Monday, February 28, 2005

Habitat ReStore

I found about habit ReStore from Hespey's Real Estate blog (see link in sidebar). It's a good idea and something to keep in mind when you rehab a house.

When you have leftover materials from rehab jobs, you can donate them to Habitat ReStore - part of Habitat For Humanity. You may also want to check out their stores when purchasing material. They sell material at a discount and the money raised supports Habitat For Humanity. Visit for details and store and donation center locations. Donations are tax deductible.

Friday, February 25, 2005

House 11 Update 1

The title company sent a courier over to my office to pick up the earnest money check and the contract. Escrow should be officially opened later today. I've got a home inspection and a termite inspection set up for Monday at 8 AM. I found a company that will do both and they will email me the report Monday evening (I will not be present when the inspections are performed). I've got a call in with my insurance agent to get coverage for the property. The agent's assistant call back and confirmed that she told the sellers the date and time of the inspections and that she called the inspection company and gave them the lockbox code. Now I just sit back and wait.

I did tell the escrow company I was an investor and they gave me investor rates, which are 30% off their standard rates.

Thursday, February 24, 2005

House 11 Offer Accepted!! (Officially)

Got the signed contract back today. The house is mine at the higher price of $128,000. Things got held up a bit because another real estate agent contacted the seller directly (without going through their agent) and told them not to sign anything because she had another offer and was bringing it over. The seller and their agent waited for 45 minutes and the agent never showed. Another sign of how crazy the market is: it is illegal for an agent to contact the seller directly instead of through their agent. That agent could lose her license for doing that.

Anyway, the people are super eager to close escrow, so we're on a fast pace for the next couple of weeks...


My offer for House 11 has not been signed yet. The agent was on his way over to the seller's this morning when he got another offer - this one is also all cash with a price of $128,000. He's faxing me the offer to prove it's real and will give me a counter offer equal to it. If I accept it, the other offer will be in a backup position. Damn damn damn. If that contract was signed yesterday, I could have saved $8,000.

I'm still going ahead with this. I did some more research on comps and I think I can sell the place for a bit more than I thought. Not $8,000 more, but a couple thousand more.

This just proves how competitive the Phoenix market is.

Wednesday, February 23, 2005

House 11 Offer Accepted!!

After getting the fastest rejection of an offer a few days ago, I just got the fastest acceptance - about 2 hours. I think that means I offered too much :-) Actually, I think the timing just worked out on this one. The owners are actually in the process of moving out now and the agent said he kinda pushed them to accept the offer. Once escrow has closed, I'm going to see if I can talk to the agent and get some background info, like how many previous offers there were, etc. I can't ask now because the sale is not yet final and he still has a fiduciary responsibility to the sellers. However, once escrow closes, he will be free to talk. I was originally planning on offering $118,000 but raised my offer $2,000 because there was so much equity, I figured there was less of a need for the owners to sell (the foreclosure auction will still over a month away) and / or there would be other offers higher than mine. I guess I was wrong.

One thing I did do which probably helped me, was to include my standard fax cover sheet for offers. On this, I explicitly point out to the agent that my offer is a cash offer, I am offering a fast close, will take the property "as-is" (if that's the case), and that I am not using an agent. For this last point, I also mention their seller will save X dollars because they don't have to pay a commission to the buyer's agent. I replace X with 3% of my offer price. I think it has a bigger psychological impact to show how many thousands the seller will be saving by accepting my offer (nevermind the fact that my offer is already thousands below their list price).

Anyway, there was a counter offer, but the price stayed the same. The only changes were that escrow is to close "on or before 3/11" (instead of "on 3/11") and I take possession 2 days after the close of escrow. This is to give the owners time to move into a rental. The agent explained they are a bit short on cash and so they need to get the money from the sale to move into a rental. That's ok with me. They are an older couple and I don't think they will do much damage.

Some other facts about the property: it's a corner lot (which explains the bigger lot size), has a screened in patio, a storage shed, and a 2 car carport. It was built in 1971. I'm figuring this property will be closer to the high end of the comp range based on the listing price, the condition, and the lot size.

