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A Real Estate Beginner: $60,000 in 6 Months

by Hal Roark (aka HR)   

This success story has a few beginning points. This whole process makes more sense when you know what those points are.

First, prior to these deals, I did one previous deal: a major rehab of a large home. I didn't do it at the time to make money; I did it so my family could live in the neighborhood we wanted to live in at a price we could afford. We had to rehab or live somewhere else. And living somewhere else wasn't an option. In the process of renovating this beautiful home, though, we created a lot of money in equity.

That's when the first light bulb went off.

We created more in equity in three months than my wife and I made in over a year of working (and we are not paid that poorly!). That got my attention. After we refinanced our home after a year to a lower rate, we recouped our down payment money (effectively doing a no money down deal, although I didn't know that's what it was at the time).

We used the money to pay off all the credit card debt we had been struggling to eliminate. In just a few signatures, we eliminated forever what previously was such a huge burden.

That really got my attention! I really started to think, "I need to figure out a way to do this more often. There's great money to be made in real estate investing."

While searching the Internet for some resources on real estate investing, I stumbled across CRE Online. I was awed at the sophistication and sheer number of ways folks were making money in real estate. It blew my mind. I set out to learn more, and I attended the Creative Real Estate Online Convention.

The 1999 CRE Online Convention was great. It fired me up, gave me great information, and gave me a vision of where I had to steer my energies. Basically, I decided I wanted to do two rehabs, selling one to an end buyer and keeping one for myself to learn the "landlording" angle. I also wanted to do some quick flips and get into paper.

One thing I did was sign up for Ed Garcia and Terry Vaughan's How to Get Lenders Fighting to Give You Money Workshop. One-on-one consultations with Ed was invaluable for me; Ed helped me get focused and get my fanny in gear, so I could crank out some deals and reach these goals.

I can honestly say that without Ed's assistance, I would never have done these package deals, and I would not have made this much money this fast. Ed gives 100%, and he tells it like it is, not as you may want to hear it. Having that kind of backup in your corner is invaluable.

Anyway, after one of my first conversations with Ed, I went out and began looking at property. I was initially very interested in a large home a buddy told me about. It needed a lot of work, which is what I wanted. The property basically had too many major structural problems, but while talking with the Realtor, she told me about a package of three duplexes that were coming on the market but were unlisted yet (a pocket listing).

I knew these houses. They had come on the market the summer before, and I drove by them to look at them. They were all 2-bedroom, 1-bath, about 800 square ft., in an up-and-coming, rapidly appreciating area. All three were next to each other. They were in decent shape and cheap. They would sell for around $80,000 each when renovated. They would rent for at least $550/month.

Turns out a real estate investor bought them to introduce her sons into the business. Both boys decided to do other things, though, and she had her hands full with a first-class renovation of her own new home, so she just decided to dump them back onto the market for only a little above what she paid for them.

Knowing present and previous numbers on the properties, I knew this info was for real, and I quickly got them under control. Shortly thereafter, we went to the act of sale. The package sold for $120,000. I used my home equity line of credit to buy two of them.

I didn't want to take on three properties as my investment first deal. I flipped one of the three to another member of my local real estate club. It was a simultaneous closing, and he had his funds to the closing agent 24 hours before my act of sale. Thus, I was able to use his funds to help me buy the three, and then I sold him one of the houses.

It was my first flip, and it was fast, easy, and sweet. It only netted me a couple thousand, but it allowed me to buy the package and sell one of the homes on the same day. It was easily the easiest couple thousand I had ever made (another light bulb went off). I used my home equity line of credit to buy and renovate the other two.

Sticking to my goals, I renovated both and kept one for myself as a rental and sold the other to an end buyer. Man, oh man did I learn a lot in the process! Words can't begin to describe the learning. There were days I didn't know whether I was coming or going (or whether my light bulbs were going on or being shattered). One thing is for sure, though; many a day, I was lunch for some hungry subcontractors.

