Friday, May 09, 2008

Update On Everything

I've been remiss in posting the details of what's been going on with my real estate investments, so here's a catch-up post.

I've decided to sell Rental #1, since it seems no one wants to rent it and it's in a bad part of town. My new PM company figures it needs about $1,500 worth of work to get it ready to sell. The new company is set up to accept payments over the internet using That service really seems to be geared more towards tenants paying rent than owners getting funds to managers, but I was willing to give it a shot. Unfortunately, the managers need to set up the people who they accept payments from before you can make a payment and they have not set me up yet. Since I wanted to get the repairs going as soon as possible on the property, I just mailed the PMs a cashier's check for $3,000. That should be enough to cover the repair costs and the $100 a month management fee they are charging me.

I've signed a management agreement but have yet to sign a listing agreement. The PM company has requested the last two appraisals I had on the property to assist them in setting the price. I will almost surely have to sell this property at a loss and it will most likely be to another investor. The neighborhood is 63% absentee owner. 80% of the rentals have rents under $499. Given that I had the place rented at $750, I do have some doubts about the validity of this data, however.

My first multi-unit investment is once again on track to close at the end of this month. After missing a couple of earlier escrow closing dates because they didn't have enough money raised, the prinicples finally have all the funds needed. Our loan interest rate has been locked in at 6.15%, which is higher than the 6% the original proposal used. During the extended escrow period, we have been getting copies of the financial statements each month to monitor the performance and the property is showing gains. The principles feel the pro forma goals can still be met, even with the slightly higher interest rate.

And finally, the last week of this month and the first week of next month, I will be out of the country on a two week European cruise! Woo-hoo!


Clifford said...

That's too bad about Property #1.

But the cruise will make up for it! Are you going around Italy? Greece? All points in-between?

Shaun said...

I'm to spend a couple days in Italy around the Vatican, then board the ship. It's a 10 day cruise to a couple of places in Italy, Spain and one or two other countries I can't remember :-) My first cruise! I'm really looking forward to it!

Starsky said...

Hey Shaun,

Hopefully going forward in your investing career, you will not make naive statments like this-

"The property has recently been completely refurbished, including all new appliances. The only maintenance that has been needed so far, according to the current owner, was a new mailbox which cost $60. So I am not really including any maintenance fee in my calculations. This isn't to say I won't start building a maintenance reserve fund, though. I just happen to have a very detailed history of the property :-)"

Or this -
"I did not include vacancy costs in my original calculations. The owner says it rented really fast and I am not too concerned with long vacancy times. I know, the more conservative of you will disagree with me on this point and, for other properties, I would also agree. But this one is in really nice shape and I don't see it taking long to rent."

Perhaps a blog post should be in order about your missteps with "rental#1" It would help out us newbies and experienced alike. I noticed Doug-O who was a cheerleader of this deal hasnt commented about it. Neither has Trisha??

I wish you the best on your trip, Im looking forward to visiting Spain soon. Vegas was fun btw.

Bon Voyage,

Shaun said...

Quote #1: So you expect that after tenants live in a property for a full year, there will be no damage? You think a property that has been empty for 6 months won't experience damage due to vandalism? And yes, I did start building a reserve while the place was rented.

Quote #2: Yes, I should have included vacancy costs in my calculations. But even had I done so,I would not have included 6 months worth. Neither would you. If you plan on 6 months vacancy for any property, you will never find one that cash flows. My mistake was not knowing the area well enough.

Yes, a blog post about the missteps will be made once I am completely done with the property.

Starsky said...

Hey Shaun,

To answer your answer to quote 1 & 2,
This statement you made previously is what really sticks out in all this.

""I did not include vacancy costs in my original calculations. The owner says it rented really fast and I am not too concerned with long vacancy times. But this one is in really nice shape and I don't see it taking long to rent."

So see its not that it took so long to rent & it was left vacant and vandalized, Its the fact that "the owner" told you it rented "really fast" Most experienced investors know that despite the pro forma numbers from the owner and statements about no vacancies & cherries on top, that you have to conduct your own independent due diligence despite being friends etc. At the end of the day, its business not personal & I think this rental 1 became slightly personal due to your"friendship" In the end, she gained & you lost. Its unfortunate. But like you said, money is a renewable commodity so you will make it back eventually.

Bon Voyage

Doug said...

Hey, I've actually been out of it for several months since I've moved to property management full time myself, so that's why no comments, Starsky..
At any rate - I still stand by my comments about being able to make most property work... Particularly after having taken over management of several 'ghetto' properties local to me for hands-off owners... It's really a matter of who is handling the properties for you and whether they are competent and treat their customers equal ...
Unfortunately, this sounds like a case where the manager is simply not interested in investing the time to properly take care of the home... Sadly, this is not uncommon, particularly when dealing with single family homes... One of the hardest things about owning property absentee is finding a competent manager who can take care of things at a level you are comfortable with while you are not there..
I handle several properties where I don't think the owner has visited in at least the past 3 years.. Never any problems like those mentioned here, but that's because the routine maintenance is taken care of and the properties are inspected regularly...

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