House 11

Found a preforeclosure this afternoon and submitted an offer. It's a 3/2 house built in 1971 that looks to be in good condition. There appears to be about $55,000 equity in the property: I can only find the first mortgage recorded against it and no other liens. There are no delinquent taxes owed. The property goes to auction in April and comps are in the $120,000 to $145,000 range. Listing price is $145,000 and I offered $120,000, all cash with a 15 day escrow. I gave them until 4 PM Friday to respond.

I think I might have been giving sellers too much time to respond to my offers. On one of my recent offers, I gave the owners over the weekend to respond. In retrospect, that probably wasn't wise, since that gives them the weekend to show the house and get other offers. Since my offers are generally low, I think I need to put some pressure on the sellers to accept or reject the offer quickly.

While writing this, I got a call from the agent. He's requesting I provide proof of funds, which isn't a problem. He said the owner is moving and is ready to sell. The agent sounds like he's going to try to get this thing sold.

All offers rejected

All my remaining outstanding offers have been rejected.

I was pretty busy yesterday and was unable to do much research. Hopefully, I'll get some more offers out today or tomorrow.

Thursday, February 17, 2005

Houses 7, 8, 9, And 10

House 7 is an REO condo - a two story with 2 bedrooms and 1.5 baths. The bank took it back on a $25,000 bad debt. Comps are in the $55,000 - $57,000 range. Not much work is needed, maybe some carpet and paint. It was listed for $54,900 and I offered $39,700. I actually thought this might have a shot at being accepted since there was still plenty of room for the bank to make money. Unfortunately, this offer has gained the dubious distinction of being the fastest to be rejected - total time elapsed from offer to rejection: 1.25 hours. I didn't even get a counter-offer. The agent said a couple other people were interested, so the bank was going to wait a bit and see what other offers they get. I'm reminded of a story from another investor about how he or she sometimes runs into someone at the bank who thinks they are doing the bank a favor by holding out for top dollar, only to have to accept a lower offer later on. The bank is paying the $120 a month HOA fees, plus property taxes as this thing sits empty. Oh well. I'll check back in a couple of weeks to see if it's still available.

House 8 is a 2/1 house that is at the preforeclosure stage. The original loan was $100,000 and it is only 1 year old, so the payoff amount, with fees, is probably a bit more than that. Comps are around $115,000 - $120,000 and i's listed for $117,500. I offered $102,000 and a quick escrow (it goes to auction on March 18). I also pointed out I am not using an agent, so the sellers will save $3,060 by not having to pay a buyer's agent commission. The sellers also offered to pay for a home warranty, which I declined. Haven't heard back on this one, but I think the only way it will fly is if the bank will take a short sale. What I find interesting about this is that the sellers are including all appliances and offering a home warranty. This tells me they aren't completely broke. I think it may be possible that they might chip in some money of their own to avoid the foreclosure.

Houses 9 and 10 are for sale by a property wholesaling firm. One is a 3/2 house at $20,000 under FMV and the other is a 2/1.5 condo about $15,000 under FMV. Both just need minor cosmetic work. These are sold on a first-come, first-served basis, so I don't know if I'll get either one.

No Go On House 2

My offer was not accepted on House 2. It was sold to someone else. So now I have no more outstanding bids. Time to get some more out there!

Wednesday, February 16, 2005

No Go On House 6

I heard back from the agent this morning. Ocwen was will to do a short sale, but not by that much. They will accept $20,596.95 and the original loan amount was $22,000. The payoff on the first was $96,637, for a total of $117,233, plus title fees. There isn't enough room to flip, since this comps at $121,000. Actually, it was appraised at that last year, so now you could maybe get $123,000 for it.

This would be a good rental property though. It's a 2 bedroom, 1 bath built in 1983. 950 square feet. It's got a carport and a nice backyard with a patio. It needs paint and probably carpet. One bathroom vanity needs to be replaced (or just have the footboard repaired). Some junk in the backyard needs to be hauled away - an old barbeque and the contents of a metal shed. A new roof was installed in 2000. Nice neighborhood. A house a couple doors down rents for $850 a month. This property goes to auction on 2/25, so you need to move fast if interested. If you are interested, email me at 10thAvenueInvestments at cox dot net and I'll give you the details for a tiny finder's fee.