(The daily dinner joke at my house for about two weeks was what we began calling, "the phrase of the day." Each day over dinner, we would figure out a new contingency we would put in the subcontractor agreement, so that next time I wouldn't get burned in that particular way again. For example, "subcontractors will not remove any materials from the work site without general contractor's permission," etc.)

Slowly, the renovations began to take hold and the houses started looking great.

In the meantime, the same Realtor told me about another pocket listing, and it was the house right next to my other three. It was a beautiful old house owned by an single old woman who badly wanted out from the neighborhood. She originally wanted $50,000. We settled on $45,500 with a 120-day closing. (I gave her near her price if she gave me my terms).

It needed $30,000 in repairs, and it would be worth $130,000 when completed. I originally planned on renovating this after I finished my other three deals next door (hence the delayed closing date). But I recently found another large home that I want to renovate and move my family into, so I ended up flipping this house for $60,000.

In the meantime, I stumbled onto a technique many may already be using, but I had never heard of or read about. I think of it as plundering or pirating.  Because the elderly woman was living in the home, I couldn't remove things from the home. (I legally couldn't remove it anyway, since I was not the owner yet.) Also, my rehab buyer for the flip was an experienced rehabber who was buying the house for his child and was getting conventional financing. There would be a three-week window between my purchase and their closing.

I panicked at first. After making some calls and explaining the situation to some folks who had some money, I was able to borrow $47,000 and pay them the annual equivalent of a 15% return on their money for use of it for three weeks. In my panicked state, I remembered something Ray Alcorn had said at the Lender's workshop: Always have a "patient" money source available in the background for when you need it. Amen, Ray! Amen!

While I waited for the three weeks to finish and the second act of sale to close, I started removing stuff from "my house." I plundered or pirated. The elderly woman's brother was a handyman, and he used the home as storage for his tools, wood, etc. I made sure I purchased all that when I bought the home.

During the next three weeks, I removed a nice stove, fridge, window units, a beautiful claw foot tub, tons of tools, about $2,000 worth of wood, two nice beds, file cabinets... you get the picture. All told, the stuff is worth about $5,000. All it cost me was a three-month, vacancy insurance policy for $350, plus the 15% interest on the borrowed money. A good deal! My buyers were completely aware all this would be removed by the time they bought the house.

Now when I have a flip, I look to ideally create a 4 to 12 hour window to "pirate" my homes before flipping. These materials really come in handy when rehabbing.

Meanwhile, my first rehab finished and sold to a prequalified buyer for $86,000. I made about $13,000 on that one. The second duplex I kept and quickly rented for $550 and $575 a month. I refinanced that one for $70,000, have $30,000 in equity in it, a positive cash flow, and a great, rehabbed house in a hot, rapidly appreciating market. Lastly, I paid off my home equity line of credit, so I was back to zero. Next!

I figure when the dust settled, I made about $60,000 in six months. Honestly, I just wanted to jump in and get my feet wet. Man-oh-man, did I ever!

My new goals are to learn more about home construction: How to fix stuff (what to do, how it should be done, how hard it is to do, how long it should take, what it should cost etc.), so I can better control my costs and crews in the future. Some day, I'll move on to paper.

In the immediate future, we need to finish the last remaining renovation project we put off on our own house. We have lived in this home more than two years, and under current tax law, if you live in your personal residence two of the last four years, you can sell it for tax-free gain (with certain restrictions). We are going to put it on the market this spring, sell it, and we already have the next personal residence rehab under contract, so we can do it again.

I am deeply grateful to the Vaughans and all the pro's who make this site available, especially the seasoned pro's who post daily in the message boards. There is no doubt in my mind; I never could have done this well, this fast if it weren't for the people, information, and seminars I learned about and benefited from as a result of being part of this creative real estate community.

Thank you to all of you! You have played an important supporting role in these successes, and I am deeply grateful! Can't wait to see ya'll at the next convention. And Phil Fernandez, You owe me a beer, buddy!

 
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