The other day I was asked to show a friend all the steps required to find and buy a fixer upper house here in the Atlanta market. Not a hard task, but doing it the right way is. That said I decided to keep a little log of how things are going with the process. So if any of you are interested please follow along throughout the month as I make this thing work. Give me you thoughts if anything that I do doesn't make sense to ya. If any body else out there wants to run a parallel track in your market please do so everyone can see how well this works in different areas of the country. That said, Here goes nothing....


In addition to the wholesale deals that I provide to other investors, from time to time I actually do buy, repair and flip houses. Here in the Atlanta market I prefer to buy houses no more than 35 years old in the north and eastern suburbs, such as Lawrenceville, Snellville, Lithonia and Stone Mountain, GA. The reason that I do this is because in these areas the values tend to be reasonable stable, and the homes are modern with the basic amenities that home buyers (not renters) expect to see.

So for the purpose of this exercise I'll be looking for 3 - 5 bedroom homes with a minimum 2 full bathrooms and at least 1,200 square feet of livable space. I'm not too concerned on whether or not it has a basement, nor am I concerned with the size of the yard. I'm just looking for a deal that feels good to me. On more thing, I don't want to do too much work in the way of rehab, so we'll try to keep the repairs under $20k, which will basically be a house with cosmetic to cosmetic repairs.

My goal for this property is to be able to flip it within 3 to 8 months and to make a profit of at least $25,000 from the deal. I'll use a private lender to fund the deal, paying out somewhere between 10 - 15% in interest to the private lender or I'll partner with another investor with a profit sharing split. I'll find a private lender by calling list of contacts, networking and hitting up prior lenders.

I'll start by looking for properties on the MLS, on other investors websites, on craigslist, and by networking at the local real estate investor associations (REIA's) here in Atlanta, those being the Georgia Real Estate Investors Association, North Metro Reia, and IRCA-Atlanta. Hopefully I'll be able to find about 10 good candidates to look at so that I can get 5 to make offers on, so that I can close on the one I like. This house should have an after repaired value of between $100k to $180k and I'm going to have to get it cheap; about 30 - 40 cents on the dollar (ARV).

I'll have one of my contractors inspect it and one of my appraisers confirm the after repair value. Stay tuned to see how this goes....

Good idea for a thread, Omar. It'll be interesting to see how this plays out.

thanks. It'll also get me back into the seeking private funds game (took too long a break from it)

Ok, I did the math and it looks something like this:

In my little corner of the Atlanta market a good number of the middle class home buyers want and can qualify for homes in the $100 - $200k range, which for the most part are your garden variety, modern 3-5 bedroom room homes with 2 -3 baths, less than 1/4 an acre and a two car garage. That being the case I'll target houses in the mid-range of that, about $150k in value after all the repairs are done (ARV). From that amount i want to subtract all my costs to get my desired purchase price, which includes repairs, closing costs, early profits, marketing expenses, holding expenses and or interest.

As I mentioned in the last post, I only want to do cosmetic to moderate repairs on a house, so the max I'll put into repairs is $15K

Closing costs will run me about $1,500

I aways give myself a guaranteed bit of profits early of at least $10k.

Marketing expense is the one item that most investors screw up on (besides repairs). That being the case we have to factor that in as well. When reselling I always plan for the process to take at least 6 months using a combination of ads ($250 a month x 6 = $1,500), signs (15 per week x $4 each sign x 26 weeks = $1,560), direct mail (500 post cards a month to renters x .31 cents per card x 6 months = $930) and a flat fee listing on the realtors' multiple listing service (MLS) at $400. Total cost of six months of marketing to sell a house estimated at $4,390

Misc. expense cause things always pop up that you didn't anticipate

My numbers for a $150k house will look like this:

ARV $150,000
X 60% = 90,000 (search the forum as to why people use 60%-65%)
Less project costs:
Rehab = $15,000
Closing cost = $1,500
Early profit = $10,000
Marketing = $4,390
Misc = $3,000
Total Costs = $33,890
MAX Allowable Offer pay for the house (Gross MAO) = $90,000-$33,890= $56,110

I plan on using a private lender to fund this so I'll have to factor in my interest expense. Lets assume that it'll be 12% annualized based on the 60% of the ARV ($90k x 12% =$10,800). Subtract the interest expense from the MAO to get the net MAO ($56,110-10,800=$45,310).

Again the net MAO is the max I'm willing to pay for the house; that being the case I can't pay the MAO. So I'll multiply the net MAO by 85% to get my starting point for making offers ($45,310 x 85%=$38,514).


BTW, just in case you're wondering, the difference between the 60% of the ARV and the ARV will be used to cover the expenses of closing out the deal once I have found a qualified buyer. Those expenses include realtor expenses (in the case where the BUYER is brought by a realtor), Closing costs and other concessions to the buyer (such as decorator allowances or fixing the stupid stuff their home inspector finds to scare them with). It also includes the cushion that i have for lowering my sales price to account for the fact that some buyers may not qualify for a $150k purchase, but may for lets say a $135k one. Anything left over after all of those costs are covered are considered "gravy" on top of my early profit of $10k that I already took.

Now that I know my numbers, all i need to do now is to go out and find some deals. In todays market it's going to be really hard finding private sellers with that much equity, so I'll have to deal with bank owned properties, HUD and VA homes, probates and other investors. So we'll look at MLS, REO realtor sites, HUD's website, other wholesalers websites and do a little networking.

I'll show how that works tomorrow. In the mean time I got to start working on finding a couple of potential private lenders (cash or credit). Please let me know if anything i mentioned so far was unclear.

Hey, I learned something new today, HUD has issues! It requires the buyer to jump thru a bunch of hoops just to make an offer on a property (BTW, I have never made a HUD purchase). That said I will have to register on their site with pemco, fill out a bunch of forms and disclosures and have a licensed realtor submit my offer for me for each of the houses I am interested in. Those forms include:

1. HUD's contract submission checklist
2. HUD's sales contract (form HUD-9548)
3. The electronic filing of HUD-9548 contract addendum
4. Radon gas and mold notice and release agreement (HUD form-6548-E)
5. Addendum to sales contract for owner occupant (if I was to buy as one, which I'm not)
6. Earnest money certification
7. Pre-qualification letter
8. Forfeiture and extension policy

You know, this is why I prefer to work with private sellers; a lot less paper work and drama.

Anyway, once I figure out which houses I'm going to bid on, I'll fill out all these forms and submit everything through one the beautiful realtor I work with. I'll let ya know how that goes later..
til then..

p.s for anyone that has dealt with HUD property bids, please give me your thoughts on how to make this go smoothly.

Ok. Looking at the list of properties on the MLS, Craigslist and from other investors I have cut the list of potential candidates down to about 33. I did this by looking at the asking prices and who the owners are. If the asking prices were higher than 90k I dropped them (what's the point if they aren't close to where I need them to be now?); also if the property owners are regular people then I dropped them as well, as the debt that they owed was higher than the amount I was willing to pay for the houses.

One last thing, I also dropped houses in areas that I don't like or don't want to travel to, like Buford or Sugar Hill, GA. I have never bought or sold any houses out in those areas and neither do I know much about those areas; that being the case they had to go.

From the remaining properties I went to the MLS to view photos of the properties and to get some details on what I am working with. 3 of the properties were so ugly that even Ron Legrand wouldn't touch them (badly designed), 2 others were listed as pending sale; I'll monitior their statuses. From the remaining properties I printed out the MLS listing pages and the tax records from the county tax assessors websites for review.