Tuesday, February 15, 2005

House 6 - Part 2

Finally spoke with the listing agent a couple of hours ago. She did receive my offer and submitted it yesterday. The offer technically expired 1 hour ago, but I spoke with her and we're going to treat it as still live until we get a response. The issue is that Ocwen, a big finance company, is involved. They own the second on this house and the holder of the first is set to foreclose in 10 days. According to the agent, no one has offered enough to be able to pay off both loans, so she is currently in the process of trying to get Ocwen to accept a short sale. Since Ocwen is a large company, it takes a while for them to give a response. A short sale is really in their best interest since otherwise Ocwen would have to buy the house at auction to protect their position. Unfortunately, the Phoenix market is pretty hot right now, so Ocwen may decide to take their chances with an auction.

I'm not sure why they wouldn't accept my offer. Based on my research, my offer is $3,000 OVER the original first and second mortgages combined. Now, the loans are only 1 year or so old, so barely any of the principle will have been paid down, and there will be all kinds of late fees on the first (since that was the delinquent one), and of course, the commission for the listing agent needs to be paid. What all that means is Ocwen would probably end up losing a couple thousand or so on the deal. But I have to believe that they would lose more if it went to auction and they had to buy it, then resell it again. But, as I said, they may opt to take their chances.

House 6

I found a nice house in Phoenix that is a preforeclosure. It's scheduled to go to auction next Friday (just 10 days!). I checked the place out yesterday afternoon and faxed in an offer about 45 minutes later. I specified the deadline for a response was noon today. Due to the impending auction, we need to move fast on this one.

When I first found the property, I called the listing agent and reached her right away. I got some basic info and then visited the place myself. After that however, I have had no luck at all reaching anyone. The main office number is answered by voicemail and the cell phone number given on the message also rings through to voicemail. I've left messages at both places and no one is returning my call.

The property is a SFH that was used as a rental property. It's in fairly decent shape, but there is some work that needs to be done. At first I was super excited about the property because it looked like there was a good amount of equity. However, I later discovered a second mortgage that I overlooked. There's still enough room to make it a good deal for me and, given the timeframe involved, I should be able to get this at a decent discount. Assuming, of course, someone returns my phone calls.

Monday, February 14, 2005

House 4 Update

Just noticed the selling price on the property has dropped from $57,000 to $53,300. This is lower than the owner's counter offer to me last week, although still above my offer price. This one bears watching.

No Go On House 3

I did not have the highest bid for House 3. Don't know what the winning bid was, but my agent said, when she is asked, she never usually gives that info out. She may call the listing agent to see if she can find out, but I told her it wasn't that important. It's not like I need the info. I was just curious since this was my first auction property. I think from the selling price I might be able to tell if it was bought to be used as a flip or a rental. Anyway, the bottom line is I made the highest bid I could that would allow the property to work for me, so there is nothing wrong with losing the auction. On to the next one!

Oh.. One thing I learned. The deadline for this property was midnight on 2/14/05. This was somewhat ambiguous to me. Technically, midnight on 2/14 is one minute after 11:59 PM on 2/13. However, conversationally, most people would say "midnight 2/14" would mean one minute after 11:59 PM on 2/14. But, since I got the auction results at 9:40 AM on 2/14, that means the closing time listed for bids is really the correct usage of "midnight."

Saturday, February 12, 2005

A Word About Flipping Condos

My Realtor passed along some news to me regarding flipping condos. She said to be careful because sometimes it's hard for buyers to get loan funded. It seems some lenders will not loan to people buying properties where the majority of people are renters. Here in Arizona, if a property is being rented, it is supposed to be registered as such with the state. Of course, enforcement of this is lax and there are many properties that are not registered. In fact, just Thursday, there was a front page article in the Arizona Republic about this.

In my particular case, I did a search on-line and there were no units in the development I'm bidding in that were registered as rentals. Given the above paragraph, this doesn't mean there are no renters. I also attempted to contact the president, vice-president, and treasurer of the development's home owner's association to see if they could tell me anything. Only one of those three had a listed number and no one answered that when I called. I did find a property management company that used to handle the development, but they no longer do.

So, I think in my case, it should be ok. I imagine most lenders are big corporations and possibly even out of state. If they check for rentals at all, I think they would most likely check by using the assessor's on-line search like I did and wouldn't find anything. However, this is something to keep in mind for the future.

