The times keep getting even more interesting for all the Real Estate Investors out there.  It seems like pending sales have crashed and retail buyers interest is slowing down.  Most investors haven’t got the memo and are still putting out tons of offers.

At this time we don’t have a ton of retail inventory and we are still getting calls and showings on what we do have.  I am thinking inventory is going to start going up, prices will stop increasing and probably slightly drop.  There will definitely be even more of a “two tier” market.  Entry level stuff, or stuff that cash flows probably won’t get hurt as bad as the middle class, to high end houses (300k+ for us in the Inland Empire).

Does this change our strategy?  Not really.  We are still happy to buy, probably going to lower our purchase prices a bit.

I think when times will really get interesting is December/January when the market is already pretty slow.  But who knows, by then the government could add some more incentives back-in.

Buyer’s agent seemed burned out right now, they sent in hundreds of offers for some clients and now they’re disappointed they couldn’t pull in the tax credit.

Here is a house we tried to buy pretty hard. It is in awful condition. It was built in the late 1950′s.  It is 800 sq ft and a 2 bedroom, 1 bathroom on a good sized lot.  The house needs about 25k in repairs to make it rent ready.

At the end of the day we missed out on this one, it was listed at 45k and sold for around ~70k.

We own House #28 about a block from this one and we paid about the same price, but our house is much better.  Built in 1980, 4 bedroom, 2 bathroom, 300 sq ft bigger, and only needed about 8k repairs.  A lot of the price difference probably has to do with the market going up, especially the low-end.

So if this type of property doesn’t get excited you might not like real estate investing!  At least buying the major fixers we do.

36th St – Outside

36th St – Inside

This is one of the most common things I hear in the business.  “Hey, you will love this house, it’s turnkey, it just needs paint and carpet.”

Depending who it is, there are two reactions:

If this person is telling the truth:

So if this is true and the house just needs paint and carpet, why is the Seller going to cut me a deal?  Typically banks and even FHA will loan on houses with old carpet and walls that need painting.  How am I going to compete with an owner-occupant.

If there aren’t other offers, why is no retail buyer interested.  You’re telling me if I paint the walls and put in new carpet that will want them to pay me enough extra to cover the cost of the supplies, real estate commissions, closing costs and a decent profit for me?  It’s a tough sale for me.

When an underwriter starts underwriting the loan, see the appraisal and what I did to the property are they going to feel comfortable giving me a profit just for paying for paint and carpet.  I’m not saying they won’t, but it’s a tougher sale.

Note: If I am renting the house I am not as worried.

If the person is not telling the truth:

They’re calling me a deal and they say it only needs paint and carpet.  I show up to a missing kitchen, a leaky roof.  They’ve qualified this as a “great deal” based on 3,000 in repairs and now I need to tell them I need to budget 15,000.

Now what is music to my ears:

This house is disgusting, I don’t want to even go inside, the City is threatening to demolish it and the Seller is telling me to sell it NOW. We have actually bought more than one house where the Bank has got quotes for the cost of demolishing it entirely.

Note: in this regard I am probably not typical to other investors.  We focus on projects that need substantial repairs.

All I have to say is finally.  We made our first original offer on this house in February.

Step 1: Our agent sent executed contracts to the HUD office in Sacramento.  45 Days later I noticed the product shows as Active again and call my agent.  He calls HUD and they never received the contracts.  Luckily, he is used to dealing with HUD and saved the tracking numbers.  The property is back to pending.

Step 2: Escrow tells me there property has no home owners association.  Both the agent and myself told them this was not the case.  After two weeks they emailed me and told me they cannot locate the HOA.  I have my title officer track it down and forward the email to them.

Step 3: The escrow company makes me drive to their designated office to get the notary’s done.  They have two options in Southern California.  The lady who is knew to the company proceeds to tell me that every customer she signs is extremely unhappy with the process.

Step 4: We’re now past our agreed upon closing date, so they are going to charge me a per day fee and extension fee unless I send all funds to escrow.  They continue to sit for 21 days while they wait for HUD to approve the final documents.

This process basically has had me re-consider buying other HUD homes. Or at least factor in a bigger margin for the difficulty involved.  The worst part is, the process makes me even less confident in government organizations.

The agent that we worked with on this one deals exclusively with HUD and tells me the average HUD foreclose falls out of escrow 3 times.  He has multiple listings that he has been dealing with for over two years!

Now some HUD Buying Tips

• For HUD escrows you get a minimum of 45 days.
• Deposit is a cashiers check made out to “HUD or Your Name.” $500 for under 50k, $2,000 for over 50k.
• HUD requires their agents to have special training and the offer forms are specific to HUD and not a association of Realtors form.
• The contracts are not assignable.
• Agents go to a web site to submit offers, they are reviewed every 24 hrs.
• They have guidelines, I think they automatically reject anything under 80% of the asking price, but I could be wrong.

