hespy's real estate blog

Here are the approximate numbers from House 1:

We closed on House 1 yesterday.  After having the closing pushed back 3 times, we finally signed the papers. 

The lender really dropped the ball on this one.  They were really slow with everything.  We were supposed to close last Friday, but they needed to take additional pictures of the house.  Then, we were closing on Tuesday, but the lender did not have the funds transferred yet.  My business partner and the buyer both took the day off work Tuesday for the closing and neither found out about this problem until about an hour before closing.

I will post details of the investment early next week.

We are still waiting to close on House 1.  The purchase agreement stated that we need to close by 8/15, but the lender is moving very slow.

They received the appraisal earlier this week. It was appraised at 135k, which is good.  But now the lender wants to know how we bought the house at 100k and now its worth 135k.  Hmm, I'm pretty sure thats what happens with an investment property. 

So, the lender wants to come back to the house and take some pictures.   WTF?  The house inspection and the appraisal aren't enough, they need some pictures too?  I know they are trying to protect their investment, but they are only lending 130k, so even if the appraisal is off by 5%, they still have a solid investment.

We rescheduled the closing for next Tuesday, so hopefully we can finally be done with this house.

The buyers have just completed the home inspection and everything looks good.  There was a small problem during the inspection.  We heard some chirping in the attic so when we opened the door to the attic, a dead bird dropped out.  DOH.  Obviously, the dead bird wasn't chirping, but his buddy was still up there.  We'll need to fence off the vents on the roof before the attic becomes an aviary.

The buyers are pretty excited, so I don't think we should have a problem with them backing out.  During the inspection, he was saying "my backyard" and "my living room", so that looks like a good sign.

Some of the things that we will probably do different on the next house:

• We did most of the work ourselves on this house.  I did save of some money, but it didn't save us time.  I think it would be a wash on the amount we saved vs. the extra holding costs.  Even though having someone else do the work has its own problems, check out Shaun's Blog to see what I mean.
• They say that you make your money in real estate when you buy.  Thats most likely true, but you sure can lose some money if you don't sell it right.
• Before we put the house on the market, we refinanced and took out a HELOC.  This process included having the house appraised by a "fully qualified appraiser".  Well, as I found out later, any appraisal order by a mortgage lender/bank is most likely 10% higher than the actual price.  This is a big problem when you are trying to list the house based on the appraised value.  So, when the appraisal came back at $135k, we listed it slightly higher at $138k.  After receiving maybe 2 calls the first month, we lowered the price to $135k.  Our calls went up to about 3/mo. for the next 2 months.  

At this point we were thinking of going to a realtor (I'll talk more about that in the next section).  We ran the numbers and it did not look good.   We would lose money on the house if we went with a realtor.  My business partner really wanted to go the realtor route, I thought it was mostly price and told him to give me 3 wks. at $129k.  He agreed as long as we got another appraisal on the house. 

The new appraisal came in at $122k.  Huh?  I'm starting to think appraising is about as accurate as the weather man.  The comparables weren't very comparable and after they adjusted their values, they were within $100 of each other.  C'mon, I used to do that in high school. Pick an answer and then fudge the calculations to come up with that answer.

With the new price, we were receiving 4-5 calls per week.  And had an offer after 3 wks.

•  We decided to use forsalebyowner.com to sell the house.  With a realtor, it would have been around $8000.  With forsalebyowner, it was about $800 for their sign package and to be listed in their magazine and website.  We maybe spent 15 hours showing the house. So, for us, it worked out better going it alone. 

I would suggest that if you do sell it yourself, list it in the paper, also.  For about $100/wk, we were able to have a photo listing in the Friday and Sunday papers.  While it was in the paper, the calls we received were about 50% forsalebyowner, 50% paper.

Closing is schedule for 2 weeks from Monday.

We received an offer on House 1.

They were going zero down, so they offered our full asking price with the following concessions.

• 1 yr home warranty
• Waive the prorated taxes
• Pay up to 6% of the asking price toward the buyers closing cost.

The asking price was $129,900.  We were hoping to sell for $127,000. So with this in mind, we countered with:

• 1 yr home warranty ~$400
• Waive taxes ~$500
• Pay up to $2000 toward the buyers closing costs.

They also wasted to close within 2 weeks, which is perfect for us.  If anyone knows of any home warranty companies in Michigan, please leave me a comment.

As a result of lowering the listing price on the house and listing it in the paper, we've showed the house around 6 times in the last 3 three weeks.  This is more showings than we had in the first 2 months, so it appeared to be working.

