It’s been a long while since I last posted here.  I was posting regularly until there was an unfortunate mishap. One night I was sipping a glass of wine while working late at my computer.  I started to feel very sleepy and retreated to my bed, leaving a half empty glass of wine sitting next to my computer.  Suddenly, I was awakened by the sound of the craft paper, previously taped to the window by the painter, coming loose and crashing to the floor.  My first thought was, “oh, that’s just the brown paper falling off the window”.  My second thought was, “Oh now- did it knock over the glass of wine??”

Disaster!

I jumped up and ran to my work table.  Sure enough, the wine had spilled on the screen and the keyboard.  Yikes!  I started to wipe up the liquid as quickly as possible.  I wrapped the screen and the keyboard with paper towels and went back to bed hoping that I would wake up and the computer would be working.

No such luck.  It was toast.  I drove around with it in my hot car for a week, checking it every once in awhile to see if the heat would miraculously dry out the innards and bring it back to life.  Eventually I ordered a new computer to be delivered to me.  It took me awhile to get the new computer work ready.  By this time, I had lost momentum and did not return to blogging until this weekend.

Getting My Groove Back

I am attending a 3-day marketing bootcamp.  More specifically, I am attending Craig Duswalt’s Rockstar Marketing Bootcamp.  This is the third time I am attending this because Craig is a lot of fun and I generally like the sort of people he attracts.

Yesterday, one of the topics was blogging and I was reminded that this blog was sitting here, forgotten and abandoned.  I decided to revisit it and challenge myself to blog daily for 10 days – no matter what.  Actually, 10 days seems a bit week.  Let’s make it a real challenge by saying a month.  Yes, I am going to blog here every day for one month straight, no matter what it takes.

The big lesson here is:  Never go to sleep without first finishing your glass of wine!

I received a message on my Instagram account:

We have to meet!  I’m also vegan, and a woman, who invests in Boise real estate!

So we met… and we are now going to partner on a fix and flip!

Joint Venturing

My LLC and her LLC will own the property 50/50.  I hired a Boise real estate attorney, recommended by a realtor friend, to draw up the operating agreement, do the filing and get the EIN for our new company.

To set up the business account, we went to the small, local branch of Wells Fargo in my partner’s neighborhood. The business banker who was helping us had never seen a case of a corporation being owned by 2 other corporations.  She was going to have us fill out paperwork, which she would send out for approvals, and then we could open the account.  This was going to take a few days.  Not good.

Fortunately, we called the larger branch downtown and the woman who took our call assured us that it would be no problem. They could open our account that day, so we drove downtown with 2 toddlers along for the ride.

The bankers were very nice and tried to take care of us as quickly as possible but there was a glitch in the system software slowing things down.  We were all getting hungry because it was now past lunchtime and the babes were getting restless.

Then the power went out.

It was out for the whole building.

So we went to get lunch.  We found a restaurant with vegan options (Wild Root Cafe) and had a nice meal, as relaxing as could be with two toddlers in tow.

We decided to finish opening the account on Monday.   I would be back in California by then so we arranged for me to visit the Wells Fargo branch in my neighborhood in Ventura, at the same time that she returned to the Wells Fargo branch in Boise.  Our bankers coordinated things by phone and we got it done.

Funding

The house we are flipping together will need a full rehab. It could take 6 months to complete the buy/fix/sell cycle.  I didn’t want to tie up my money for that long so I contacted a private lender to arrange for a hard money loan.  Terms: 2 points, 12% interest, 4 month minimum, interest paid monthly.  Pretty standard.  After he is paid back on this deal, I will expect better terms on the next one.

I’ve been working on another fix and flip in Boise.  This one is over budget and way behind schedule. We are now crashing into other plans I’ve made and it’s maddening to be going back and forth so much, trying to finish the house between other commitments.

I bought the house sight unseen.  I was in California when my realtor contacted me with a house which she thought would make a good fix and flip.  She wanted to submit an offer right away because this one would go fast.  We put in a cash offer that was 10k over asking and it was accepted.  We closed on July 18th.  I had expected 2 months of rehab.

First Issue – The Stairs

When I saw the house, the first thing I noticed (after the smell) was that there were stairs in the living room going down to the basement.  The stairwell had a 5’2″ clearance at one point. I needed to figure out how to resolve that issue first because the solution could have a snowball effect on other steps in the process.

There seemed to be only 2 options: 1) Move the stairs. 2) Open up the ceiling by cutting out a portion of the living room floor.