Thursday, February 10, 2005

House 4 Out Of Play For Me... But You...?

Got a counter for House 4 today. I've decided to pass on this one, so here's the details:

Recall this was a preforclosure that is scheduled for auction in April. Based on my educated / calculated guess at the interest rate and an amortization table, I figured the owner owed about $47K.

FMV: $62,000
List Price: $57,000
My First Offer: $42,000, all cash, 2 week escrow

Counter Offer: $55,000

My (informal) Counter Offer: $45,000, I pay all closing fees

I say informal because I didn't bother writing this up. I just called the agent and spoke with her. When I gave her my counter offer, she said it wouldn't fly because the mortgage company added on all sorts of fees and the loan payoff amount was up to $50,000. Then she played the age card, saying the owner was an old lady and couldn't just be kicked out without anyplace to go, so I'd have to pay more than that. And I agree that she shouldn't be kicked out on the street. However, I can't make a flip work paying 89% of FMV. Maybe if I was looking to rent the place out, I could have done something. I wished the agent well and we had an amicable parting.

If anyone looking to buy a rental unit in Phoenix is interested, drop me a line at 10thAvenueInvestments at Cox dot Net and I'll pass along the property info and all the info I uncovered in my research for a tiny finder's fee. It's a one bedroom condo in a really nice development with a pool and the whole development, including carports, is fenced. With a 20% down, 6%, 30 year loan and rent of $650, I think you could get a 25% return. I will only sell this info to one person, so if you buy it, you don't have to worry about me selling it to your competition.

More About House 5

I was running short on time yesterday and forgot to mention something about House 5. While doing title research, I discovered the HOA placed a lien on the property. The lien is for about $700 plus $130 a month going forward from November. Now this is where it gets interesting. Follow me on this...

The owner, we'll call him John Doe, died. On 11/18/04, the personal representative of the estate of John Doe signed a Grant Deed In Lieu Of Foreclosure giving the property back to the bank rather than go through the foreclosure process. This deed was recorded on 11/30/04. On 11/19/04, the bank executed a substitution of trustee, changing the trustee from a title company to a loan servicing company. This was also recorded on 11/30/04. On 11/22/04, the loan servicing company granted full reconveyance to "the person or persons legally entitled to" all interest in the property. This was also recorded on 11/30/04. I take this to mean the bank has obtained the property in lieu of foreclosure and now the borrower (John Doe) is released from obligation. Finally, the bank then transferred title via grant deed to the Veteran's Administration. Interestingly, this document was recorded on 11/30/04 BUT... There are NO dates on the document as to when it was actually signed! There is no date when the bank representative signed and, even more amazing, there is no date of when the notary signed! Given that it was recorded on 11/30/04, I think it is safe to assume it was signed prior to that date. So at this point, the VA owns the home and, in fact, they are the ones currently selling it.

But.. on 11/23/04, the management company for the apartment complex where this property is located filed a lien against the property for about $700 plus $130 a month each month after November, 2004. The lien was made stating John Doe as the owner. This document was recorded on 12/6/04. So when the lien was recorded, John Doe was not the owner. There is no subsequent document recorded declaring this lien void or released.

Now if the property went to foreclosure, the lien would have been wiped off. But, title was transferred in lieu of foreclosure, so that doesn't apply. Additionally, the lien states the incorrect owner. So is it a valid lien?

The total amount of the lien is currently about $1,000 and I assumed in my offer price that the lien would have to be paid off, but I wonder if it really would. I suppose this is a classic case of a clouded title.

Wednesday, February 09, 2005

Houses 4 and 5

Made two offers today:

The first was to a condo in the same development as House 3. This condo was not a foreclosure, but it is in the preforeclosure stage. The auction is set for April and the MLS listing says time is of the essence. I did some research and based on the monthly amount and starting loan amount, I reverse engineered the interest rate, then ran an amortization schedule to figure out about what she owes now. (The loan was obtained in 1999.) Faxed the offer today, which was $15K below the asking price. The agent called and said she didn't have the payoff amount yet from the bank and she'd get back to me. She asked how I came up with such a low figure. Rather than tell her I made a rough guess at what was owed, I said it was the minimum I could pay that would allow the deal to be worth my while, given closing costs, rehab costs, etc. I said I'd waive an inspection (except the termite inspection), and reminded her this was an all-cash offer, and I was offering a short escrow. No lending approvals to worry about, short sale time. Those are pluses in this situation. I gave her until Friday to respond, which she thanked me for. She said most people want a response within a day.

