Posts Tagged ‘ financial education ’

Day 60 – How Did We Do?

Well, well, well, it’s day 60 in our drive for 60,000 in 60 days.  We’ve had a lot of fun over the last 60 days pursuing our goal, and I’m sure the big question everyone has out there…did we make it?

NO!

But, we did make it almost halfway to our goal earning $27,816 in the last 60 days.  We’re super excited about what we’ve accomplished even though we didn’t make it to our goal.  But here’s the thing…the money isn’t what’s important.  Just like last year, these past 60 days have been life changing in many ways.  We’ve developed relationships with a number of people through the deals we’ve been pursuing, and those relationships are going to be worth much much more in the future.

So, we’ll end our drive for 60,000 in 60 days this year with a challenge to everyone out there.  We want to see you put on your own challenge.  Feel free to copy our goal or come up with one that suits you, but we want to see some action out there.  In your pursuits we’ll be happy to assist in any way that we can, and we’d even be happy to help you start blogging about your journey.

So get out there and get things going!

Until next time…

Todd & Kelly

Day 45 – This is Why You Buy Title Insurance

Well today is day 45 in our drive for $60,000 in 60 days, and we had a little bit of an interesting situation that came up on one of the properties we’re selling.  We received the title search back from the title company and the following line item appeared on the title report”

Payment Agreement and Lien in favor of Charter Township of Waterford dated May 1, 1975 and recorded June 12, 1975…

My first reaction was…what the heck is this!  We had purchased the property in March of 2009, and this never came up on the title report back then, so I immediately responded to the title company asking what this was.

They did in fact send me a recorded document showing that in 1975 the township of Waterford levied a special assessment against the property for the installation of sewers.  The total assessment was $1,840, and furthermore it specified that an interest rate of 6.5% would be levied on the lien.  So being an engineer with a great story problem in front of me, I quickly calculated what the total amount due would be if this lien had in fact gone unpaid all of these years.  It turns out the balance would be well over $17,000!!!

I began to smile…yes, I began to smile, because I knew that we were protected from this sort of thing because we had in fact purchased title insurance when we bought the property back in 2009. 

As it turns out, Kelly took a trip down to the Waterford Township offices, and as expected the title company had missed the recorded document discharging the lien against the property.  The assessment was actually paid off in 1975, so there was no issue.  However, had there been an issue, our title insurance would have saved us the $17,000.

The moral of the story here is never buy a property without title insurance!

More to come…

Day 42 – Details of Our Latest Property Sale

Well today is Day 42 in our drive for $60,000 in 60 days.  We’re heading towards closing on our latest property sale, and today I just want to go over some of the numbers on the property.

This property was actually the first investment property we ever purchased back in 2009, so it’s a little sentimental that we’re parting ways with it.  The property has performed greatly for us – it hasn’t seen 1 day of vacancy since our original tenant moved in, and the tenants are currently purchasing it on a lease option.  Over the 2.5 years we’ve owned the property we’ve averaged a 17% return, so it’s been a great property, and now we’re going to move on and re-invest those funds.

The details on this sale are fairly simple.  We have a sales price set at $51,000, and we currently owe approximately $33,000 on the property.  After transfer taxes, rent credit transfers, closing costs, and payoff of the debt service we expect to clear about $13,500 on this property.

So, this brings our total to date up to $27,815.86.

More to come…

Day 35 – We’re 100% Occupied!

As we discussed earlier this month a couple vacancies in our properties really killed our cashflow.  We were still cash flow positive, but our net was much lower than it could have been if we had tenants in all of our properties.  Well, we’re happy to announce that we’ve filled both of our vacancies with very good tenants, and we’ll be showing a much better number this month.

For the first property, we were able to obtain a rent rate about $50 higher than we anticipated, so this was very good news.  This is a credit to our property manager who had 10 showings setup on the same date literally a few days after we purchased the property.  We’ve completed the rehab on the property just in time, and the tenant has moved in as of last Friday.

For the other property, the rent rate wasn’t quite as good.  We accepted a rate about $35 per month lower than anticipated, but our decision was based on the financials.  We could have held out for another tenant, but the property has been on the market for about 45 days at this price.  We’ve already had 2 weeks of vacancy, so the prospect of longer vacancy would continue to eat at the profits from this rental.  So, looking at the numbers we think this was the correct decision.  Over the next year, we’re going to collect $35 less than anticipated on this property which totals $420 for the year.   This equates to little more than 1/2 of a month of rent.  Since the prospects were not good that we would have the vacancy filled in the next 2 weeks, we accepted the tenant at the lower rate accepting the loss but avoiding additional losses.

