Adventures In Home Buying

If you've been checking in on this blog over the past few weeks, you know that Diane & I just bought an investment property for ourselves. What a long, strange trip it's been...

This all started for us early this year when we decided that we needed to re-align our investments. Like a lot of folks, we had seen our portfolio take a nasty beating late last year, and while we aren't exactly risk averse - I mean come on, we're Realtors - we did think it was time to re-think where we had our nest egg. And in talking about it, we thought that we were at or near the bottom of the housing market, and we really didn't want to miss out on a prime opportunity.

The problem was, everybody else out there is trying to buy real estate too. I guess that's not really a problem - we benefit from that. But now we found ourselves in a position where we would have to compete for a good property. You'd think that it would be easier with the inside track, and it probably was to some extent. But we had some pretty limiting factors in what we were willing to buy. It had to be something in a decent area. It had to be something that could bring us somewhere in the neighborhood of $1300 a month in rent. And it had to fit our investment budget, after any repairs that needed to be done. Easier said than done.

Down To the Courthouse

After looking at what we had on the market at the time (February) and realizing that this was going to take some time and patience, we decided that we'd expand the search to trustees' sales down at the courthouse steps. This took a lot of research, and a lot of trips down to the courthouse in Santa Barbara. In a nutshell, this approach is not for the faint of heart. Here's how it goes:

First and foremost - it's cash or cashiers checks, right then and there if you buy a property. No loan, no inspections, no title insurance, no cooling off period, nothing of the sort. As is, where is, you pays your money and you takes your chances.

You have to do a lot of your own research on the property ahead of time (unless you feel really brave). We targeted a whole bunch of properties. We didn't count, but I'd be surprised if it was under 100 over a period of time. We would drive by them, make notes on the exterior condition, see if it looked occupied, and decide if we wanted to do further research. If they were occupied, we tried to steer clear of them as much as possible. There were a couple that seemed to have enough potential to deal with that situation, but it would factor in to the bid we were willing to make.

If it made the cut, we'd go to the county recorder's office and check out the history on the property liens. This could sometimes be a time consuming process, but sometimes it was pretty clean and straightforward. Basically, what we were trying to do was figure out if the trust deed that was foreclosing was in first position. If it's not, you're buying the property subject to any senior liens. This could be a huge problem. And while we got to be pretty comfortable with the data we found, there was always the potential of title problems that we couldn't identify with our search.

If you want to minimize your risk on one of these, you should have a title report run on the property up front. But the problem is, this is a numbers game, and those reports aren't cheap (around $300-500). If you only have one or two properties that you're going to chase, that's one thing. But your chances of getting one of those is very slim. First of all, in most cases, you don't even know what the opening bid is going to be, or even if the property is actually going to be sold, until the actual auction. This was especially true early on in our adventure. Over a period of a few months, it seemed like we started seeing more data on auctions, usually on the morning of the auction. But even then, it's not like you can get the details on something in the morning and get a title search done by 1:00. So there's that risk factor again.

Most of the time, auctions get postponed. On a few occasions, we actually got to the point of bidding on a property. A couple of times, the bank actually bid against us (sort of a reserve bid) and they went higher than we were willing to go. Another time, we were outbid by another bidder. A few other times, we went down hoping to bid on a property, but they were postponed at the last minute. The whole thing was an exercise in patience, to say the least.

The Payoff

If things hadn't worked out the way they did, we'd probably still be parked at the recorder's office looking at trust deeds. But as it turns out, the property that we wound up with was listed as an REO. It was actually a property that we had looked at as a potential pickup at auction, but because it was occupied at the time and there were a couple of questionable things in our research, we decided not to pursue it. It reverted back to the bank, and came on the market in pretty short order. We saw it come on the MLS on the Friday morning before we left on vacation. We went over to see it at lunch, and decided to go ahead and throw an offer at it.

One advantage that we do have from being in the business is flexibility of schedule, and it takes us almost no time to crank out an offer. So we got it off to the listing agent that afternoon, and she promptly got back to us and let us know that she had a couple of other offers already. So much for that advantage... But at least we figured we could leave town on vacation and not worry about this while we were on the road.

So we leave for our vacation on Sunday, a nice leisurely drive up the coast for the first few days, and on Sunday afternoon, after a long stretch of road where there was no cell service, both of our phones start beeping at us with messages. Turns out, it was the listing agent. Kind of a surprise, being a Sunday, but she had heard back from the bank that afternoon, and they wanted to counter our offer, but only on escrow length and inspection period. We told her to let them know that we were OK with that. So Monday rolls around, and we get a call that the contract is in our email. So we track down a Kinko's and print it out, review it, sign it, and fax it back. Then over the next couple of days, we get a few more details here and there dealt with in between sightseeing. It all came together pretty smoothly, thanks to the miracles of modern technology, and we came home, did an inspection, ironed out a couple of minor things on the title report, and closed it.

The house need some love. It looks pretty good from the street, but once you open that front door, it's a different story. We're in the process of getting some work quoted and done, and we're hoping to have it rental ready by October 1.

Oh - added bonus: It came with a few mature tomato plants. They hadn't been watered much for a while, and a couple of them aren't coming back, but I've been nursing them along, and we'll probably double our tomato harvest this year.

That's some expensive salsa...