Today Brent and I looked at a house and told the realtor to write an offer. We’ve decided to do a ‘rehab and sell’ project first so we can get our feet wet and hopefully make a little money so we’ll have more for the next one.

We should be signing the contract today and since it’s a bank-owned property it may take a little time before we hear back as to whether or not we got it. I’ll keep you updated. And if we get it, I’ll post pics and prices for all the rehab projects that are involved in getting this property back on the market. Until then, I’m keeping my mouth shut about where the property is and how much we offered, I don’t want anyone to take it from us.

Wish us luck!

Reba

It’s been a while since I posted anything and apologize for that. I started this blog to chronicle our real estate investing progression and recently I’ve written nothing. But really, you haven’t missed anything. Let me explain.

Our daughter is a collegiate athlete, she plays volleyball at Texas State University in San Marcos, TX. Up to the time when her ’season’ started we were very actively looking for an investment property to purchase. We had put in two offers that we didn’t get and were totally ready to find a house. And then, reality set in.

You see, this is Brittany’s senior year and the last year she will play college volleyball. Every year she’s been in college we have traveled to almost every game to watch her play. Last year, Texas State even won their conference title, it’s been a fun and exciting road. Now that this is her senior year, we are doing the same, traveling to as many games as we can possibly make. This entails driving to and from Houston to San Marcos (2-3/4 hours ONE-way) or wherever during the week. That means getting home late at night and getting up to go to work the next day. It also involves going somewhere EVERY weekend.

We have hesitated to make any offers because we are afraid we won’t be available to meet inspectors and contractors during the option period. We save all our vacation for this time of year, but it’s hard for our bosses to remember that we took no vacation up to this point. And to take off more time to take care of the necessary trips we’d need to make to a potential property wouldn’t look good in the eyes of our bosses (see why we want to become financially independent?).

So, in short, volleyball season not only has us very tired, but too busy to make any offers. When you can’t do everything you want to do, you focus on what’s more important, and our daughter won. Setting core values for yourself will help you make tough decisions when the time comes. As much as we wanted to move forward with the investing, Brent and I have ALWAYS put our family first and this was no different. There will be houses to buy when volleyball season is over, Brittany will never play college volleyball again.

So, I’ll continue to make posts, but please forgive if there are some lag times between them. We’ll be done around Thanksgiving and I’m hoping December will prove to be a good month to find some deals.

The Texas State Bobcat Volleyball Players all filled out fun questionnaires – here’s Brittany’s

Until next time.

Reba

National REIA – a listing of real estate investing clubs and associations across America

Eviction Resources – steps for eviction in Texas

Lifestyles Unlimited – real estate investing club in Houston, San Antonio/Austin, and Dallas/Ft. Worth

R.I.C.H. Club – Realty Investment Club of Houston

Buildium Online Property Management Software

Until next time…

Reba

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The reason this affects just about everyone, whether you are a buyer or a seller is because most houses that are sold will be purchased with a loan that will eventually be sold to Fannie Mae or Freddie Mac. Apparently, the New York State Attorney General, Andrew Cuomo’s office, was investigating Fannie Mae and Freddie Mac for appraisal coercion and Cuomo’s office agreed to stop the investigation if the mortgage giants would follow a new code of conduct. That code is call the Home Valuation Code of Conduct  or HVCC and went into effect on May 1, 2009.

In doing my research for this post, I mostly found lenders, mortgage brokers, and real estate agents telling their nightmarish stories about dealing with the new regulations. I didn’t find any home buyer’s or seller’s but I’m sure there are many because with every story from a real estate professional, there was always a buyer and a seller.

According to what I’ve read, any lender who plans to sell their mortgage to Fannie Mae or Freddie Mac must use the HVCC for their appraisal because these organizations must follow the rules and will not buy mortgages where the HVCC was not followed. The HVCC dictates that lenders cannot have contact with appraisers but instead must use an intermediary. This means they must set-up a separate department in their organization to handle the ordering of appraisals or use an ‘Appraisal Management Company’ (AMC) to order appraisals. These AMCs are (1) not regulated, (2) can be owned by the lender, and (3) work for profit.

What’s happening?

