Our story continued...

Do you remember the house that we purchased in 2002, that we talked about in a previous post? Well, we ended up spending way too much on that house in repairs, and to cash out my partner, I ended up getting an LOC on that house for 80% LTV. Remember the terms that we talked about before? If you do not understand the last statement, then you need to study much more if you have your heart set on buying real estate. Anyway, to explain to those who do not understand, an LOC is an acronym standing for Line Of Credit, and LTV stands for Loan To Value. We then cashed out our partner in that deal, and rented the house out. Now, 6 years later, the house is worth about $55K, and we have a $35K LOC on it. So, if I wanted to sell, I would be able to sell it and make money on it. However, the rental amount is more than paying the payment, and we have $200.00 (after expenses) coming in besides. Now, with a LOC, or a HELOC, the credit reporting companies count those as revolving credit. If you have any revolving credit maxed out, that will be counted against you, and will affect your credit score. That has happened to us in the years since we purchased our first house. More later.

terms and info

Last time, we talked about repairs and knowledge of repairs, but this time, we will talk about knowledge only. If you are planning on making money in the real estate market, have you taken the time to learn as much as you possibly can about the industry? Whenever you start a new endeavour, you have to learn as much as you can about the subject(s) that you are interested in. Real estate is no exception! There is much to know! Let's talk about terminology. Look over the list below. How many of the terms do you actually understand? If you are unsure of 3 out of the 30, then do all that you can to learn more about those 3. If you have over 3 , then you need to learn more, so that you are not out-on-a-limb when you buy, or don't have the confidence to start the process at all! It is not necessary to buy an expensive course study to learn about this process! Just set your mind to learning more about this subject, and the knowledge will come. Knowledge builds confidence!

HUD1, 1031 Exchange, amortization schedule

seller's disclosure, agreement of sale, lease purchase

hard money, soft money, non-conforming

bank foreclosures, sheriff sale, mortgagee

seller-held second, short sale, title insurance

subordination, real property, prepayment penalty

acquisition costs, balloon, points

ARM, buydown, blanket

chain of title, lender, debt-to-income

HELOC, liens, truth-in-lending

This is just a partial list of terms that you should know about. Feel free to email me if you need more information. I will do my best to point you in the right direction.

You know, the "experts" tell you to hire someone knowledgeable to do the repairs quickly and efficiently, however, does that really make sense? If you do not know how to do the repairs yourself, and how to shop for materials, then how do you know if the contractor is not taking you for a financial ride? He (or she) might tell you that you need something to "bring it up to code", but do you really need the item(s) or service(s) that person is telling you? Do they even know? The code book is so large and cumbersome, that even the code officials have not read it in it's entirety! Wouldn't you like to be informed in the whole process of buying, renovating, flipping, renting, maintaining, and selling? Wouldn't it be a much better idea to actually "know" the terminology, and the technical know-how of installation? Why not go to one of the big box stores, and get the information on how to install floors, ceilings, finish drywall, lay tile, carpet, and laminate? They generally have flyers that you can pick up, that will give you some of the basics of installation, and also the tools that you will need. Then, go back and price the materials, even if you are not going to do the installation yourself, at least you will be a little bit more knowledgeable when a service provider comes to you and submits an estimate for the job.

