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BeExcellent

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Agree it's a different animal if you already own the land.

Ok cool. You sound like you are aware & prepared however this breaks. So you just need to decide what makes the most sense within the specifics of the matter.

Be aware that if you get into a squabble there about whether or not the next level of funding occurs (or release of monies already escrowed or otherwise set aside) and if you successfully block that funding...you may be at risk for them to try and attach or lien your property or cloud your title or suing you.

If I owned the land I be circumspect about what the most nasty options of the other side are because if they had the ability to create problems for me those problems could be expensive to solve.
 

guru1000

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Agree it's a different animal if you already own the land.

Ok cool. You sound like you are aware & prepared however this breaks. So you just need to decide what makes the most sense within the specifics of the matter.

Be aware that if you get into a squabble there about whether or not the next level of funding occurs (or release of monies already escrowed or otherwise set aside) and if you successfully block that funding...you may be at risk for them to try and attach or lien your property or cloud your title or suing you.

If I owned the land I be circumspect about what the most nasty options of the other side are because if they had the ability to create problems for me those problems could be expensive to solve.
Very true mechanic's lien will encumber title, accruing jurisdictional interest in the waiting, and will be paid upon any refi or sale. Further, if you are dealing with an astute contractor, in most jurisdictions, the contractor can foreclose on the property!

BE and BTC, I'm sure you'll appreciate this:

A homeowner had a property encumbered by a mortgage, which was significantly delinquent, and the property was upside down (mortgage > value). The owner simply wanted to dispose of the property and walk away. In furtherance of the problem, a contractor had slapped a mechanic's lien on the property. And as the homeowner was delinquent in taxes, the property was further encumbered by various tax liens. Most investors wouldn't give this type of scenario even a first look.

First, I called the mortgage company and negotiated a buy of the Note at a steep discount (significantly below the property's appraised value) by pointing to possible discrepancies in the chain of title that could potentially hurts its standing (to foreclose). As the new mortgage holder of a delinquent mortgage (1st lien position), I then foreclosed on the property with no adequate bids (original mortgage balance with accrued interest & atty fees) at auction, wiping off all liens and encumbrances (mechanic's and taxes), for a free and clear referee's deed.

Took a few years, but def worth the effort.
 
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BeTheChange

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Thank you guys.

I will do what I can to get the reservation fee back, which represents around 10% of what the total outlay would have been (deposit, taxes, bank. surveying and legal fees).

It appears this may have been a blessing in disguise, as the total outlay required would have exhausted all my remaining investment capital and as a freehold new build property development the majority of the value would have been actualised by the developer with very little add on from my end.

If my contact is to be believed then there has been some significant value enhancement on the current refurb I am doing. I will have a better understanding when I go to visit the site over Easter. If that's the case and a surveyor can confirm this, then it would make more sense to focus on this end of the market and allocate my capital to this area so in the long run, given the potentially higher returns, the loss may in fact be worth it, if it has prevented me from taking part in this investment.

I have also managed to win a new piece of work from a client who requires my services throughout this month and May so should see additional cash coming in.
 

BeExcellent

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As you go along in life you'll find more and more that you in the "Solutions" business.

You can amass substantial wealth in the "Solutions" business, particularly if you address problems and issues that scare off the competition. Guru's example illustrates this nicely :)

You'll also develop a sense of which issues are not worthy of a solution. Only deploy resources to solve things that are worth solving.
 

BeTheChange

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Current renovation is coming to an end with the expectations that all structural developments will be completed by the end of this month. Meeting with a reputable agency that deals with foreign school I have connections with on Tuesday. Students from rich arab families mainly. They want to visit the accommodation and see if it is adequate to house their students. Likely to see c. $900 per student but costs would be higher than if I housed other tenants - e.g. expectations include one cooked meal a day, regular cleaning, bills inclusive, etc. Still a fantastic yield.