I brought in a carpenter to get a professional opinion. He charged me $100 for the consultation and bid. His recommendation was to cut into the living room floor. He gave me a bid which I accepted. I had called 3 carpenters. He was the only respondent and he could get started right away. I was anxious to get started.

The Kitchen

My realtors had lots of recommendations for the rehab on this property. They wanted to see the wall between the kitchen and the dining room opened up. They also suggested that I keep the original cabinetry and add a dishwasher. This turned out to be problematic. I ordered a dishwasher and had it delivered only to find out that the cabinets were non-standard size. One of my realtors is a designer, so she conferred with the carpenter on building up the height for the lower cabinets and making a frame for the new counter top that would extend beyond the lower cabinets and be flush with the face of the dishwasher. By the time we were done with all of that, it would have saved me a lot of time and money had I just replaced all the cabinets with new, pre-built cabinetry.

(To be continued…)

Tonight I took some time to transfer some of my “Before” pictures, of the current rehab, to my computer.  I can’t wait to have some “After” pictures to put along side them.

There are several reasons for having Before and After photos of your work.

1. Credibility
2. Shows lenders that you have experience
3. Documents the work that was done

Here are some Before and After pictures from the previous rehab:

Before:

After:

Sometimes you just have to know when its time to let go.

Finishing up the house on York St and expecting it to be on the market by this weekend.  There have been numerous delays on this project which have had me frustrated a lot.  We are leaving Boise tomorrow, having done as much as I want to do on this place.  At some point we just have to say ‘good enough’ and put it out there.  A house this old, with so much delayed maintenance, could end up being a lifetime project if we don’t draw a line and give it up.

I need to get at least $247,000 for this house.  At that price there’s not much profit because the rehab went way over budget.  I won’t let it go for less because then it was just a waste of time and money.  I would rather keep it and rent it out.  At $1200/month, we would be profitable in 17 years.  Although, we would likely raise the rent periodically so it wouldn’t actually take 17 years to break even.

My realtor asked me if I would consider owner financing  for this property.  I absolutely would.  I haven’t done that before and I like to try new things.  She told me to figure out what terms I would be good with.

Here are the figures I came up with:

20% downpayment; 8.5% interest rate; 20 year term

On a sale price of $247,000, that would be  $49,400 up front and $1714.81/mo.

It’s so hard! (That’s what she said!)

One of the investment strategies I am planning to use in 2019 involves buying a worn out house with cash, fixing it up, renting it out, and refinancing it (to pull the money back out) with a traditional mortgage, at the higher, fixed-up value.   Then taking that money and using it to buy another fixer upper.  The fly in the ointment is qualifying for a mortgage as an entrepreneur.

Banks like to see a history of regular paychecks.  Okay, so how do I make that happen without getting an actual (ugh!) job?

Invent your own job!

So I set up an LLC and made myself the CEO and hired myself as the Project Manager.  Then I contracted with an inexpensive online payroll company to issue my paycheck to me twice a month as an automatic deposit into my personal bank account.  They send me an email each time to remind me to approve payroll and then they deduct the check amount, along with the federal, state, and social security taxes from my business account.  So easy!  So cool!

Update – The payroll company I used is Gusto.com.  They have turned out to be really helpful and I am very happy with them.  If you would like to try them out, here is a link that will get you an Amazon gift certificate for $100 when you sign up and run your first payroll through them: GUSTO

Business Credit

As self-employed entrepreneurs, we sometimes need to make purchases ahead of the income.  When you open your business checking account, you will probably be offered a credit card for your business as well.  This is good because your business credit card does not show up on your personal credit report.  Avoid putting business expenses on your personal credit cards because that lowers your credit score and, at the same time, lowers your chances for qualifying for a mortgage.

I am doing a lot of negotiating these days.  Negotiating to sell a house, negotiating to buy a house, negotiating for funding, negotiating for services, etcetera, etcetera, etcetera.

The 2 biggest rules in negotiating:

1.  Keep the emotion out of it.
2. Be willing to walk away.

We are emotional creatures and, while that is good in relationships and the enjoyment and appreciation of life in general, it is not good for decision-making or negotiating.  Emotion impedes winning.

You see this in sporting events.  Player A taunts Player B in order to create emotional distraction.  Player B loses focus and responds impulsively.  Player A scores.

Keep your emotions in check.  Recognize when your counterpart in the negotiation is testing you.  Maintain your focus.  Remember your goal in the negotiation.

• Is your goal to make money?
• Is your goal to make a deal?
• Is your goal to make a friend?
• All three?  Be careful!  You must prioritize.

