GAME OVER?

Rehabbing, Fix and Flip, Rental Properties
1

Hi all. I hope everyone is doing O.K.

My wife and I are still pretty much “Newbies” in REI.

Here is a run down of how my & wife I got into this sticky situation:

[i]We got a package deal and purchased two houses at once.

Well, we expected one of the houses to have a tenant already in it. Our mistake was not getting that in writing. We closed on the house and the next day, discovered the tenant had moved out. So we found ourselves having to cover a mortgage that we were not prepared for.

It has taken the previous owner 2 months to finish repairs on the house. The owner was to complete all repairs, that was part of the contract. However, I did not have a specific time frame regarding when that was to be finished, so we have had to cover 2 months of mortgage on one of our rentals because the repairs were not complete and the house wasn’t ready for any tenants to move in.

Dealing with the previous owners has been a real headache and the deals have just left a bad taste in our mouths. We are having a hard time finding tenants to move in, the amount we are asking for rent is too much, but if we decrease our asking amount, we’d be taking a hit in the pocket.

We just want to move on and find other deals. These houses are costing us too much in time, money and gas! [/i]

We almost saved oursleves. We had a tenant in one house for a little over 2 months and she was not Paying rent so we gave here the BOOT. I got another person in the 2 BD\1 Bath on a month to month and looks like he found another place after living there one month. Now no one is either of the houses.

The reason I titled this Topic 'GAME OVER" is the bank that loaned us the money, there knocking at my door. Foreclosure is set for April and we have written a letter that explains what happened to go along with our last attempt to save my credit. My question is, if we go into Foreclosure, is The Game Over (REI) since I would have 2 Forclosures on my credit?? If not where do we begin after the Foreclosure process is complete??

2

Ed,

Unfortunately, this “game” appeared to be over before you even started. Clearly, you weren’t ready to begin a REI career. You seem to have bought into the guru non-sense that REI is easy and that the goal is to simply buy something and things will magically work out. REI is NOT easy! It requires serious study and serious work. Only a VERY small percentage of newbies are ever successful. You won’t hear that on an infomercial because it doesn’t sell many REI courses - but it IS the truth.

For future educational purposes, here are the mistakes that I see you’ve made:

  1. As you pointed out, you should have determined the status of your rental before you purchased it. However, having “a tenant” already in a rental property that you purchase may not be a good thing. In fact, having a bad tenant already in a property can be much worse than buying a vacant property. Having a good tenant is the key. Finding a good tenant can only occur with proper screening. Always know the status of the tenants in a property that you’re purchasing. Read their lease and talk to the tenant.

  2. You should have done a proper cash flow analysis before buying the property. Apparently, you’re asking above market rents and therefore can’t fill your rental. This tells me that you won’t have proper cash flow even when it is rented. Cash flow is everything with rentals.

  3. You MUST have reserves when you operate rentals.

  4. Rentals are headaches every single day. In fact, that’s what we get paid for - for dealing with the headaches. If you already have a bad taste in your mouth and want to just move on - rentals are definitely not for you!

The game is indeed over. I’d try to work out something with the bank such as a “deed in lieu of foreclosure”. Offer to pay them back for their loss over time. Try hard to make things right. It is VERY difficult to be an investor if you get the reputation of not paying your debts!!!

If you still want to invest in REI, do some more studying, rebuild your credit, and save some money. Join your local REIA and network with some successful investors (not other newbies). Plan to work VERY VERY HARD for a few years. Learn to run a business, because REI is a business.

Good Luck,

Mike

3

Thanks alot.

4

I was in foreclosure in 1999 but got caught up and kept my home. The foreclosure still showed on my credit up until the end of last year. I worked on my credit and had everything on my report updated and a lot of things removed. All my current credit card bills and anything that could hurt my credit was being paid on time. My credit score is 700 right now and I have 2 mortgages and I have 6 properties and I am working on more investments. I have just started developing, I recently purchased 3 acres in PA.
I am not saying you should keep investing, I just think you can get your credit back if you try. I don’t know what state you are in and I don’t know how long the foreclosure process will be in your situation but try all options before letting everything go south!

5

game is never over…although it can be delayed!! keep your chin up. experience is a great teacher just learn from it.

6

Great response Mike. I talk with new investors all the time that are looking for financing. However, when we work the numbers it will sometimes not be economically feasible for them to complete the transaction. I have had some get angry with me when i tell them that I will not do the deal for them because of the parameters.

Getting started in REI takes making a leap of faith and commitment. I sure do not want to see situations like the one that Ed experienced occur. It is better to do all of the proper leg work and feel good about the deal, than just doing it to do a deal.

Ed keep your chin up! You can and will make it through this. Contact the Lenders, as was mentioned previously, and see if they will help.

GOOD LUCK! :wink:

7

Thanks again for all your responses. My credit was spotless until this situation and the foreclosure is set for April so it hasn’t happened yet. I am keeping contact with the Lenders and they are trying to work with me so my credit isn’t shot yet. I am just getting prepared for what may happen.

This is something I would like to continue doing. I made a lot of mistakes and I have learned from them. Now I know what to do if I am given a second chance. I have never experienced anything like this so it is all new to me. I tried everything I could to keep this going and yes I was screwed over by these people because I was a new REI but I am not giving up.

Again thank for your time.

8

I knew it wasnt easy. I am a man who works hard everyday. And no I didnt see some program on t.v. late at night and decided to just do this. I thought this through before I made my decision but the people I worked with with this deal were shady people and took advantage of me. It will not happen again.

Thanks again for your response.

9

Ed,

Just remember the MOST IMPORTANT RULE of REI:

“Trust, but verify.”

In other words, due diligence.

Of course this comes from someone who has yet to do a deal… but I’m working on changing that :wink:

I bet that this mistake will never happen again!

10

Good luck Ed,
I hope it works out for you. Has the bank given you any advice as to what to do or are they just a shoulder to cry on?

Have you tried to sell the properties? Is that an option?

What about a shortsale to another investor? Will the bank consider this.

I don’t know anything about the properties but someone out there may be interested.

That could help save your credit.

I guess I would advise you to get the properties on the market ASAP no matter what’s going on. A lot of times they will allow YOUR realtor to continue to market the property and will allow a short sale to be negotiated some time down the road.

I came across a home yesterday that has been on the market for a year and a half. It was forclosed on some time just after it went on the market. The owner is still living in the home and the agent that the owner hired is still marketing the property.
I’ve also got an offer in on a small condo that has been closed on that the owner is still living in. We are negotiatin a short sale currently.

Moral of the story if you get it on the market the bank may be willing to work with you a little more seeing that you are trying to sell it. ???

It’s worth a shot.