To Become Wealthy

Mary Supino Assistant City Attorney City of Dallas Texas Won't Let Me Live in Peace

2009-02-11T11:52:00.006-05:00

Bankruptcy is supposed to let you live in peace and get on with your life. At least that's what my bankruptcy lawyer told me. Yet Mary W. Supino, Assistant City Attorney of the City of Dallas Texas has been granted a court date for March 27, 2009.

Suing me again for the same thing. Building code violations and failure to make the property in TX safe. It's been about 7 months since the building was in operation and our bankruptcy and even longer since we sat down with the city of Dallas in mediation to come to a conclusion. Despite agreeing to all but one of the City's terms, which forced us into bankruptcy resulting in none of the terms being met. We were willing to work with the city of Dallas, yet when we reached out our hand, we got slapped.

I'm looking forward to the day when I can not live in fear of getting notice of a certified letter in the mail box and that peace my bankruptcy lawyer spoke about. Personally I see bankruptcy as a shame to bare for seven years, not a way to get on with your life.

Extortion From The Dallas Police Department and Officer James Swafford

2009-01-31T11:25:00.000-05:00

We get a call from Officer James Swafford of the Dallas Police Department telling us that there is crime on our property and asking what we were going to do about it. That’s right what are we going to do about it? “There was a man on the property selling counterfeit shoes” and “Some one I’m not sure who but someone in that apartment is selling drugs” Sounds like excellent police work Officer James Swafford you should be promoted to chief of police. I guess the real world or at least the Dallas Police Department doesn’t actually do any police work. So much for the high standards television sets for us with CSI.

So after we pick up our jaws off the floor realizing that as ridiculous as it sounds but in all seriousness Officer James Swafford really wants us to stop the crime. Oh yes this is also after we put in steal magnetic card access gates on all entrances of the property. We ask what can we do you are the police. He suggests we need a guard there. Oh did I forget to mention that the police department is only a block away from the property? We politely tell the officer that we can’t afford that and his answer to us is “Well can you afford a lawsuit?”

Wait this is America right? This is extortion! I’m being bullied by Officer James Swafford because I’m not batman? Does he expect me to put on a cape and cowl and fight crime in and around my apartment house? No he just want’s me to pay him to stop harassing and threatening me! This sounds like the bully who steals lunch money from the little kids in grade school. I don’t know what kind of a person Officer Swafford was in grade school but if his actions and morals as an adult are any indication of his grade school days. I’d say he was the bully of the playground stealing other kids lunch money. I never backed down to the school ground bully when I was 8 and I’m not about to now. We we’re eventually sued by the City of Dallas with Officer James Swafford testifying against us in court for knowingly allowing crime to be committed on our property. Which is part of what caused us to abandon the property and file bankruptcy.

Applying for a Secured Credit Card

2009-01-28T19:48:00.002-05:00

I applied for a secured credit card today to start rebuilding my credit that the City of Dallas has destroyed, thanks to the Dallas City Attorney and the S.A.F.E Team. I had a credit score of over 800, it'll take me time to rebuild it to that level again but I've got to start somewhere and the only place to start with a credit card is with a secured one.

For those of you who don't know a secured credit card is one where you have to deposit money in the credit card companies account and that's your credit limit. Here are some important questions to ask if you're in need of rebuilding your credit with a secured credit card.

What is the annual fee?

What is the application fee?

What other fees are there? (Insurance policy fees, etc.)

Do you report to all 3 major credit bureaus?

Will the report to the credit bureaus be flagged as a secured credit card?

How much interest will my deposit earn? What kind of account will my deposit be held in?

What is the interest rate?

How long does the money have to stay on deposit after the account has been closed?

How long will it take to switch to a secured card with regular good standing?

Is there a grace period?

The best secured card I found was a Bank of America Credit Card.

Certified Letter From Dallas

2009-01-15T19:30:00.001-05:00

There's a certified letter from Dallas waiting for us to pick it up at the post office, this can't be any good. ~ sigh.

What More Can the City Of Dallas Take From Us?

2008-11-24T19:48:00.005-05:00

Today We received a letter from Gary Fitzsimmons Dallas District Clerk

The letter is an order to reinstate to docket and reads as such:
On Nov 17,2008 the Court considered the City of Dallas' Motion to Reinstate to Docket this matter upon the docket of the Court. The Court having been made aware that the bankruptcy estate herto filed by Defendant Hewitt REI LLC no longer includes 2828 Cleveland Street Dallas , Texas based on Trustee's filling of Notice of Abandonment and no objections to such abandonment were filed with the clerk of the United States bankruptcy Court, for the District of New Jersey, Newark Division grants Plaintiff's motion.

It is therefore ordered that this matter be reinstated on the active docket of this court.

The City of Dallas has sunk their teeth in and have not let go. We have filed Bankruptcy and have no money the property is in the process of going into foreclosure. What more does the City of Dallas want?!

Our bankruptcy attorneys have told us that this is a time for us to start over, but it doesn't feel that way at all.

"Greetings, You have been sued. " Thats what the paper work says that I just signed for delivered by courier.

No Credit Card Debt

2008-11-21T12:44:00.001-05:00

No Credit Card Debt Yet Still Bankrupt

I have always viewed having a credit card and using a credit card as a privilege. I still view this as a privilege, a privilege that has been taken away from me by Mary Supino the city of Dallas attorney and a few other Dallas city officials. I have ZERO credit card debt, something that in this day and age is a rare case. I only had 3 credit cards each from a different credit card company American express, visa, MasterCard so that I would have the flexibility to use visa when American express wasn’t excepted which happened more often that I thought it would as the American Express card was my primary card I used most often which I had a history with for over 15 years all of which always had a zero balance. It’s not that I wouldn’t use my card mind you, I’d actually use it every month but I would pay each bill in full when it came in on all 3 cards. You se in addition to seeing credit as a privilege that was given to me for being responsible I also view credit cards very differently than the average person. Credit cards are like a small monthly loan. A micro load if you will that gave me a feeling of safety and honor. I never had to worry if I had enough cash with me to make a purchase with a small instant monthly loan that I could use knowing that I had the self control and discipline to never let it get out of hand and charge something that I could not pay off in full right away. But this is not to say that my credit card bills were not always small, occasionally my monthly bill was upwards of a few thousand dollars which, yes even then I stuck to my credit card rules and paid in full several thousand dollars in one shot, for example when I purchased my now wife’s diamond engagement ring and a few other times in my life of the occasional large spending. This is the way that one can live when they are frugal and conscious of their financial situation on a month-to-month basis.

This privilege however as I said earlier has been taken away from me. For recently all three of my credit card companies have sent me letters notifying me they are canceling my cards and I am to cut them up and send back my cards to them in pieces. They have been canceled on me despite a zero balance because I am forced to file bankruptcy due to an impassable compromise between me and Mary Supino Dallas City Attorney and the city of Dallas Texas. How can someone how is responsible with ZERO credit card debt, frugal with their money with a credit score of over 800 have their credit cards taken away from them? I have the city of Dallas and Mary Supino Dallas City Attorney to thank for that.

Good Bye Tenants

2008-11-13T18:51:00.000-05:00

Dear Tenants,

The city of Dallas and the Dallas Police Department has forced us to abandon the Blue Ridge apartments where you currently live. What this means is that we will no longer be collecting rent or paying for trash removal, electric, utility or any other bills. Eventually the electricity in the common areas will be turned off.

For your own safety and security we highly recommend that you leave the property as soon as possible.

We have no idea what steps the city will be taking with this apartment. The City may try to continue to improve the apartment and rent it out, or they will just demolish the entire building and turn it into a vacant lot.

Best of Luck and God Bless

Bankruptcy

2008-11-06T20:45:00.003-05:00

I fell in love and married my wife and we bought a property (a 15 unit apartment in Dallas TX) as an investment to secure our future and for our plan to have a family. A crime was committed on my property and I live over 100 miles away. The crime could have happened on the street but because it didn't the justice for us was to force us into bankruptcy. That's what i said Bankruptcy! I live in the United States of America and am a citizen so why is it my fault? Why should I have to be punished? I have been frugal and hard working my entire life and the result is destruction. This is a nightmare and I want to tell my story to protect the next person who will be bullied by the city of Dallas City Attorneys and threatened with extortion by the City of Dallas police department.

Beaten But Not Broken

2008-11-01T17:19:00.002-04:00

The road to financial freedom is difficult. Don't let anyone tell you otherwise. We no longer have the property in Dallas, we've officially filed bankruptcy both personally and for the LLC that held the property. The city of Dallas has driven us to this as no other options were available to us. We have been beaten but are not broken we shall recover and achieve our goal of financial freedom. Nothing will stop us.

Best and Worst Cities For Renters

2008-02-09T18:45:00.000-05:00

I recently read an article on Forbes.com by Matt Woolsey called Best and Worst Cities for Renters, that I am summarizing here. I have found the Forbes website to be a valuable source of information, and an amusing place to find some top 20 lists. (I like looking at the lists of the top billionaires in the world. It helps me daydream.)But the article about the Best and Worst Cities for Renters had a lot of good information that I wanted to share with other investors. It was no surprise to read that the highest rents are paid in New York City and San Francisco. The 2.8% vacancy rate in NYC is partially responsible for keeping the rents so high. The sales prices of homes are much higher in the city, but so are the incomes. So those people who cannot afford to buy a home and need to rent, have a higher income than in other areas of the country. Therefore they can afford the higher rents as long as the cost is still less than that of buying a home.

In places like Cincinnati, that are expecting 100% more new homes this year will see a slow down in rental prices of only 2.7% (the lowest increase nationwide). More inventory slows the growth of prices and rents in the city. This rental increase is predicted to be the slowest nationwide. For a comparison, a 2% raise in construction in Washington DC is expected to lead to a 5% increase in rents there.

Job growth also plays an important part in rental rates. Salt Lake City boasts one of the most rapid new construction rates, but it still cannot keep up with the rate of job growth in the area of 3.1% in 2008. Of course more jobs means more people and higher wages and increases in sales prices and rents.

“Slow sales countrywide means more opportunities for renters as developers and homeowners look to lease their properties while waiting for buyers.” This is happening in Miami, but a lot of the new rental units here are unsold condos that are not really affecting the overall rental market.

Those are the basics of the article. I hope it was informative.

What real estate to buy in 2008.

2008-02-03T13:35:00.000-05:00

This week we attended a meeting of the New Jersey Real Estate Investment Club. The topic this week was What real estate to buy in 2008. The founder of the club, Christopher Goodson, was going to talk to us about his recommendation for investing in the New Year. Since it is a real estate investing club, it was no surprise that he recommended investing in real estate. It is also important to point out that he recommended buying real estate for the long term, and not flipping or short sales. He had a lot of good things to say about flipping and short sales, but he believes that it is vital to invest in real estate for the long term.

He believes, as a lot of economists currently do, that we are in a recession. A recession is simply defined as “A period of general economic decline, specifically, a decline in GDP for two or more consecutive quarters.” I have never followed the GDP levels, but from what I have heard, it is easy to believe that we are in a recession. But being in a recession is not necessarily a bad thing, especially for people just starting to invest in real estate. I am a big believer in going back to the basics. Everything that we do is based off of some basic facts and ideas. It is vital to never forget those basics, or any new knowledge gained is baseless. These are some of the basics that were reviewed before Mr. Goodson made any investing suggestions:

There are 4 ways to make money in real estate:
1- Rental Income (cash flow)
2- Depreciation (phantom cash flow)
3- Amortization
4- Appreciation

Mr. Goodson believes that a lot of the problems that investors are having is because they bought real estate based on appreciation only. We were in a long period of time that saw unprecedented increases in real estate appreciation. A lot of investors were buying real estate based solely on the appreciation. They were willing to lose some money every month in hopes to make it all back plus extra when they finally sold. Those who did not sell prior to the downturn of the market have not been getting the returns they expected, and I am sure that a number of them have lost money.

