I'll be buying an investment property this month, follow along...

**hassansr** · 01-06-2009, 02:03 PM

Hey folks, happy new year.

The other day I was asked to show a friend all the steps required to find and buy a fixer upper house here in the Atlanta market. Not a hard task, but doing it the right way is. That said I decided to keep a little log of how things are going with the process. So if any of you are interested please follow along throughout the month as I make this thing work. Give me you thoughts if anything that I do doesn't make sense to ya. If any body else out there wants to run a parallel track in your market please do so everyone can see how well this works in different areas of the country. That said, Here goes nothing....

In addition to the wholesale deals that I provide to other investors, from time to time I actually do buy, repair and flip houses. Here in the Atlanta market I prefer to buy houses no more than 35 years old in the north and eastern suburbs, such as Lawrenceville, Snellville, Lithonia and Stone Mountain, GA. The reason that I do this is because in these areas the values tend to be reasonable stable, and the homes are modern with the basic amenities that home buyers (not renters) expect to see.

So for the purpose of this exercise I'll be looking for 3 - 5 bedroom homes with a minimum 2 full bathrooms and at least 1,200 square feet of livable space. I'm not too concerned on whether or not it has a basement, nor am I concerned with the size of the yard. I'm just looking for a deal that feels good to me. On more thing, I don't want to do too much work in the way of rehab, so we'll try to keep the repairs under $20k, which will basically be a house with cosmetic to cosmetic repairs.

My goal for this property is to be able to flip it within 3 to 8 months and to make a profit of at least $25,000 from the deal. I'll use a private lender to fund the deal, paying out somewhere between 10 - 15% in interest to the private lender or I'll partner with another investor with a profit sharing split. I'll find a private lender by calling list of contacts, networking and hitting up prior lenders.

I'll start by looking for properties on the MLS, on other investors websites, on craigslist, and by networking at the local real estate investor associations (REIA's) here in Atlanta, those being the Georgia Real Estate Investors Association, North Metro Reia, and IRCA-Atlanta. Hopefully I'll be able to find about 10 good candidates to look at so that I can get 5 to make offers on, so that I can close on the one I like. This house should have an after repaired value of between $100k to $180k and I'm going to have to get it cheap; about 30 - 40 cents on the dollar (ARV).

I'll have one of my contractors inspect it and one of my appraisers confirm the after repair value. Stay tuned to see how this goes....

**hassansr** · 01-06-2009, 05:50 PM

Ok, I did the math and it looks something like this:

In my little corner of the Atlanta market a good number of the middle class home buyers want and can qualify for homes in the $100 - $200k range, which for the most part are your garden variety, modern 3-5 bedroom room homes with 2 -3 baths, less than 1/4 an acre and a two car garage. That being the case I'll target houses in the mid-range of that, about $150k in value after all the repairs are done (ARV). From that amount i want to subtract all my costs to get my desired purchase price, which includes repairs, closing costs, early profits, marketing expenses, holding expenses and or interest.

As I mentioned in the last post, I only want to do cosmetic to moderate repairs on a house, so the max I'll put into repairs is $15K

Closing costs will run me about $1,500

I aways give myself a guaranteed bit of profits early of at least $10k.

Marketing expense is the one item that most investors screw up on (besides repairs). That being the case we have to factor that in as well. When reselling I always plan for the process to take at least 6 months using a combination of ads ($250 a month x 6 = $1,500), signs (15 per week x $4 each sign x 26 weeks = $1,560), direct mail (500 post cards a month to renters x .31 cents per card x 6 months = $930) and a flat fee listing on the realtors' multiple listing service (MLS) at $400. Total cost of six months of marketing to sell a house estimated at $4,390

Misc. expense cause things always pop up that you didn't anticipate

My numbers for a $150k house will look like this:

ARV $150,000
X 60% = 90,000 (search the forum as to why people use 60%-65%)
Less project costs:
Rehab = $15,000
Closing cost = $1,500
Early profit = $10,000
Marketing = $4,390
Misc = $3,000
Total Costs = $33,890
MAX Allowable Offer pay for the house (Gross MAO) = $90,000-$33,890= $56,110

I plan on using a private lender to fund this so I'll have to factor in my interest expense. Lets assume that it'll be 12% annualized based on the 60% of the ARV ($90k x 12% =$10,800). Subtract the interest expense from the MAO to get the net MAO ($56,110-10,800=$45,310).