From the HUD properties list I did the same steps and have come up with about 10 that will be of interest. My next steps are to go out today to take photos, to inspect the properties for repairs and to see if I like the neighborhoods (don't want houses in areas that homebuyers wouldn't feel comfortable in). In that regards I'm looking to make sure that the repairs are no more than $15k, that the houses don't have a weird feel to them, that the neighborhoods are not in obviously high crime areas and that the properties are not located on any main roads or near industrial areas.

Here are just a few of the ones that I'll be looking at:

3440 centerville rosebud road, snellville, ga 30039
3103 deshong dr, stone mountain, ga 30087
293 bicentennial drive, stone mountain, ga 30087


Before I leave of course, I have to plan my route with mapquest or google maps. I'll let you know later today how this works out and what I saw. I'll also discuss how I'm going to find some private lenders.

Til next time, have a great day...

So I went out in the afternoon wednesday and took a look at 15 houses. Out of those I eliminated 5 for various reasons like being way too ugly, being on main or unpaved streets or having bad interior layouts.

If you're interested in seeing what these look like, PM and I'll send photos. You can also look them up online at any of the realtor sites that are linked to MLS for the Atlanta area. Here are a few of the ones that I eliminated:

3440 centerville rosebud road, snellville, ga 30039 (looks like an ugly green double wide)
3103 deshong dr, stone mountain, ga 30087 (under contract)
293 bicentennial drive, stone mountain, ga 30087 (was an expired listing, now occupied)
4437 amy road, snellville ga 30039 (too small and on main road)
8466 donald road, snellville ga 30039 (beautiful home on unpaved road filled with huge potholes)

I was able to get into 5 of the ten by calling the listing agent for the lock box code or entering thru already open doors. The remainder I was able to look through the windows to quickly get a feel for the interior.

3 of these houses are in great condition, needing less than $10k in repairs to bring them to retailable condition. Working out deals on these might take awhile, meaning that I might have to work the REO broker awhile to get the prices that I want to buy them for; but I wont let that stop me.

5 houses need between $10k - $15k in repairs, so that'll give me a better shot. The other two will need major repairs above $15k, which gives me more leverage with the banks; one of the two had a squatter living inside.


Tomorrow I'll see the remaining houses from the MLS and from my investor contacts. I'll also take a look at 10 of the HUD homes as well. Once I have completed my inspections I'll start crafting my offers based on the math and the situations that I see.

In addition to crafting the offers I also need to start seeking private funds. I'll do that by taking the numbers from the best 3 deals and crafting an offering package. I'll be going to 2 real estate networking events tomorrow, so I need to get this done right before I go so that I can pitch them. It doesn't matter if I don't have the house secured yet in this step, all that matters is that I have a potential deal
with the returns that a private lender would expect. Once I have an interested lender that can perform quickly, I can find the best deal for them.

In the morning (or later tonight) I'll show the math and private loan offers and how they work. Til then...

Ok, Thursday is my day for finding a couple of private lenders. I'll do this via networking at a couple of real estate investing and business events. Basically I'm just going to run my mouth and let folks know what I do and what I'm looking for. I'll pitch the following deal for funding a property on a flyer like this with an attached photo and appraisal (if some of you more experience investors could take a look at my numbers and the scenario, I would appreciate the feedback): The bold sections are my comments to you.

This is where I insert a color photo of the property

2852 QUINBERY CT, SNELLVILLE, GA

Estimated After Repair Value (ARV): $135,000

Situation: This is a property that I need funding for. It is a 3 bed, 3 bath, frame home, built in 1985, needing a bunch of mostly cosmetic repairs of about $18k. Market rent is estimated at $1,200 per month. It's a bank owned property that I’ll be closing around January 30, 2009. I expect it to take between 6 to 12 months to resale at full market value (ARV) to an owner occupant buyer. I also have the option of offering it on a lease to own basis to buyers with minor credit issues that can be repaired.

Purchase price: $38,900

Est. Repairs needed are as follows:

Interior paint 1,500
Exterior paint 2,500
Carpet 2,500
HVAC 3,000
Front & rear deck 2,000
Appliances 1,000
Landscaping 500
Plumbing 1,000
Gutter repairs 1,000
Misc 1,200
Roof repairs 1,000
Flooring 800
Total Est repairs 18,000

-------------------------------------------------------------

I'll let them know that I am seeking funding at either of two levels:

Option 1: Private credit partner for a purchase and repair hard money loan for $53,892 which will cover acquisition, rehab and their points. The credit partner will secure the hard money loan and I’ll service the debt with an additional $29,000 that I’ll secure to cover the down payment, costs of marketing, closing costs, misc expenses and holding costs for 12 months (assuming that I don’t have a lease to own buyer paying rent over that period). In return the credit partner will receive an agreed upon fee to be paid in two parts; at closing and when the property is resold.

Combined debt structure will be as follows:

After Repair Value $135,000
1st Position loan $ 53,892
2nd Position loan $ 29,000
Total Proposed debt $82,892
Combined LTV 61%

I let the private credit partner decide how much the deal is worth to them so that we can negotiate an appropriate fee. I also give another option:

Option 2: Private lender will fund the deal completely at 60% LTV ($81,000), I’ll manage the entire project, repairs, marketing and resale. In return private lender will receive a 1st position mortgage deed, a certified appraisal, title insurance, property insurance, and a personally backed promissory note with the following terms: 60 month term, 10% interest only accruing payments, minimum guaranteed interest 6 months (if the house sells in less than 6 months a minimum 6 months interest is paid out; if it takes longer than 6 months normal accruing occurs). Target resale price is $135,000 with anticipated 6 – 12 month period for resale to a home buyer securing a third party mortgage loan.

Here is the cost flow:

Purchase price: 38,900
Repairs Estimated $18,000
Additional funds needed $24,100
Closing costs, Maintenance, marketing and Misc expenses
Total funding needed $81,000

I start with 10% interest and work upwards to the max that I'm willing to pay. I never make monthly payments cause that's negative cash flow. If the lender doesn't like either of the two options presented, I bring up 3rd and 4th options or pass.

I also give them comps on the property; whats actively for sell on the MLS and what has sold over the past 12 months. This lets them see that the value is there.


Active listings and sold properties

Active Listings
Address ML# List Price Bed Bath Built Status
2971 QUINBERY DR 3698844 $148,000 * 3 3/0 1984 Active
3718 TRENTON DRIVE 3786744 $144,900 3 2/1 1983 Active
2724 Mountberry Drive 3803838 $138,900 4 2/0 1986 Active
3838 TRENTON DR 3807440 $137,000 3 2/1 1986 Active
2717 Mountbery Dr 3831656 $134,900 3 2/1 1986 Active
3698 Trenton Drive 3797339 $120,000 4 2/1 1985 Active

Sold Houses
Address Date sold Sale Price Bed Bath Built Dist
3822 Holland Dr 9/15/08 $108,000 3 2 1984 0.10
3075 Arden Way 5/30/08 $140,000 4 2 1982 0.35
3768 September Way 4/30/08 $125,000 3 3 1985 0.28
3830 Menloe Way 4/25/08 $140,000 3 2 1984 0.16
3843 Holland Dr 2/18/08 $140,000 3 3 1984 0.13
3692 Holland Dr 1/25/08 $143,000 3 3 1985 0.27

-----------------------
From the 3 networking events I'll be attending I expect to find at least 3 potential private lenders / partners. I'll let you know in the next edition how that works out.

In the mean time I still need to finish viewing properties and start making offers.

Take a few minutes to look at the numbers again, let me know if you're having any issues following this...

Lots of good detail in your thread. Again, thanks for sharing all of this, Hassan.
You mentioned HUD. I haven't tried to deal with a HUD home in many years. The few times I did try way back when, I found the process too slow and cumbersome. Like you said, nothing beats dealing direct with a homeowner when possible.
Quick question for you: I'm not in Georgia, so maybe you can tell me about the town of Scottdale? A possible deal was brought to my attention, but my ignorance of the area is big. Any insights you can offer, Hassan, are appreciated.

