I am indeed still alive but in a bit of a holding pattern with many things, real estate investing included. I’m honestly pretty burned out on dealing with contractors, tenants, and city officials at the moment, as none seem able to, you know, do their jobs in either an effective or timely matter. I’d hoped that the holidays would be a good chance to rest and recharge, but it didn’t exactly work out that way.

Work on Larry’s House is getting done, but at a less-than-snail’s pace. (What exactly would that be? Slug’s pace? Sloth’s pace? Inanimate object’s pace?) What should have been a two week job as far as the first stage of work is going on 2 months+, and that’s only after an enormous amount of contractor prodding and delay after delay after delay due to city inspections for a 50 sq. ft. laundry room that I’m adding to a 300 sq. ft. house in the ghetto that was previously abandoned and boarded up.  One would think the city’d be happy that a former crack house is being reclaimed and fixed up, instead of going round and round and round about suitable foundations for additions (even massive 50 sq. ft. ones like mine)  and insisting that we had to produce an engineer’s report at once point to continue work.

It’s also looking like I’ll have to evict one of our tenants, too, as he’s now over 2 months behind in rent. He works construction and has had a hard time of it lately, but he’d managed to always pay up even though he was a week or two late pretty much every month. Rent was due Dec. 15th but he swore he’d have it after Christmas, as he was struggling due to the economy/holidays (he’s married, has four kids), people owed him money for work, yada yada yada. Same song and dance right up to Jan. 15th, at which point he was two months behind, and swearing he’d have all the money next week, etc. I gave him until this weekend, but haven’t heard a peep. I have no desire whatsoever to kick a family out but there’s not much else I can do at this point, as I’ve already played the chump for way too long letting it get to this point as far as being so far behind in rent.

On the positive side, things have really been picking up as far as freelance work, and I’ve been digging back into the world of affiliate marketing as far as developing and building new sites. Without house renovation projects sucking up all my time I’ve been able to revive some of my sites from the mothballs they’d be languishing in, and am easing back into the worlds of website flipping and domain flipping. Which is kind of funny, as it’s pretty much the exact some concept as house flipping, as far as buying websites for sale at various webmaster forums, working assorted magic on them, and then re-selling them at a later date for a profit.

Just like with houses, you can find pretty good deals on websites that are already generating income due to the owners simply needing cash, or people selling sites who did some of the work but lost interest, or just didn’t understand how to properly market or monetize them. A lot of my background is in SEO and linkbuilding, so it’s usually not to hard to find people selling sites making a little bit of money, and buy and improve them to the point where they’re making more than a little bit of money, usually without a ton of work involved.

The general rule of thumb is that sites sell for 5x/average monthly income, so it’s not too hard to pick up websites that are making $2-3/month via Google Adsense ads for $10-$20. I spend a few hours optimizing them, a few hours more promoting them and getting backlinks, an hour or two building out the content, and then just let it run. If it’s in a good niche it’s not too hard to get a site like that up to $30-$40/month from Adsense, which you can turn around and sell for $200-$250.  It’s not quit your day job money, but not a bad way to keep busy during slow times with other freelance work.

So that’s pretty much where things stand in my wee little life. I’m still keeping an eye out for potential real estate deals, but there’s little promising on the MLS at the moment, and it’d take something awfully juicy to suck me back in at this point. We’ve still got a good bit of work to do on Larry’s House so there’s no real rush to pick up another project. Hopefully at some point the house flipping fire will burn white hot again in my bosom, but for now it’s kind of refreshing to not be writing huge checks to people and stressing out over any number of sundry things.

Although it is giving me a little devious pleasure, as the delay is about to cause the plumber’s head to explode. I’m happy enough with the work the plumber and his son have done, but his general behavior has managed to rub me the wrong way, and our contractor is pretty fed up with it as well. Nothing huge or major, but the plumber pitched a hissy fit when he started the job (three days late, mind you, when he swore he’d be there three days earlier), as far as showing up, interrupting our contractor when he was talking to another sub to demand his check (1/3rd of the total cost of his bid to get started), then made a huge production out of stomping off and leaving when the check wasn’t immediately there waiting for him.

And he’s pulling more of the same dramatic entrances and exits the last few days as the electricians finish up, as he doesn’t get his second draw until the rough inspection is done, so he’s stopping by the house 5 or 6 times a day, loudly talking about how broke he is, how he’d wish these damn electricians would hurry up so he can get paid, etc.

