The Sunnyside Project

Ahh, the Sunnyside house. This thing was a complete wreck that needed a heavy rehab. My friend and partner Bud called me on this one and we teamed up. We purchased directly from the owner, at the dining room table, on a hand written one page contract. We used a little bit of cash and a little bit of private financing in a first trust deed position with title insurance and an escrow company like any normal mortgage transaction. My personal favorite thing about this house is that Bud and I are literally the second owners of a home built in 1951 which is amazing.

The home had good bones as it was copper re-piped, texture coated on the exterior, had a new HVAC unit and new 30 year comp roof. The bad is that this home was occupied by the original owners and had 50+ years of neglect in the form of original paint, zero interior maintenance etc. Fortunately the original doors, cabinets, wood closets etc were in remarkably good shape other then decades of grunge. The yards were a disaster and after they sold to us we needed two giant trash dumpsters to get rid of everything left, the trash and yard waste.

As the rehab guy in the partnership I was very excited to work on the home and worked to keep the original character. All the original doors and such were repaired and I went so far as to track down an era piece O’Keefe and Merit black and chrome stove. I had it refurbished and was blown away at how great it turned out and how awesome it looked in the right kitchen. The other cool thing about this project was that I felt we needed a dishwasher somewhere however I was worried about disturbing the period look of the kitchen. What we ended up doing was removing a lower cabinet from the wall. We then framed an opening into the wall, dry walled it, ran our plumbing lines and installed the dishwasher. We then modified the original base cabinet a little bit to accept the dishwasher, retained the original wood and ended up with a custom install. The beauty is that when the cabinet doors are closed the kitchen looks exactly as it would have when the home was built new, however the new owners will have the modern amenity of a dishwasher.

All in all this was probably my favorite rehab so far. About 90% through the project Bud and I found a buyer ourselves and the home is currently in escrow and should be closing in about 35 days from now.

This video was shot prior to completion:

Sunnyside home looks great and cheerful from bhadra patel on Vimeo.

My thoughts on all this "shadow inventory" talk being thrown around

Ok so I have to put up a disclosure first. I'm pulling this from First American's system called List Source. I'm new to the system so there is a possibility that I'm inputting my criteria wrong however I think I'm doing it right. Secondly I'm new to trying to get my brain around data and I could very well be looking at the wrong stuff so feel free to give me input on other aspects of public records that I might be missing. This is for Riverside County CA.

Total pieces of Real Property in Riverside County: 942,339
Total SFR’s in Riverside County: 487,000
Total SFR’s with a NOD filed: 19,000
Total SFR’s with a NTS filed: 14,500
Total SFR REO’s: 17,700
Total Distressed: 51,200
Distressed percentage of SFR housing stock: 10.51%
Months of housing supply REO's only: 5.87
Months of housing supply factoring all classes: 16.98

Per the local MLS monthly closed SFR transactions are running around 3000.

Note this data excludes any house that is a short sale where a NOD/NTS has not been filled yet. Many people claim banks are simply not filing NOD's and that is probably true in some cases however all these servicing companies/banks are not stupid as one would think and I'm inclined to believe that banks are filling NOD's in most cases because it is the first step in the process and crucial to the note holder as a back up plan if a workout/short sale fails. This is my opinion only as far as these distressed homes without a NOD filed and I could be way wrong on this one.

So looking at these data and factoring in how long it takes a home to move through the process and actually become a REO I personally don't buy into all this shadow inventory talk. We have a major problem and I don't feel we are out of the woods by any means however these numbers aren't as bad as what I was expecting all things considered.

The recession will still grind on but Riverside County unemployment has been in the double digits for a while now and all this time sales have been brisk and houses are getting multiple offers. The last few rehabs I sold all received multiple offers well into the double digits and one got over 20. I'm sure there are some agents out there writing offers on several properties for the same clients but it is hard to imagine one agent writing more then a couple/few offers with one client simultaneously. For this demand to be "fake" each agent would need to be writing just a ton simultaneous offers for each client and that is hard for me to believe. My experience, the experience of friends and feed back from agents it is obvious that any property that is in decent enough condition to be financed conventionally/FHA/VA is receiving an eyeball popping amount of offers if it is priced reasonably.

