Life of an Investor

It’s official - We own investment property

matthew — Thu, 13 Nov 2008 22:17:40 +0000

As of last Tuesday, it’s official. We are now the proud owners of a four-unit apartment building in Kansas City, MO. There are obviously a lot of details to work out now, including all of the business aspects as well as just getting the property prepared and rented out.

Due to the current financial environment, we were required to put a 25% down payment on the property. We also built into the mortgage $4,500 worth of repairs, plus we have reserved about $5,000 cash for other repairs. That’s a lot of cash out of our pockets, so we have to make this work. The first step is just getting it ready, which after a week, we’re doing pretty well, but still have quite a bit to go. We need to start getting the property advertised as soon as one unit is renovated. I thought we had a management company locked in, but due to some failed negotiations (you can read more about that in the comments of this article on Chris Lengquist’s site), we are still searching.

We are getting close to done with the interior painting and carpet removal, and we are in the process of renovating each kitchen (painted cabinets, new laminate flooring and a good cleaning). In a couple of weeks, we will have new carpet installed and should be pretty close to having people start moving in. Know anyone who wants to move in December?

I know that it can sometimes be difficult to work with city governments and utilities but I had no idea. I spent more than an hour on the phone having utilities put in my name. Apparently they have to manually type all of my information into each account for the 4 units plus the common area. Then I tried out KC’s new 3-1-1 service. In theory it’s great, call one number to take care of all your city services. In reality, it’s a pain. All it does is create a layer between you and the actual company providing the service. After numerous calls and two weeks of waiting just to get my trash picked up, I finally gave up and just called Deffenbaugh directly. Now I’m waiting for a call back from a supervisor… wish me luck.

So, as you can see, all in all, it’s been a stressful week for me. By the way, did I mention that I have a full time job too? Although stressful, I am confident that it will pay off in the end. Hopefully in a few months, I’ll be laughing about this as I’m depositing the monthly rent checks.

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Things are falling in to place…but always dot your i’s and cross your t’s

matthew — Fri, 17 Oct 2008 18:57:24 +0000

It appears that we are truly going to get our first investment property … that is unless something falls through at the last minute, which it almost certainly will. We hope not.

We had originally submitted an offer to the bank who had foreclosed on the property. They countered our offer and we also countered back. With a verbal acceptance made by both sides, they sent us final documents to sign and physically mail to them, then they would sign them, thus making the contract official. After providing these to the bank’s realtor early this week, we hadn’t heard anything back, and we are planning on closing on 10/31. Today, the realtor called to let us know that the utilities had been turned on and that he assumed we had the inspection scheduled for today. Hmm… that’s interesting. We didn’t even know if the deal was official yet.

I don’t think there is any problem. We will just get the inspection done early next week and then start the planning process of what needs to happen in the next two weeks. These things include having a contractor look at the repairs needed, securing the financing, securing insurance, talking with management companies, etc. Oh yeah, plus finding out what needs to be done to register our company to do business in another state, license our rental in that city/county (if necessary) and the tax implications. Wow, it sounds like an interesting couple of weeks ahead of us. Wish us not luck, but wisdom, patience and understanding as we plunge ourselves for the first time into this sea of real estate investing. Let it not be a one-time thing that frustrates us and turns us away forever, but let it be a building block, a stepping stone, into the future.

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Will this be our first purchase? Finally!

matthew — Mon, 06 Oct 2008 20:35:56 +0000

As I was browsing the MLS listings recently, I noticed a peculiar sight. One of the fourplexes that we had previously bid on and lost, was back on the market. Apparently the buyer never showed up at the closing. Also, the price had dropped by $5,000 since we last bid. The listing had been active for a week, so I was afraid that we might have lost our chance to move on it, but to our delight, the realtor let us know that there were no current bids on it.

This prompted us to make a full price offer in hopes that we would actually get it this time. The offer was submitted to the bank on Friday, and we have not heard back yet, but since we’re dealing with a bank, we’ll be lucky to get a response within the week. We’re crossing our fingers. With a full price offer and us having the only offer, I don’t see how they could say no. We’re also crossing our fingers that the repair costs won’t be much more than expected.

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The silver has arrived

matthew — Wed, 20 Aug 2008 04:43:42 +0000

Well, in case any of you are really wondering what almost $600 worth of silver looks like, here it is:

Don’t try to steal it. It’s in a safe place. And no, I did not have it surgically implanted inside my abdomen, so don’t look there … please. I ordered two 10 oz bars, which strangely weigh in at 10.9 ounces on my scale. I also ordered 10 of the US Silver dollars which each weigh 1 ounce. The coins were slightly more expensive per ounce, but I believe are better for resale and possible collectors items. It’s kind of funny that these 2008 coins have a face value of $1.00 but are worth around $16 each.

