Real Estate Investing Was Fun!

To continue from my last post...

Just about daily, I received promotional checks from my various credit card companies urging me to use their money - 0%, 1%, 3%, 5% for 6 months etc.

Fast forward a bit, and I have an OK real estate income, and about $150 thousand in revolving credit and a credit score of 750.  And there are people all around me buying, fixing, selling - homes and taking home huge chunks of change.

I figure I gotta get serious...  So, my first investment house crosses my path.  It’s a good, solid house, but definitely needed some up grading.  Using my credit for the down payment and fix up costs, I buy the house, fix it up and refinance it pulling all my cash out+, and rent the place.  

Paid off my cards, put a wad of cash in the bank, and have a rented, cash flowing investment property.  

Cool!

About a year later another house comes across my desk.  This one I know well, as I had spoken to the owner a couple years earlier and discussed a subject-to scenario.  But back then, after further discussion and becoming aware that the owner really wanted to keep his house, I suggested he do what I was going to do.

Which was rent it out to pay the mortgage, taxes and insurance.  He was in a position where he could easily move into an apartment, lowering his monthly obligation and rent his house and generate cash flow for himself.  

I suggested he do that, until he could get back on his feet and then move back in.  Again, not a very good salesman - 'cause that house was clean.  He had done all kinds of upgrades, and the mortgage was reasonably low.

So, here I am looking this house again, which I knew had a market value close to $140,000 and the bank had it for sale for $50,000!

I quickly wrote a full price, cash offer on the house.   I knew I could get the cash advances on a couple of credit cards to get the deal done.  The bank, in their ultimate wisdom had contracted with an appraiser from outside the area, who didn't know the market.  Based on a drive by appraisal, he had assigned a low market value to it.  Worked for me!

I actually began advertising the house for rent before closing.  After closing I spent about $1,000 cleaning the place, in and out and had the place rented before a month had passed.  I refinanced the home at 75% of market value.  Pulling a nice junk of change out, but leaving equity in the house.

It was such a great deal!

Again, I paid off my debt.  But now, lending brokers were seeking me out and offering $50,000 lines of credit for the nominal fee of $250-$500.  They didn’t care if I didn’t have any visible means of income.  They simply looked at my credit score and credit history - period.  

All that these brokers were doing was collecting the closing fees and the upfront fees.  They were churning these lines of credit out to anybody with a pulse.

I was also approached by an investor to fund the purchase of a couple of investment homes.  I would be in first lien position on the houses, but they would purchase the houses, fix them and flip them and I’d get my cash back plus a substantial return on my investment.  

This was a no-brainer.  So, I funded a couple of houses.  30 days later I get a call, and the houses had closed and they had money for me.

Once again, I paid off all my credit and was left holding cash.  

I did this a couple of times and all was well, though things were beginning to slow down.  I was asked to fund 3 houses and I thought, well maybe not.  But then checked out the comps, reviewed the market and figured all would be fine, though I suspected the return wouldn’t be quite as good as previous investments.

Well, that was an understatement!

45 days passed, and I had heard nothing from the investor.  A call to him reassured me all was on track, though the market had definitely slowed.  To compensate, they had reduced the sales price of the homes and the return, would not be as good. 

But, I was getting nervous - I wanted to get my cash out.  I had used my lines of credit and other revolving credit to fund these and the interest rates had kicked in after 30 days.  Further reducing my return.

This was when things really started to turn South and banks started going belly-up and banking in general began retracting.  The market was beginning to get rough.


Continued with "You're Nothing but a Number to Lenders"