In summary: Purchased a foreclosed residential from a government housing association for $150,000 (£1=$1.25). Derelict and required significant work. Total cost will be c. $20,000. Some of the changes made include:
  • full roof repaired,
  • wet rot removed,
  • chimney stacks and breasts taken down,
  • wall and ceiling replastered,
  • lounge knocked through and closed up
  • dining room converted to bedroom (total 4 bedrooms) and an ensuite built in
  • total rewiring,
  • radiators (most) removed and flushed,
  • leaks in the heating system repaired,
  • eight double sockets put in,
  • light pendants changed
  • fresh piping run through the entire house
Manager has also arranged a meeting with an estate agent to get an idea of valuation and has advised landscaping on the garden and other cosmetic changes to maximise the selling price. Manager expects a selling price as high as $225,000, which would represent profit of $55,000 on a $30,000 investment (5% deposit and refurb costs). i.e a return of over 100%. Unlikely to sell if I can keep the tenants in, as yield is fantastic and I don't need the capital.

Still issues with the units being developed, which I've paid the reservation fee for. Sent a formal request for the return of my fee. Will keep fighting and try and be as much of a nuisance as possible but accepted that it may have to be a write off as I don't intend to spend any additional funds on lawyers to pursue it.

I have eyes and ears in regional cities seeking the next deal to replicate the above process. Funds ready to go.

Have kept up with reading the Greatest Salesman in the World. Missed maybe two or three readings, but going forward I'll endeavour to ensure I don't miss anymore.

Haven't found much time for the guitar or Spanish at all. Also haven't read any of HTMFIP. That needs to change. Intending to wake up earlier so I can fit in my morning read of TGSITW and then read HTMFIP after. Try and get as much out the way before work.

Have been reading the Intelligent Investor. Haven't really considered equities or bonds but after I've gotten one more real estate deal under my belt I need to really think about portfolio allocation. Ideally looking at:

  • Real estate - 60%
  • Equities - 20%
  • Bonds - 10%
  • Cash - 5%
  • Speculative investments - 3%
  • Gold - 2%
IF this deal does end up providing the value that is projected then it will see me hitting a six figure net worth...crazy when you think that in January 2015 I was living in my overdraft and had about $20,000 worth of debt. It's so easy to forget how far one has come. Hard work and self belief are the cornerstone.
 
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BeTheChange

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Edit: Success begets success. Stay positive.
 
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synergy1

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Intelligent investor is a great overview of the markets of the time. Many aspects of the market mentioned are still true today. If you want more information on particular securities, move up to Securities analysis ( by the same author). Its very dense, but will talk about certain types of securities ( fixed income, equity, etc). Its good to read once, but keep as a reference. Lets say you have an opportunity to take part , or invest in an entity that offers warrants, or some sort of convertible, you can quickly go back and read more about them.

I like your posts. Keep up the good work buddy.
 

BeTheChange

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"The only thing that I see that is distinctly different about me is I'm not afraid to die on a treadmill. I will not be out-worked, period. You might have more talent than me, you might be smarter than me, you might be sexier than me, you might be all of those things you got it on me in nine categories. But if we get on the treadmill together, there's two things: You're getting off first, or I'm going to die. It's really that simple, right?"

- Will Smith


Never lose sight out the ultimate goal.

To run the goddamn studio I work for. Scratch that. The entire media conglomerate. To do that I need to make it to LA. That is, ultimately, the first step. So until then, I put my head down and give my everything. So when that opportunity arises the only thing people will have to say about me is that I'm the hardest worker in the room.
 

BeTheChange

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Big news, @guru1000 @BeExcellent. Looks like the delays in the developer's deal was the best thing that could have happened to me as it freed up funds to purchase an absolute bargain of an investment, which I am confident will make significantly higher returns than the development would have.

The house next door to my refurb project, went on the market in mid March. It was gone within 4 weeks. My property manager kicked herself when she found out, as it went for $150,000. Similar properties on the street had gone for well over $200,000. We carried out some research, including:

  • Determining that the owner was fairly desperate to sell
  • Finding out that the buyer (a Jewish man) was intending to apply for planning permission to build a drive (my property has a drive, next door does not) which would cost around $13,000 due to digging up the ground, etc but would add significantly more in value to the property (which was already underpriced to begin with!)
  • Concluding that the Jewish man was very likely to be renting the property out to tenants
  • Visiting a number of real estate agents and letting agents to determine supply and demand for rentals framing the interactions as if we were prospective tenants. Many of them had zero properties available. In their own words "as soon as a property for let comes on the market it gets rented out immediately".
We knew this was an opportunity missed. Or so we thought.

