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IWP!, flagship product is Chicago's premiere real estate Investment
magazine. Entitled Invest With Passion!, it is the tool for investors and professionals in the
Mid-West. The publication seeks to grow it's market share by providing
powerful information designed to build the reader both as an investor and a
person.
Since it's release in January of 2006, the magazine has been well received and
continues to gain momentum and support. The education, information, and
networking opportunities for the real estate investor has been long neglected.
No More!
The time is now and the momentum is building.
It's Happening!
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by Geoff Thompson
Over the last seven years, my wife Nancy and I have
moved through investing in real estate from Carlton Sheets to doing our
own developments. We’ve probably made every mistake that is humanly
possible. However, we have always followed the dream of financial
prosperity
and have never quit or given up. The only problem with reaching what you
thought was prosperity is that when you get there, you realize that there
is another level of achievement that you haven't reached. Hence, you move
on to something bigger than you ever thought you would be involved in.
However, that is for another article so I will start with the very first
investments that Nancy and I did. This is not meant to terrify, mortify
or horrify you. Read this until the end and you will be inspired!
Our investment career started like most people.
Nancy and I were planning to get married and we wanted to live the
American dream of financial abundance, boats, vacations, lots of free time
and early retirement. This probably sounds familiar to the majority of
people reading this. We were on a plane flying back from a fantastic
vacation in Scottsdale, Arizona and began strategizing on how we could
achieve our American dream. I told Nancy about a late-night real estate
guru named Carlton Sheets and how we would be instant gazillionaires if we
got his course. Nancy has a tremendous amount of faith and belief in me,
so she was in!
We got off our plane at O'Hare and by the time we
were at our car, I had not only tracked down Carlton but found out he had
a distribution center in Oak Brook. We decided to drive over and buy the
system. EUREKA! We were on our way to hanging out with movies stars,
getting invited to the White House and certainly in line to dwarf the
achievements of “The Donald.” This all happened on the way to the
distribution center. We got there, purchased the messiah of real estate
courses and drove home to visualize how we would be living in the next
year!
Over the course of the next few days, we went through
everything twice! We were now veteran real estate investors and the world
was ours, or so I thought. From there, we toured properties and frightened
the elderly by mobbing them in their yards to ask questions about their
neighborhoods. We were often tailed by the police on our cruising because
they thought we must be burglars casing the place (just kidding). Needless
to say, I made every hair-brained offer I could come up with until I
started getting discouraged and realized that there was going to be a lot
more work to get a property than I imagined.
That's how we came to our first real deal and that is
where the original nightmare began. I was combing through the investment
properties “For Sale” section in the Sunday paper when I came across
several ads placed by an agent named Bob. They all were 2- to 4-flats that
really had good cash flow potential. I called Bob, who interviewed me and
Nancy to determine if he wanted to work with us or not. After passing the
test with Bob, we let him know that we are very aggressive and NEEDED to
buy 4 - 6 rentals in the next 30 days. Bob recommended that we take a
slower approach. However, I wouldn't hear of it. I told Bob “we are
going big or going home” and he allowed me to trip over my own
foolishness.
After working with Bob and touring a few dozen
properties in the first week, he called to let me know that he had a
package of three deals that were being sold by a slumlord that had a lot
of potential for cash flow, as well as appreciation with some money going
into them. So Nancy and I went out and looked at the three properties. He
was right, they were pretty rough. However, they looked really great on
paper - as long as the sixth moon of the seventh star of Sagittarius was
in the eastern sky. Needless to say, we wrote them up and were off to the
land of investor millions. If I have kept your attention this far, it does
get better. We had established a 45-day closing window and began working
with a pretty good mortgage broker. Things were moving much faster than I
had anticipated and as the days moved by, I started to get a bit of
anxiety that continued to grow like a mushroom cloud. Being the man that
never wants to stress Nancy out, I kept to myself and didn't share. In any
case, we were on our back porch having a glass of wine about a week before
going to closing when Nancy said, “I'm pretty nervous about these deals.”
I thought to myself that this would be a great out for me so I said, “I
think we should cancel the two 2-flats and keep the 3-flat that has all
the cash flow. I'll call Bob in the morning and let him know.” Needless
to say, most of my stress went away as the night moved on.
I called Bob the next morning and told him that Nancy
and I were going to cancel the 2-flats and keep the 3-flat with all of the
cash flow. Bob responded that he would call the seller’s agent and let him
know. About 15 minutes later, Bob called back and said it would be fine to
cancel. However, the seller was going to file a lawsuit against me and
Nancy for his losses since it would negate his 1031 Exchange. He went on
to tell me that the seller's agent was also going to sue us for his lost
commissions. So I told Bob, “we'll see you at closing.” Carlton didn't
mention that this could be an alternative. I expected that all that was
at risk was my “$10 deposit.” Or in our case, our $3,000 deposit per
property. In any case, we were going to closing for better or worst.
A few days later we were at the day of closing and I
received instructions that Nancy and I would need to bring $15,500 to the
closing in a certified check. As we were running around for our 11am
close, we forgot what Carlton had said regarding the final walk-through
inspection. We got to the escrow agents office and were notified that they
had made a mistake on the closing costs and we needed to go get an
additional $6,000 before they would go through with the deal.