It's an expensive little suburb of Atlanta on the east side of town. It borders the downtown Decatur area. I have one on my site at www.tbdinvesting.com for you to compare yours to. What else would you like to know about the area?

I'm surprised to read it's "an expensive little suburb", because the few properties I have searched out have been anything but. The house in question was mentioned to me by a friend I know in the area. Asking price seems way below value, so that gets my attention, but also makes my BS detector ring. The limited pictures I have of the house and the area are anything but an expensive little suburb. Maybe this one is on the wrong side of the tracks?

probably. what's the address?

Well I'm back. Went to one networking event and actually pitched 2 potential deals; the one I mentioned in the last post and another in stone mountain, GA. Didn't get a great response but I was pretty smooth with my presentation and passed out 20 flyers as I spoke to a group of about 20 real estate people.

I can;t stop there, got to keep on reaching out, so this evening I'll be presenting the same info to an investor that funded a subject to deal that I sold to another investor. I'll also go to another investor networking event later on. The trick to landing private money is first coming up with the opportunity, then packaging it, presenting it to as many people as you can, and doing followup quickly.

That said, I have some more work to do and people to see, later...

Today I met with one potential private investor over dinner and discussed the deal. I also met with another one on monday at lunch. Unfortunately neither was able to provide funds right now (bummer). They both however have family and friends that may be interested. I'll just have to follow up and stay in touch.

Can't stop here though, still need find some lenders. That said I need to find at least 5 networking events to go to next week and the week after (and so on) until I find and secure at least four private lenders and credit partners. Next week it'll be the Ga real estate investors association, the North Metro REIA and one of its subgroups. I'll find a couple more places to go to tomorrow; I also need to meet at least 3 private lenders each week for one on one. I'll let ya know how that goes as I go along...

Hassan, I checked the map and it appears to be only about half a mile from your Scottdale property. Why don't you PM me and let's talk. Maybe we can do something with this jointly, or you can tell me it is an absolute disaster and I'm better off buying stock in GM.

Ok, I'm back after a small mental break. So far I have decided what I want to look for and where I want it to be. I have identified and viewed several candidates from the MLS, craigslist, HUD and other investors property list. I also did the math to see how I want the costs to flow and have started looking for private money. I haven't made any offers yet and have a few more properties to look at before I do; a step I'll complete later this week.

In the mean time I have some additional work that I need to do, which is identifying the population of potential buyers that I'll be marketing these and the other houses that I hold as inventory to.

Normally when I sell houses to retail, owner occupant buyers, I use a combination of newspaper ads, a flat fee MLS listing, street signs, flyers, a website (see www.ourhomeiscalling.com ), a voicemail box system and postcards; this time will be no different.

For the newspaper ads I'll use the Atlanta Journal Constitution, which gives me the widest exposure possible to people that are seeking a new home to buy. The cost will be about $250 per month (weekend editions in print only, plus everyday online) and the properties will be exposed to a metro population of 2.5 million, plus people looking to relocated to the area. I do the weekends print version because the cost of paying for 30 day in print is ridiculous and much more than I'm willing to pay.

For the flat fee MLS listing I'll use a realtor that I know that charges $399 for 90 days. The reason I do this is to minimize realtor commissions and to give the properties the widest exposure to realtors and buyers online. If the eventual buyer is represented by a realtor, then I won't have an issue paying out 3%, but won't if I don't have to. I'll run the listing for 90 days at a time til sold at full retail market value.

I use a local sign making company to print and place my street signs in the market. The cost per sign is about $5, which includes printing and placement. I let them do it cause everytime I do it I get paranoid about getting caught and fined by the sign police ($500 that one time I got caught). Normally I'll put out between 15-20 signs per week til the property is sold with a message designed to drive buyers to my website or to call my voicemail box service. These signs will be placed within a 5 mile radius of each property; hopefully I'll have several homes in the same general area so I don't have to duplicate this or any of my other marketing efforts.

Flyers: I have a couple of templates from some of the courses that I purchased that all work pretty well. I'll have some in the info boxes attached to home for sale signs I'll have in front of each house as well as in them; I'll also pass out about 100 each month at shopping centers, barber and beauty shops, etc..

The website will be updated with the properties that I buy only after all of the repairs have been completed. It will list all of the homes' amenities, beds, baths, asking prices and neighborhood info. It will also have tons of photos, descriptions of how my owner financing and lease to own programs work, plus turn by turn directions to each house from several different major highways.

In addition to those marketing tools, I'll also be using direct mail in the form of post card from the US. post office. The post office website sells a great service where you can have custom postcards printed and delivered for only 31 cents each card. It allows you to create an account and upload your mailing list to be mail merged to each post card. I'll use their 4 inch black and white versions, which I'll schedule for twice a month for each area til all properties are sold.

Of course, to send post cards you have to have a list of recipients to mail them to. How does one do this? Well there are several ways; I'll give you two that I use.

First off, I'll use one of the online sales lead services to buy a list of all apartment renters in the area that I'll be having houses in. This will give me the names and mailing addresses of the occupants. The main thing I want from this however, is the mailing addresses for all of the apartment complexes and the sequences that they use. Some apartment complexes use sequences like Apartment c-1, c-2, c-3, or 803 Stone trail; so its good to know this as the post office will return incorrectly addressed postcards and still charge for the service. When I mail out my card I wont use the names as the addressee, I'll use "current occupant".

To make the lead list as effective as possible, I've got to know as much as I can about the people that I'll be sending these post cards to. The most important thing I need to know is if the people in these apartments can afford to pay the note for the houses that I'm selling. Now this isn't an exact science, but one of the things that I do is to get the apartment finder magazine that you can get for free at the local supermarket, and identify those apartment complexes where the monthly rent for 2 or 3 bedroom units are reasonably close to the mortgage on one of my retail properties. So if I know that my houses will sell for $120k and the note will be about $1,000 a month, I'll want to target apartments complexes where the rents are at least $700 per month. This step will also let me know the apartment complexes that I need to target for my Home for sale signs.

The other way that I'm using to find potential buyers is to target the renters of houses in the area by finding out who the landlords are and targeting their tenants (don't be shocked, you'll do it too). I can buy this list from a list broker as I do for apartments dwellers, or I can do this using a tax record service list reallist or realquest.

To get the list from the tax assessor database you have to do the following (for GA at least):

1. Go to the search function and do a general search
2. select your county and zip codes
3. Select the date ranges purchased
4. select purchase price ranges
5. select bed and baths
6. properties where the owners tax billing address is not the same as the property address.

So for the areas that I am interested in I performed the following searches:

State: GA
County: GWINNETT
Selected Zip: 30039, 30044, 30045, 30047, 30078
Record Date: 01/01/2005 to 07/31/2008
(I want properties where the landlords have held title over a year)
Sale Amt: 80000 to 150000
(Many of these will have rents in the range that the mortgages will be in)
Owner Occupied: no

AND
State: GA
County: DEKALB
Selected Zip: 30039, 30058, 30083, 30087, 30088
Record Date: 01/01/2005 to 07/31/2008
Sale Amt: 80000 to 130000
Bedrooms: 3 to 5
Bathroom: 2 to 5
Owner Occupied: no

The results of these searches were about 700 properties with potential buyers (renters) for me to send direct mail to. The next step will be to cut the lists down by reviewing and removing those properties that are currently owned by a bank or the government. You'll see names like these:

Federal National Mortgage Asso
Federal Natl Mtg Assn Fnma
Freeport Title & Guar Inc
Gmac Mortgage Corporation
Jp Morgan Chase Bank Na
Jp Morgan Mtg Acquisition Corp
Secretary Of Hsng & Urban Dev/
Secretary Of Hud
U S Bank Nat Asso As Trtee
U S Housing & Urban Dev
U S Veterans Affairs
Us Bank Na
Us Bk National Assn

Please note that if the property is owned by a company, LLC or trust, it's probably an investor, so keep it on the list.