I try to let it amuse me more than annoy me, as it is kind of humorous to see a fifty year old man act like a five year old. Especially when he works in a trade where less scrupulous people than myself routinely drag out paying people like him for weeks and/or months at a time. Not that I’m unsympathetic to that, as I am, but until I personally do him dirty on a job, well, you know, please to be shutting the hell up and stop pissing off the people on the job trying to get things finished up.

We just got back the county property appraisals for 2009 for all our properties and it was good news, across the board. I’d been sweating it a little as our county appraisal district is apparently under pressure from the state to jack up property values across the board, after it was deemed that our county was well below par. But any worry was for naught, as our primary residence was the only one that showed any real increase in value, with two of the investment properties exactly the same as 2008, and the Wee House went up a whopping $100, to go from an appraised value of $4,500 to $4,600.

I must be failing mightily at this REI thing, purchasing and renovating a house at a cost of ~$32,000 that is appraised by the county at just $4,600. :) I’m obviously not complaining, but it does kind of baffle me as to why they bother at all, as they don’t seem to ever actually visit the properties, flag ones that have had building permits submitted, or anything like that.

In other completely random news, my wife quit her job about a month ago, so we’ve been experiencing the joys of being a single income household for the last month or so. It’s a temporary thing, as she was sick of her job and had been taking certification classes to become a teacher (and is looking for part time/full time work in the meantime as well until she’s actually teaching), but it’s actually been good as far as giving us a nudge in other areas.

It wasn’t great timing as far as the money I’m sinking into the renovation of the Creek house, so I finally got my butt in gear as far as cutting some expenses that needed cutting, the biggest of which has been cooking meals at home and taking my lunch to work. It’s pretty amazing, really, as far as how much money we’ve been saving by not both stopping for breakfast tacos on the way to work, both eating out at lunch, eating out/fast food for dinner, rinse and repeat, over and over and over. Not to mention that we’ve been eating infinitely more healthy, as I tend to cook pretty simple meals heavy on the chicken and steamed vegetables, pasta, etc.

In a backwards way, it’s actually encouraging as far as giving the REI thing a shot as my full-time job in the not-too-distant future, as it hasn’t been too painful getting by on just one traditional salary, so hopefully once my wife is gainfully employed again I can get more serious about ditching the day job.

I gave into curiosity last week and bought one of these, which arrived yesterday:

I’d read about the resurgence of manual push reel mowers somewhere or other online, with devotees claiming that the newer models did a great job, but I definitely had my doubts. The model I got is a Scott’s 20″ reel mower, which I found for $120 (shipping included) on ebay, and I have to admit I was pretty dang impressed. The thing only weighs about 30 pounds and takes all of ten minutes to assemble (just bolting the handle together) and you’re ready to roll. It won’t cut super close so if you’re into the immaculate ultra-short putting green look you’ll be disappointed, but I was suprisingly pleased with how close and evenly it cut, without a ton of pushing effort. I don’t know that I’ll use it regularly on our pretty huge yard, but the portability factor of it is pretty awesome, and I can definitely see myself using it to keep the front yard of an investment property nice and tidy.

Backing up a bit, we got to go through the Creek House on Saturday, and it does have a lot going for it. It also would be a pretty major project, as the interior was a little rougher than I expected. Below are some photos, with comments after.

As far as pluses, well, it was listed for $35,000, and it’s a ~1600 sq. ft house with some neat old features, 12 foot ceilings in many rooms, and an awesome lot and location. The exterior and roof are in good shape, so much of the work is on the interior. While it doesn’t have a furnace/air handler for central air and heat, it did at one time, and all of the ducting has already been run. Fully renovated, it’d probably sell for $120,000-$130,000, and sell fairly quickly at the price.

On the negative side, well, there’s a ton of work to be done. It’s got hardwoods but in some rooms the floors have been painted multiple times, covered with various layers of plywood, etc. New electrical needs to be run throughout, new plumbing throughout, fixtures throughout, the “kitchen” is basically non-existent, and pretty much nothing in the one existing bath is salvagable.

The layout isn’t terrible but it isn’t great, either. Of the two bedrooms, there’s not really a true master, and no easy way to expand one. Both suffer from odd closet syndrome, too, and the 12 foot ceilings make adding or moving the closets a bit awkward. There’s only the one common existing bath, so a master bathroom needs to be added.

All in all, tons of work to be done. Complicating that is the agent selling it claims they got multiple offers on the weekend. We offered $32,500 originally, but they asked for everyone to submit their best and final offers, so we bumped that up to $38,500 yesterday.

