.  It’s a weighed risk/return.  Granted it would be embarrassing if a guy stole all my stuff, or in this case my $100,000 got absconded; but its not without upside.  I just weigh the value of my time, with the chance someone steals my crappy appliances, and I have a no-brainer decision to let them in there. With this deal, I admittedly don’t know that much about it, but I think it’s worth the risk.  Also, I’ve had some luck with trusting people in the past….

Back in 2003-04, I lent some guy name “Fossilman” some money over the internet to go play the World Series of Poker Main Event without ever meeting him. That worked out pretty well.

One another thing is that I do think I have some  backup when I take some of these “blind” risks – I use other smart people as my guide.  For example, if Mark Cuban is investing in the same company as I am (he’s not), it’s probably safe to say that its +EV.   My buddy is no dummy and neither are the other people that are putting up $100,000 to get to the the 1.1 million – so I’m using them as my barometer.  If its good enough for them, its good enough for me.  Now Bernie Madoff conned hundreds of smart people so it doesn’t always work, but hey, you can’t be scared of every shadow in life.  Its important to understand the worst case scenario, but not be paralyzed by it either.  So here’s to hoping it works out.

I am closing on another house 30206 Champine this coming Tuesday.  I originally reported that the deal was for $60,000 but I was mistaken it was for $70,000.  This was a major gaff on my part.  At $70,000, I can’t get enough from rent.  So that means I need to flip it.  I think it will sell between 80-95k – but it has a major foundation problem,  that I don’t have time to get inspected.  Not exactly Real Estate Execution 101. Anyway, it was my broker’s old house and him and my other agent buddy say its still a good deal, so I’m going to give it a go (they know the area inside and out).  I will be flipping it as soon as possible.  I will let you know how this turns out, it really could go either way.  It will be a good learning experience either way.


One thing I am considering is setting up an email group for potential investors. I am getting near the bottom of my liquid money for real estate, and I no longer have the cash to buy whatever potential deal may arise.  I think I could raise money for most of the deals, but I’m not 100% certain – outside of poker players, its hard to get anyone to commit to anything quickly.  You know, regular people.

The deals that I would ask for money on would be so good, that it would bring me physical pain to pass them up.  They would all be very short-term – either short/sale purchase or redemption purchases, all with the intentions of immediately selling.  The short/sale purchases are relatively self-explanatory.  The redemption deals work like this.  When a homeowner goes into foreclosure, the  home is auctioned off at a sheriff sale.  It is an open auction.  The bank typically bids exactly what they are owed.  Usually that is more than the home is worth, but sometimes it is not.   The homeowner then has 6 months to “redeem” the property – or buy it back at the auction price.  This right is transferable.   So when a house is bought for less than it is worth, a smart owner will put it on the market and try and sell it.  However, you have exactly 6 months and very often something goes wrong and homeowners find themselves with a few days left and they either lose the house and take a huge credit hit, or they have to figure out a way to panic sell it and at least save their credit.  That’s where we come in.  Recently, I almost bought a house for $135,000 worth about $185,000.  In the end, the investor seemed very interested but stopped returning my calls and it fell through.  Another example is a house in my subdivision that just went up on the MLS but has only 5 days left to close.  Obviously, it’s a perfect spot to come in with all cash, lowball it, and flip it.

A recent short sale deal came up 62031 Romeo Plank –

I wrote a lowball offer for $225,000 maybe 8-9 month ago.  I didn’t hear anything for until about one month ago and a bank representative emailed and said the deal was close to getting done.  Well, my money for that house is long gone.  They say nothing is a guarantee in life, but this house at 225k is as close as you can get.  I think I could sell it for 300-350k.  I would never bring in outside money unless I thought the deal was a straight killer – its not worth the stress for me.  So what would happen is I would send out an email asking for money.  Once we raised it, we would buy it, sell it, and then disperse the percentage made on the deal (might have to withhold taxes or something not sure).  I would make the real estate commission for selling (only if there was profit, otherwise I don’t get any) and if I put up money, I would get the same % everyone else.  I would be looking to make returns from 30%+ in a couple of months.  Any less, I wouldn’t bother with.  This particular deal might actually still come to fruition.

