Faust Avenue Is Now Underway!

Today was the closing on Faust Ave. When I walked into the title company, I was greeted with a smile and a handshake and then I got that “feeling” … you know, déjà vu! I recognized the face and then I asked, “You look familiar, have we met before?” Then suddenly I realized that Leo had done the closing for the purchase of my last project, Curie Court! It’s a small world. I bet Tri-County Title Agency handles a lot of these REO closings.

It was just Leo and me in the conference room. I left the lockbox from Faust with Leo who promised he would drop it off with my Realtor, Jay, when he drops off some other paperwork later in the week. It was so fast and so convenient I could hardly believe it. Leo even records the deed at the county for me as a courtesy! My first closing on my first project two years ago took about an hour - painstakingly going through every line of every document, yawn ...

My second closing was about 30 minutes, with half of the time spent chatting and joking with Ray Reck (the broker) and Leo, himself. There really aren't that many forms when buying an REO property.

Of course, this was my third purchase so it’s becoming old hat now! Leo and I breezed through the signatures, made copies, and I was on my way in about 20 minutes!

I didn’t waste a minute moving forward on this project. Will started the work the same day of closing and the landscaper has already done his part, too -- except for the retaining wall in the front yard. I’m holding that part off till the roof is complete, which, hopefully, will be done by the end of this week and then Jeremy can finish the retaining wall next Monday, July 7. That's the same day, by the way, that I'm going to set my For Sale sign on the front lawn and start my marketing campaign to attract buyers.

This project is expected to take 6 weeks (more or less) with a contractual agreement to a “drop dead” completion of Saturday, August 16 as a grace period to handle any contingencies that may pop up.

It is my hope to have a buyer locked in a purchase agreement by the end of August or mid-September at the latest. (Just like I did with Curie Court!)

Let’s watch and see if I can have a repeat performance with a slightly better return on investment. This property qualifies almost as a “junker” according to Mark Ijlal because of the amount of water damage to the property and the amount of mechanical repairs and upgrades being put in. There are too many properties on the market, Mark contends, that need only carpet and paint - why waste time and effort with any rehab project more than $20,000? Well, if the profit margin is acceptable to me and since I'm not actually picking up a paint brush or a hammer, then I’m comfortable with doing things differently. If I find a good property during my searches that needs only carpet and paint, then maybe I'll do that one. But I'm not going to spend all my time hunting for the perfect Easter Egg before I make a purchase decision and start moving forward. Different approaches for different investors.

Stay tuned ...

My Investment Criteria

Have you ever thought about what makes a good investment? Do you have any idea what kind of property you should buy if you wanted to invest in real estate? If someone offered you a 3-bdrm., brick ranch with 1,100 sq. ft. of living space for $139,000 how would you know if it was a good investment? Is that a good price? Too high? Too low?

The best time to think about these things is before the opportunity presents itself to you. So, if you're thinking of getting into real estate investing, you really have to study the neighborhoods in which you plan to invest and you need to know what the houses are selling for right now -- not what they sold for 8 months ago.

Many investors have their own personal criteria for investment purposes. There are different criteria for rentals and different criteria for flips. I have outlined my criteria for flips (see below), but these aren't etched in stone. I can be flexible on some issues while rigid on others. But it's very important to have a starting point so that if you're going to use a Realtor to find houses for you, they know what you're looking for.


Here is my list ...

After Repair Value (ARV) = $100K - $180K (based on recent (90-120 days) comps.)
Located INSIDE subdivision (no major roads)
Basement (no slabs or crawls)
Garage
Brick Exterior
Ranch, Colonial, or Cape Cod
3-4 Bedrooms
1-1/2 Baths

Areas of interest:

As far west as I-275
As far east as Jefferson
As far as 4 miles north of I-696
As far as 4 miles south of 8 Mile Rd

Also interested in the following specific areas:

Clinton Township
Mt. Clemens
St. Clair Shores
Fraser
Roseville
Warren
Center Line
Sterling Heights
Oak Park
Rosedale Park (Detroit)

NOTE: I live in northern Clinton Twp. (M-59 and Romeo Plank) but I work in Novi (8 Mile and I-275) Therefore, I have a wide range of possibilities for investment because I drive past such a wide range of cities.