However, we are still lacking in the offer department.  We sort-of had an offer on the house last week.  A lady came and viewed the house and liked everything about the house.  Later that night, she e-mailed an offer on the house.  We were drafting up the purchase agreement, when less than 24 hours later, she withdrew her offer.   She said that she talked it over with some close friends and family and decided to pass.  We told her that the house was previously bank-owned, so she was worried about the state of the house.  She also said that she went online and saw that the SEV of house was $25k less than she was offering, so she thought it was listed too high.

Wow, I know it is her first house purchase, but I was hoping that her "close friends" could help her out a bit.  We replied to her message informing her that she would hire a home inspector to check out the house before she buys it, so she shouldn't worry about whether it was bank-owned or not.  We also told her the SEV is not the current value of the house.  Since we bought the house at a discount, the SEV is lower than current value after all of the fix-ups.  We told her that we had the house appraised after the fix-ups and it was appraised for more than the listing price. Well, she never replied back.  I hope that she at least uses the information at the next house she looks at.

It's been some time since I've posted an update, mostly because there is not much to update.

It's been about 3 mos. since we've listed our house and we've had about 5 showings an no offers (except from other investors).  Since then, about 7 more houses have sprung up "for sale" signs on the street.  None of them have sold.  It's starting to look like there is not a lot of movement in this neighborhood :-)

One of the things that we have changed is the price.  Originally, it was listed at 137,900.  I was against listing it this high, but I was "talked out of it".  After about a month, we dropped the price to 134,900 (the appraised value).  We still did not get much interest in the property.

Starting this week, the new price is 129,900.  Along with the new price, we are listing the property in multiple papers to generate some kind of interest.  We've also updated the front of the house with some flowers and shrubs.  It looks great.  I'll try and get some photos up in the next couple of days. 

Yesterday I made an offer on a pair of houses.  The homeowner lives in one house and rents out the house next to his.  He is selling both and moving.  He listed the houses at 75k and 55k.

The houses needed about 20k of work and the FMV of the houses are 85k and 70k.  I have some cash but not a lot of credit, so I made 2 offers on the house:

Offer 1: 20k at closing and 70k in 6 months. Offer 2: 10k at closing and 85k in 6 months.

This gives me 6 months to finish the repairs and resell the houses.  I should hear back from the realtor by tomorrow if the offer was accepted.

I showed our house this afternoon.  The guy brought in a bunch of papers, so he looked like he did this before.  He looked like he was happy about the place.  Then, he said something about going over the terms.  I was a little confused, so I asked him what he was talking about.  He said he was an investor that uses lease options then sub leases to people that have poor credit. 

This was the first I heard of this.  I guess he told my business partner, but it wasn't relayed to me. He told me that he ran some comps and came up with $116k.  Now, we had the place appraised a couple weeks ago and it was appraised at $135k. So, all of his calculations were based on the 116k.  His offer was for $135k with a 3 yr. lease option and $925/mo.  This was pretty ridiculus.  Our monthly mortgage is around 1000/mo and the house should appreaciate in 3 yrs., so I was going to counter with 145k and a 2 yr. lease with $1050/mo.  I still think this might be on the low side.

I woke up this morning and checked my email.  I saw that I received a voicemail on the Re-Unit phone line.  The message was from one of the homeowners that I visited last week. I returned her call and left her a voicemail.

Today is the last day that they can pay their property taxes before they lose their home to the county.  The treasure's office closes at 5:00 P.M.  She returned my call at 1:00 P.M.  I asked her a couple questions about the amount she owed and if there was a first or second mortgage. She was looking for a loan for the tax amount.  I told that we weren't a loan company and that we would use the equity in the house to offset the amount.  She did not want to move and therefore did not accept my offer.  If there were more time, we could have come up with some other solution, but we did not have the time.

My plan was to meet her at her house with a quit-claim deed and a notary.  Once I had the deed, I was going to pick up the certified check and drop it off at the treasure's office.  I would then meet with my lawyer to draft a contract that would give the proceeds from the sale of the house to the homeowner minus my expenses and profit (~20k). With the amount of equity she had in the house, she could have walked away with about 90-100k. I figured the minimum amount of time to accomplish these tasks was about 2 hrs.  So, I told her to get back with me by 3 P.M. if she still needs my help.

It's now past 5 P.M. and I haven't heard back, so hopefully she was able to get the loan in time.