If I do ask for money at some point, it would have to be based solely on trust.  I’m not drawing out individual contracts for these deals, we wouldn’t have time anyway.  I think a lot of these readers don’t know me on a personal level, but I post as J_V on 2+2 and I think I’ve built up some credibility there.  If you want references, please let me know and if you play poker, I can provide them.  I can’t really prove my credibility to non-poker players (nor do I care to)  but using my trick to evaluate deals, you can see who else invests, and make your decision accordingly.  There are other details I wanna work out, but if you might be interested feel free to email me with your email address.  I won’t do anything with it right away but if a deal does come up, you will be included.  Thanks for reading guys.

Real Estate Happenings

3 Apr

Last week, I closed on 29810 Greater Mack.

The total price was a little over $61,000.  I need to re-glaze the bathroom, paint and then I will rent it out.  I am planning on listing it for $1150/mo, but I’d be happy with $1100.  We will see what happens.  I will post the pictures before I put it up for rent.

I am still waiting on closing the 23802 Elmira deal on land contract.  This is a really good deal, but apparently there are some complications, because he is getting divorced and his wife filed for bankruptcy so we need to get clear title before we can move forward.  The good news is that he is working 16 hour days to save up money for the payments and down payment.

Some guy on 2+2 calculated the present value rate of return of the Elmira deal at 49.5% annually on a financial calculator.  If someone could tell me how he got that number (or if its right?) I would greatly appreciate it.  Sad (and lazy) request for a finance major, I know.  The terms are  – buying for 30k, selling it back to him at 60k in 5 years at 10% ammortized over the 5 years.  He has to pay his own insurance and taxes – so that’s a non-issue.

I wanna talk a little bit about the banks, since they are involved in almost all my deals.  The banks are like that super grumpy old man at the poker table who is just terrible at poker.  He is rude to everyone, asks for setups, blames the dealers, and is generally miserable to be around.  But because he is so bad, everyone lets his bad behavior slide.  The banks are the same way.  The banks make their own rules – have no code of ethics or anyone one to oversee them.  You don’t hear from them for months about a deal and when they say it’s time to go, you have exactly 48 hours to get your stuff together or the deal dies.  But, they are BAD at business.  I still don’t really know what makes banks make the decisions they do, but they clearly are motivated by reasons other than getting fair market value.  They will list a house for three times more than its worth.  They will not budge on certain houses, and then give away others.  On the Greater Mack deal, they wouldn’t pay me my real estate commission of $1200 bucks.  So I said fine, the offer just went down $2000.  They accepted the next day.  I didn’t even ask the reason, I’m sure some red tape or pure idiocy.  The way I get my good deals is I have a guy that lets me write the first offer on all of his short sales.  It gets the process started for him and I get to pepper tons of low ball offers at the banks.  Most of them get lost in the shuffle but once in a while, they accept or make a bad counter.

2 deals that are close to getting done were done via that method.

20901 Hawthorne.  Bid $20,000 originally.  Bank countered to $30,000.   I think I can rent it $800-$1000.  Its on a weird border between super old entrenched rich and a not-so-rich area, but the school district zones put it in the rich area – Making the rental demand high.

30206 Champine.   Bank is considering taking $60,000.  I think its worth $85,000 – 100,000.

Another deal that is still waiting to close is 28624 Mylls.  Shouldn’t have any issues here, not a great deal, not a terrible one.  Bought for 62,000.
Rent = $1000/mo

Also, I just saw that for the first time in forever, homes prices and rent prices are on the rise at the same time.  Traditionally demand for rent and house price move in opposite direction, aka inversely proportional, so if both are increasing in price, its a good sign for the market. Cash is king though because the banks still won’t lend.  Like I said, they don’t do anything right.   Just wanted to give everyone a quick update and I hope to be blogging more often.