So, all in all I feel pretty good about being able to successfully sell properties and I certainly will not try to slow down. I am not going to get crazy and start raising buy prices hoping to get multiple offers however at this point I'm feeling good about the 7 houses I have in inventory and am looking forward to getting some more.

I look forward to comments from others regarding your feelings on all this Shadow Inventory talk.

FOR SALE; GREAT RENTAL OPPORTUNITY WITH OWNER FINANCING

Primo location, awesome 3 bed, 1 bath 1050 sq. foot house on a large lot. Less then 5 years ago the following work was done; copper repipe, new 30 year roof, exterior stucco coating (can't remember the name of the process), new heating/air condition system and the electrical panel was upgraded to a 100 amp. It needs interior work and a empty pool in the back needs to be filled in/buried. To get this ready for a rental you will need to paint, carpet, paint the kitchen cabinets, put in some appliances and stick a for rent sign in the yard. The pool shouldn't cost more then $3,000-5,000 to make disappear, some minor drywall work inside, paint and carpet plus kitchen appliances. I know for a fact my crew could do this job for less then $12,000 total making it a rental. To try and rehab this property into top condition and try to flip it you will need to spend a lot more and it won't pencil out. As a rental this is a steal of a deal!

This should easily be a $1450 per month rental.

Great opportunity for a landlord type investor looking to acquire a prime Riverside single family house as a rental. Hurry before I start rehabbing it and it comes off the market.

I can carry a $70,000 interest only note with a $20,000 down payment for a qualified buyer for a maximum of 8 months at 10% OR you can pay cash.

The house is currently occupied so no interior inspections until the week of May 18th.

The buyer will need to be able to qualify for permanent, institutional financing down the road, or show the cash to pay off the note. This is an opportunity to purchase a house for only 20k down, get it rehabed and rented out and then go out and get your permanent financing. This means you DO NOT have to go out and write a huge check to get in the door.

Here is a link to the neighborhood
View Larger Map

NOTE FOR SALE, 1ST TRUST DEED

Note buying Opportunity. Extremely well secured by both the property and borrower.

Face value: $105,000

Purchase Price: $95,000

Payment is: $800 per month, interest only which makes a yield of 10.70% on the investment.

Term: 10 year balloon

Collateral: SFR in the city of Riverside, Appraisal for $150,000

Borrower: 790 middle credit score, verifiable income via tax returns, lots of liquid assets etc.

From a collateral position the numbers are:

Gross rents of $1450

30% expense factor means net rents of $1015 over a payment of $800 is a 1.27 debt servicing ratio.

Dusty Lane - Foreclosure Purchase, Rehab and Retail

Dusty Lane was a house that was a straight forward rehab and retail flip.

What really struck me on this house was how quickly it sold. I put it on the market on a Friday morning and by Monday I had multiple offers and lots of competition. It was bid up $13,000 over my initial asking price. A couple other good lessons is even if the neighborhood looks clean you need to make sure you look at houses at a time when people are awake. This particular home I looked at early on a weekday morning. After we closed I went back in the afternoon and was blindsided by one neighbor and the activity at this neighbor's house. Fortunately we were able to deal with this neighbor and all was well. But, this really shows that sometimes you don't want to be the early bird when looking at homes.

We paid $90,000, closed with private money, spent $30,000 on repairs and sold it for $168,000. We received five offers, we did a multiple counter and had four accept the price. Each one had a different request for us to pay closing costs. We actually went with the offer that had the lowest "net" price to us because the agent representing those buyers really made me feel comfortable.

