As part of getting approval from the bank to proceed with the purchase, I put together a basic packet of info, included estimated repair costs, time lines, proposed rent when renovated, estimated cash flow, all that good stuff.

One thing that was really hammered home was the impact that property taxes can have on monthly cash flow, especially here in Texas where we’re blessed with some whopping property tax bills. While property taxes are to some extent an unavoidable part of doing business in the world of real estate, they can (and should) definitely steer your search when looking for new properties, especially if you’re looking at rentals (or flips to sell to wanna-be landlords as opposed to owner-occupants).

When House #3 is renovated it’ll be a 2-1 650 sq. ft. home that should appraise for about $40,000. As I’ve mentioned previously, it’s currently appraised by the county at $5,830, and the property tax bill for 2008 is $154.99. While the county will eventually get around to realizing it has been renovated and increase the appraised value, that could realistically take them 4-5 years, and could even be longer than that.

The only other similar comp I can find is for a 2-1 600 sq. ft. home that sold back in June for somewhere around $35,000-$40,000 (it was listed at $45,000 when it sold but I doubt it went for that), which is appraised by the county at $36,500 and has a 2008 property tax bill of $1,080.

Both houses would cost roughly the same to acquire and both would rent for about $450/month. But due to the much lower appraised value and property taxes, House #3 will cash flow an additional $75/month when compared to the other house, solely based on the difference between property taxes, with all other factors being roughly equal.

That’s not quit-your-day-job money as far as the difference, but it’s a pretty decent chunk. And yeah, the above is all very obvious and straightforward, but it is definitely making me look at prospects in a new light moving forward, as far as what I want to tackle in 2009.

I think there’s definitely an opportunity to go after more beaters like House #3, especially if I’m looking to acquire rental properties. And the real opportunity there is that they’re not hard to find, as opposed to waiting around and sifting through the MLS trying to find something where the numbers can somehow work.

Really, though, at the heart of the issue is that I need to get more active about finding properties outside of the traditional MLS/listing agent universe. I keep dragging my feet on that as the one side of the real estate business I don’t enjoy at all is the whole, you know, talking to people thing. Love searching for houses, planning renovations, and even doing the actual work; hate having to somehow sell someone on why they should buy or rent the house or loan me money.

But I’ve got to find a way out of that mindset, in the current economic climate, and especially if I’m going to focus on really beat up, likely abandoned properties. Owners could most definitely use a little money in their pocket from unloading them, but they almost never try to sell them via an agent on the MLS, especially if you’re talking about an old abandoned house and small lot that might sell for $5,000-$10,000.

Kind of an odd sale as we “closed” on May 30th, signed all the papers, but had been waiting for the state of Texas to wire the funds to the buyers officially seal the deal, which kept getting delayed “one more day, we swear”. And then another day. And another. And another.

So I’m not quite as overjoyed and doing backflips as I’d have imagined, but it’s definitely a relief and feels good to be done with it. Given all of the delays and assorted headaches involved with the project, I don’t feel right in claiming any huge victory, but we did come out of it with a pretty decent final profit of about $18,500, after taxes and fees and assorted other expenses.

Which isn’t bad for a relative house flipping rookie in the current market, and definitely worth being happy about. And I am. Still on the fence a bit as far as what’s next in relation to real estate, so I don’t have a lot of giddy future plans to share, but definitely happy to notch one up in the sold category, and pocket a little extra money.

Which is annoying in and of itself, but more so because the buyers are using the downtime to create list after list of “repairs” they want done. I just finished List #5. Each list has had about 5-6 items on it, with nearly all the items to be “repaired” along the lines of “Caulk top of shoe molding trim on left side of closet in second bedroom.”

When the minor nature of such repairs on the lists is pointed out to them via their agent the response has been “But we’re paying full price.”

Well, yes, yes you are. And that’s the only reason I’m largely biting my tongue and continuing to address the nine million tiny things you find going over the house with a fine-tooth comb. Well, that and the fact that you’re paying in cash. But my tongue is getting a bit sore and, well, you realize that at some point you will (hopefully) own said house, right? And that I’m not going to be there to continue to do things such as “raise height of water spigot in backyard 12 inches so as not to have to bend over so far”? Right?