Too bad that it’s not gold. Then instead of $600, I’d be looking at around $24,000. That is what’s crazy.

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Back to Business

matthew — Fri, 15 Aug 2008 16:13:19 +0000

I haven’t written anything interesting in a while, but that’s because I haven’t had anything interesting happen related to investing. Actually, I did receive an e-mail that my silver has been shipped and should be arriving on Monday, so that’s exciting.

Update: What we’ve been doing
The last time I wrote about trying to close on a property was way back in May and that deal totally fell through. We weren’t able to get the utilities turned on for the inspection due to back payments due and other issues, so we canceled the contract, assuming that we would sign a new one once the issue was resolved. Well, long story short, we never really heard from the seller again. Little more has happened since then. We actually did make an offer on a 4-plex last month, but were a little late getting ours in, so the bank had already sent a counter-offer back to one of the bidders. The price had drastically dropped a couple of weeks before we noticed and put our offer in. As far as we know, we are not in the consideration for that property. It would have been another great cash flow opportunity. I’m dedicating myself to spending more time several times a week, if not daily, to searching for properties so we don’t miss opportunities like this.

Change of Focus?
What we’re finding as we evaluate each deal is that it is always going to be more difficult to get a multi-family property in the current market unless you have a lot of cash to put in. With a minimum of 20% down, plus needed repairs, every purchase drains a lot of available capital. With the limited inventory in our area, we are beginning to shift focus a bit. Currently, we’re looking at several single-family homes that would make for potentially good rehab/resell opportunities. In fact, we are putting in an offer on one today and it has only been on the market for 6 days, though it probably already has offers. If we get it at our price, it will be at about 60% of the after repair value (ARV). Hopefully we can keep the repairs down to about another 10% so that we will have a total investment in of about 70%. I’ll try to keep you updated on how each potential deal is going.

Bidding Strategy
As investors, do you have a specific bidding strategy when it comes to bank owned properties, or any MLS listed property for that matter? For example, if you find a property in an area that you love, but the bank has drastically overpriced it, do you put in a lowball offer right away, or let it sit on the market for a while first. It seems that I notice a trend with the way that bank-owned properties are sold and wonder if there is a way to hack the process in a way that puts me at an advantage over other bidders. Here is an example to contemplate: The bank lists a house in a great neighborhood that needs lots of work. The ARV is $150,000 so the bank feels justified in listing if for $125,000. In my eyes, I would maybe pay $100,000 because I feel it needs $20,000 in repairs. Should I make an offer that is 33% below the asking price as soon as it hits the market? My gut feeling is that I shouldn’t do this unless I enjoy rejection (or waiting for a response that I’ll never get). One month later, the bank drops the price to $110,000 and the offers start flooding in from investors. At this point in the game, it’s almost a matter of luck whether or not my offer is going to have a chance to make it to the bank’s desk. What if I had made my $100,000 offer just before the bank lowered the price? Wouldn’t I have had a much better chance of getting a response than if I had offered right away. It seems that once the house has been sitting for a month or two, banks get pretty aggressive in slashing the price until they start to get some offers. Well, that’s just something to think about. Feel free to comment if you have any ideas or responses.

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Diversification - Precious Metals - Silver

matthew — Thu, 31 Jul 2008 21:02:07 +0000

Obviously, your portfolio should be diversified. Especially with the current economic insecurity, this is doubly important. Now, I’m an optimist and fully believe that the economy will make a recovery and that most of this is due to “bad feelings”. If you’re still surving, then your neighbor probably is too.

With that being said, there is always the possibility of a serious recession or even a depression before the turnaround. This morning, I met with some friends over coffee and bagels and one of them mentioned that they have been buying silver recently. Not funds that invest in silver, but actual, physical silver bars. He told us that he is purchasing these from http://www.bulliondirect.com. He said that the first order was a leap of faith, but so far, he has been pleased. This got me thinking a bit. What would happen if the economy took a nosedive tomorrow and your bank accounts and cash on hand were essentially worthless? How long could you survive. If you’re well stocked at home, you may make it for a month or two, but most of us would probably be lucky to get through two weeks. One thing I can almost guarantee though is that there will be people willing to sell you necessities if you have silver or gold coins to offer.

There are a few pros and cons to owning precious metals.

