Some Good Personal Finance Habits

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I saw this post and thought about my community. This post has input from users around the personal finance internet community and solid steps they took to getting their finances in order, as well as links to other articles that would be of help. Check it out and let me know what your thoughts are.

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Keep Plugging Until You Get to the Closing Table

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Docs, docs, docs. Lenders never seem to get enough documentation. And this was supposed to be a simple deal. Well, in theory, there are a lot things that are simple, but when you get down to actually doing it, things get a little hairy. My lender told me yesterday that they needed to have a copy of the insurance binder, a letter of good standing for the LLC that the properties will be listed under, and that the appraisal STILL hasn’t come in. So I went to work.

We had quotes on insurance costs already, so we went to the insurer and got them signed and paid. So the insurance binder was turned in the same day. So one thing got crossed off the list. But the state showed the LLC not in good standing because of a franchise no tax due statement had not been filed. So we got with the CPA, got the appropriate forms filled out and signed, and went down to the state comptroller office. But the office was closed that day for the Christmas season.

So that shot down our hopes for a Friday close. So today, I got the forms turned in, and the statement of good standing from the state, and faxed it to the lender. I confirmed with him that there was nothing left except the appraisal, which as of today, has STILL NOT been submitted. I wonder what my appraiser is doing…he viewed the properties 5 days ago, and still hasn’t put together the documentation. I guess we will see, stay tuned…

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Wrapping Up Your Real Estate Closing

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With Christmas, it has been tough to get my deal on the 4 units “wrapped” up. I talked with the lender today, and he is missing the appraisal, the insurance binder, and a letter of good standing from the state for the LLC we will be buying the property through. My lender needs at least one business day after receiving all documents for review before going to the closing table. Tough luck, but hopefully it will only push us back to Friday before being able to close.

This is very common in the real estate industry. I met with the appraiser last Saturday to get the properties appraised, and figured all would go well. But it just sometimes takes a little time to get all the players together and finished submitting their paperwork. So today, we will need to go to the insurance agent, get the insurance finalized, and submit the insurance binder to the lender. Our lawyer is working on getting the statement of good standing from the state for the LLC, and hopefully will have that by the end of the day. Apparently, there was a franchise tax that the state was wanting, and we had the CPA take care of it, but maybe it hasn’t gotten all the way through the state’s processing procedures. As far as the appraisal goes, we will just have to wait for the appraiser to finish and get it submitted to the lender.

So we still a little work to do, but this deal is too good to pass up. And we have a good sum of earnest money invested in the deal that we don’t want to lose. ‘Til next time…


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Anyone Finding Any Good Real Estate Deals?

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No doubt about it, December is a great time of the year to buy into real estate. My current deal involving 2 duplexes is coming along nicely. We are hoping to close before the end of the year. This will be a real income booster to my investors and myself for the coming year. Merry Christmas, huh?

We were able to find this deal just by taking a peek on the MLS to see what was available. We were actually a month late in so doing and it cost us getting another duplex. I then drove the property to take a look, and found one of the owners, who was doing some yard work. This investor wanted to get out of the property rental business, and move on to other things. Fluke? Not if you are out there looking.

So here is your chance for feedback. Let me know how you are finding deals, or if you aren’t, what you are doing that could be improved on to find more deals. Just scroll down to the bottom of the page and leave your feedback. Thanks.


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Renegotiating During Your Option Period

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Its a tough thing, but sometimes a real estate deal looks good on the outside, but after inspection it just doesn’t cut the mustard. This is exactly what happened in our current real estate deal. We put 5 units under 3 separate contracts, and 1 of those contracts was for a single family home. The other 2 were for duplexes. Upon initial inspection, the inspectors shocked us with a repair number of at least $20-30k for the single family home. That number blew the cap on the deal, so we had to drop that house. But the other 4 units did not need as much in repairs, and still fit the equation.

The problem in this deal was that the single family home and one of the duplexes shared a water meter, and thus, the sellers put a clause in the special provisions section of the contract that forced these two properties to sell together. This prompted a good chance for renegotiation. So we asked the sellers to pay to put in a new water meter, and we would go through with the purchase of the duplex. Their counter was that they would pay for the installation of the meter itself, and we would pay for the labor to separate and re-route the water supply up to the meter. We agreed, and thus, we were able to save a very strong cash flowing property for minimal additional expense.

The key thing here is, ALWAYS ASK! If you can salvage a deal with some additional concessions from the seller based on unforeseen circumstances, it is always worth asking. All they can say is no, and you can move on to the next deal. If they say yes then hey, you just saved a deal you invested time and money into.


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Know the Players Involved in a Real Estate Transaction

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It has been an interesting day already. We have decided to drop the single family home and just buy the two duplexes. With 4 units, and the total contract price dropping significantly, we will still cash flow very well on this deal. But the interesting part came today, when I heard from my investor that the title company called, asking for release of earnest money on the single family home and the adjoining duplex. This came as a surprise because we are not even out of the option period on this contract. Luckily, my investor called me to ask me about before taking any action.

The escrow agent at the title company has an established relationship with the sellers, and handles all of their transactions. This is why you have to be very cautious when dealing in real estate. You can get stabbed in the back very quickly if you aren’t extremely careful. Question everything. They have no right to release earnest money until the option period expires, which isn’t for another 3 days. So today’s tip is, question everything, trust no one. This policy probably saved us over $3,000 today.

