I am going to buy a house this month, here's how

[hassansr 0]

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....

[MichaelC 160]

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

[hassansr 0]

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)

[hassansr 0]

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.

[hassansr 0]

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.

[hassansr 0]

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...

[hassansr 0]

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...

[hassansr 0]

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...

[MichaelC 160]

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.

[hassansr 0]

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?

[MichaelC 160]

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?

[hassansr 0]

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?

[hassansr 0]

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...

[hassansr 0]

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...

[MichaelC 160]

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?

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.