The main thing that he stressed throughout the whole meeting was that you should only buy real estate that is cash flow positive, even if your goal is appreciation. In a nutshell this is what he was recommending to all of us for 2008. Only buy real estate that cash flows. He also recommended buying 2-3 family houses. (Please keep in mind that he is only speaking about buying real estate in the New York/New Jersey/Pennsylvania Metropolitan Area. The rest of the country was not discussed.) He made this recommendation because of the abundance of these types of properties, and the ease of using alternate types of creative financing, such as seller financing. Since real estate has not been selling quickly in this area, sellers are going to be more willing to make creative deals now, in order to make the sale.

Keeping Financial Records

2008-01-20T21:12:00.000-05:00

Filing taxes should be considered an illegal form of torture. It seems to just get worse and worse every year. I spent years struggling to file them myself and I was never sure that I did them correctly. Since I have switched over to professional accountants, I have never been happier.

I have been trying to keep close track of all of the expenses that we have had for this property, because we will need to file soon. I wanted to make sure that I was organized ahead of the game to save time. Of course, the accountant will be filing for us, but we are the ones that will be supplying him with all of the numbers that he needs. We used this same accountant for the past few years. When we were filing last year, and knew then that we would be buying an investment, I should have asked him how he wanted the information organized. I have it all in a excel file now, so sorting it into different views will be relatively easy. I know a lot of people use Quicken, or other similar software, but I have never found the need. A few spreadsheets have been easy enough to set up to keep all of the records that I have.

I have one spreadsheet for expenses that are not directly related to the property that we bought, but that we still might be able to use as a deduction. There are phone and internet expenses, FedEx bills for some of the bidding and closing paperwork that we needed to send overnight, and just some general office supplies. I do not yet know how much of these things we can use as deductions, but I have them all on my list anyway.

Then I have a sheet for the expenses that directly relate to the property in Dallas. On this sheet I have separated the closing costs from the operating costs. Linked to this sheet is one for the income the property generates. I have it broken down by apartment numbers, that I transferred from the monthly statements from the property managers. But I also just have the monthly totals that then are linked back to the operating costs page to give a running total of the profits.

Once we meet with our accountant I will know how good or bad my record keeping has been. Then I will come back and share any insights into better record keeping.

My goals for the New Year

2008-01-06T16:52:00.000-05:00

1-Buy a second real estate investment
2-Create information products related to investing
3-Have more blog content and expand the information on it
4-Start a second website with other information products as source of income (topic not yet determined)
5-Write a business plan and create prototype for one new product (item not yet determined)

Those are the basics of my business and financial goals for the year. I also have certain goals for the one investment property that we now one, but I will review that separately.

1-Buy a second real estate investment. There is a lot more to this than just this one sentence. Our first property we bought rather conventionally. This was a unique experience that taught us a lot. But for our next investment, we are going to try to purchase it with different methods.

2- Create information products related to investing. I have so much information inside me, and I just keep picking up more. I want to put it all down on paper and see if it will sell. Secondary sources of income are also essential to my overall goals of becoming wealthy. A lot of the information will come from my personal experiences and opinions, as well as market and general information. I want to go beyond the “rah rah-you can do it” that is currently on the market.

3- Have more blog content and expand the information on it. This is pretty self-explanatory. I feel guilty about not writing on my blog as much as I should. I have re-prioritized my time to allow for more time to create content. I also have more time to research and learn about different investment topics that I want to share with the world.

4- Start a second website with other information products as source of income. This is sort of a vague goal at this point, and I have yet to decide what the service is that I will offer. I have some other interests in my life that I am passionate about. The site may be an interactive community of sorts, or a reseller of a niche product or something entirely different. My first step is to take my top two or three ideas for this site and do a little bit of market research to see if how plausible the idea is. Then I will develop a marketing plan for promoting the site, and set up a simple site to launch it.

5- Write a business plan and create prototype for one new product. My husband and I are big fans of the show “The Big Idea”. The Donny Deutsche show features entrepreneurs who have had simple ideas and made them into million dollar businesses. A lot of the ideas come out of simple frustrations in daily life. So, we have examined our daily lives and come up with a few new products. We understand that bringing a product to market can take more than a year. So my goals for this year are simply to pick one of the products that seems most feasible, write a business and marketing plan for it, and create a prototype. That sentence makes it all sound so simple, but it will actually be a lot of work.

Now, not only in my list of goals written with pen and paper, posted on my desk, but the whole world can now read about it. I am not getting away from this now!

A NEW YEAR!!!!!!

2008-01-01T17:15:00.000-05:00

I will be the first to admit that I have been delinquent in my blog writing duties. But since it is a new year, I have been reviewing my goals not only for the year, but for my entire future. The good news is that I still plan on becoming wealthy.

Every January gyms across the country are loaded with new people trying to keep their New Year’s Resolutions to lose weight. By early spring, most of those people will not go to the gym again until next January when they make the same resolution.

Setting goals is a daunting task for me that I have never enjoyed. I always have the ideas in my head, but I have never been comfortable putting pen to paper to document it. The fear for me has always been having the proof at the end of the year that I have not accomplished the goals. Once I put pen to paper I become accountable for those goals. But last year I bought my first real estate investment and it has changed my perspective quite a lot. A lot of the fear that I one felt is gone. I am now officially accountable for every single one of the goals on my list.

The first few items are personal items that will not directly affect my financial future. After living in my house for two years I need to make a decision about how the living room should be furnished before another year goes by. I think it is important to have personal, family and business goals on the same list. We can all define ourselves in more than one way. All the aspects of life need to be tended to in order for us to grow as a whole. Too often we spend so much time and effort on one thing in life that all of the secondary and tertiary roles get lost.

Be reasonable when you make your list. If you think there is not enough time to accomplish an item on the list, then break it down into smaller components and set the goal for just the beginning steps. I don’t mean to tell anyone that they cannot accomplish anything they set their minds to do. I am just advising to keep in mind that some things are harder to accomplish over night then others. Time is also a limiting factor for all of these things that we do. Hours in the day are limited, and I tend to lose functioning after a certain hour of the night.

PAY DAY

2007-10-21T11:23:00.000-04:00

We have finally received our first paycheck from our apartment building. $4906.22.

I made color copies of it and plan on keeping it in a special place, sort of like what you see restaurants do with $1 bills put in frames behind the register. Officially it is not the first money that we received from the apartments (we were credited for a prorated portion of the rents at closing), but it is the first official check that we have received from rent.It will not always been for this same amount. The property manager has been doing a lot of work for us, at an hourly rate, in order to get the property in the running condition that we want it to be. They roofing and the siding are still being replaced, but the security gates are fully installed and awaiting fire department inspection. Once these things are fully completed, the property manager will not have as much to do outside of collecting the rent, and any minor repairs that may arise.

As I mentioned in my last post, not all of the tenets are caught up on their rent. But this payment covers two months worth of rents, minus two $800 management fees from the get go. Other fees that were deducted were for permits for repairs, and lawn services that the property manager paid for, new lease fees, and the service fees for each time they had to meet with the various vendors. Basically the property manager pays for the cheaper items out of pocket first and them gets reimbursed from the rent payments. They way she does not have to contact us for every little item that is needed and then wait for us to send the money. It makes less work for both of us.

So, what do we plan to do with this money? Not much at this point. It is going into the bank to re-build up our cash reserves for the next investment opportunity. We are just adding it back into our cash reserves. We are not big spenders nor are we prone to splurging. We are already looking for other properties, and the more cash we can set aside, the more properties we will buy. When the money starts to pile up faster than I can invest it is when I will finally feel comfortable.

Renters

2007-10-14T20:19:00.000-04:00

When it comes to our first real estate investment, we are relying solely on rental income as the only source of income. There are no coin-op washersand dryers on site or anything else that could bring in extra income. In away we feel that we are at the mercy of our tenets. We have not raised the rent on them We are considering a moderate increase once the repairs are all done. We realize that our tenets are below the national poverty line, and we do not want to put any extra pressure on them to pay us more money.The problem is that they do not pay their rent on time. It is not just one or two tenants that have this problem, but most of them have this problem. I think that it is not a problem of discipline, but a problem of the lack of money. So, we have been trying to think of a solution. We have discussed payment plans with our property manager, but she did not sound too hopeful.

I have made no secrets of my plans to be a philanthropist, and I genuinely want to help people like our tenants who are at the bottom of the financial barrel, so I have been trying to think outside the box for a solution. I have thought about starting a business where employees could work for me from home, so that I cannot only have these people as tenants, but as employees. The major problem I have with this is that my tenants do not have access to computers, and most if the jobs like this require internetaccess. I plan on doing more research for opportunities for people in these situations to see what sort of solutions area already out there. I had an idea, before we even closed on this property, to give everyone of our tenants, regardless of their payment history, a break at Christmas time. I was thinking of either a discount for the month of Dec, or a freemonth of rent depending on how well we were doing for the year. At this rate I do not know if we can pull it off for this year, but I still want to do something for these people. So, we are considering sending them gift cars to the nearest grocery store.

Rich Dad LIVE

2007-09-23T21:44:00.000-04:00

This past Tuesday, my husband and I went to see Robert and Kim Kiyosaki speak live at a small college in NYC. It was an event sponsored by public television WLIW. We learned about the event when we caught one of his shows with fund raising breaks interspersed throughout. We made a donation and received two tickets to the event. If we had donated more we also could have gotten a set of some DVDs and books. We just went for the tickets. For anyone that has even tried to get into the city thru the Lincoln Tunnel between 5:30 and 6:00 will understand why we were late to the show. We missed about the first half hour. But once we sat down it seemed like he was discussing items that we had seem him give similar speeches about on tv. There was one item that we caught that he has promised to talk about during this seminar. He was going to reveal the next big thing in investing, or at least the next big thing in his opinion. I am sharing that revelation here with you now. SILVER. Silver is supposed to be the next hot item to invest in. Of course if everyone who listens to Kiyosaki invests in silver stocks, the price will go up. I know that he already owns some silver, and may even have ownership in silver mines, so it will be good for him too.

Discussing the future of silver was just the briefest portion of the seminar. He mostly spoke about what the tools are needed to be a successful real estate investor. He discussed what he refers to as the Financial IQ:

1- Make $
2- Protect
3- Budget
4- Leverage
5- Intelligence

He referred back to these 5 points several times throughout the evening to help solidify the points he was trying to make. He also stressed three important things that every investor needs.

1- Good Partners
2- Good Finances
3- Good Management

In fact he had a gentlemen with him who was his business partner and owned a management company. Unfortunately I do not recall his name. But he was a valuable part of the evening because he was able to discuss in some details how he has worked the numbers on some past real estate deals with Kiyosaki. He believed that an important part of investing in not just the property management, but the management of the finances of the purchase and sale of the properties. I would love to hear more from him. He actually had a product that he was selling that night, but we were not in the mood to spend any more money that night, so we did not even look.

To go back to some of the points above. He suggested starting businesses as the best way to make money to invest in. Of course it sounds a lot easier than it is for most people. But I think that it is excellent advise that I plan on pursuing. Unfortunately I missed most of what he said about protect, which I would love to see if he covers this topic during his TV programs. It sounds self-explanatory, but I think there may be some secondary definition or twist that he adds that I am upset that I missed. Budget and Leverage were two important points as well, that I did hear fully explained, and were pretty much what you would expect. Keeping a budget is important for any thing that you do. I also think that preparation of the budget is also important, especially when presenting the deal to investors. Kiyosaki is also a supporter of the art of leveraging one property to buy another. He is a believer in good debt. A lot of the examples that they discussed were deals where the property was reassessed and refinanced after purchase in order to pull out the initial cash investment in the property. He called this infinite leverage.