So, now we’re on to our next property…

More to come…

Day 19 – SOLD!

So yesterday we told you that we had completed our Michigan Cash Flow Property Tour and that we hadn’t sold a single property.  Well, about an hour after I published that blog post, one of the investors who had been in town over the past couple weeks phoned me on the way to the airport and we arranged for him to purchase one of our properties.  So, now we’re well on the way towards our goal. 

We purchased this property at the end of March, and here are the list of costs we’ve incurred for the property:

  • -$15,500 Purchase Cost
  • -$2,500 Financing
  • -$2000 Closing Costs (Buy & Sell)
  • -$15,000 Rehab, & Holding Costs
  • -$900 Tenanting Fees
  • +$1,800 Rent Collected

Total Cost - $34,100

Sales Price – $45,000

Profit – $10,900

That’s right where we wanted to be with this property, so we’re very pleased.

This puts us a big step forward in our goal, and we have now earned $12,000 towards our goal of $60,000 in 60 days.

More to come…

We’re Late, But That’s a Good Thing

It’s been a couple weeks since our last post We’ve Developed Our Business Plan to Take to the Bank and quite frankly we’re a little behind schedule.  As Kelly always tells me, everything happens for a reason.  This past week at the Renegade Detroit Investors Club meeting Bob Norton was the speaker, and during his presentation he talked about one of his team members Bill Schmidt.  Evidently Bill has been in the banking industry for over 30 years, and he has just retired.  However, he has begun consulting for investors who are looking to go to banks for money.  Bob gave out Bill’s phone number during the talk, and of course I gave Bill a call this week.

So, as of now we are planning to sit down with Bill next week to go over our plans and get his guidance on how we should proceed.  So, we’ve been delayed, but I’m glad we were because I think we’ll be much more prepared after speaking to Bill.

Stay tuned!

We Need to Clarify A Few Things…

In our latest blog post – 2010 Was a Good Year and We Have Big Plans for 2011 we talked about some of the mistakes and successes we had in 2010.  The discussion of our mistakes generated some conversation with us and one of our mentors and we really need to clarify our thoughts a little bit.  In particular we are speaking about the following comments which we orginally said were mistakes:

We spent money on real estate classes.  After attending a real estate seminar, we bought some real estate classes, and in retrospect it was really a mistake.  The classes have been good, but we have learned so much more in just networking with people and learning from what others are doing. 

We’ve taken on too much debt.  Some of the debt we’ve taken on has been from doing the deals we’ve done, but we have also taken on debt paying for some of the real estate classes we’ve taken.  In retrospect this money would have been better spent on property.

In retrospect, these things were probably not mistakes, and here’s why…

Before we purchased these real estate classes, we were comfortable.  We were comfortable going about our daily lives commuting back and forth to work and living life below our potential.  As we were reminded, these classes provided a few things for us.  First and foremost, we spent a lot of money on these classes, which instantly created a high level of motivation for us to succeed in our real estate investing business.  I’d like to think we didn’t need this motivation, but when I look back I have to admit that our real estate investing really went into overdrive after we purchased these classes.

In addition to providing motivation, these classes did something else that has probably had one of the biggest influences on our success.  You see, Kelly and I haven’t always had the same views about real estate.  I had been interested in real estate since early in 2009 after reading Rich Dad, Poor Dad, but Kelly was skeptical.  In fact she was more than skeptical.  When I told here I wanted to purchase a rental property she told me I was crazy (except she wasn’t that nice about it).  After wearing her down over a few months, I finally was able to convince her to purchase our first rental property in the spring of 2009, but she definitely wasn’t fully on board.  It certainly has helped that this rental property has been successful, but even after we got the property rehabbed and rented she was still skeptical. 

However, when I took Kelly to our first class and we met Lee Escobar, I think our lives were changed.  Kelly saw the light that I had already been exposed to, and it was at that very first class that we decided we were going to jump into the real estate game together.  These classes opened Kelly’s eyes to the potential of real estate and we were finally on the same page.

