Author Archives: Isaac

Lower Balance Than Expected and P90X

So today the realtor told me that the balance of the loan on Vassar is less than I thought – $20K less. This is good news. It means the bank may be more inclined to approve the short sale since my offer isn’t too far off from the balance. It also opens a few more possibilities for this property if the short sale doesn’t go through. Hmmm…. gears are turning…

In other news I started P90X today and I didn’t hurl so I’m pretty pleased with myself. So what if I only got halfway through the workout and couldn’t get back up!

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Posted by on March 23, 2011 in Vassar


My First Flip and What I Learned

The first post of this blog is entitled “My First Project…”. That’s not exactly true. It is my first project using private funding but not my first as an investor.

I started researching real estate investing in 2001. I finally took my first big leap 5 years later when I bought a house in foreclosure on St. Cloud near Woodlawn Lake. What took so long: a phenomenon commonly referred to as analysis paralysis, which I’ll describe in greater detail in a later post. In short, it’s a condition that can strike anytime you are learning a new skill. It renders you immobilized for fear that you have not considered every possible outcome or strategy. Next thing you know, 5 years have gone by. This was my first blow against it.

Now anyone who invests in real estate knows that one of the most challenging aspects is finding deals and getting the phone ringing. Many investors spend thousands of dollars in direct mail marketing, door hangers, bandit signs, and even billboards and radio ads. I went the direct mail marketing route. The general rule of thumb in direct mail marketing, in real estate investing at least, is that you might buy one house for every 2000 postcards you send out. Imagine my surprise when I found my first deal after only sending out 13 postcards! Things were shaping up well.

The person who called me was the owner’s daughter. Her mother had been ill for quite some time and was living alone. The house was not in terrible condition but it was still more than she could handle. Because of her illness she had stopped working and fell behind on her payments. After inspecting the house and signing some initial paperwork, I had to rush to perform my due diligence before the auction two days later. Once I had the contract signed, I raced to the courthouse to stop the auction and save the house. It was fantastically terrifying and also rewarding to know that I was able to help this family move on and escape the devastation of foreclosure.

I purchased the house using what is called “sub-to financing”. This means that I bought it subject to the existing financing. I just paid her cash for her equity, transferred title to my name, and took over her payments. If done right, it really is one of the best ways to buy real estate with little of your own money.

Once I had the keys I started work on the house. I hired some guys to fix a few low spots in the foundation, correct a few plumbing and A/C issues, and paint the exterior. Everything else I planned to do myself. This was my Waterloo decision. I enjoy doing home improvement projects. I made the mistake of thinking that qualified/motivated me to do the work. I was wrong. I quickly discovered that after 8 hours at the office, the last thing I wanted to do was go work in a dusty, smelly house for another 5 or 6. Long story short, what should have taken about 2 months through outsourcing, took me 1 year through DIY.

After some fresh new paint!

With the extra mortgage payments I just about broke even on the project after flipping it to another investor.

So what did I learn from my first flip? A couple of things: First, being a home improvement enthusiast won’t make you a good rehabber. Your hobby can quickly become your seventh circle of hell if you HAVE to do it. So my first lesson – only buy a house if there is enough room in the numbers to outsource the work. Basically, if the deal needs my labor to make it work, then it isn’t a deal. If I am trading my labor for compensation (even if it is to myself), that’s no better than a traditional 9 to 5 job; and at least in a traditional 9 to 5, I’m guaranteed payment. In this project, I worked all year and endured “those looks” from my wife (love you sweetheart), for nothing. In this project, my boss sucked cause I didn’t get paid!

So what could have saved this deal and made it profitable? That brings me to my second lesson learned – private lenders. The major challenge I faced in buying the house was a lack of cash for repairs. I figured I would just pay for repairs as I accumulated the cash from my regular income. The problem however was time. The longer it took for the repairs, the more mortgage payments I had to make.  Had I lined up the necessary cash from a private lender in advance, I could have paid for all the repairs to be completed as soon as possible and all the payments made to the mortgage company could have gone into my pocket instead. It’s for this reason that, after this project, I decided to step back from real estate for a while until I could secure a private lender. I also wanted to focus on completing my degree.

Looking back I see that I made some pretty rookie mistakes; but for it all, I’m glad I did. I didn’t make any money on that deal but I learned a lot and it gave me the confidence to know that it can be done. I just had to tweak my strategy. That’s what I love about this business and entrepreneurship in general – the ability to experiment, evaluate, tweak, and build your own success, one adjustment at a time.

It reminds me of a quote from Thomas Edison when he was asked about the many times he failed before inventing the incandescent light bulb. He said, “I have not failed. I just found 10,000 ways that don’t work.”

Let’s see if I can at least cut that in half.  🙂

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Posted by on March 21, 2011 in Uncategorized


Butt-Dialing Realtor

So before I found the realtor I’m working with now, I previously hired and fired a different realtor in a day. I think the story of how it happened definitely bears mentioning here.

