My Real Estate Investments
10 August 2010
I like real estate! I like reading about real estate. I like looking at real estate. I like thinking about real estate and I like writing about real estate. I especially like having real estate investments. I’m not into the zero-down, fancy financing practices that so many people regret today. I like purchasing solid properties that give me a positive cash flow. Like Rich Dad advises, I like my investments to work for me. I don’t want to work for them after I make my down payment.
Since I also like talking about real estate, and people seem interested, I thought that I’d write about the investments that I’ve made. Who knows, maybe those people are just being kind, but I’ll write anyway. If you are interested in talking to me about what I’ve done, please write to me at email@example.com
The first place that I bought was a property in Magna Utah that had a house and a small three unit apartment building (3-plex) on it. I purchased it in 2002 for about 5% under appraised value and gross rents were about $1800 at the time. It needed a lot of work, so it was about a year before I had a positive cash flow. I learned a lot owning it, and since it was relatively inexpensive, my lessons were not too expensive. In 2007 I subdivided the property into two lots and sold just the 3-plex for about 92% of what I paid for the entire property and kept the house. The improvements and other fees imposed by the county to do the subdivision cost about $20,000. Two of the big factors in my decision to buy were that the zoning would allow for the subdivision, and a new single-family housing development was being built just behind my property. One of the things that will improve appreciation is nice new development in the area.
I still own the house and since I paid off the mortgage with the proceeds from the 3-plex, it cash flows very nicely. The gross rents are $860 per month. This is below market for the area because many parts of the house are very out-of-date like the kitchen, bathroom and enclosed porch. Everything works, because I keep the maintenance up to date, but the inside was new when I Love Lucy was first on TV. I could increase rents after doing some major remodeling, but since there are plenty of people who like inexpensive rent better than a modern look this house has a very low vacancy rate. Therefore, I have not had a day of vacancy in about 3 years.
In April of 2008 I bought this house in Taylorsville, UT. I got a great deal on it paying 8% under the appraised value. I put about $5000 of work into it and have a really solid house. It is a 4-bed 2-bath house with a nice large back yard with mature trees. There is a family room on each floor and one bathroom was on each floor. I like this house because it of the layout. It has 2 bedrooms, a bathroom and a family room on each level. People really like this configuration and this makes it easy to rent. Also if the zoning ever changes to allow duplexes, I could convert it easily and significantly increase rents. Houses in this price range seem to be holding their value here in Utah. I think that this is because we have low unemployment relative to other parts of the country, so people are still buying affordable homes.
Why did I get such a good deal? The previous owner had let the maintenance go, then started a renovation and then moved out of state with his minimal renovations in progress. When I came across this house I noticed that it had been on the market for several months. When I saw the house I could see why. Piles of trash in the yard, pulled-up, smelly carpet and the like tend turn the stomachs of people are looking for a home. With this in mind I made the owner a cash offer with a quick close. I don’t have that much cash lying around, but I do have a line of credit that I can tap. He accepted my offer and was probably happy get out of the situation. I had a pretty good idea of what it would take to get the house in shape to rent, but I made sure to get the house inspected by a licensed house inspector to verify that there was not a major problem that I did not spot. I then got a bid from a contractor to fix the problems noted in the inspection report and to upgrade the things that my property manager and I decided should be done to maximize rent. I made sure that I could get all of this done before the deadline in my offer for inspections. Had something really bad turned up, I could have walked away.
I purchased this downtown Salt Lake City duplex in December 2008 and it was a great buy! The cash flow is great! Realistically, I probably got it for about 13% under market. A year ago, it would have been more like 26% under market, but times they are ah changin’! Unlike, the Taylorsville house above, this one was in great shape and fully leased at better rents than any of the other similar duplexes in the area that I investigated. The previous owner had done a lot of improvements and upgrades like installing new furnaces and putting tile in the kitchens and bathrooms. The previous owner had to get out because he had a balloon payment due, and even though he had good credit he could not refinance because of the current credit conditions.
