E-mail from Debbie

January 9, 2009

This section contains excerpts from E-mail correspondence that I have had with people seeking advice. Most of them are from a woman whose name I have changed so that she may remain anonymous.

I have chosen to share these with you as the questions posed are relevant real life examples.

Hi James,

I am going to put offers in on a couple bank owned properties, Duplex, 2 SFR’s and a  “duplex ready” property. Can you supply a Proof of Funds letter? It is my  understanding that if I have this it  is much easier to assign the property to you.  Or do you prefer double closings? Do you have a title company that will do this? Please let me know what you think. I am working on the numbers now  but want to have all my ducks in a row should any offer get accepted.


Hi Debbie,

I always hated those “proof of funds” requests. Especially from Brokers. It’s like they’re saying “I don’t believe you”.  I don’t run into that too much anymore as we have done enough deals that most brokers know us or have heard of us.
If the request is coming from a bank where you are trying to do an all cash short sale, then I can see where they might have a little more legitimacy in their request.

I never like the idea of putting any of my financial information out there unless I am applying for a loan. I handled this early on by getting a letter from my bank that basically said “We are willing to look at any deal James Andrew brings us” It also said that it wasn’t a commitment letter. That was usually enough to satisfy them. I was worried that they might say that it wasn’t really “Proof  of funds”, but no one ever did. A letter from a bank severed well enough.  You could try getting a bank to draft something like that for you. There is no commitment on their part.

In order to stop this early on you should have an LLC set up (which I think you do) and use business cards when dealing with Realtors/Banks. This shows that you are serious.

….or you could just say, I am bird dogging for an investor.

If any of that doesn’t stop them, I would tell them to take a hike. In this severe buyer’s market, the last thing they should be doing is to halt potential deals by requesting proof of funds.

Another thing is that it is kind of silly for them to request that. It requires that buyer to pile up all of his chips in one location to get the deal done. Right now I only have about $35K in my business checking, but The company is worth a whole lot more. On unsecured lines of credit alone I could borrow over $200K and I have other investors wanting to go in on deals with me (although I always need more). I can come up with whatever it takes to get a deal done. I am sure many of the other investors that they talk to are in the same boat and they are turning them off too. They don’t even realize that they are shooting themselves in the foot when they request such a silly thing.

Also, you do not need to have a proof of funds letter to assign a contract.

Assignment is less expensive and simpler than a double closing. If you are worried about being able to move the contract after you get it accepted, just make sure you have “acceptance by silent partner” in your offer. The only thing you really have at risk is your earnest money and your pride.

Be careful if you get a contract for a short sale with a bank, many times they require you to close in the name of the buyer that was put on the contract.

Take Care,


Thanks James,

If the property already went to auction, went back to the bank & is now listed with a Realtor it would no longer be a short would it? Can’t you pretty much put in an offer & it’s up to the bank to accept? You wouldn’t have to do the whole short package then right? I thought a short is done with an offer on pre-forclosures (before auction).

I wanted to ask if you, if I lock up a property would you be interested in buy & hold SFR’s?  I know you said you would have to consider management fees as part of the deal. I could market the property for renters/lease options for you or sell when the market comes back.

I looked at 2 SFR I want to put an offer on. It would be a good rental home, price just reduced to 69,000, 3/1 rent ready(no immediate repairs needed) Has a partial basement, assessed at 89,500.  I was thinking of an offer of $52,000. The biggest problem I have is getting comps. My so called Realtor says she can’t ethically get them for me as she is not the buying agent???? Why is she showing me properties? Not much has sold this year so it’s hard to compare for FMV. I have only seen SOLD listings on one website. Is there another way to figure this? btw-This one is not REO.

The duplex (REO) just reduced to $84,900…1/1-2/1 lower is good, upper needs lots of work, flooring, drywall, outside stairs crooked…looks like they started to rehab & lost it. When I talked to the listing agent she was anxious for me to write something. Maybe it’s haunted? Has 2 car + carriage garage. Has lots of potential but if you don’t want to hold you probably wouldn’t be interested in this one right? Oh, they owe $4438 in taxes too & assessed at $120,200.

My head is going a mile a minute, I know how to do the numbers but need FMV to start with…ugh!

I so appreciate your taking the time to answer my questions, it will help me find you a GREAT deal soon!

Talk later,


Hi Debbie,

If the bank has gotten it back and you are dealing with a Realtor then it is not considered a short sale.

Right now I am not as interested in SFR’s where I have to get financing or come up with a big chunks of cash.