If you happen to find something that fits these criteria and you don't have an interest in investing in it for yourself, please let me know about it. If it seems like a good deal and I purchase it, I'll gladly give you a "finder's fee!"

Curie Court Deal Review

The following three video clips show me discussing my overview of Curie Court while attending a monthly meeting with fellow real estate investors. I am a member of Mark Ijlal's Inner Circle group and we discuss all aspects of real estate investing on a monthly basis. This was my first opportunity to share with the group my experience with my first successful real estate flip.

Enjoy!


Inner Circle June 2008 David Deal 1 from Mark Ijlal on Vimeo.

Inner Circle June 2008 David Deal 2 from Mark Ijlal on Vimeo.

Inner Circle June 2008 David Deal 3 from Mark Ijlal on Vimeo.



The following graphic is referenced during the presentation and may help in following the analysis: (click on it to enlarge.)


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Find Out What The Top Two Reasons Are That Make Property Inspections Absolutely Necessary!

It’s been a week now since the bank has accepted my offer to purchase Faust. Since that time, I have been able to talk with my contractor and continue negotiating the scope of work to ensure that I only perform what is absolutely needed to make the property clean, comfortable, and in move-in condition. I have been accused of having the tendency to overdo my renovations while others would stop short of what I like to do by about 25%. However, after reading several books by or about Donald Trump, I believe the key is to over deliver and under charge. This gives your client the WOW factor that makes it impossible for them to pass up on your product or service. And it will bring you endless dividends through the positive word-of-mouth advertising you will receive when treating people fairly.

HINT: (Side note) All of you contractors and other service providers out there beware! This practice of over delivering and under charging not only works for me selling real estate, it works for your business as well. How many of you feel like you are getting the best service for your dollar when you go to the store? Everything is self-serve. You can even do your own check-out at many stores now. You’ve seen them: “You Scan” check out lanes for those of us who just don’t want to smile at the cashier and say nice things that you don’t really mean. I was SHOCKED the other day when I went to fuel up and get a car wash. As I jumped down from my awesome, full size, 2005, 4x4 Dodge Durango SUV (I love that truck!) I was greeted by a smile and a handshake by the pump attendant. That’s right, you read that correctly -- PUMP ATTENDANT! He informed me that this was a FULL SERVICE station and that he’d be happy to pump it for me. “Regular or Premium?” he asked me. I could hardly believe it! I gladly handed him my debit card and said, “Fill ‘er up, regular! … And thank you, sir!”

I felt like a VIP! And that’s how your clients and customers will feel, too, when you over deliver and under charge. You will not only continue to make money, you will build lasting business relationships. Then there’s the word-of-mouth advertising that you will get as a result of your superior service. High quality, specialized service at an affordable price will guarantee that your customers will brag about you to the whole world. Think of it this way. If you go somewhere and get lousy service, don’t you want to warn everyone to stay away from “that guy” or “that place”? Why do you do it? Because you hate the person who treated you badly? Yes, but more importantly, you care about your family and friends and you don’t want them to make the same mistake you made.

On the other hand, if you go somewhere and get the royal treatment don’t you want to tell your family and friends about that experience too? Why? Because you are now in love with the pump attendant that filled up your SUV for you? Not really, but because you care about your family and friends and you want them to get a great deal, too. But there is a better explanation that is more self-serving that I think goes to our very core as people. We all want to be liked and admired. We also want to feel like we have specialized knowledge and can add value to our friends and family. That is why we tell them about that “special place” that we have found, or that “special inspector” who goes above and beyond and is so detailed in their inspection reports (like John McAuliffe) resulting in better discounts from the bank. That is why we tell others about this awesome contractor (Will Curry) who acts as a trusted advisor and who provides honest and reasonable prices to investor clients realizing the value of win-win contracts. Or that real estate agent (Jay Alasphemy) who negotiates for you with the bank to get the best investor’s price possible and handles all aspects of the purchase process so that things run smoothly and on schedule.