Again the net MAO is the max I'm willing to pay for the house; that being the case I can't pay the MAO. So I'll multiply the net MAO by 85% to get my starting point for making offers ($45,310 x 85%=$38,514).

BTW, just in case you're wondering, the difference between the 60% of the ARV and the ARV will be used to cover the expenses of closing out the deal once I have found a qualified buyer. Those expenses include realtor expenses (in the case where the BUYER is brought by a realtor), Closing costs and other concessions to the buyer (such as decorator allowances or fixing the stupid stuff their home inspector finds to scare them with). It also includes the cushion that i have for lowering my sales price to account for the fact that some buyers may not qualify for a $150k purchase, but may for lets say a $135k one. Anything left over after all of those costs are covered are considered "gravy" on top of my early profit of $10k that I already took.

Now that I know my numbers, all i need to do now is to go out and find some deals. In todays market it's going to be really hard finding private sellers with that much equity, so I'll have to deal with bank owned properties, HUD and VA homes, probates and other investors. So we'll look at MLS, REO realtor sites, HUD's website, other wholesalers websites and do a little networking.

I'll show how that works tomorrow. In the mean time I got to start working on finding a couple of potential private lenders (cash or credit). Please let me know if anything i mentioned so far was unclear.

**hassansr** · 01-07-2009, 06:23 AM

Ok, back to the task at hand, finding some potential deals. I've decided to make a slight change to the goal, so instead of just trying to buy one house in January only, I'll also find two more; one for February and March as well.

Based on what the majority of qualified home buyers in my slice of the Atlanta market can easily afford and want, I'm doing a search for 3 to 5 bedroom homes, with at least 2 full baths that were built no earlier than 1975. many of these buyers can easily afford to pay $1,000 to $1,300 a month in monthly mortgage payments, including taxes and insurance (PITI), which translates into homes with an after repaired value (ARV) of about $150k. I'll want my total cost of acquisition to be no more than 60% of the ARV and will want the repairs on each house to cost no more than $15k, so I'm going to have get them really cheap.

Now that I know what I want to buy and what I plan on doing with the houses after I have repaired them (my exit), I can now start looking for deals.

My first stop will be the multiple listing service (MLS). Now I am not a realtor, so I can't pull the data myself; but I can and did ask a realtor friend of mine to pull a list of homes for sale in the area desired and download it to an Excel spreadsheet for me. I asked her to do a custom search for homes based on the following criteria:

Bedrooms: 3+
Full Bathrooms: 2+
List price range: $20,000 - $180,000*
Counties: Dekalb and Gwinnett (GA)
Zip codes: 30039, 30058, 30087, 30088, 30078
Special circumstances: All
Public comments: All
Status: Active, Expired, Sold*
Expired date: within past 180 days
Sold date: within past 180 days

I also want the property addresses with the listing agent phone and fax numbers as well. In case you're wondering why I want a list of houses with list prices up to to $180k as well as those sold, is so that I can validate that the cheap houses I'll be looking at are in areas with higher sales prices when the homes are in good condition. I look at the expired listing cause the sellers may be more willing to negotiate than on a new listing. The reason I go 180 days back on the expired and sold listings is to remove duplicate postings and to confirm that the expired listing have not yet been relisted or sold.

Based on my criteria, I find 49 active and 48 expired in the MLS. Most of them are bank owned so I know that I'll have a decent chance of finding a deep discount deal.

The next place I'll look is online on the HUD website. In this search I'll use most of the same criteria as for on MLS, except for the fact that I want them to already be asking for low prices, under $80k. A quick search leads to 74 leads.

