My San Bernardino House – Oh Such Sad Memories
My goal was to find another house to buy with little or no money. That’s especially using little or no cash from my own pocket. I kept looking for more houses to buy. This time a San Bernardino house in the Inland Empire region of Southern California was to grab my attention. My ultimate goal was to have a lot of mortgages. So that meant I needed to buy a lot of houses to accomplish that. It wasn’t so easy to find the deals like I wanted.
Actually the houses I bought weren’t really deals in the normal sense. They were only deals to me because I wanted a vehicle to create mortgages. I was actually paying retail prices for the houses I bought. As such, investors looking to make decent profits would quickly skip over the same houses I wanted.
In order to accomplish my goal of buying a lot of houses almost everything had to go perfectly, without a hitch. That’s because I was borrowing the downpayment money from credit cards at high interest rates. I guess if I were to do it again I’d figure out a better way to get the downpayment money. In my case almost nothing went perfect. That’s because most of the renters that had an option to buy were unreliable. Most were late in their monthly lease payments. Some had to be evicted; one was a scammer, another was a minister who was extremely reliable.
I had thought the minister would be a good candidate to buy my Banning house, but alas, no way. He was late almost every month making his payments. I hate to be bugging people about rent payments. But I had to do that a lot for him. It got so bad I had to go to his business (he had an auto repair business). There I collected the rent checks from him. Then run down the street to the bank to cash them. Otherwise the money might be drained from his account.
I got a Tip about a House in San Bernardino California
During the next couple of years after the Rialto house fiasco I found out a small house in San Bernardino. For that one I had a real estate lady I had met a couple of years before call me. She was on the lookout for a house for me. One day she called and asked if I’d be interested in an older house in San Bernardino.
I knew that city had some bad areas. I suspected the house she mentioned was likely in one of those areas because the price was relatively low. However, she assured me it wasn’t. I didn’t know much about the San Bernardino area. But as it turned out it was in a good area like she said. The house was small and old, but nice.
Plastic provided my Downpayment Money
During that time I had well over 50 credit cards. Because I never made much money, compared to people with good jobs working full-time my credit limit on each card was low. That’s one reason why I had so many cards. The other reason was because I wanted to be prepared to pay cash if I found a really good deal. Living in California with so many rich and wealthy people is a real disadvantage if you are trying to find good house deals.
One problem is when someone with an all cash offer gets the property first. Another is can you beat the horde of people with lots of cash who might also be looking for real estate deals.
I Found Properties the Old Fashioned way
It is not quite this bad if you were doing what I did. I was looking through throwaway papers and flyers. Sometimes bulletin boards for house deals. If someone has a lot of cash that method of finding property to buy probably won’t suit them very well.
I was a contract programmer back in those days. I made good money but I’d be off of work sometimes many months between assignments. For me that was good, but it also meant I never really had much, if any extra money to work with. That was another reason I needed some way to get quick cash in case I ran across a house to buy. Credit cards were my way. I don’t advise anyone to try what I did using credit cards to get the down payment.
I borrowed $8000 from my credit cards to buy that San Bernardino house by assuming the FHA loan. In that particular deal the previous owner, whom I never met, had suddenly been sent back to Tennessee, I believe.
He was in the military and didn’t have time to sell his house through normal channels. He had to leave suddenly and there was not enough time to list his house with a real estate company and expect to get such a large downpayment.
That’s because most buyers could buy it with an FHA loan for about a third down compared to my downpayment. Also not many real estate deals would close fast enough for him if the buyer had to get a new loan.
Time to Find a Buyer for the House
Once I got the house I had to start looking for a buyer. I don’t remember exactly how I found a buyer for that house. But I believe it was through one of the several ads I had placed in either the Recycler on the local neighborhood paper.
The Recycler was a weekly paper with nothing but ads in it. I had used it years before to sell some of my cars and had good luck with it. After a short period of time I interviewed a couple interested in leasing it with an option to buy.
This time I didn’t want to sell it “no money down” fashion because I knew I’d have a cashflow problem. When I interviewed the potential buyer I had mixed feelings about him. His wife seemed OK, but his attitude wasn’t the best. I was reluctant to sell to them, but I knew it would be hard to find a buyer. That’s because I was asking for a large downpayment compared to the price of the house.
The advantage for the buyer of buying a house from me was no qualifying in the normal sense. It would be a quick escrow with very low escrow costs. They could get the house in a matter of a few days if they wanted to.
Since that couple would put a rather large amount down compared to no downpayment, I decided to sell the house to them. After all they would not be renters, but home buyers. They would have a lot to lose if they reneged on their payments. He didn’t have a high paying job, but did make good money from his side jobs. He had a backhoe and often would get well-paying side jobs using his tractor.
