[Interview] Eddie’s First American Property Investment Storey

After reading the book “Rich Dad, Poor Dad”, Eddie gave investing in foreclosed property a try. He saw an opportunity within foreclosures, but during the process, he realized it is not as easy as he thought to get a great bargain especially as a first time buyer. He still went through the difficult process and successfully bought a foreclosed condominium unit. Now he does not need to pay a penny to own the property because the rental income itself covers the mortgage payments.

How long have you been in Japan?

Almost 2 years now.

What are you working as in Japan?

I am an international digital marketer.

Besides your current job, I know that you are doing real estate investment as well. How many properties do you own right now?

I only own one property. When we get into the idea of property, it’s not the actual house or property that I own, it’s a condo. So within the entire property complex, it’s just one specific room or condominium unit that I own.

Where is the condo unit located?

In my hometown (United States), there is a college called Grossmont. It’s located by there because my target is the college kid.

Why would you choose college kid as your target?

They always want a place. If you can get a place that is close enough to the college that they are going to and cheap enough that they can afford, you will get a tenant. College kids are willing to tolerate a lot more than anybody else because they want a place to stay for college, so they are easier to deal with.

Currently, there are 2 people renting my condo. I have them pay 800 USD per month. I paid about 200 USD for utilities set up and some furniture initially. You don’t have to go through new furniture, it doesn’t have to be an extremely expensive thing. In terms of electricity and other stuff, they pay that on their own.

Why would you start real estate investment?

For one, it’s something that I found which was interesting and to be honest, I went for it specifically for passive income. One of the things which is very interesting to me after moving here and getting a job was that I’m very lazy, I don’t want a job, I don’t want to work. One of the best ideas that I read about is the idea of financial freedom, which is essentially getting assets that generate enough revenues for you to live off and your liabilities are covered. So I invested in real estate in order to do that, one of the basic ideas is passive income.

I went for real estate because the author (Robert Kiyosaki) of a book that I read (Rich Dad, Poor Dad) which inspired me to do that was based on real estate, made a lot of good points in terms of buying, selling, renting, etc. He goes to detail about all kinds of things, so I basically just took what he said and tried in the real life. I was lucky because I found a pretty good place and I want to do something, I don’t want to just talk about something and then not do it, so I gave it a shot.

Do you have any strategies in choosing your investment property?

Yes, I have a couple of strategies. In terms of real estate, one of the best strategies I feel is to go for foreclosures. I won’t say foreclosures are guaranteed to get, but they are a lot easier and cheaper for you to get. The reason why is because when you look at foreclosed property, essentially the people who want to own the property couldn’t pay anymore so the bank has to take the property back. However, the initial loan that the bank gave to the person for that property is gone now because it’s in the house. The bank doesn’t want to hold on to the property because when they hold on to it, they lose money.

So what are they trying to do is to make it appealing and give you a better deal on it, a cheaper price and a better deal on loan. They will work with you to close the deal because they don’t want it anymore. So if you do that, most likely you will be paying cheaper prices for it as well as a cheaper monthly fee for loan. At the same time, if you can make it decent and look like a liveable place, put it up for rent, especially when it is in a college area, it is essentially a guarantee that you are going to get a rental.

So if you are going to a place that is cheap, I will recommend foreclosures because it’s easier to get rather than a normal place and you pay cheaper prices. If it’s a good area and the place looks good enough, you are essentially guaranteed to get rental. On the other side, while all that is taking place, if you don’t want to rent and you just want to buy for yourself, it will be easier for you to sell it especially after it looks good because it’s going to be cheaper, people are always looking for a cheaper place. So if you have a fix-up and you got it for cheap, you boost up the price a little bit if you are aiming for 10% profit margin, it’s still cheaper than what it would be if it is new and not foreclosed.

How did you find foreclosed property?

I found it online. There are a whole bunch of websites that will show you foreclosed places. From there if you pick a place, usually there is a specific thing that you have to deal with, that’s the annoying part. It’s easy to find foreclosed places, the hard part is to deal directly with the bank to get the place. Each foreclosed place has different bank owning the house now. So getting in contact and meeting up with the people to deal with the bank is the difficult part. There are some cases in the State, even though there is a foreclosed place next door, the bank who owns that place could be 800 km away. Finding a place is easy, it’s actually going through the process of getting the place that is difficult.

Do real estate agencies deal with foreclosures?

We do have agencies however, there are not many agencies, which deal with foreclosures. Foreclosures are usually dealt directly with the banks because they own the place. I went by myself to visit the property without agents. There is no agent helping you, you have to deal directly with the banks. I did not pay for any agent commissions.

Do foreclosed properties have higher demand?

No. The reason why foreclosed properties don’t have higher demand is because people don’t really know how to deal with them. Any idea with foreclosure and bankruptcy, people consider as bad instantly. The idea of dealing with foreclosure is scary. Secondly, when you’re dealing with places which are foreclosed, they are usually dirty and probably not taken good care of. If you are going to deal with a place that has been foreclosed, you have to search for a good place and it takes work to find the place. The whole process of finding, dealing directly with the bank, and the idea of taking on a place that someone has already defaulted on are three kinds of big things that people are scared of, people don’t want to deal with that.

I think the highest demand is still the new places which are newly built and recently on the market for sale. A lot of people focus on that because they are new, more appealing and you don’t have to take care of it, it’s already in good shape and from there because there is no previous history with that house, you can essentially markup how much you want on it.

But with a foreclosed place, for example, if you find a foreclosed place which looks really nice, but there’s been a murder in there, it’s not a good investment because people don’t like that. So dealing with all of that information along with the legal system, people tend to not, they do not want to deal with any of that, both legal and searching because many people are lazy. They want guaranteed the profit, they want risk to be as low as possible, but they don’t want to do a lot of work.