I can go on and on, but you get the idea. Treat others in business as you want them to treat you and you will make good, lasting business relationships. And when you do find those special people, share them with others and everyone will benefit greatly.

Now … back to my story….

Even if you are a seasoned investor and you know everything there is to know about property -- even if you are a builder -- you should NOT pass up the opportunity to have a qualified inspector inspect your investment property. There are two reasons for this that may not be obvious at first.

The first reason is that you may be too close to the deal to be objective. You are emotionally tied up and invested in the deal and you will try to make it work any way possible. That is why you want John to inspect your property. It’s his job to convince you NOT to buy this property. If you decide to buy it anyway, at least you are aware of every potential problem you may encounter when trying to restore the property.

The second reason is the least obvious of all, but the most important. You need John’s report as LEVERAGE when negotiating the final purchase price of the house you are considering. The more you can identify that is wrong with this property the better off you are when negotiating your purchase price. You can either ask for more money off the price or you can ask the bank to do a number of the repairs before you buy the property. Either scenario will work for you and will save you thousands of dollars in the end. Don’t overlook the benefit of a good, quality home inspection. (Call John!)

That’s what I did! I contacted John to come out and inspect Faust so that I don’t overlook anything serious and move ahead with this purchase not fully knowing what I am getting myself into. John met with me Friday evening at the property at 5-pm. John is very flexible in his scheduling to accommodate his investor clients. I crawled all through this property with John all the way up into the attic. (I did NOT go up on the roof as that is one of the two things I will not do. The other thing I will not do is go into a crawl space. In fact, I will not even consider a property on a crawl space - nor a slab, for that matter.) This is about a 3-hour process but John is very thorough and he will explain to you along the way what it is he is looking for and what he is observing. He talks into a small MP3 recording device making audio notes to be transcribed later into his full, detailed report. He also snaps a huge number of pictures to refresh his memory when writing up your report.

I should be receiving John's written inspection report by Monday. He discovered two things I feared the most and that I overlooked in my initial walk-thru -- the roof and drains need extensive work. The roof has four (4) layers of asphalt shingles on top of the original wood shingles, there is inadequate venting, there are several water entry points resulting in extensive water damage and .... [gasp!] there is evidence of MOLD!! (some of it even looks "black").

Due to the lack of running water on site, John couldn't fully inspect the drain system as he would like. But he did notice a lot of evidence of water issues due to a great deal of dampness all around the floor near the exterior walls. Also, he could observe that there was high, standing water in one of the drains. John was so concerned about this situation that he referred me to Mark Collins of Down Under Plumbing (313-291-7255) and suggested that I get that looked into more thoroughly before I wind up with a HUGE repair bill.

So, I called Mark Collins first thing this morning (Saturday) and he arranged to send one of his guys out to the property at 3-pm this afternoon. Now that is responsive service! Ed showed up just shortly after 3-pm after finishing up at a previous client site and Ed inspected inside and out taking the time to explain what he was looking for and observing. Ed was extremely knowledgeable and he taught me a great deal about the sewage system and it’s anatomy under the ground. While explaining his every action, Ed ran a small camera down the drain system and discovered extensive root infiltration causing slow draining (or non-draining) of sewage and rain water.

Ed explained that the best-case scenario would be to snake out the roots all the way to the city line at the back of the property and if the crock was not damaged, then we're only looking at a $500 service call for the snaking. The worst-case scenario would be a broken crock requiring the back yard to be excavated and the crock replaced. The worst-case cost in that situation would be about $5,000 or $6,000!!!!

Ed promised that a full report will be written up and faxed to me on Monday. Between John's report and Down Under Plumbing’s report based on Ed’s observations, I am prepared to ask the bank to give me a $15K concession so that I can fix the roof, the drain system, and remediate the mold. The other option would be for the bank to fix both the plumbing and roof themselves and perform the mold remediation.