Having done that step, I now have 600 houses that according to the latest data recorded and reported by the tax assessor, are privately held. I can use this info to create my mailing lists for post cards.


Now that I've done all this, i guess I can get back to the biz of finding houses, making offers and find private lenders. Also need to get back to football game (6.47 left in the 3rd quarter, pittsburg just intercepted san diego).

Have a goood week and stay tuned...

Ok, I'm heading back out today to view houses and to meet with one of the private lenders that I have used in the past. I'll be looking at the remainder of the REO and investor held properties that was looking at last week as well as the following HUD homes (note the prices):

listing# address city Price bedxfbathxhbath
#605356 1752 MARIE WAY Lawrenceville, 30043 $61,600 4x2x0
#468390 2561 RAMBLING WAY Lithonia, 30058 $61,800 3x2x0
#620885 3423 CENTERSET COURT Snellville, 30039 $50,000 3x2x0
#598314 4497 FOWLER LANE Snellville, 30039 $58,000 3x2x0
#610379 4083 MASONWOOD COURT Snellville, 30039 $66,800 3x2x0
#548177 4425 CARRIAGE TRAIL Stn mountain, 30083 $39,000 3x2x0
#610634 5421 RIDGE FOREST DRIVE Stn mountain, 30083 $44,000 3x2x0
#617608 1292 MUIRFIELD DRIVE Stn mountain, 30088 $40,500 3x2x0
#543121 2107 SCARBROUGH ROAD Stn mountain, 30088 $48,800 4x2x0

If you want to see photo, just pick a house and do a google search

After viewing all of them I will formulate my offers and write up the contracts. For the HUD homes I'll have one of my realtor friends present the offers.

Later I'll be networking at the Georgia real estate investors association meeting to pass out flyers on my wholesale deals and on the mortgage loan products (guess I need to make some flyers) that I have available. I'll also be on the look out for potential private lenders.

It's going to be a great week. Let's all make a fun one too.

Please continue to give me your thoughts on this and thanks for the input

Hassan

Ok, my lunch meeting with the private lender went well. Actually she was trying to find an investment property to own. After discussing her options, it was agreed that I would try to find a couple of potential deals that would fit her level of experience and the amount of money that she was willing to commit.

I'll probably have to find her a property that is owned free and clear by a private seller (not a bank). To make it work I'll have to structure the deal in such a way that the owner would take back a 30 year note with a 5 year balloon, at about 40%-50% of LTV. She'll put down several thousand for down payment, get title and make payments of about $400-$500 a month. After about 12 months she can refinance at about 60% LTV with a conventional lender or FHA loan, paying off the owner financing and getting title without having to put down the 20% that most lenders are requiring now.

She is also open to investing about $10-15k to partner in another deal with me as a private lender. That's not enough to go into a deal in market as a first position lender, but it is enough for a second position lender. If we partner up, I'll secure her money with a mortgage, title insurance, property insurance and promissary note; I'll also provide a certified appraisal showing the discount to after repair value that she'll be benefiting from.

I also took a look at several of the houses I mentioned earlier, still have a few more to look at and a networking event for tonight.

BTW, as soon as I get ready to make offers I'll go over the total math on a couple of the deals with you.

Hassan, what would you say the average cost of marketing is for a buyer when all is said and done? Seems awfully high based on all you plan on doing. Do you think newspaper advertising is still worth the cost these days? Prices are high, readership is down, and most folks these days are connected online. I think the newspaper industry is in a world of hurt. I expect to see it go the way of the public telephone booth in another decade.

it's always going to be high because for the most part they are fixed. Meaning that if you consistently advertise you'll pay them direct. If you don't consistently advertise your houses then you still pay for them via extended holing costs. People my age and above (40) still have a habit of reading newspapers for info so I don't see it going anywhere soon.

Ok, I have finally completed the task of riding the east atlanta area looking at the rest of the houses to consider making offers on (yes that took a while). Some were private held, some held by investors, most were held by banks and just a few were owned by HUD. Normally I would have property locators (bird dogs) out looking for and at houses for me, but this time I wanted to get back out into the street again to see how things really are on the ground in my market.

I found these houses by doing searches on craigslist, MLS, HUD.gov and other wholesalers websites. I also did an email blast to people on my email list to solicit leads. As a result of the search I found about 50 potential candidates to review and personally visited and inspected about 30 of them. I looked at homes in Snellville, Lithonia, Stone Mountain, Norcross, Lawrenceville, and Lilburn, Georgia. Having looked at a bunch of them over the past two weeks, I finally got around to viewing the remainder today.

Except for 2 homes in Snellville, none of the HUD homes impressed me. Most needed too much work, were in badly depresses areas, or were properties that I would never touch. On the HUD.gov pages there were some decent property descriptions plus photos, which for some reason I didn't bother to look at prior to going out (I guess I got lazy). Normally I would look at photos to eliminate houses that don't look promising, but since the HUD homes were in the path of the other REO and investor held properties that I was going to be seeing, I just added them to my mapquest list and rode out to see them; boy was I surprised when I arrived at some of them. Do your self a favor and make sure that you see photos of what you're going to see prior to going out so that you dont waste time looking at houses you'll have issues moving.


Of the remaining bank held (non HUD), privately held and investor held properties, I identified 5 additional properties that appear to be promising. Here are the details (because I don't want anyone else making offers on these properties and giving the owners hope that there actually is demand for their ugly houses, I'll just give the street name and values):

1. Sunderland: 3 bed 2 bath, taxes $1,061. asking price $33,900, ARV in today's market about $90k, ARV in a normal market about $120k.

Repairs:
Interior paint
Carpet
Linoleum flooring
Appliances
Drywall repair
Pest control (bugs and rats, I think)
Minor roofing repairs
Landscape
Misc expense

2. Joel Court: 3 bed 2 bath, taxes $1,234, asking price 36,900, ARV in today's market about 90k, ARV in a normal market, about $105k

Repairs:
Interior paint
Carpet
Linoleum flooring
Appliances
Drywall repair
Pest control (bugs)
Minor roofing repairs
Landscape
Misc expense
HVAC
Cabinet repairs
Copper wire
Plumbing

3. Holland: 3 bed 2 bath, asking $48k, ARV in today's market about 80k, ARV in a normal market, about $100k

Repairs:
Interior paint
Carpet
Appliances
Drywall repair
Pest control (bugs)
Minor roofing repairs
Landscape
Misc expense
HVAC

4. Carole: 3 bed 2 bath, asking $53,900k, ARV in today's market about 100k, ARV in a normal market, about $110k

Repairs:
Interior paint
Carpet
Appliances
Drywall repair
Pest control (bugs)
Minor roofing repairs
Landscape
Misc expense

5. Exeter: 5 bed 4 bath, asking $54,900, ARV in today's market about 100k, ARV in a normal market, about $120k. This house was kinda turned into a duplex with two kitchens. Don't know if I would keep it as such or make it a single family home; would need to discuss with contractor.

Repairs:
Interior and exterior paint
Carpet
Bath flooring
Appliances, both kitchens
Drywall repair
Cabinet repair
Mold abatement
Pest control (bugs)
Minor roofing repairs
Landscape
Misc expense
HVAC repair

6. New Castle: 3 bed 2 bath, asking $55k, ARV in today's market about 80k, ARV in a normal market, about $100k. Has backed up sewage problem that flooded basement; will need deep cleaning. Cute house, but I'll probably pass on this one.

