The tenants in my Tulsa rental property moved out on November 1. While I was glad to see them go, I was not particularly thrilled about the timing of their notice. I didn't really expect to get new tenants around the holidays and, sure enough, I didn't. The good news is that now when new tenants finally do move in, their lease will not expire during the holidays.
Back when the tenants moved out, I opted to raise the rent from $750 a month to $775 a month. I've been monitoring my property manager's website to see if the property has been rented yet and also to verify they listed it at the correct rent. I was surprised yesterday when I checked their site and saw, after being listed for two months at $775, the rent was now listed at $800!
Now I'm no property manager, but it seems to me that if a house wasn't renting at $775, it's not going to rent at $800. But, to be fair, it was the holiday season and even I didn't really expect to fill the property then. Anyway, I called the management company because I was curious as to the reason behind their change. (And why didn't they tell me they thought it could rent for more when I suggested the $775 rent two months ago?) It turns out the person I need to talk to was out of the office and might be out the rest of the week due to some medical emergencies in her family. But I did speak to the bookkeeper and he said he would investigate for me and send me an email when he discovers something. I won't turn down the higher rent, but I also would rather have the property rented at $775 than have it sit empty another couple of months waiting for $800. I was also told that rental activity should be picking up a bit now that some storms have passed, so hopefully it will be rented soon.
On a related note, I finally got a bill for the repairs after the last tenants moved out. I had a $85 bill for a leak under a vanity, a $165 bill for carpet cleaning, and a $180 bill for cleaning and trash removal inside and outside the house. The tenant had a $200 security deposit, which was not returned to them, so I have to pay the additional $230.
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Tuesday, January 8, 2008
Wednesday, January 2, 2008
My 2007 REI Year In Review
Now that the holiday madness is dying down, I've got some time to look back over what I did in real estate last year and see if I achieved the goals I set out last year.
Goal 1: Rehab two properties. I did not achieve this goal, although I can't really say it was through any fault of my own. The investors I was working on behalf of got scared with the current real estate downturn and decided they no longer wanted to flip properties. Even though I never lost them any money, I can understand their feelings on this, especially given all the media attention the real estate market has received.
Goal 2: Buy another rental property or invest in more real estate-backed paper investments like the Louisiana deal. I achieved this goal when I bought a rental property in Oklahoma (Rental #1).
It feels like those goals weren't all that difficult, but that is only because Goal #1 didn't get done. If I was rehabbing properties, my year would have been much busier.
For 2008, I think my goals will be:
Goal #1: Invest in a multi-unit property. I may already be close to achieving this goal. Ideally, I'd like to own a multi-unit property all on my own, but right now, while I'm still in the learning stage, I'll be happy to go in with some other investors and learn the ropes by being a passive investor and watching how things work.
Goal #2: Invest in more real estate-backed paper assets. This should be fairly easy, now that I have some contacts. Unlike my Louisiana deal though, I plan on splitting up my funds into at least two different investments so that if one stops paying, I should still get some income from the other. Different partners and different geographic areas would maximize my diversification.
Goal #3: Buy another rental property. If the first two goals work out, I should have enough cashflow to make obtaining this goal fairly easy. If they don't, well, it could be tough...
Goal 1: Rehab two properties. I did not achieve this goal, although I can't really say it was through any fault of my own. The investors I was working on behalf of got scared with the current real estate downturn and decided they no longer wanted to flip properties. Even though I never lost them any money, I can understand their feelings on this, especially given all the media attention the real estate market has received.
Goal 2: Buy another rental property or invest in more real estate-backed paper investments like the Louisiana deal. I achieved this goal when I bought a rental property in Oklahoma (Rental #1).
It feels like those goals weren't all that difficult, but that is only because Goal #1 didn't get done. If I was rehabbing properties, my year would have been much busier.
For 2008, I think my goals will be:
Goal #1: Invest in a multi-unit property. I may already be close to achieving this goal. Ideally, I'd like to own a multi-unit property all on my own, but right now, while I'm still in the learning stage, I'll be happy to go in with some other investors and learn the ropes by being a passive investor and watching how things work.
Goal #2: Invest in more real estate-backed paper assets. This should be fairly easy, now that I have some contacts. Unlike my Louisiana deal though, I plan on splitting up my funds into at least two different investments so that if one stops paying, I should still get some income from the other. Different partners and different geographic areas would maximize my diversification.
