I had another sit down meeting this past weekend with a prospective private lender. They are interested and want me to present my deals to them as they come up. This is GREAT! I'm not 100% sure they will commit to lending but they did not say no. That is fantastic in my book.
Both of the closings for our HUD properties are set for next week. We hit a snag with the same one that fell through last month. Of course this did not make me happy but we're working through it and I'm hoping and praying it closes successfully. I have all my money out again and am really tight financially until these properties close. I do not like being in that predicament. So far so good and you'll be the first to know if it falls through!
I have been analyzing our business again as I look towards making my early departure next year. As you know I have not had an accepted offer on a wholesale property in months which means I would not have a profit in... a while. I cannot let this happen when my sole earnings will be real estate. So as I thought about the properties I'm going after it occurred to me, "hmmm if my exit strategy on this property was a lease/option I would be able to purchase it, make a nice monthly cash flow and get option money". The more I thought about it the more I liked that idea. If I had, say, 10 houses with $300/mo minimum cash flow I would be come close to replacing my income. I would also have the option money and, finally, if and when the options are completed we would have a big pay day in the end. So, it all sounds great EXCEPT I hate, hate, hate being a landlord. I know this is a bit different in the sense that all the responsibility goes to the tenant but... I don't know. I feel like I keep coming back to the lease/option niche and really feel like this is the direction I need to go in order to make my future happen. Of course I would always wholesale properties between L/O's which would also add to our cash flow but I just don't think I can soley count on wholesale deals.
The property I am looking at is a 3/2 Tudor style house in a great neighborhood, near lakes & golf course, close to the IL border, etc. The house is mostly updated (kitchen, flooring, baths), had a new roof in '04. What is needs is a new well drilled, new windows and major landscaping. It also has a stucco exterior which I've read could cause problems. Right now I could get the house for $59k, I want it for $55k if I'm going to L/O and $45 if I am going to wholesaler. Back in '07 it sold for $200k+... amazing, huh?! There have already been some other bids on the property so I'm pretty sure it's not going to sit much longer. At any rate, I could lock up this property, get a new well drilled for $5k, update the landscaping and then L/O for $125k, I think. I love this house, it is really cool. This is all based on an inspection coming back clean, of course. Soooo, I'm thinking of trying it on this house and see how it all goes?
Received my Insanity workout over the weekend. I started it on Monday and have completed 4 workouts. I'm very, very sore and hate getting up at 4am to do the workouts BUT I am committed. My starting weight is 152 and I'll post my progression.
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8 comments:
Hello Eileen,
I have been following your blog for a while now and really enjoyed your interview with Steph!
I am just starting out and have really been inspired by what you, Steph and Nate in Wisconsin have been able to do with wholesaling.
I have a home under contract and I am trying to wholesale it to an owner occupant. This is my second deal ever - my first was a lease option. If I can't sell this one I will try to do a lease option on it as well. L/O's have a lot of great advantages but I also understand your hesitancy in regards to the landlording.
I have felt like a landlord for the first two months of my first L/O deal even though the tenant/buyer is responsible for all repairs. I've had several calls and had to deal with the "homeowner shock" that comes along with someone used to renting become a tenant/buyer that has to handle repairs on a home. It has been a great learning experience though and all in all not that bad. It just gets stressful at times since I work a full time job.
Good luck and I look forward to reading more about your deals in the future...
Shawn
Hi Shawn! Thanks for reading the blog, it really keeps me going! Yeah, wholesaling is fantastic and really can make you a lot of money in a short period of time but it could also make you nothing. This is the problem I have with it and why I am looking at L/O's again (along with wholesaling). Well, also because I'm getting private lenders on board. I have a rental property now and really couldn't ask for better tenants BUT there are legit reasons for them to call and it is so bothersome : ). I also had a couple condos rented last year with their own set of issues. I guess the option money really appeals to me with L/O's. I'm looking to get $5k option money on $125k houses. Hell I made that on some of my wholesale deals (and less... like lost money!). Do you mind if I ask you some questions??