Ever since that weekend we’ve been having a blast.  We’ve fallen down many times since that weekend, but we’ve continued to get up.  We’ve met so many great people, we’ve learned a whole bunch, we’re having the time of our lives.

We Focus on Building Credibility in Our Real Estate Investing Business Every Day

On Monday this week, we closed on a property that represented many firsts for us.  It was our first wholesale deal, our first turnkey rental deal, and it was our first deal with an international buyer.  Because it represented so many firsts, the deal was definitely challenging to complete, but we got it done.  As we’ve worked through this deal, there’s one question people keep asking us…

How the heck did you guys sell to an international buyer???

I can’t say it’s been a simple process, but I can definitely say that it all boils down to one core strategy that we’ve had.  We focus on building credibility every day in everything that we do.  If you’re going to sell a property to anyone, international investor or not, the first thing you need to do is build trust with your buyer.  I think this is amplified to a whole different level when you’re dealing with an international investor looking to purchase property in the US.  We understand this, and that’s why every day we strive to build our credibility with everything we do.  This especially applies in our marketing and communications.

So here’s a few things we’ve employed that are fully aimed at being credible.

Be Knowledgable

When dealing people you need to know your game, and if you don’t know what you’re talking about, you should stop talking.  Think of the used car salesman that knows nothing about the car he’s trying to sell you…he’s just telling you things he thinks you want to hear to get the sale, but really all he is doing is destroying his credibility with you.  Don’t be a used car salesman.  Know what you’re talking about, and if you don’t then admit it, or just keep your mouth shut.

Do What You Say You’re Going to Do

I actually had to laugh the other day at the outcome of a conversation Kelly and I had.  We were running late to a meeting we had setup with a lender.  We were only going to be about 5 minutes late, and I knew it really wasn’t going to be a big deal, but we still weren’t going to be on time.  So as Kelly was driving I sent a text to the lender to inform him we were on our way and we were going to be about 5 minutes late.  When I did this, I told Kelly…this is going to build credibility with the lender.

So we made it to the meeting, and in the course of the conversation with the lender, he brought up the point that we had called ahead to let him know that we were going to be late.  He told us those kind of things normally tell a lot about a person and are a good indication that when he sees those types of things in people they generally pay their bills and will be good borrowers.  Kelly and I just looked at each other and smiled.  It wasn’t that we were trying to pull the wool over, but we were consciously aware that we were being judged in every in our interaction with the lender.  We made a point to make a good impression by notifying him up front that we were going to be late…

Always Tell The Truth

This really goes without saying.  If you ever stretch the truth you’re going to get caught sooner or later, and ALL credibility will be gone.  Credibility is too hard to build to just throw it all away by not telling the truth.  In fact, you really need to be brutally honest. 

For example, in one of the initial conversations with our international investor he was sorting through our properties, and he really liked the lowest priced property that we had.  I knew this was his first international real estate purchase, and when he asked me what I thought I told him.  I didn’t think that particular property was going to be a good fit for him because it really was the worst property we had available for a number of reasons, and I told him what those were.  In the end I think he really respected that I directed him to the right property and didn’t take the used car salesman approach to tell him what he wanted to hear.

Be Real

Building relationships with people is about interacting, and people really do want to know that you’re real.  In some other dealings we have going on, we’ve been working with an Australian real estate investor.  We’ve had several conversations with him over Skype, and during these conversations without exception my 4-year-old daughter always comes over and says hi.  The first time she did this, I have to say that I was slightly annoyed, but the reaction it elicited really changed my tune pretty quick.  Our Australian investor really took a liking to our daughter, and our conversations have really gone from a business tone to more of the conversation you might have with a good friend.  Over time this one little thing has tremendously helped build the relationship with this particular investor because now when he calls, the first thing he says is “How’s Alivia”.  Almost without exception Alivia will immediately pipe up and say hi in her cute little munchkin voice.  It always gets a chuckle…so don’t be afraid to be real.

The 10% Rule

This is by far the most important suggestions of them all.  If you take one thing away from this article, remember this point because it can and should be applied toward EVERYTHING you do in your business.  Whenever you interact with someone and you commit to doing something, you automatically set up a certain level of expectation.  Whether you realize it or not, you are being judged on the outcome of what you do.  This is especially true if it’s one of the first times you’ve interacted with this person.  So here’s our approach:

Take what you’ve committed to do…and do 10% more than that.