They glossed over the points of creative financing and using investors, which as points that we wanted to hear more about. So, at the end of the evening, after we got our books signed, we asked the other gentleman (He was more accessible that Robert or Kim.) and asked if he could share some of the gems of creative financing. Of course there is no easy answer to that question. He mostly said that networking is the key. Just getting yourself out there and letting people know what you do. So, I asked if it was the person or the deal that really sold investors. He believed that it was the deal first and then the people. This was my assumption too, since most people only care about the bottom line. But it was still good to hear it from someone with a lot more experience.

Starting New with the Investment

2007-08-26T15:48:00.000-04:00

We had secretly hoped that we would be able to make money right out of the gate with our first investment. We weren’t really expecting to, but we were hoping to. We knew from very early on that the building needed to have a new roof and new siding put on, but a few other surprises have popped up, along with their price tags.

Our first priority was to have the roof and siding done to prevent further damage to the building. This property had a history of deferred maintenance, so we wanted to try to get some of the big problems out of the way to try to protect against further damages. Our property manager set it up for us, and we spoke to the contractor ourselves before starting.

What we weren't expecting was a notice from the local police. We knew that the building was in a bad neighborhood, but we did not know that the police were cracking down in the area and putting pressure on property owners who ignore the problems with their properties. Fortunately it is not in my nature to do unethical and immoral things involving other human beings. I saw this as another opportunity, not only to improve my investment, but to improve the whole area for everyone involved. So, we spoke to the police officer about how to improve the property. So, we are going to be putting in security gates at all the access points to the central courtyard. We are hopeful that this will solve some of the crime problems and give our tenets some security. Of course we are also putting in policies to screen potential tenets, and will evict any tenets that cause continual problems. So far it is working well.

Our property manager asked us today if some of the tenets could contact us directly. Of course, one of the main purposes of having a property manager is so that tenets do not call us with every little problem, but we have given them our mailing address. Now we just have to wait and see, but the manager made it sound positive.

Closing

2007-08-22T20:43:00.000-04:00

The trial and tribulations of closing on this investment seemed never ending. In fact we were due a small refund at the time of closing which we still have not received after a month and a half. (I am told that it is in the mail.)

The entire closing process was a very daunting task indeed. I only made it worse by how worried we were about the whole thing falling thru now that we had finally reached the end. The paperwork was never ending. I am sure that we duplicated information many millions of times. We had to supply all sorts of forms to the lender, not just the basic application forms with the details about the property, but notarized forms to prove that we were who we said we were, and even a form to say that there was never a dry cleaning business on the property. At points I thought that the paperwork would drive me insane. Every time I thought that it was all over and I had sent in everything that I needed to, they would request more. Maybe it was due to the lender, maybe the type of loan, or maybe the type of property, I just do not know.

My plan is to put together a list and copies of all of the documents needed for closing, or at least the ones that we needed for this closing. So then in the future we can have the items available in advance to make the process smoother. I have just not had the stomach to go over it all again. But when I do I will post it as a reference for everyone else. I hope that it will be a useful tool for anyone who is on the selling end also since the seller supplied a large number of the items.

We closed on our first apartment building.

2007-07-07T19:28:00.000-04:00

There were times when I wasn’t sure that we were ever going to make it to the closing table. Even the last few days were a little hairy at times. But we did, as a matter of fact, close the transaction. We are now officially Real Estate Investors!!!!!!!

There are a lot of steps to the whole transaction that I have not yet written about, but I plan to go over the whole thing in future entries. For now I am looking ahead to what we are going to do next. First we need to do is make sure that all of the terms are clear between the management company and us. They were employed by the seller, and we have decided to keep them on, and we want the transition to be smooth. Then we are going to go over the estimates that we have already received for replacing the roof and the siding, and arrange to actually have the work done this summer. I have no idea how long the work will actually take to get done, or how soon anyone can start the work, but we are hoping that the actual cost remains within 20% of the estimates. We were fortunate that the appraised value came in higher than the amount that we paid. So, we have $25,000 instant equity, plus the amount of cash that we put down. Once the work on the roof and siding is done, (and maybe a few other minor repairs) we are going to try to get secondary financing on the property and pull some of our money out for the next investment. I have no idea how much of a difference the work that we are doing will make on the appraised value of the property. The hope is that the value will increase more than the amount that the repairs cost.

Until then, I am waiting for the feeling of being a new real estate investor set in. It still does not quite feel real yet. Maybe it will feel more real when we lose on our second investment.

The Millionaire Inside

2007-06-03T20:59:00.000-04:00

On CNBC, there is a show called “The Millionaire Inside”. I caught part of the show the other day, and found it rather fascinating. They had four guest experts on to advise people on how to make money the same ways that they have, David Bach, Phil Town, Loral Langemeier, and Barbara Corcoran. I cannot give you all of the details about their personal backgrounds. More of that information can be find on the website for the show, http://www.cnbc.com/id/17912006, and I am sure that Google searches will also pull up even more info. I am going to do that myself to see if I can learn more about them. I always like to know what sort of background people have in order to put their advice and experiences in proper perspective.

There are some very important points that they made that I think are worth repeating and thinking about. I jotted down a few points during the show.

Invest early, and don’t fear your first investment.
This sounds pretty basic, but most people don’t follow these rules, including me. I wish that I started investing with my very first paycheck, or at least in my 20s. Instead, I am starting in my mid-30s with the better late than never philosophy. If you think about it, I might not be wealthy until my 40s or 50s since I began later in life. But I am going to be 50 one day either way. I would rather be wealthy at that age, then in the same boat that I am in now. So I don’t let these thoughts stop my actions.As far as fear is involved, it is difficult to keep ones emotions in check. Fear is a natural response to any new experience. I just have to keep in mind that investing is a risk and fear is just a natural part of it. The trick is to not let it rule your actions. I take a deep breath and look at the each situation objectively and just give it a try.

Pay Yourself First
This point really struck out in my mind. Just yesterday I read just the opposite information in a book about buying businesses. The point that the book was trying to make was that a lot of small business owners end up paying themselves last, after all of the other business needs have been finished. What the experts on the millionaire inside were trying to point out was that this is the incorrect mindset to have. If you are going to be in business to make money you need to make sure that you get paid, and paid first. If this does not work, then the business needs to be re-evaluated.

Buy, don’t lease
Home equity is your single greatest asset
Building equity is a point that I keep seeing come up over and over again. It is better to own your own home than to rent. That is a basic idea of building wealth.This was a point that the show emphasized, but not just for personal residences. They stressed that if you are going to own your own business, it is also important to own the property that houses that business. Not only is it another excellent source of income from other possible tenets, it is one extra safe-guard for the business.

REIT can be an easier way to invest in real estate
I have not personally looked into investing in REITs (Real Estate Investment Trusts), but I am going to look into them and report back.

Still Trying to Buy the First Property

2007-05-30T21:07:00.000-04:00

We still have not gotten to the closing on our first property. The initial problem was our naiveté in thinking that the transaction would move along quickly and smoothly. We were very wrong. We should have chosen date at least 6 months out. We just simply did not know how long some of these things would really take to get done. It is also difficult to do things quickly because we both have full time jobs, which leaves only evenings and weekends to get things done. We are forced to rely heavily on email because we are not available to call people during regular business hours.

There always seems to be a need for more paperwork. I had a huge mortgage packet of items that were needed for the mortgage. I sent it all in, and then phoned the lender a few days later to see if there was anything else that was needed. I was told no, that the mortgage package was complete. Since then, they have come back to me twice needing at least 8 different items, all of which they need before they can complete whatever they need to close. So, it takes me a couple of days to put it together and mail it to them. Another delay. I am going to make a master list of all of the items that I have had to present to them, and prepare it in advance for the next property that I try to buy. This way I will have it ready before they even ask. It sounds like an ideal plan, but most of the items come from the seller, so you I will need to make sure that they also have their paperwork in order for me.

But I don’t let all of this stuff get me down. It is all part of the learning process. I just keep thinking ahead and moving forward with my plans and goals.

Personal Updates

2007-05-28T17:54:00.000-04:00

It has been too long since I last posted anything about my real estate dealings.Basically, we still have not closed on our first transaction. Everything seems to take about 10 times longer to complete that I estimate in my head.

On a more personal note, I have found new employment. I always complained about the commute and how it took too much time each day just to get to work. It just so happened that a new job within five minutes of my house fell into my lap. I consider myself very lucky to have gotten this job. I sent out only one resume in my job search, and got just the job that I wanted. It was a lateral move as far as salary goes, but a big step up in lifestyle.I get to come home everyday for lunch and water my garden. It is wonderful.

My husband has been making great strides in starting his business. He is getting ready to start his first marketing campaign for new clients. I am very excited for him. He has so many great ideas about the industry and about the future of the corporate climate. It makes me very happy to see him having the opportunity to do this.

Subject To

2007-04-05T22:15:00.000-04:00

The term Subject To is used to describe a certain method of buying real estate. Basically during the purchase the deed is transferred from the seller to the buyer, but the mortgage remains in the sellers name. You have ownership rights, but those rights are "subject to" the existing mortgages.

This sort of deal requires a very motivated seller who does not have a lot of equity in their property. There are any number of reasons that sellers might find themselves in this financial situation. It would be a good option for people who are facing foreclosure if they do not sell, as long as they are not already behind on their mortgage payments. You, as the buyer, structure the deal so that they sign the deed over to you, and you take over their mortgage payments.

There is much legality involved that I am just learning all of the details about, but there are also a lot of benefits. First of all, there are no mortgage qualifications, and no down payment or mortgage fees are required. It is easier to refinance the property once you own it than it is when you are first purchasing it.

This topic will require a lot more research before I would attempt it. I always thought that mortgages were structured to come due at the time of the sale of the property. There must be some legal instance where this sort of subject-to deal is allowed. It also seems like the sort of deal that can mostly be found on single-family houses, and not commercial properties. But it cannot hurt to ask for this kind of selling structure for any deal.

Closing-The Continual Delays

2007-03-11T21:04:00.000-04:00

When we first put a bid on this 15-unit apartment building in Dallas, we thought it would be easy. We set a closing date for only 2 months away. Now we have learned our lesson. Our most recent closing day was supposed to be last Friday, the 9th, but now it has been moved out another three weeks to the 30th. I have been going crazy for the last two weeks trying to make sure that everything was getting done on both sides. So I am thankful to have more time and more sanity.

There is no single party at fault that has been causing these delays. There is simply just a lot of work to do and in the end it is benefiting us because if we did close early we would have been missing out on a lot of information that could have cost us in the future.

Just this week I learned that an out of state LLC needs permission to operate in Texas. I have been led to believe that this is not true for all states, but I imagine that it is. There is a simple form to fill out and a $750 fee to send in and that takes care of it. But we would have been in a lot of trouble if we closed without it. Especially if we were later sued by a tenant and then found out that because we were not properly set up as an LLC in Texas and we no longer have the protection of the LLC. The moral of this story is to make sure that you have a good lawyer.

Buying with No Money Down

2007-02-25T15:25:00.000-05:00

I have seen a lot about a method of purchasing properties with No Money Down. Some people seem to have enough success with it that they sell their systems to others. Other people do not seem to have much luck with it at all. I recently found a link to a man who purchased 8 properties in one year using this method and he is now facing foreclosure and the fact that he may have committed mortgage fraud.