The last place I'm going to look is on websites of the wholesalers in my market and on craigslist. After viewing about 5 wholesaler sites and craigslist I find 5 more worth looking at.

The next steps are to take a good hard look at the lists to eliminate suspects and cut the overall list down to about 25 houses. Then I'll do some basic research to get the list down to about 15 houses. Out of the 15, I'll take a look at about 10 and probably make offers on 5 or 6 so that I can buy one this month, one in feb and another in march.

I'll discuss how that goes a little later this evening. If you've been following this and have any questions, please post them now, so I can address them asap.

**Codythebest** · 01-07-2009, 01:19 PM

So far, so good.
I'm following...

Good luck!

**hassansr** · 01-07-2009, 01:53 PM

Hey, I learned something new today, HUD has issues! It requires the buyer to jump thru a bunch of hoops just to make an offer on a property (BTW, I have never made a HUD purchase). That said I will have to register on their site with pemco, fill out a bunch of forms and disclosures and have a licensed realtor submit my offer for me for each of the houses I am interested in. Those forms include:

1. HUD's contract submission checklist
2. HUD's sales contract (form HUD-9548)
3. The electronic filing of HUD-9548 contract addendum
4. Radon gas and mold notice and release agreement (HUD form-6548-E)
5. Addendum to sales contract for owner occupant (if I was to buy as one, which I'm not)
6. Earnest money certification
7. Pre-qualification letter
8. Forfeiture and extension policy

You know, this is why I prefer to work with private sellers; a lot less paper work and drama.

Anyway, once I figure out which houses I'm going to bid on, I'll fill out all these forms and submit everything through one the beautiful realtor I work with. I'll let ya know how that goes later..
til then..

p.s for anyone that has dealt with HUD property bids, please give me your thoughts on how to make this go smoothly.

**hassansr** · 01-07-2009, 01:55 PM

Ok. Looking at the list of properties on the MLS, Craigslist and from other investors I have cut the list of potential candidates down to about 33. I did this by looking at the asking prices and who the owners are. If the asking prices were higher than 90k I dropped them (what's the point if they aren't close to where I need them to be now?); also if the property owners are regular people then I dropped them as well, as the debt that they owed was higher than the amount I was willing to pay for the houses.

One last thing, I also dropped houses in areas that I don't like or don't want to travel to, like Buford or Sugar Hill, GA. I have never bought or sold any houses out in those areas and neither do I know much about those areas; that being the case they had to go.

From the remaining properties I went to the MLS to view photos of the properties and to get some details on what I am working with. 3 of the properties were so ugly that even Ron Legrand wouldn't touch them (badly designed), 2 others were listed as pending sale; I'll monitior their statuses. From the remaining properties I printed out the MLS listing pages and the tax records from the county tax assessors websites for review.

From the HUD properties list I did the same steps and have come up with about 10 that will be of interest. My next steps are to go out today to take photos, to inspect the properties for repairs and to see if I like the neighborhoods (don't want houses in areas that homebuyers wouldn't feel comfortable in). In that regards I'm looking to make sure that the repairs are no more than $15k, that the houses don't have a weird feel to them, that the neighborhoods are not in obviously high crime areas and that the properties are not located on any main roads or near industrial areas.

Here are just a few of the ones that I'll be looking at:

3440 centerville rosebud road, snellville, ga 30039
3103 deshong dr, stone mountain, ga 30087
293 bicentennial drive, stone mountain, ga 30087

if any of you are interested in seeing what these look like, PM me and I'll send photos. You can also search the realtor sites for atlanta by plugging in the addresses.

Before I leave of course, I have to plan my route with mapquest or google maps. I'll let you know later today how this works out and what I saw. I'll also discuss how I'm going to find some private lenders.

Til next time, have a great day...

**hassansr** · 01-08-2009, 05:09 AM

So I went out in the afternoon yesterday and took a look at 15 houses. Out of those I eliminated 5 for various reasons like being way too ugly, being on main or unpaved streets or having bad interior layouts.