Repairs:
Interior and exterior paint
Carpet
Appliances
Drywall replacement
Pest control (bugs)
Mold abatement
Flooring needs leveling in kitchen
Landscape
Plumbing
Misc expense

7. Burnt Leaf: 3 bed 2.5 bath, asking $60k, ARV in today's market about 100k, ARV in a normal market, about $120k

Repairs:
Interior paint
Carpet
Appliances
Pest control (bugs)
Landscape
Misc expense


8. Cherie: 3 bed 2 bath, asking $59,900, ARV in today's market about 90k, ARV in a normal market, about $115k

Repairs:
Interior paint
Carpet
Appliances
Drywall repair
Pest control (bugs and termites)
Tilework
Landscape
Misc expense

9. Trenton: 3 bed 2 bath, asking $59,900k, ARV in today's market about 90k, ARV in a normal market, about $115k. I like this house, light rehab

Repairs:
Interior paint
Touch up exterior paint
Carpet
Appliances
Pest control (bugs)
Landscape
Misc expense

10. Downs: 4 bed 2 bath, asking $59k, ARV in today's market about 90k, ARV in a normal market, about $117k

Repairs:
Interior paint
Carpet
Appliances
Pest control (bugs)
Landscape
Misc expense

As you can see, property values have dropped a bit in the areas that I have targeted; this implies that I may have to lower my price expectations for selling them to retail buyers; which I will; lowering the current ARV range to $90k. That's ok, because I am taking a long term view at all these properties. If I can flip them in 6 to 12 months the prices will be lower than if I hold them for 13 to 24 months; I'm ok either way. It also means that I'll have to push my offering prices even lower to account for at least 6 - 12 more months of sliding values.

For most people that last part would be a major issue, however I see it as an opportunity. In my mind, the longer the recession goes on the better. To make things even better, the longer the period that the FHA, HUD and REO bank's make it hard for regular investors
to take the excess inventory off the market, the larger the pile of it will be; further reducing values and making it easier for cash buyers to make a killing.


In the next addition, I'll discuss how I formulate my offers, how I write the contracts and how I present them to the sellers / realtors/ HUD. I'll also show how the followup process works and the additional steps I'm taking to find private lenders. One last thing I'll do is upload some photos so you can see how they look.

Oh yeah, one more thing. as the result of me putting my thoughts out there and getting active again, I found several sources for bulk REO portfolios that I can get and wholesale (or rehab and flip) for much less than the prices listed on MLS and HUD.gov. 2009 is going to be a great year!

Thanks again for following this thread and your input. Please keep the questions and comments coming.

Hassan, regarding REO's, who and where are you finding to be your best sources? From the lenders themselves? From Realtors? Any of the various websites and services that charge a fee for a list? Etc.

Hassan,

I'm interested to know if you've ever retailed a deal on an option? Maybe something with a good bit of equity, but not enough to wholesale. Something that doesn't need any repairs at all.

Have you ever put something under option, marketed it heavily and found a buyer to flip to?

I have a couple of realtors that will send me info on what's available on the MLS. I also have access to several people that have purchased REO portfolios in bulk at prices lower than what's listed on MLS. You need to find a good realtor and cultivate a relationship.

Yes. Normally I start with the buyer first and then find the house. They way you described is correct in terms of equity.

The buyer, is this usually an investor? Or do you market for owner occupied as well? If so, do you market for these buyers the same way you described the direct mail list (apartment renters)?

Both, However the buyers are normally found as the result of marketing OTHER properties.

are you close to purchasing that home for this month? maybe you should start some type of marketing campaign for the next month if you aren't able to buy this month.

If I stay focused on these I'll get them either this month or next. Today I'll start doing the math and making offers

Hassan, there's been no follow up for a week. I'm curious as to what has transpired in the meantime? Did you make any offers?

I did a little followup with all the realtors that hold the listings for the REO's that I am interested in. So far none of the banks that own the properties have said "NO" to my offers; they are considering them. This could be a problem; maybe I have bid too high. I'll find out sometime next week what they want to do.

In the mean time I really need to get some private lenders secured. I presented my case to several people at a couple of events last week and maybe have one or two good contacts. I have to step it up or when my offers get accepted I'll have to use my money and credit to fund the deals, which is the last thing I want to do, as it will limit my ability to handle new opportunities and issues.

On the next post, I'll layout that plan for you.

Sorry for the delay, but I had to spend some time setting up my money for february and march. Ok, got responses from the banks as follows:

1. Sunderland:. asking price $33,900, my MAO 29,280, my orig bid 24,888, bank countered at 31k, I up my offer to 26k


2. Exeter: asking $54,900, my MAO 37,350, my orig bid 31,748, bank countered at 48k, I up my offer to 33k


3. New Castle: asking $55k, my MAO 21,415, my orig bid 18,203, bank countered at 45k, I up my offer to 19k (might not get this one)

4. Burnt Leaf: asking $60k, my MAO 35,299 my orig bid 30,004, bank countered at 48k, I up my offer to 32k

5. Cherie: asking $59,900, my MAO 21,940, my orig bid 18,649, bank countered at 56k, I up my offer to 19,500

6. Trenton: asking $59,900k, my MAO 29,330 my orig bid 24,931, bank countered at 31k, I up my offer to 26k

7. Downs: asking $59k, my MAO 37,500 my orig bid 31,875, bank countered at 58k, I up my offer to 33k

8. Blacksmith: 3 bed 2 bath, asking $60k,my MAO 33,495 my orig bid 28,471, another investor has it under contract

9. Marbut: asking $85k, decided to pass on this one as the neighborhood has gone to pot

I'll keep you all informed as we go forward. In the mean time I have not been as successful as I had hoped in finding private lenders; none of the ones I saw as potential lenders panned out. One thing that I have noticed is that I have been spending too much time networking at events where real estate investors frequent, causing me to run into the same folks over and over again. What it also means is that I have been presenting deals to folks that have become tone deaf to offers as they have been approach multiple times by other investors with similiar deals to pitch.

What I'm going to have to do is expand my circle of networks to potential lenders that haven't been exposed over and over again to real estate and private lending. This means that I have to find a couple of professional and social organizations to focus on. We shall see...


btw, now that football season is over, what exactly are we supposed to do on sunday afternoons this winter? Guess I'll break out the old golf clubs again...

The first thing I noticed is that the banks are resistant, at least initially. They are dropping their asking price in very small increments. They put up a brave front, but I can't help but think they will come around with the passing of some time and no activity. Sometimes we have to hold our ground and let time become a motivating factor for these lenders. In other words, don't become the motivated buyer.
I agree with your findings regarding private lenders. I've also found myself talking to the same folks who have been hammered over the head by other investors pitching their private mortgage opportunity. I gave up on the real estate clubs a while back for that very reason.

Hehe. I introduced myself to my wife earlier this week. Ya know, she's not half bad.

Ok, I'm back. Sorry it took so long, but I have another biz to run and need to focus on raising cash at least once a month :mrgreen:

Anyway, since I last made a post a couple of changes have occurred.

1. Sunderland:. asking price $33,900, my MAO 29,280, my orig bid 24,888, bank countered at 31k, I up my offer to 26k. Update: under contract with another investor at 32k


2. Exeter: asking $54,900, my MAO 37,350, my orig bid 31,748, bank countered at 48k, I up my offer to 33k Update: Bank countered at 47k, not very motivated and slow to get back with me. I'll stand on my offer and let them eat silence for about another week. Don't want to be viewed as a motivated buyer.

