Was this a good recovery from a bad mistake?

[Tim Jones]

Hello BP!

Looking for a little feedback on my first REI deal.

Background:

Joined BP last year, read a lot of books, and listened to all the podcasts. Got my wife involved (she's the smart one) and we got a HELOC on our house in preparation of REI. We did our best to save and budget.

We sold our last house at the peak and bought our current house in 2009. I also tried to purchase a 4-plex at the same time but the bank pulled out due to the banking credit crisis. I didn't know about things like hard money at the time or I would have found a way to make it happen 'cause it was a great deal (& pains me to think of it today). I had no REIeducation at the time and was in the middle of a massive remodel down to the studs. I also work a FT W-2 job.

Although I know that just following the Great Recession was the bottom of the last cycle and and some might argue that we're near the top now, I'm still interested and bullish about investing.

Current deal:

I participated in my local county's tax-defaulted property auction through bid4assests.com in April. I downloaded the APN list, researched bedrooms & sq ft, drove by all of the properties that I was interested in, categorized the neighborhoods, etc.

I was out-of-town the weekend of the auction but participated online. Many properties were redeemed the day before the auction and some were out of my price range. These are cash-only purchases so I was limited by the combination of my HELOC and cash reserves. These issues reduced my list substantially for the area I was interested in, my city which I knew very well and in which I feel I had a competitive advantage.

I threw some bids out at the properties but was being quickly outbid and IMO people were paying too much. I'm happy to lose a deal to someone else overpaying though I want to be in the game! I also understand that some of the auction sites auto bid to drive up the price. I was trying to be cautious yet aggressive...if that makes any sense.

Now for the big mistake:

My city's properties were all snatched up so I started looking at adjacent cities in my county. I hadn't researched these properties nor driven by. I'm familiar with most of the areas but not down to individual neighborhoods (read: no competitive advantage). I was only able to do internet research at this point. I used Parcel Quest, the County website, Google Earth, etc.

I ended up buying a 1972 3/2 double-wide mobile home on a 6000 sq ft R-1 lot in a residential area full of similar mobile homes. I paid $34,000.00 plus some minor recording fees. I figured rent for this place would be about $600+ a month, netting $250+ after expenses. So upon returning from my out-of-town assignment I immediately drove by my first-ever investment property; I was so excited to see it in person! As I drove up, what did I see? A BURNT DOWN TRAILER! WTF? What did I do? I listened to all the podcast guests talk about due diligence...why didn't I listen? Now, what do I say to my cautiously optimistic wife waiting for my return from work? How can I make lemonade out of this lemon?

So, after properly beating myself up about it, I thought about what I might have had: A 45 y/o trailer with deferred maintenance. Possibly an inherited tenant? An inherited owner who didn't pay taxes for 5 years? A possible eviction expense?

I decided at this point that I needed to do something to make this work. Life is a matter of perspective, so I had an opportunity, not a problem. I remember a quote from one of the podcasts, "I've never lost money on real estate, I've just heavily financed my education".

The next thing I did was pay $2100 to have the lot cleared out. I considered all of my possible exit strategies: rent it out to someone that has a mobile home; sell the land; finance a mobile home purchase and resell or rent, etc. Without going into my education of permits, permanent MH foundations, title insurance issues, etc., I decided to sell and move on.

All of my expenses (purchase, lot clearing, wire transfer fees, etc) were borne out of my HELOC, though I had the cash on hand. My thought was to finance this with OPM at a 3.75% interest only payment instead of risking my own cash. I made two payments of roughly $120 (holding costs) until I was able to sell the property.

I was all in for approximately $36,500 and sold it for 39,900, owner financed with 25% ($10k) down at 7% on a 1 year note. I've since received another $10k payment (buyer wants to pay off by x-mas). Interest for this loan could generate about $600. I had listed this on-line and put a sign in the yard (most contacts this way). Part of my education was at the County Recorder's office, County law library, calling title companies, etc which led me to using a Grant Deed and Deed of Trust to sell the property. I used my $39/mo LegalShield account to pass everything by an RE attorney. I did not list the traditional way because of the slim profit margin.

So here's where I need some good analysis: Being an optimist, I look at this as I paid 250.00 and made 4,000, subject to short-term capital gains and in the process I learned A LOT.

What do you see? What might I be missing? Any and all advice is highly appreciated. And thank you for making it to the end of this post!!!!

TJ