I cannot emphasize how powerful this is especially if you consistently do 10% more than what is expected.  If you make a pattern of this in your dealings with folks (like international buyers) you are going to build huge amounts of credibility with that individual.  You just need to ask  yourself, how can I wow them…they are expecting X, how can I give them Y. 

For example, we take this approach on how we list our properties.  If you go onto realtor.com you can find a million property listings that all look the same.  They may have a few crappy pictures, and a standard list of features about the property (beds, baths, sq ft, etc.) and a 3-sentence blurb about the property.  Well, this gives a picture of the property, but you can really do better, so here’s what we include:

  • A video of the inside and outside of the property
  • A video from the street panning around to show the neighborhood
  • Pictures of the inside and outside of the property
  • The standard list of amenities for the property
  • A cashflow analysis showing the rental income and expenses expected for the property
  • A copy of the county property record
  • A Google Map showing the location of the property
  • If the property needs rehab we will include a repair estimate
  • Guidelines about the purchase process
  • Guidelines about how we will manage the rehab/turnkey process

Now, just by reading our listing hopefully we’ve answered every question a buyer might have about a property, and if we can do that, we’re definitely going to have credibility with them when they call us…it’s because we took the time to do the extra 10%.

Work With Quality People

How can you tell you’re working with a quality individual…well, they’re knowledgable, they do what they say they’re going to do, they are truthful, they are real, and they’ll go the extra mile for you…in fact, they build credibility with you just the same as you do with them.  By working with quality people, your credibility is going to be enhanced because you have a powerful team working for you, and it’s going to make the work you do that much better.

Read the Fine Print on Your Real Estate Contracts and Addendums

As many of you know, we purchased a condo in Pontiac back in August, and we really like the subdivision that the condo is in.  We’ve been scouting this subdivision ever since and we’re looking to purchase more of the condos in there to hold as rentals.  So as we’ve been doing lately, we drove through the neighborhood, and last week we found a newly listed condo just a few doors down from the one we purchased.

So we made the call to the realtor and found out it was still on the market.  The asking price was $23k, and we decided to put an offer in on the property at $15k.  A day later we got the following back from our agent:

Seller countered: $22,000, close on or before 12/20/2010, adding 100.00 per diem. Please advise. Thanks.

Now, you’re probably wondering just like I was what the heck “$100.00 per diem” meant.  My first thought was maybe they were going to take us out to lunch if we accepted their counter offer.  As you might imagine I was a little less than pleased when the realtor told me it meant that for every day past December 20th that we delayed the closing, the bank would charge us $100.  My next thought was, well, we can close in 2 weeks…do we get $100 credit for every day before the December 20th that we close?  Again, my hopes were dashed.  No lunch, no credit…needless to say this negotiation was not going well.

So we countered back at $17,500 and indicated this was our highest and best offer…take it or leave it.  Unfortunately the bank misunderstood our offer and countered back at $21,000.  So we again informed them that $17,500 was our highest and best offer…TAKE IT OR LEAVE IT.

A couple of days went by and we thought the deal was pretty much dead.  In fact we were working on three other deals, and then surprise, surprise, we received this email from our agent:

They accepted!
Just Sign what you need and I will do the rest…

The agent had attached the addendum the bank had provided and was looking for us to sign the contract with the new addendum.  Having seen how this negotiation had gone, let’s just say I was a little suspicious of the bank, so I sat down and started to read the addendum.  As I read through it, it contained the most of the standard boiler plate clauses, but then I got to the clause about prorations.  The clause again was pretty much boiler plate stuff, but then right at the end of the clause they had the following statement:

Seller shall not be responsible for homeowner’s association assessments that accrued prior to the date Seller acquired the Property.

Now quite frankly I was a little perturbed at this.  The bank was not upfront about this at all, and this statement was buried in the addendum.  There was no statement about how much was owed to the association, just that the seller would not be responsible.  So I read on…

There was more boiler plate fair, and then I came to the clause about transfer taxes / tax stamps.  The seller added a clause exempting them from paying transfer taxes and tax stamps.  Again, there was no estimate of what cost they were passing on to me the buyer, and it was a backhanded attempt to win back some of the money they had conceded when accepting my offer.