But yeah, it could be much worse, all things considered, so I can’t complain. Just want to get the thing closed and done and completely and utterly out of mind and finished.

I’m waiting to get House #2 sold and House #1 refinanced before tackling any major renovations at the house we live in now, but I have been slowly tackling the fairly ginormous task the last few weeks of cleaning up, de-cluttering, boxing stuff up for a yard sale/Goodwill donation, and generally trying to get our house in order. I’ve been so busy working on other houses for the last year or so that things have gotten pretty out of control at home as far as crap perpetually being stored and/or strewn everywhere, so its kind of nice to dig into stuff with some order slowly being restored.

As far as assorted real estate stuffs, we actually managed to get House #1 rented about a week ago, while I was still in Vegas. It’s only a six month lease but it was pretty spur of the moment, as the guy renting it is re-locating from Dallas and his other plans fell through at the last minute, so he needed something quick and easy for six months while he can sell his house in Dallas and find something to buy here. Not optimal but his application and credit was pretty spotless, he just got hired as a manager at a local plant, makes good money, etc. I’d have preferred a longer lease but it’s a decent band-aid to get it rented and get a tiny bit of cash flow moving, and a good bit more once I get it refinanced.

The sale of House #2 is still chugging along. The buyer’s had their inspection done and it didn’t turn up anything too major. They requested some repairs and nearly all of it has been knocked out, except for some electrical stuff their inspector was just flat out wrong about. He noted several things that he considered not up to code but it only applies to new construction, and the city has already passed us on everything he noted, and we called them out again just to be positive that the stuff he noted was in fact kosher and fine. So now we’re going back and forth a bit with the buyers trying to get the electrical stuff excluded that should have never been in his report to begin with (but which they’ve obviously seen and are concerned about).

All in all, though, the inspection report was pretty clean and all systems are still go for hopefully closing in the next week or two. Which will be a pretty huge relief, financially and psychologically, as I’m really, really ready to be done with that place.

Before Photos

After Photos

Not the best way to view it, I know, but I just don’t have the time to do the extra Wow! thing and place them side by side, so this’ll have to suffice for now for those curious about real proof of the beast of a project that’s kept me busy for months.

The buyers are scheduled to do another walkthrough on Thursday and hopefully everything will be to their liking and we can get serious about setting a closing date. Since they’re paying in cash we can blessedly skip underwriting hell, so I’m keeping my fingers crossed for a pretty quick close.

It’s been kind of nice to gear down slightly over the last week or two, with stress levels dropping dramatically and a chance to recover physically a bit after a fairly intense 3-4 weeks there tiling, grouting, and refininshing hardwood floors. My hands are actually clean and grout/paint/stain-free for the first time in, oh, probably a month or two.

As far as future REI scheming, I’ve been mulling that over in my head a lot of late. The short term plan is definitely NOT to run out and buy another house, as I have to get House #1 rented and re-financed, and there are a ton of upgrades I’ve been promising my very patient, very awesome wife to do on our own house.

What I’m unsure about, though, is just how far to go with upgrading our house. I’m considering tackling some pretty substantial projects, such as a complete kitchen upgrade, adding a workshop/guest house in the back, adding a deck, etc., and am currently rolling around the idea of doing all of that and then refinancing our house as well to extract some equity to build up more capital in the war chest to go after REI pursuits.

I can’t get as excited in the past about the prospects of flipping more properties, but some of the foreclosure listings out there are pretty dang attractive right now. There’s too much economic uncertainty floating around for me to feel comfortable tackling another flip like House #2, but I think with the right game plan I could make a go of picking up beat-to-hell foreclosures for cash, rehab them to the point that they’re rentable, rent ‘em, do a cash-out refinance to get my cash out, and rinse, lather, and repeat.