If that seems chintzy for a house that I feel will sell for $120,000-$130,000 when done, well, it is and it isn’t. It’d realistically take me at least 3-4 months to complete the rehab, with our crew, and with holding costs throw in, probably cost $40,000-$45,000 to rehab it. Back out taxes and commissions and all that other fun stuff, and we’d be looking at a net profit of around $25,000 if we could pick it up at $38,500. For a project of this size and the associated risk, that’s pretty much the limit of what I’d tackle it for, as far as a $25,000 carrot, so I didn’t feel like I could go any higher on our second offer.

So I’m not very confident that we’ll get it, as we’re likely to be outbid by a rehabber who’ll cut many corners or by someone looking to live in the house, as it’d be a good deal at even $45,000-$50,000 for someone who planned to live there and wasn’t looking to flip it.

While signing off on our second offer yesterday, our agent mentioned another property I might be interested in, which we ran over to check out. It’s a pretty standard house (2-1, 1100 sq. ft. built in the 1930s) listed at $48,500, but has intriguing long-term possibilities.

It’s on a run-down, raggedy street and is very close to a very busy intersection in town, and it’s the second house from the corner of a busy highway that cuts through town. Not great things as a primary residence obviously (and why it’s listed as low as it is), but it could actually make a nice commercial property in the future, as the layout would be great for a salon, law office, accounting office, etc. It’s very visible from the highway as is, and there’s an abandoned house adjacent to it that’s right on the corner, which if you could buy and demo and add parking instead, would greatly help with the commercial appeal of the one for sale now.

What’s nice is that it needs very little work to keep as a rental, with the main expense being adding central air and heat. Other than that, it’s just cosmetic paint and flooring type stuff, and total renovation costs would be about $7,000, and could be wrapped up in a few weeks.

Our agent had a client offer $39,000 for it, and the sellers countered at $45,000 but the buyer walked away. I could probably get it for $42,000-$43,000, but it’d work even at $45,000, as I’d be into it for about $52,000 or $53,000 after repairs, and it’d rent for $650-$700/month.

It’d cash flow a tiny bit in the short run but the main appeal is in the longer run, as far as getting it re-zoned as a commercial property and selling it as such. The other side of the same street (on the opposite side of the highway) has already been converted from residential to commercial properties, so it’s not a stretch at all to imagine the same thing occuring. With paved parking and some other touches to help the commercial appeal, it’d probably sell for around $90,000-$100,000.

We’re going to go ahead and offer $42,000 for it, even with our offer on the Creek House still floating out there, as worst case scenario is both offers get accepted and we’ll have to pick one, losing out on the $50 option fee on the other.

We’ll see how it all plays out. I’m a bit worn out from all the juggling of jobs and work of late, but hey, I do enjoy this stuff, and it’s nice to suddenly have some attractive properties pop up to get the wheels turning, as far as another project.

If I had my druthers, we’d start in immediately on another project just like the one we’re currently working on, as far as picking up a rundown house for a song, gut it, rehab it, and rent it out. The only fly in that ointment is that I simply haven’t had any success with letters to owners of abandoned houses, and there’s nothing at all like that for sale on the MLS.

I’m still not 100% comfortable tackling a true flip in these uncertain conditions, as far as a rehab geared towards resale. I am, though, about 70% comfortable, which is probably as good as it’s going to get.

Not to be entirely doom and gloom, but there are some potentially serious monsters lurking underneath the bed at the moment that could, almost overnight, kneecap any investor buying a property with a quick flip in mind. The US government nationalizing BoA, global appetite for Treasuries finally drying up (I’m looking at you, China), any sort of large-scale terrorist attack, you name it. We’re at a volatile, uncertain tipping point where its impossible to predict where anything will be even 3-6 months from now, which adds an extra element of risk to trying to flip a house profitably.

But there’s also a non-zero chance that a meteorite will strike you dead while sleeping soundly in your bed tonight, so there’s no way to ever completely evade risk, no matter how careful you are.

If nothing else develops, once we wrap up the Wee House (or get very close to wrapping it up) I’ll likely make an offer on a foreclosure that I mentioned awhile back, which is a 10 year old brick 3-2 that’s been on the market for forever, and is currently listed at $75,000. It’d be a pretty cosmetic flip, mainly paint, new kitchen countertops, appliances, new flooring, crown molding, and renovating both bathrooms, as well as a new garage door and a privacy fence in the backyard.

It wouldn’t be an amazingly profitable deal, but the numbers work if I can get it for around $65,000, as I’d put about $15,000 into the renovations, and should be able to move it quickly if I list it at $104,500 (being willing to let it go at $99,500) as it’d blow any equivalent property at that price point out of the water.

