Hakrjak's Guide to Real Estate Investing

Closed on the Quad house on Tuesday, and the final numbers show me losing around $5k. I paid everything off, and have some money left in the bank, but not a lot -- So I'm going to regroup for 2010 over the next 2 weeks and come up with a plan for the new year. I'm thinking it would be safer to save up around $100k before I start flipping again, just to make sure the cushion is there. Fear not, I will return.

Cheers,

- Hakrjak

Well, while I was out of town for my Honeymoon -- I finally got a contract on the place. It's not the greatest, and the final numbers show me losing about $5,000 (Unless the buyers try to beat me up severely on the inspection report) -- but at this point I'm glad to get rid of this place. The deal should be closed before Christmas, so I'll be able to write the loss off of this year's taxes -- and most importanly I'll be able to get some of my money back out of the deal, pay everything off, and stop paying these insane interest payments every month.

Once this deal is closed, it will be time to re-evaluate the business, re-evaluate goals, and regroup for the future. This will be the first deal I've ever lost money on -- and as someone posted in a comment on my last blog --- I need to learn from this, and not let it deter me from future deals. It's not like Donald Trump has never been involved with a bad deal, or never lost money on a deal... Tomorrow is a new day, and lessons that cost you money are sometimes some of the most meaningful lessons to learn.

Cheers,

- Hakrjak

Well, since the "buyer" dissapeared on us -- I've had some tough decisions to make.  I've never lost money on a flip in the history of my company, but this might be the time when I have to break that perfect record.  It's either that -- or risk losing a lot more in the long run, depending on how much longer I end up having to hold this property.

In the past few weeks, I've been hoping that I can still eek out a profit on this one -- as I've been slowly and gradually dropping my price on average about once per month.  The carrying costs have slowly been eating into my savings as well during this time -- hemmoraghing about $1300 per month in carrying costs.  If this continues, I will be completely broke and borrowing on lines of credit to just keep the lights on in about 2-3 more months.

With this in mind, I've decided that it's foolish to let my pride cause me to risk bankruptcy over such a relatively small amount of money.  After hearing a story from a friend of mine yesterday about how one of his associates lost $60k on a real estate deal earlier this year -- My possibly losing $5k or $10k seems relatively small.  It seems especially small when you think about what my excellent credit is worth in the long run.  If I leave a blemish there -- it will take 7 years to recover, and my Real Estate company will essentially be out of business.  If I'm able to preserve my credit, even though I'll lose money in the short term -- I can build my business back up when the economy is doing a little better, and I can make a lot more than $5 or $10k.

So with this decided, I've gone ahead and dropped the price of the flip to under $100k -- at a $99.9k price point.  This is about $25k below where we started listing it back in June of 2009.  I feel strongly that being priced under $100k should bring out all the buyers, because there is absolutely nothing even close to this price range that is anywhere close to the quality we have provided.

Wish me luck folks...  As Alec Baldwin's great character says in the classic film Glengary Glenross, "It's Fuck or Walk"...

Well, the Real Estate business can be a harsh Mistress.  Just when I thought we had a buyer and we were getting rid of the Quad house, it looks like she's going to let this deal go.  She originally agreed verbally to my counteroffer, but she told her Realtor she wants to look at 2 additional properties.  Her Realtor called us and said don't worry, these other houses are crap -- she'll be back to take yours and submit the agreement to your counter in writing by tomorrow.  We haven't heard anything since.  Just waiting and hoping, but I'm not counting on anything at this point.

Some tought decisions are going to have to be made if this house doesn't sell soon.  I'll need to borrow about $70k from somewhere just to consolidate all of my bills on this one, so that I can hold onto it as a rental for the forseeable future.  Trying not to think about that yet, but knowing it's a possibility.  My business might be put out of business for awhile after this one.

- Hakrjak

So the buyer came back and we now have a verbal agreement for $104k as-is, down fro my ask of $105k...  This is good news for both of us, since I'm ready to move on to the next deal and I know she is not going to find anything else this nice in the price range.  So I'm waiting on the paperwork to make it final....