Goal #3: Buy another rental property. If the first two goals work out, I should have enough cashflow to make obtaining this goal fairly easy. If they don't, well, it could be tough...
Wednesday, December 19, 2007
Louisiana Deal Is Over!
Well, not 100% yet, but it is close enough now that I feel comfortable writing about it.
The last time I wrote about this, the mortgage holders had a conference call to determine how we should proceed at the foreclosure auction and what would happen if no one bought the properties and we ended up with control of the buildings. The auction was supposed to happen on December 5, however I fully expected "Joe" to file for bankruptcy and thus delay the auction.
It turns out, he did not do that (at least, not to my knowledge). Instead, we postponed the auction. Why? We found a buyer for the mortgage! Now, normally, when a defaulted mortgage is sold, it is sold at a deep discount. However, we were able to sell the mortgage for 100% of our cost. This was mainly because the properties secured by the note are worth much more than what we were owed. Some other factors specific to the note buyer came into play as well. Namely, the note buyers had a legal judgment against Joe in another matter, so this helps satisfy that judgment somehow (I'm not entirely clear on this though), the purchase was part of a 1031 exchange the buyer was performing, and, to put it bluntly, the buyer has a little bit of a personal grudge against Joe and enjoys taking property away from him.
So, when you combine the fact that this was part of not only a judgment settlement, but also a 1031 exchange, you can imagine the paperwork involved, which was the cause for most of the delays. (Some were due to the 1031 exchange agent not being able to follow directions.) And since we are talking about a total just north of $1.7 million, you can imagine everyone wanted to be sure all the i's were dotted and the t's were crossed.
We will get back all of our original investment, plus interest due and late fees. The only hold-up now is that the amount that the buyer wired to us was based on a December 3 close date, not December 18. With the amount of money involved, the additional 15 days interest is not insignificant. The new owners also want a new assignment of interest form from us, so we are getting that to them. Right now, with the exception of the additional interest, the buyer's funds are in our attorney's bank account, waiting to be distributed to us.
This was a great learning experience for me. It was the fist time I have ever invested in any sort of commercial project. Although I wasn't involved in the day-to-day dealings, I did get to listen in on conference calls and see how more experienced players deal with problems. We went through several possible outcomes, including one where we thought we might buy a bunch more property and end up doubling our money. At times, it was a roller coaster ride and the end game changed fairly frequently. I felt lucky to see some serious deal-making at work and also to see how different deals failed and the reasons for their failure.
The ROI I was getting paid on this was 12%. With the late fees, I probably did a little better than that. But the money I invested came from a HELOC, which was charging me about 7%, meaning my net gain was 5%. (Although during the 1.5+ years I was invested, my HELOC rate fluctuated, so my net gain varied a bit as well.) In fact though, my net ROI is infinite. Because the money I invested was not mine, any return I got from it represents an infinite return - money from nothing. Note that I would not recommend this method for just anyone! Before I made the decision to invest this way, I needed be sure that if the investment went south, I could still make my monthly HELOC payments. It turned out to be a good thought exercise, as that is exactly what happened. I think, all told, I had about 8 months of no payments. I got all the unpaid interest back eventually, but until then, I had to make the HELOC payments myself. All in all though, an infinite ROI is pretty hard to beat!
At this point, I need to thank Les. He was the one who brought this investment to my attention. In fact, I actually bought out part of his investment in the buildings over a year ago. He eventually sold all of his interest to other investors (although he still kept a small percentage of each monthly payment as a servicing fee, so he was still making some money on it). However, even though he no longer had any of his own money invested in the deal, he spent countless hours working first with Joe and then with the note buyers to make sure his investors got all of their money back. I never once felt like he was not fighting for my best interests or didn't care about helping us. I cannot even begin to image the countless hours he spent dealing first with Joe (and from what I have heard, that was a nightmare), and then with the new note buyers. He will still get some money out of this deal, but compared to the amount of work he put in, I think it won't be much. If anyone has a chance to work with him, he's got my highest recommendation. He's honest, honorable, and a good communicator (although not so good of a typist). Personally, I plan to invest with him again.