It’d also be nice to be able to throw a few bones to our contractor, even if I personally don’t see much profit at the end of the day. He’s taking it on the chin a bit on the current project as he ended up having to do more framing and foundation work than he originally estimated, and has been good about not passing that buck along to me.

Don’t get me wrong, he’s still making money, as he’s definitely the type to make sure he gets paid, but it wouldn’t hurt to pass some easier dollars his way, as far as keeping him motivated for some uglier jobs in the future.

As far as the Wee House, I did get the tub surround tiled, and I’m just waiting on our contractor to finish the sheetrock and get it textured, then I can get to work finishing out the interior. What, you say, haven’t I been talking about getting sheetrock finished for weeks now? Yes, yes I have. Does it take weeks to get sheetrock done, you say, especially on a tiny little 500 sq. ft. house? No, no it shouldn’t.

The latest episode of Contractor Drama: Life on and Off the Job Site involves his foreman, who periodically turns into a drama queen and decides he’s underpaid or that he’s too skilled to do work like sanding sheetrock. Contractor finally had enough of it and told him to take his tools and leave, foreman yelled some (then cried, begging for his job back), then finally stormed off, taking his father-in-law with him (who was also working on this job for our contractor). Foreman then showed up the next morning and loaded up all the tools on the job site, apparently in an attempt to force our contractor into giving him his job back.

So a four man crew became a two man crew, including our contractor, and he’s been occupied trying to sort out all of the above, as it’s to the point where he’s going to have to call the cops and pres charges to get his tools back. I’ve been pitching in wherever I can, so stuff is getting done, just not as quickly as I’d like. Again, the timeline isn’t critical on this project but I just can’t keep pushing back the completion date.

Moving on to other equally crazy topics, I did manage to pick up the abandoned house next door to the Wee House at the tax deed sale yesterday for $6,770, which will be known as the Crazy Larry House moving forward, for reasons about to be made clear.

I went ahead and had the title work done on it before bidding, just to be safe as far as any liens or potential title issues, since it was owned by an estate and had various city liens on it. While some liens are extinguished by the process, city liens aren’t, so in addition to the $6,770 I have to pay about $400 in city liens for cleaning up trash and securing the property when it was abandoned.

As far as the house itself, it’s a 815 sq. ft. house built in 1910, on a .25 acre lot. It’s an odd structure, as it’s basically two houses that were connected at some point in time. There’s only one kitchen and one bathroom, though, so any connective surgery was done a very long time ago and wasn’t a recent Frankensteinian attempt at home improvement. Below are a few photos:

My main motivation in buying it was its proximity to the Wee House, as seen in the last photo. I actually hadn’t been inside the Crazy Larry house before buying it at the auction, but the lot itself is worth $4,000-$5,000, and just scraping the house off the property would probably add $5,000 to the value of the Wee House, so the worst case scenario would mean basically breaking even on buying the Crazy Larry house, but removing the eyesore next door in the process.

Backing up a bit, two days ago a homeless looking guy was hanging around the Crazy Larry house, sitting behind it and drinking beer. We gave him a day to move on, assuming he’d be gone yesterday, but he was still there. While I was off buying the property, our contractor went over to tell him to shove off. I literally was writing a check for the property when our contractor called me, saying that the guy (named Larry) claimed he owned the place, that his grandmother died and left it to him, that he had paperwork to prove everything, that he’d been involved in a court case to get it back (and had just gotten out of jail the day before), yada yada yada.

Sweeeeeeet. So I went over and talked to him, and it became pretty obvious that he was a mess, as far as suffering from some combination of mental illness and/or excessive drug use. Thankfully he was very polite and non-confrontational, and it did turn out that his grandmother had owned the house, and that he grew up there. He kept going on and on about the situation, using made-up legal phrases such as “the county will eminently domainize my holdings, for the recapitulation, but you see the real issue is possession…”, but I finally got him to shut up.

I tried to not be rude about it, but basically told him he had six months to redeem the property if he paid all of the back taxes and penalties, and that I wasn’t going to touch a thing in the house until then. (Which is completely true, as any work on the place will be a complete gut and rehab, and to be safe I’m not going to do a single thing until the six month redemption period has expired.) He claimed he has the money, that the court case was just settled, and that he’ll work it out. I wished him good luck, but told him that he can’t be on the property until then, and that I didn’t want to call the cops but I’d have to do exactly that if I saw him there.