PS: Have you noticed more posts lately.  My goal was 10 blog posts this month and I have a week to do 1 more.

Everyone dreams of hitting the home run deal.  The house that the gurus brag about.  No hiccups along the way, it goes exactly like you planned.  Too bad life doesn’t work that WAY!

Frankly, every deal we buy has to meet some minimum requirements.  But we don’t wake up in the morning dreaming of the home run… I’d rather hit a single or double consistently than strike out 3 or 4x before I finally hit that home run.

How many home-runs does a baseball team need to win the game?  You can win with no home runs.  It’s pretty hard to win without any doubles or singles though (not saying it’s impossible).

Be an expert in your market and consistently aim to hit singles and doubles.  Once you get up to bat enough times you will find that perfect pitch that you can hit out of the park.

We have been lucky and hit one or two houses out of the park, but if we weren’t established in the business we would have never got the opportunity to go up to bat in those situations.

You’re probably not going to get to $10,000/mo cash flow on your first deal.

Just a reminder for myself that will maybe help some of the other readers out there.

The longer I have been in the business, the longer my, if only list gets.

• If only I came up the $500 the agent told me and bought that property.
• If only I trusted my gut and bought more rentals.
• If only I kept that property instead of selling it.
• etc

Right now, you’d look like a genius pretty much buying anything in the low end of the market in 2009, prices are up 25% here in Southern California.  That being said, I think regrets are a terrible thing in this business.  You’re always going to make decisions you regret, but that is the nature of this business.  No one in this business has a crystal ball and even if you have all the numbers in-front of you the government can hop in and throw a game changer in at any time.

Here is what I try to remind myself:

Rentals

Can you make it cash-flow?  Really truly cash-flow after all expenses?  Do you like the neighborhood?  Would I be okay if I owned this property in 10 years?  Can I find qualified persons willing to rent this property? If you can answer yes to these questions you are not going to make any big mistakes.  Even if you do, you should be able to cash-flow or break-even while you deal with your mistake.

Retail Flips

For retail flips if you buy using the right comps (within 3 months that are truly similar, sq footage, lot size and year built) at a discount 65-70% of  TRUE market less accurate repairs you have a lot of protection.  You should have a 15% profit margin cushion and remember the market dropping 2% a month is substantial.  Some properties will have unforeseen expenses, but if you specialize in buying right a lot will go wrong for you to lose money. You should factor in what the market will be doing for the next 3-5 months and that’s it.  If the property can cash-flow as a rental you are protected, you have even more protection and a good Plan B.

After that, if you made a wrong decision 6 months ago, or missed a property forget about it.    The decision seemed right at the time.  With the ever changing market you will make a lot of wrong decisions… so get used to it!

My last comment for the night is, the best time to start acting is RIGHT NOW!  You will always regret what you never did.

If real estate investing has a lot of anything, it is self proclaimed gurus who are trying to sell you something!  In general, I really believe in training and further education in your chosen field. Here is some advice I have and the research I would do before I would pay for any training.

How the Bad Real Estate Trainers Typically Make Money

Training is a business model in itself and usually more lucrative than doing deals for the most successful trainers.  Most setups, especially the scammy ones work like this:  they start you off in a free or low-cost training seminar (cost $0-100), this is very hype based, they usually have a power point and flash some big checks.  At the end they let you know at the back of the room you can sign up for a 1-day training event (cost $995 – with $8,000 value).  Most of the time they say they are only selling 39 spots or 99 spots.  If you are one of the lucky ones to pay the $995, you will get 8 hours with a little bit on information and lot of hype up-selling you to their gold level training (usually 10,000+).  So when everything is said and done, you can get sucked into spending a lot of money with very little value.

Before paying for training from anyone I would recommend the following:

Do Your Research

Before you pay for anything always Google the trainers name.  You can also check for their name with the word scam added to the end (e.g. “Armando Montelongo” scam).  Read the reviews carefully.  Obviously, people can publish anything they want on the internet, but if they have a lot of negative reviews from multiple sources I would steer clear of them.

Be Careful of Training Information Overload

If you are new to this business, it is overwhelming.  I would suggest you spend at least 20 hrs practicing the real estate business for every hour of training you pay for.  So many people I have talked too, come to the clubs and one day seminars.  My first question is almost always, how many properties/deals do you see in a typical week?  Too often the answer is, I am “building my team” or I am trying to get xyz accomplished first.  All the training in the world isn’t going to make a stellar deal fall onto your lap!  You must get out and practice this business.  If you find a great deal, the rest of the pieces of the puzzle will come together.  When I bought House #1, I didn’t have a lender, I didn’t have any repair crews, etc.  I have learned so much since then, but the deal still came together.

Get Training on Specific Topics

Rather than going for generalized training, I would suggest for going to specific topics that you want to learn more about. For example, I would be very inclined to go “Raising Private Money for Real Estate Investing” versus “All you need to know about Buying/Selling Real Estate.”  I do this same tactic with the real estate clubs.  If I am interested in the topic and the speaker I go to the club meeting, otherwise I typically take the month off.