On that first house we learned a lot of really good lessons, but it was time to go on to house number 2! In 2002, we purchased another house at a foreclosure real estate auction in a hotel room in a local city. We had been in the property before we purchased it, and actually submitted an agreement of sale to the listing agent for the purchase of that home. At the time, we offered $16K for the home, to the listing office, and were rejected, when the "owner", the bank, decided to sell the house at public foreclosure auction, using a licensed auctioneer. We registered before we went to the auction, and bought the house for $13K, instead of the $16K that we offered originally. Now, after settlement, we all were the owners of a small 2 bedroom semi-detached home that needed a new roof, the basement dug out (it was a dirt floor), new windows, and a lot of cosmetics. My family and some industrious teenagers went into the home to haul dirt by the bucket load up the steps and into the backyard. After we had removed over a foot of dirt, we hauled down the steps bucket after bucket of sand so that we could lay brick on the floor. The brick, we hauled over from a barn about seven miles away that someone wanted out of their yard. Of course, that was all taken down the steps as well. Luckily, the basement was not a very large area, so that it only took 4 of us about 15 hours to complete. However, we certainly were exercising forgotten muscles hauling dirt, sand, and brick up and down numerous steps for a couple of hours at a time!
After we were finished with the basement, one of the investors in the club was going to repair the house for us. We have since learned, that for us to hire someone is a good idea, but usually not to pay someone by the hour! This investor was not making income from any other source except the small amount of work that he could get from the investors' club. Being a little bit green at that point, we did not analyze our costs as we should have, and ended up paying this man for numerous shopping trips to get supplies and materials, numerous smoke breaks, and lots of "I feel like talking to people" breaks as well. At that time, I learned more of the "language",(meaning my scraper was not a spatula, and the philip screwdriver was not a starpoint) and was in the process of learning how to do some of the repairs myself. I watched, listened, and learned a lot between then and now. I now can install any kind of floor myself, paint, install ceilings, doors, windows, cabinets, and much more! I know what people are looking for in the houses that they purchase from us. I now can shop at building materials auctions knowledgeably and with confidence, knowing what the prices of individual materials are.

On this house, we spent money to have someone remodel the house for us. At the time, in our investors' group, we had quite a few individuals that bought houses and completely remodeled them without the help of a contractor. They operated completely hands-on. Is this better or worse to put all of the time into the building yourself? Is it better to save the labor costs, and spend huge amounts of time on the building? You be the judge! If you are buying houses in your area, and have experience fixing these houses up yourself, let me know what your thoughts are. We have other investors that are buying houses that are not in need of repair, and buying them directly from investors at a higher market value, and keeping these properties for rentals. For us, this is not our strategy, as we make more money from the repair of these properties. There are many ways to invest in real estate. You need to find the method that is right for you personally. I will tell you, we all learned a lot from each other, and from trial and error. Over the last 10 years, we have found what works, and what does not , and what is right for us, might not be right for another investor's personal financial situation or goal requirement. Let me tell you, there is no teacher like experience, and no friend like wisdom. If your desire is to invest in real estate, start reading, learning, and meditating on real estate. Don't start by looking at 100 houses like famous authors tell you to do. Don't knock on doors and ask people to sell their houses, until you have enough confidence in your ability to close that deal. Yeah, it's exciting when some seller tells you that they will sell you the house based on whatever "deal" that you and they have agreed upon, but, how do you know that it is a "good" deal for you, until you have researched the market, potential financing, current or eventual costs of acquisition, potential legal ramifications, and a host of other issues?

While we were in the process of fixing up our house and that of our tenant, we decided to buy another house to flip. In 2001, we went halves with another investor, and bought a townhome (which was a HUD foreclosure). It needed a lot of work! It was so bad, that my husband looked at the home, and asked me point blank what in the world I was thinking! Now, at that time, we only purchased the home for $15K, and then had another almost $20K to put into it! We had a contractor at the time that owed us money, and he was doing the work for less than $7.00 per hour, and the balance of the hourly wage that we were to pay him, was to repay his debt. We had to add all new windows, new roof, paint, flooring, kitchen, and enlarge the almost non-existent closet size bathroom. Now, if you do the math, you will find that we personally spent only @ $17,500 on the total project. We then sold the home for $60,000 @ 6 months later, and made our $17,500 back, and also $10K besides! Now, my husband was excited!