The owner of next door came over this Saturday just gone to ask if there had been any mail for her. My property manager just happened to be around at the time, to check on the builders and she got chatting to the owner. It was then that she discovered the Jewish man was dragging his feet. We speculated that this could have been due to difficulties in gaining planning permission. On my behalf the property manager structured a deal that the owner withdraw from the process with the Jewish man and sell to us, on the basis that we offer c. $6,000 more than what she had agreed with him. We put in an offer for $156,000 and it was accepted.

I rushed to the bank and through a combination of luck and sheer willpower secured a mortgage and appointed a solicitor to get the ball rolling on the same day. The process has now begun so by the end of June I should have completed the purchase. Winner.

The property has:
  • One hallway
  • Two reception rooms knocked through to create a large open plan lounge/diner
  • Fully fitted kitchen
  • Three bedrooms
  • Large enclosed rear garden

It needs some cosmetic work, but is in otherwise good shape. Having two properties next to each other creates great synergies in terms of property management. The fact the area is popular to rent reduces the dangers of not having diversified. This is a major bet on a specific area but I'm confident in its success.

So by summer's end I'll have seven or eight rooms for an average value of between $450 - $800 per month depending on length of contracts and type of tenant.

This transaction has exhausted most of my available capital so I will need to focus the next few months on maximising rental income and rebuilding my cash reserves. I may also seek to take out a secured loan on the increased equity value of my current refurb project upon completion (expected end of May at the latest). Exciting times ahead.
 
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BeTheChange

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I will greet this day with love in my heart, and I will succeed

- The Scroll Marked II
 

BeExcellent

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Awesome. Success and motion attracts additional success and motion. Opportunity starts falling in your lap. You're learning to discriminate.

No worries being in 2 adjacent properties. Gives you greater control over values and rents in that micro area.

Do be wary of over leveraging. Debt is like a hot knife through butter enabling more & more deals in a fat market with high rental demand...

BUT

Debt will drown you like a 2 ton anchor tied to your ankle in a down market if you run high vacancy rates and can't carry your obligations.

Therefore you must wield debt with great skill and analyse your markets constantly to ride the leading edge of the trends.

I have friends whose debt forced them into bankruptcy because they over leveraged and failed to see the market course when it turned...until it was too late. So be judicious.

Remember the old financial market adage:

Bulls make money and bears make money. Pigs and hogs get slaughtered.

Also true in RE. "Be My Guest" by Conrad Hilton a good light read about business & the lodging business in particular.

Kudos & keep pedaling :)
 

BeTheChange

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Awesome. Success and motion attracts additional success and motion. Opportunity starts falling in your lap. You're learning to discriminate.

No worries being in 2 adjacent properties. Gives you greater control over values and rents in that micro area.

Do be wary of over leveraging. Debt is like a hot knife through butter enabling more & more deals in a fat market with high rental demand...

BUT

Debt will drown you like a 2 ton anchor tied to your ankle in a down market if you run high vacancy rates and can't carry your obligations.

Therefore you must wield debt with great skill and analyse your markets constantly to ride the leading edge of the trends.

I have friends whose debt forced them into bankruptcy because they over leveraged and failed to see the market course when it turned...until it was too late. So be judicious.

Remember the old financial market adage:

Bulls make money and bears make money. Pigs and hogs get slaughtered.

Also true in RE. "Be My Guest" by Conrad Hilton a good light read about business & the lodging business in particular.

Kudos & keep pedaling :)
I will need to check these out!

Debt is certainly a double edged sword and the interest expense alone makes up half of my fixed costs.

First property is finally finished. Spent the last two weeks furnishing the place and trying to get tenants in. I officially have my first tenant (Airbnb) who will be staying in June for a month ($1,200). In the process of securing my second tenant (spareroom) who will move in mid June for a period of 7 weeks ($1,200).