After our selling costs, holding costs and credit to the buyer for their costs we had a net profit of $20,300. Surprisingly expensive to sell and hold a property huh? From start to finish we were in this deal almost exactly six months.

Our list of repairs are:
Exterior/interior paint, scraped the popcorn off the ceiling and re-textured, front/rear landscape, every plug, switch, light fixture, plumbing fixture and hardware piece were changed to nickel, we built out that custom slate fire place and mantle piece, put slate tile in the kitchen, changed out the doors to six panel style, had to replace the AC condenser because it was missing, slab granite in the kitchen and stainless appliances and other stuff I can't remember.

Here is the SLIDESHOW

Appletree - Foreclosure Purchase, Rehab and Retail

We purchased this house out of the MLS, paid cash and did a full rehab. To be upfront on this, I lost money on this deal. We lost just under $5,000. I consider this deal my own personal $5,000 hands on seminar. I borrowed hard money for most of this job and was in it about $35,000 of my own cash. Even though it was a loser, my hard money lender got all their payments and their principal back. In this business you only have one shot at keeping your word. This lender has loaned me an additional $175,000 since on different houses because they know that I will pay them back. No matter what never, ever screw your lenders!

In my opinion there was two factors that tanked this deal. First, my rehab budget was blown out by about $7,000. This house was in rough shape and we suffered from job creep. With everything we made nice what we didn't touch got uglier and we had to fix it. This bad boy ended up getting the full monty fix up. Gutted the kitchen and both bathrooms, replaced every door, scrapped the ceilings and re-textured them, new double pane windows, interior exterior paint, stainless appliances, granite the whole works. We ended up spending $43,000 total on the rehab.

The second factor that I think we really suffered from was that I underestimated the smaller square foot inventory and the lack of resiliency. When I purchased this one in September it was hands down the cheapest per square foot buy in the city and looked to have a retail price of around $155,000. This house was 1119 square feet. The larger homes, 1500+ square feet were all in the high 100's to the low 200's and were not selling very well at all. As we transitioned to 2009 all the inventory took a 20-30k drop across the board. What that left me with was a buyer pool that had a tough decision; either purchase the nicest small house in the city or purchase a much larger house that is in rough but livable condition for the same price.

Square footage and an extra bedroom won out. From a price per square foot perspective I still did real well compared to my peers. I feel that is because of the meticulous rehab and the attention to detail all our rehabs get. We put out a solid product that is heads and shoulders above my competition.

This experience taught me to focus on 1400+ square foot homes because the buyer pool in my target market has spoken and they want more elbow room. It is funny how things work. We had the nicest house for sale in the area hands down, it was a great end of cul de sac lot that was much larger then just about everything in the city, it was better then new and we couldn't get a penny over $135,000 no matter how hard we tried. I even experimented with the marketing of this house by trying a quasi auction type listing. It worked and we received multiple offers but couldn't squeak out anything higher.

We paid $80,000, sold it for $135,000, spent $43,000 on rehab, credited the buyers $5,500 towards their closing costs and I paid the buyers agent a 4% commission and after all the holding costs we lost.

In my opinion you can't call yourself an investor unless you have lost money. Everyone strikes out occasionally.

The slideshow is here.

Tenants say the funniest things

We own residential rentals that we self manage. All in all I absolutely love managing them ourselves because you absolutely can not buy the entertainment that comes along with it.

A couple months ago I get a call from one of my best tenants saying the garage door broke. The story I got was that she pushed the button once and it made a funny noise so she pushed it a second time and it just "broke".

After surveying the damage it is obvious that somehow a car drove through it. There were no cars at the house and she denied that anything other than her original story happened. As I was standing there scratching my head and wondering if I was talking to my 5 year old nephew I had a decision to make on how to handle it. Go nuts or suck it up.