I have read through most of one book on the subject. “Nothing Down for the 2000s” by Robert Allen. The reason that I stopped reading the book is because every example of a no-money-down transaction that he gave seemed fishy. I read this book before I knew most of what I know today about investing. Since then I have also read a review of this man by John T. Reed that highlights illegal activities that the author has been convicted of.

If you look at the basics of the no-money-down deal, and take out of the equation the fact that mortgage companies may not like those deals, or whatever other legal or ethical issues there may be, and look purely at the profit and loss numbers the deals do not make much sense. The entire purchase price is a loan of some form or another. Therefore the entire purchase price of the investment needs to be paid back with interest. I have evaluated hundreds if not thousands of properties. I analyze them with the assumption that I am only putting down 20% of the purchase price. Even with this assumption most of the properties do not have a significant cash flow if any cash flow at all. So, if you put down $0 and have to make additional payments on that extra loan, the cash flow becomes even worse. It just makes no sense to me.

I believe leveraging debt is an important tactic for beginning investors to use to build up their portfolio, but eventually it is good to start to pay off that debt to maximize cash flow. There is a man who I have encountered on some forums that claims to purchase properties with all cash and no mortgage debts. Of course it takes a while to get to the position where you can afford to do this, and I am sure that there are limits to how much he can buy. But it is something that I will fantasize about being able to do myself one day.

As I write this I am thinking of a way to formulate not only the maximum cash flow, but also maximum return on investment for each property based on the amount of mortgage owed. It seems to be that there had to be an optimal level that will give you the most ROI and cash flow depending in the property.
Something to work on……

Mentoring

2007-02-19T13:55:00.000-05:00

Popular opinion states that in order succeed as a real estate investor one of the things that you need is a mentor. Therefore a lot of the real estate gurus offer mentoring programs as part of their sales packages. I do not have a mentor, I am not actively seeking a mentor, and I think I will do just fine without one. However, if you look at it from a different perspective, I have several mentors all at once.

There is no single person that I look to for advice and guidance. There is no one person that I can phone with questions that has done what I am trying to do before me. But the resources that I have found and that I use regularly have taken the place of this single mentor for me. There are two discussion forums that I visit quite regularly, richdad.com and biggerpockets.com. If I have any questions, I look for the answers there. If I cannot find what I am looking for, I ask. Of course I also freely offer my opinions to anyone who cares to read them.

I suggest that everyone check out these forums, as well any others that you can find. I wish that I had more time to spend on them. It is the best source of advice that I have found so far. I consider everyone on those forums to be my mentor. Be sure to check out people’s profiles so that you have a sense of what they do and where they are coming from.

LLC Accounts

2007-02-08T15:06:00.000-05:00

There is more involved in opening and LLC than just filing with the state. This week we went one step further and opened a business checking account in the name of the LLC. Even though the financial info for the LLC will be filed with our personal tax returns, this will make it that much simpler to keep track of our expenses and profits. The hope is that it will also legitimize business expenses in the eyes of the IRS. Or that is at least what our account advised us to do. We are also going to need to set up a savings account for any overflow if money (I like to think positively.) and any security deposits.

There is something that I read about once that I have just done some research on again. It is called Accredited Investor Status by the SEC. Some of the requirements for this status involve corporations that trade securities. But for individuals, you either have to have a net worth of $1,000,000 or an income over the past two years of $200,000 ($300,000 for spouses) with the expectation to continue at that level. There are a lot of investment companies out there (a lot of hedge funds) that want you to be accredited before you can invest in them. Some of these companies invest in real estate domestically and globally.

Why and I interested in this? I am looking in to the distant future, beyond just getting out of the rat race. Although anyone can start out investing in real estate there are still opportunities out there that are only available to seasoned investors. I am going to keep this accredited status in mind and file for it once I can qualify and then see what sort of other investment opportunities present themselves.

Commercial Mortgages

2007-02-06T21:07:00.000-05:00

I am new to the world of commercial mortgages, but I have found it to be very confusing. I have talked with several brokers and direct lenders, and the all seem to have different standards and requirements. I have been given rates, for the same property, that were as high as 13.5% and as low as 6.75%. Some of them were willing to finance 90% LTV others would not budge from 80% LTV. All of them required some sort of basic documentation. Some of them weighted the property numbers more than our personal finances, while others were more concerned with our personal finances than the property.

I learned the basics about mortgages from the purchase of my home in 2005. Basically the bank will only lend you a percentage of the value of the home. This percentage is called the LTV-Loan to Value. The value used by the lender is the lesser of the purchase price or the appraisal value. For people buying a property as their personal residence, there are various programs that allow people to buy homes with a very high LTV and very little money down. It is much different for investment properties. Once the lender knows that you are not planning on living in the property that you are purchasing the rules change. People are not as vested in properties that they are not living in and therefore the risk of them not paying the mortgage increases.

Applying for any loan requires lots of paperwork. I knew that I had all of the paperwork that they required, but putting it all together proved to be more work than I had planned on. I have now learned to reorganize my files in order to have everything that the lender requires in one area, instead of a dozen places. I am planning to put together my own financial statement that I can update regularly with my personal information. The format and information contain will be a combination of some of the standard forms that lenders sent to me. I will give more details in a future blog once I have it all set up.

It also makes a big difference if the seller is organized and has all of the financials on their properties organized. One of the items that most lenders wanted to see was the profit and expense lists for the past year or two of the property as well as rent rolls. I am trying to keep this in mind as I set up all of the files and paperwork that I will need to manage this property. That way I will have less work to do when we decide it is time to sell this investment.

The Cash Flow Game

2007-02-04T11:04:00.000-05:00

We attended another Real Estate Investors Association meeting this week. There was no speaker or topic. Instead we broke up into groups to play the Cash Flow Game. The Cash Flow Game is an invention of Robert Kiyosaki of Rich Dad, Poor Dad Fame. It is a board game that can be played by about 6 players at a time. Each player is assigned a profession and the basic financial parameters of that profession. There is a center circular track on the board that is called that Rat Race. That is where all of the players being, going round and round in the rat race. The object is to get your passive income to be higher than your expenses. Then you can get out of the Rat Race and on to the Fast Track. On the Fast Track, the income potential increases dramatically, and basically you have won the game.

The game makes several interesting points. The first being that your starting profession, doctor or janitor, has no bearing on how quickly you can get out of the rat race. The other important point is that as long as you keep playing, all players will eventually get out of the Rat Race. The game also requires that you keep a basic personal financial balance sheet. So, it is helpful to see how different kinds of investments affect your personal financials.

Even though the game is a bit pricey, $195, to purchase, I would recommend it as a useful tool to begin your real estate investing career. There is also a children’s version of this game that I am told is also very good. I have yet to try it myself since I do not have any children, but I do believe that it is important to teach children financial lessons early in life.

Personal Development and Real Estate Investing

2007-01-30T20:16:00.000-05:00

You do not need to look very far to see that there is a connection between personal development and real estate investing. I have not done any research to discover where and how this may have begun, but I still find it very interesting. The information that is out there is telling people how to expand themselves personally and financially.

For some reason Real Estate investing is not a mainstream idea. When people talk about investing, they are referring to their 401K or IRA accounts. Some people even own mutual funds or tech stocks. They read Barron’s and hope to find the next break-out stock that will make them rich. Most people are just plain afraid to invest. We all fear losing money. We all fear losing all of our stuff.

Real Estate investing or any other type of investing is not taught in school. In school you learn a trade so that you can go out into the real world and get a job that will pay you enough to cover all of your bills. I am beginning to believe that investing needs to be taught in schools. The world is a rapidly changing place and we need to start to look at money in new ways.

This is where all of the gurus come in. People get to a point where they are not happy with their life, for whatever reason. Some people will reach out to try to find an answer to solve their problems. The gurus are there waiting telling people that if they want a better life, it is theirs for the taking. What is the number one thing that people think they need to make them happy? More money will make people happy. More money is the answer to your problems. Real Estate is an excellent way to make money and be your own boss. It all is very logical.

Money is referred to as the root of all evil, but it is also marketed as the savior.

Dallas Contract Revisions

2007-01-27T17:02:00.000-05:00

I just wanted to add in a quick update on the progress of the property in Dallas that we are under contract for. When we had the inspection done, it turned up more than we expected. The seller had already told us that the exterior siding and stucco needed to be replaced and that he would be giving us a credit for it at closing. It turns out that the roof also needed to be replaced. There were a number of other minor things that could be fixed also. So, we wrote up an amendment to the contract asking for these minor repairs and for the credit at closing to also include replacing the roof. I had a nervous couple of days. and then the seller agreed to everything that we had asked for. I expected a little bit more of a debate, but I am pleased with the way things turned out. The seller is now getting more estimates for repairs, so we do not yet know how much the credit will be for.

I have also been busy trying to find a good mortgage. At first I went to a broker, but I have not been please with the lack of information and the amount of points and fees. There have to be better deals out there and I am trying to find them. Loans are expensive enough already without all of the additional fees that are added on. What is the purpose of points anyway?

This week I will also be securing insurance for the property. The company that we currently use for our home and automobiles also covers Texas. Someone recently recommended an umbrella policy as a extra method of protection from litigation, so I will be inquiring about the detaisl for that.

Lots of work, so little time.

Forming an LLC

2007-01-23T19:18:00.000-05:00

We have recently formed a Limited Liability Company (LLC) in which to hold our real estate assets. We named it Hewitt REI, LLC. The REI stands for Real Estate Investments, but that is too long, so we went with the popular abbreviation.

Most people agree that the LLC is the best way to hold real estate to offer protection from litigation. For small businesses it is more beneficial that an S or C Corp because it avoid double taxation. For an LLC, any income that the properties produce is considered as personal income and is taxed as such. For full corporations, the corporation is first taxed for any income, and then the money that is taken out of the corporation is then taxed again as personal income.

I also need to state that just because we have an LLC to hold our properties in does not mean that we are completely free from lawsuits. If someone gets hurt on our property, or decides to try to sue us for any other rental related reason, they will be suing the LLC and not us as individuals. That means that if they win, they cannot claim my personal residence of other assets as payment in the suit. However, if they can prove that we somehow personally did something, or were somehow grossly negligent, then they can try to sue us personally. The success and outcome of that attempt would be determined by the details of the case and how good your lawyer is. I just want to point out that having an LLC is added personal protection from litigation, but in no way is that protection 100%.

Filing for the LLC was rather simple. We filed in New Jersey, and did it all on-line. It took us about 20 minutes. I insist on reading all of the fine print, so most people are probably able to complete the process in less time. It cost only $250.00. Then the state sent us these nice looking forms complete with a gold seal. They certify that we can do business under our chosen name, and that our company is in good standing. We also filed separately for a federal tax id number. There was no charge for that. So, now we are all set to transfer the property to the LLC at or shortly after the closing. It is something that our lawyer will handle, but I am told that it is a simple form for the transfer.

Real Estate Business Systems

2007-01-21T17:47:00.000-05:00

Real Estate Investing takes a lot of work, but it is the best source of passive income.

That sentence does not make any sense, does it? How can something be passive and take a lot of work to do? The answer is that it starts out as a lot of work, but with the proper systems in place it becomes passive (at least for the person who sets up the system).

I do not yet have our business system set up, and the details of its final form have yet to be worked out, (and will change a dozen times before reaching the end), but I know what my goals for it are. It needs to be able to run with very little input from me or my husband. The hard work comes in setting up those systems.