Here is the difference:

Conventional purchase of a $100,000 house requires me to apply with a bank, put 20% down, is on my credit and has fairly significant closing costs.

“Subject to” purchase of the same $100,000 house does not require me  to put anything down.(or very little if it does), Has much lower closing costs and does not require my credit as the sellers credit stays on the mortgage until I sell or refi.

I basically get the same position without burying money in real estate. Here are some examples of properties we have actually bought:

Conventional purchases:

Madison street, $104,000 down payment $21,000 Closing costs $2217
Division Street, $98,000 down payment  $19,600 closing costs $1875
Clarence st. $135,000 Down payment $27,000 Closing costs $3200

Subject to purchases:

S union St. $61,500 Nothing down, closing costs of $1210
Creamery St. $77,000 Nothing down, rehab and closing costs of $2100
Kahl Rd. $165,000 seller gave me $21,000 to take it, Closing costs of $500

I hope this shows that for us it makes sooo much more sense (in this market) to just take over debt to acquire a place.

There are times when it does still makes sense to use my credit and cash. If I am going to get a loan, or use cash to buy a place and it is an incredible deal… Like 30 cents on the dollar type of deal,or a larger commercial deal.

I know you are looking to Bird Dog, or find contracts to flip, but you probably don’t even realize how little money it would take for you to get into a property on your own. You just have to kiss a lot of frogs, and it probably won’t happen though a Realtor.

Also when assigning contracts, you really have to leave a lot of “meat on the bone” for the next person. Make it an obvious slam dunk for them. One of my partners just assigned a contract to a person for a home on the river that has an approximate value of $110,000, she negotiated the seller down to $47,500, with terms of 1/2 up front and the balance in two years with no interest and no payments. So besides finding a great deal, she built in terrific financing. If I wasn’t up to my elbows in rehabs already I would have taken it on myself. She has gotten really good at negotiating deals like this so if you are interested in one, or know someone who might be interested, you can make a ton of money either doing the deal or getting a finders fee for bringing a buyer to us. Let me know if you want her to contact you when she has another good one.

On the properties you described: If they have been used as rentals, or can be, get good numbers on the rental rates and we can figure from that what kind of a deal they might be.

If you are having trouble getting comps that tells me that these might be in a rural area. That is usually where I have trouble comping property anyway.  I am surprised that the Realtor wasn’t willing to comp them for you. I think he/she is just being lazy. I have had the Listing Agent on a property comp them for me before. You can always hit up some other Realtor for comps as well. I will sometimes get a “gut feel” off of listing prices, but you really have to take those with a grain of salt.

Sometimes older “duplexes” make more sense being converted back into a SFR. The layout has to be right though.

I think I may start an investor web site to share some of this type of information and other “nuggets” I have learned. I will shoot you the link to it if I get something going.



Hi James,

Actually, these places are in town. I think the Realtor wants me to sign an agreement with her before she will run comps. I sent her an email Tuesday night asking for comps on the properties I described to you & haven’t heard anything. I think I’ll use someone else.

As for the duplex, rents for 1/1 =450-500 and 2/1= 550-650 depending on the condition of  the duplex. I think the duplex ready home could still be a 4/2 but has everything  separated already (2 furnaces etc.)

The reason we can’t get into a property ourselves is because I’m unemployed & the bank  won’t loan because of that. I have a great credit score but it won’t help until I find a  job. (which I’m trying to do!) If I could find a “subject to” that would be the ticket.  Seems they are few and far between. Although I see a duplex for sale is now in foreclosure  ( I sent them a letter).  Funny thing is, we looked at it already & it needs some work,  looks kinda grungy & the units are small but it IS rented out. Maybe I’ll get a  response! If  I do then I would just take over his payments, loan stays in his name and  he quit claims the property to me now? or when it’s paid off? Down the road I would then  refinance, right?

Don’t you have a website already? I thought you did. Have a great day James, your advice is sooooo appreciated.


Hi James,

How ya doing? My husband found out yesterday that a friend of his is selling a restaurant and storage bldgs in town. The restaurant  has a specialty sport inside and the  storage units are located next door. Do you know anyone that would be interested? What kind of information  do you need to find a buyer for this? He is giving us the opportunity to find a buyer for him before it is actually for sale.  What do you think?


Hi James,

The seller asked my husband again about finding a buyer for this..I think if we can get the numbers to work & get it under contract, it would be a great assignment of contract. Can you tell me exactly what we would need from him to run numbers? I know cap rates are involved but I know nothing about how this works.   The seller asked for a “checklist” of things we would need, can you help with this? I told my husband to ask if he (actually his father) is willing to sell on terms. Right?