1. Since AMCs are not regulated, who’s to say they are not pressuring appraisers to ‘turn-in’ a certain value? What’s to stop the AMC from doing ‘under the table’ deals? At least appraisers are licensed and can face serious fines and even lose their license if found to be unscrupulous.
2. AMCs can be (and are) owned by the lender. There is a huge incentive for the AMC to act on behalf of the lender. How does that solve the original problem? Hmmm..you got me?
3. AMCs are ‘for profit’ companies. Now you have another layer in the appraisal process and who’s going to pay for it? You got it, YOU WILL, and not only you, also experienced appraiser will pay. From my reading, the only two things an AMC is concerned with is ‘how fast can the appraisal be done’ and ‘how cheap it is’. The cheapest wins. Because experienced appraisers who are intimately knowledgeable about local communities are refusing to work for so little, there are not as many appraisers to call. AMCs are pulling appraisers from locations far away from the community where the appraisal needs to be done. And many are new to the industry and very inexperienced to boot. Because these appraisers are working for peanuts, hurried to get the work done, and not familiar with the area, details are skipped. And since they are also scared to turn-in appraisals that may appear over-valued, they are using mid-range comps and including foreclosures in the comps.

How does this affect the homeowner or buyer (investor)?

Well, if you’re a seller and your appraisal comes in low, do you really want to sell your house for less than it’s worth? If you’re a buyer and the appraisal comes in low, will you be able to get the financing you need if the seller won’t lower their price? What happens? No sell, that’s what happens.

Homeowners are opting to stay in their houses and buyers are forced to continue to rent. Now, tell me, how’s that helping the economy? It just seems to me that every time ‘government’ gets involved in business, it just screws everything up. Wasn’t it government’s involvement that started the whole sub-prime mess to begin with? Look it…yeah, they’re the reason.

What about investors, how does it affect us?

Financing. That’s how it affects us. My financing needs to be right in order for the numbers to work. If I can’t finance as much as I thought because the appraisal comes in low (a lender will only finance a certain percentage of the appraised value), then more money has to come out of my pocket. Since I’m not in a position where I have unlimited funds, it could totally blow a deal out of the water for me and waste the time of everyone that was involved.

Because I want to cultivate good relationships with the professionals I’m working with because I need these people to find properties, I don’t want to back out of deals. Like I said, it’s a waste of time for everyone. On the other hand, I don’t want to go into a deal where the numbers don’t work either, and quite often, you don’t know that until after the offer is made and accepted. It’s a catch and worries me a lot when I’m evaluating a deal. Because the appraisal is such an unknown factor, it’s really hard to know whether or not to move forward on a deal and that’s a problem. The HVCC is causing me to hesitate and it shouldn’t, comps should be comps and I should be able to make a close assessment without worrying that an appraiser from out of the area with no knowledge is under-appraising the subject property.

There is a House Bill (HR 3044) that has been introduced to congress and assigned to the House Financial Services committee that will place an 18 month moratorium on HVCC. If you’re a real estate investor, a home seller, or a home buyer, and you think this HVCC could adversely  affect you, please let your congressman know that you would like him or her to support this bill. Here’s a link to help you find your congressman:

https://writerep.house.gov/writerep/welcome.shtml

Here are some links to interesting information about HVCC:

Realtor Magazine

Arlington, TX Real Estate Blog

The Examiner-Tulsa

A Realtor in Virginia

Appraisal Press

Until next time…

Reba

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F – False
E – Evidence
A – Appearing
R – Real

This is my hope, the false evidence about owning investment property (in my head) is appearing real. I always told my kids, “Feel the fear and do it anyway, you may just find it’s not as bad as you think it is in your head!” Now it’s time for me to live up to those words. There’s a lot of fear in buying that first piece of real estate. You know, I’m not as young as I used to be and there’s just not as much time to recover from my stupidity. And believe me, my high tolerance for financial risk has caused us (yes, I’ve drug my poor loving hubby way past his risk tolerance) to start over more than once. You think I would learn, right? Well, I think I have. My tolerance for risk is no longer high, in fact, I’m starting to get down-right tight with my money.

So, here I am learning about real estate investing and after making offers on two houses that fell through, I’m starting to question if I’m doing the right thing. We have the money in the bank and it’s allocated for purchasing a rent house, but I keep thinking, what if we need it? What if something happens?

Well, last year, something happened alright. We had all our money in IRAs and 401Ks when something definitely happened. In the span of just a few months all the money we had saved disintegrated by 40%. And the more I listened to the rhetoric, the more I continued to do the same as before. Actually, I honestly thought we were doing the right thing by listening to financial planners and radio financial pundits.

“Hold the course.”
“Keep doing what you’re doing.”
“You’re doing the right thing, the market will bounce back.”
And don’t you love this one, “Stocks are on SALE!”

It wore on me, I do not like seeing my age get older while my bank account gets smaller. It didn’t take too long to figure out that we were doing something wrong and started looking for an alternate way to invest. Once I realized that there is a better place to put my money I immediately changed my 401K contribution from 10% to 4% (gotta get the match, right?). Also, started watching our budget a bit and were able to put more than I ever thought possible in a liquid savings for future real estate investments and reserves. It’s amazing how quickly you can build your reserves when you have a plan and know what you want to do with your money.