I will explain to the bank that I have already invested significantly in this property (the bank’s property) by paying these inspection fees to uncover these deficiencies that they failed to disclose and that if they are not willing to grant the requested concession amount, I will have to walk away.

That’s BAD NEWS to the bank! They don’t want to hear the words “walk away.” They want and NEED to sell this property. Every day they have this property on their books is another day of property management expense and taxes. But unfortunately for them, I have now discovered these deficiencies and I have made them known to the bank property management. They would now have to disclose these items to the next potential buyer or risk being sued. Fortunately for me, the bank knows that when they disclose these conditions to the next potential buyer, they will run for their lives, shaking and sweating from their foreheads with anxiety and fear over the extent of the damage!

The bank knows that only the strong and the brave will stick this through and take on such a challenge. They know that only the seasoned real estate investor can help them out of their predicament by buying this property and fixing it up while also doing their small part to revitalize the city of Detroit in the process. This is a win-win-win proposal the bank just cannot pass up. They win by getting rid of this liability, I win by getting an opportunity to make a reasonable return for my efforts, and the community wins by getting a renovated home that is once again beautiful and charming bringing warmth and class to the neighborhood.

The bank HAS to accept my offer or the house will sit and continue to deteriorate. The bank could refuse my offer only to have to face another aggressive investor offering even LESS than I did. But if they grant the requested concession, they will get out of their liability and be done with it.

I'm in a strong negotiating position. Even if the banker reads this blog, he would have to agree with me and grant the discount. It’s a “no-brainer!”

Based on the findings, Will is re-working his quote to take into consideration the added expense to fix the roof and the sewage line. He is going to have new numbers for me on Monday so that I can submit his scope of work (without the numbers, of course!) along with the plumbers reported findings and John’s property inspection report.

I have decided that I will just gut the basement, paint the walls white and the floors battleship grey, and make sure the basement is clean and bright with a lot of lighting. I think that will save a significant amount on the renovation rather than finishing off the basement. I have to make sure there is no more mold present behind any of the dry walled surfaces anyway.

Come back soon … I'll let you know what happens as I move forward with this exciting project!

Introducing Faust Avenue - Rosedale Park, Detroit

This will be my second flip since establishing ComfyQuarters. Curie Court was a moderate success since my margins were tight, but I learned a great deal and there is a very happy couple as a result.

I'm satisfied with my first flip but I'm excited to do even better on this project!

This is the view of the house from the street:





I first saw this home while attending a Foreclosure Bus Tour hosted by Mark Ijlal on a Saturday afternoon two weeks ago (May 31). William (Will) Curry of Fourth Dynasty Enterprise, LLC was one of Mark Ijlal's expert guests and Will was walking through the home with the group and explaining what improvements he thought would be best to bring this property back to life and put it back on the market for a quick sale.

On Monday morning following this tour, I called Nora Ijlal for the contact information of the listing agent for this property, Jay Alhashemy, so that I could place an offer on this home. I didn't know it at the time, but a young woman also on the bus tour also put in a bid on this property and we ended up in a bidding war over this home.

It turned out that I wasn't willing to go past a certain price point and she actually out bid me by only $1,100 -- so she got the house. A couple days after I was given the bad news that I lost the house to one of my fellow club members, I got a call from Jay. He informed me that although her offer was accepted she was unable to raise the cash needed to actually close the deal so I got the house, instead.

The moral of this story is that you need patience! I did have several offers out on other properties, though. You can't put offers on one property at a time and wait to see if you get it. You have to put offers on several at a time till one is accepted. I withdrew my offers on two other properties when Faust was accepted, but I still have an offer out on a home in Mt. Clemens that I think will make a great rental investment. In fact, I already have a tenant lined up so I really need to get that property. I'll share more on that one if I am able to win the bidding war on it.

