Lots of questions on the 6 homes deal.
Here are the details.
I bought 6 homes as a 'package' from one guy 4/26/2013. . He was a senior real estate investor who had 'made his money' and just wanted out and was moving to Las Vegas. I used an 'old time' realtor who knew the town and headed up the Landlord Association. He was very well known in town and 'knew everyone'. All homes were rented. 4 had renters who had lived there 7 years or more. 2 homes had renters who were a year old (rental status). Seller owned these homes for 12 years. One home was fully rehabbed (fire years ago). Homes were maintained reasonably well. All homes were Section 8 and are in working class areas. Homes are approximately 1000-1400 square feet. Most have basements.
Purchase price $275k
I put down $30k
SELLER CARRIED the loan (agreement for deed) .. $245k at 3.15% over 5 years (the loan will be fully paid off in 5 years)
I am not able to pull out any cash flow on these in the first 5 years in order to meet the short amoritization. In fact (per chart below).. I may have to put in up to $1000 a month. *I have the income to do this** Currently I have to put in less than $1000/month
Safeguards built in the deal
1. If I default I have 60 days to cure. If I do not/can not cure,. seller can only take the homes back.. no recourse against me personally
2. I worked in the deal that I can pull out 'fully paid off deeds' every 14 months . So in another 8 months I will get a deed to one of the homes and can sell it or do with it as I please at will and it will NOT be encumbered by any debt. If I default. the seller can NOT take these homes (that were pulled out) back. I am 6 months into this deal already.
3. Section 8 gives me some more confidence with rent (thought it comes with pitfalls too)
4. I retained a local management company who runs all 6 homes for me
5. I have placed $6,000 in escrow for large repairs not to be used (this is based on reviewing prospective large costs, roof, water heater etc and the current shape of the homes)
My plans with the homes
1. Remove 3 homes from Section 8 as they come up and folks move out. Section 8 has a rent freeze and homes can attract non S8 renters. We are removing one now -in process
2. Separate out the 3.5 car wide garage and rent it separately (in progress). I get no rent for this garage currently and it not used.
3. Baseline costs and get maintenance repairs slimmed down as much as I can
4. Hang on. This will be tight and scary the first few years.
Viewing the 'Background' Category
I wanted to clarify that before the downfall. I had a (or so I thought) $500k equity across my homes (all fake I know) and $400k cash or cash equivalent mostly in 401k or stocks. All of that was essentially lost and I was driving this 2003 Saab 9-5 (which I loved!) but was breaking all the time.. so the 'change' started for me in 2011 when I settled with all my minor debts ($15k across cards, medical, attorney) and then filed Chapter 7 to protect myself from the homes and constant late pay reporting on my credit while I attempted loan modifications. I then returned to work in 8/2012 and started gathering up what I have now. In June of this year I began my 5 year plan. I had not bought much or done much for ME in from 2009-2011 so the first thing I did when I got my job was to replace the 'on its last legs' Saab and my creaking Ford Expedition. I love cars and love to drive.
I used to go to Dunkin Donuts every day and be afraid my card would not go through. I still feel this fear come up today.
Quick note on current status towards goals
Goals are numbered to the left. My whole plan is based on the idea of 'sow seed/sacrifice' now.. 'reap later'.
1. I have acquired 6 homes in Joliet a few months ago..they are on a 5 year amoritization. Pay off date 5/18. They would net $3500 if paid off now so I will assume they will net that amount then.
I close on a 2 3 units also in Joliet that are on a 7 year amoritization and with $60k will be paid off in full in 5 years. I plan to come up with the $60k 5 years from now to do this. They would net $2300 now if paid off and will assume they will net the same then.
Both sets are fully managed and have an associated budget. I can share that if folks are interested. Both will require between $300-700 cash outlay each month to meet the amortization. In other words. they are negative cash flow and may be through the entire 5 years though we are already raising rents on the 'joliet 6'
**these are the last buildings I will fully amortize over 5 years, though I plan to buy more because I am short of my $8000 target in 5 years. Note my plan is calling for no cash flow now.. all cash flow in 5 years
2. I have $83,000 cash. $45k will go towards the 3 units in 3-4 weeks
3. I have health insurance. Federal exchange
4. I am trying to work out a 'short refinance' on my own home right now w the bank. A 'short refinance' is a special sort of loan like a short sale except YOu keep the house. It wipes out all overages and allows you to buy the house at market rates, market value. House is prob worth $430k. We are negotiating at $350k right now. (fingers and toes crossed and prayers).. Note: this extra expense was not in the 5 year plan right now.. so still working out how to do this so as to not impact the rest. I need to 'plant seeds' now and not take on excessive monthly payments. I would buy the house however as I will have built in equity, it is really nice and it is 'known'. New roof, furnace etc and I know the house.
5. On the 2 sets of homes/buildings alone at current market value (price I paid) I will have $500k equity in 5 years
6. I have 2k in this fund and need $16k. I work on contract and was just extended til June 2014 so will work on this in the next 6 months. I can not take on the home (my own) without this fully funded by then
7. I have properly escrowed the 'Joliet6' as I call them w $6k cash and a monthly $500 allotment. Need to escrow $6k for 3 units by Dec 1. Monthly repair allotment already built in to 'budget'
8. 2008 Tahoe paid off. Genesis on track to pay off 8/2015 at doublepayments but I may delay that.. unclear??
This is the current status. I will update each month. Note if I extend out the 5 year plan..I am short on income (which will translate to that $300k savings) so any more real estate will be bought with the idea of cash flow now . I am also seeking ways to gain more income. I make $110k now at work and have $2k/month coming in from a rental (which I am going to let go.. and will likely lose between 6 months-2 years from now.. to the bank).. currently with an attorney who is attempting to delay the foreclosure suit as long as possible.
HI All. This is my first entry. I have been lurking for a while here but thought writing may help me. I have a serious 5 year goal and am striving as hard as I can towards it.
I lost almost everything about 5 years ago and am basically rebuilding from scratch (scary!!!). I went into a 'slight' depression during that. (haha). Also got divorced, lost 2 homes to foreclosure, lost restaurant, closed other business...I sortof was on the mountain peak and tumbled all.. the... way .. down (very loooong fall) .. on and on. We will just call that period 'the dark years'. I am now up and out and reaching towards my goals.
I work in IT Project Management and have been back to work for a little over a year. I filed for bankruptcy in 2010 to stop the continual bad reporting from the homes and start rebuilding my credit. I do not regret it. All that was discharged were the homes. 2 rental homes were lost. 1 is still hanging in there and I may 'short refinance' my own home. Will know this in the next week or two. My credit score is now 713.
I am concentrating on real estate as my avenue to freedom.. looking at 'monthly income' vs savings. I want to have enough monthly income in 5 years (see my goals) to feel 'safe' and like I have choices. I am in good shape and health so do not feel I will quit working but will certainly enjoy any job I do more knowing I do not 'have to' work.
More tomorrow. First entry.