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Archive for December, 2011

real estate musings

December 26th, 2011 at 07:46 am

Happy Holidays everyone! I enjoyed reading everyones Christmas blog and hearing about their family celebrations.

BB's father came down here to GA for a week and we spent the day watching movies. Relaxing day for sure.

On the real estate front, I last stated that we were going to look at a property for a rental income.

We went and saw the place that day, it is very impressive. I call it "The Chocolate House". It is painted a chocolate brown with white trim. It is a duplex and with 4300 sq ft it is huge! One of the biggest duplexes I have seen in the city. The upstairs is 5 bd 2 bath, and the downstairs is 4 bd 2 bath. It needs to be cleaned up, fresh paint and it'll be ready to rent.

It's a foreclosure listed at $189,900. We put in an offer for $165,000 with 10 day closing. The bank countered at $185,000 and asked for 10% earnest money.
We have countered at $170,000 with 10% earnest money. We are waiting to hear what the response is.

We went out and looked at it again 2 days ago to double check everything before we countered. We went over it as thoroughly as we could. It has been winterized, so the water and electricity is off. But assuming those areas are good, for work we found:

Thorough cleaning/touch up paint needed
Washer/Dryer upstairs needs to be replaced
Stove downstairs needs to be replaced
Upstairs toilet missing
Upstairs kitchen sink faucet needs to be replaced
Some porch boards needs to be replaced

The biggies is the roof and siding.
The roof might be leaking in spots. Because there are water stains along the outer edges of the ceiling. It is either the roof or the gutters are not working. We'll get a roofer up there if we go under contract. If it can be patched for a year, we'll be ok. If not, then we wont buy the house.

The siding. The paint is peeling pretty bad. It could use a paint job today. But can wait a year or two. The siding has not yet been impacted by peeling paint so no rot.

The numbers:
We think we can rent the upstairs for $1600 a month, and the downstairs for $1400 a month. With a $3,000 income, we will put $1k a month away for future repairs, $400 for taxes and insurance, and that will leave $16oo cash flow for the investor.

If we save $1k a month for 9 months, we can put on a new roof. After that, if we save $1k a month for another 7 months, we can repaint the whole house. So the big items will be taken care of in the next 1.5 yrs.

The next big question is the electric/plumbing/HVAC.

We feel that paying $170k plus $5-10k in repairs/closing costs is the very top of what we can afford. So if any of the systems are out, we are not going to go forward.

The reason we feel good about this house is because a very high end investor owned the property and restored it before he went into foreclosure. He had a reputation to use high end rehab materials and saw his projects as a restoration of the community. His vision was in line with mine, to have a quality product that will last a long time and add to the value of the area.

So we feel optimistic about the systems.

In the meantime, to keep BB from having his heart set on this property, we have tried to find back up properties.

We found one yesterday that we thought had already sold. We saw the "For Sale" sign out front and checked online. It had sold in Nov, but the deal fell through so it's back on the market.

The duplex had belonged to a contractor friend of ours in 2009. So now we refer to it as "Jason's House" We had dinner there once. He lived in the top floor with his wife and son. A few months after we met him, his wife got a job in another state and they moved.

The house did not sell and went into foreclosure.

The current owner bought it for $130k and now has it listed for $200k.

We walked around it yesterday and looked at the pics online, it does not need anything to make it renter ready. Actually, the bottomn floor is already rented for $1400/month. It's 3300 sq ft.

BB called our realtor today and learned that the new owner put alot of updates into the house, and thats why they are asking $60k more than they paid for it.

So thats a bit of bad news. We were hoping there was a lot of negotiating room. Noneless, we are going to look at it today.

If the numbers figure that the Chocolate House and Jason's House are the same all in, then we'll be on an even playing field and I'm not sure what we'll decide.

But having Jason's House enter our conversations has really calmed BB. He is much less into the Chocolate House now and he's being more conservative with what he is willing to pay for it.

Thats exactly what we needed, so even if Jason's house is a no go, it accomplished my goal of showing BB that there are new opportunities everyday and we dont have to be fixated on one place.

Changes Are Coming

December 21st, 2011 at 10:03 am

I am posting as a way to organize my thoughts. Actually this is a vent. I need it. I wish I had great news to post, but my luck has not been going in a positive direction lately. Everything is still ok, just not making the progress we were making in the past.