Only Get Training from Active Investors in your Area

My favorite book is the “Richest Man in Babylon.”  In one of the early chapters it brings up a contest about who you trust with your money.  “Why invest in a chariot maker to go to a far-off land to buy rare jewels?”  The same concept applies to real estate, why would you trust a professional speaker to educate you on how to buy a house at a discount?

Look into Real Estate Clubs First

Oftentimes, gurus come and speak at real estate clubs for free.  They provide a condensed version of their typical training or a teaser.  You will get a feel for the speaker without paying very much.  Typical club entrance fees (at least in my area are $20-$30).

Never Stop Learning!

As much as I am giving the gurus a bad rap, I am a big believer in education.  One good concept can save or make you millions in this business.  So you better get out there and learn from the reputable educators!

What a busy week in the land of California real estate investing.  I closed on three purchase escrows this week alone and put two more under contract.  If you’re counting that should make 5 purchases for January.  So we are getting a great start to our 2010 goals.

Three of the houses are going to be rentals and two are flips.  One of the two flips I only have a piece of as I brought in an equity partner.

I was hoping to have House #17 and House #18 sold this week, but it looks like we are going to need a couple extra days.  We got loan docs signed on both deals, we are just waiting for the funding conditions to be met and the lenders to send their money in.  The profit on both these deals is quite good, we bought the houses cheap and prices have gone up about 10% since our purchase.

A Motivation Tip -
I was at a lunch meeting with a local extremely successful landlord earlier this week.  We where sharing our goals for the year and some ideas.  He is very visual and said he didn’t something different this year.  He wrote himself a check for $1,000,000 and put it on the front page of his goal book.  He said it will bounce but it is a motivation that one day he wants to be able to cash it.  Taking his advice I now have a $1,000,000 taped to my office wall, near my desk.  Every time I am punching away at they keys it can stare me in the face until one day I can cash it!!

That being said, I don’t know how many people read this blog regularly, but you should take a minute to post your 2010 goals on the bottom of this page so we can hold each other accountable.  You can see my 2010 goals here, and if I don’t make them you better hold me accountable!

So I write a post like the one last week (Goal: Get a House By the End of the Week) and proceed to disappear for a week.  You’d think I was so ashamed to face the couple readers I have to this blog, that I went into hiding until I got one.  Sounds good, but I ended up having a couple friends call and say they where in town and I proceeded to take four or five days off, we spent the weekend in San Diego and got a break from Real Estate.

After a rough start to the challenge, the house I thought was a sealed deal fell through, my agent called and said we ended up missing it by $300.  Our offer had a bigger earnest money deposit, no termite, etc, but the asset manager decided to go with the other offer.  It really sucked, because it was a great house, but the asset manager pulled some funky crap, so we drew our line in the sand and did not budge our offer.  Our strategy clearly didn’t work.

Fast-forward to earlier in the week and one of my top agents called and asked us to look at his latest listing.  It is not in my favorite neighborhood, maybe a C+.  Smaller house at 965 sq feet, but is 3 bedroom 2 bath with a decent layout.  So we put in an offer and after some countering and us paying about $2,000 more then we wanted to we got a signed contract today.  Let’s face it, this market is just really tough to be an investor in.  Prices are so low and people are willing to pay a lot for the low end properties, so pretty much everything goes over asking price.

The agent said closing is lined up for 12/24 or sooner, so we will for sure close 2 this month.  We haven’t decided if we want to wholesale this one or add it to the rental pool.  It’s about 20 miles from most of our other houses so we’d prefer to get rid of it, but we want to keep our rental pool moving forward.

House #26 is almost ready to hit the MLS.  I’m excited to see what kind of action we get on it!

That’s all for today!

If you have been following the blog for a while you’ll know we have had some great months, with a lot of acquisitions as of late.  But so far in November we’ve only had one closing (House #26).

Right now, we have one property in escrow (House #27).  But I would like to close at least three properties in December.  Since a typical escrow takes three weeks, I have about ten days to get two more rolling.  We are very close on one, it went to highest-and-best and I know we where the highest offer, we have a couple kinks, but I’m hoping I can make that one work.

In an effort to get some more deals rolling, I just finished making a list of all the pending offers we out there, so I can follow up with the listing agents.  The list amounted to over 15 offers, we have out there, I would estimate we have offered over list price on 80% of them.  Man, this market is crazy.  Our hit ratio on accepted contracts versus offers is so low. As an example, there was a property 3 weeks ago that was listed at 89,000.  We immediately got in there and submitted an offer at 125,000, of course we missed.  Well it closed escrow on Friday at 179,000 cash, well over double list price.  That is amazing!!

I am planning to make a video tour of our rental House #24 tomorrow.  So look forward to that posting.