In the process of closing on the second property, discussed above. Very little work needed on this property. A number of international schools have also expressed interest.

The priority is now to get tenants in and fill the rooms for the summer (ideally minimum 3 month contracts), before I head to New York for holiday.

In the process of taking out deposit protection insurance, in respect of my third property, or should I say development (as currently the flat has not been built and the developer is stalling). That way when I transfer the deposit (so far only a reservation fee has been sent across, which is comparatively minor) I'll have security.

@guru1000 @BeExcellent Are you managing your property portfolios yourselves or are you paying a letting agent to help with tenants and upkeep? Perhaps, this is because I am still in the preliminary stages and there is a lot of work (setting up broadband, gas, electricity, water, finding tenants, etc) but it feels like a part time job! I am hoping that the effort will be worth it and I can eventually put the properties on autopilot and check in intermittently.

Work is going very well at the moment and the certainty of a paycheck allows me to take greater risks in my investment life. The 1 - 2 year plan is to:
  • Get all my rooms rented out with ideally contracts of 3 - 6 months +
  • After a degree of stability has been achieved remortgage / take out a secured loan on the first property to access the increased equity value from the refurb and capex
  • Use the funds to either purchase a third / fourth property or focus on the equity market to achieve a more balanced portfolio (currently at the latter chapters of the Intelligent Investor)
Set myself a goal. If I can have all seven rooms rented out at the same time for a consecutive period of one month (either actual or guaranteed through contracts) then I'm going to get myself a Daytona. My first big boy watch - currently rocking a $200 Armani watch :p
 
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BeExcellent

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Because of the travel intensive nature of my consulting business I use property managers. I am paying them a 10% month from gross rents IF rented. If vacant I pay nothing in mgmt fees.

Now management practices vary by locale. Many places you pay 50% to 100% first month's rent for tenant placement. I find that practice cuts too deep into returns (it also actually encourages turnover). So I interview managers before I will invest in an area. While nobody will ever manage your property as tightly as you will you can find people who will do a good job. I then manage my properties in tandem with my managers. I'm pretty hands on so to manage for me the manager has to be cool with substantial owner involvement & oversight. I am utterly direct about my expectations. If a manager doesn't like that then he or she isn't a good match for me (and they are also better set up to steal from you if you have little to no involvement or oversight.) Things aren't always perfect but I have great working relationships with my property managers.

My time is better spent finding deals & making money. I've used property managers from the outset. They occasionally screw up or cost me money...but so do I.

Some people are better off to manage themselves and keep the fees in their pocket.

You'll have to determine what works best considering your market, your niche, your financial and tax repercussions and your risk tolerance (because there are risks to consider).

I have holdings in two markets 800 miles apart so I manage remotely as a matter of course but that has its issues as well. When I am traveling both markets are remote so my set up works well for me but it's not for everyone.

Get with guru when you go to NYC if you can. You can learn a great deal from him. You ever get to AZ, let me know.
 

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BeTheChange

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Lesson of the day.

Property is an illiquid market. On a localised basis property is even more illiquid, making it incredibly difficult to determine accurate valuations, which are often lazily based on the most recent sales price. My mum told me a story that a few years back she was hoping to sell her home. The estate agent told her it wasn't worth more than c. $50k. There hadn't been any recent transactions. She looked at an area close by, where properties were selling for much more than that...and this was an area even more rundown. She told the estate agent she wanted to put it on for $100k. She was laughed out the office, but she did it anyway. Within hours she had offers at the sales price.

With that in mind, I have decided that I will not sell any of my current or future refurb investment properties for no less than:

(Purchase price + capitalised property costs + 25% profit margin) x CAGR of the higher of inflation and interest rates

Example:
  • Purchase price = $160,000
  • Capitalised property costs = $30,000
  • Profit margin = $190,000 x 25% = $47,500
  • 5 years since purchase with inflation at average 3% per annum, interest rates at 1%

($160,000 + $30,000 + $47,500) x 1.03^5 = $275,328

This applies to projects where large scale work (at least 10% of the purchase price) has taken place.