Once the property has been bought and all of the needed repairs and management put into place, I want very little to do with each property every day. I am not saying that I expect never to do anything for it ever again. The management company will send reports about the property, and I will need to make decisions in the future about any repairs that need to be made. But this should not take more than a few hours a month, if even that.

I do not want to have employees or even an office outside of my home that I need to go to everyday. I want to have client relationships with people and businesses. They will do whatever portion of the real estate process that they specialize in and just charge a fee. I do not ever want to deal with payroll or health insurance that is not my families.

I am not a lazy person. I was raised with good work ethics, but I want my time to be free for other investments. If I am too busy managing the details of properties than how am I supposed to have to time purchase and run hundreds more.

There is another side to this picture also. I hear so many people say that they bought real estate with “private investor money”. Those private investors are making passive income. They have money to invest and it is being invested in real estate. Other people are finding the deals for them and using their money to buy it. I am sure that some of those deals are not only set up based on a quick ROI%, but based on long-term equity in the property.

I am constantly amazed at how many ways there are to make money in real estate.

Why Invest in Real Estate

2007-01-18T07:45:00.000-05:00

Why do we invest in real estate? Why does anyone? More importantly, why doesn’t everyone?

First of all, statistically it would just not work out if everyone invested in real estate, but there is certainly still plenty of room for newcomers in the world of investing. Every time I mention to someone, friend or stranger, that I am starting to invest in real estate, people have their doubts about me, but never about the fact that real estate is a good investment. Mostly people see it as something out of my league. As something that is reserved for people that are already wealthy.

I believe that fear motivated people not to try new things. I know that when I do not want to do something, I can come up with a dozen excuses within less than one minute. That is the same thing that people are doing to me when I discuss real estate investing. The fear they feel about trying to make these investments them selves comes out as doubt over my success. I am not trying to say that no one supports my decisions, but they all doubt that it will work for me in the long run.

In 5, 10 or 15 years I might just be wealthy from my investments it real estate. I also might not be. However those 5, 10 and 15 years are still going to pass me by. I would rather spend them trying to change my life, then not trying at all.

I am not slated to retire from the general work force for another 30 years. 30 years is an awfully long time. And in 30 years they may have risen the retirement age another 5 to 10 years. I am not a patient person, waiting 5 to 10 years to retire is going to be difficult for me. I would hate to see what I miserable person I would be in 30 years of jobs that I only marginally like.

So, why aren’t you investing?

Motivation to Invest

2007-01-16T20:43:00.000-05:00

In this crazy and busy world it is sometimes difficult to stay focused on our mail goals in life. It is very easy to get sidetracked by family and anything else that happens in life. Some real estate and self-help gurus recommend writing down your goals, and the steps that you can take to get there. Then you can go back and read these goals and methods to help you stay focused. I think this is a wonderful idea. I had helped a great may people. I was about to add that I have not yet done this myself, but that is not true. This blog is helping me to write out my goals and keep me motivated.

I recently spoke with a friend of my husband who is a personal fitness trainer. He was discussing with us the methods that he uses to keep people motivated and give them a more positive attitude towards those things that they really might not want to do, like go to the gym, or not eat that tasty dessert. A lot of what he had to say I could relate to my situation. You need to focus on the positive aspects of the future and not what may have gone wrong in the past, or even what may be unpleasant or tedious to do in the present. It is all about the greater good of the future. In my case, my future as a full time real estate investor.

My goal is simply to become a full time real estate investor. I still have to take care of certain family and personal obligations, but when the mood strikes, or I just run out of time, I need to reevaluate myself and restructure my time to make sure that I can still reach my goals. I never thought about myself as someone who was goal oriented, but it turns out that I always have been. I just have not always been the type to write my goals down in a nice list.

Real Estate Investors Association Meeting

2007-01-13T11:10:00.000-05:00

This week we attended our first Real Estate Investors Association Meeting. There were about 30-40 people in attendance and the topic for the night was “Flipping not Flopping”. We are not actually interested in flipping properties at this point in our lives; we were more interested in meeting other investors and networking.

We did meet some very interesting people. Most of them were shocked not only to hear that our first investment is to be out of state, but that we have no intentions of ever going to Texas to see the property. A few of them acted like they had never even heard of people investing in this manner before. Based on what I have read, I thought it was quite common. Maybe the idea has not hit the east coast yet.

There was one man who sparked our interest. He presented himself as a hard-money lender. We discussed the difficulty with finding the small hard-money lenders, and he hinted that he might be able to help us. When I have done searched for hard money in the past I have only found large companies that only lend money in the millions. One day I will be working with hard-money lenders like these, but that day is not today.

The man who taught the seminar had some interesting methods and point of views about investing. He has only been in real estate for 2 years, but has made enough money to now hire people to help him with his system. Some of these young and eager men were also there. Not only did they work for this man, but he was also helping them with their own deals. Sort of like an apprenticeship.

Although it was interesting to hear what other people are doing with flipping, I could not help but wonder about the legal and ethical issues around it. I understand that it is a last report for some people who are in default on their mortgage and that they will lose the house anyway. But I think that I would feel too much like a vulture. There is an increasing problem with foreclosures across the country. There has to be a better way to help these people. But then again, there is not way to stop people from making bad decisions, financial or otherwise.

The legality of it all is also a question in my mind. There seemed to be several legal fine lines that this man played with on a regular basis. I am positive that there are several instances where questionable legal strategies were used. In a way I think what they are doing is an excellent way to make money. I have no problem with using legal loopholes, and I hope my career takes advantage of some. You need to have a certain personality and temperament to make flipping really successful, and I am not one of those people. (But you never know, there could be a million different ways to flip properties.)

To Become Wealthy: Contract Details Part VII

2007-01-12T07:25:00.000-05:00

Closing: I would expect this to be the final part of the contract, but it is only on page 7 out of 13. Lawyers do not make anything that is short and simple. That way you are guaranteed to need them for anything involving any contracts. Please do not misinterpret my statements as anti-lawyer. I am glad to use them and welcome their expertise and assistance. I am really anti-contracts. Anyway, our closing date was initially set for Feb 2nd, but we have extended it out three weeks simply because both sides need more time to prepare everything, especially since the Xmas and New Years holidays were thrown in the mix.

There is a long list of what both the Seller and the Buyer need to have at closing. Some of these things are restated from earlier in the contact so I will not go thru them again.

When we closed on our personal residence last year, the closing almost seemed like a formality. All of the work had already been done and reviewed before the closing. We basically sat at a large table in front of a big stack of papers and signed our names until our fingers cramped up. Then we had to sing some more. The lawyer gave the seller’s lawyer a check and we got the keys to the house. Except for the finger cramping, it was a painless procedure. I expect that this time the only difference will be that we will receive a FedEx package containing a large stack of papers that will require our signatures that we will then have to mail back before the closing date. We will probably never have the keys to this place, but the property manager will.

To Become Wealthy: Inspection Report

2007-01-09T07:23:00.000-05:00

The property was inspected the other day by a professional. Of course we were not able to attend, but our realtor went along to see the details for herself. The report was very thorough and detailed. The inspector even included a lot of digital photos of anything that was below standard and needed work. Overall ,we were pleased with the job that was done.

Sometime the levels that people will sink to in cleanliness amazes me. There were photos of one apartment that I could barely force myself to look at. These people had let their dogs have the run of the place, and from the looks of it, they never took their pets out for a walk, or bothered to clean up after them. It was disgusting to even try to imagine what it mush have smelled like. I believe those tenets are in the middle of getting evicted. I am going to look into the cost of having that apartment professionally cleaned. I fear that smells like that never really come out. Although this turns my stomach, this alone does not deter us from purchasing the apartment complex.

We already knew that the exterior needs to be completely redone, and a credit to do it is included as part of the contract. The only other major thing that will make or break this apartment complex for us is the roof. It looks like it needs to be completely redone. In the photos we could see that it was a sunny, cloudless day, but there were puddles of water on the roof. There was also evidence of water damage in several apartments that I am sure correspond to the puddles. So, we want to also add the total amount to redo the roof to be included in the contract.

Basically, there has been a history of deferred maintenance in this complex that is apparent in the inspection report. We have no plans for rehabbing the entire property, but we would like to put a stop to its decline. I believe that although this is an investment for us, we need to take into consideration that people are living in our investment and that they are ultimately the ones who are responsible for our monthly cash flow, so we need to give them some consideration. This property is not located in the best neighborhood, but that does not mean that we cannot do some simple things to try to keep them happy with where they have chosen to live. I want to be wealthy, but I do not think that in order to maximize my profits that I need to sacrifice my tenants.

To Become Wealthy: Contract Details Part VI

2007-01-07T11:33:00.000-05:00

I am going to become wealthy. I have a plan and I am going to show the world how I make money as I make money. My main objective is to make passive income thru the acquisition of real estate all over the country. All of my failures and all of my triumphs are going to be out in the open for everyone to see.

Leases: This item is sort of obvious also. It simple states that all leases must be in full effect t while under contract and that the seller can not enter into new contracts without our consent. It is a little bit of protection from mean and vindictive types of sellers. The seller also must disclose any conditions that may lead a tenent to be able to terminate their lease, or any concessions, bonuses or free rents. Any advance payments also need to be disclosed.

Estoppel Certificates: I went over this briefly before, because we received several of these certificates from the seller. I have figured it out, and basically these certificates are from the tenents to certify the basics of the lease, amount owed, amount of security deposit, any offsets and the expiration date of the lease.

The next section of the contract names the different brokers involved in the sale, and the amounts that they wish to receive at the time of closing. Our realtor wants 3%. Ultimately it is up to the seller to negotiate this fee because they end up paying it out of the purchase price. I think our realtor deserves the 3%. She has been working very hard for us.

To Become Wealthy: Dallas Property Update

2007-01-02T20:26:00.000-05:00

The inspection was done today for the 15-unit apartment building that we are current under contract to buy. Our realtor was there for the entire thing and seemed pleased. She did mention a few things that needed work to be done to them, but she saw that as a plus, as additional bargaining power. In any real estate transaction anything that we can get to come off of the price is good news to me.

We have also been receiving a lot of paperwork from the seller. I received a copy of one of the leases today, and some estoppel certificates. Before last week I had never heard of the word estoppel and I will admit that I am still not entire sure of what it means. The certificates appear to be some sort of agreement with the renters to continue with the same leases under the new buyer as they did with the seller.

I have also learned that they are in the process of evicting 3 tenants. I have mixed feelings about this. Of course I do not want tenants in the building that are not paying rent, and I am glad that the evictions are not costing me anything. But it does make me wonder what types of tenants the other people are, and what sort will be attracted to live in this area. I have also learned that one of the tenants is Section 8. That I am happy about.

To Become Wealthy: Contract Details Part V

2007-01-01T16:31:00.000-05:00

HAPPY NEW YEAR!!!!!! I want to wish everyone out there a healthy and prosperous new year. Let this be the best year of investing for us all!

Property Information: Under this contract the seller has 10 days to provide us with a:

rent roll
copies of the leases, including any amendments
inventory of all personal property included in the sale
copies of notes and deeds of trust that will not be paid by closing
copies of any current maintenance contracts or managements agreements
copies of utility statements
copies of any warranties or guaranties
copies of any insurance policies related to the property
copies of any leases related to the property
copy of the “as-built” plans and specs and plat of the property (?????)
copies of invoices for repairs in the previous 24 months
copy of property income and expense statement for the state period
copies of all previous environments assessments
real and personal property tax statements for the past 2 years

This is a lot of information. I am going to need to double check to make sure that we received all of these items. There are several that I already have, and a few might not be relevant, but I really need to double check it all.