House 5 was an apartment that is a VA foreclosure. I checked the place out at lunch today and it is in surprisingly good shape. I put in a bid below the asking price, but relatively higher than I would had it not been in such good shape - about 15% below. The asking price was close to FMV anyway. I had heard from the listing agent that bids had been received on this property but none had been accepted yet, which was another reason I stayed a bit high. I think the fixup costs will be relatively low.

Tuesday, February 08, 2005

House 3

House 3 is actually a small condo - 1 bedroom, 1 bath. It's in a complex of 36 condos that has a pool and a big grassy area in front. The complex is totally gated and is pretty nice and well-kept. The neighborhood isn't too bad either, but there are about 4 other units for sale in the complex. I was able to get in the complex (the gate opened as a car drove out and I waltzed in) and peek in the windows. The property looks to be in good shape. The toilet and sink/vanity were out in the living room though.

Spoke with the listing agent this afternoon and he tells the unit has been vacant about a year (some research shows the original owner died and it went into foreclosure). The toilet was pulled out by the HOA because it was leaking. He claims the plumbing is good and the items just need to be reinstalled. (So why didn't they just turn off the water instead of ripping the things out?) Similarly, the vinyl flooring in the kitchen was pulled up because the refrigerator was leaking Freon. The HOA also put a lien on the property for unpaid HOA fees, but that was recorded after the mortgage, so the mortgage foreclosure has wiped that lien away.

The agent tells me units sell in about 2 months there, mainly because they are 1 bedroom, not 2. This particular unit has been on the market a while and never sold because the initial price was too high. It's been lowered about $15,000. The agent tells me he's gotten lots of calls on it and he expects it to sell quickly. I'll be making an offer on this property and maybe one or two of the others as well.

I'm not giving all the details here (like my offer price) because this is a VA foreclosure, which means it's basically an auction and the highest bidder gets the property, so giving out my bid before the close of the auction would be counterproductive. If I get it, I'll post full details.

Friday, February 04, 2005

House 1, Offer 1 Again - Made This Time

Well, after finding the VA forms on the internet, I realized that the offer period was still open on House 1, so I might as well make an offer! I just submitted an all cash offer for a bit less of the asking price. I also included the letter from my bank showing I had the funds available.

While searching for the VA forms, I also came across the instructors to the listing agent from the VA. One of the things they say they require is that the agent collects the earnest money from the buyer when the offer is accepted. I can't really believe this is done. I mean, the agent collects checks from everyone making an offer, than returns them to all those whose offers weren't accepted? Seems like a lot of busy work to me. I think what happens in reality is that the earnest money is collected when the offer is accepted or when / if the VA counters back with an offer.

Update: Just got a call from the listing agent and he told me there was "a lot of information missing." He claims the VA requires that I use an agent, so I have to fill out that section of the form. No big deal. I'll put down my agent's name. He also says the back of the form needs to be returned. (The back is page 2 of the electronic form.) This page is pure text with no spaces anywhere to sign. He says I need to initial paragraph 9c,which states the buyer will pay for title checks. I also need to fill out the sales commission section. This is typically 6%, but must be at least 3%. Since my agent charges me only 1%, this means my commission costs will be 2% less than the typical bid, which means more money to the VA, which could improve the chance of my offer being accepted.

VA Forms

Well, after that listing agent wouldn't give me the VA purchase offer form I need to bid on House 1, I decided to look for the forms on my own. Sure enough, they are on the web. You can find them at The one to use for making an offer is form 26-6705. These are PDF documents with fillable fields, meaning you can type stuff in and print it out so it looks nice and neat. There is also an addendum form. It's not clear if this has to be included with offers, but it wouldn't hurt.

Thursday, February 03, 2005

House 2 Already Sold

Just got the call today that the property was sold.

