Gearing Up For The Next Big Investment

After seeing Steve's presentation about multi-unit properties at the Rich Dad Forum Members Get Together (how's that for an awkward title?), my wife and I have become convinced that apartments are the way to go. The good news is that loans for these properties are commercial loans and so the bank doesn't really care about your financial statement - just the property's. The bad news is that they require a higher down payment. So to get ready for moving into this investment area, I've initiated some changes to my financial picture.

First, I am rolling the assets from my 401(k) with my former company to my new company's 401(k) plan. This is actually relatively painless, since both plans are with Fidelity. However, since I no longer work for my old company, I cannot take a loan against that plan. By moving the assets to my new 401(k), I am able to get a loan against these funds, should I need one.

Second, I am closing an old HELOC on my personal residence and opening a new one with a much greater credit limit. My original HELOC was for a maximum of $26,000 and I had opened this when I purchased the house over 2 years ago. Since that time, the value of my house has more than doubled, so I'm going to tap into that equity. The new HELOC will have a limit of $165,000. As an added bonus, the interest rate on the new line is 2 percentage points lower than my old one. Considering interest rates have risen since I opened the first line, this is a nice surprise. (It may be partially due to the fact that the new line is with a credit union, rather than a bank.)

Even with that much buying power, I'm still looking to partner with someone or someones for our first apartment purchase. Apartments have a whole different set of considerations than single family homes and I'd like to team with someone with experience in this area.

House 3: End Of Week 3 Update

Wow.. I had to go back and check my blog entries, but it really has only been three weeks since Mark started working on the property. Feels like it's been four weeks to me.

I stopped by the property unannounced today. Mark wasn't there, but it was lunchtime, so he may have been off eating. My first thought was not much had been done since the last time I was there, but closer inspection revealed that not to be true.

All the doors have been replaced except for the front door. That's 9 doors total and most had to have the doorframe rebuilt. The bathroom was pretty much finished. The shower enclosure was installed and looked very nice. The new medicine cabinet was in and the vanity plumbing was connected. The linoleum in the bathroom and the fireplace room (for lack of a better name) was removed in preparation for new flooring to be installed. The linoleum in the kitchen and dining area still needs to be removed. A new kitchen countertop was in the house, but not yet installed. The old car and engine were still in the backyard, however, as were the old appliances in the house.

Later in the day, I called and spoke with Mark. He said he's planning on replacing the front door tomorrow (Saturday) and starting on the kitchen countertop and sink. His painter will be in towards the end of next week and while the inside is being painted, Mark will work on the outside.

He said on Monday he's going to send me an invoice for his second of three payments, which means he is two-thirds of the way done. I asked about the car and he said the people he's calling say they want it still, but they haven't picked it up yet. He says he's calling them every day. He's going to try some other people on Monday. He also said he received a quote from a drywall guy to put drywall over the two walls with wood paneling in the fireplace room. The quote came in at $850. He doesn't think he could do it himself for much cheaper. That's more pricey than I expected, so I'm going to skip this step and just leave the wood paneling up. With the old shelving taken down, it doesn't look so bad now.

He did tell me that several people have stopped by while he was working and asked if the house will be for sale. He gave them my phone number. I haven't received any calls, but it would be nice if I did. If I can sell it FSBO, I can save a few grand on commissions. The next time I stop by the place, I'm going to leave a stack of business cards for him to hand out.

Since he is now at the two-thirds point, I'm going to call the carpet installers on Monday and get that ball rolling. I'll also stop by a Lowes sometime and get the new stove ordered.

The Velocity Of Money

My wife and I spent most of Saturday and Sunday at a meeting of richdad.com forum members. We met at Rich Dad headquarters in Scottsdale and got to meet with Rich Dad staff, including Robert Kiyosaki, his wife Kim, Sharon Lecter, and others. (Is it just me or did anyone else think Robert looked like he's lost a lot of weight? His face seemed much thinner and I thought his coat and shirt were just hanging on him.)

