All Forum Posts by: Don Petrash

Andrew - this is a phenomenally helpful article! I've saved it on every phone and computer platform I have. For those of us planning a series of rapid-fire BRRRR purchases, the notes on avoiding a 6-month or 12-month seasoning period (and routing the mortgage through the LLC) are absolute gold. Thanks!!

Nathan - thanks for reading!  I agree, much of the issue is the desire for anonymity and mistrust of anyone with an offer that sounds "too good to be true."

Big Picture: Looking for the right approach to a distressed seller.  Lots of job losses and foreclosures coming in my market.  

This is what I put in several "white letters."  What do you think?  How can I give a better "value proposition" to a distressed seller?  

Mr. and Mrs. ____,

My name is Don Petrash, and I am in real estate. It looks like your house has been listed in foreclosure.

First, I understand this is a difficult time. You have to make the best decisions for yourself and your family.

If you are interesting in selling, I can offer to buy the property.

For more information, please contact me at the info below.

Sincerely,

Hi Ben, 

I'll tack onto this post as another Goodfellow alumnus with some real estate in the San Angelo area.  It remains a great place to invest; even after the oil crash the rental rates still outpace the mortgage rates significantly.  I have two single family homes in the PaulAnn neighborhood north of the highway and I'm making plans for a couple more.  

Good luck in your endeavors, and welcome to BP! 

-Don

Hey Kyle, Great to see your post. I am an active duty investor and I have a couple of homes in San Angelo. It can be a great market for military students rotating through the schools there. Hit me up anytime. Good luck! -Don

Hi Andrew,

I think debt tolerance depends largely on the individual: I am still building a portfolio, so I have a higher debt tolerance than someone who is ready to stop building and concentrate instead on cash flow. The book "Hold" had a really compelling example of a small initial downpayment invested in a series of properties over 20 years or so; the Return on Investment (ROI) over the course of time was astonishing. As long as each property in a growing portfolio has reasonable cash flow (perhaps $100-300 net for small single families, like mine), you can build up to four homes quickly and easily. That four-home milestone is marked by the first roadblock: many conventional lenders will refuse a 30-year fixed loan beyond that point. I have two properties and expect to purchase a third within the next year. The four-mortgage mark may well be where I turn the corner and pay the first property off, so the financing remains achievable through conventional means. I'm not opposed to creative financing, but it is far easier to profit on 30-year fixed loans (big, national lenders) rather than 15-year variable loans from a local lender.

"Hold"

http://www.barnesandnoble.com/w/hold-steve-chader/...

 

Hi Billy,

The BP Podcasts are full of examples of people who survived the latest downturn (2008), and I've always found it interesting to hear the stories of investors from that period. Here are a few takeaways I've found, and maybe others will show more:

1) Both Flipping and Buy-and-Hold strategies become riskier. Flippers shoulder the greatest burden because of the higher interest rates they usually pay using hard money or private loans. While flippers can usually rehab their property before the interest rates eat into the overall bottom-line, the property may take many more months to sell if the market turns and the profit disappears. Buy-and-Hold investors fare better because they are less concerned about the immediate value of the home, but a downturn or recession (even a local one) often comes with job losses. When renters lose jobs, leases are terminated and houses go vacant for months; pushing landlords to lower rents and limiting profitability of the investment. As a result, investors all flock to auctions and foreclosures in an attempt to purchase recession-proof, bottom-dollar deals which they can still turn into a successful investment.

2) Note strategies remain a solid investment. Notes require up-front capital and are usually approached as a secondary strategy by real-estate investors. But in a market where many would-be homeowners cannot qualify for a traditional mortgage, notes can be helpful to the homebuyer as well as the note originator. The homebuyer gets to purchase a property, and the originator receives a significant return on investment (perhaps 6-10%) with no upkeep responsibilities. If the homebuyer becomes unable to pay the mortgage, the property is eventually repossessed by the note originator. Alternatively, notes can also pay off early - including all the interest required for the full term - which can push the ROI even higher. With no renters to manage, and an uncertain job market actually helping the strategy, notes can be a good way to get through a market downturn.

3) Caution is rewarded. Investors who have diversified their assets beyond real estate into retirement accounts which include a significant portion of bonds will fare better than those with overleveraged debt and nothing in the bank. Cash reserves can accommodate periods of vacancy, and properties which had significant cash flow in the beginning will probably retain some cash flow even in a down market. Properties which were risky even before the downturn – with negative cash flow or dependence on market appreciation for profitability – will hurt investors’ chances of surviving the downturn with all assets intact.

A few examples of people who seem to have good strategies for a market in flux:

Show 2 with Karen Rittenhouse on “subject-to” deals, which seems like an excellent strategy in a market where homeowners may have just lost their jobs and can’t afford their mortgage, but want to stay in their house

Show 19 with Tracy Royce, discussing short sale strategies in great detail. She makes a great case for understanding the local market and solving peoples’ problems.

Show 28 with Dave Van Horn, which had a very useful summary of note investing

BP Community,

The market where I have been investing is experiencing a downturn in home prices.  There is now a glut of 3 bedroom, 2 bathroom homes, which I like to use for rentals, but most of the homeowners are clinging to their high asking prices in an effort to recoup the paint, carpet, and upgrade work they have done before the sale. 

Does anyone have a creative-financing strategy for purchasing homes in this market?  I imagine there is a way to offer the original asking price but change the terms to be more favorable; either a lower interest rate, a no-interest loan for the first five years, an extended fixed-rate loan, or something similar.  It would be great to find a solution where the sellers can achieve their high asking prices, and yet remain a profitable investment for the investor who can close the deal. 

Hi Lisa,

Welcome to BP!  I am investing in the San Angelo area as well.  Feel free to check out my bio, and let me know if you find any helpful meetup groups.  I don't live in the area anymore, but I am still interested in acquiring properties while the oil prices are dropping - let me know if you are interested in potentially working together on a few projects. 

Cheers!

Don

Recommend readers of this thread reference this other one for guidance:

https://www.biggerpockets.com/forums/93/topics/64421-yellow-letter-marketing

Short answer, here's a good do-it-yourself website explaining yellow letters:

http://www.strugglinginvestor.com/2009/08/how-to-do-it-yourself-yellow-letter-marketing/

Thanks to Fred Delariva for this link!