This also gives me an idea of the types of records that I will need to keep on the property so that I will have an east time being compliant when I chose to sell the property.

To Become Wealthy: Contract Details Part IV

2006-12-31T16:12:00.000-05:00

Feasibility Period: This is a very important section. This is where it simply states that we can terminate the contact for any reason within 28 days of signing. Our realtor is currently extending this date by an extra 14 days due to the holidays holding things up. This will probably also extend our closing date, but I am not entirely sure about that. If we do decide to back out of the contract within this time frame, we will have to pay the seller $360 and we will get back our earnest money deposit.I was very pleased when I learned about this part of the contact. No such thing was included in the contract when we purchased our current home. I believe that it is reserved for commercial properties only and I do not know if that is true in all states.

Inspections, Studies or Assessments: This part simply states that we need to have an inspection done within this feasibility period, and that we are required to pay for it. The seller just needs to make sure that we have access to the property and that all of the utilities are turned on. There is also a nice point about the buyer being responsible for any damages cause by the inspection process.

To Become Wealthy: Contract Details Part III

2006-12-30T11:32:00.000-05:00

UCC Search: This stands for the Uniform Commercial Code. I was not familiar with this and had to look it up on my own. All that the contract says is that the seller has 10 days to provide documents that are on file with the state and county to show where the property is located that relates to all the personal property on the property, and to list all the owners of the personal property in the last 5 years. Then it further states that we would then have 7 days to object if there is something that may encumber the title or if any portion of the property is in a flood zone.

This is one definition that I was able to find. “In plain language, the Uniform Commercial Code allows a creditor to notify other creditors about a debtor’s assets used as collateral for a secured transaction by filing a public notice (financing statement) with a particular filing office.” This really does not tell me too much more. Basically I am going to double check with my realtor that this was done and review all documents that are involved to see if anything looks questionable.

To Become Wealthy: Details of the Contract Part II

2006-12-29T14:03:00.000-05:00

Title Policy: “Seller, at Seller’s expense, will furbish Buyer an Owner’s Policy of Title Insurance from state company, in the amount of the sales price, dated at or after closing, insuring Buyer against loss under the title policy, subject to:” blah, blah, blah

This sounds to me like the seller is responsible for getting title insurance for us. However, I do not believe that this is correct because when we purchased our current residence we were responsible as buyers to have out own title insurance. I believe that this section means that they seller must prove that he had title insurance from the initial purchase of the property to prove that he has legal rights to the title, and if something occurs the title is insured. I am going to check this out with my lawyer just in case.

Survey: This is simply stated also. Within 10 days the seller needs to provide us with a survey of the property, that was done after the date of the contract, by professional surveyors.

To Become Wealthy: Details About the Contract Part I

2006-12-19T19:46:00.000-05:00

Contracts are very difficult for anyone who has not spent years studying law to read. We live in a very litigious society that has lead to an increased wordiness of any legal document. Once more lawyers get involved, the amount of paper increases geometrically. It can sometimes be terrifying to witness.

However, I am going to attempt to explain our contact to the best of my understanding. Please feel free to jump in if I have made any errors in my interpretations.

It starts out simply enough identifying the sellers and the buyers, and the location of the property that is being sold and bought. Then it even goes as far as to list all of the things connected with the property such as the rights to the leases, and warranties, trade names, or anything else associated with the ownership of the property. And of course the most important portion of the entire document also appears on the front page. The Sales Price complete with the amount that we are to put down in cash at closing.

Page two includes a contingency that allows us out of the contract if we cannot secure financing. This seems kind of obvious to me, but I guess it needs to be there. But in order to actually get to this point we needed a pre-approval letter from a bank to prove that at least one bank is willing to give us financing. So, this item seems a little redundant to me.

Earnest Money: This is the amount of money that you need to present to the seller along with the bid. It is being held by the listed Escrow company and the seller will receive it at closing as part of the down payment, or it will be return to us if the purchase falls through. I have absolutely no idea why this needs to be done. What is the point? We have already proved that we are not penniless delinquents before we placed the bid, why do we also have to show that we can write a check for a few thousand dollars. What is this supposed to prove? Does the seller feel some sort of security knowing that a portion of our money is in an escrow account? It is fully refundable to us if we back out of the deal or if the seller does. But it is one of the things that we had to do, so it is stated in the contract.

To Become Wealthy: The Next Step

2006-12-17T21:52:00.000-05:00

Our closing is not until Feb 2nd. Of course this is dependent on everything working out between now and then. There are all sorts of details in the contract that give both parties an out. But I have no doubts at this time that we will purchase this property.

I have a lot of work to do to prepare for the purchase of this property, but my mind keeps wandering to the time after we purchase this property and are looking for the next one. I think back to a previous blog where I mentioned that the profoundly successful people are the ones that did not diversify but rather took big risks in one area that paid off. So, do we continue to look in Dallas or concentrate in other areas? Should we look at non-residential real estate investments? The difficult thing is realizing that there are no answers to these questions. So, I will just continue to look at everything until something, somewhere looks good to me.

Until then, I need to review the details of our current contract better to see what I can learn from it.

To Become Wealthy: Under Contract

2006-12-14T22:19:00.000-05:00

As of yesterday we are officially under contract for our first real estate investment purchase. I could not be more excited and nervous at the same time. It is an entirely different feeling from when we were purchasing our first home for our primary residences, and that was a more expensive purchase.

To make an odd point about why we are not investing close to where we live. The cost of our 3 bedroom, 1.5 bath house here on the east coast is more than the cost of a 15 unit apartment complex in Dallas. Crazy but true. You need to already be wealthy in order to invest anywhere within driving distance of where I am now.

The next step for us is to find a property inspector. I spoke to two of them today, and it is going to cost us between $1200 to $1800. I just need to coordinate the times with the realtor and property managers. According to the contract, we have 28 days to back out of the contract for any reason that we find upon further inspection of the property and the paperwork associated with the deal. So we are trying to get it all done soon.

I also spent the day on the phone with a few mortgage people starting to rate shop. The mortgage is going to be the largest expense so I want to make sure that we get a good deal.

So much work, so little time.

To Become Wealthy: Learning Something New

2006-12-05T20:28:00.000-05:00

I was reminded today of something I had learned about sometime last year that I was very excited about, and then moments later it was invalid. It is a method that some investors use to get back money at the closing. What happens is the buyer applies for a mortgage at an amount that is higher than what the seller really wants for the property. Of course that stated higher amount must be written in the contract. And then at the closing the seller gives the buyer cash back to help with the closing costs. It is a way of rolling the closing costs or a portion of the down payment into the mortgage costs.

When I first read about it I did not think it all that likely to be true. After all it was part of a no-money-down-deal or something similar. I do not really recall where exactly I first saw it, but since then I have seen references to it, and legitimate references at that.

So, while we were discussing our latest bid and the fact that the seller is willing to give us credit to redo the exterior of the building I thought that this might be one of those instances where we would get a mortgage for the higher amount and receive cash back at the closing to cover the repairs. Of course this really perked my interest. Cash in hand is a good thing.

But then when I inquired further with my realtor she told me that those sort of cash-back-at-closing deals are illegal in Texas. The credit we would receive for this property would be held in escrow until any work was completed, and then paid directly to the contractor.

What I learned today: Follow your first instinct. It will be the right one.

To Become Wealthy: The Counter Offer

2006-12-04T19:53:00.000-05:00

Today we received a counter offer. It was simply stated. They will sell for our offered price of $360,000 but then will not give us a credit to re-do the exterior. If we want the credit, we will have to pay $385,000. Does anything think it will cost $25,000 to redo siding and stucco for 2 buildings? I honestly have no idea.

So, now I am going to desperately call several siding businesses in Dallas tomorrow to try to get a rough idea of how much this is really going to cost us. Hopefully I can convince someone to give me a free estimate and actually drive over to the property to tell me how much work it really needs.

I am thinking of countering with $370- $375 including the credit. But what I an not believe is that this property was first listed at $450,000 and here he is willing to take $90,000 less. That is a 20% mark down. From now on I am going to grossly underbid all properties.

To Become Wealthy: We Placed a Bid

2006-12-03T21:31:00.000-05:00

On Friday we placed a bid on the 15 unit property in Dallas. Having looked over all of the property info several times, we decided to bid $360,000. To place the bid was an entirely daunting process itself.

First, the realtor required us to have a pre-approval letter from a lender. This was a quick and easy process that took all of 5 minutes to complete when we were going to purchase the house that we currently live in. The process for buying a commercial property is completely different. It took most of the week, with several back and forth phone calls for more information. Basically the bank wants to make sure that the property will make money and does not care too much about our personal info outside of our credit scores.

They finally approved us and we were sent the letter off to our realtor. In turn she sent us a 17 page legal document that would serve as our bid. We wanted to get the bid in by Friday as a nice way to round off the week. Of course now that we were sure that we really wanted to place the fear of someone beating us to the bid grew and grew. I am still working on getting a lawyer, although I did play a bit of phone tag with one on Thursday and Friday.

We spent one very late night reviewing the bid documents and we only added one part about a credit amount that was yet to be determined for work to be done on the exterior. And off to FedEx I went with signed documents and a 1% earnest money check.

Then we waited…..

To Become Wealthy: Cap Rate

2006-11-30T06:45:00.000-05:00

I have discovered that the cap rate is useful when determining the value of a property. Cap rates differ with each area and type of property, but on average you want the cap rate to be between 10-12% for a good investment.

The cap rate is basically the ratio of the net operating income to the price of the property, expressed as a percentage.

CAP RATE= NOI/PRICE

Sounds simple enough, right? I believe it is. So basically the price that I would want to pay for a property should be no more than 10 times what I calculate for the net operating income.

In case you do not know, the Net Operating Income is calculated before any debt services or taxes are considered. It only takes into considerations the cost of operating the property.

Here is how it is calculated:
Goss Income from rents
- any vacancies (assumed at 3-5%)
- taxes
- insurance
- utilities
- property management
- repairs and maintenance
- supplies
= Net Operating Income

So, I am going to start considering this for every property that I investigate.

To Become Wealthy: Commercial Real Estate

2006-11-29T07:18:00.000-05:00

I was recently introduced to a site called Loopnet.com by my realtor in Tulsa, OK. You can sign up for free, or pay for different “premium” packages for a monthly fee. I chose the freebee for now. If it turns out to be a useful site, I may upgrade. This site offers listing of commercial properties as well as some residential. It is not part of MLS, and I am not sure how the sellers can list on the site. All I know is that I like all of the information that I am learning from it about commercial real estate possibilities. Here is a brief summary:

1- Commercial Real Estate is not as expensive as I thought.
2- There are a lot of opportunities for developers.
3- Options for unconventional financing are more prevalent.
4- Strip Malls have a High Return on Investment.

So far I still have a lot of questions about purchasing and operating commercial real estate. This will be something that I will try to find more information about in the upcoming weeks.

1- amount of down payment needed for financing
2- requirements and costs of property management
3- leases for commercial tenants
4- aspects to consider of property logistics, such as parking and traffic
in the area
5- other considerations yet to be imagined

Once I learn more I will share my knowledge here.

To Become Wealthy: Other Ways to Make Money

2006-11-28T07:33:00.000-05:00

I do not plan on relying on only one source of income to support me in the present day of in the future. Currently I have only one source of income from my 9-5 job as an employee. If I lose this job through my own fault or no fault of my own, I will have nothing but unemployment checks to keep me fed and housed. I am fortunate enough to be part of a two earner household so I could survive a little longer with no income than I could if I were single. However, if both of us were to lose our jobs at the same time, we would have approximately 3 months before we would have to sell our home. It would take less than 1 year before we would be basically bankrupt.