I guess the moral is I could have made a huge stink, threatened her with eviction and all that stuff. However the flip side to that is that she pays her rent 5 days early like clock work, always has. This incident is the only time I have ever heard from her other then the rent envelope in the mail so I sucked it up. A replacement garage door is only $450 installed and she acknowledged that her deposit is officially mine. Since then she referred a friend of her to me as a rental and I filled a vacancy the day after the last tenant moved which is going to save me big time on vacancy costs.

I love managing and if anyone ever has questions or scenarios about it email me.

Firebrand -- Brand New Listing 4/11/09

Welcome to an absolutely beautiful remodeled 1700 square foot, 4 bedroom, 2 1/2 bathroom home. It sits on a huge lot with awesome curb appeal, fenced off area in the back with fruit trees and tons of room for a pool or swing set for the kids. Great looking wood flooring through the upstairs, nice 15 inch tile down stairs, tile in all bathrooms and new carpet in two bedrooms. Double walk in closets in the master and double master vanity sinks. The kitchen has stainless appliances, slab granite counters and an undermount stainless sink. You will love the custom 3 tone paint job inside. We replaced every single door handle, hinge, door stop, bath/kitchen faucet, and light fixtures to brushed nickel. Every electrical plug and light switch was changed out to high end Decora brand. Oil Rubbed bronze ceiling fans and a custom fire place make this a house that is 100% new inside and ready for you to move in.

Larger version of the slideshow

Vista Way - Foreclosure Purchase, rehab and retail

Vista Way was a foreclosure purchase in Riverside County. I ended up buying this one through the listing agent for the bank. While it was sitting vacant prior to me coming along some kids got in, broke some water pipes and flooded the bottom floor. The bank removed the drywall and left it that way.

We came in with an all cash offer and picked this gem up on the cheap. I was originally going to keep this house as a rental however shortly after buying it we found out my wife was pregnant with our first kid so we figured it would be best to sell.

What made this rehab fun was after completing the job a worker made an honest mistake that resulted in a bottom floor flood. We had to turn around and do the exact same rehab a second time! This house is living proof that you make your money when you purchase a property, not when you sell it. After having to repeat the same job, almost doubling the original repairs budget we still made $19,000. We were in and out of this one in 4 months.

Purchase Price: $99,900
Repairs: $12,000
Holding Costs: $1,300
Selling Costs: $14,500
Sales Price: $145,800
Profit: $19,000

Here is a slideshow of the before and after pictures.

Wilder - Subject to, rehab and retail project

This was a moderately heavy rehab project. The house was in very rough condition due to years of total neglect by the owner. We purchased this property directly from the owner subject to a institutional first, institutional second and a hard money third. We closed in 7 days, with cash through an escrow company with title insurance and all the normal purchase procedures. This owner was in major trouble as the hard money third was in foreclosure, the institutional first and second were behind but not yet in foreclosure and there was an open code enforcement file for substandard condition and drug activity. This property is in an good quality family neighborhood in Los Angeles County and really "dirtied" up the neighborhood.

We remodeled this property from the ground up. The repairs were, new roof, new electrical panel and complete rewire, minor re-arrangement of interior walls to improve flow of house, gutted the kitchen and bathrooms and replaced all vanities/cabinets, granite and stainless appliances, new flooring of carpet in the rooms and wood flooring everywhere else, replaced every door, window and all accompanying hardware, four color interior and 2 color exterior paint, and front/rear landscaping. It was a brand new house from the ground up.

All in all it was a 6 month turn from acquisition to close of escrow on the sale.

Fun times on this project all the way around.

The numbers (rounded) were:

Subject to a $66,000 first, $48,000 second and a $110,000 hard money third. A total of $224,000 in existing mortgage debt. We wound up giving the owner 91,000 cash to her existing loans. The repairs ran us $55,000, the holding costs ran $14,000 and the sales costs were $42,000. The sales price was $499,000 which left us a profit of $73,000.

Here is a SLIDESHOW of the before and after pictures. I'm still working on my camera skills so bear with me.