A lot of changes are going on right now. So Iím trying to mentally stay ahead of each step.
The CA condo will be going up for sale in Feb. BB is going out there for 10 days in Jan to get it ready to go on the market.

BB will apply for disability in January. We are meeting a disability lawyer in late Jan to get information and involve him (lawyer) in the process. We were told to apply ourselves on the 1st even though BB will likely get rejected, so no time is wasted.

BB is going to have another back surgery. He went to the Dr a week ago to fill out disability paperwork and the Dr wants to remove the screws that are in the back to try and relieve some pain. This will be a week long recovery and then some rehab, so not a huge surgery, but also not a simple procedure. Especially since the Dr is in FL, so weíll be 6 hrs from home for the surgery and recovery.

BBís parents have been getting a divorce since August. BBís dad has decided to move to GA and restart his life.

BB and his dad have decided to start a real estate business together. This will allow BB to have an income without working if he gets the disability. BB will be an investor and his dad will be the other investor. Together, they are not too handy so they plan to sub out any work that needs to be done. I want to get behind this plan, but Iím just not really on board. They talk about this plan several times a day, but I donít know. Honestly, BB wonít be contributing very much to the company b/c he doesnít have any money to invest. I think his dad feels bad that BB is injured and is facing 30 yrs of not working and is trying to help BB by starting this company.

I think they will be ok- I am hoping they donít go overboard with the leveraging. Right now they want a few rental properties and once they have a steady income, they talk about flipping one house a year. But I just sigh when I think about it.

In the beginning of all this talk, BB was talking about buying properties for ridiculously low prices. $50k for a building and putting in $10k of remodeling to get it renter ready. The only buildings in that price range are falling down. I pointed that out but BB was confident he could find deals. He said he has been on the MLS and there are lots of good properties in that price range. So I let it go.

In the beginning, they were not going to start until the divorce is final so the business does not get dragged into splitting assets.

Guess what? BB has started looking at properties. Guess what? All of them are over $150k. Suddenly these are the good deals and less than $150k costs too much to fix up.

I guess I think this business could go somewhere (there certainly are great deals out there) if BB had some patience and if he was using his own money (which he does not have). He has good intentions. He thinks he can play this game and come out ahead. But every time he finds a property he likes it is ďthe deal of the yearĒ and he is fixated on it and making an offer and not letting it get away. He has no formula to see what price he needs to get it for, guesses at a rental potential, no checklist to see about fix ups. He uses his gut and wonít listen to anything negative about the place.

I hate to be a Debbie Downer, but I find myself going extremely negative on the property trying to get him to come to the centerline and be neutral and objective. His energy and mind gets so pumped up and it causes me to stress and want to cry because he is being so (happy) emotional. I have to step back and retreat because his energy is too overwhelming for me. So I throw up my hands and say that I donít want my name on this plan. But then later I insist on researching and seeing the place because I donít want my husband getting involved in a bad deal and dragging down our future.

He allows himself to get fixated on properties without even going in them. Then when he goes in them and sees the reason why no one else has bought the place, he is so disappointed. I keep telling him ďthere must be something wrong with it, why else has it not been purchased?Ē But he thinks itís because he found it first, not because more experienced people than him have rejected it and itís waiting for a sucker buyer.

And if the property does not work out, (thankfully none of them have), he is crushed. He starts searching the internet again and talks about how disappointed he was about the previous property.
And then he finds a new property to be excited about in a day!

We are going to look at another property today. Itís huge and the outside is beautiful. But itís in a non desirable neighborhood. Itís actually one street away from my 1st house that we bought (that I still love). Now that we currently live in a better neighborhood than that area, I have perspective and can see how that neighborhood is such a big obstacle to overcome when deciding where to live. And I can see how long it takes for neighborhoods to improve. When we bought our first house, I was sure the neighborhood was on its way up and would be a highly desirable area in a few years. Well, itís been about 4 yrs and the neighborhood has gotten worse.

I think it is renter ready (based on the outside and MLS pics). But for the neighborhood, I think it is listed slightly high. Itís a foreclosure, and the previous owner kept selling it back n forth between himself and his company at hugely inflated prices and taking out higher and higher mortgages on it. I think the bank was left with around a $300k debt on it. Itís listed for $190k now.

Even if BB gets it for $30k less than its listed for, which is what he is thinking to offer, I think that will be a solid price for the property. Not a deal and certainly not a steal!

