Friday, June 11, 2010
Big things: Fourplex!
Almost a week after my graduation, J and I received some exciting news: we had final bank approval for us to purchase our fourplex!
Months ago, J and I decided we wanted to buy a fourplex, but we wanted to get a good deal on it. We analyzed the different properties that were available (over several months). J made a spreadsheet that calculated anticipated mortgage amounts, evaluated the rent collected for each unit, and produced a decimal to indicate how well it would pay for itself. We realized that most of the really good deals seemed to be short sales.
We didn't know much about short sales.
We learned all about them.
Basically, in a short sale, the seller owes more on a property than it is worth. Usually, the seller is about to go into foreclosure because they are in default on their mortgage, and they can't sell the property (because nobody will buy it for the amount owed). So they try to sell it at the amount it's actually worth, instead. It's usually in the bank's best interest for a short sale to happen because if the property goes into foreclosure, it will still only be worth the current value, and having to sell it and deal with it will cost the bank even more money. It's kind of a win/win (or lose-less/lose-less?) situation, because the seller avoids foreclosure (which looks really bad on a credit report) and the bank avoids the extra expense of foreclosure.
In order for it all to work, though, everyone has to cooperate. A lot of times they don't. In order to do a short sale, the seller needs permission from the bank(s). Especially if there is a second mortgage, it's tricky, because sometimes the first bank would be totally paid off if the foreclosure happened (since the second mortgage is paid after the first one), so they don't have a lot of incentive to cooperate for the short sale.
Our real estate agent told us we should be prepared to wait a long time to hear back from the banks, even after our offer was "accepted" by the seller. It usually takes them months. And even after that, the price isn't always approved. We put in offers on a couple different properties. One of them was accepted, but we canceled that offer because once we got inside, there were cockroaches and mold all over the place. (No thanks!) We waited on the other offer, though.
It took about 3 months for us to hear back from the banks, and they said YES IT WAS APPROVED BUT WE HAD TO DO IT ALL IN 15 DAYS OR ELSE. If we didn't close (and fund!) in 15 days, it was going to cost us $2500 more.
So right right after I graduated we got approval, and we hurry-hurry-hurried to get everything together. We had the home inspector come out on a Monday, got the home inspection report on Tuesday, had the appraisal on Wednesday, finally got the appraisal back on Friday. On the following Monday I set up insurance. We met with the seller a few times to pick up maintenance stuff for the fourplex, and we were going to close that Wednesday, but it got pushed to Thursday, and then it finally happened. The whole thing was all such a whirlwind!
Since then, I have stayed busy with fourplex things.
- I started my own business (an LLC!) to handle J and I's property management stuff. I set up a business bank account and a PO Box.
- I read up on A LOT of different landlord/tenant laws, and became VERY familiar with our tenants' leases (we have to honor the previous owner's leases). I developed and had our people fill out Property Condition reports, and Tenant Update forms.
- I installed smoke detectors in all of the units. I bought seismic bands for the water heaters (and was going to install them, but it turned out I didn't have the right tool at the time.)
- I bought tools!
- J and I met with the previous owner to learn how to summer-ize the evaporative coolers. It was nice of him to show us. We realized that when we summer-ized our evaporative cooler*, we actually didn't. [More to follow about that...]
- The previous owner also showed us how to use the sprinkler system, so we turned the water on for the summer and found out a sprinkler was broken. (So I learned how to fix sprinklers! I replaced some broken pipe. J helped with part of it.)
- This week, I repaired a broken drawer and performed maintenance on a dishwasher. Then J and I replaced a dishwasher a couple days ago, and yesterday I replaced the elbow thing on the new dishwasher, and I used teflon tape for the first time.
- My next projects will [probably] be: making and installing a bunch of screens (a few of the units are missing screens) and re-painting the parking lines in our little parking lot.
I am becoming so handy!** Also, I am making friends at Home Depot and Lowe's.
It seems to take a lot of time to learn how to do each new thing, but after each repair (or repair attempt!) I understand so much more about how things work. In the future, repairs will be quick and easy, and soooo much cheaper than if we were to hire repair people every time anything breaks.
In the past, J and I have sometimes talked about having me do property management. Recently, we like the idea even better. Instead of looking for a job now, I am studying to get my real estate license.*** To be licensed, Utah requires people to complete a 120-hour real estate course and then pass the state and national license exams. So. I signed up for one of the courses that is available both live and online (to mix it up a little bit), and I've been getting started with that. I'm going to try to finish it over the next couple months.
* You know, by just changing the pads. (LOL)
** Also, I am making friends at Home Depot and Lowe's. Since their employees have to walk me through all of the steps of my projects when online instructions are insufficient. Actually, the HD master plumber knows me now. In the past couple weeks, he and I have talked several times, for probably a couple hours in all. What a guy! He really knows his stuff.
*** In Utah, in order to manage other people's properties you need to have a real estate license.