All Forum Posts by: Yinan Q.

3.0 The Deal

So here come the numbers.

Purchase price: 225k

Other expense (fix up, holding, closing): 18k

ARV: 290k

Rent: $1,750/month

I will do a delayed finance after everything is fixed up and pull most cash out. So my total cash in after refinance will be approximately 40k.

If you look at the numbers, it’s far a way from meeting the 1 percent rule. The monthly rent is only 0.72 percent of the purchase price. In fact, it barely cash flows in the first year.

Then why I still want to buy it? Two things - appreciation and rent increase in the new a few years. Many of you may be shaking your heads when you read this and saying: no no no, you are not investing, you are speculating. Well, I may be speculating a little bit, but I believe my odds of “winning” are significantly higher than that of “losing”. Here is why:

• Housing price in the Great Seattle area has been appreciating at close to double digits rates for the past a few years due economy recovery and strong local job market. Median house price of the zip code I am buying increased 10% and 8%, respectively for the last two years. Zillow project the price will increase another 8% in 2016.
• Local rent has been increasing at slightly lower rate than house price at 8% and 7% for the past two years.
• I am buying at more than 15% discount below the market price which allows me, if necessary, to sell it without losing money.
• It cash flows on day 1 (although not much). Even if future rent went down, I will be fine with the cash flow from other rental properties (much better cash flow but little appreciation potential).

Below is my pro forma for the next 5 years. I will collect approximately 12k in cash and my equity will increase by more than 100k. Not much cash flow, quite a bit equity. My goal is to hold it long term.

2.0 How Did I Find the Deal

I have been actively looking for my next purchase for a few months. My main resource was the MLS at first. I was using MLS because it's so convenient and it's where I found my other deals. But things have changed so much from the good days.

Realizing how hard it is to find any good deals on MLS, I started looking at foreclosure auctions. What I found is the competition in the auctions is no less than the MLS. Just to give you an idea, there are at least five foreclosure service companies in my area that I know of. There are anywhere between 20 to 50 properties being auctioned each week. Among those, some get cancelled, some reverted (starting price too high, nobody bids so the bank ends up owning it). Maybe only 50 percent actually get sold on the auction day. You can imagine how fierce the competition is.

At the meantime, I also go to local REI meetups and connect with other investors and wholesalers. The subject property in my diary is from a wholesaler I met. He has many buyers signed up on his buyer list. He has a preferred list of buyers that he contacts first when a deal comes up. If none of his preferred buyers claims it, he will then send the deal to the big list.

You may ask why did I get the deal then? I asked the same question to myself. I think it’s a combination of several factors:

• The subject property is not that attractive to some of the buyers. Many buyers are flipper. There is not enough spread in this house as a flip.
• It’s the holiday season so some investors are traveling or on vacation (yes investors take vacations too).
• I was prepared and reacted quickly. I contacted the wholesaler a few hours after the deal hit the big list. I sent him my proof of fund immediately and toured the property the next day so he knows that I am serious.

In the next post, I will go through the deal analysis in details. 

1.0 Introduction

I really enjoy reading other investors' diaries of their stories. I always learn a thing or two from what they did right and what they did wrong. It is also what led to my first diary on BP - I want to share my experience and hopefully other people can learn something and avoid mistakes I made.

It is a story of a rental property. I will cover the entire process of find, acquire, rehab, and rent. I don't legally own the property yet at the time of this writing. So what you will see is live – I will try my best to update the diary as things happen. 

Please leave comments and feedback if you like what I am doing and more importantly, if you see some red flags.

The diary will cover the following topics:

• How I found the deal
• Deal analysis and my plan
• The rehab – finding and managing contractors
• Get it rented

I'd appreciate recommendations of handymen, general contractors, painters, house cleaning services in South King County near Kent, Auburn, Covington. Maple Valley.

Thanks, Yinan

I would call the insurance company to figure out.

There are many ways to do it as long as both parties are satisfied. You can share the profit with the partner at a pre-determined slip (50:50 etc.). Or you can pay your equity partner a straight rate (10% annual rate etc.).

Here is a similar discussion that has some good information.

@Henry Mobley, Welcome to BP! You are on the right place to find information you are looking for. Make sure you visit your regional sub-forum under the regional forum section. People near you will give you the most accurate information on you local market.

@Matthew Brito, when you say foreclosures, do you mean bank owned properties (REO)? Most REOs get listed on MLS. Some go to the auction sites such as auction.com and homesearch.com before hitting the MLS.

If you are looking for properties in the foreclosure process, it public information. You should be able to find them on your county's webiste. 

@Marco Petit

In my area there are quite a few companies doing the same thing - representing investors to bid on foreclosure auctions. They provide the service pretty much as what you described: find list of properties to be foreclosed, drive the properties and take photos, run preliminary title search to identify other liens, crunch numbers and go over the properties with investors prior to auction.

They don't charge anything upfront until you win the bid on the auction. Then they charge 3% of the winning bid or the tax assessed value, whichever is lower. 

I'd suggest you to ask other investors in your area and see if anyone has worked with this agent/company and how they like it.

I'd also ask around and see if there is other companies in your area that provide the same type of service and what are their fee structure.

I hope this helps.

I've heard of lifetime lease but not sure exactly what it is and under what circumstances a lifetime lease is created.

My understanding is that a lifetime lease allows the tenant to live in the property until the death of the tenant (I could be wrong).

So my questions is, can the owner sell a property with lifetime lease? If yes, what should I do if I bought a property with a lifetime lease but the previous owner failed (intentionally or unintentionally) to disclosure to me?