Saturday was spent with presentations by successful forum members. Russ' presentation on different ways to play Cashflow 101 was very eye opening and dramatically demonstrated the power of teamwork. Les' talk on financing contained lots of useful info and prompted some questions that he was able to answer for me during the round table discussions on Sunday. Steve's presentation on apartments has gotten the apartment bug into my wife (and myself). Seeing the various apartments around town that he owned was a great way to help move the discussion from the theoretical realm to a more concrete plane. The weekend was well-spent and I only wish I had be able to spend more time with the people there. (I was able to meet with a couple local investors, including Kenric / Biophase / Monarchcrest. If you get a chance, check out his blog.)

Before the event happened, I was thinking about financing, since I knew that was to be the subject of Les' talk. Sometime Wednesday, I had the realization that it may be possible to double or triple the speed at which I am buying and selling properties. Currently, I am paying all cash for a property, fixing it up, then selling it. This is working, but it is slow going. I figure at best, I could do maybe 3 properties a year - and that's only if there are no hangups. But if I were to use a hard money loan for maybe 50% or slightly more of the cost of the property, I could buy two houses at once and still have enough cash to start fixing them up simultaneously. Using hard money will increase my expenses, but I may be able to make up for that by the fact that I'll be able to turn twice as many houses. It would also allow me to buy more expensive houses, which tend to have more equity and hence, a bigger profit for me. Finally, using hard money rather than a conventional loan allows me to still have the advantage of being able to close quickly. This is something I need to look into more and, obviously, the viability of this depends a lot on the properties in question, but it is a technique I will keep in mind once my current project is done.

If I do go this route, I will be increasing the rate at which profits return to me. In other words, increasing the velocity of my money. This is a concept Robert Kiyosaki talks about in his book Who Took My Money.

Yesterday, I realized that Prosper.com makes it very easy for a lender to increase the velocity of their money. Prosper allows lenders to lend money in amounts as small as $50. I've currently lent out $500 via Prosper and have received about $15 in payments - not bad considering the loans have been active for less than one month. As soon as I've reached $50, I can immediately lend that money out again, giving close to no idle time for my funds.

House 3: Electrician And Update

I stopped by the property this morning to meet the electrician. There was a huge dumpster in the driveway and it was mostly empty. The handyman probably filled it once already with all the trash and furniture that was left in the house. The electrician worked there for about 2.5 hours fixing outlets and wiring issues. While he was working, I took a look around to see what the handyman has accomplished so far. Quite a lot, it turns out:

• The evap unit has been replaced.
• The trash has been removed from the front and back yards, with the exception of the car and an old engine in the back.
• The windows that needed replacing have been replaced.
• The shelves have been removed from the wall with the wood paneling.
• The bath tub has been replaced. The old shower enclosure has been taken down and the new one is in the house, but not yet installed.
• A new bathroom vanity has been installed.
• The old medicine cabinet has been taken out.
  
• All the outlets, switches, and faceplates have been replaced.
• The two bedroom ceiling fans have been replaced.
• The folding door at the archway has been removed.
• Drywall throughout the house has been patched.
• The two wall heaters have been replaced.
• All the A/C vents have been replaced.

I'm pretty happy with the progress made so far, even though I think it will take a bit longer than the handyman thinks to complete the job.

While I was there, the handyman showed up (promptly at 9 AM) with a helper and a bunch of doors. He hopes to get the doors installed this week. From what I can see, it looks like he's going to need to replace a lot of the door frames as well. He said he's contacted some people about taking the car away and that should be gone soon.

I'm supposed to pay him another 1/3 of his fee when he's 2/3 of the way through the job. I expect that will be in a week or two. (I'm guessing he will take 6 weeks on this job instead of his quoted 4 weeks.) When I get that call, I'll also call my carpet guy to place the order for new carpet. I'll also order a new stove at that time. Once those are in, I should be ready to list the place.

Final Propser Loan Won

The final loan bid I had outstanding, for $200 @ 20.75%, was accepted today. This means I now have all of my $500 loan amount invested across four loans. My average interest rate is 17.82%, or 17.32% after Prosper's fees.

There must be some sort of strange rounding errors going on because my account shows Principal Loaned = $500, Principal Repaid, Interest & Fees Paid, and Service Fees all equal to $0.00, yet my total Loan Value is shown as $500.04.

Anyway, I'm glad all my funds are now loaned out. The final loan actually was scheduled to end in over a week, but it looks like the borrower closed it once she had enough bids to fund the loan. She could have left the bidding open to see if she could get a lower rate.