For all of you real estate investors out there, we might as well start at the beginning.
We bought our first investment in 1998, when we bought an almost 3000 sq. ft. 2-unit house to live in. It had a total of 8 bedrooms, 3-1/2 baths, and the rental unit was on 1/2 of the first floor only. Our total PITI payment was $1064 at that time, and the income from the rental apartment was $495 for a 2 bedroom 1st floor apartment. In all of the almost 10 years that we owned that house, we never had a vacancy. So, hence, our payments were less than $600.00 to live in a 6 bedroom house with 2-1/2 baths and a 2 car detached garage! I would seriously suggest to anyone wanting to get started in real estate investing, that you seriously look at purchasing a multi-unit. Do not even look at multi-units over 4 units, as they are considered commercial units and would require different financing. Now, living in the same building, or even on the same property with their tenants might not be for everyone, but for some people who would like inexpensive housing payments, so that they can invest in other areas, this would be a good way to start.
To go on, this house needed a little bit of work to make it beautiful cosmetically, so, we spent the next almost 10 years removing wallpaper, spackling (lots of horse-hair plaster walls), sanding, painting, installing cabinets, flooring, lighting, landscaping, etc. Always, the first priority was the rental unit, so that we would have no vacancy, and a happy tenant. You know, with less than $600 payments per month, you could afford to buy building materials.

Loans,Credit, and Real Estate

Is this the kind of frustration that real estate investing is all about? No, not usually. Once in a while you find a really good deal that you can not turn down. You acquire it, make the repairs (if needed) , and then rent it. Most of the time, you do not buy 2-3 units at the same time unless you have a large crew to work with, or synchronize your settlements to coincide with the end of the first project. Let me tell you, good deals are out there all of the time in many, many areas of the world. They really do happen every day!

Loans, Credit, and Real Estate

Hi! My name is Cyndi. I have been in real estate for well over 20 years. When I started, real estate was not as regulated as it is now, and a handshake meant something. The real estate market has evolved over the years. Some changes for the better, and some changes are not as positive as lawmakers would have us to believe. Just to give you an example, when I started in real estate, we had 2 pages of sales agreements. Now, often we have over 22! Of course we need lead-based paint addendums, radon disclosures, mold disclosures, and numerous other information pages that are attached to the agreement to keep us all safe. Scary? not at all! Information frees you to make logical, wise decisions. Again, when I first was a licensed realtor, there were not the gamut of mortgage loans, consumer loans, and credit cards that there is today! Nowadays, people can get a loan for 100% of the appraised value of the house, have the seller pay their closing costs, and they will be in the house in 45 days with $500 or less out of pocket! I have helped numerous people achieve home-ownership in this fashion.

When I was growing up, my father was a well-respected bank president. I still hear many stories of how he had given people loans on a hand-shake. These loans were not based on credit reports, credit scores, and how many hoops the applicant can jump through. Today we are in the computer era. Everything that we do is linked to our social security number! It is so important to protect our social security number, that lawmakers have initiated privacy laws that protect us from identity theft.

Have you ever applied for a credit card, car loan, or mortgage, just to find out that you don't have the necessary credit score or credit according to the criteria of that specific lender? Doesn't it feel like you have just been rejected by another person that you have been diligently trying to build a relationship with? Worst of all, in most cases, there is a third party involved (ie: lender, bank, salesperson) who is depending on the (positive) answer from the originator of the loan to make a sale happen. (Imagine being turned down after a proposal of marriage with your (hopefully) future mother-in-law sitting somewhere in the same room!) How embarrassing! This is exactly how it feels to be rejected for credit! Financing is the key to many of the projects and goals that we are looking to achieve. Other People's Money or OPM for short, is the key to buying real estate investments.

Have you ever, or do you know of anyone who has stellar credit, and cannot get a loan because of low credit scores? That is the situation that we have faced in our real estate investing. We have never been late in any payment for any creditor for over 10 years. However, because of the fact that we had numerous loans outstanding, (and many of them maxed), we had to settle for a higher interest rate loan, shorter term, prepayment penalties, and additional expenses. Just because of our "low" credit score. In other words, we had to pay a high price to achieve our financial goals. Now, we are a little wiser, and a lot more knowledgable when we buy a house or investment. We have structured our financial life in such a fashion that we are using OPM to achieve our goals and ambitions. Anybody can do this. Below, is an itemized list of things that you will have to do to achieve your investing or real estate goals.