I can afford to be bold in my conviction because I will exploit my knowledge of the local area to choose locations that are great for renting. I will also ensure I hold sufficient capital reserves at all times so that I am not forced to sell in a weak market.
 
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BeTheChange

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Summary of latest project

Phase 1 – Renovation and Refurbishment

Status: Finished.

Majority of structural and cosmetic work now complete. The only thing remaining is the landscaping of the garden and the en suite in the downstairs bedroom.

The house was unoccupied while planning began and work was being performed from the beginning of January till the end of May.

Summary of costs
  • Purchase price ( c. $155k)
  • Banking, mortgage, legal and surveying fees (c. $4k)
  • Mortgage interest payable during unoccupied period (c. $2.5k)
  • Other bills e.g. council tax, electricity, etc during unoccupied period (c. $1.2k)
  • Refurb costs, including salary to builders and material costs (c. $20k)


Total cost: c. $182,000

NB Have not included the capital repayment of the mortgage, nor the deposit as these are not technically expenses

As a point of comparison, a similar property on the road sold recently for $220k so this is the benchmark. A similar sales price would represent a profit of c. $38k and a profit margin of over 20%. Had this been a conventional buy to rent with a 75% LTV the return on investment (ROI) would be nearly 60%. Compare that to an savings account where your yearly interest is 1% if you’re lucky. The nature of my financing means the actual ROI was closer to 250%, as I used very little of “my own” money. But this creative financing is more complex and requires a decent credit score and some financial planning. If you want to know more just ask.


Phase 2 – Hold

Status: Ongoing

Despite the increased valuation there are no plans to sell. Instead, the intention is to rent out the property. The gain, albeit unrealised, isn’t going anywhere. A lot of research was carried out to determine the strength of this area (ask for details), including looking at:

  • Location and proximity to major transport links including trams and popular bus routes
  • Likely rental demand – visited several letting agents to determine supply and demand for rentals framing the interactions as if we were prospective tenants. Many of them had zero properties available. In their own words "as soon as a property for let comes on the market it gets rented out immediately".
  • Establishing and solidifying relationships with key organisations able to supply regular tenants (ask for more details)

In terms of numbers:

  • Furniture costs (c. $4k)
  • Expected income ($2,000 pcm) based on three large bedrooms and one single room at full occupancy at discounted fees. Note that the three large rooms can be rented out for $650 pcm so these expectations understate the true rental value when fully occupied (over $2,400 pcm)
  • Expected costs, including mortgage interest but not including capital repayments ($1,000 pcm)
  • Expected profit (£$1,000 pcm)

The property has been on the rental market for a week and has already secured $2,300 pcm for the month of June, despite not being fully occupied broken down as

  1. Tenant from Air bnb paying $920 for 28 days from 2nd June
  2. Student moving in from the 13th June for seven weeks paying $170 per week ($340)
  3. Long term contract at $515 pcm from 1st June
  4. Student moving in from 1st June for 2 weeks paying $170 per week ($340)
  5. Two people sharing a room for 2 nights due to Park Life festival from 10th June ($155)


In summary, this has been a successful investment that has and will be replicated in the future. I have a team in place, ready to go for the next investment who can:

  • Utilise market knowledge and experience to source undervalued property investment opportunities in the Manchester and surrounding area
  • Manage the entire lifecycle of small to large scale renovation and refurbishment projects
  • Ensure a solid flow of tenants

Next steps

Complete on the purchase of my next investment, which is next door to the property above and get started on the relatively minor cosmetic work required to bring it to rental standards.

I have accelerated my ambitions. My aim is now to be a millionaire by 35
 
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BeTheChange

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When dealing with people, let us remember we are not dealing with creatures of logic. We are dealing with creatures of emotion, creatures bristling with prejudices and motivated by pride and vanity.
 

switch7

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Hey BeTheChange, what area are you buying properties in? I assume you are buying in the UK? Which city?
 

BeTheChange

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Hey BeTheChange, what area are you buying properties in? I assume you are buying in the UK? Which city?
North West. Once I close the one mentioned above, the ambition is to purchase another at the tail end of 2017 and then buy another in London next summer/autumn.
 
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