He took all of that well, picked up his stuff, and walked off into the woods. About 15 minutes later four police cars came tearing down the street, and they all hopped out, on high alert, asking “Where’s Larry?” I have no idea who called them, but they fanned out, searched the woods, but ultimately came back empty-handed.

I explained the situation and we talked a bit, and apparently he’s been a thorn in their side for years, as far as being in and out of jail, etc. They encouraged me to fill out the paperwork to serve him with a criminal trespass warning, as they said every time he gets out of jail he shows up at the property, trying to squat there. So I went ahead and did that, and now have a case number to call with if he shows up again.

Fun stuff. His sister showed up later in the day, looking for him, and just shook her head when we told her all that. She confirmed that he’s been struggling with issues for years and years, and that there’s nothing behind any of his claims, that he just seems to think his grandmother left him the house, but that the estate was long settled, that there never was a court case, or anything like that, and that he most definitely doesn’t have any money to redeem the property.

Needless to say, yesterday was a busy day. As far as plans for the Crazy Larry house, well, nothing for the next six months. The odds of anyone redeeming it are pretty miniscule, but there’s no reason to risk it. The interior is really rough so there’s pretty much nothing salvageable other than the basic structure, so I’m fine with letting it sit for now.

When it is time to rehab it, we’re leaning towards trying to buy the vacant lot next door and moving one of the structures (the older, taller one in the photos above with the weathered wood siding) to the adjacent lot, resulting in two small ~400 sq. ft. houses.  Then we’d basically gut and renovate each one, producing two simple little 1-1 houses that I’d keep as rentals. Each would rent for around $400/month, and probably appraise at $30,000-$35,000. After factoring in all of the acquisition and rehab costs, I’d probably be into each house for about $20,000.

If you’re thinking that all of this seems like a huge headache for not a tremendous amount of upside, well, you know, you’re probably right. Truth be told, though, I enjoy the challenge of stuff like this, and it’s very low-risk as far as real estate investing goes in uncertain economic times. These little houses most definitely won’t make me rich, but they do offer a chance to build up some equity and learn more about the process as a whole, and help keep my lazy butt in shape as far as doing hands-on work myself when I can get over there.

Via comments and emails generated here, as well as through random conversations, it seems that a lot of people are trying to peer into ye olde crystal ball and determine if now is a good time to buy a house, whether as an investment or as a primary residence. And that’s only natural any time you see the ginormous declines that we’ve seen in the last year in most housing markets, as the market has to bottom somewhere, and if you pick that bottom correctly you stand to make many American dollars.

The only catch is that it’s very difficult to read the tea leaves and peg the true bottom, and trying to catch a falling knife usually results in a trip to the ER for stitches. To be brutally honest, I don’t think the US housing market in general is anywhere near the bottom, and that 2009 is going to be another tough year. We’re in a pretty nasty tailspin as far as the larger economy and the real impact has yet to be felt, as far as the effects of printing money to prop up unproppable endeavors that are going to inevitably collapse (and collapse hard).

Like anything, though, the answer to the title of the post really is “It depends”. Depends on your financial situation, your goal, your long-term plans, yada yada yada. But if you put a gun to my head and told me to answer the question “Is now a good time to invest in real estate?”, my one-word answer would be “No.”

The reason, though, isn’t so much my belief that most US housing markets will show further declines in 2009, but that most people asking the question simply aren’t in a place to be considering investing in real estate. That sounds judgmental, and, well, it is. I’m in a state of constant amazement at the seemingly inexhaustible supply of people looking to make a kajillion dollars in real estate, but who have no related experience whatsoever, have no savings, a job they hate, and a mountain of debt. If there’s any recipe for failure in real estate, it’s those qualities; yet, somehow, the lure of getting rich quick continues to draw many, many flies to the honey pot.

That’s not to say, though, that you’re somehow doomed to fail in real estate investing if you have debt, or if you don’t particularly enjoy your day job, bad credit, or don’t know a hammer from a screwdriver. It just means that there’s work to do before you should ever consider real estate investing.

2009 Checklist For the Complete Real Estate Investing Newbie:

1) Get your financial house in order. Your credit score will be more important than ever, especially if you’re trying to get financing for an investment property. The days of 0 down loans for investment properties are over, and forget about using credit cards for renovation costs and paying them off when you quickly flip the house and make gobs of money. Do everything you can to reduce debt and build up your savings. And I mean everything, even to the point of taking on a part-time job for extra money. If that sounds less than fun, well, it is less than fun.