Pros

More secure than any country’s currency
You can physically hold your investment in the palm of your hand, or in a safe place.
Silver and Gold have never been worthless.
You can buy in small denominations (1 oz coins) for use in bartering in case of doomsday scenarios.
Historically have risen in value.
Great items to pass on to children or give as gifts.
Government and other organizations won’t have easily accessible records about your assets.

Cons

Your investment does not earn interest.
Can be easily stolen/lost if you keep in your home.
Harder to purchase/sell when dealing with physical items.
Fairly expensive to get into. Silver is affordable at under $20 for a one ounce coin, but gold is around $900 for a 1 ounce coin. That’s one coin that you don’t want to accidently roll down the sewer grate.
I can’t think of any more right now.

So I visited the website listed above, picked out some silver coins and small silver bars (10 oz.). If for no other reason, it will just be cool to have these to show the kids and possible pass on to them at some point. As a kid, I always thought that when I grew up I wanted to buy a gold bar like you always see in pictures of Fort Knox; they had to be several pounds. Little did I know that a ten ounce bar (just over half a pound) would be in the $9,000 price range. I guess silver will have to do for now.

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How to budget your workday - Investing Time

matthew — Wed, 09 Jul 2008 16:30:58 +0000

So, like many other blogs I have started over the years, this one almost stagnated. As you may notice, I haven’t posted for almost two weeks now. It’s not because I haven’t had the time or desire, but investing has kind of taken a back seat for the last month or so. I’ve been busy in my personal life and have not had time to pursue any real estate. Instead I will post more of a “Getting Things Done” or time efficiency post. This is just a tip for a system that I have developed to help me keep moving and getting things done at work.

Previously I have downloaded time tracking systems from the internet, but they never seemed to do exactly what I was looking for. Some tracked programs even when I wasn’t actually using them, so looking at the reports, apparently I spent 8 hours reading e-mail in Outlook. Some cost money. The first requirement is that it be free. I’m cheap like that. The main issue I see with these programs is that they only report the time you spent and don’t really help guide you while you are spending the time. I can look at a report at the end of the day and see how I spent my time, but by tomorrow I will have easily forgotten or I can just plain ignore the results.

The last few days, I have transitioned to a pen and paper method that sits on my desk next to my mouse so that I see it all day long. Basically I break up my 8 hour day into 15 minute increments for a total of 32 increments. No, I don’t schedule each time block, such as 8:00 to 8:15 — get coffee. That would be too hard to manage. I actually write down a list or all the things that I want to accomplish that day, including reading technical magazines, reading from my blog reader, breaks, actual work on specific projects, etc. I also always create a separate category for extra time blocks left over. I find that every day I need these “extras”. Then next to each category, I put tick marks for however many 15-minute blocks I want to allocate to that activity. For example, if I want to spend 2 hours during the day on a project, I place 8 marks next to it. I even have one tick mark for writing this post. Yes, it only took me 15 minutes to write this…sad, isn’t it?

One of the main benefits of this method is that I don’t have to work on the project for 2 hours straight. I can work on it for 30 minutes now, and 1 hour later, etc. I just mark off a tick every 15 minutes. This really does not affect my work and greatly increases my productivity. There is no lost time. If I run over on one project, I just mark off one of the extra ticks or have to cut back somewhere else. Hmmm…sounds a lot like budgeting money. I generally have about 3-4 marks in the extra category and it works out pretty well.

In the comments, let me know what you think. Also, if you have any methods that you use to budget your time, please post them as well.

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Don’t miss the market

matthew — Fri, 27 Jun 2008 19:26:24 +0000

I’m sure you’ve read the statistics regarding stock investing that say that it is imperative to stay in the market through the ups and downs because if you try to time the market then you are likely going to miss some of the best days in the market. I found an interesting article that discusses this from Will Hepburn. I’m not going to say that I agree with the article fully, but it is at least an interesting theory.

Historically the market has returned over 10% per year on average. But if your money was out of the market for just the 10 best days, your return would be closer to 7%. Miss the 20 best days and you’re looking at only 5%. Miss the 40 best (less than 8/10ths of a percent of the days in this study), and you can expect 1.6%.

One additional point that I would like to make is that this assumes that you actually sell your stocks and take your money out of the market. Obviously, most of us don’t cash in and out of the market fully on a daily basis. With fees and complexities, this just doesn’t make sense. This study is just meant to make a point. Just because one of your stocks falls 10% on a particular day, don’t bail on it necessarily. Take a look at why this happened, the short and long-term future of this company and then make an informed decsion. An informed investor will shuffle their portfolio, but not try to time the market daily. If you see a bleak future (or none) for a company, then sure take your losses and get out while the getting out is good. Look for another company that has a great potential or is in a current slump but has solid financials.

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