All Forum Posts by: Thomas Dorwin

I purchased my first three single family properties this year. All in the Midwest (MI). First was an REO, second was a short sale, third was an auction property.

The first was a 3 br/1 ba foreclosure for $50,000 and I sank another $7000 into a kitchen and bath remodel. It is worth about $65,000 based on comps.  

The second home was a 3 br/1ba ranch short sale that I got for $64,000 and sank an additional $5,000 for a new roof, carpet and garage door.  It is worth about $79,000 based on comps.  

The last house, also a 3 BR, 1 ba home, was bought at auction from the USDA for $27,700 dollars 2 weeks ago. I will have $35k into it, $3k for auction fees, about $3K in materials and labor for minor repairs and paint.  It is worth about $69,000 based on local comps.   

The first two properties were bought with 20% down and a local bank financing the balance. The third house I bought with cash. The first two properties rented quickly for $700 and $750 respectively. I figure the third one will touch about the same, $700 to 750. I have great credit, a good job and I keep enough cash in my account with that bank to support more than 6 months of mortgage payments at all times.  

I realize I get the benefit of leverage (and a tax deduction) on the first two financed properties, but I literally paid twice as much for them as the auction SFH purchase and they net the same cash flow as the auction house. So it seems like I may be better off paying cash in these kinds of deals and then using the newly acquired property as collateral to get cash for the next deal if I can.  Any thoughts on this approach?  

In other words, I would use the paid off home I bought at auction as collateral with a bank for a loan, then do a cash deal on the next SFH deal I find. It seems like I should be able to get 40 to 45,000 if the house I bought at auction for 27k if it appraises at $60,000+. With that 40+ another $10,000 or so of my own, I could theoretically pay cash for good deals as I find them in the $50-$60,000 range, then take out a collateralized loan on that new property and repeat. Is this possible or am I missing something? Do the loans count against me like the mortgages (where having more than 4 is a problem for some banks)?   

On finding good deals, I am thinking about keeping tabs on MLS properties that do not sell and circling back 6  months or so after the listing expires to see if I can strike a better deal. Anyone done that successfully?  

Thanks Rob and Zach.  Thats very helpful.  He is impatient and wants to "be done" and "move on".  I tell him to be patient, not lock in the loss. 

I take it by the POAM and FPO AP address you are Navy?  I am Navy retired. I see you are starting out by educating yourself with the reading and saving case. Good deal. 

The savings seem to be quite aggressive, what 2500 a month?  That is considerable regardless of paygrade.  Its a great goal, but don't forget to live and have some fun along the way!  I also noticed you seem to mix flips, wholesaling, buy and hold.  Do you have a preference?  I am more of a buy and hold investor myself.  I might do a flip, but at this point in my career (I am in a second post/Navy career), time is tight and I prefer to target a certain type of buy and hold ($50-60k) that I can easily finance with my earned income and which produces a nice return (average $750 a month rent),  It is a nice way to diversify our portfolio and limit risk.  Flips are risky.  I don't have the desire to wholesale, so this works for me. 

I guess what I am saying is out beyond 3-5 years it gets tough to forecast.  Don't get discouraged if life gets in the way.  Consider finding your passion and focus there - maybe a better strategy then doing everything is to focus on what you like best,  If you are good with your hands and risk tolerant, maybe flips are your thing.  Of if you like to sell, go with wholesaling. 

Regardless, good luck shipmate!  You are on the right track!

PS - I just looked at your homepage.  Are you in Yokosuka?  Atsugi?  I retired from Japan in 2009. 

I have a young friend, lets call him "Matt" who owns a 4 BR 2.5 BA in a northern VA city just outside Washington, DC.

Matt listed the house with an agent asking $439,000 and hopes to sell it at $430,000.  He is upside down on the property owing $427,000, and is also carrying a note with his credit union for $60,000 in improvements he made on the property in the last year and a half.  If he sells, he takes a total loss of $78,000. He has a rock star 3.25% 30 yr VA loan. The house is in great shape in a good neighborhood.

He is moving into one of his in-law's nearby rentals, rent free,  There is no pressure to sell other than he wants to get it sold, take the "hit" while interest rates are good, thinking doing so will "clear" him to invest in FL real estate (his dream) sooner.  He figures its better to absorb the loss because he and his spouse clear about $10,000 a month (combined) from their jobs and figure they can pay off the debt in 2 to 3 years. 

I suggested turning the property into a rental.  My thinking is he can get depreciation and some favorable tax treatment by turning it into an investment/rental against all of that earned income, and learn about being a landlord (a goal of his) as well. 

I think he can get rents close to the mortgage amount ($2500), he thinks more like $2000, but my point to him is even if he sustains a loss of $500 a month, he could do that for about 12.5 years (150 months) before he will have sustained that $78,000 loss - and in the meantime he will have (most likely) had appreciation on the house, and depreciation and business loss against earned income for all that time,  So I think he comes out way ahead. 

Thoughts?  Am I steering him wrong to hold it and make it a rental?