2) There is no real estate investing course or training that you can buy that will overcome bad credit and debt. At the very best, you’ll simply shift your Achilles heel to, say, your elbow, as even if you succeed at real estate you’ll still ultimately fail.

I know that sounds harsh, and I know you can find testimonials from all sorts of people who used real estate investing to get out of debt or a dead-end job. It’s not impossible to do. What I am saying, though, is that if you have the tendency to spend more money than you make, you need to address that first before you do anything else. Any success you have at real estate will mask the real trouble, and in many cases escalate it, as far as a quickening ruin when you start throwing gobs of money at someone who has had trouble managing their money in the past.

Buying expensive real estate courses or attending seminars is, for the vast majority of people, a complete waste of money. It just is. That’s not to say all of the courses or seminars are useless junk, but that the people who get the most out of them already have their ducks in a row, and are ready to put the information to use. Getting a successful start in the world of real estate investing has everything to do with you, and very little to do with how much you spend.

3) Get your hands dirty. Tackle those home improvement projects you’ve been putting off. Even the simplest projects will help you later on down the road, as far as understanding how houses are built, what it costs to fix them, and how to estimate repair costs. If you currently rent, volunteer with Habit for Humanity or help a friend with a project. You don’t have to be a master builder but a basic understanding of what goes into a house is invaluable for any real estate investor, regardless of whether you end up flipping houses or not.

4) Learn your local market. It may take some digging, but you can usually find a realtor’s website in your local market that lets you see what’s currently listed on the MLS in your area. Check it every day. If you can search adjacent areas, keep an eye on those as well. While you won’t be able to see the actual sales prices, you will be able to see what’s selling, and over time develop a very good feel for what homes are worth. I do this every day, even when I have no intention of buying anything. Over time you’ll be able to see a price for a 3-1 in a certain neighborhood and immediately know it’s a great deal and start drooling, or chuckle at some naive seller wanting way, way too much for their house. With the wonderous Internet tubes, you can do this from the comfort of your chair, for free, and don’t have to spend hours and hours driving around town.

5) It’s never too early to start lining up funding. The biggest obstacle to success in real estate is that it’s very capital intensive, even more so these days with requirements for higher and higher down payments on investment properties. Even if you don’t plan on buying anything for a year, start exploring your options now. Talk to local banks and see if they’ll extend you a line of credit. Explore any relationships with potential private investors that you may know. Look into the option of using a self-directed IRA for investing in real estate. If you own your home and have equity available, talk to a loan agent about the possibility of tapping that equity to invest in real estate. It may seem like you’re wasting all of the above people’s time, if you’re not ready to buy, but believe me, people waste their time each and every day and they’ll be more than happy to talk to you, as that’s part of their business.

6) If you own your own home, strongly consider buying a new primary residence and renting your old home out. I think 2009 will offer some amazing opportunities for people who ease their way into real estate investing by buying a home and renting out their old residence. Not only will you avoid having to sell your home in a down market, but you can pick up a new primary residence at a great price (even more so if it needs work).

The new primary residence can help you get your feet wet on the rehab side, and renting your old home is a great way to get experience as a landlord, as it’s always easier to rent a home that you’re very familiar with, as you know more what to expect on the maintenance side of things, what’s been done, what needs doing, etc.

As long as you sell your old home (that you’ll be renting) within five years –assuming you lived in it for at least two years previously — you can can exclude up to $250,000 in profit (or $500,000 for a married couple) from the sale of your old primary residence when you do sell it, as far as avoiding capital gains taxes.

Pay no heed to some of the newer studs and framing in the walls, as much of it is going to have to be re-done as that’s more stellar work that was done by the previous owner.

The owner of the vacant lot next door and an abandoned house two lots down stopped by while I was over there earlier today. I’d sent him a letter about possibly buying the two lots back at the beginning of December, but he didn’t put two and two together, and didn’t realize it was me that sent the letter.

I told him I was interested in possibly buying it but he didn’t seem too interested, and I didn’t really push things or try to give him the hard sell. He said that his brother wanted to sell it for $20,000 a few years back but he knows it’s worth more than that, yada yada yada…

The tiny little abandoned house really needs to be scraped, and the lots are both little 50′ x 100′ lots, which would together probably sell for $8K-$10K. They owe about $2,500 in back taxes, too, putting an even further kibosh on dreams of getting $20,000+ for the properties. I wished him luck, told him I’d pay him $10,000 in cash if he ever decided to sell, and left it at that. He seemed a bit offended but, hell, that’s what they’re worth and I just don’t have the time or motivation to make him understand that.

