Wednesday was my dinner with Damon at the Chinese buffet. I didn’t want things to start off-topic, so I immediately asked him how things are going with his Vacancy Bank property renovations.
Renovations
Damon had issues finding the right contractor for the job. The last one he had was a woman who would refer him to different people, including her husband with whom she’s now getting a divorce from. They all turned out crappy so he fired her and searched on his own. His next door neighbor wanted to do the renovations for $7800, a fair price but not for a guy who doesn’t seem to be a handyman at all. I also warned Damon about the perils of doing business with neighbors. Damon declined the neighbor’s offer, and I guess the guy got pissed because he’s been throwing tomatoes at the property when no one is around. See, this is why I can’t buy property in poor areas. It’s not just the house and tenants I’d have to worry about but the low life neighbors as well. Throwing tomatoes… ugh! Damon eventually found a contractor who’s doing the job for $4400, materials included. The job will be done by October 15th, so I’ll take pictures before the next “Dinner” post.
When to Finance
Damon sent me a text earlier in the month, where he talked about wanting to use a rehab loan to do the repairs:
“Wanna get a 29K to fix up house at 18%. Rehab to be done by 9/30. Will then refi with Empower at a lower %”
What he said didn’t make sense to me. If the property only costs 10K and he has 10K set aside for repairs, why go through the loan process that would have him pay a monthly fee for something he can pay on his own? I can understand the whole concept of paying as little out of pocket as possible, but it doesn’t seem necessary in this case. If everything works out with the new contractor, he would have spent a total of 15K… let’s just make it 16K, alright? Damon plans to rent the place for $900, but may only get between $800 and $850 due to the area. After taxes and insurance, his property will net him at least $500 a month. That’s $6,000 a year. It would take him just 32 months to make all the money back, and then it’s all profit afterwards. If he were using that repair money to buy another property then I could understand, but if he’s got nothing to buy then he might as well maximize his profits.
PP4 #7
Remember PP4#7? Well I found out that the place has not sold yet, even with the dirt cheap price of $46,000. I found out this month that they’re now lowering it to 30K to prepare for an auction next week. I salivated at the chance buy the property and get it rented out before the end of the year, but I decided against it. Damon backed me up as well. I have a plan, and it’s a good one. Getting a 2 unit would screw all that up, no matter how good the deal may be. Buying PP4 #7 with all cash will leave me with nothing for a 4 unit purchase. I’d have to stay at these damned jobs longer which would mean I’d have to push my retirement back through 2019. Screw that! And I really have to wonder why a deal so good hasn't been scooped up yet. So I passed on it and will stick to the plan.
Home Inspection
Damon noted that there was black mold behind one of the walls in the bathroom. His handyman noticed it when they did the first walkthrough, but Damon didn’t really care because they were gonna knock the wall down regardless. What pissed him off was that he didn’t get a home inspection done. Had he done so, he would have had an inspection in writing that would detail all the problems that were found in the property. He could have used it as a reason to get a lower price for the place, paying perhaps $2000 less for place (in credits). He said that the $300 inspection is worth the price because it’s an invaluable negotiating tool to get the best deal possible. Having a handyman come with him was nice, but his word holds far less weight than an official home inspector. The seller will know that ever buyer after him that uses an inspector will find the same deficiencies, so it’s better to negotiate now than to deal with the same issue from future buyers later.
And that was basically it. Other than him complaining about the amount of work at his job, we actually stayed on the top of real estate! Damon started mocking me when I spoke on how good it was that we stayed on topic this time (“Stay on topic! Stay on topic!”) He can mock all he wants, just as long as he keeps these dinners about real estate. I want to walk away from every dinner learning something like I did Wednesday night.
P.S.: You know what I just realized? If I had the money to show funds and the auction allowed it, I would definitely go for PP4 #7 under auction. It would cost about 10K out of pocket, and I’d still be more or less on track to buy Property Four and pay off Property Three by the end of 2016. See, THAT is when financing works best.