Be cautious of a goal to make a deal at the expense of making money.

Be Willing to Walk Away

A good negotiator will have you making multiple small concessions over the course of a long negotiation that will cause you to ultimately give up a lot more than you would ever have given up in a shorter concession.   It is like the frog who is placed in a pot of hot water.  He will jump out right away because he recognizes that this is dangerous for him.  But if you put him in a pot of cold water and slowly increase the temperature, he will not notice and will die when the water becomes too hot.  Don’t be that frog!

Set your parameters before the negotiation starts.  Write down, for yourself, the lowest price you will accept or the highest price you will pay.  Have this number where you can see it and keep checking in with it.

Auction bidding is a good example.  The price starts out low and goes up gradually.  The bidders are frogs in cold water. The water temperature goes up as the bids increase.  The bidders get caught up in the excitement of the auction and make snap decisions to raise their self imposed limits.  Suddenly, they find themselves in hot water and not caring because now it is about winning.  Whoops!

Escrow negotiations

A house that I rehabbed is currently in escrow.  The buyers and I negotiated a price reduction, then we negotiated helping them with closing costs.  By that point, I had given up as much as I was willing to give up in order to complete this sale.  I am keeping my eye on the profits I want to see from selling this house.  When they came back after the inspection with a list of work requests, I said no.  If I don’t sell this house, I can rent it out and make more money over the long term than if I sell it right now.  I haven’t heard back from the buyers yet but I’m secretly hoping that they will decide to withdraw from the purchase.  I’ve actually decided that I’d like to keep this house.

Recommended Reading:

A great book on this topic is “Never Split the Difference: Negotiating As If Your Life Depended On It” by Chris Voss.

I bought the Audible version of this book and have listened to it twice.

Are You A Worry Wart?

We’ve all heard it before and I know it to be true.  It is important to be aware of your focus.  Where are you putting your attention?  Are you focused on what you want – or are you focused on what you are afraid of?  Is your focus on the problem or is it on the solution?

I am, by nature, a worrier.  As early as fourth grade, my best friend christened me a “worry wart”.  Worriers are problem-focused. If you are a worrier, then you are also problem-focused.  Worrying is not helpful or useful.  It is counter productive.

Try being solution-focused.

It is profoundly more useful.  When you are solution-focused, your stress levels go down.  By focusing on finding a good solution, you are sending the message to your brain that there is a solution and therefore, you are far more likely to come up with one.

Do you do the New Years Resolutions thing?

I usually just write down my goals for the incoming year and, on a separate list, write down my accomplishments from the past year.  This year I am making a third list of things I will do to support the attainment of my goals.  This will be my list of 2019 resolutions.

2019 NEW YEAR’S RESOLUTIONS

1. Dance every day for 20 minutes.
2. Blog at least twice a week.
3. Meditate daily.
4. Limit sweets to one per day.
5. Laugh more.
6. Spend at least 3 hours per day building passive income systems.
7. Don’t focus on problems – focus on solutions!

One thing I notice right off the bat, is that my resolutions are more focused on quality of life stuff.  As an entrepreneur running several business, this is the stuff that gets left by the wayside.  I used to think New Year’s Resolutions were kind of silly because people seem to make them and forget them right away.  This list will be printed, framed and hung on the wall of my office so that it is not easily dismissed.

Do you make New Year’s Resolutions?  How successful are you at sticking to them?  Are they the same, or similar from year to year?  Are they more about hitting certain goals, or are they about day to day living?

Happy New Year !!!

Have you done a cash-out refinance on an investment property lately?  What was your experience like?

I spent the last several months working on getting a cash-out refinance mortgage on a rental property that I owned free and clear.  I’ve applied for and gotten mortgages many times in the past, so I though this would be relatively easy.  Not so much.

Some of the problems we ran into:

• I have owned the property for just under a year.
• My company, which actually owns the property, has been in existence for only one year.
• My biggest income source less is than a year old.
• Even though I spent a great deal of money to rehab the property and it appraised where I wanted it to, the lender would only use my purchase price as the property value.

Problems with the loan that I couldn’t fix:

• Variable interest rate after 8 years
• Prepayment penalty for the first 3 years.

I normally do not so variable interest rates or prepayment penalties but these things popped up on the radar just before closing and my broker wasn’t able to have them changed.  We had a deadline we were meeting with the funds from this mortgage so we were at a major disadvantage as far as negotiating goes.

Not every lender makes decisions this way.  I am on the lookout for a better lender for my next mortgage.