Would you be able to help us with this or are you too busy?  I could really use your mentorship. Thanks James!

Oh yeah, the guy that leases the business pays on time, wants to buy but has been dragging his feet on trying to make a deal.


Hi Debbie,

I was just logging on to write you an e-mail to apologize for not getting back to you today. I still have to put together some stuff to send off to you. Sounds like you already have an interesting lead.

First things to find out over the phone even before you look at it:

1) Asking price

2) What the income and expenses are.

Then to find out if you can:

3) What they owe on it.

4) what the monthly debt service is.

Sometimes they balk at answering the questions about the existing financing. I usually answer them this way:

“I understand, sometimes people don’t feel comfortable giving out that information, but with the market the way it is we are often able to come up with a better offer by being able to work with the existing financing. I can also find a lot of this information on the public record, I was just trying to save myself a trip to the courthouse.”

5) Along with with those numbers we need to know how the properties are managed. The experience I have had when looking at these types of properties is that the owner is usually a full time hands on part of the operation. If that is the case, taking on a property like this and running it yourself can be tiresome and limit what other deals you can take on. You would be just buying yourself a job and not really investing.

When I approach a deal like this I either want to:

A) Hire a manager to run it.
B) Sell it on terms (lease option/ land contract, etc.) to people who have the dream of running a business like it full time.

The problem with #1 is that you have to find someone you trust as cash is often involved, and you have to make sure there is enough room in the budget to allow for a full time manager.

I don’t own any, but I hear that storage buildings are in pretty high demand, which means that they can be a cash cow if bought for the right price and run properly.

6) I would also ask why the owner is selling.  Motivation is key to finding a good deal. This guy may be holding out for top dollar as he has not approached a Realtor/Broker yet. This tells me that he is probably hesitant to give up the commission as opposed to being desperate to sell.

The numbers he gives you will tell most of the story.


Ok James,

The property (storage/bar) is owned by one individual and the business is owned by another, I think he leases the bar/bldg. It is my undestanding this guy is not paying his debts to the property owner and spending his profits elsewhere (casino? ha!) Anway, I  think the owners are tired of dealing with the hassle and just want to be done with it and sell rather than lease. Keep in mind, I don’t know how much negotiating they will do,  they just asked us to try to find a buyer. I will find out what they are asking etc. The storage units are part of the property, I don’t think they are parceled off. I personally  wouldn’t want to buy it myself but maybe there is someone out there who does. Kinda doing this as a favor for a friend. I don’t want to waste my time trying to market it for him,  I’m thinking a Realtor may be his ticket, don’t you?

I’ll watch the mailbox for your “package”, thanks!

Oh yeah, I got a response from one of my ads, a cash buyer looking for a rural cottage/house with some acreage…wish me luck. She wants the moon! I’m going to look at a few properties tonight, one has an offer…asking $62,900! I think  we’re beat out of that one but still fun to look. Talk soon

Hey James,

I added information to your email. The seller is 72 yrs. old and wants to sell off the “headache”. His son is who I spoke with.  Seller doesn’t want leasee to know he is selling to protect income until a buyer is found, make sense? Let me know if there is anything else you need. I think I got it right….still learning!! It would be great to find a buyer for him. Thanks James,

1) Asking price– $1,000,000.00 Negotiable & will sell on TERMS!!

2) Income from all sources– $5,000/mo rent/restaraunt & $17-18K/yr storage units

3) Expenses– Leasee (restraunt) pays utilities-no figure for that_____(Not including Debt service)

4) Taxes — $12,000/yr

5) Insurance –Storage bldg=  Pmt is $7,308/yr. Insured @80% value (173,000).  As far as the  Business,  insured at 80% as well, value is $1,213,000.00, with $50,000 for equipment. which is included in the payment.

6) Hours per week spent running it — Business Run by Leasee full time, Property owner takes care of storage units.

***Has Sprinkler system throughout bldg. Square footage is approx. 12,900.

Hi Debbie,

One million seems like a lot for this property based on income/ expenses.

I am assuming that the numbers he gave did not already have taxes and insurance taken out.  Here is how the math goes:

Gross Annual income:

$60,000 restaurant @ $5000/mo X 12 mo
$17000 Per year storage unit income
$77,000 Gross income


$12,000 / year Taxes
$ 7,308  / year Insurance
$19,308  Total Expenses

Net income (Gross income minus Expenses)

$57,692    Net Income

Here is where we get into Cap rate to determine the rough value of this as an investment. I usually assume a 10% minimum cap rate when buying  “Which is saying If I were to buy this all cash and I need a 10% return on my investment, what is the most I would pay?” As you will see 10% also makes the math quick. $57,692 Net annual income divided by .10 (10%) equals a value of $576,920 based on the income stream.  Based on this it looks like he is asking twice what it is really worth.

