Atlanta Cash Flows!

Since the days of “investing how we used to do it” are gone, I’ve been hunting for an opportunity that :
1) Generates cash flow from day one,
2) Has an exit strategy that produces capital gains,
3) Doesn’t take a fortune to participate, and
4) Takes advantage of the current foreclosure market.

Well, I’ve found one! How I found it is a long story that I’ll tell you later, but here’s what I have.
Just outside of Atlanta, a bank has repossessed a subdivision from a builder. The bank has decided to finish the subdivision and sell the homes for $164,700 to lease-purchasers who need to work on their credit in order to buy. Here’s where you come in. They will sell you this brand-new home for $149,500 with a lease-purchaser in place. You will receive $200 per month positive cash flow for the next 18 months while the purchaser repairs his credit. When the transaction closes, you make the difference between $149,500 and $164,700.

The bank is offering you a 95% loan to value, 3 year, 6.5% interest only commercial loan on your purchase. This is great for people like me who have more than 4 mortgages and can’t get any more Fannie or Freddie loans.

These homes are in a master-planned community with a swimming pool. The homes have brick skirting, granite countertops and 9 foot ceilings. I applaud the bank for creating a community of homeowners, another not another blighted “REO” neighborhood of dead grass and vacant properties. These homes are only available for lease purchase, no straight rentals.

The numbers look like this:
26% cash on cash return ($2400 annual return on your $9285 investment)
194% total return on investment ($15000 capital gains plus $200 monthly positive cash flow)

The community has 300 homes, and 30 of them were sold the first week this opportunity was made available. So if you’re interested, download the brochure and call me right away!

Fall comes to the cabin

The Quaking Aspens we planted really put on a show this weekend! It's a great time to visit our local mountains, 70 degrees during the day with crisp mornings and evenings. Perfect hiking weather!

The real from-the-streets real estate update

I haven't posted in a couple of months because there wasn't anything positive to say! And those who know me know that I'm an upbeat kind of guy. Better to say nothing than to spread around doom and gloom.

But here I am in the streets doing real estate, and people want to know what the heck is going on with this market? So I figured if I tell you what I'm doing and why, maybe it'll help you get some direction too.

Prices are still dropping and we are not at the bottom yet. My buyer calls have dried up dramatically, except for the "will your seller take $100,000 less?" calls. So until we see some kind of stabilization, buyers don't want to take the risk of buying unless the deal is good enough to cover their downside.

Bank properties and short sales are the name of the game today. So I've started going after business from banks. They have to sell, and they have no "bottom line" that they can't go below. This is who you are competing against if you want to sell a home today. If you have to sell and are underwater, we can do a short sale to get you out of the property without having a foreclosure on your record.

I used to do short sales and REOs (bank-owned properties) in the early 1990s and I really didn't want to do them again. But other sources of business have dried up, so I have to move with the cheese. In the 90s the foreclosures were only 25% of all transactions, so the market was able to absorb them without prices dropping like a rock. What's different this time is that there are as many foreclosures as there are transactions! They are coming on the market faster than the market can absorb them and the banks are competing with each other by seeing who can drop their prices the fastest. Yikes!

I did my first "cash for keys" today. This is where the lender who took a property back in foreclosure pays the old owners to get out and hand over the keys. It's a new world where walking away from your obligations is rewarded.

See what I mean? It's impossible to talk about this stuff without getting negative. So where is the silver lining? Since there are more people walking away from their homes, there are now more tenants and rents are rising. That means that investors are finding it a lot easier to buy property that cash flows. And even though it's not be the exact bottom of the market, financing might be harder to get in the future, so it might be as good a time as any to buy if you have a long-term view.

Speaking of investing, I'm currently researching some other markets where there are significant opportunities for cash flow. There is no appreciation anyplace, so what we did a few years ago doesn't work today. It either gives me a good return from day one or forget it. No more holding on to property in the hopes of future appreciation. Buy it wholesale and get cash flow or don't buy it.

So how about buying homes for 60-70 percent of appraised value, and get $200-300 a month positive cash flow at the same time? With banks liquidating homes today, this is possible in some areas.

What else can you do with your money? Everything is going down, precious metals, oil, the stock market, you name it. People are rushing to safety by buying T-bills that pay zero interest! Why not get a good return on your money, and even if property values did decline by another 30-40% you would still be OK because you bought it low. And if we did this in a market that is probably near the bottom that would be pretty safe, wouldn't it? The old saying goes, "how far can you fall out of a basement window?"

If you're interested in discussing any of this, shoot me an email or give me a call. I'm still in the real estate business and ready to serve you! Many of my peers are leaving the business, or they're physically still there but mentally have given up. I haven't. Maybe you know someone who is facing some real estate challenges and could use some from-the-streets, no B.S. advice. That's why I'm here, so feel free to contact me.