Now, back to Faust. Walk through this house with me (virtually) and see if you can see the great potential as we talk about it ...

FIRST FLOOR


SECOND FLOOR

Mission Accomplished!

This was a very hectic morning and there were some minor problems with the buyer's mortgage paperwork, but it didn't take long at all to get them corrected, reprinted and signed. The closing for Curie Court went off without a hitch this morning -- money was exchanged, keys were handed over, and everyone is very happy.

From start to finish (Feb 22 through Jun 12) it was only about 3-1/2 months. That's bought, fixed, sold! Not bad! After all debt is repaid for this project I have made a cool $10,000.

Now, I know what you're thinking. This is no way to get rich flipping real estate! And you're right. It's not. In fact, I still have debt to repay from the first project I did a couple years back that is now a rental property. Also, I have put some of my own savings into the business to get started. So, I still have some money to pay back to myself. I'm just getting started.

I have another property in Rosedale Park, Detroit. I'll be posting video clips soon for the next project. But, to answer the question regarding getting rich in Michigan that's easy -- it's not a "get rich quick" scheme! It's a buy, fix, sell process and it takes time. It's like the instructions on the back of a shampoo bottle -- Wash, Rinse ... REPEAT! It's the last part that people often forget about.

Also, I will get better as I go and I will learn to reduce my costs and increase my profit margins. Some deals have a higher margin than others. Another ingredient is the buy and hold strategy. I have one rental unit now, I'd like a handful more. But the big prize will be to get a commercial apartment complex. I will do that in 2010.

Come back soon for more ....

The Sky Is Falling!

I had a pretty scary day today -- although, it really isn't all that bad.

As you know, I have been working hard the last couple of years to figure out how to prosper in Michigan real estate as an investor. Let me tell you, not only has that really helped me find a way to have another stream of income, it has been beneficial in another way, as well! Let me tell you how ....

Today was really hot and humid. I don't like this kind of heat, it wears me down and saps out all my energy. My son, Steve, usually comes over for dinner every Sunday evening to visit and just chat about the good things in life throughout the week. Well, this Sunday was to be no different but I was so tired and so was my wife, Analiza, and my daughter, Kyla. So, we decided at 4-pm to settle in for a nap before getting ready to make dinner.

At about 5-pm, Analiza and I were awakened by a rushing wind. It was very loud so I jumped up and went to the window to check it out. The sky was clear to the east, but I could see a black line just above my house - a huge black cloud moving quickly to the east. As I thought to myself, "This doesn't look good at all!", I heard some loud crash and it sounded like something may have hit the roof. I turned to Analiza and said, "Get down to the basement NOW! ... I'll grab Kyla!" So, all three of us rushed to the basement (being led by our super brave yellow lab, Adam, of course!) and as we got down there and huddled in the lights went out. We were only in the dark briefly and the lights came back on. I went up to see what was going on and that's when I looked out of the back door wall and saw what you see on the video.

I'm so thankful no one was hurt and the damage isn't nearly as bad as it could have been. We have a few broken windows, the gutters and new shingles are damaged and the roof line has been severely damaged. In fact, I have to empty my bedroom closet because the drywall has been pushed in at the ceiling!

Here's where I think being a real estate investor has been so helpful. I jumped on the phone and contacted my tree guy, Jim, and he will be out tomorrow to clear out the two fallen trees and trim up the tree next to my house that was damaged. I called a reliable roofer I know and he called me right back to say he'd be here in the morning to tarp off the roof and estimate the damages. I was able to contact my general contractor who builds spec homes and he said he would be out in the afternoon to look at the damage and give me an estimate.

If I didn't have this network of professionals on my cell phone speed dial, I would have been at the mercy of my insurance company to make recommendations and, of course, word of mouth referrals from others. That may have added more to my stress because I wouldn't know any of these providers and their quality of work. I already know these guys and have used them in the past. I feel much better knowing that this will all be taken care of quickly and that I will get a quality job.

So, I'm so glad I have chosen to become a real estate investor for more than the obvious reasons!