I do not hold a high opinion of my current situation. But, I put myself here, so it is my responsibility to get out of it. Hence my interest in real estate investing. But there is more to life than that. There are a lot of people out there making money with blogs. I want to be one of those people. I read about one man who used his blog to help show off his talents in order to land a better paying 9-5 job. I guess it was sort of a supplement to a resume. There are others who use their blogs as a medium in order to sell products like books to other instructions materials. This may be a method that I will also pursue in the future.

The current method of income that I am using on the blog is Google Adsense. It was very simple to set up. My husband did it for me in about 5 minutes. Today, I am proud to announce, I have made my first $0.35. Yes, you read that correctly, 35 cents. I would like to send out a special thank you to whoever it was that clicked. Thank you and feel free to click anytime that you want!!!

To Become Wealthy: The Secrets of Real Estate Investing

2006-11-26T18:39:00.000-05:00

These are the worst kept secrets of the modern day. Every Barnes & Noble across the country has a section dedicated to Real Estate Investing. I just did a Google search for the term last week and came up with 83 million hits. This week the search brought up 93 million hits. Nothing is hidden from anyone willing to look and learn. However, that is where the secret lies. The secret is to figure out what you need to be looking for when you have no idea that you even need something. Most people want out of the Rat Race, but do not know their option to get there. I am giving you two options with this blog. People make money with blogs, and people make even more money investing in real estate. Keep reading, sign up and find out how along with me. I have not invented anything new.

For most of us that have not been fortunate enough to have been born with large trust accounts, we are born into the rat race. Dad works and most times so does Mom. We are taught in school the skills needed to get a job out in the “real world”. Continuing education is used in order to get a better job. We are conditioned to believe that we need to work for someone else until we can retire at 65. We believe that those of us that are fortunate or just lucky will get the really high paying jobs and may be able to retire early. Only those people who are truly gifted and industrious will be successful at starting their own business. You need to invent something new in order to succeed on your own. I believed these things my whole life. Until now.

If you know any real secrets about real estate investing, please share. There is no greater way to grow that to be able to share your knowledge with others.

HAPPY THANKSGIVING

2006-11-23T13:30:00.000-05:00

Things I am thankful for:

1- My good health and the continued good health of my family and friends.
2-My husband who is always there for me.
3-A stable and loving home.
4-The yearing and ablitity to always learn more.
5-Two Sensei's who are always willing to train me more.
6-A very prosperous future.

Have a safe, health and happy holiday.

To Become Wealthy: The Master Plan

2006-11-22T07:34:00.000-05:00

Ultimately the question is ,”How do I want to live my life?” I never aspired to be a real estate investor. I have no training or formal education in this area. I am enjoying what I am doing so far, but it is far from what I would call one of my passions. However, I am passionate about making large bank deposits.

I am investing in real estate as a mean to an end. That end is financial freedom. To be able to do what I choose with my time. To not have to make a contract with someone for 40 hours a week of my time for only $40,000/ year. I want my time to be my own and my families. Time is the ultimate currency for me.

My husband has different reasons. His passions is to start a company of is own. He is a web designer and a graphic designer. He has some innovative ideas on how to run a business in this field. He plans on starting his own blog about it some day soon. So for him the money w make from real estate investing will free him up to pursue his passion and make a real go at his own business. Of course if it also frees up my time, I will be able to be by his side to help him along the way however I can.

We have done a lot of taking and planning for the next few years of our lives together. We have already survived the wedding and the first home buying. Now we are trying to figure out who should leave the rat race first. We have discovered that it takes a decent amount of time to look thru properties and prepare to purchase them. So we decided that if I stay home from work that I would do most of the work to manage the real estate investments and expand our portfolio.

I make less than he does, so in one way it makes sense for me to leave my job first. We are also planning on starting a family next year and the mother is traditionally the one that stays home with the children. This is something that I look forward to being able to do. Even though both of the grandparents are hoping to be able to take care of any babies during the work week, I would rather have that responsibility myself. My plan is to have any potential baby sitters come over during the day to give me the freedom to attempt to have uninterrupted time to manage our investments. Those of you out there that are already parents may be laughing at this plan, but I think I am allowed to dream.

The other option is for my husband to leave his job first to pursue his own design business. If he can do this free from most financial stresses his can take more risks, try more things, and do what he needs to do to take this business from just a start-up to a self supporting entity. All while I have the rat race job and the health insurance.

Health insurance. This is the real issue that keeps me in the rat race. I am too dependant on other people paying for it. I did a quick search for rates for small businesses. We are planning on holding our properties in an LLC that we would purchase the policies under. It would be approx $8-10,000/year for the two of us, more if we have any children. Of course we can just calculate this into our numbers and be done with it, but some mental block I have makes me worry about it. For me it is the largest issue that we face when deciding when to give up our day jobs.

Oh how I dream about giving up my day job……

To Become Wealthy: A Better Property in Dallas

2006-11-21T06:32:00.000-05:00

I have spent the last two weeks looking over one very good property. We are about to bid on it. I have gone over all sort of numbers and asked all sorts of questions and learned all sorts of info about it.

It is a 15 unit building that has had some work done to it over the past year to each unit. I am not-so-secretly proud of myself for finding it. Now I just hope that all of the details of the bidding process and purchase go thru.

Here are some numbers:
Gross Scheduled Income: $82,200
10% estimated vacancy : $8,220
(only one unit is currently vacant)
Insurance: $4,500
(based on current coverage)
Taxes : $6,630
(based on current year)
Utilities : $4,620
(elec for common areas, water/sewer, garbage)
10% for property manager: $8220
NET OPERATING INCOME: $50,010

The current asking price is $425,000. At that price, with 15% down and a 30yr fixed mortgage at 7.5%, we would pay $30,310.92 for the year, leaving us with approx $19,700 pre-tax profit for the year. We have no plan on bidding that much, but it is the amount that I use for my calculations.

Our wonderful realtor has sent me some background info on the property. The current owner bought the property in Sept. of 2005. He purchased it for $204,000. Since that time he has put in $66,000 to redo each unit. From what I can estimate, he did make some money off of rents collected thru the year. From the rent roll I can see that most of the units were vacant until they were redone. So vacancy has increased steadily throughout the course of the year.

I think $425,000 is a bit much to be expecting from this property, even though it is still a money maker at that price.

Here is what I am estimating his thought process to be for the money he might want to make off of this sale.
$204,000 initial purchase price
$10,000 in possible closing costs for initial purchase
$66,000 in improvements
$5-10,000 loss from vacancies
$5,000 loss due to bad property manager who can off with some money. (We heard this from the previous property management company.)

So that is a minimum of $295,000. Add in a generous $50,000 profit and we get almost $350,000. That is probably going to be what we will bid. I may even go as high as $375,000. There is also an offer from the seller for a credit to redo the outside stucco and siding.

So at the price of $375,000 and NOI $50,000, that cap rate is 13% which is pretty good. I do not yet know how to calculate the prevailing cap rate in the area, but it seems that most places use 10-12% as the average.

How does this deal sound? Much better than the last one, right?

To Become Wealthy: Money for the Down Payments

2006-11-20T20:37:00.000-05:00

Where does the money come from for the down payment for all of these investments that people by? This is still a bit if a mystery to me. I do not subscribe to a lot of the “no money down techniques”, at least not yet. But then there is the problem of where that money comes from. I have seen a few listings where the seller offers the option to help finance the down payment and this is probably where I will end up a lot of the time. I believe the term for this is seller financing. It is good for the buyer because you are buying the property with the all important OPM (other people’s money), but it is also beneficial for the seller, especially if they have a lot of equity in the property. Of course it is another way for them to make money thru loan interest, but it is also another way of deferring the profits from the sale to avoid any capital gains if they can not do a 1031 exchange.

I have saved enough money to cover the down payments on a couple of reasonably priced properties, but after that I do not know yet how I am going to buy more. My husband and I have discussed pulling some equity out of our current residence, but we have only owned it for 1 year, so there is not too much there.

At first I thought that Hard Money was going to be the key. But I recently did a lot of research into that, and it is not at all what I thought it would be. The big companies that lend the money do so at very high interest, for only 65-70% LTV and for very short periods of time. They only seem useful if you need the money ASAP and plan on paying it back in the near future with a lower interest loan or sale of the property. They also have minimums amounts that they will lend, usually around 500,000 to 1 million. I would love to be able to but a property with that amount as 70% of the LTV, but for now this offer is not on the table. So, this is clearly not an option for a small loan for the down payment.

I know that Hard Money can also come from individual lenders. I was advised to mention our needs to lawyers and accountants that we use. They are some professionals who are privy to their client’s financial info and are likely to know people who are looking to invest money. I have yet to try this, but it seems like a reasonable option. I have no idea what sorts of rate or terms these sorts of investors expect.

There is a web site that my husband recently discovered via a podcast. It is called prosper.com and it is a wonderful idea. Individuals can ask for any amount of money for a personal loan. They can put in photos and a description of what they need the money for. The site rates their credit and debt ratios and then people can bid to lend them money. I think the range of rates is somehow predetermined based on the borrowers credit. Lenders can join groups, or bid solo any amount as low as $50. The site then combines all of the bids into one loan. The loan is then paid back over three years thru automatic withdraws and deposits. We have considered borrowing money this way. I have actually seen a few other people borrowing money for investments already on this site.

The advice that I hear most often is to borrow money from family or friends or to join investment groups. I have considered both of these and am not totally happy with either.

Friends and Family- Unfortunately I do not have many friends that have extra money sitting around, at least not in the amounts that I would want to borrow. Most of them would have to take equity out of their homes or borrow from their children’s college savings to lend me the money to invest. The wealthiest friend that I have is currently in bad financial straights due to the loss of a job and may have to sell her own home to make ends meet. Honestly, my parents are the only people that I would feel comfortable taking a loan from. They would always lend me money if I needed it. Unfortunately they would be the hardest to convince that I would be making a wise investment. They would assume that I needed the loan to get out of some financial troubles regardless of what I told them. So, borrowing money from them means that they will worry that I do not have money to buy groceries until I can pay them back in full.

Investment Groups- Honestly I would love to form an investment group. The problem is that I have been burned before by getting involved in business with people that I thought I could trust. So, I do not know if I could be open enough, or trust others to be open enough to make one of these groups successful for me. We have discovered several meeting groups thru meetup.com and the richdad.com that we are going to try to see where they may take us. If we do go, I will be sure to write a blog about it all.

So, the only solutions I am leaving for myself is seller financing or to use our own personal money, savings and assets to grow our real estate portfolio. Of course first we need to purchase at least one property to put into the portfolio. But it looks like we are going to have to use the monopoly technique of trading in four houses for a hotel technique.

If anyone else has any creative financing options I would love to hear them!!!

To Become Wealthy: To Bid or Not To Bid

2006-11-05T17:24:00.000-05:00

I have learned to break down the numbers to evaluate any given property from two books by the same author, Frank Gallinelli. The first one is called “What Every Real Estate Investor Needs to Know about Cash Flow.” This is the main one that I am using this week to decided to bid or not to bid on a quad-plex in Dallas, TX.

These are the numbers that are given on the MLS listing:
Asking price $174,900
Gross Rent $1975/mo or $23,700/yr
Taxes $2717
Insurance:$2200
Owner pays Water/Sewer/Trash:$175/mo or $2100/yr

These are estimates of other expenses that we will have:
Property Management: $1896/yr
Repairs and Maintenance: $1200/yr

This gives me a Net Operating Income of $13587.

I have not added in a vacancy rate because I have been told that all tenants are long term tenants. Of course I will verify this once I get the opportunity to see the leases.