Did you try to sell the first property and then did the L/O? How easy was it to find a tenant? How much option money did you require? Did you have them sign something that says they are responsible for repairs/maintenance? When they call how do you let them know that it's their issue now? Where did you get your contracts? I'm sure I will have a ton more questions when I actually get going on this. I'm sure it won't be that bad after a few houses?!?!? Ha, ha.
Anyway my email is eobrien15@yahoo.com if you ever have any questions about anything. I'm also going to apologize for my spelling errors now. I'm on my phone and cannot go back to check what I wrote... BTW, where are you from?
Hey Eileen,
Way to go on the private lender appointment! I'm really close to securing my first one too -- I will know on Monday.
I personally think you're thinking in the right direction as it pertains to having a mixed strategy of lease options and wholesaling.
One of the things that has been really great for us as landlords is having a trusty handyman who is quick to handle problems for us. Within 48 hours we can get him there and its no big deal. Of course we've dealt with larger issues like termites...but...nevertheless...we're talking about cashflow here and this is a solid way to get it done.
Glad to hear your other deals will be closing shortly! Have a great weekend :-)
Thanks Shae! We actually have a handyman for our current rental. He kinda fell in to the position and has been really great. I know, I have no reason to NOT like landlording (great tenants, handyman, etc.) but I just don't. Oh well, I think lease optioning is the direction we are going to take while still wholesaling. I will just have to get a routine down with renting them out and move on from there.
How many rentals do you guys have?
Since we sold the townhouse we only have one SF now...waiting to get the signed contract back on another now (owner is on vacation). We're looking to get to 5 as soon as possible and then we're working to pay them off (via the wholesaling and short sales) to maximize our cashflow and minimize debt. Once we've done that, we'll either rinse and repeat with another 5 houses or look into multi-family/commercial.
That's awesome Shae!! Good luck on your contract and your private lender!!!
Eileen,
I'm from North Carolina - live just north of Raleigh in a fairly rural area. There are tons of doublewide foreclosures within 30 mins of my house so I am focusing on those type of properties.
As for your questions here ya go:
Did you try to sell the first property and then did the L/O?
Yes I marketed it on Craigslist and did a flat fee MLS listing. I only have a few showings from the MLS but a TON of interest in the Rent-to-own ads.
How easy was it to find a tenant?
It took me around 5-6 months which was much longer than I thought it would. A lot of that was learning how to properly screen tenant/buyers in order to find someone who will actually be able to qualify for a FHA loan after 1 year. It was very tough to do since credit score requirements have gone up so much. I also had to establish a few good lenders and find out their requirements so I would know what to look for in a good T/B.
How much option money did you require?
We asked for $2,500 down and finally got that. Many potential T/B's would have some money so we were willing to work with them if they had at least half of it up front.
Did you have them sign something that says they are responsible for repairs/maintenance?
Yes! It is worked into the Option contract that the T/B was responsible for each incident of a repair up to $2,500. If it is more than that we are willing to work with them (either just pay the difference or pay it and add it to their rent or purchase price). We go over that aspect many times to make sure they understand it and also understand the home is As-Is.
When they call how do you let them know that it's their issue now?
That's been the hard part on this first deal. The T/B had only been in the house for a few days and called me saying the shower and toilets were all backed up. I got really anxious and got advice from my mentors and we covered the cost to clear out the line. So then a month or so later I get a call that the AC isn't working and at that point I told them we went over in the contract that they take care of repairs and the home was As-Is. They weren't too happy but it ended up they only needed to switch the breaker and it was good to go. I've learned there will be a process of helping a T/B break the renters mentality and move them to a homeowners mentality during the L/O.
Where did you get your contracts?
My mentor supplied me with the contracts they use so I would definitely find someone doing L/O in your state and see if they will share them with you.
If you have any other questions just let me know! My email is dashh1@gmail.com
Really nice information, Thanks for sharing it.
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