Now I just need to tackle the fear. I’m starting to get my mind wrapped around the whole concept of cash-flow and capital gains. I’ve gotten good at locating deals on the MLS. We’ve even make a couple of offers (that we didn’t get). Now we just need to continue to take action.

Action will replace fear.

Until next time…

Reba

Lifestyles teaches you to cultivate a group of 20 or so Realtors to help you find houses but they also offer the services of Lifestyles Realty to their Challenge members. It costs $4000 to be a Challenge member but it comes with a whole host of benefits, so we decided to join. We don’t have the time to call 100 Realtors and increasing our membership gave us the resources to find deals. I think it was mid-July when we increased our membership and immediately we scheduled a meeting with one of the mentors, Chuck Maley.

The Challenge Membership includes the following:

• Single-Family Mentor – consulting whenever we need it and we can meet face-to-face
• Ability to use the Lifestyles Realty agents for single-family deals
• Email blasts of houses that have been identified as good potential deals for investing
• Single-Family Road Trips where a group goes to look at deals for education and/or purchase
• Single-Family classes for Challenge and Preferred members only

There’s one more level, it’s called PIG or Preferred Investor Group. It’s for those who want to invest in Multi-Family and at that level you get your tuition rebated back to you when you make purchases. At the Challenge level, you can’t get any of the tuition rebated but the Challenge was all we could afford. And since we can increase our membership to PIG at any time and only have to pay the difference, we decided to go ahead and join at the Challenge level.

Anyway, during our meeting with Chuck we were able to find a couple of deals that were potentially good. He introduced us to the agent that ‘tagged’ the properties and we got to work. John Warner was the agent we were to work with and we got right to business.

The house we were looking at was an estate sale and boy oh boy was it a mess. But that’s part of all this real estate investing stuff. You buy houses that have a foreclosure or the owners are super motivated to sell. Quite often they are a MESS! We didn’t get this particular house, we were outbid, actually we were third on the list. Here are the numbers:

Asking Price:  $74,000 ish

Our Offer:  $77,000 ish

Rehab estimate:  $20,000 ish

Comps in neighborhood:  2 houses at $116,000, and 1 house at $109,500

Foreclosures in neighborhood: 2 houses at $80,000

Rent comps for neighborhood: $1050 per month

Here’s what the deal would look like with 20% down:

Cash Flow
Monthly rent	$1,050
Loan payment (30 yr)	$375
Property taxes	$250
Property insurance	$100
HOA monthly	$30
Monthly cash flow	$295
Unrealized capital gain	$13,000
Cash Out-of-Pocket
Down payment	$15,400
Closing costs	$5,000
Rehab	$20,000
Cash Out-of-Pocket	$40,400

As you can see, we would need over $40k cash to get into this house. This scenario gives us an annual return of 8.76% from the cash flow and a 32% return on the capital gain. However, it’s way more than we wanted to invest into just one house.

Consequently, we were considering a ‘double close’ mortgage. Basically a ‘double close’ mortgage is like a construction loan that you refinance into a conventional FannieMae mortgage. The first loan, the one you buy the house with, is a short-term balloon note (usually 1-3 months) at the same rate as the final mortgage will be. They allow you to finance up to 100% of the purchase price, rehab, and closing costs as long as it doesn’t exceed 75% of the market value. Then you can refi up to 75% of market value into the conventional loan. This allows you to finance a portion of your rehab.

Here’s an example using the house above:

Cash Flow
Monthly rent	$1,050
Loan payment (30 yr)	$545
Property taxes	$250
Property insurance	$100
HOA monthly	$30
Monthly cash flow	$125
Unrealized capital gain	$8,000
Cash Out-of-Pocket
Purchase Price	$77,000
Closing costs -2 closes	$10,000
Rehab	$20,000
Total	$107,000
Max loan 75% of market	$86,250
Difference of Total & Max	$20,750
Cash Out-of-Pocket	$20,750

In this example we would earn much less on cash flow but would preserve some of our capital to buy a second house. The return on cash flow on the cash invested would be 7.2% which is still reasonable. The unrealized capital gain also dropped to $8000 from $13,000 because of the cost of the extra closing but the return increased to 38.5%.

In all honesty, I’m glad we didn’t get the bid on this house, I think we can do MUCH, MUCH, better. The house itself is good and so were the comps in the neighborhood. What blew it out of the water were the amount of repairs that needed to be done. It needed a new roof, all new floors, new counter tops, all new appliances, new toilets, paint, and more. If this house didn’t need the roof and maybe if the floors just needed rejuvenation or maybe if it had good appliances, it would have been a great deal.