Renovations
Damon had issues finding the right contractor for the job. The last one he had was a woman who would refer him to different people, including her husband with whom she’s now getting a divorce from. They all turned out crappy so he fired her and searched on his own. His next door neighbor wanted to do the renovations for $7800, a fair price but not for a guy who doesn’t seem to be a handyman at all. I also warned Damon about the perils of doing business with neighbors. Damon declined the neighbor’s offer, and I guess the guy got pissed because he’s been throwing tomatoes at the property when no one is around. See, this is why I can’t buy property in poor areas. It’s not just the house and tenants I’d have to worry about but the low life neighbors as well. Throwing tomatoes… ugh! Damon eventually found a contractor who’s doing the job for $4400, materials included. The job will be done by October 15th, so I’ll take pictures before the next “Dinner” post.
When to Finance
Damon sent me a text earlier in the month, where he talked about wanting to use a rehab loan to do the repairs:
“Wanna get a 29K to fix up house at 18%. Rehab to be done by 9/30. Will then refi with Empower at a lower %”
What he said didn’t make sense to me. If the property only costs 10K and he has 10K set aside for repairs, why go through the loan process that would have him pay a monthly fee for something he can pay on his own? I can understand the whole concept of paying as little out of pocket as possible, but it doesn’t seem necessary in this case. If everything works out with the new contractor, he would have spent a total of 15K… let’s just make it 16K, alright? Damon plans to rent the place for $900, but may only get between $800 and $850 due to the area. After taxes and insurance, his property will net him at least $500 a month. That’s $6,000 a year. It would take him just 32 months to make all the money back, and then it’s all profit afterwards. If he were using that repair money to buy another property then I could understand, but if he’s got nothing to buy then he might as well maximize his profits.
PP4 #7
Remember PP4#7? Well I found out that the place has not sold yet, even with the dirt cheap price of $46,000. I found out this month that they’re now lowering it to 30K to prepare for an auction next week. I salivated at the chance buy the property and get it rented out before the end of the year, but I decided against it. Damon backed me up as well. I have a plan, and it’s a good one. Getting a 2 unit would screw all that up, no matter how good the deal may be. Buying PP4 #7 with all cash will leave me with nothing for a 4 unit purchase. I’d have to stay at these damned jobs longer which would mean I’d have to push my retirement back through 2019. Screw that! And I really have to wonder why a deal so good hasn't been scooped up yet. So I passed on it and will stick to the plan.
Home Inspection
Damon noted that there was black mold behind one of the walls in the bathroom. His handyman noticed it when they did the first walkthrough, but Damon didn’t really care because they were gonna knock the wall down regardless. What pissed him off was that he didn’t get a home inspection done. Had he done so, he would have had an inspection in writing that would detail all the problems that were found in the property. He could have used it as a reason to get a lower price for the place, paying perhaps $2000 less for place (in credits). He said that the $300 inspection is worth the price because it’s an invaluable negotiating tool to get the best deal possible. Having a handyman come with him was nice, but his word holds far less weight than an official home inspector. The seller will know that ever buyer after him that uses an inspector will find the same deficiencies, so it’s better to negotiate now than to deal with the same issue from future buyers later.
And that was basically it. Other than him complaining about the amount of work at his job, we actually stayed on the top of real estate! Damon started mocking me when I spoke on how good it was that we stayed on topic this time (“Stay on topic! Stay on topic!”) He can mock all he wants, just as long as he keeps these dinners about real estate. I want to walk away from every dinner learning something like I did Wednesday night.
P.S.: You know what I just realized? If I had the money to show funds and the auction allowed it, I would definitely go for PP4 #7 under auction. It would cost about 10K out of pocket, and I’d still be more or less on track to buy Property Four and pay off Property Three by the end of 2016. See, THAT is when financing works best.
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