So far the numbers look pretty good to me, until I calculate the mortgage costs. My knowledge of mortgages comes solely from the purchase of my primary residence last year.

First I looked at a 30yr fixed at 7.5% with 10% down payment and no PMI. (I am assuming that we can do an 80:10:10 piggy back loan.) In this case, my mortgage payment for the year would be $13.207.56.

This will only leave me with $380 pretax cash flow for the entire year. This is a whopping 2% return on our initial investment of the down payment.

Then I thought about an interest only loan at the same rate for the same amount. Then the payments for the year would be $11805.72.
This leaves me with $1781 pretax cash flow.

Now, I have done a lot more numbers with the mortgages, since that is the biggest expense by far for the whole property. If we put down 20% instead of 10% then we increase our yearly cash flow to $1847 and that increases our cash on cash return to 5%. This is the bare minimum cash-on-cash return that we want for our money. However, we do not want to put that much money into any one property unless it has a lot more units in it.

Our best bet will be to take shorter terms for a much lower rate. If we could get an ARM with a 6% rate. With only 10% down, the yearly payments would be $11,325, leaving us with a positive cash flow of $2262. A 13% cash on cash return would result. If you add in an estimated $10,000 other up front costs (lawyer, etc), the return on investment is 8%.

So, is this property worth my while? I still need to evaluate the taxes and depreciation, and then do another analysis to figure out how low I should bid.

To Become Wealthy: A Property in Dallas

2006-11-02T06:15:00.000-05:00

We have been working with a wonderful realtor in Dallas. We found her thru a Google search. She has put us on an automatic list that sends us newly listed properties each day that fit our criteria. We had further inquired about several properties so far, but none has worked out. This week we are very excited by a Quadplex that has just gone on the market for $174,000. Each unit has 2 beds and 2 baths. We are waiting to hear back from the seller with more details before we can decide if we want to bid and how much we are going to bid.

Let me go back a step and explain how we became connected with different realtors. We are currently working with two, one in Dallas and another in Tulsa.We basically did some Google searches and then sent them a pre-written email asking for their assistance. We stated that we were out of state investors and what our criteria are. The only question we really asked was if they had experience working with other investors. We initially contacted about 3 or 4 realtors in each area and just went with the ones that we got the best feeling from. There are tons of realtors out there, so if we get to a point where one is not working very well for us, we can always switch to another.

These are the criteria we use for our search. The purchase price is based on the amount of money that we have to put down on any one property.
1- purchase price up to $200,000
2- minimum of a two family house/duplex
3- minimum of 2 bedrooms per unit
4- currently used as a rental property
5- the property does not need a lot of work

I am keeping my fingers crossed for the Quadplex.

To Become Wealthy: Inspiration to change

2006-10-31T21:05:00.000-05:00

Sometimes all it takes is one little thing to inspire me. At other times the message needs to be repeated over and over and over again. Hearing the same message repeated in different ways cements it in my mind. My inspiration to become wealthy first came from my husband. Once we got engaged and started planning our lives together I began to see how I wanted so much more from life than what I had. My eyes began to open. They just did not know what they were looking for. I wanted so much more, but I did not know all of the options that were available to me. That is when we began discussing real estate and passive income. I realized that these were not just things that rich people can do, but things that anyone can do.

This weekend, on public television, I saw Robert Kiyosaki and his wife speak in an effort to sell some of their products about investing and building wealthy. They were also promoting a weekend long seminar of investment gurus at the Javits Center in NY. For anyone unfamiliar with him, he is the man behind the Rich Dad, Poor Dad series (richdad.com). I admire what he and his wife are doing. They both possess a lot of intelligence about money and how to make it. The best part is their passion to share their knowledge with everyone else. They have had tremendous success and they are trying to teach others how to be successful too. They are worthy of my admiration and have certainly been a source of continuing inspiration for me.

I want to add in a small point here about my journey to become wealthy. One of my other major goals in life is to be a philanthropist. Wealth just happens to be a prerequisite for that.

During the past year, I have read one of the books in the Rich Dad, Poor Dad series, called “Cash Flow Quadrant”. The book does not tell you how to buy or sell real estate, but it give a whole new perspective on money. It brings up simple ideas about how your money should be working for you, instead of you working for your money. After reading it I felt like I had an entirely different view of my life, and the lives of those around me. I can not longer imagine working for the next 30 years for other people. How other people have managed to do it, I will never again understand or accept. I have so many things that I want to do with my life and none of them involve spending 40 hours a week in a cubicle.

Another gentleman that I listened too before beginning this blog was Steve Pavlina (stevepavlina.com). He is a personal development guru. He is responsible for inspiring me to write this blog. He does not have anything to do with real estate development, but he has a lot of wonderful ways of looking at life that are very inspirational. If you are not ready to jump in and change your life just yet, go and read what he has to say. He also has several pod casts that are also great to listen to. I find the tone of his voice and his manner of speaking to be very comforting.

Please let me know if there is anyone else out there that has inspired you.

To Become Wealthy: How to Begin a Search for Properties

2006-10-29T17:03:00.000-05:00

Once I created the list of cities that I thought would be good to invest in, I took each and searched further. But to really begin to get an idea of what is available, I spent a lot of time on realtor.com. However the most effective thing I did was to randomly contact realtors. I performed a simple Google search for realtors in an area, and emailed them stating my intentions to buy investment properties within the next 6 months. Some replied with interest, others did not reply at all. I simply concentrated on the area where I got the best responses.
Once again time has become a factor. I simply do not have the time to chase properties in each location. Realtors can set up automatic list services thru MLS that automatically send you daily listings that meat your specific search criteria. Ultimately, I should be set up in all of these areas, but so far I am only set up in two areas. I need to add more areas once we purchase our first property.

There are two different schools of thought on investing. Those that tell you to diversify and those that put all their money into one area. The most common advice that you hear is that diversification is the beat and safest way to go. However, if you look at some of the most successful people in the world in any industry, they made it big by not diversifying and by risking it all in one area and having the payoff be all that much larger because they did not diversify.

I am not a very big risk taker, so I am trying to diversify my real estate holding across the US.

To Become Wealthy: Cities of Interest- Where I am looking to invest

2006-10-27T06:55:00.000-04:00

After the initial search for good cities to invest in, I still had to dig a little bit deeper. I compared several lists. Forbes has a list of over and undervalued cities. Expansion Magazine has a list of the areas with the most growth in business. So, I cross checked and picked out about a dozen cities that ranked favorably on both lists.

From there I went to the site realtor.com. For those of you who are unfamiliar with the site, it allows you to enter basic search criteria for a nationwide search. It also allows for a more detailed search, but I have discovered that the less info entered, the better the results. So, I entered the city, state and my price range. The purpose was to see if my price range fit this city. Were there a lot of properties that looked nice enough that I could live in them in that city? And I narrowed the list down even more.

Then I searched on Google for the Economic Development websites for each city. I read thru the web sites for a better understanding of the dynamics of the city and to see what programs they have to spur growth in different industries. It also gives you a good idea of the size of the area, and the largest industries and employers.
This is the list of cities that I have narrowed it down to:
Tulsa, OK
Dallas, TX
Houston, TX
McAllen, TX
Little Rock, AR
Memphis, TN
Rochester, NY
Dayton, OH
Wichita, KS
Greenville, SC

To Become Wealthy: More on Passive Income

2006-10-24T20:04:00.000-04:00

My husband is a very patient man. I am not. It is sometimes painful for me to sit patiently and wait. So I am expecting that the steps it takes to build passive income to come difficulty to me. I want to be wealthy now; I want to quit my day job now. And there are plenty of people out there who promise instant wealth. I do not believe them. I can not see how I am attend one seminar or buy a few products and suddenly be wealthy. I am very skeptical of those promises.

My husband and I live a comfortable life. We both have decent jobs. (His is much more decent that mine.) We bought our first home a year ago, right before we got married. It is a wonderful house with plenty of room for our future family. I am in love with this house and think about all the things I would rather be doing there while I am stuck at work all week long.
We are also fortunate that our only debt is the house. We have no outstanding car, school or credit card debt. And we are able to save some money each month. But now I realize that simply saving money will never make me wealthy. Sure, we invest in the stock market, but what do we know about stocks? Our day jobs have nothing to do with the stock market. I own some index funds in an IRA and he owns shares of Google. Both are pretty safe investments. They may pay out well one day and help us retire, but they will not make us wealthy.

Both of us work for our money, but we are going to switch things around and have our money work for us. It sounds easy, but it is taking more work and time than I expected. I have discovered that even passive income takes a lot of work to set up. But I would rather work hard now to rest later, than have to work with no end in sight.

To Become Wealthy: Where I began in Real Estate.

2006-10-22T15:54:00.000-04:00

I began my search a short while ago on the internet. Anyone in the world can tell you that when it comes to real estate it is all about “location, location, location.” So, I listened to other people’s advice and then added some logic of my own. My objective was to find cities that were growing, but had not yet reached their peak. Some people tell you to buy only in those cities at the bottom because they have the most potential for growth, and therefore more room for your equity to grow. I decided to play it safe and look only in cities that were already growing, but have not yet reached the insane peaks of New York, California or Miami. Sure, there are still good investments to be made in these areas, but they probably require more skill and money than I have right now. I want to start out easy. Basically, I was looking for cities that were middle of the road, growing but still affordable. We are planning to purchase our first investment home with conventional financing. I have a limited amount of money that I can put down on any one property, so the purchase price is a limiting factor for me.

The two big sources I used to find cities to invest in were Forbes and Expansion Magazine. Of course Google is also an invaluable resource. Just put in simple phrases like “growing real estate markets” or “cities for real estate investment”. The tedious research has already been done. You just need to find other peoples results.

To Become Wealthy: Passive Income is Real

2006-10-17T13:30:00.000-04:00

I want to make passive income because I am stuck in a rat race. Only 2 days out of each week belong entirely to me. The other 5 belong to my employer. During those weekdays, only 4.5 hours each day belong to me and my family. (Not including sleeping.) The rest are spent at work or commuting to work. (I have a long commute, 1.5 hrs door to door each way.)

My husband was the one who introduced me to the idea of passive income, and the idea of not having a 9-5 job until I turn 65. I am NOT one of those people who love my job, but I am a slave to that weekly paycheck, so I continue to work for other people. Fortunately I no longer see this as the only option for my life. Eventually I am going to create several different sources of income. I am expecting real estate investments to be the most lucrative, so I am putting most of my time and effort there. There will be lots of work involved to set up each source, but then they will run themselves with a little work as they still continue to produce the same levels on income. (One source of income might even be this blog.)

There are so many people out there with ideas on how to change your life. Some of them will help you organize your life so that you are mentally prepared for what you need to do. Others take it even further and will tell you how they became wealthy and how you can do it. All you need to do is open your eyes and look. Let me know what you find.

To Become Wealthy:Starting in Real Estate

2006-10-15T17:37:00.000-04:00

Most people work for their money, and they can become very rich doing that. But wealthy people have their money work for them and can become even wealthier with ease.
I have already begun to go down the road to a life of wealth. I began my journey thru education. I read everything I can about real estate. Some books are better than others, and I only read the good ones from cover to cover. As I go along I will mention those that have helped me in my journey.

I have heard time and time again throughout my life “There is no time like the present”, “Just do it.” and other encouraging things, but I was always too afraid to try, or did not know exactly what to “just do”. Well, my advice is not to just go out there and buy investments, but do go out and learn about them. Nothing could be simpler. In this modern day, you do not even need to buy the books. The bookstores offer you comfortable seating to read the books right there in the store.

So what are you waiting for?