p.A Twist in the Tale (Part II)

The last part is here:   A Twisted Road Ahead

Everything is driven by money and yet everything is not driven by money.

I just lost another auction ... fuck them ... the norms didn't apply ...

There were 4 bidders and the price went up by 18% which is not supposed to be the case. The increase in bidding was unusual. I have budgeted for 11% increase (Just 1% percent above the 10% norm, because I like the property). With only 0-5 bidders, theoretically I was supposed to get it by 10% increase in price. But shit do hit the wall.

Well ... A miss is a miss. No love lost.

The next auction is first week August. I will find a better bargain there then.

My micro-analysis is:

There were 4 bidders. The starting 1st bid was at the reserve price (+0%). A 2nd up-bid was done (+5%). Followed by my 3rd bid (+11%) and lastly 4th bid (+18%). I didn't up-bid as I felt it was not worth it. All 4 bidders has bidded.

Basically, I wouldn't fight it.

I found that if there are 4 bidders, there would be 4 bids. Simple.

Fuck ... Let's prepare for the 1st week Aug bid.

I am still feeling restrictive. Cannot overbid and fall in love with the properties I viewed.

b.The Best of Both Worlds (Loan)

The last part is here:   xox - Fuck-You-Up Loans

Sometime back I have always suggested no bank loans.

But with the cute and long depression underway, we are living in interesting times.

With the deep, deep, deep depression, property prices are very, very, very low. They are going down every now and then. In fact, one must learn to understand the psychic of the banks. Banks are now at very low confidence about the economy. They are not lending in big ways. Hence, if you have a solid job or strong cash flow, the banks will love you deep deep. But, they are still not lending.

There must therefore be a balance here.

Step 1:   Firm up your cash flow, say $200 per month. The bank only likes to lend only at $66 the amount (1/3). Further half that to just 15% of your monthly cash flow, i.e., $30 of $200.

Step 2:   Approach a bank and based on your $30 cash flow, find out how much you can afford to borrow from the bank, say $X.

Step 3:    Locate a property of say $2X-1.5X. Offer the owner $X. This is called a gap-down. You give the owner a rude gap-down. Some will bite. many don't. Be patient and don't fall in love with every property you visit. There is no property that one must buy. Be very, very slow in the acquisition.

Step 4:   Attend every single auction sale. Feel the fire-sale market.

Step 5:   Once you get it, renovate and rent it out for cash flow. It should be in the range of 15% and above. This is a trying times for most businesses. So a good yield is important, i.e., people can afford to rent but not buy, cos they are now poor bastards.

Step 6:   Once settled, the rental is stable and you feel no stress in cash flow and loan repayments. Go for the next purchase of another property. Talk to another bank and repeat the cycle. This next bank usually will feel extremely comfortable with you, even though you are already geared in your first property. Some countries don't even care about your other properties. They just worry about your current purchases. In white land, you can throw them back the keys if you don't like what you bought and no adverse repercussions.

In summary, the property prices are now very low. Banks are very careful in their lending, that means they are now very safe to borrow. There is little or no risk in loan defaults as the properties are priced "very" reasonably and hence, the yield (rental) is strong. One can foresee no issue in loan servicing.

It is for this reason I support the use of gearing, i.e., borrow from banks. Use it wisely. Don't over-gear.

b.Passion Business VI - Rent-to-Own

The last part is here:   Passion Business V - Alpaca 

This business-type is not to be your first business-type. You can't play this game without having cash. Lots of cash. Its investment returns vis-a-vis huge capital upfront, is also not as fast as others. employ this business-type when you have spare cash over your other passion business-types.

In other places where property prices are sky-high, this business-type totally cannot be employed.

Buying a goner property
When you observed the property market, noticed that those properties that are fairly good looking and well-maintained are normally easily bought up by the buyers and banks love to finance such properties. The reason simply being buyers are poor bastards. They got no cash. They only have the initial deposit to down-pay. The rest they hoped like hell that the bank will pay the rest. Hopefully, with a 30-year burden, they will live happily ever after.

Hence, properties that are structurally good but in poor state of repair would take years to complete the sale with prices dropping every 3 months. For this type of property, no banks would finance and thus, no buyers can buy. Further in the white land (unlike yellow or shit lands), the contractors are poor bastards, they can only render services but not cash investments.

When viewing such goner properties, watch for structural damage. If exist, don't buy. If it is only a coat of paint and redo all furnishings, then consider buying it. Bring a contractor along to guess-timate the ultimate total cost.

Give a 50% knock-down, don't be embarrass, your seller realtor already have been marketing for a long long time. She needs to close too for food. She will pressurize the seller to close. Just behave like a poor yellowskin bastard.

If the seller is hard, just move on. There are plenty to choose from.

Once you get it, smile to your contractor.

Renovation
Get your contractor to start to do basic repairs. Give it a good paint. Change all appliances to new ones. Change all toilet bowls, bathtubs, kitchen sinks. Change any old curtains and so on. The total renovation should not cost more than 50% of the purchase price.

Put up a Signage
Put up a RENT-TO-OWN signage and welcome realtors to contact you too. Once the renter come in, get him to sign a rent-to-own contract.

Investment Returns
It should take about 2 years to fully recover the full investment cost. Mean time, you hope like hell, the renter will be late in payment or move out, you can restart the business. With this investment return, you can restart another rent-to-own property every 2 years.

Even if the property is not rented out, you only incur property tax which is super reasonable. No other expenses. You can choose to shut down all services until reconnected.

General Cash-flow Model
Initial Property Purchase:   $10,000   (for example)
Renovation Cost:   $5,000
Total Property:   $15,000

Gross rent-to-own:   $600 (+$200 rent-to-own premium) per month (yearly: $9,600 plus any property taxes to be borne by the renter)
Net Rent-to-own:   $560 per month (yearly: $6,720, deducted to pay for income tax)
Recovery Period:   2.23 years   (=$15,000/$6,720)

Enjoy ...