House 2

I get an email from a company here in Arizona that buys foreclosures and resells them to investors. They had just purchased a single family home with 1,167 square feet, built in 1983. They are selling it for $106,000 and the FMV is $135,000. They included a picture of it in the email and it looked quite nice. I didn't get the email until last night, so it was too late to go look at the property. I did some basic research on the owner and found out the owner hadn't paid his mortgage since March, 2004. The property was to go to auction in August and that was cancelled because the guy filed for bankrupcy. The property ended up going to auction yesterday, Feb 2, 2005.

I did something that should probably never be done and definitely should never be done by new investors - I made an offer on the property without looking at it in person. I did this for a couple of reasons. First, I know one of the principals of this company - I used to work with him before he got into real estate and he was the one who got me my first rental house (also a foreclosure). I know he does his research and buys good properties. Second, this company operates on a first come, first served basis and their properties usually sell quickly. Most of their properties are sold about $20,000 below FMV and this one was $29,000 below FMV. They take bids initially via email with the first buyer getting the house. I read the email 1.5 hours after it was sent out. So given the high instant equity and the time between sending the email and my reading it, I decided to make an offer. (Which isn't really an "offer" in the typical REI sense. This company lists a sales prices and that's it - there's no negotiation.) Their office opens at 9 AM this morning, so I should hear if I got the property shortly after that.

This morning, before going to my day job, I took a drive to the property and checked it out. (It was vacant and on this company's master key, so I could get in.) It's always shocking to see the condition of a foreclosed house and this wasn't any different. There was random broken furniture left in the place. One side of the sliding glass door in the kitchen had been removed and a large china cabinet was moved in front of the opening to block it. It looked the like place had been vandalized because almost every light fixture in the place had been removed. The oven and refrigerator were still there, but the microwave over the oven was gone. The kitchen cabinets looked a bit beat up. The walls throughout the house looked like there was wallpaper on them and it had been peeled off. The doorways to the bedrooms had the doors removed and the doorframes taken off. The bathrooms, surprisingly, weren't too bad. The toilets need to be replaced, but the tubs looked good. Cabinets were ok in one, but so-so in the other. One room was a baby's room and there was still some animal wallpaper up. Of course, carpet throughout the place would have to be replaced. The garage looked like it was being used as an extra room in the house. There was no garage door opener and several sheets of drywall were leaning against a wall. Strangely, it looks like the door to the garage (for people, not cars) that leads to the outside was boarded up and fixtures for a washer and dryer were put in. Another doorway led into the house and that door was also removed. Weeds ruled the front and back yards, but there is a nice big tree in the front. Of course, all utilities were off and, since it was still early, it was dark and I was using a flashlight to check things out, so there might have been some things I missed. The neighborhood looks pretty nice.

There's a lot of work that needs to be done. At first glance, I was sure I made a mistake by making an offer. However, looking at things analytically and cataloging all that needs to be done, I think it's not too bad. I estimate about $10K - $15K to fix it up. After fixing and selling and paying commissions, I could make about $10,000 on the property. Assuming I was the first bidder, that is.

Tuesday, February 01, 2005

House 1, Offer 1 - Not Made

After speaking with the listing agent, I decided not to make an offer on this property. There are a couple of reasons for my decision:

  1. This is basically an auction, with the highest bidder getting the property. My offer was going to be way below market value, so odds of me getting the property were low.
  2. Since this was a VA home, the offer needed to be made on the VA forms and not a standard real estate offer form. The forms were available inside the property but since I was not using a Realtor to buy this property, I did not have access to the inside.
  3. The listing agent did not want to act as my agent as well because that would require me to fill out a form that stated I knew he was acting as an agent for both buyer and seller. He didn't want to do this. (I guess filling out the form is not worth doubling his commission on the sale.) Because he wouldn't do this, I didn't have access to the inside of the house to get the forms. My Realtor lives about an hour away and I didn't see any point in making her drive out there just so I could submit an offer that had almost no chance of being accepted.
Before I made the decision not to pursue this, I did call my bank to get the letter the VA requires of cash buyers - a simple statement from the bank showing I had enough cash in the account to cover the offer. Within 5 minutes of making the call, I had a fax from the bank. I didn't realize they would do this and this is a useful thing to know for future offers. If I were dealing with a distressed owner of a property, that letter would be powerful evidence that I could close quickly.

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