As we were getting ready for the closing, the
mortgage broker pulled us off to the side and let us know that the lender
had made a mistake and the adjustment to our interest rate is 1% more than
what we thought it would be. Then he proceeded to tell me that he was
unable to get the 80/15 and all three of the properties would be carrying
mortgage insurance. However, that would go away after we refinanced or got
it reappraised and the loan would drop to 75% of the new appraisal.
We went through the rest of the closing in a pretty
uneventful manner until we got to the final and most exciting part that I
had learned through Carlton, the cash back! I did it all by the book,
scheduled the close a few days into the month for the prorated rents and
the security deposit transfers. I had it right down to the penny as to
what Nancy and I would leave closing with: $7,463. 23. The closer handed
us a check for $3,200 and this is where I lost it. He went on to explain
that some of the units went vacant since we wrote the deals and that the
seller thought it would be in our best interest to place our own tenants!
If you think this is a nightmare, read on! We left
the closing fairly demoralized but we were now the proud owners of three
buildings on our first transaction and it was time to meet the tenants. We
went to the first building which was the 3-flat with all the cash flow.
Upon entering the porch, we saw that one of the doors was covered with
plywood. As we were examining it, a woman came out of the other door and
asked what we were doing there. I warmly let her know that we were the
Thompsons, their wonderful new landlords. I asked about the plywood and
she explained that there was a crack bust at the unit the week before and
police had arrested everyone. This clearly explained the lack of rent at
closing. As we left, one of the neighbors asked what we were doing there.
As I explained that we had bought the building, he proceeded to tell us
that it was a crack house and the highest crime building on the block.
Clearly, I was a bit concerned but I held strong as we went to the next
building.
Nancy, Bob and I arrived at the 2-flat. As we
entered, there were no lights because the tenants that had moved out had
taken the light bulbs. The first unit had a horrible stench that filled
my senses, and the floor began to move. At first, I thought perhaps my
vision was failing due to some unknown radiation effect. However, when Bob
switched on his handy realtor flashlight I realized that the moving floor
was not in my head. It was simply thousands of roaches that had infested
the unit! However, we still needed to identify what that stench was so we
followed our noses into the basement to find that there was sewage backup
literally two-feet deep. As I hope you can imagine, Nancy and I were not
having a very good day!
We moved on to the last 2-flat that we had just
purchased and were pleasantly surprised that it actually looked fairly
good. As I knocked on the first floor door, I received no answer. However
the people that lived on the second floor, came down to greet us. I asked
where the tenant was from the first floor and they proceeded to tell us
she has been in jail for the last six months. I looked over at Bob with a
shear look of terror and he said, “don't worry about her, she is your best
tenant. She has a Section 8 voucher and can't damage anything from jail.”
I considered this to be interesting advice! As we met with the other
tenants and explained that we were the new owners, they found it to be a
great opportunity to let us know everything that was wrong with their
unit, the building, the neighborhood and political world affairs.
That was potentially the worst day I have had in my
life. I weighed out the options of letting the lenders foreclosure on the
properties, assuming a new identity in Europe, or trying to persevere. We
determined that whatever it is, we are stuck and we are stuck. I spent the
next three weeks with major anxiety and could barely get out of bed. Then
the epiphany came: if this stuff was so easy, then everyone would be
multimillionaires.
The next day, I was determined to take control and
that is exactly what Nancy and I did. Within the next few months, we got
all three properties cleaned up and rented. The units were generating not
only enough to cover themselves, but were actually cash flowing! I started
reading mass quantities of real estate investment, real estate management
and real estate strategy books. I became a student of the trade and we
started doing more deals. By the end of our first year as actual
investors, we could take on just about any deal and turn it around.
This is where the nightmare turned into our initial
thought of living the American dream. We had purchased the 3-flat/crack
house for $103,000 and a year and a half later, we sold for $253,000 -
$150,000 more then we paid! However, we did put $20,000 to $30,000 into
it to clean it up and realize the gain.
The 2-flat with the roaches and the sewage was
purchased for $83,000 and was sold for $187,000 after a year and a half -
a $104,000 gain. Again, we put $15,000 - $20,000 into it to bring it up to
speed.
The 2-flat that had the woman in jail was purchased
for $87,000. We still have that property seven years later. It has been a
great rental and for the most part, has always cash flowed. The last time
we had it appraised, the value was $280,000 - which is $193,000 more than
we paid. Over the years, we have put $20,000 to $30,000 into it.
The moral of this story is that real estate never
goes exactly the way you planned and profitability is a long-term
endeavor. Don't be afraid to make mistakes. Welcome them! You will be
surprised at how much more you will learn and how much stronger of an
investor you will become. There is no such thing as a get-rich-quick
scheme in the real estate investment arena. Most people who try to become
successful investors quit before they ever see the rewards. If Nancy and
I were stubborn people, we probably never would have either. However, if
you do the math from my story, just those three properties had a net
effect of $368,000 for us! Since then, we have literally done tens of
millions of dollars in transactions and are continuing to do bigger and
better things!
Back to My 1st Rehab |
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