 I looked at a couple of foreclosures the other day and one was listed at $30,000 cash for a 3-2 1400 sq. ft. house on a .3 acre lot. It’s definitely beat to hell but it’s far from a scrape and I could probably get it for $25,000, put $15,000-$20,000 into it, rent it for $700/month, and get a loan to get my cash out, as similar houses in the neighborhood appraise for $80,000-$90,000.

I’m pretty bullish about the long-term prospects of property values in our area 5-10 years from now, and picking up a bunch of rentals at (hopefully) artificially depressed prices could be a very good thing. I’d be giving up any short-term dreams of flipping houses for a living as a full-time job, but that’s increasingly a bit of a pipe dream in the current market that we’re in.

I ran all of that by Contractor #2 and he’s pretty much on board and willing to scope out potential properties with me, so we shall see. The biggest issue is speed, as far as cranking out projects like that, and while I’ve been happy enough with Contractor #2′s work, I’m not completely convinced that he can scale up and hire the folks to knock out a complete remodel job in 3-4 weeks, but he claims he’s run crews of up to 18 guys in the past, cranking out 25+ houses/year, doing exactly the sort of work I’m considering, so we shall see.

That’s obviously getting way ahead of myself, though, as all of the above (selling House #2, renting and refing House #1, and upgrading our own house) has to happen before I’m allowed to even contemplate buying another investment property.

I’m still pretty much in a state of happy shock, as I really couldn’t have scripted a happier ending to the adventures of House #2. Assuming everything goes through with a minimum of hitches, this’ll also be a pretty profitable deal, with a final profit after commissions and taxes and fees of just shy of $20,000.  Which I’d gladly take in pretty much any situation, but especially given that I bought House #2 back in October 2007 when the financial landscape was much rosier, not to mention all of the bumps in the road during the renovation process.

Before I pat myself on the back too much, though, I definitely am aware of the luck factor/even-a-blind-squirrel phenomenon in play here, as it’s looking like I definitely benefited from having the right house in the right place at the right time with this deal. It’s hard to take much credit for a family being dislocated by state highway construction with a load of money in their pockets looking for pretty much exactly the house (an older 4-2 in town with over 2,000 sq. ft.) that they’re looking for. They apparently even were specifically looking for older houses built in the 40s, 50s, and turning their noses up at nicer (but blander) new construction that looks better on paper, preferring instead an older home with some character. Can’t really take a lot of credit for all those happy collisions of wants and needs.

On the other hand, I’d be selling myself short not to give myself some credit. Aside from all the personal labor and blood, sweat, and tears necessary to drag this thing to the finish line, I did manage to see the potential in a big 1900 sq. ft. 3-1 (but with a terrible layout) that hadn’t been updated or painted since the 1960s and managed to turn it (kicking and screaming) into a pretty damn nice 2100 sq. ft. 4-2, with a master suite, laundry room, and other nice touches, without completely breaking the bank. I definitely dropped the ball on the execution at different points, and left more than a little money lying on the table due to my own inexperience and learning curve, but I did get more than a few things right.

But it ain’t sold yet, so no counting of chickens.

So, umm, yeah. Good news. Amazingly good news, even, on a couple of different fronts. We haven’t even listed the house yet, so the “list price” was just a number we stuck on it for a city-wide tour of open houses that happened last weekend for our wee little town’s “Rites of Spring” celebration. I was planning on actually listing it at something like $146,500-$147,500, so an offer for $149,500 is a nice little unexpected bonus.

It’s also an all cash offer, which I won’t bother commenting on the benefits of, as that should be pretty obvious.

The potential offer is coming from a family that I’d mentioned here before, who were looking to find a 4-2 in town to move into with their mother, who was uprooted by a big honking toll road that the state is building in our neck of the woods. They’re apparently getting cut quite a big check by the state, thus the cash offer. I’ve actually heard some crazy stories about the payouts some people are getting, stuff like people who are renting getting paid $5,000-$20,000 for being dislocated, and home/property owners are getting paid out generously as far as not just getting fair current value but also projected appreciation for the next ten years.