Where did you get the information about the property?

The information in terms of the house and the area, you can get them anywhere online but in terms of the legal matters, I talked to my father’s lawyer. If you can talk to a lawyer, that’s the safest thing that you can do. On top of that, by law, the banks have to tell you all the information on the house such as the historical information, problems with the last tenants and legal problems if there are any. The banks usually have written documents on what has been going on because they have to. They cannot have that not reported because if there is any information that they are withholding and you find out about it, you can sue the bank.

How long did it take from finding the property until settlement?

I took about 3 months finding the property. I was doing internet searches over here in Japan and I made note, one of the places just happened to be the place that I have now. For Christmas when I went back home mainly to visit my family, I had a lot of free time before I meet my friends and family, so I actually went in to look at the places. I look at the place that I own now, it looked pretty good and decent. If I am a college kid, I would go for it.

After looking at the place, I sent an email to the bank. It took about a day before I got a response and when I had time, I went to meet the representative to talk about the deal, how things are going and to do the background check, of course. For me to get the place, it took about extra 2 months, so in total it took about 5 months before I actually ended up getting the place.

What are the main problems that you have faced when you buy the property?

I had two main problems. One, I’m new. I’ve never owned a place before. I’ve never gone through that kind of thing before. That’s one of the biggest things because if you’re new, you’re a risk. The banks don’t like that so they would do whatever they can by increasing the fees or marking up the price to get more money out of you. So you have to be careful of that and that can be scary, I was scared. All the fees and technical terms that they would say at you, I don’t know it and I can’t guarantee whether or not it’s a real thing. But you can talk to your lawyer because they will tell you legally they are not obligated to do that so you can tell the banks no. They can’t say anything.

Number two, I work and live over here. That also something they didn’t like. I won’t say it’s easier for me to run away from obligation but in their heads, I can. What they don’t want you to consider at all is the fact that you can use money that you can make from owning the place to pay off the loan you take [out]. They want to get you easily if there is anything happens, so they are going to do whatever they can to stop you from thinking about all these possibilities, they kind of want to scare you a bit. Even though I live abroad, I am a US citizen so all the extra fees that they might want me to pay, I don’t have to. In terms of credit score, they will make judgements based on that. I have a very good credit score because I have been paying my student’s loan, I don’t have any other debts and I have never missed a payment.

Did you use any of your personal funds in paying for the property?

The initial money that I used to make the deal, essentially it was for down payment. That initial money I used from the money that I had here. I used PayPal to make a transfer. I made a down payment of about 500 USD and took out a loan. However, now I don’t use any of my money because the rent received covers the payment for the loan. So basically it works itself. My profit margin is about 100 USD.

How much did you borrow from the bank?

I took out a loan on 15,000 USD and added it to the initial loan that was taken from the previous person. So technically in total, I owned the loan of about 60,000 USD for the property. I got the mortgage loan from the same bank but you have to negotiate for that. Initially, they didn’t want me to do that because what that meant is that they don’t make any profit from the initial deal. So it actually took me a while before I convinced them to do that.

How much is the difference in price between foreclosed and new property?

There is a big difference. It could be a difference of maybe 40,000 to 80,000 USD. The price for the new place can be like 200,000 USD.

What is your advice for those who consider buying foreclosed property?

If you want it to be cheaper, then go for foreclosure, that’s probably one of the ways to get it cheaper. But a lot of foreclosed places are really dirty and bad because even though they are foreclosed, there’s a reason why they are foreclosed. You have to find out why. Not just the fact that it is foreclosure, you have to look at the place to see if you need to spend any money to clean up the place. Another thing is that you have to keep in mind of the history. The last thing is how much effort do you want to put in to deal with the bank.

How did you manage the property while you are here?

My friend manages it. He deals with the paperwork and cleaning. If there is any problem or extra finance that is needed, I will recommend or tell him what I want to do. Both my friend and I made the profit. The reason why my friend is making the profit because while I am here, he’s the one managing it. So basically in order for my friend to help me, I give him a cut of the profits. Because he’s a friend of mine, I split it 50/50, we both get 100 USD.

What do you plan to do with the property for now?

I’m thinking about selling it. One of the reasons is because my friend is getting tired managing it and he just said that he doesn’t want to do this anymore. If he leaves, then I am in trouble because I have nobody managing it.

Another reason is lawsuits. If anything happens to the house, they can sue me and take everything I have. On top of that, I would most likely have to pay for any damages and I would have to pay whatever it is that I have to pay to include the legal fees as well. However, my friend told me about a better way, which is to make a company. It doesn’t have to be a big company, just company, name and legal paper. If I make a company and do the whole process again with my company’s name and if I get sued, then they can’t take away anything from me. That’s another reason why I’m thinking of selling.

Do you have any plan to invest in other property or other countries?

Not until I start my own company. So I guess it’s nice because my friend kind of wants to stop, it gives me a chance to get rid of it. I do want to buy property in Japan. The thing is that it’s very expensive, I don’t really have that kind of capital yet. I can go to the whole process like how I get into that house, but like what I said, it involves a lot of works and takes a lot of time. I’m not sure if I want to go through that again.

What is your advice for those who are interested in real estate investment?

You have to remember, never invest more than you are willing to lose.

We really appreciate Eddie taking the time to sit down with us for an interview. He has some really valuable insight for first-time property investors. Eddie has since informed us he sold his property but is looking forward to his next investment. We wish Eddie all the best in his future endeavours.

DISCLAIMER: The views and opinions expressed in this article do not necessarily reflect the views of BEYOND BORDERS CO., LTD.