Newbie needs advice

First of all my name is Sean Mathes and I live in northern Colorado and I am new to this board. I am trying to get into REI and have already begun by purchasing my first flip. I started the process before I had read anything on the boards. I thought that I was well equiped with a finance degree and sales background but as they say there is no substitute for experience. Man do I feel like I barely know anything. I will start by explaining my finacial situation.

One year ago I purchased a home that I am currently living in. I don’t like the property at all but unfortunately I am stuck here for another year as I have a pre-payment penalty on my mortgage for the first two years. I want to rent this property for another year until I can sell it in another year.

I am working on my first investment property right now which is a HUD home in Longmont CO. They were asking 126,500 and my realtor advised me that we should offer $126,500 and ask for seller concessions of $3,800. I feel somewhat now that I probably could have gotten it for less but my realtor convinced me that it was a “great deal”. It needs about 5k worth of repairs and I am pretty sure that the ARV will be around 170k. I found 10 other properties in the area sold in the last two years in that area and none were less than 170k.

I have had so many problems I don’t even know where to begin. I started this process near the beginning of November and probably won’t close for two more weeks. I am currently on my third lender, third appraisal, one inspection, second realtor, lease contract for a renter for my current home, estimates for repairs, and am so fed up with all of the problems.

This is a fixer up but only needs cosmetic repair. Some missing carpet, paint, and there was a small amount of mold only on the interior walls but that has been mitigated.

Most recently the lender has asked me to escrow for all repairs, they want one and a half times the amount of the repairs, and also today I found out they want another $300 fee just to put this in escrow.

I am doing an 80/15/5 with citigroup. I am just getting really nervous as it seems that absolutely everything that could go wrong has gone wrong. I know that there can’t be any emotion but at a point you just start to have a bad feeling.

I currently work full time in corporate sales I am making 60k salary but with all of my bills after buying this property I will be at about 50% debt to income.

My credit is 750. Not exactly sure what I am asking but I would really appreciate any input on my situation and whether or not I should proceed with this purchase. I just feel that I have put so much time into this and a fair amount of money with earnest money, extensions, appraisals, inspections I feel that I should stick it out.

I APOLOGIZE FOR THE LENGTH OF MY POST

Sean,

If it cheers you up any, I looked at the bid stats for HUD homes in Longmont…most properties are going for nearly asking price (some a little more than list, some a little less), so your Realtor probably didn’t hurt you much.

What is happening to you happens to a lot of REIs, the newbies and the old pros. That is why you’ll see advice in here to make sure that you have adequate reserves built in to your figures. Everything costs more than what you think it will and everything takes longer! Always.

If you’re gonna flip it, I recommend just sucking it up and getting on with it. What’s done is done. Write it down and don’t repeat the mistakes, The good news is that, as long as the RE market is decent you should be out in no time and will have made a few bucks. Sometimes the first few “educational experiences” don’t pay like you think they will, but just call it the cost of a good education.

As for your private residence, try to hang on until you’ve been there over two years. That way when you sell, you won’t have to pay capital gains taxes, either.

Keith

The whole point of this deal for me was to anticipate the down side. From what I could figure worst case scenario I have to pay the mortgage for a little while and I can afford to do that with my income. It just seems that the more I think about my situation, I feel that I will be sinking a lot of cash into the deal along the way and everything that I have read recently is that you shouldn’t do that. But you are right I will keep plugging along and will hope to make a little bit and consider it the cost of educating myself.

Knowing what I know now I should have just put a contract on the property and sold it to an investor for 5-10k. Any thoughts on this guys?

Going conventional really doesn’t seem the way to get deals done fast and efficiently that’s for sure. I can’t believe the hoops that I have had to jump through and this house isn’t even in that bad of shape. Imagine if my credit wasn’t as good.

Well, at least you’re ahead of 90% of would-be investors - you did a deal…

Keep plugging away, you’ll be fine.

Keith

Keith,
Where did you get the info for the HUD housing stats?

Sean,

I went to the HUD website (www.HUD.gov), then clicked on “HUD Homes”. From there, I selected “Colorado”. That too me me to:

http://www.mcbreo.com/st_comain.htm

Then, I clicked on “Bid Statistics”, went to the next page and selected “Longmont”…

That too me to:

http://hud2.towerauction.net/cgi-bin/e7_select_stats.cgi

Yes, all for you! LOL…

Keith