Here are couple of pics of the worst:

Dining Room

Kitchen

Hall Bath

Master Bath

Until next time ~

Reba

http://www.chron.com/commons/readerblogs/stevedavis.html

Until next time…

Reba

The seminar always falls on the first weekend of the month (in Houston anyway, different weekends in San Antonio and Dallas) and we attended the first weekend in May. The days are long and jam packed with info. Day one starts at 7:30 a.m. and ends at 5:00 with an hour for lunch. I don’t even remember getting any breaks! The chairs are super hard. Brent and I took our patio furniture cushions, they are about 5″ thick and my butt still hurt. But it was worth it.

Day-one covers everything you need to know about single family house investing “according to Del”. I’m finding that Lifestyles Unlimited philosophy is just a bit different than some of the ‘gurus’ you find selling their ‘courses’ on late-night TV. Del teaches “investing for cash-flow” which is a lot different than flipping houses.  Most of the ‘gurus’ teach to tie up contracts and flip them to investors. They teach putting out ‘bandit signs’ to get people to buy your investment houses with ‘lease to own’ contracts and the like. They teach wrap-around mortgages, how to flip short-sales, and the list goes on. That’s not what Del teaches.

Del follows more of what Robert Kiyosaki teaches in his “Rich Dad Poor Dad” book series, which is ‘invest for cash-flow’, not capital gain. Of course, in these times with foreclosures flooding the market, you can’t help but get huge capital gains when you buy at so low below market, but cash-flow is what should drive your purchase. Basically, if you buy for cash-flow, you can accumulate enough properties to eventually cover your expenses and at that point, you become financially independent and never have to work at a J.O.B. again. To me, that would be heaven and I’ve convinced Brent that we have to go there .

The top things I took away from that day were:

• Del’s three rules for investing:

1. Never lose money.
2. Investments should ALWAYS have cash-flow.
3. You can’t get rich slow.

• Best product ~ Best price

1. Your property should be the best house in the neighborhood.
2. Your property should be offered at the best rental price in the neighborhood.
3. These two rules will rent your property in DAYS instead of weeks.

• The bread and butter deal is:

1. Three bedroom
2. Two bath
3. Two car garage
4. 1200-1800 square feet
5. Less than $100,000
6. Preferably less than $40 per square foot

I’ll go through some numbers for properties in upcoming posts but the three things listed above are paramount for single-family home investing.

Day-two was a blur. It focuses on multi-family (MF) investing which is much more complicated than single-family (SF) and the investor needs tons more money. Where it is possible to start SF with less than $20,000, you should have at minimum $60,000 and preferably $100,000 to invest in MF. Because we are no where near ready to invest in multi-family deals, a lot of what was taught on Sunday of the seminar went in one ear and right out the other. What I did learn was that it’s possible to work your way up to MF and I plan to do so. I also learned that I am probably better programmed to be a ‘passive’ investor more so than a lead investor. I just don’t think I would be comfortable putting ‘other people’s money’ at risk.

Multi-family investing will give us cash-flow with ‘extra zeros’ on the end and someday, we’ll be there, but for now, single-family is where we’ll start.

Until next time ~

Reba

I guess the shows resonated with me because of my experiences with my grandfather growing up. He always owned some sort of rental property and if my grandfather could own rental property, then I should be able to own rental property too, right? So one day my daughter and I were talking about her future and what career she might want to pursue. She has always loved real estate and I remembered about the radio show. We looked up Lifestyles Unlimited on the internet and I couldn’t let it go. They were having a free workshop that weekend, so Brent and I decided to go.

Low and behold, we signed up for their Financial Freedom Program ($500) which is their lowest level program. It gives us the ability to call any time with any question about real estate investing and a mentor will help us. We also get to attend vendor meeting/networking events, vendor presentation nights, and other networking events. Lastly, and probably most importantly, it gave us a two-day training seminar with Del that is offered monthly and can be taken over and over if we so choose.

So that Saturday morning Brent and I paid our money and signed up for the next ‘two-day’ which was the first Sat/Sun in May. Then we went back to living our lives.

Each month on the Thursday night prior to the seminar, Lifestyles holds a case-study night. The night is filled with presentations from people who have purchased property. These people get up in front of a crowd of people and show slides of their property and analyze the numbers showing how the property makes them money. It just so happened that our daughter was in town for the case-study night (she’s in college and lives in San Marcos, TX), and since guests are welcome, she came along.