The only hitch (and why the offer is still on their agent’s desk, which I know because he works in the same little office as our realtor) is that the state wants to cut a check to the mother and the children, as the husband/father died recently without a will, and the property was in his name. The family wants the money to go to the mother, and for her to be listed in the offer as the sole purchaser, so they’re seeing if they can basically assign their rights in the peoperty to the mother, etc.

Normally legal talk like that would scare me but in this case it’s pretty straightforward, as the kids and mother are going to be living in the house together, so it’s not a case of one kid wanting cash, another wanting to buy the house, a third on the fence, etc. All their interests are aligned so it should be pretty straightforward to work out.

Another nice perk is that our realtor and the other agent agreed to give us a break on commissions, so we’re only paying 4%, as the house was never listed or marketed, and it was a bit debateable as to whether or not I brought the buyer to them myself (they’d technically been in the office before they talked to me, so it was a bit of a gray area as to whether they had an agent or not).

But yeah, technically no offer yet and we definitely haven’t closed yet, so I’m trying not to get ahead of myself. But pretty damn good news nonetheless, and definitely very encouraging. Fingers crossed.

As far as the house itself, still a few odds and ends remaining to be done, but it’s mostly there. Finally. One solid day this weekend should wrap it up, then it just needs a good cleaning and I can snap some photos and pretty much call it done, done, done.

I’m not one prone to wasting much time patting myself on the back, but the house does look damn good. Photos to come soon, once everything is completely done, cleaned, and de-cluttered. I can’t say that I haven’t wanted to just light and match and walk away from it at various points, but regardless of what the bottom line numbers work out to be, the finished product is a very nice house that some family will enjoy, that’s a far, far cry from the original state when I bought it.

Before any of you lurking haterz seize on that last statement, the numbers aren’t looking too terrible as far as the budget, even with contractor woes factored in. Total investment is going to be about $31,000, which includes repair costs, mortgage-related fees, carrying costs, utilities, pretty much everything.

That’s a good bit over my $25,000 budget that I was so proud of, so boo, me. A lot of that overage is from the plumbing work, which I simply didn’t have enough experience to budget correctly, as far as what it actually costs to add a new bathroom. I also didn’t budget in a new larger water heater, thinking I could use the functioning (but too small for two bathrooms) existing one. Again, boo me.

The bulk of the remaining overages were from Contractor #1-related woes. Again, boo me. Thanks for all of the comments and feedback regarding paying contractors hourly, and all of the ways that can go wrong. Lesson definitely learned there. Not something I’ll ever do again.

To be slightly fair, though, there is another side of the coin to the situation. Not to make excuses, but I did get a lot of value out of the hourly arrangement at a few points in the project, especially with the trenching work for the bathroom addition and jackhameering and sawing out the concrete for the bathroom addition. I got bids from assorted contractors at the beginning of the project for that work and they were running in the $4,000-$5,000 range for knocking out both those jobs; I ended up paying Contractor #1 about $750 in labor/equipment rental costs for tackling both, so I did gain some ground there.

But overall, yeah, not a smart way to go, and not only was it my fault for allowing it to happen but doubly my fault for not pulling the plug earlier when it became clear they were seriously dragging their feet on the sheetrock and other finish work.

As far as other budget overages, it mainly was the death by a thousand cuts that sneak up on you, as far as not budgeting correctly for all of the little things towards the end such as smoke alarms, a new mailbox, outlet covers, new doorknobs here and there, etc. My Misc. category wasn’t anywhere as large as it should have been.

Planning on listing it at $147,500, so I’m not looking at making much money when it’s all said and done, with an original purchase price of $85,000. I’ve learned a lot, though, and would definitely be in a spot to make much more if this same deal cropped up next week, as far as managing things much better, having a reliable contractor and plumbers lined up, etc. So yes, indeed, I’ll very likely not have much to show for all of the weekends and hours I’ve put in working on the place, and could very much view it all as a “failure” from a dollars and cents perspective of an investor.

But, in the end, I’m okay with that. There’s something to be said for giving things a whirl, instead of always sitting on the sidelines pondering giving things a whirl or chunking rocks at anyone else who dares to do the same. I’m definitely going to take a break from all things real estate for awhile, but I’m also too stubborn to just throw in the towel.