3. New Castle: asking $55k, my MAO 21,415, my orig bid 18,203, bank countered at 45k, I up my offer to 19k (might not get this one) . Update: Bank countered at 40k, still too high; I'll let the bank eat silence on tis one as well.

4. Burnt Leaf: asking $60k, my MAO 35,299 my orig bid 30,004, bank countered at 48k, I up my offer to 32k. Update: bank has not responded to requests for status, so I'll back off on this one for about 2 weeks. again I don't want to be seen as the motivated buyer.


5. Cherie: asking $59,900, my MAO 21,940, my orig bid 18,649, bank countered at 56k, I up my offer to 19,500. Update: Bank countered at 50k, we're getting somewhere slowly. I'll hit them up again in about two weeks as well.


6. Trenton: asking $59,900k, my MAO 29,330 my orig bid 24,931, bank countered at 31k, I up my offer to 26k. Update: bank is standing firm at 31k, I'll stand firm at my offer of 26k and see who blinks first (won't be me)

7. Downs: asking $59k, my MAO 37,500 my orig bid 31,875, bank countered at 58k, I up my offer to 33k. Update: Under contract with another buyer. Sad cause I liked this house too... :cry:


The reason I don't want to seem too motivated is because it makes the banks feel as if they are in control. Fortunately I too am in a slow market so I can take my time. Normally I would make offers and counteroffers about 2-3 weeks apart, so I'm doing ok. I also have not been able to find the private money as easily as I used too, and the last thing I really want to do is use my own.

As for the private money thing, I am still looking. I have gone to several networking events over the past few weeks and have only found tire kickers so far. Those folks that I thought could do it couldn't perform when presented an opportunity. I'll keep trying though, found 5 professional organizations to target in my search; a chamber of commerce, a dr association, an MBA association, a hispanic business organization and a internet marketing group. We'll see how it goes.

Thanks for the update, Hassan. Interesting that the banks are still putting up a brave front, at least on the surface. I wonder how much of that has to do with their expectations of Uncle Sam laying a big, cushiony pillow underneath their asses if matters become worse?
I've been stonewalled, too, with my efforts at raising private mortgage money. Seems many folks are scared, what with the economy being in unchartered territory. I do have one investor with around $50K or so to invest. But she is strictly short term she advised me, because she may need that cash in a pinch. So this limits the wheeling and dealing I can do. With someone else's cash, I always take a very conservative and cautious approach.

Ok, here's the update.

After several weeks of back and forth with the banks I have finally come to agreement on one of the houses that I have been targeting:

Cherie: asking $59,900, my MAO 21,940, my orig bid 18,649, bank countered at 56k, I up my offer to 19,500. Update: Bank countered at 50k. I let them think about it for a few weeks and the stood firm on my offer of $19,500. New update: guess what? The reo realtor called me on Monday and countered at $21,000, I accepted at a price of less than what i was willing to pay!.


The next step for me is to have two of my contractors take a hard look at the property and really let me know what the bottom line will be. If all goes well with the estimate and the title is clean I'll be closing on April 10. I'm giving myself that much time so that I can verify that the property is what I expect it to be and doesn't cost more to repair than I am willing to pay. I also have not yet secured the type of private lender that I am comfortable using to fund the deal, so I need some more time to work that.

I did locate 3 private lenders thru networking at real estate investing events, but since they are all pretty well experienced, I probably won't work with them. More experienced investors tend to want to have much more input into what I'm trying to do, want higher returns than I am willing to pay (they want 20% or more) and want their funds back within 12 months, which is a deal killer in todays market as it eliminates my ability to sell with owner financing or on a lease to own basis. If I can't secure better lenders I'll have to either close with my cash or wholesale it to another investor.

I already have two investors in mind that are interested in buying deals where the cash on cash returns are at least 20%. That being the case, their monthly and annual math for the deal would need to look like this:


Est Rent $900 x 12 months = $10,800 (year)
Tax $92 x 12 months= $1,108 (year)
Insurance $54 x 12 months = $650 (year)
Total Net Income $754 x 12 months = $9,042 (year)

$9,042 / 20%= $45,210 which is the most that the buyers can pay in total to get the deal to work for them.

To take it further and get to where they need to be:

Buyers max cost $45,210
Less repairs $11,280
Less Closing Costs $1,200
Equals Buyers MAO $32,730 (what I'll sell it to the investor buyer for)
Less my cost $(21,000)
Equals my est profit $11,730

The numbers here are different because the investors are cash buyers that would hold the house as income producing inventory; not to flip it.

As for the rest the statuses are as follows:


2. Exeter: asking $54,900, my MAO 37,350, my orig bid 31,748, bank countered at 48k, I up my offer to 33k Update: Bank countered at 47k, not very motivated and slow to get back with me. Update2: bank countered at 45k and I raise my offer to 34k.

3. New Castle: asking $55k, my MAO 21,415, my orig bid 18,203, bank countered at 45k, I up my offer to 19k (might not get this one) . Update: Bank countered at 40k, still too high; I'll let the bank eat silence on tis one as well. Still waiting for bank to get real, I'm upping my offer to 20k. I noticed that they lowered asking price on MLS to $49k from $55k and that it was originally priced at 70k; meaning that the bank really is interested in moving this one.

4. Burnt Leaf: asking $60k, my MAO 35,299 my orig bid 30,004, bank countered at 48k, I up my offer to 32k. Update: bank still has not responded to requests for status on my offers. I'll stand at $32k and have re-faxed the offer and left the realtor another message as the property is still actively listed at 60k.

6. 3867 Trenton Dr, Snellville, GA (FMLS # 3788896): asking $59,900k, my MAO 29,330 my orig bid 24,931, bank countered at 31k, I up my offer to 26k. Update: bank is standing firm at 31k, I'll stand firm at my offer of 26k and see who blinks first (won't be me). Update: reo realtor called and said that its under contract as of March 2. Pending close date is March 25. I liked this one too, sad I couldn't get it. I'll monitor to see if it actually closes later in the month.


Obviously it'll take me awhile to get the deals I want, but as i said before, there's no rush. what I will need to do (and have been doing) however is look for some more houses to make offers on. I'll have that list out shortly.

As for the process of trying to find other sources of private funds, I have joined 2 business organizations and am considering joining a couple of stock and mutual fund investing meetup groups here in the atlanta area (for those of you that don't know what a meetup group is, its where people with like minds meet to discuss their goals and needs). The goal here is to meet folks with money to invest that are not as demanding as the seasoned real estate investors I've been dealing with that demand too much.

Talk to you soon...

I guess I need to explain a little more whats going on for the naysayers out there.

In this biz the last thing that you want to be is a motivated buyer, especially in a market where values are still sliding backwards. That being the case I take my time in making offers, however I do it consistently. Yes I will lose out on some houses, but that's ok, becuase the ones I do get will at a cost that makes sense for me. In the case of the one I just got under contract, if I had just accepted the first counter offer that the bank made a few weeks ago, I would have lost out on several thousands of dollars in potential profits just cause i couldn't wait a few weeks.

When making offers to banks you have to realize that the competition has dropped off drastically due to the fact that most potential buyers are not cash buyers and can't qualify for an investor loan. Lenders have raised credit score requirements so high as to that it's hard for folks with decent credit to cash in on a deal. At the same time these wonderful lending institutions have had the bone headed idea of closing those same potential customers lines of credit which has had the effect of reducing good credit scores as their percentage of debt usage has now been forced way up; narrowing the pool of credit buyers. What I'm trying t say is that you are now for the most part only competing with cash buyers, of which there was never that big a pool to start with.