It was our first case-study and we were all amazed at how many people were in attendance. Lifestyles serves beer, wine, and snacks, and tons of people just come to network and see the deals that are being presented. I’d say there were about 300 people there. It was very exciting and our daughter got excited as well.

The Lifestyles membership includes all family members up to 18 years old and allows those over 18 to join for half price. Brittany was so excited that we went ahead and signed her up, that way she could attend the two-day seminar with us on the upcoming Sat/Sun since she was in town anyway.

The next day was Friday and the day before the two-day. Brittany and I were cleaning out her room getting ready for a garage sale we had planned for the first weekend in June and the phone rang. It was the real estate agent with whom I had my grandfather’s house listed. We had an offer on his house! It was very exciting because this piece of property is in East Texas on the Hwy 30 service road on an acre of land and it had been on the market for about 8 months with very little showings and no offers. The offer was only a few thousand less than our asking price, I couldn’t have been happier. He sent me the offer, I signed, and we were on our way to selling the last asset my grandfather owned. I was almost finished executing his estate ~ YAY!!

That night it dawned on me that sometimes things just fall into place. Brent and I joined Lifestyles on blind faith that some how we would be able to make real estate investing work for us. Then, the day before we were scheduled to attend the training seminar, my grandfather’s house sells, the very sale that would give us the capital we need to get started investing.

Do you think maybe my grandfather was trying to tell me something from above? Hmm….

Until next time…

Reba

About one and half years ago he died at the age of 91. He had always told me he was going to live to be 100 but one day he took a fall as he was walking to his garage. The fall resulted in a broken hip which led to a whole host of problems. Six weeks later he was gone and I still miss him everyday.

I feel his presence every time I think about buying an investment property. He is the one that gave me my entrepreneurial spirit as I watched him make investments during his retirement years. He also is the one that taught me to pursue security in my job as I watched him work for the U.S. Postal Service for twenty years. It was almost as if he knew exactly how to reach his dreams without taking risk by retiring in his forties with a comfortable paycheck month after month from his government retirement.

So now, here I am, fifty years old and no where near seeing a comfortable paycheck for my retirement. No, I didn’t learn early enough that I needed to prepare for the upcoming years if I wanted to spend them doing as I please like he did. I wish he had been more vocal with me when I started my working life about what it was like to live your dreams after twenty years of working a job. But I probably wouldn’t have listened anyway.

My grandfather included me in his will along with my mother and uncle. He also made me his executor. That wasn’t the easiest thing for my uncle to accept but I think he got over it when he realized how much work goes into executing an estate. It’s been a year and half and I just made the final distributions and closed the estate bank account. It was a long hard process that is finally over, thank heavens. And now I have a small sum of money and have decided to invest it in real estate that will create cash flow (yes, I’m a Robert Kiyosaki fan).

This blog will chronicle the experience of starting out in real estate investing. I want to share

• what I learn,
• where I learn it,
• how well what I learn works,
• the deals my husband and I are considering,
• the deals we buy,
• how I find deals,
• rehabbing,
• getting a mortgage,
• leasing property,
• managing property,
• making or losing money,
• and anything else you can think of that goes into being a real estate investor

I started this real estate investing adventure back in April and have already learned a lot.  In fact, my husband and I are looking at buying our first house. I’m going to have to play catch up writing about what I’ve learned and I will. I will eventually write about everything I have learned up to this point, it will just take a little time. So be sure to add this blog to your RSS feed or check back daily to find new posts as I bring you up to date with what’s going on.

At this point I want to close this post with one of my memories of my grandfather’s real estate investing experiences. I must have been about 6 or 7 years old and I remember him owning four rent houses. One of the houses was used by just about every one of his children. It was the ‘Sam Street House’. I even remember living there with my mother and brother for a short period of time. I also remember my uncle Sonny living there with his family, and at a later date, my uncle Jack lived there. I wonder now if Daddy ever had any rental income from that house, I guess I’ll never know.

But I digress, I wanted to share a specific memory I have of going with him to collect rents. When I think back, it seems like we were ALWAYS going to those houses to collect rent. He’d make me wait in the truck while he went to the door. I will never forget collecting rent on New Year’s day. At one of the houses his renter wouldn’t answer but he didn’t give up. It seemed like forever that he stood at the door knocking. Finally, the door was opened by a very mad and obviously hung-over man. Daddy was there to collect rent, just like every month, he didn’t even consider that January 1st was a holiday and that his tenant had probably stayed up late partying. I don’t know if he even got paid that day or if he had to make another trip out there to collect. That experience haunts me, I don’t ever want to have to go to the door to collect rents, I’m going to figure out a better way to get paid, like the mail or over the internet or something.

Until next time.

Reba

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