I like to give people the benefit of the doubt. So I sold the house to them for $8800 down. I assumed the existing mortgage while creating a new AITD mortgage for them.
I raised the interest rate a percent or so allowing me to make at least $8000 a year on interest and raised the house price slightly.
Problem Number One- a Flood of Water
Some time after they were living in the house I received a call from them. They told me the house had flooded. It seemed like the water pipe going to the toilet broke. Water had leaked out pipe the whole weekend while they were away.
I somehow had the feeling that wasn’t really what happened, but there was no real way to know if my feeling was right. I called my insurance company. Then went over there to see what the damage was.
It turned out that one bedroom plus the living room had to be re-carpeted and the molding had to be replaced. The toilet pipe had already been fixed, but the bathroom floor needed new tiles and a paint job.
When I got the insurance estimate it was $7500. I had to pay a $500 deductible. It could have been worse. But I still had a very uneasy feeling about the whole incident.
Big Problem – I took the Easy Way Out
Sometime later, after several months had gone past, that buyer missed a payment. That time I called him and asked what the problem was. He told me someone had stolen his backhoe from the back yard. I figured that without the backhoe he really didn’t have a lot of money coming in but he still had his job.
He promised to pay that month’s house payment soon. I was working at my friend’s business those days. One day a week or two later I received a call from the insurance company that insured that house. There had been a fire in the kitchen and the kitchen was destroyed.
I was really disgusted. I didn’t even bother going by to see the damage. A couple of weeks or so went buy. One day while at work, I received a long distance call. It was from the original owner of the house. The person I bought it from – that I had never met.
He told me the insurance company had called him and told him the house had a fire and wanted to know what happened. I told him about the kitchen fire and I hadn’t gotten around to go check it out. But this was another fire he was talking about.
After I got off the phone I called my insurance company and asked what happened. They said about half the house had burned down. Being fed up with the whole situation I just stayed calm and did nothing.
The owners had probably skipped out. I suspected they had either started the fires themselves or paid someone to do it. The whole situation was very suspicious to me.
Two Fires in Two Weeks: That’s No Coincidence
Two fires in less than two weeks time. That’s too much of a coincidence. I never even bothered to go see the house. I assumed the insurance company would cover the losses.
Yes they would, but not everything. They didn’t cover the lost house payments like some renters policies do.
They told me it would probably take about six months to repair the damage. I had thought they would tear the house down and build a new once. But they said they would only do that if more than half the house burned down.
Unfortunately for me, slightly less than half of the house had burned down. That changed the dynamics of the whole situation. That meant the house would basically sit empty during the repair time.
I’d have to pay the underlying mortgage. In addition, I could not rent it either until it was repaired. Both were major problems foe me.
Not only that, the house was far from my home, some 50+ miles. There was no way I could watch it to make sure there was no more vandalism, if indeed that might have been the cause of the fires.
So I was out of luck on getting a new house built. I reluctantly decided to foreclose on the the house. I paid about half the $4000 or so it cost to foreclose. Sometime later I decided it just wasn’t worth it to try to keep the house.
My Calculations and Money Available Indicated Do Nothing
My calculations showed I’d be losing money if I actually completed the foreclosure. That was vs doing nothing and letting the insurance company do whatever they would do. Real estate values had started going down since I had bought that house. So that would be another problem I’d have to face if I brought the house out of foreclosure.
Since I had collected at least two years house payments I had gotten my money back. Plus had made a slight profit if I did nothing more. If I went through the foreclosure I still had to make the house payments since I had the underlying mortgage.
That would be a big loss. I just didn’t have the extra money to handle that. Since I had already started foreclosure on the property I still owed the other half of the foreclosure bill. That was if I completed the foreclosure process.
So I decided to forget the whole thing and let the bank take back the property. I hadn’t lost any money on the property. In fact, I had made money during the two or three years I had the mortgage.
My calculations showed I’d be losing money if I actually completed the foreclosure.
It would be best doing nothing. Just let the insurance company do whatever they would do. Real estate values had started going down since I had bought that house. So that would be another problem I’d have to face if I brought the house out of foreclosure.
Although I didn’t make much money off that particular house I really didn’t lose any money either. I had gotten my initial investment back when I sold the house. Did I learn a lesson from that situation? I hope so.
Could I have kept the house by completing the foreclosure, yes I could. But then it would have to be a long term investment. I had enough problems with the situation to cut my losses. Losses that I would incur while the house stayed off the market several months or longer. I didn’t want a long term investment with that house anymore.
Sometimes you win – sometimes you lose. In investments you have to take that in stride. But with hindsight you can always find something you could’ve done better or different. I’d say the experience was worth it even though no significant profit was made. Chalk one up to experience. Now on to my next house* …
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* None of the images on this page are of any house I bought.