Update for 3/27/2009

March 27, 2009 · 10 comments

Here’s a general update on all the properties:

House #1: The Corn House

As mentioned previously, The Corn House is under a Lease Purchase contract for the next 5 months, and hopefully we’ll be able to sell it by August. We met with the buyers a few hours ago to collect the security deposit ($1500) and their first month’s rent ($1000), so at this point we’ve locked in at least $3000 on the property. Additionally, the “buyers” will be paying $1500 per month through August, with $500 applied towards their down-payment and closing escrow and $1000 coming directly to us as rent.

I’m curious as to how this will play out; the “buyers” seem like a great family, and I know they really want to be able to buy the house; hopefully they can get their credit in order in the next couple months, and everyone will be happy come August…

House #3: The Second Chance House

Tonight is the expiration of due diligence on The Second Chance House, which means that if the buyers back out of this deal after today, we at very least get to keep the $1000 deposit. (Wow, I must really be starting to become cynical when I’m expecting buyers to back out and just get their earnest money!)

The buyers have asked for about $2000 in additional closing items (a property survey and a few repairs), which given their request for very little in seller-paid closing costs is completely reasonable. I generally expect to pay $4000 in closing costs for the buyer, and they only asked for $2000; so the $2000 in “extras” really isn’t that big of a deal.

Anyway, I’m ready for this property to close. With the long rehab that ended over the holidays and the first offer that fell through, our hold time on this property is nearly 7 months, and I hate holding properties that long. While I love this house, it’s time for it to get a new owner…

House #5: The DIY House

I’m still amazed that we got the buyer to sign the contract on this one!

Not only that, but she drove an hour in the rain this morning to deliver the earnest month check to the broker, and she is telling everyone that she wants to close as quickly as possible. Her lender says there’s a new VA loan process that allows buyers to get loan approval within 10 days; I don’t know if it will happen or not, but it’s possible we could close on this one in less than two weeks.

While I’m always happy to sell a house, I’m going to miss this one. It’s my favorite rehab so far (I’d live there in a heartbeat), and we are constantly getting phone calls asking about it. It doesn’t surprise me that our total hold time will likely be well under three months; my question now is whether we let it go for too little?!?

House #6: The Red Garage House

The Red Garage House is about ready to be put on the market. We had our cleaning woman come in today for the final clean, and we finished up a bunch of the final rehab items (paint touch-up, smoke detectors, shelving, etc).

We’ve decided not to stage the property right away, for two reasons:

  1. We don’t have any extra furniture to use right now. With furniture at The Second Chance House and The DIY House not ready to be moved, we’re out of staging furniture. And we don’t want to buy new stuff, as both those other sets of furniture should become available in a few weeks;
  2. This house will likely sell to an FHA buyer, meaning they’ll have to wait until 90 days after we purchased it to close — which is May 14. Given that, we’re in no hurry to get it under contract, so there’s no hurry to get it fully staged.

We’ll likely finish it up and list it this weekend at a little bit higher price than we had planned, since we have a couple extra weeks before we really plan to sell it. If we get an offer at the higher price, great; if not, we’ll drop the price in a week or two as we approach the 90-day mark.

House #7: The Roach Duplex

No update on The Roach Duplex. We’re still getting a few calls per week, but no serious offers. I’m in no hurry to sell this (I’ll keep it for the next 5 years, if necessary), and unless my wife tells me about the phone calls, I generally forget we even own it.

House #8: The 16-Bid House

We were supposed to close on this one today, but the closing attorneys still haven’t come back with clear title. I have no idea when it will happen, but hopefully sometime next week.

Now that The Corn House, The Second Chance House, and The DIY House are under contract, and now that The Red Garage House is practically on the market, we’re out of houses to work on!

I guess it’s time to start buying again…


10 responses to “Update for 3/27/2009”

  1. Ingrid says:

    Awesome update.

    I really, really appreciate the time you have taken to start and update this blog on such a regular basis. This has been an education for me. I have learned a great deal.