I again used my credit line to do a fast close on this property. I was able to do this because I had paid off my credit line using a regular mortgage on the Taylorsville house. Another sign of the credit market problems is the fact that I can’t get anyone to refinance my credit line with a first mortgage on this property. Since my credit line is not secured by this property, the banks consider this a “cash out” loan and they will not do that until I have owned the property for at least 6 months. This has nothing to do with my credit worthiness, which is very good; this is just a Fanny and Freddy rule. This situation is not hurting me because I’ve got a very low rate on my credit line, but I can’t use that line even if a fabulous deal comes my way. Even thought everything looked great, I checked with my house inspector to make sure that he could do an inspection by the deadline before I put in my offer. He found a few minor things and I have had them addressed. I consider not having an inspection done like not having hazard insurance. I don’t like the premiums, but it could potentially save me a very large sum of money. UPDATE: After 6 months I applied for a loan secured by the property and found that Fanny and Freddy have yet another rule for this type of “cash out” loan. Now they say that you must own the property in your own name for 6 months. In this litigious age, it would be absolutely insane to own rental property in your own name. I hold all of my properties in LLCs. However, I found a lender, Washington Federal, who doesn’t care about Fanny and Freddy’s rules because they do not sell their loans. The interest rate is somewhat higher, but they make their own decisions.
I purchased this property in September 2009 and got an awesome deal! The annual gross rent multiplier (GRM) when I include the significant renovation costs is still only 6.6! This means that the cash flow is even better than any of my other properties. The annual GRM is a ratio of the purchase price to the potential total rents for a year. In my case a 6.6 GRM means that you multiply all of the rent I could possibly get in a year times 6.6 and that equals the purchase price plus renovation expenses. I got this great price because the seller had to get rid of it due to financial troubles and I was able to close quickly. I think that this property has a lot of potential. It is zoned “neighborhood commercial” and I recently found that an old small commercial building a few doors down is being renovated and turned into offices. It is also only 4 blocks from the new Salt Lake City Inter-modal transportation hub where the light rail system, major bus lines, commuter rail and Amtrak all meet. I am also only 6 blocks from the trendy Gateway Development. All of these factors point to growth and redevelopment coming to the area. Again I used my credit line to purchase the property and finance the repairs. I’m now waiting the 6 months to refinance again, because everyone requires you to show 6 months of success before lending you the money. You can read my blog at http://blog.utahdean.com/ to follow me through all of the steps of finding, purchasing, renovating and renting this property.
I purchased this property in July 2010 and got another great deal! This property also has a great GRM and is in a pretty nice neighborhood and should attract quality tenants. It is only about 2 blocks from the duplex that I bought in December 2008. Both apartments are pretty large at about 1400 square feet. One side has 3 bedrooms and the other has 4 bedrooms. This should make it easy to rent in this area. Where one bedroom units are tough to rent in this market 3 and 4 bedroom units are in high demand. When the 3 bedroom apartment in the nearby duplex turned over earlier this year Cambria was able to rent it very quickly. Since this unit is laid out very nicely and has been renovated inside with all new paint and all items repaired, it should go quickly Fortunately, it was in relatively good condition. I’m writing this in early August and the repairs are nearly complete. I expect to have both sides rented before the end of the month. Interestingly enough, this property was bank owned. That made for an unusual purchase process, mostly because they don’t use the standard Real Estate Purchase Contract. Once we had agreed on terms, they created a whole new contract with most of the terms the same but some important ones different. One example was that they only allowed me a 7 day due diligence period. You can read more about that and the whole purchase saga on my blog at http://blog.utahdean.com. There are tons of other great deals out there, but I’m out of money for a down payment for the moment.
I believe that a window is open for now to find great deals. Since I also like talking about real estate, please feel free to write me at firstname.lastname@example.org if you would like to chat about what I’m doing or about what you are doing. I always like exchanging ideas. You can also check out my Real Estate web site at UtahDean.com.