You can learn a lot from a failed deal

RE Report for 02-02-2016

It's been 8 days since my last report. My very first deal is done, closed, and (most importantly) I got paid.  Previously, I mentioned a lead that I got by word of mouth.  Nothing ever came of it.  I'll be adjusting my definition of 'lead' from now on. 

I've been sending out handwritten yellow letters, 25-50 a week since the beginning of the year.  Writing them myself is time consuming, and a bit painful, but the response rate that I'm getting is through the roof!  Around 15%.  

One of the phone calls I received was from a motivated seller, with a property in a great rental area in Memphis.  She's had the house forever though she refinanced it for $56K a few years ago because she needed money.  The property might be worth $55K now, though I think it would most likely sell for closer to $50K.  She still owes $49K.  After a failed attempt to sell the property last year, a realtor gave this poor lady a sob story and talked her in to taking a tenant for $600/mo while the market rent is closer to $825/mo.

Now this lady is tired of being a landlord, has moved away from Memphis, and is losing money on the house each month.  She just wants to be done with it.

I tried to get the home as a Subject To deal.  The current payment (PITI) is just under $500/mo, I could rent it out for $825/mo and make $325/mo!  The seller was open to the idea of letting me take over the payments and refinancing in 3-5 years.  I posted about the deal a few times on BP and talked to a couple of folks locally.  It turns out that my numbers were a little short sighted.

I needed to take in to account vacancy, regular repairs/maintenance, property management, and capital expenditures.  Thanks for a comment on my BP forum post, I figured out the the property was going to end up costing me $30-$60 per month, depending on how conservatively I ran the numbers.  I could have made the property cash flow positive if I managed on my own but I'm not ready to go that route yet.  

In the end, I had to walk away from the deal.  I talked to a couple of local investors but nobody was interested in buying the property.  I sent the seller the names and numbers for some property management companies in the area.  Hopefully, she can find someone worth while to manage it for her for the next couple of years, pay down the loan, then sell it, and walk away.  

It is now February 2nd.  I'm going to try to do 2 deal a month each month in 2016.  I only did 1 in January, so I'm already in the hole.  I need to find 3 deals to do in February in order to catch up but I haven't sent any letters out in about a week.  I'll be sending out a dozen tonight and try to get more written tomorrow.

Additionally, Vistaprint.com ran a %50 off deal last week so I bought 5000 postcards.  I plan to the USPS Every Door Direct Mail program  to distribute them in my farm areas.  The post cards were $250, and EDDM should run about $900.  If I can get 1 deal the venture will have paid for itself.  I'll let you all know how it goes.

Over and out,

Ben