In the meantime I'm thinking about how to build my business stronger for the future.  It seems like if I would just have more cash on hand, I could really boost my success rate exponentially.   I need to be able to do multiple flips at once, and I need to be able to hold houses for extended periods of time when I need to.  One of the things that has cut into my profit margin so bad this last year has been that I finish a house, and then I'm desperate for money so I sell the house too soon for too little, and walk away with not enough profit!  That has got to change in the future.

Problem I'm seeing is -- there still are not any lenders willing to write easy loans to investors like me.  I may need to investigate another route.  Maybe do a public offering so I can get some investors together to pool their money for me to use.  Other option might be taking on a wealthy silent partner who would put up their money to buy the houses in exchange for 50% of the profits.  Something like that could be a real win-win situation.

The wheels are turning!

Cheers,

- Hakrjak

House is now listed for $105k, down from $120k -- and the offer comes in at $95k w/ $500 towards closing costs.

Can you say SUCK IT LOSER??? haha... Sorry, but I am already willing to sell this at my cost and work for free the past 6 months -- Now you want me to pay you to buy the house?  No thanks...

I countered at full price, but the bidder apparenly flipped out on her agent and said no way will she pay over $95k.

Next!

Cross your fingers for me that it's a good one... I can't afford to negotiate much on my asking price, so I'm hoping this is not some Jackass who see 150 days on market and thinks he can make a lowball bid.

- Hakrjak

I dropped the price to $105k on the 1st of October on the advice of some buddies in the investment club who said, "Just drop it to break even and dump it -- Get your money out and try again somewhere else!"

I've had showings about every other day since I dropped the price to $105k, but still no takers!  Going to leave it on the market until November 1st and then I'm considering putting a renter in on a 6 month lease so I can re-list it in the Spring time and try again.

The amount of stress I'm under right now is pretty unbelievable.  Financially we're barely hanging on, and I think my household budget is actually in the red by $200-300 per month while I'm still making payments on these lines of credit for this flip.  What looked to be a no-brainer when I bought the place (To go ahead and pay part cash, part lines of credit) is turning out to be a major pain in my ass.   I called several bankers last week asking if I could just take out a 1st mortgage on this house to consolidate my debts into 1 low payment loan -- and they all scoffed at me.  Even though I've got perfect credit, good income, and I technically own this house outright -- they will not loan me any money!!!

The credit situation in this country has never been worse than it is right now, from my standpoint.  If things don't loosen up soon -- I forsee lots of small businessmen like myself in the Real Estate business being put out of business.  The ridiculously regressive policies of Fannie Mae and Freddie Mac are not helping either.  Sounds like one of the reasons I can't get a loan is because of a new Fannie/Freddie lending rule that says, "Investors shall not be allowed to do cash-out refi's until they have owned a property for a period of 1 year!"... Are you F'ing kidding me???

Cheers,

- Hakrjak

I cut the price this week to $109.9k...  Down significantly from our original ask of $119.9k... My Realtor graciously offered to cut his commission in half on this one just so we can get it GONE, and I accepted his offer -- So we've had 2 showings since the price cut, and are now in "wait & see" mode.  At this price I'm making less than $10k on this deal, which -- if sold -- would be the smallest profit I've ever made on a flip.  At this point I'm willing to just sell at break even in order to get my investment out and move onto the next deal.  My next blog entry will not be until I have a contract!

Cheers,

- Hakrjak

Welp -- Had another great showing this week...  The buyers called down to my Realtor saying that they were qualified for $115k already (Our listing is $112.5k) -- and they having been looking at condos.  My flip is 100X better than any condo you'll find in town, and there are no HOA dues and low taxes, so it sounds like a slam dunk!  They viewed it on Friday, and I haven't heard any news yet.  Not feeling a great deal of confidence though.

Trying to keep from losing hope here...

I spent some free time this week putting together a video tour of the place, and got it posted in all of our Craigslist ads and elsewhere.  Doing anything I can do at this point to try to increase foot traffic.  I feel like we have been as aggressive on price as we can be.  We're already priced close to $15k less than previous sales we've had in the area.... and THEY say that things are picking up?  What gives!?!

- Hakrjak