When I make offers I know the max that I am willing to pay and I never exceed that amount. To get there I have to wear down the seller til I get the number I want. I'll make offers every other week on the same house until I get there. I don't just those on one house but several, knowing that some sellers will accept, some wont (and so what, someone will). It takes a while but it does work.

When you consider the fact that there really isn't too much I can do about the topline value of the house, I have to target the cost as aggressively as possible. In this case time is my friend

Hassan, your logic and approach are just right for today's market and dealing with the banks. I think patience is the key here. It's too easy to become the motivated buyer and overpay.
Interesting thread and thanks for updating it.

thanks

Ok, I got one private lending offer late last night to consider. It didn't impress me.

By email a private lender consultant (a guy that finds private lenders) proposed a $50,000 private loan to cover the following:


Closing costs 1,500
Marketing 5,300
Purchase 21,000
Repairs 12,000
Misc 5,200
Broker's fee 5,000
Total Loan 50,000


Terms, 12 months, no monthly payments, guaranteed $10,000 interest due at the end of 12 months with the return of principal. The broker's fee is the amount that the person that located the private lender wants to charge for bringing the lender to the table.

Remember, the house is optimistically worth 90k, but we're in a backward sliding market.
Without the fixed interest, the Loan to value would be 55%, with it the LTV would be 66%. For those of you that understand private funding, would you accept these terms? I am tempted, but will probably decline the offer as it would limit my ability to sell the house to an end buyer to either an all cash or credit and cash buyer within 12 months (I couldn't owner finance or do a lease to own sale). Please give your thoughts on the loan proposal and how you structure your private notes.


btw, if I have come across as rude to anyone that has commented negatively, I appologize. Please understand that going thru this exercise is for my benefit, so as to keep me on track towards my goal. Please also remember that we are working in a dynamic market that keeps on changing, so my plans for achieving my initial goals when I started this thread will be a little different as I adjust to what I experience in the real world market.

When your business model is based primarily on using private funds, there is a delicate balancing act that you have to perform. The processes of finding private funds and securing great real estate deals both take time and you have to manage both concurrently. It's hard to find private money without a project for the lender to focus on. On the flip side, it's hard to successfully get a deal closed and funded without the private money, so you have the classic chicken vs egg issue.

If you try to find the private funds first and then the deal, your lender could go away due to some other issue in that lenders life. If you focus on the houses first and then the lender, well you can run into a situation where you may not be able to close as quickly as you would like or have to let some contracts lapse and lose your earnest money. So you have to try to do both at the same time. That is what I am attempting to do here; it ain't easy but I'll prevail. Please continue to chime in with your thoughts, both positive and negative.

I would really appreciate it if those of you that have used and are using private lenders would give your thoughts.



Thanks again

Hassan, I have been seeking private money only for the past year or so. It hasn't been easy. Many investors are scared and sitting on the sidelines, with their cash in ultra conservative US T-Bonds. Talk real estate investing to them and they look at you like you're Bernie Madoff.
A few months back I did a CA with a homeowner and we hit if off just great. I approached her with the idea and she is all for it. Problem is she is short term only. She wants to limit the loan to six months because she thinks she may be needing the money in the near future. I find that too restrictive for comfort. I don't want to tie up her cash in a deal that I misjudged and am unable to turn over quickly or refi and cash her out.
Bottom line is I'm not the last word on private money. I know Jonathan Rexford uses it. Maybe he'll be along with some advice and opinions.

Looks like I am going to be wholesaling this property on Cherie. The appraisal came in quite a bit lower than I needed it be ($75k vs my initial est of $90k) and the trend doesn't look promising., something I'm not willing to live with in today's market. The big issue is that there are far more pre-foreclosures and foreclosed properties on the market than I thought there were for this area. The other issue I have is that last week Bank of America decided that it would be a great idea to slash my personal credit lines from $75k down to $25k (when do I get my bailout?) and I still have been unsuccessful in securing a private lender with terms that will work for me. The thing that really bugs me is the credit line being slashed as it will affect my credit scores for quite awhile as my debt usage to availability ratio is now significantly higher than it was before just cause the bank wanted to reduce their risks. I should have taken the step of cashing out the credit lines and depositing the funds into a bank account, but now I am where I am.

I will continue seeking private funds as that is now the best way for me to go for future purchases and I don't believe in quitting.

All is not lost, however as I can still wholesale it to make some cash. The good thing I learned from the appraisal is the fact that rents have not dropped in the area that the house is in and are stable This trend supports my wholesale buyer's cash flow based strategy.

Wholesaling a bank owned property is a pretty straight forward process. The trick to doing this type of deal is that I can't assign the contract or do an option on it, nor do I want to tie up my money on a deal that I wont be holding. That said, I'll have to do a double closing which will cost a little money, but not so much that it kills my deal.

A double close is done when you have a house under contract between you and the seller for one low price, that you will resale to a third party buyer at a higher price on the same day. In this situation you are going to take title to the property just for a few minutes and then sell it and transfer that same title to the third party for a higher price. Normally it's done when you are forced to take title because of the nature of the deal or when you don't want either the buyer or seller to know what your profit is going to be.

Double closing in GA requires the person doing the deal to bring what's called "wet funds" to the table. This means that you have to have the cash needed to buy the house to get title before you can transfer it to your end buyer who will also bring cash to the table to buy it from you. If you have the cash on hand you can use your own to fund it or you can borrow it from another person (some attorneys will do this) just for the day.

You have to have wet funds because some states have made it illegal to use the end buyers funds to cover both the cost of your initial transaction as well as theirs, which is how many of the 'gurus' out there claim that you can easily do; trust me it isn't.



Now my buyer wants to pick up the property at a cost, purchase, rehab, closing expenses and my fees are no more than 50K. He also wants the deal to be one where the net annual income (total rents less expenses like taxes and insurance) bring in at least a 20% return on his investment each year.

Based on his due diligence the estimated rents for the area are in the $850-$875 range and the repairs are a little higher than I estimated ($13,500 vs $11,280). He agreed to the tax rate, though it will most likely be a bit lower due to his purchase price, and is able to get the hazard insurance for a couple bucks less each month. Thankfully he won't factor in a vacancy factor nor will he be using a management company to deal with tenants. That said I have to make some adjustments to my figures to get him where he needs to be.

His Est Rent $850 x 12 months = $10,200 (year)
Tax $92 x 12 months= $1,108 (year)
Insurance $45 x 12 months = $540 (year)
Total Net Income $713 x 12 months = $8,556 (year)

To determine what his bottom line on income will be, all I need to do is take the net annual income and divide it by 20% to find out the max the deal can cost him. Then I can work my way backwards to see what I'll make.

The math works like this:

$8,556/ 20%= $42,780 which is the most he can pay in total to get the deal to work for him.

To get my fee and his purchase price, I take that 42,780 and deduct the costs:

Buyers max cost $42,780
Less repairs $13,500
Less Closing Costs $1,200
Equals Buyers Purchase Price $28,080

From this number I have to back out the costs to get my profit. At first glance it looks like I'll be making about $7,080 from the wholesale proceeds as his purchase price of $28,080 less my contract price with the Wells Fargo Bank is $21,000; unfortunately it will be a little less as I'll be doing a double closing on the deal.

The cost of doing a double close for consists of two components, the admin fee and the use of funds fee. The admin fee is just $500; it is what the lender charges me just for setting up the deal and wiring the funds into the closing attorney's account on the day of closing. The interest charge is a percentage or flat fee on the amount borrowed. In this case I'll be borrowing $22k just for a day and the lender will charge me $1,500 for the use of his funds. Normally he charges the greater of 10% of the amount borrowed or a minimum of $2,500, but since I have worked several deals with him in the past he will give me a break. My total cost for the double close will be $2,000 ($500 + $1,500), the buyer will pay his own.