1. The very first thing on your list is to write down your goals. Many people do not have goals to be able to achieve! They go through life living from paycheck to paycheck waiting for that bonus, overtime pay, or tax refund to spend for extras and\or goodies. With a financial goal, you will have a reason to save, a thrill when you achieve your goal, and the desire to continue setting goals. And always if you are a couple, make those goals joint goals. Make perfectly certain that both of you agree on the goals and the time frame specified for achieving these goals. The other very important issue that you need to know is writing the goal(s) down. There is something very powerful about having these goals mutually agreed upon, written down, and posted in a place that you see it consistently.
2. Get your cashflow position in order. What that means, is get your monthly expenses in line with your monthly income. If you make $2500 per month and you are spending $2700 in expenses, it will not take long before you are head over heels in debt. You might have to make some hard decisions on decreasing monthly debt. This might include reducing the size of your housing payment, consumer loans (ie: car loans, personal loans) , or revolving debt (ie: credit cards, lines of credit).
3. Build "steps" to achieve your goals. A baby does not take steps the minute that it is born, and neither will any of us be able to achieve our goals without taking small steps one at a time. Examples of some steps might be: develop a monthly budget, develop a savings plan, pull your credit so that you know what is there. There are many reputable on-line links to be able to pull credit, and you will know what is on there to be able to take care of. Make an appointment with a bank or lending establishment so that you may develop a relationship with them. Believe it or not, bankers are people too! They want to see the people that they are dealing with. They also want to learn to know you. Make sure that you find a lending establishment with good mortgage, consumer, and revolving loans. Study their loan programs. If the lending has multiple programs that you could be looking for, then build a relationship with the loan officer. That does not mean going in every day, and hanging out in his/her office. Building a relationship means to make an appointment, get brochures of the banks programs, ask questions, and build a written plan to take into the lender to be able to see what you are planning.

The important part of achieving any goal is perseverence! If you feel that these goals are not attainable, too long of a time frame, or too difficult, you will not even start! Take baby steps. One small goal that you have achieved, is worth more for your self-image than trying too hard and pushing yourself beyond your ability. This not only is discouraging, but affects your health as well. I will give you an example of goal setting that happened to my family. A little over 3 years ago, we purchased a wonderful 200+ year old stone commercial property. It had over 20,000 sq. ft. with a house and a barn in a great area. It was a fire-damaged property, and needed gutted, and we rented lots and lots of dumpsters. Not even 6 months after we settled on this property, we put an agreement on a large fixer-upper house for our family to move into. We had been looking for over 6 years for a property like this, and we finally found it. It also needed a good bit of work, much of it being cosmetic, however, it all needed done before we could move into it. Now, we had 2 fixer-upper properties to fix up at the same time with only one crew. On this property was another house which also needed work, and it was to be rented out within a month of settlement. So, now we had 3 buildings that all need varying degrees of work to be done, and only a limited amount of manpower and funds. Add this to the old house that we moved out of, which needed updating to get it ready to sell! To say that we were over our heads at this point was not quite true to say, but with monthly payments on all properties, with only enough manpower to do one building at a time, would quickly deplete all of our funds. We will talk more in detail about this later, but the point is that now, we were working towards all of our goals too quickly, taking step after step immediately, and it put us in a very stressful, unhealthy position. My family started working around the clock, recruiting as many people as we could to help us fix up these houses as quickly as we could. As anyone knows, with 4 complete houses that needed beautified, limited manpower, peoples' schedules, and quickly diminishing funds, you just cannot complete that many within 2-3 months! Hindsight is always 20/20, but I wonder what we could have done differently. I do know though, that we were always exhausted, never on-schedule, constantly frustrated, and our health was failing as well due to stress, exhaustion, and unusual schedules.