As cap rate goes down which would be the case for a more stable investment, for example if we owned land and buildings being leased to Wallmart or Wallgreens or some other large stable company on a longer term lease, then we can feel comfortable with a lower cap. In this example if you were leasing to one of those grade A tenants, then you might value it using a 7% cap rate, which would raise the value to $824,171 ($57,692 divided by .07 (7%)) Still way below his asking price. In fact we can calculate what the cap rate is for this property based on his asking by taking the income divided by the asking price and multiplying by 100 to get percentage. $57,692 divided by $1,000,000 = .057692 Multiply by 100 gets you a cap rate percentage of 5.77%

So if you were to buy this property for $1,000,000 you would expect a return of a little under six percent.  Investors would not want to take on the extra risk for this type of return when they can get close to that in a CD or other less risky investment.

We should also keep in mind that this is a rough number for seeing if we need more information. In this case probably not, unless he is really flexible on his terms or can come down in price a lot.

We are also ignoring some expense information that must exist. The rental units surely take some sort of advertising, probably electrical and for sure maintenance expenses, not to mention the hours he must put in running them. We would ask for this when going for our second round of information after we have evaluated the numbers.

Now with all of that being said, there are occasions when you may still consider an investment like this.

1) If you know you can easily raise the net income over $100,000 per year.

2) If there is a higher and better use where you can sell the property for more money.

These are speculative ideas and make the whole thing riskier. I like to buy based on what makes sense now and not possible future value, unless it is an obvious play.

I never like to just plain drop a lead if I don’t have to, with what we know at this point you can come back and see what terms he is willing to take or try to drive the price down.

It’s a real gut check to ask a guy if he will take $400,000 for a place after he has asked $1 million for it, but I do that a lot. If you can show him how you came up with your number they at least know you are approaching it logically.

I try to soften the blow by saying something like “Thanks for your time, but I am probably going to have to pass on this for now. Based on the information you gave me I am embarrassed to even offer you what I came up with.”. They will almost always ask what you came up with. If after you tell him he is resistant, I would mark on your calendar to follow up with him in a month or two. Time changes sellers minds.

I know I threw a lot at you here. Let me know if you have any questions.


Hi James,

Well, the numbers never lie do they? I did a little more research and found he owes $53,425.52 in taxes on the property too. Assessed value is @ $605,400. His asking price seemed a tad high to me as well. Can taxes owed be used as leverage? How long can you owe taxes before it becomes a tax sale?

Don (my husband) said that the owner is willing to take back a second on this to finance. I will call the seller and tell him what we came up with and see what kind of response we get. Thanks for all your help on this.


Hi Debbie

Another thing to consider is that there is usually a reason for him to get in trouble with taxes, The restaurant owner could be behind on his payments, or the owner had some big expense, at his age, possibly medical.

It gets really interesting when you start to see the story come together.


Hi James,

I looked at a Duplex in town this weekend, would you be interested in a property that cash flows?

Asking $105,000
Assesed @ $102,000 Taxes–$2265.92/2007
2/1 down $500/mo
2-3/1 upper (one room has no closet so it not considered a bedroom) $475/mo.

Detached Garage, wired 2003,roof 2006 Metered separately, tenants pay utilities. Great shaped with exception of windows in walk up attic-should be replaced. (Atttic is not finished but is wired) Full basement is sectioned off with separate laundry rooms,  water heaters & furnaces. Also has 2 entrances for each unit. Plaster walls,  Aluminum siding, shared driveway.

In the past 8 years owner has never gone a month without rent. The owner told me they  got a lowball offer of $70,000 and felt insulted as this property “is not a dump,  it’s nice.”  What do you think?


Hi Debbie,

At this price, from a cash flow perspective this is just an “ok” deal. They receive in $975/mo and the cost of the property is $105,000 This is right about at the 1% rule.

For this to be a good deal you would have to low ball him at $70,000 in order to try to pick it up at $80,000.

I know that it seems like a good deal now, but even if you were to pick it up at $90,000, I would still pass.

I am guessing you are seeing it like this:

569 P&I  90K over 30 years @ 6.5%
189 taxes
50 Ins.
808  expenses

975 income
-808 expenses
167 in net income

That is how I would have seen this when I first started out.

What is not seen is the maintenance, vacancy and management costs. In my experience these can easily be 30% of your total income.