After all of that is factored in my profit on this wholesale should be $5,080 which is as follows:

Buyers purchase price $28,080
Less my Purchase price $21,000
Less my double closing costs $2,000
Equals my net profit $5,080

The buyer has agreed to buy this house from me in it's as is condition for $28,080 and has signed the contract, which is written up on a standard purchase and sale agreement with the buyer paying $1,000 in earnest money to me with a closing date on or before March 26, 2009. The only stips are that I must be able to get clear title on or before the date of closing. The buyer will also pay all closing costs on the 2nd closing.

He has agreed to use my closing attorney which I have instructed to check title. Hopefully the bank was able to clean up any issues when they foreclosed on it. If not the closing attorney will have to clean up the mess or the deal won't close. we'll see.

As for the remaining properties here are the statuses:

2. Exeter: asking $54,900, my MAO 37,350, my orig bid 31,748, bank countered at 48k, I up my offer to 33k. Bank countered at 47k, not very motivated and slow to get back with me. Update2: bank countered at 45k and I raise my offer to 34k. Update: this house is in the same area as the house on cherie so I am very concerned about the value. The bank is still sitting at $45k and I am sitting on my offer of 34k. I've resubmitted at that price and will check in with them in 2 weeks.

3. New Castle: asking $55k, my MAO 21,415, my orig bid 18,203, bank countered at 45k, I up my offer to 19k (might not get this one). Bank countered at 40k, still too high; I'll let the bank eat silence on tis one as well. Still waiting for bank to get real, I'm upping my offer to 20k. I noticed that they lowered asking price on MLS to $49k from $55k and that it was originally priced at 70k; meaning that the bank really is interested in moving this one. Update: someone beat me to the punch and now has it under contract.

4. Burnt Leaf: asking $60k, my MAO 35,299 my orig bid 30,004, bank countered at 48k, I up my offer to 32k. I'll stand at $32k and have re-faxed the offer and left the realtor another message as the property is still actively listed at 60k. Update: Bank finally responded and countered at 45k. I stand at 32k and will followup in two weeks as well.

6. 3867 Trenton Dr, Snellville, GA (FMLS # 3788896): asking $59,900k, my MAO 29,330 my orig bid 24,931, bank countered at 31k, I up my offer to 26k. Update: bank is standing firm at 31k, I'll stand firm at my offer of 26k and see who blinks first (won't be me). b]Update: reo realtor called and said that its under contract as of March 2. Pending close date is March 25. I liked this one too, sad I couldn't get it. I'll monitor to see if it actually closes later in the month.[/b] Update: still waiting to see if this one closes.


Well, this has been an interesting experience. As you have seen it is not as easy as it looks to get a deal that makes sense for you. Yes it is very easy to today's market to buy a house, but to get it at a price where you can make the profit you want isn't. Market values are dropping and the things that we usually take for granted (like our usual lenders or credit lines being there) aren't as we expect them to be. That being the case however you still have to go forward.

At the moment I am stuck by my reliance on using private lenders to fund my deals. I don't want to risk or use my cash or credit to fund my deals, as they can be tied up for a long time. I can still wholesale, but retailing will be an issue til I resolve the funding issue. The places that I normally would seek private lenders (real estate investor associations and meetings) are not of much use as the experienced investors want too much in return and the inexperienced ones aren't as anxious to get into a deal. So I'll have to expand the circle; it's not a problem, but a challenge that I'll have to meet.

To do that I've gone back to the old tried and true method of writing down a list of everyone that I know of and calling them to let them know of the opportunities that I have access to. I've also joined a couple of professional groups that are not related to real estate investing to start building relationships in. It'll take a little more time than I originally anticipated, but it'll work.

In the next post I'll explain the strategy I'm using in more eloquent terms. I'll also give updates on the statuses. I noticed that some of the readers of this post have had their doubts about it and my ability; but that's ok. Not everyone is going to agree with my methods or goals and that's also ok. What's important is that one sets their goals and does what ever it takes to ethically achieve them. The means by which one gets there will of course change to reflect actual conditions in the market and you learn from it.

Til next time...

good luck and good hunting.

Hassan, I think this is an interesting and informative thread based on real world experiences. I like it and I appreciate your sharing it here. Thank you.

title came back clean. proceeding with the wholesale closing. also time for me to address some of the concerns raised by others on this topic.

Ok, we'll start here.

I have two main facets of my real estate investing business, a wholesale (investor properties) unit and a retail (owner occupied homes) unit. For the wholesale properties I am simply assigning contracts or buying and selling on options. These are properties that I never or rarely own, that don't fit the bill for what I am seeking as it relates to retail properties. Normally wholesaling is about 25% of the business, however over the past year it has been about 80% as I had been wary of risking my private lenders money in a market where property values have been sliding backwards.

For the retail biz, I predominantly use private lenders to fund the purchases of the properties that I repair and resale to owner occupant buyers. It's not because I don't have money or credit. It's because of the fact that my money and credit are limited resources. Once I commit them they are locked up in the properties until I have them resold, an open ended process that can take just a few days, or 6 to 12 months or more. The effect of this is that there is a financial limit to the amount of deals that I can do, not a risk that anyone should take while you have other things going on in your life that consume cash and credit.

That said, I have to spend a large portion of my time creating relationships with potential private lenders; regular folks like you and me that aren't millionaires, just thousand-aires (if thats a word) with 10k-100k+ in investable capital. These private lenders are folks with under performing cash sitting around in IRA's, 401k's, checking and savings accounts. Working with them gives you the flexibility to target deals at prices that make sense for you, not the seller. Finding private lenders is a bit harder than it used to be, but still worth doing. I use several methods to find them, including:

1. Reaching out to family and friends about upcoming opportunties that I have
2. Networking at professional, business, real estate investing and investing clubs.
3. Holding meetings with small groups to explain how the process works

As part of the process of finding private lenders you have to have some opportunities for them to consider already in the bag. This means that you have already viewed the inventory on the market and have some potential deals in the works, which only comes as the result of your making offers.

There is a saying in this business, that 'if you are not making offers, you aren't making money'. I agree.

If you don't make offers, you'll never have an opportunity to present potential investments to private lenders when they have their money available. You also won't be engaged in the game, resulting in months or years going by without you ever earning a dime in real estate. So it's a delicate balancing act that you have to perform as you have to keep your head in the game while you match up real estate investment opportunities with the people that have the money to lend, when they are able to lend it to you.

I don't put out 10 low ball offers hoping that one will get accepted; that would be dumb on my part. I put out 10 lowball offers with the knowledge that the seller I am targeting, banks, can afford to and in the right situation are willing to sell at the prices that I need to buy the houses to at. Most private sellers can't do this as they have high debt loads and low equity.

I am not concerned with the fact that I may or may not have the funds already lined up when I make offers, as I know that if I do everything that I need to do in securing the right deal and packaging and consistently communicating the private lending opportunity to the private lenders in my market, the funds will come. If the funds don't come I still have the opportunity to wholesale the deal out to other investors that can close in their names fast.

By starting my offers at 85% of the maximum that I am willing to pay and working upwards during negotiations, I am making sure that I don't overpay, and making sure that I have enough time to line up potential private lenders. This process works well for me and many other investors. If I wait til everything is perfect, I'll never try, won't be engaged in the market, nor will I make money.

For those of you that invest by using your own cash or credit, that is ok as well. Just try to be careful and minimize your personal exposure.

This is an AWESOME thread!!

i do have one question. When you make your offers to the bank, do you tell them that you will pay all cash? or do you tell them you will need funds from private investor?