Part of the REI maturation process for me seems to be getting out of the mindset that opportunities are limited and that the universe is doing my as favor by offering up potential deals. That and realizing that some people will never, ever be realistic about what their property is worth, as it’s far too easy to build it up in their heads, as far as the money it will someday produce when sold.

With the properties I’m targeting at the moment, I’ve got virtually zero competition and, if anything, am doing any seller a huge favor in taking a junky old abandoned house off their hands, in a tough market to sell any house, much less a boarded-up, unloved one. That’s not to say I should be arrogant and lowball everyone to death and not do what it takes to get good deals done, just that it makes no sense to do a lot of hand-holding and cajoling in a market like this, especially if your expectations aren’t exactly realistic to begin with.

Spent a few hours this morning driving around and rustling up more prospects, as far as finding obviously abandoned, boarded-up houses. Added about 15 more to the spreadsheet I’ve been keeping for those, looked up the owner info online, and have letters ready to go out tomorrow expressing interest in buying them.

The jury is still out on the ultimate value in drive-by house hunting such as that, but it’s got other nice side effects such as helping me learn various neighborhoods in town better, as well as tendencies in appraisal values, and other stuff. For each one I find I enter in all the pertinent details I can grab online from the country records, as far as owner, owner address, if any back taxes are due, year the house was built and square footage, lot size, and what it’s appraised for.

If at all possible, I’d like to have another house similar to House #3 lined up and ready to roll, preferably even before we finish up House #3. Our contractor has a crew of five guys working for him at the moment and nothing else scheduled, so he’s fired up to get this one done and start another. Which is getting ahead of myself in some ways, but not so much in others, as I’ve already got a few good leads on tenants for House #3, and assuming I can find a similar small house for the next project, they’re pretty straightforward as far as the rehab.

That said, my current plan is very much in hunker-down mode, as far as looking to acquire rental properties that need much work, which is slightly mmune from the vagaries of the real estate market. I guess if we all find ourselves lining up in soup kitchen lines then I’ll put a halt to looking to acquire rental properties, but barring catastrophic developments in the economy, I hope to pick up more rental properties in 2009.

If I can acquire and rent out 5 new rental properties in 2009 (including House #3), I’d be pretty happy. That’s roughly one property every two-and-a-half months, which seems doable, as long as I can continue to find suitable properties. Unlike some areas of the country, we’ve yet to see fire sales in the general housing markets, so it’s not like potential cash-flowing rentals abound here and there, just waiting to be scooped up.

I’d also like to wholesale at least one deal in 2009. Not so much for the cash, but as a way of forcing myself to be more active on the marketing and networking front. In theory, if I can twist my own arm hard enough into doing that, I should not only find enough projects to keep myself busy, but also occasionally get extra deals under contract that are profitable enough that I can wholesale them to other investors. I can’t see our smaller local market ever really supporting regular wholesaling, but it should occasionally be a possibility if I’m doing my job on the marketing front, as far as finding deals off of the MLS via direct advertising, signs, business cards, etc.

I also don’t want to slack off on working on our primary residence, as we still have a major kitchen remodel to tackle and a master bath remodel as well. We did knock out a ton of work towards the end of this year, but I really want the place ready to list. We’re not looking to sell for another 2-3 years at least but I don’t want to put renovations off and have to scramble around if we find the perfect deal as far as the next house to move up to, as far as getting our current home ready to sell.

As far as looking back on 2008, it didn’t feel like a raging success as far as real estate goes (and it wasn’t), but man, it could have been a lot worse.

While the various contracts to buy House #1 all ultimately fell through at the beginning of 2008, we quickly got it rented and started generating monthly cash-flow. A lot of the pressure to sell it was due to ongoing work (i.e. expenses) at House #2; once House #2 was sold, I was actually slightly relieved that we’d been forced to rent House #1. After refinancing it, it’s cash-flowing about $250/month after all expenses and we’ve got about $30,000 in equity in it. Remove any financial pressure to sell it and I’m more than happy to be holding a property like that indefinitely, which is the situation we backed into.

The saga of House #2 ended well, as we finished up with a final net profit of about $18,000 on that deal, but that was more due to the real estate gods smiling on us with the perfect buyer at the perfect time. That house should have taken a few months to sell, with us eventually knocking off $10,000-$15,000 off the list price, and in all likelihood breaking even or showing a small loss on the deal.