FDIC Insured?

Picture this: my dad is in line at IndyMac Bank and in front of him is an elderly woman crying her eyes out because she can only get back $100,000 of the $300,000 she deposited in the FDIC insured bank! True story!

It turns out there are some tricks involving living trusts that can really bite you if your bank fails. This one involved beneficiaries that were not related to the depositor, so don't assume that if there are 3 people on the account, that it is FDIC insured up to $300,000.

The FDIC states that "no one has ever lost a penny of insured deposits", and the question you have to ask is "what exactly are insured deposits?" They tell you in this publication:
http://www.fdic.gov/deposit/deposits/insuringdeposits/index.html

So if you have more than $100,000 in any bank, please don't assume anything but check to make sure your deposits are really FDIC insured.

Adventures in Ocean Hills Country Club

It's been a while since my last post, Crystal and I have been super busy! We purchased a fixer house in Ocean Hills Country Club, which is the best senior community in San Diego. Since we do a lot of business there, we know the market well. So this property came up that needed work, and the heir didn't want to deal with it, and so we bought it at a fixer price. We then proceeded to rehab the property and within 2 weeks, we are now on the market.

The work begins.....

This home is now for sale, you can see more pictures at http://www.4746athos.com/!

Our hope is to make some money on this to help pay for the cabin addition (I'll talk about that in the next posting). Is it nerve-wracking to try to flip in this market? Yes, it is. Time is our enemy, as the market is going down and carrying costs can destroy any profit we hope to make. Nevetheless, we have to try. What other choice do we have? Give up and do nothing? Wait for a better day? I admit, it is tougher to make money when you're swimming upstream. But in a better market this opportunity would not have presented itself, since a couple years ago even fixers were selling quickly and for top dollar. Today buyers can be more picky, and will pass over properties that are in bad shape, which leaves a potential opportunity for those willing to do the work of fixing them up.

So did we make a huge mistake? Will we end up with no money and only the experience? (Experience is what you get when you don't get what you want!) Stay tuned!

The cabin continues...

Many of you know that we are attempting to build a free and clear cabin in Idyllwild using only money made from real estate investments, and not from the salary we earned by working. Well, we've had a few setbacks with the market going south as it has. Plan A was to sell a piece of land we have in the high desert but the market evaporated. Plan B was to sell the present small cabin that we have and use that for construction money. Well, the cabin that was worth $300K is now worth 225K, so plan B doesn't work either. It will still take $350K to build the cabin, and so how to do it?

So we put our thinking caps on and came up with Plan C. By the way, this exercise is to teach all of you how to use real estate to buy real estate. I could build the new cabin with an equity line, and then pay it off in time, but what can you learn from that?

So here's the plan. We are building an addition on the small cabin we now have in order to increase it's value through sweat equity. I admit this is tough to do in the current environment, where it seems that it costs more to build that it is worth when you're done. But in Idyllwild there are plenty of 2 bedroom cabins for sale, but anything with 3 bedrooms is worth at least $300K. So we're adding that extra bedroom and bath and hoping that will get us close enough to start building the ultimate cabin! The photo above shows some of the firewood from the 4 Jeffrey Pines we had to cut down to make room for the new addition!

You may ask where the $30K is coming from to build the addition? From real estate of course. We are in the process of buying a home and expect to fix it and flip it for a profit. Whoa! Flipping in a declining market? Not for the faint hearted to be sure. Stay tuned - the adventure begins next week!

Darndest buyer's market I've ever seen

It's been a heck of a few weeks! Homes in good locations under $400K are getting multiple offers, and most are selling substantially above the asking price. Watch for exciting numbers to start hitting the news when these properties close escrow!

Buyers I meet at open houses are frustrated that they can't seem to buy a house! It's either a short sale (like watching grass grow) or an underpriced bank owned property (start the bidding war). There are darn few real sellers willing to sell into this market! Most are just staying put and waiting out the storm. So the reality is that buyers are having a heck of a time. They are making lots of offers that don't go through, and it's not because they are trying to lowball, it's because they are being outbid.

The investors are coming out, as well as boomers buying homes for their kids who haven't been able to afford anything until now. These savvy buyers are snapping up the best properties, offering all cash and closing in 14 days, music to the bank's ears. Imagine you're the bank - would you rather sell to a buyer like that or to the first time homebuyer using FHA 3% down financing that could take 60 days? What would you do if it were up to you? Right, and so would the bank. So you see why many buyers are frustrated.

And yet the news keeps printing the same old, same old. This morning I saw the big headline that home sales were down 1 percent in April. Keep reading to paragraph 5 to find out that sales were UP 6.4 percent in the West.

This house in Oceanside came on the market this week at $364,900. We offered $380K and were outbid. Sold in 5 days. Darndest buyer's market I've ever seen.