All Forum Posts by: Rob C.

If you think it's tight in Dallas, come over to San Diego. We're down to 1 month's worth of active inventory. I expected that at the end of summer we would be done seeing rising prices. Instead they've continued to rise at what appears to be a faster pace throughout these winter months. According to Trulia, San Diego is up about 15% year over year. I've seen a lot of subdivisions on the lower tier going for 25% more than they did at the end of last year.

Definitely a manipulated market. I don't think anyone on here will disagree with that. Unfortunately (or fortunately depending on which side of the fence you're on) that doesn't make it any less a reality.

Thanks Charles. I'm intrigued to learn more about what non-numerical information could possibly go into the decision process for establishing market value...

After a bit more brainstorming, I came up with a couple potential compromises: I'm thinking of asking the seller to re-list the property at a price high enough to clear the bank fees AND my $2500 sunken expenses. If it in fact sells at that price, then the seller could reimburse me my expenses. In the event it doesn't then I'd have a chance to buy it as a foreclosure.

One other thought I had was to retain a first right of refusal on the property. If I had evidence that the property would command $88k on the open market I'd probably consider it a bit more at that price. In that scenario as I understand it I would be entitled to match any offers that come in. Furthermore, I'm wondering if it's possible for me to request that any offers from other buyers must come with a non-refundable earnest money deposit of $2500 (well, only refundable in the event that I exercise the right of refusal). That way I know that they are serious offers. Furthermore, that could be another avenue in which the seller could reimburse me my $2500 (i.e. if I waive my right of refusal, and the buyer walks)

Do these compromises make sense? Or am I asking more than I should, and ought to just let it go?

thanks again everyone!

hahah, thanks for the clarification (or complete lack thereof) Brian

Rob K I started with the idea that I'd be investing locally, but after struggling so much to get an offer accepted I started to consider out of state real estate. Around the same time, it seemed like I might be able to transfer to one of my company's offices in Atlanta. That's been delayed for a number of reasons since, but it got me looking at the market over there. Aside from the low prices as you already mentioned, I started to discover a lot more appealing reasons to invest in Georgia versus California. For example, Georgia law is a lot more landlord friendy, whereas California law pretty much caters to the tenants. Unemployment percentage is in double digits over here, and businesses continue to leave California because of higher taxes and regulations. Meanwhile, Georgia appears to encourage business growth through their legislation. And with our deficit in California soaring to mind-boggling figures over here, the folks in Sacramento will have to find a way to raise revenue- I won't be at all surprised if it's through property tax hikes. etc. etc.

I couldn't begin to make a comparison to Michigan and Ohio. I'm sure those markets are good as well, and maybe in a couple/few years I might look to them. However, I've already done a lot of research on Atlanta so I might as well stay the course for now. Moreover, I'm pretty sure I could transfer to the office over there if I really pushed the issue. For now, I've worked out an agreement with my supervisor that I can work remotely as needed over there.

I should also mention that I realize the 10% cash-on-cash I'm targeting does seem like pittance to most investors. However, this property was in a pretty good, safe, middle class neighborhood with great schools, where I considered good potential for appreciation. Overall, I'm looking to strike a balance between cash flow and potential appreciation. There are LOTS of properties in metro Atlanta, where you can get 20% cash-on-cash. They're not even necessarily in bad neighborhoods, but they're in neighborhoods that are just a little more unsightly than I'd like to start out in. My plan is to graduate to those once I have a bit more experience. I'm not looking to hit a home run on my first deal. Just looking for a relatively low-risk safe bet.

David Niles I don't disagree with you. The deal was a skinny one. But because I was interested in buying to rent out and hold long-term I was willing to take a chance on it in order to get my first deal done and out of the way (in hopes of building some cash flow and a little momentum, the latter of which I hear from other investors tends to happen for whatever reason).

Moreover, I'm having a hard time coming across anything that you professional investors would consider a true "deal." So I've lowered my expectations as I start out. If it's a marginal deal and the numbers pencil as a rental, I'm happy to take it.

Ironically, another major reason I went through with it is because I was under contract, and I gave my word I was going to buy the property. And I hear in this industry it's important not to walk away from many deals because you'll start getting a reputation you don't want. Obviously the irony is that the seller walked in spite of it all.

From a cash flow perspective it would still probably work at $6k higher (albeit less than 10% cash-on-cash). However, it's a question of whether I'd be paying over market value, and how much. As indicated in detail above, I'm just not sure what the fair market value is of the property. I got the impression I was already overpaying a bit at the originally agreed price of $82k. At $82k it was a marginal deal at best. Any more than that, and it's, well, less than marginal.

Chris Weiler Your questions made me realize I wasn't very clear. Let me try again: The $6k in bank fees I was referring to were the late fees that the seller has recently run up by not making the payments on the loan. There's no reason for her to pay them since she can just let the home go into foreclosure. That would mean I'd probably have to cover these if I opted to purchase it sub2.

As far as the $15-20k in work, yes this will need to be done either way. However, I was expecting to do a cash-out refinance subsequent to the purchase which would effectively let me recoup the money spent on repairs and leave me at about 75% LTV.

Hope that makes a little bit more sense.

The one advantage that you touched on is that I can use my qualifications to finance other properties. And since there is a limit of 4 bank mortgages an investor can have (or is it 10? I still don't fully understand this point) I could see how I'll probably run into a dilemma at some point where I want to acquire more properties than the banks will let me use financing on.

Any other advantages I may be missing?

Thanks again, Rob

Charles Perkins Similar to my comments directed toward Jon, I also wanted to let you know how much I appreciate all the invaluable feedback you provide on this board. Thanks!

I wish it were a simple matter for me to determine whether the property is worth another $6k. However, given my inexperience and the crazy market it's really hard for me to tell. I wrote a bit about it in my earlier post. And even since then it's gotten even more difficult to determine the market value. There have been two comps that have come on to the market. One is an REO less than a half mile at pretty much the same size (it needs some work according to the listing agent, but I don't know how much)- it went pending at about $60k within a day of being listed. The other is a homepath property literally next door that is listed at $115k. It has an additional bedroom and half bath, and is 2400 sq ft as opposed to the one I had under contract at 2100.

Jon Holdman Thanks for the detailed response. I respect your opinions a lot. You give a lot of great advice on this board, and I just want to let you know how much it is appreciated

I'll doublecheck with my attorney on Monday whether he thinks I have some recourse against the seller. I haven't really approached the subject in detail because I didn't intend to take legal action if it even was an option. However, I am curious so I'll look into it

I do plan to keep an eye on the property if it goes through the foreclosure property. I'm a bit hesitant to make my first purchase at the courthouse steps, but I'm hoping it might go back to the bank as an REO, in which case I could put in a strong offer given that I've already done the due diligence. Do you know how banks come up with the starting bid at the auctions? I was under the impression they set it at the amount still owed on the loan. However, I've been told recently that's not the case.

Ibrahim S Although I have a hard time believing it's worth $2500 more than the amount needed to clear the late fees and liens, I guess I won't be surprised if the property does go that high given the low inventory and crazy competition in the marketplace right now. You're right that I should demand my $2500 back in that scenario.

Brian Burke Thanks for laying out the options. Unfortunately the deal is pretty skinny, so option 1 may be the best bet as you indicate :/