But BB has a lot of emotions running through him. I know thatís whatís spurring all of this. And I donít know how to calm him down.

He wants to be contributing. He is being helpful in his housework but he wants to be making a financial contribution towards the family. Iím doing everything I can to not have him feel this way, but itís not working. He wants an income. Now. Today.

He wants to have a title. A career. He wants to be able to tell people he has properties and have a whole smoke n mirrors thing going that even though itís his Dadís money, he can call it his company. He doesnít want to tell people he is unemployed or on disability.

He wants to be using his time effectively. I am at work all day every day, and he wants to be doing something. Real Estate is something we are both interested in, and he wants to have something to show for his days. He wants a project.

I understand all these things, even though he has not come out and said them. I just donít know how to slow him down. He has a project; itís called our 1st rental property. And he ignores it. Right now itís pretty self sufficient, but it could always use some attention. But attention costs money and he doesnít have any, so he wants to use house money to put his attention elsewhere.

So all I do is keep hoping something is wrong with the properties he is finding. I keep hoping heíll burn out a bit and see this as a job, not something to be sacrificing for and chomping at the bit to do. Then he can get some objectivity.

But heís not going to burn out. Because his dad is all excited too. Itís a new chapter, a new start and his dad is as anxious to get started as BB. So they are on the phone all day keeping each other pumped up.

And the crazy way he and his dad have plans to move the money to avoid violating disability and keep it separate from the divorceÖ.thatís another story that makes me sigh.

Disability...

December 16th, 2011 at 09:47 am

Well, like it or not it looks like we are going to be a losing a full time income. Permanently. BB has never really recovered from his back injury and is making plans to go on disability. The surgery worked as well as it can work, but the Dr failed to tell us that all the ďthings that could happen as a result of the surgeryĒ are likely to happen. When a Dr. tells you about paralysis and death, you know they are telling you things to cover themselves, and that makes all the other things seem like stretches as well.

But BB only does have a limited amount of mobilization, and he is in different stages of pain constantly. He can work for a few hours at a time. But not be doing the same thing for those few hrs. If he is on his feet for too long, his back hurts. If he sits for too long, his back hurts. If he jolts his back- he is out for the rest of the day.

And now his body is having a negative reaction to the pain pills. Something about eating through his stomach lining. He canít take more than half his dosage without having severe stomach pains. Last season he was using pain pills regularly and his bile ducts leaked and had to be removed. After the surgery the Dr said he thinks it was caused from the pain pills. Another fact that they warned as a possibility that we didnít think it was a probability. I was kind of disappointed that he was being prescribed the medicine knowing it will lead to a breakdown of his organs.

So BB is going in for another surgery next month. To try and ease the pain for him. But the Dr has already said heíll sign off on disability paperwork to help BBís case.

So from the little data we have gathered so far:

BB must not work for 6 months before he can file.

Because he is young, he will probably get rejected a few times before it is approved. We can expect it to take up to a year and a half before the benefits start.

This is a decision that means BB cannot work at all while on disability. There are some instances where he might be able to do side jobs if he earns less than X per year...but itís up to the judge to set the parameters.

Because BB is young, has not paid much into the system and hasnít earned huge salaries in the past, I think we can expect it to be less than $1000 a month.

BB will get Medicare after he starts getting disability.

If BB ever feels better enough to get a job, he can go off disability, but he will probably never be able to go back on.

And I think I heard that he will get no Social Security benefits when he is retirement age. Something about him getting his SS money now instead of later.

So thatís the newest. We have been dealing with this for a few weeks now, but I am finally starting to get a little familiar with the terms and get my head wrapped around all this.

Wow- I really cried when BB laid it all out for me. I was so selfish for one night and BB was great about letting me have my moment to grieve all the future plans that we would be giving up.

And the details are still really blurry, but I think this is our new reality. Iím slowing allowing it to sink in.

Real Estate on my Block

December 11th, 2011 at 03:59 pm

Well, a friend of mine put an offer on a foreclosed duplex across the street from me.



The property was rented up until September and then it was vacant. A foreclosure notice went up about 2 weeks ago and I was curious about the asking price.

When a "For Sale" sign went up last week, I called to get the asking price.

$99,000!! I was totally floored. I paid $160k for my place and that was the cheapest purchase on the block in ten years.

I called my husband who was hanging out with our realtor friend. My husband relayed the asking price and the realtor immediately called the agent for the details. There were already 3 offers on the place.