    Thanks for all your hard work! 🙂

  2. J Scott says:

    Thanks Ingrid! I always appreciate the kind words…

  3. Shae says:

    Scott, what a great update! You are really rockin’ and rollin’ here! I second Ingrid…thanks so much for an incredibly useful blog! I’ve been following for a couple months now. Very inspiring.

  4. Brandon says:

    J Scott-
    Good idea, we like when you find more houses haha! I’m actually a BP guy, not much of a “blog person” but I always read yours for helpful information and updates like this post.
    You mentioned the lease option on the Corn house; not sure if here is where to ask, but regarding the security deposit, would it have been more in your favor to add the $1500 to the lease option fee and ask for no security deposit at all; seeing as how the option fee is non-refundable if your buyer doesn’t purchase?
    Just curious, thanks Scott…

  5. J Scott says:

    Hey Brandon –

    Good question…I’ve been pretty bad about the terms I’m using to describe the Lease Purchase, as we’re using standard Georgia Real Estate contracts, and the terms on there are a bit different than typical Lease Purchase terms.

    In this case, the “Security Deposit” is the same as the “Option Fee.” While that may not be the intent of the contact, we have written in stipulations that say, essentially, “All money in escrow (including $500 earnest money, $2000 security deposit, and $500 per month out of the rental payments) is non-refundable should the buyer not close on the house.”

    So, in essence, we keep the $2500 + the $500 per month if the buyers don’t close on the house.

  6. Rowen says:

    May I suggest something to you. I just looked in the MLS and found some interior photos of the Roach Duplex and it looks like it has some real potential. Honestly I think Whole-selling may not be the right game for you.

    I think you should put 20k into the Roach Duplex and make it worth 60-75k then rent it for a couple of years. It could be a great start to you’re “rent and hold” portfolio.

    I think the best people to do whole-sales are people who are to either lazy to do the work of flipping or renting the property or someone who has so many connections with investors that he/she can get the property sold in just a couple of phone calls.

    If you were working on lots of properties it might be better to just whole-sell The Roach Duplex but since you don’t any properties (except for the 16-bid house) in the pipe-line instead of going out and buying new properties why not just renovate the one you already own.

    Great stuff love to read you’re blog! Its great that you update it so often!

  7. J Scott says:

    Rowen –

    Thanks for the feedback!

    There are a couple reasons why I’m not really interested in rehabbing and renting the Roach Duplex:

    1) It’s a relatively low-income area, so rents would be low, and therefore the total cash flow (while perhaps a high percentage) would be a relatively low number. Perhaps $100-200 per month in cash-flow;

    2) Because it’s a relatively low-income area, I imagine that managing the tenants would take a lot of time and energy that’s just not worth $100-200 per month. Especially if it’s difficult to collect rent or if there is high turnover, both of which could be an issue with these types of tenants;

    3) I think my likely profit by just holding won’t be much less (if at all less) than rehabbing and renting. And if my long-term profit potential is really pretty much the same, I’m not sure it’s worth the effort to rehab and manage.

    All that said, I haven’t ruled out the possibility, but right now, doing that work just doesn’t appeal to me; I’d rather be out looking for other good deals.

  8. ezra says:

    I applaud you.

  9. Ingrid says:

    J Scott,

    Just a question about the lease purchase folks on the Corn House.

    Is their credit issue mainly no credit? The reason I ask is that you mentioned that they never had a credit card, which is not necessarily bad. They might qualify for a mortgage if they go with manual underwriting. I know Dave Ramsey endorses Churchill Mortgage, and recommends them for people who don’t use credit and have no credit score.

    Anyway, just a thought.

  10. J Scott says:

    Hi Ingrid –

    Thanks for the info! Yes, the biggest credit issue with the Corn House buyers is that they currently only have two scores (they don’t have enough of a credit history to have been reported to all three credit bureaus).

    I will look in Churchill Mortgage and see what I can find out.

    Thanks again!

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