If you are vacant for one month in one unit it will take three months to make-up for it; Two and a half months for the non-income of rent, a bit more for utilities, a bit more for classified ads, and a bit more for cleaning and rehabbing the apartment.  Also, just because he said he is never vacant doesn’t mean that it never will be when you own it.

What if the tenant doesn’t pay and it takes you three months to get them out? They also don’t leave the place in very good shape when they get evicted.

Or what if the furnace goes out?

you get the idea.

So normally we add something called “reserves” to the monthly cost to cover these items.  I typically use $50 to $60 per unit, which leaves only $67 to $47 net profit. Making it barely worth all of the hassle, even at $90,000.

You can stand this for a while if you have reason to believe you can sell it for a minimum $20,000 profit a short time down the road, or of there is reason to believe that you will be able to increase the rental income by a good amount.

As it is a duplex you will probably never be able to sell it as a single family home, which means your only exit is to sell to another landlord.  You could possibly do a condo conversion, but that is a lot of hassle for a two unit, and it certainly isn’t going to happen in this market.

It is the landlording factor, and distance that make this an undesirable property for me.

Just my take on it. Hopefully I didn’t offend, as I do want you to continue to look at properties. It the best thing you can do to start to recognize the things that make for a great deal.

Take Care,


Hey James,

I am not offended by any means, just trying to learn, I appreciate your pointing these things out to me. Actually the income is $1025/mo (the lower rents for 550-not 500, my bad). The owner was upset because the lowball of $70,000 was over the phone without seeing it. I will take what you have given me and keep it in mind when I continue to look. Thank you very much for the insight!

I also looked at a FSBO 2/1 on 1.36 acres just outside town. Cute little house, nice location, with hardwood throughout but she’s asking $125,000! I think that’s too much, especially in this market. ( I think she does too)Not to mention it needs all windows replaced and siding. I’ll watch it, she just put the sign out last week.

I can’t find many recent sold listings in the past 3-6 mos to use as comparables…how would I then figure out what a property is worth? Could I use last years & subtract about 10,000? Would this be close? Not to mention there aren’t many 2/1’s with that much acreage! Thanks again James, I’ll keep looking!


Hi Debbie,

Value is a tricky thing, especially in this market.

Before I have it under contract, I usually check out what is listed in that area to get a “gut feel” for asking prices, I then check the tax records for assessed value. If I am close to or below assessed. I feel pretty good about it.

After I have it under contract, I will often get a Realtor to do a CMA for free,  or a BPO or an appraiser to do a “drive by” for $100 or so. If the numbers aren’t close to what I am thinking I drop the property, or renegotiate.

If I am picking up the property “subject to” and it is not costing me much if anything to get into it, I am not as worried about how close I am on value as I will be selling it for 110% of market using a lease option. I just need to know that I can get enough out of it each month to cover expenses.   To clarify what I am saying here, is that If I am off by a a 5%  either way, it isn’t going to break this kind of a deal. If I am off by 50%, then obviously it would. However I don’t need to be that close when I have very little into the deal and it is not on my own credit.

If you are working a particular area, the best advice I can give you is to look at a ton of properties. You will get a sense for value just based on this. Then when the deal of a lifetime comes along, you will know right away that it’s a deal. It will be so obvious it will scream at you.

If I were you  would also start advertising to buy houses. If you don’t have much money, just put up a few fliers that say “I buy houses” and your phone number. Classifieds work well too. It is always so much better to have them calling you.

And yes, someday I will get around to getting you that script that I use. I have a paper copy of it, I just need to get it typed into an e-mail for you. Scripts help take care of the “phone fear”

Take care,

Thanks James,

Great advice! You are such a help. I think I’m just getting frustrated that I haven’t “found” anything yet. I won’t give up. I have been posting ads and will continue to do that too.

That 2/1 on 1.36 acres in assessed at 95,000 and taxes are $954 (with lottery credit) a year…Tax & Ins approx. 130/mo. If I were to offer say, $80,000 (and she accepted) this would be a pretty good deal right? I know it’s kind of rare to find a property with this much land which may make it easier to sell. I noticed properties are selling for under the assessed value in some cases. I will  be looking at more this week that are actually priced well under the assessed value. I’ll keep you posted. Thanks again, I do value your advice James!


Hi Debbie,

Just touching base with you. I think you had left me a message to call you back on a particular deal a short time ago, and I did not get back to you. I apologize for that.

Here is a minimum list of questions I try to get from sellers:

1) Their Name
2) Phone number
3) Address of property
4) Type of property  (SFR, Duplex, rental, condo, etc)