The showing for House #2 on Sunday is actually fairly encouraging, but I’m at the stage where I’m not getting excited about anything other than a signed contract. The lady is looking for a 4 bedroom in town to move her family into along with her elderly mother, who was recently imminent domained out of her house so the state can build a toll road. So coming up with a down payment apparently isn’t an issue, she’s pre-qualified and all that good stuff and seems to really like the house, and has been by three or four times asking me when I’m listing it, begging me not to sell it before then, yada yada yada. Again, we’ll see when a contract is signed, but hopefully this thing will move fairly quickly and not sit on the market for too long.

One nice thing about central Texas is that housing has remained fairly stable throughout the whole housing crisis hullabaloo, so there’s a decent chance I can get the place sold reasonably quickly, as it’s pretty hard to find 4-2s with 2000+ sq. ft. in town for less than $160,000-$170,000, so hopefully I can generate some interest by keeping it in the mid $140s. We shall see.

1) Contractor #1 is gone as of last Friday. Contractor #2 is now on the job and finishing up the last bit of framing, door casing, and odds and ends that Contractor #1 was supposed to finish two weeks ago.

2) Inspection situation isn’t as bad as I thought. I talked to one of the city inspectors and because we didn’t add any new foundations or any major new framing (other than the two walls we added to sub-divide existing space), there was no need to get the framing inspected, and everything else (mechanical, electrical, plumbing) is up to speed and fine. All we need to do is call in for our final inspection when we’re ready for it.

3)  Everything should be wrapped up in a week. (Hah).

 I’m too tired and worn out for a detailed accounting of all the fun, but things had been heading south over the last month with Contractor #1. He and his crew were good at framing and similar nuts-and-bolts work, and I was happy enough with his work over 80% of the project, but I never should have let them tackle the sheetrock and other finish work, as it became pretty clear they weren’t experienced with that. I didn’t want to switch contractors mid-job so I kept listening to assorted excuses and promises that it’d get done for too long.

He also insisted on trying to get by with hiring family members, friends of family members, etc., for his crew, even if they weren’t that experienced. It became pretty clear that a lot of the delays were due to him not being willing to pay top dollar for fast, experienced men on his crew. Again, I should have let him go a month ago, as all the signs of trouble were there.

When he showed up on Friday with yet another set of extended family members, telling me that his son-in-law (who had been the only really productive person on the job site for weeks) had quit and was off the job, that was pretty much it, and I told him to finish things up and that we’d call it quits. Tried to keep things fairly civil, and told him that I’d be bringing in Contractor #2 to finish things off, as well as possibly his son-in-law to help me with the remaining tile work, as he’s still the general contractor on the permit, so I felt like I was obligated to let him know.

I ran off to haul some trash off, came back 15 minutes later, and he was on his cell phone. Turns out he was calling Contractor #2 and his son-in-law (who’d he nearly gotten into a fist-fight with twice the previous day on the job site), asking them to come give him bids as sub-contractors to finish the work. That’s about when I semi lost it, and said something along the lines of: ”Dude, you’ve got awfully big balls to try to sub the work out that you couldn’t get done at this stage, right after I tell you you’re basically fired and that I’m bringing other people onto the job to finish your work.”

He said he was just trying to watch out for me, that he felt bad about not finishing the job so he called them as a favor, that he’d stay on them and make sure they got the work done, yada yada yada, with absolutely no sense of the irony that was pretty thick in the air.

I finally managed to pry him out of there late last Friday and things have been rolling along ever since. Obviously pretty disappointing and frustrating, but, like much of this, a good learning experience. Pushing hard to just get the damn house done now, so pretty long nights, but the end is in sight.

We’ve got a good lead on renting House #1 and are just waiting for the lady to return the application. Again, kind of disappointing that we didn’t get it sold but them’s the breaks, and renting it out should cashflow a couple hundred bucks a month, and hopefully I can refi it after House #2 is sold and get some of the repair expenses out, and have a decent little rental property.