If you're interested in seeing what these look like, PM and I'll send photos. You can also look them up online at any of the realtor sites that are linked to MLS for the Atlanta area. Here are a few of the ones that I eliminated:

3440 centerville rosebud road, snellville, ga 30039 (looks like an ugly green double wide)
3103 deshong dr, stone mountain, ga 30087 (under contract)
293 bicentennial drive, stone mountain, ga 30087 (was an expired listing, now occupied)
4437 amy road, snellville ga 30039 (too small and on main road)
8466 donald road, snellville ga 30039 (beautiful home on unpaved road filled with huge potholes)

I was able to get into 5 of the ten by calling the listing agent for the lock box code or entering thru already open doors. The remainder I was able to look through the windows to quickly get a feel for the interior.

3 of these houses are in great condition, needing less than $10k in repairs to bring them to retailable condition. Working out deals on these might take awhile, meaning that I might have to work the REO broker awhile to get the prices that I want to buy them for; but I wont let that stop me.

5 houses need between $10k - $15k in repairs, so that'll give me a better shot. The other two will need major repairs above $15k, which gives me more leverage with the banks; one of the two had a squatter living inside.

Tomorrow I'll see the remaining houses from the MLS and from my investor contacts. I'll also take a look at 10 of the HUD homes as well. Once I have completed my inspections I'll start crafting my offers based on the math and the situations that I see.

In addition to crafting the offers I also need to start seeking private funds. I'll do that by taking the numbers from the best 3 deals and crafting an offering package. I'll be going to 2 real estate networking events tomorrow, so I need to get this done right before I go so that I can pitch them. It doesn't matter if I don't have the house secured yet in this step, all that matters is that I have a potential deal
with the returns that a private lender would expect. Once I have an interested lender that can perform quickly, I can find the best deal for them.

In the morning (or later tonight) I'll show the math and private loan offers and how they work. Til then..

**hassansr** · 01-08-2009, 05:10 AM

Ok, Thursday is my day for finding a couple of private lenders. I'll do this via networking at a couple of real estate investing and business events. Basically I'm just going to run my mouth and let folks know what I do and what I'm looking for. I'll pitch the following deal for funding a property on a flyer like this with an attached photo and appraisal (if some of you more experience investors could take a look at my numbers and the scenario, I would appreciate the feedback): The bold sections are my comments to you.

This is where I insert a color photo of the property

2852 QUINBERY CT, SNELLVILLE, GA

Estimated After Repair Value (ARV): $135,000

Situation: This is a property that I need funding for. It is a 3 bed, 3 bath, frame home, built in 1985, needing a bunch of mostly cosmetic repairs of about $18k. Market rent is estimated at $1,200 per month. It's a bank owned property that I

**hassansr** · 01-08-2009, 01:08 PM

Well I'm back. Went to one networking event and actually pitched 2 potential deals; the one I mentioned in the last post and another in stone mountain, GA. Didn't get a great response but I was pretty smooth with my presentation and passed out 20 flyers as I spoke to a group of about 20 real estate people.

I can;t stop there, got to keep on reaching out, so this evening I'll be presenting the same info to an investor that funded a subject to deal that I sold to another investor. I'll also go to another investor networking event later on. The trick to landing private money is first coming up with the opportunity, then packaging it, presenting it to as many people as you can, and doing followup quickly.

That said, I have some more work to do and people to see, later...

**hassansr** · 01-08-2009, 06:42 PM

Today I met with one potential private investor over dinner and discussed the deal. I also met with another one on monday at lunch. Unfortunately neither was able to provide funds right now (bummer). They both however have family and friends that may be interested. I'll just have to follow up and stay in touch.

Can't stop here though, still need find some lenders. That said I need to find at least 5 networking events to go to next week and the week after (and so on) until I find and secure at least four private lenders and credit partners. Next week it'll be the Ga real estate investors association, the North Metro REIA and one of its subgroups. I'll find a couple more places to go to tomorrow; I also need to meet at least 3 private lenders each week for one on one. I'll let ya know how that goes as I go along...