All Forum Posts by: Spencer Cornelia

@Account Closed "i just gave up" - something I don't do.

What was the address?  What was the purchase price?  Why did cash flow never materialize?

@Caleb Heimsoth Yes, my property manager said that a similar unit rents for $800/month down the street.  I don't think mine will get that, but they should get to $700/month a unit when these tenants move out or over the next 2 years.  Amortized over 30 years, no balloon.  I do have a good bit of equity.  I owe $240k and it's worth roughly $300k.  Yes agent pulled comps.  Lawyers demanded money up front.  All of the major cap ex have been completed so my capex/repair budget is going to be pretty low.  I'm also not looking at this as a cash flow income source.  It's a long term play with ability for huge equity in 6-8 years.

@Brandon Sturgill I'll probably make a YouTube video with the details.  My channel is my full name.

@Brandon Carriere there are repurcussions to buying bad deals.  Thankfully, this is not one.

@Account Closed "If you really got a deal you should sell and cash in."  Telling people what they should do without knowing their goals is a waste of air (or shall I say characters on a screen).  The property has great cash flow for $20k down payment and I believe I will have ~$140k of equity within 6-8 years.  Why would I sell now?  Even more importantly, you aren't aware that the seller wants the monthly cash flow because he just retired which is why he gave me the opportunity for seller financing.  I wouldn't screw him over for a quick $20k of cash (my net after closing costs).  "Cash flow never materializes on these Vegas cash cows."  Not sure what your intentions were with this quote.  It's not a cash cow given the low down payment but the rents will increase ~$200/month total by 2020 giving me ~$900/month cash flow on a $20k down payment.  Solid numbers.

My plan is to share my journey with Bigger Pockets by making posts detailing every big milestone I reach in my Real Estate Investing career.

Part 1 can be found here.

Part 2 can be found here.

4 unit in Las Vegas, Seller Financed, Found by Handwritten Letter

Today I closed on a 4plex in Las Vegas, NV. I shared a picture of me on Facebook in front of the property with captivating text and embraced the never ending likes and comments.

What my non real estate investing friends see: Wow Spencer is really killing it. He bought a multi family 4plex today. I’m sure he saved A LOT of money, money I don’t have of course, and put it all on this property. There’s no way I can do it because I don’t have the money!

What my real estate investing friends see: Wow great job Spencer, I remember my first property and the jubilation it brings. I’m going to message him and see what the numbers are and see if there’s a story behind this. In my experience, there’s always a story and sometimes the details in the deal are much different than one would imagine.

What I see: someone who endured 12 months of anticipation, anger, humility, learning, letdown, stress, joy, and most importantly a mother flipping desire to take control of every facet of every transaction I will partake in in the near future.

I’m emotionally exhausted thinking about what transpired over the previous 12 months. Today was me running across the finish line of a marathon I never trained for.

The deal is a gold mine. I purchased the property for $260,000 with only $20,000 down. The seller agreed to finance the property over 30 years on only 6.5% interest. The property is worth roughly $300,000 today and, by my expectation, will be worth $350,000 within 24 months. If you want the exact numbers, scroll to the bottom.

The Beginning….

In November 2017, I was eager to purchase my first investment property. On a salary that did not provide enough to simply be able to save up enough to play ball in this market, I knew I’d need to get creative.

I had read a lot about buying lists and writing mailers to property owners. So I figured why not try that!

After purchasing enough envelopes to throw off the 1985 NBA draft lottery, I decided to purchase a list from ListSource.

My initial plan was to wholesale. I didn’t really have a plan other than to put myself out there and get creative. If a property didn’t make sense to wholesale, then maybe I could find a way to buy it.

This post is not about those who called and wanted to 1031. It’s about the one owner who changed my life forever. They (husband and wife) called and said that they would be interested in selling their 4plex for the right price.

Eventually, I brought up the idea of me buying the property. I had found out that the seller did not have a mortgage and realized that he may be open to seller financing. I softly pitched him the idea and benefits of seller financing a property.

I’m such a closer! 

I can’t remember the exact conversations and the order in which I pitched seller financing, but I remember him talking it over with his wife and calling me back letting me know he would be open to it.

I decided to give him three different offers. I believed a fair market price was $245,000 at that moment in time. I can’t remember the other 2 offers but they were something along the lines of:

a. $245,000 purchase with 6% interest rate

b. $260,000 purchase with 5% interest rate

c. $270,000 purchase with 4% interest rate

I wanted to give him a fair offer and one that worked for me. I mentioned that I had $20,000 in cash, that I would cover all lawyer expenses, all closing costs, and any other expense that came up. Keep in mind that this was in early December 2017 and when they agreed to option B above, I was technically overpaying by roughly $15,000.