The realtor put in an offer of $135k for a mutual friend of ours who has been looking to get into real estate by getting a duplex.

Over the last few days I had become a little bitter. This place was bigger than mine, a free standing property (mine is a rowhouse), and it has a double balcony! An upstairs and downstairs balcony. It had features I would love to get at a cheaper price!

Today we learned that her offer was accepted. So we all went to see the property. Why they didnt see it before, no idea. But since it is across the street from me- I got to go too.

I walked in, and instantly I had waves of stress and dismay radiate over me from the poor condition of the inside. It reminded me of my huge renovation that was completed in April and I realized...I am in no way ready to go through another renovation! The memories this place brought back were not good.

So I learned that I am not leaving my property for a long time...I cannot put myself through another renovation.

Back to my friend, she was overwhelmed. The place was in need of the same thing mine needed...tear down and start over. Actually it was in worse condition because I was able to continue renting my property out after purchase and had to ask the tenants to leave when I was ready to start construction.

This place...is not able to be immediatly rented. The kitchen was missing several parts of it, the 2 additions built onto the back were falling (I thought my floors were uneven), the porches do not feel secure under your feet. And the roof is leaking.

So the bad news is that my friend is going to pass on the property. It would need too much money to get it rentable, and be a long term constant repair property unless the structure was fixed and everything was replaced.

She is not looking to buy a major multi month long renovation.

The good news is that this is the worst looking property on the block and it is not immediately rentable without a good amount of improvements. So whomever does buy it will have to do some considerable improvements to it, ultimately raising the value of the neighborhood and my property!

I am quietly hoping it gets converted to a SFH like mine was. It would be such a great SFH with so many porches and being such a huge building!

So, changes on the block are coming!

California Property is going up for sale

December 3rd, 2011 at 04:13 pm

I have decided to sell the CA property. BB and I went out to visit it last week and decided selling was the best option.

We went out to CA for 5 days. We spent 3 days in the city, staying on Haight street. It was great, but expensive! But great.

Then we headed a little south and spent 2 days in San Mateo to see some old friends of mine.

I met with the long term tenant in the condo, and she has not found a job yet, no promising prospects.

I met with a realtor and we discussed next steps.

The condo is in surprisingly good shape, and surprisingly huge!

The realtor said we need to paint it nuetral, fix the heater, paint the cabinets, clean the carpets and stage it before putting it on the market. Maybe get some new light fixtures too.

The realtor is really fixated on staging, saying its really important.

I dont know, if you walk into an empty condo- does staging really compel you to put in an offer? Wouldnt taking the $2k to stage it maybe be better spent on a granite countertop? Or would nice furnishings be a better bang for your buck?

The realtor also said if it does not sell within a month, to increase the realtor commission by 1% to get realtors to work hard on bringing buyers in.

Regardless, the tenant is moving out in January, and BB and a contractor friend of his is going to fly in to complete the fix ups. He'll stay at the empty condo for 2 weeks and do all the necessary remodeling with the realtors input. She said she will go to Home Depot with BB and pick out the fixtures and stuff for him.

So we are hoping the remodeling is $5k, flights for the men $1k, food for the men $500, rental car $300 ...and then staging $2k.

So thats the plan...right now. pics of the place are below. Input appreciated!








Capital Gains Question

December 2nd, 2011 at 06:17 am

Hey guys,
I have a financial question. I have heard that the current regulations regarding taxes and house selling is: no capital gains taxes are paid from the first $250k earned from the sale of a house.

I have heard this before, but it just sunk in for me last week.

My question is: does this apply to me too? (In essence it boils down to that.)

Regarding my Impulsive Purchase that BB and I bought last year:

We bought it for $160k and put $120k into it. So one way or another we have paid $280k for the house. If we sell it for $400kÖwe are almost at the $250k appreciation level from the sales price even though half of the appreciation is from money we put in?

I guess my question is- is the $250k appreciation a ďfree and clearĒ appreciation (accrued from property value up to $530k), or will I just get the benefit of not paying capital gains on money I put in and invested in the property?

I am guessing the $120k I put in counts towards the first $250k appreciation break.

Was there a loophole that I could have utilized to ensure that my $120k counted towards the cost of the house and not towards an upward appreciation?

We are not planning to sell! I just want to know how it all works, now that I have a grasp on the concept.