Until next time, sign up for my RSS feed to get automatic updates as this transaction progresses, and all other posts as they become available here at Personal Finance Resources.


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Real Estate Deals: Knowing When to Walk Away

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On my current 5 unit real estate deal, we discovered that the single family home that was a part of the deal had serious structural damage. This is the value that a quality home inspector will bring you. The damage could easy cost $30-40k, and the deal just doesn’t have enough built into it to support that kind of a campaign.

Now, the 1 bedroom apartments that are next door have been locked by the contract. Because of one water meter servicing the 1 bedroom duplex and the single family home, the seller can’t really sell them separately. So since we are still in the option period on this contract, we will have to drop those 3 units. Now, what I will likely be proposing to the seller, is to provide us with a separate water meter, and we will proceed with buying the duplex.

The key take away from this article is that you must not get emotional when dealing in real estate (really any kind of business for that matter). Getting emotional will get you burned. The house is too far out of line with numbers that make the deal work, so we will have to walk away from it. So if we only end up with 4 units out of this deal, that will be perfectly fine, and it will still provide strong cash flow.


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Futures

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“How do you feel about futures options? Have you dabbled in that? I find future to be much more predictable in cyclical studies…”

To answer questions, I have done a few trades in futures. I am using the term futures to define any expiration beyond 4 months. My largest problem with futures is that it seems that I am paying a much higher premium for that possible volatility.

That is the long answer to say that I do not spend much time in futures, and here is why.

If I think that a stock is going to go up or down in the next two months, then I will buy an option (either call or put) to profit from that stock. If I think that a stock has the potential for the price to go up, but I don’t think it is going to happen for about another 6 months, then I will wait for about 4 months and play it as a short term option. Does this limit my opportunities of making a profit? YES; however, there are many short term trades out there that are good enough for me.
Like I said above, my large problem with futures, is that I feel that I am paying a high premium for the time value of that option. The other problem that I have is that it tends to tie up some of my capital for extended periods of time as if I had purchased a stock.

There is only a few reasons that I can think of to invest in futures. The first of these is if you think that a stock will go up a significant amount but in small increments (ie. a stock currently valued at $40 that you think is going to go to $55 by next December. You think that it is going to gain $1 to $1.50 a month. The 12 month out $50 call is probably going to cost you around $3.00 depending on the stock.) In that case you could make money on a futures purchase.

The other time that I would consider playing a future is in the tech industry where the release of some new technology could make their stock go way up, or if a competitor released the new technology first, their stock could go way down. In this case, I would look to buy a futures strangle.

If you are unsure what I strangle is, stay tuned, and I will get to them in my progression of options strategies. Bottom line, there is money to be made either way, I just prefer the short term because it costs less, does not tie up my capital, and I can wait and make the same trade later usually without paying the high premium. Good luck in the strategy that you choose.


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Coordination When Closing Real Estate

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When you are buying or selling real estate, there is often several players involved in the transaction. Home inspectors, termite inspectors, appraisers, surveyors, lenders, real estate agents, buyers, sellers, renters, escrow agents, and lawyers are among some of the parties involved. It is a pretty good situation for almost everyone involved, except for the renter. For the renter, it is nothing but a hassle.

With several of the listed players involved in the transaction, the renter is going to bothered several times prior to closing to get inspections and appraisals completed. The renter has a contract that has to be honored by the new buyer, but the buyer must complete their due-diligence in order to close the property. So careful coordination needs to take place.

In my current deal on 5 units here in Belton, TX, I called the selling agent, and left a message telling him I would like to get into the property for a termite inspection. Well, unfortunately he was away for the weekend, and didn’t get my message until after we did the termite inspection. Of course, one of the renters was very angry, because it was 9 AM, and she didn’t have the place ready for company.

So the moral of this story is, try your best to get a hold of the different parties involved, and let them know what is going on, don’t just rely on one party to relay your message to the others, take personal responsibility for it. The process will go much smoother that way.


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Real Estate Closing Process

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If you own property, you probably know just how hard it is to get a contract closed, especially if you are an agent, and not the buyer. There are so many lender requirements these days that it makes it very difficult to get a property closed. And if time is of the essence in your contract, then you must make sure to push and push on the lender to get the deal closed.

Currently, I am still working the 5 units that we have under contract here in Belton, TX. We have a solid contract, and have just decided on how to structure the financing, and how to convey title. So this morning, I will be taking the loan application back to the lender for approval. I am working with an investor that has some good loose cash, strong income, no debt, and fantastic credit. This type of person is a rare gem out there today. Most people have bad credit, no cash, and no income.

So the process should be quick and painless for us on this deal. We are going to be doing a typical commercial loan, hopefully 20 year amortization, 5 year balloon, 25% down (although I think my investor is going to put down 40%) with an interest rate of around 6-7%. So he is setting himself up for great cash flow on these properties, and if he needs to sell out at some point, he will be able to do so.

So for me, I just need to get the application to the lender, push to get the appraisal in, finish getting the properties inspected, and work with the title company to ensure the correct title work will be done. I have already sent copies of the surveys to the lender, so barring any unforeseen circumstances, we should be able to close this property by the end of the month.

If you have comments or questions, please leave them below.


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