Needless to say, I have not signed these documents.  I spoke with my agent, and asked her to talk with the selling agent about these clauses, and quite frankly she has been less than successful at obtaining a clear answer from the selling agent.  The selling agent said that these things are normally taken care of by the seller and it should not be an issue. 

Well, there’s just one problem with this….THAT’S NOT WHAT THE CONTRACT SAYS!

So this is pretty much where we stand at this point on this deal.  We are not going to be moving forward on this deal because quite frankly we have completely lost trust in the seller.  If they are using these tactics to extract money from us, what else about this deal aren’t they telling us about?  We’re not going to get involved because quite frankly something stinks.

So the point of this blog post is to remind you to read the fine print on your real estate contracts.  In this negotiation it was clear that the seller was going to use whatever tactic necessary to extract as much money from us as possible.  You would like to think that every negotiation partner you deal with will conduct themselves with a good moral compass, but that is probably just too much to ask for.  So please, read your contracts…

Our Strategy to Provide Turnkey Rental Properties at Michigan Turnkey

As many of you know, we have been actively working at putting together our new company Michigan Turnkey, LLC.  We have been receiving a lot of questions about what exactly we are doing, so today we are going to dedicate this blog post to explaining our strategy with Michigan Turnkey.

So here goes…

In August of this year Kelly and I kind of stumbled into the Pontiac real estate market when we found a deal on a condo that we later ended up purchasing.  The numbers on this property were phenomenal compared to what we were accustomed to looking at on other rental properties.  Specifically, we saw the following:

  1. The cashflow on the property comes out at $442 per month which is about $300 per month higher than what we had been looking at in other areas.
  2. The purchase price was $17,500 which is less than 50% of what we had been looking at in other markets.
  3. The area we bought in was actually a really nice neighborhood (so nice, Kelly and I have seriously considered moving into the neighborhood). 
  4. If we had purchased for cash, our return would have been 30%…we leveraged financing on the property, and our return has skyrocketed to 68%.

So, we began to look at this and we are truly in love with this deal, and we want to find more.  So we began to look at the Pontiac market a little closer.  By evaluating more deals in Pontiac, we were able to figure out pretty quickly that we had gotten a pretty sweet deal on the condo we purchased.  However, we also found out that while most of the deals were not quite as good as the one we purchased, they were not that bad either.  We are finding that putting together a profitable deal with the following numbers is not too difficult at all to find:

  • Purchase price $25,000 – $40,000
  • Return on Investment 10% – 20% for a cash sale (leveraging financing nets higher return)
  • 3 bed / 1 bath with basement in nice areas of Pontiac

After looking at these deals, we decided that Pontiac was truly the place for us to be.  As we talked about in out article Getting to Know the Pontiac Real Estate Market, we started studying the market.  We wanted to find what areas of Pontiac were areas we should be investing in, and what areas we should be staying away from.  So, over a weekend we set out driving around Pontiac and we got a real good idea of where the nice neighborhoods were, and where the not-so-nice neighborhoods were.  We developed a “Green Zone” map in Google Earth and this serves as our first layer of evaluation for any property we look at in Pontiac.

Now, our strategy is quite simple.  We will take any property that we find in the green zone and apply the following process to it:

  1. Purchase the “Green Zone” property
  2. Rehab the property
  3. Conduct comprehensive tenant screening and place tenant into the property
  4. Place management company with property
  5. Sell property as a performing asset with tenant and property management in place

It is really that simple.  Now, we’re really not picky as to the status of the property when we purchase it.  If the property is vacant and in need of repair, we will buy it.  If the property is rented and in no need of repairs we will buy that one too.  In fact, if a property is in any state between these two scenarios, we will buy them.  The only thing that is going to vary is the purchase price we offer.  Obviously the more work we have to do to the property, the lower the price we are going to be able to offer.  It is really just a numbers game because in the end we have a targeted profit we’re looking to make on each property, and we want to be able to sell the property and provide our end buyers with a return on their investment of between 10% – 20%.

So, if you have properties to sell in the Pontiac market, please contact us.  We ARE buying.  Likewise, if you are looking for cashflowing investment properties that net between 10%-20% ROI and will cost you less than $40k to purchase, please call us.  We have properties that will make great investments for you.

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