I decided to offer them more for their property than it was worth because they were giving me a great opportunity and I wouldn't have to worry about any PMI with a low down payment, which still made my numbers work. Additionally, I wouldn't even qualify for 25% down on any 4plex so this was my only option.

We agreed to the deal with the stipulations listed above. 

Now is when the fun began.

The owner told me that the property needed a little work and he wouldn’t be able to officially sell for a few months, or until the work was completed. He didn’t share every detail with me. I had no idea how distressed he was until months later.

At this point, I knew I needed to get him to sign a contract. I didn’t want to make a beginner mistake and just take his word from a couple of phone conversations (they lived NYC). Being too eager to close on my first deal, I didn’t really hear what he was saying. The property was a mess, needed massive upgrades everywhere, and had tenants that needed to be evicted. The property manager had just been hired and needed to basically restart on all of the tenants.

Fast forward a couple of months to March 2018. I decide to get a lawyer to draft up a contract agreement for this purchase. I also need to setup an LLC. And I need help closing. I write a check for $9500.

He drafts up a legal agreement. I send to owners. They do not sign. They still think the property is months away from being ready to sell. Side note: the sellers are really nice people. They’re not only doing me a solid but they also wanted to make sure the property was 100% ready for me to takeover. And they kept their word throughout the whole process.

Keep in mind that I’m still super eager to close on my first property. Every month that passes by is another month of me thinking I’m getting a deal when I hadn’t really gotten any closer to closing.

After not hearing from them for a little while and not sensing any progress towards closing, I call them and let them know I’d be willing to increase the interest rate from 5% to 6.5%. I can’t remember the exact date of this, but interest rates were rising. And most importantly, the values of 4plex in Las Vegas were rising by the week.

Fast forward a couple of months to August 2018. The owner is close to being ready to sell and decides it’s time to find a lawyer. During this month, I talk to owner over multiple weeks and hear of him continually looking for a lawyer. I also hired an inspector to inspect the property for me. Nothing major found. He even said it went as well as expected for a 4plex in Las Vegas. I’m now even more ready to close.

At this point, I’m currently out of pocket $10,000 and still don’t have any official document showing I will be buying the property. This was very emotionally stressful for me.

He finally finds a lawyer. Per our agreement, I pay his lawyer fees which amount to $2,000.

I am ready to close. Now that we both have a lawyer, I believe closing should be happening any week now. And I’m up to $12,000 out of pocket.

Side note: at this point, I have been speaking about this 4plex to every one I meet for at least a month now. It was very frustrating constantly talking about a deal that never seemed to close.

No One Cares About Your Business More Than You

The seller’s lawyer takes forever to respond, habitually. 10 days to respond here, 6 days to respond there. Completely unacceptable. Tick tick tick. The clock keeps moving forward and we haven’t closed.

Then he has the gall to go on vacation for multiple weeks in September. Still haven’t closed.

October comes and he’s finally produced the documents to close. But my lawyer goes on vacation for two weeks. Side note: my lawyer was amazing and patient throughout the whole process. If you need an awesome lawyer in Las Vegas, I have your guy.

Now I’m still out over $12,000 to close on a deal that was supposed to close multiple months ago.

I was very annoyed. Very emotionally drained. This lawyer (his not mine) got paid, is taking his sweet time, and causing me stress.

Side note: at any moment, the sellers could have walked and I would have been out $12,000. His lawyer taking forever was opening me up for risk of the sellers walking. I never sensed this as the owners developed a good relationship with me over the time we had been communicating, but it’s a greater than 0% chance.

November comes. Looks like everything is lined up to close at the end of this month. 3+ months too late, but I’m still getting a hell of a deal. The owner has finally signed official documents and we pass off everything to title. I confirm with title that they will close on November 30th. They confirm. I make sure all documents are with title company multiple days before their deadline.

So of course what happens. Title company sends me an email on November 29 at 5pm saying they will not be able to officially close on November 30th. Of course. Because what else would you be doing for 2 weeks but NOT GETTING READY TO CLOSE ON THIS PROPERTY.

At this point, I nearly go nuclear. I’m done dealing with incompetence and people doing their absolute best to trigger me. I’m so enraged. After a year of dealing with this property, there was no more fitting conclusion then having the title company saying they can’t close on the day they say they would close. Why do they even exist. At this point, I become even more interested in block chain SO THAT ALL OF THESE INCOMPETENT ***** CAN GET MOVED OUT OF THE WAY IN FAVOR OF BLOCKCHAIN. My thoughts aren’t polite. I want nothing to do with anyone standing in my way between closing this deal. I contemplate getting my license for everything so I can fire everyone in my life.

Their reasoning was that because the owners lived out of state, the title company wouldn’t be able to receive the official docs back in time. This must have been the first time this incompetent title company ever attempted to close a property with an out-of-state owner.