All in all, it's been a fairly good experience so far. If you are considering lending through Prosper, I suggest reading through the Borrowing help screens first, so you understand the process from the borrower's point of view. I didn't do this until later and many of my questions would have been answered had I read it sooner.

Another Weed Issue & Electrician Scheduled

I got a call from the City Of Phoenix's Solid Waste Division regarding weeds in the alley behind House 3. Apparently, the city has been mailing notices to the house since the beginning of February (which is before I owned the place) about having too many weeds in the alley behind the house. The alley is where the trash cans are placed and where the trash trucks drive to collect the garbage. If the weeds are not taken care of by Monday, they will start issuing citations.

I just called my handyman and spoke with him. He actually walked out into the alley and said things didn't look too bad, but he would trim them back tomorrow and let me know when he is done, so I can tell the city the problem has been fixed.

I've also scheduled the electrician to be out there Tuesday morning at 7 AM to fix the outlet issues the handyman identified.

House 3: Rehab Questions From Handyman

I got an email from my handyman last night with a couple questions about how to handle some issues. The questions and my responses are below.

The outlet by the kitchen counter has burned wires and the wire are too short to install a new GFCI outlet. New wires should be pulled. What would you like to do?
Based on the other electrical issues you've found and mentioned below, I'll get an electrician out there to do this. Please mark which outlet this is.


In the addition, there are 4 outlets that the wiring is too short to change the outlets. These could be left as is or we could pull new wire. Advise.
If the outlets look OK, we can keep them. If they are broken or have burn marks on them, mark them and I'll have the electrician fix them. My goal in replacing the outlets was to make them look nice, so if they look OK, there is no need to replace them.


Do you want to keep the shelving in the laundry room?
Yes.

Did you find the light switch for the laundry room?
Nope.


The paneling in the fireplace room does not have drywall behind it. Do you want to drywall over the paneling or leave it alone?
Let's drywall over it.


On the wall where the cabinets were removed, there is some romex wire sticking through the wall and it is live. Do you want to put a light there? Terminate the wire?
Terminate the wire.


There is a leak in the ceiling at the ceiling fan in the front room. Do you want me to locate this?
Go ahead and try. Don't spend more than a day trying to find it though. If you can't find it, I've got a roof guy I can call.


There is a light fixture in the addition off of the kitchen that has a missing globe. Do you want this fixture replaced? New globe?
A new globe is fine.


I am not sure how you numbered the bedrooms, but as you look down the hallway bedroom #1 is on the left, bedroom #2 is the next on the left, and #3 is on the right. There is an electrical problem in bedroom #1 & #2. Three of the outlets have the wiring backwards (standard is black = hot & white = common), meaning that the problem is else where. These are wired in a series. Do you want me to trouble shoot this problem?
I numbered them the same as you are. I'll have the electrician look at these.


The tub drain is also plugged. Do you want me to take care of this?
Yes please.


There are three ceiling fans in the house. One in the front room, one in bedroom #1, and one in bedroom #2. The one in bedroom #2 does not work. The one in bedroom #1 is the same style as the front room. You asked for tow to be replaced. Which two?
The one that doesn't work in bedroom 2 and the one in bedroom 1. Leave the one in the front room as is.


The light in bedroom #3 does not have a globe. Do you want to replace this with the same style as we did for the laundry room and kitchen?
Yes please.


The front door locks are not working correctly all of the time, would you like these replaced and keyed the same as the lock that is already installed?
I'm not sure what you are referring too. I've already had a locksmith out there who rekeyed everything. I know the "deadbolt" lock on the door is a bit tight. The latch doesn't catch very much. That one couldn't be on the same key as the other locks because the lock was made by a different manufacturer.

What color do you want the kitchen counter top?
Beige or tan, anything neutral.

What color of vinyl tile do you want?
White or off-white.

What color of paint for the inside?
White.

What color of paint for the outside?
I don't really care. Brown, tan. Again, something neutral that blends in with the neighborhood.


Last weekend, we just had our first rain in 143 days. It rained for almost 24 hours straight and I was wondering if any leaks would be found in the roof.

It sounds like some good progress is being made. When I meet the electrician out there, I'll take a look at things. I do like the fact that this guy uses email. It's easy for me and everything is in writing, so nothing should be forgotten (hopefully).