My first mistake with House #2 was tackling it with House #1 still on the market, and I should have negotiated more on the price of House #2. Instead of sitting tight and seeing how the housing market/economy played out, I leapt into another project. And not just a simple paint-and-carpet project, but a pretty major undertaking as far as converting a 3-1 into a 4-2, adding a new master suite and bath, and other fun stuff. And without any established relationships with contractors, plumbers, electricians, etc.

Long story short, very lucky to survive, much less show a profit on it. It was a great learning experience, don’t get me wrong, and I’m very much a believer in leaping in and learning on the fly instad of endlessly talking about doing something, but that doesn’t mean you have to leap into the deep end, like I did with House #2, with many factors working against me.

And I did manage to pick up House #3 at the tail end of 2008. The verdict is still out on it, obviously, but it’s got the makings of another profitable rental property with a decent amount of equity when it’s renovated and rented.

In the end, despite all odds (and my own best/worst efforts at times), 2008 ended up being pretty successful, as far as real estate goes. I made a little money and learned a lot, and feel like I built a solid base for more success in 2009, especially in regards to what sorts of deals to pursue, how to balance risks/rewards, and all that jazz.

Despite my best efforts, I ended up going with our current agent at Allstate for the builders risk insurance policy on House #3. It’s a weird situation, as our agent is based in Austin and I have only good things to say about him, but he’s no longer just down the street now that we live out in the sticks, so I was hoping to shift new insurance stuff to a local agent. Tried two different insurance agencies, one couldn’t figure out how to return a phone call and the other seemed a go, getting me a quote on a builders risk policy and seemingly ready to roll, only to suddenly back out when I wasn’t willing to shift all of my existing insurance policies to them.

So it was back to our current insurance agent, who again, is very awesome, cool, and a pleasure to work with. The problem, though, is his secretary is like 90 years old, and she ALWAYS (and I mean ALWAYS) nearly causes doom to rain down on my head. Unintentionally, to be fair, but something ALWAYS goes wrong when I’m setting up or cancelling a policy I no longer need. No matter how clearly I explain it and create diagrams and hire planes trailing banners to tell her exactly what needs to be done, the exact opposite always almost happens.

 If I’ve sold a property and no longer need insurance on it, the policy that nearly gets cancelled is the coverage on our primary residence, even after pointedly asking her nineteen times to make sure she understood what we needed or didn’t. And so on. This time around she asked me if the agent had done a builder’s risk for me before, and I said yes, that the last house I renovated and sold (House #2) was done with a builders risk policy.

She then took it upon herself to make the leap that I was somehow talking about our current rental property (House #1) instead, and started to cancel coverage on it, working on the logic (I’m guessing) that people just have one house, so if I mentioned recently selling a house (and it was’t the one I live in), it must be the rental policy that was on our account, which I surely didn’t need anymore, having sold the house.

Face palm.

But we finally got everything sorted out, and are good to go. The policy itself was a bit more expensive than I’d hoped ($400 for 6 months of coverage) but the deductible is lower than some other policies at $250. One concern with this project is the less-than-spectacular neighborhood and the fact that it’s located in what’s essentially a cul-de-sac with only one entrance, so it’s secluded, with a wooded creek area running behind the property.  Builders risk policies work well for situations like that where you might have break-ins or materials walking off overnight, and obviously the lower the deductible the better, if you’re talking about the possibility of filing smaller claims for non-catastrophic losses caused by break-ins, etc.

My contractor is pretty much ready to roll, and plans on getting started as soon as we close, which was good news. With the holidays I didn’t expect much to happen until January, but he said he’d just hired two new guys on his crew and that they’d all prefer to work and make money, except for Christmas day, and that’s more than fine with me.

We’re still going back and forth with budgets and timelines, but the goal is still to be done by January 31st and hopefully have the place rented. Current budget is at $17,500 for all repairs, and I think I can hold that line pretty strongly without the inevitable creeping budget overages.

This blog itself has been undergoing some long overdue rehab of its own (or, you know, much pimping out of the content via links and banners), and I’ve added a few links in the sidebar to REI sites that I read myself. I thought I’d take a few minutes to list my own personal favorites, as well as some recent sites I’ve stumbled across. If you have a REI blog of your own (or know of ones I’m missing either below or in the sidebar to the right), holler at me via a comment and I’ll check it out and likely add it to the list.

Sites I Read Regularly (which are updated frequently)
conniebrz.com
Flip This Wholesaler
Chez Cliff
Live, Learn, Invest
FlippingHomes
My Real Estate Investing Adventure

New Sites (to me, at least)
TomTarrant.com
REI Startup
Flipping Southeast Wisconsin