The last time I wrote about this, the mortgage holders had a conference call to determine how we should proceed at the foreclosure auction and what would happen if no one bought the properties and we ended up with control of the buildings. The auction was supposed to happen on December 5, however I fully expected "Joe" to file for bankruptcy and thus delay the auction.
It turns out, he did not do that (at least, not to my knowledge). Instead, we postponed the auction. Why? We found a buyer for the mortgage! Now, normally, when a defaulted mortgage is sold, it is sold at a deep discount. However, we were able to sell the mortgage for 100% of our cost. This was mainly because the properties secured by the note are worth much more than what we were owed. Some other factors specific to the note buyer came into play as well. Namely, the note buyers had a legal judgment against Joe in another matter, so this helps satisfy that judgment somehow (I'm not entirely clear on this though), the purchase was part of a 1031 exchange the buyer was performing, and, to put it bluntly, the buyer has a little bit of a personal grudge against Joe and enjoys taking property away from him.
So, when you combine the fact that this was part of not only a judgment settlement, but also a 1031 exchange, you can imagine the paperwork involved, which was the cause for most of the delays. (Some were due to the 1031 exchange agent not being able to follow directions.) And since we are talking about a total just north of $1.7 million, you can imagine everyone wanted to be sure all the i's were dotted and the t's were crossed.
We will get back all of our original investment, plus interest due and late fees. The only hold-up now is that the amount that the buyer wired to us was based on a December 3 close date, not December 18. With the amount of money involved, the additional 15 days interest is not insignificant. The new owners also want a new assignment of interest form from us, so we are getting that to them. Right now, with the exception of the additional interest, the buyer's funds are in our attorney's bank account, waiting to be distributed to us.
This was a great learning experience for me. It was the fist time I have ever invested in any sort of commercial project. Although I wasn't involved in the day-to-day dealings, I did get to listen in on conference calls and see how more experienced players deal with problems. We went through several possible outcomes, including one where we thought we might buy a bunch more property and end up doubling our money. At times, it was a roller coaster ride and the end game changed fairly frequently. I felt lucky to see some serious deal-making at work and also to see how different deals failed and the reasons for their failure.
The ROI I was getting paid on this was 12%. With the late fees, I probably did a little better than that. But the money I invested came from a HELOC, which was charging me about 7%, meaning my net gain was 5%. (Although during the 1.5+ years I was invested, my HELOC rate fluctuated, so my net gain varied a bit as well.) In fact though, my net ROI is infinite. Because the money I invested was not mine, any return I got from it represents an infinite return - money from nothing. Note that I would not recommend this method for just anyone! Before I made the decision to invest this way, I needed be sure that if the investment went south, I could still make my monthly HELOC payments. It turned out to be a good thought exercise, as that is exactly what happened. I think, all told, I had about 8 months of no payments. I got all the unpaid interest back eventually, but until then, I had to make the HELOC payments myself. All in all though, an infinite ROI is pretty hard to beat!
At this point, I need to thank Les. He was the one who brought this investment to my attention. In fact, I actually bought out part of his investment in the buildings over a year ago. He eventually sold all of his interest to other investors (although he still kept a small percentage of each monthly payment as a servicing fee, so he was still making some money on it). However, even though he no longer had any of his own money invested in the deal, he spent countless hours working first with Joe and then with the note buyers to make sure his investors got all of their money back. I never once felt like he was not fighting for my best interests or didn't care about helping us. I cannot even begin to image the countless hours he spent dealing first with Joe (and from what I have heard, that was a nightmare), and then with the new note buyers. He will still get some money out of this deal, but compared to the amount of work he put in, I think it won't be much. If anyone has a chance to work with him, he's got my highest recommendation. He's honest, honorable, and a good communicator (although not so good of a typist). Personally, I plan to invest with him again.
Lucy Van Pelt Has The Right Idea
I was watching A Charlie Brown Christmas the other night with my wife and daughter and was surprised by the shrewd financial savvy of Lucy. This is an exchange she has with Charlie Brown:
You can see it for yourself in this YouTube clip at around the 6:50 mark.
Lucy: I never get what I really want. I always get a lot of stupid toys or a bicycle or clothes or something like that.
Charlie Brown: What is it you want?
Lucy: Real estate!
You can see it for yourself in this YouTube clip at around the 6:50 mark.
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