This realtor, let’s call her Bella, was referred to me by my cousin who was hunting for his first house. He spoke so highly of her that I decided to contact her when I was told I needed a realtor to process the Vassar short sale. She was very friendly and took the time to explain the entire house-buying process in detail. I didn’t really ask for the lesson but it was comforting that she was willing to invest that kind of time. She hadn’t done a short sale before but knew it in theory. Hmmm. I decided to go forward with her anyway. She asked me to send her everything from the short sale so she could review. The next day I sent her the contract.

This is where it gets interesting. Shortly after I sent her the contract, I missed a call from her. When I listened to the message I could overhear her speaking to someone else in the car. It was very faint initially but after about the three minute mark I could understand her clearly.

Now I fully understand that nearly everyone recounts stories of conversations a little differently than how they actually transpired; so I could give her the benefit of the doubt that her report of our conversation to her passenger was just innocently flawed. It’s also possible that I may not have come off as a very sophisticated house buyer, since I was a bit distracted during our conversation. This is why eyewitness testimony in court does not necessarily constitute a nail in the coffin for the defendant. People misunderstand, misinterpret, and just plain get it wrong.

With all that said, what I heard at that three minute mark astounded me. Her comforting little country voice that, the night before, was so very patient and kind, now turned to that of a gossiping high school girl showing off for her friends. Without the trouble of typing the entire transcript here, suffice it to say that she spoke of me and my plan as a mother who recounts watching her child trying to fit a square block in a round hole. She portrayed me as someone who is in way over his head and who should be grateful for her mercy in showing me the error of my ways. (Nevermind the fact that the only thing I needed from her was her name and license number for the file since I had already done everything else to Citi’s satisfaction). She and her passenger laughed as she reported how I prepared my own contract, negotiated the sales price, and estimated the property value. Apparently I was just too naive to understand the complexities of buying a house without a realtor. Suddenly, in the middle of her rant, she says “Oh!” as if she burned herself on a hot stove, and then hung up.

I immediately sent her a polite email just stating that I no longer needed her services. She called a few times after that but left no message.

Now maybe she was just trying to impress her passenger. I considered that before sending my email; but I once heard a wise saying that you are who you really are when you think no one is looking. She definitely assumed no one was listening in this instance and there’s no doubt she would not have said such things if she knew her trusty cell phone was betraying her at that moment. Again, maybe she was just puffing herself up for her colleague but to me it simply means that she doesn’t take me seriously and I need someone who does.

Most realtors have a very absolute concept of the house buying process according to what they have been taught. For this reason, most of them do not understand or even like real estate investors. This is to what I attribute Bella’s error. She thinks because I did it differently, I did it wrong, and I should be thankful that she has shown me the true path to real estate righteousness. A few realtors are gems however and understand that the process can be simplified and that there are other, simpler, ways to make an omelet. Fortunately I think I found my gem with my most recent realtor, but only time will tell.

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Posted by on March 19, 2011 in Uncategorized


Vassar Update

Looks like I found a realtor for the short sale. So far she has contacted the bank and is meeting with the seller tomorrow to sign the representation agreement. Technically she will be the seller’s agent but I don’t see that being a problem. She says that her fee will be paid by the bank from the sales price. We’ll see how the sales price changes once she is involved. I will only be able to see what her fee is once I get the HUD statement. Hopefully it won’t become a subject of dispute but I suppose it is a possibility. I certainly don’t want to see a 3% increase in my price because of her involvement.

She also said that I might need proof of funds soon. That might be a problem since the loan isn’t likely to close until a few weeks. I called the bank regarding the investment property loan and some incorrect information on the disclosures. They said to just make the corrections, sign and then submit. They can process from there. I’ll have to stay on top of them to keep this thing moving ASAP.

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Posted by on March 19, 2011 in Vassar


My First Project and Funding Partner

So the first project is on Vassar. It’s a short sale which is new to me. So far I’ve prepared the short sale package and submitted it to Citimortgage. This was about two months ago. They have a third party who processes their short sales, National Quick Sales. They told me a realtor has to be on the transaction so I had to find one willing to work with me. I hired and fired one already (more on that later). I then contacted an old acquaintance who left the company I work for to become a realtor. She said she’ll look over the transaction, call the bank, and then let me know where we have to go from here. I really don’t want her to do too much until I know what she’ll charge me. I’m open to a flat fee arrangement, but certainly not commission. We’ll see.

The greatest hurdle for any aspiring rehabber is finding money. Many work with hard money lenders (HML) or through conventional lenders, but the crown jewel is having a private lender since they can move faster and often offer better rates. I’ve had the good fortune of finding a relative as a private lender, or as I like to call them, a funding partner (has a warmer tone to it). This arrangement however is a little unique. The funding partner has neither cash nor credit, but she has a free and clear property. Last year I was added to the deed so that I could borrow against the equity in my own name. I am currently awaiting the bank disclosures for the loan. This is how I’ll finance the Vassar short sale. I just hope the loan closes before the short sale does. Otherwise I’ll have to make short term financing arrangements.

Future post topics:
– Butt-dialing realtor
– Rehabbing philosophy

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Posted by on March 17, 2011 in Vassar