So of course I had to wait a few extra days. But not without anticipating a closing on Tuesday only to find out that the county would take another day to officially record. So the title company said there would be no problem closing on the property on the 30th, only to then officially close December 5th.

When you first begin looking into real estate investing, you envision the only issue that exists is simply not having enough capital. Well my friends, dealing with people who only care 1% about your business, who get paid before getting the job done, and do their best to slow down your operations is what will cause more headaches than not having enough money will.

I’m glad to have had this experience, not only for the rewards, but also because I learned something really valuable:

I can’t trust a single soul other than myself. I must be adamant about ensuring everyone involved in my operation is 100% in line with what I’m trying to accomplish or it will cost them. Either cash today or missing out on big business later.

Here's a picture of me in front of the 4plex.  It is located in Northeast Las Vegas.  The 5 represents the number of units I own.

@Costa Deir

Seller:
massive reduction in tax hit when selling
receives 6.5% interest rate for 30 years without any work
worst case scenario, I default --> he gets back property with my down payment and payments and can re-sell
nice check every month ($1,513 in my case)
can sell with no closing costs, agent fees, or lawyer fees (I covered these as our agreement)

Buyer:
no rules for down payment - for me, I'm only putting down like 8% on a multi family buy and hold
I get a cash flowing property with only $20k out of my pocket
no PMI if less than 20% down payment (this is huge help to cash flow)
**it may not count towards mortgage limit through the eyes of a lender**  --> not sure about this, I'll need to do some research to confirm.

@Richard -- you never know what a seller's interests are.  Mine wanted to retire and a $1,513 check every month is exactly what he wanted.  He knows the property and how it performs and knows that worst case scenario, he keeps all of my money and equity and gets the property back.

I'm in agreement to buy a 4plex off market with seller financing.  I sent out mailers to 4plex owners here in Las Vegas.  I pitched the idea to the owner and he was the ideal person to seller finance - owned 100%, no need for huge lump sum of cash, and super nice guy wanting to help out a beginner.  If you are good at selling property owners on the benefits (seller financing is win-win for both sides in my opinion), then you should offer up the idea every time you speak to a property owner who does not have a mortgage.  As for finding them - I can't imagine there's a direct strategy other than calling and asking.

@Paul Sweetman are your deals in Lebanon?  Surrounding areas?  Cincinnati?

@Joseph Cornwell is located in Cincinnati.  He is an investor and realtor.

2.75% is great because you're basically guaranteed to make money on what I like to call Real Estate Arbitrage.  You borrow at 2.75% and turn around and make 6-10% on a rental property and keep the difference.  I'm very thankful for 5% given the current rates.

I am closing on a HELOC for the condo I purchased in 2016. The HELOC would serve as my reserves for a 4plex I'm in the process of purchasing. I am a little time crunched on needing the funds since I can't close on the 4plex without them.

I walked into Wells Fargo and the lady said they offer up to 85% LTV and the rates begin at about 7.25%. Given that I would receive a credit of .25% for being a current customer and for establishing autopay from the start, I anticipated anywhere from 7-7.5% interest rate after the underwriting process. I was ecstatic. These were the exact terms I was hoping for.

The lady who would be handling my application called me the following day notifying me that they offer a max of 80% LTV and that my rate would be 9.25%. Thanks for the bait and switch Wells Fargo. Since I was in a time crunch, I didn't have the leverage to tell them no thanks and go elsewhere. I was slightly frustrated though.

A few days later, they appraised my property for $155k. But they said the underwriter will allow a counter offer if you can provide reason to believe your property is worth more via comps, recent sales, and links to these sales from Zillow and/or Redfin.

I felt optimistic since my real estate agent buddy sent over comps showing that my property should appraise for at least $165k, since very recent sales of $170k, $175k, and $180k would indicate $155k was way too low.  I even included links to very recent sales on Redfin of the properties.

After crafting one of the best emails I’ve ever sent, the underwriter basically ignored them as the result was the same: Wells Fargo still believed my property was only worth $155k even though the numbers indicate otherwise.

Fuming, I decided to call Clark County Credit Union. The lady said they only go to 75% LTV, but the computer appraisal had my property at $171k.

I couldn’t imagine something being 1000x better than my experience with Wells Fargo, but CCCU did. The lady then sent an email stating that my interest rate would be 5%.

Today I am closing with these terms: $35k HELOC at 5% interest rate as opposed to Wells Fargo's best offer of $30k HELOC at 9.25% interest.

Thankfully I was able to talk to the property owner to push the closing date back a few weeks so I could get my HELOC closed.

I couldn’t be more thankful for my local credit union. 

In the process, I learned that any credit pulls within a 30 day period only count as one hit on your report. Because of this, I see no reason to not shop around as much as possible when dealing with any lenders.  The difference could be pretty drastic.

Please comment below if you’ve shared a similar experience with a big bank.