Buying Real Estate Creatively: A Personal Real Estate Journey thru the IE Part 2
Another reason I wanted mortgages
Wondering about the initial inspiration I had about wraparound mortgages or AITD even before I joined that real estate investment club, well I got the idea from some real estate seminars I had gone to a half dozen years before. In addition when I worked at Lockheed as a programmer/analyst my supervisor owned a lot of mortgages and after talking with him about them it seemed like a good idea to me.
I didn’t really want to own a lot of real estate so the idea of owning paper in the form of mortgages, or in the case of California, Trust Deeds, really appealed to me. My boss at Lockheed had owned over 200 mortgages, some being properties the U.S. Post Office had post offices on.
He had only taken the Lockheed job to get the excellent insurance benefits Lockheed offered. He had plenty of money coming in from his mortgages and definitely didn’t need a job to support himself and family.
Time to sell my remaining houses
After I had accumulated over half dozen or more investment single family homes and resold them keeping a wraparound mortgage on them I started having more problems with the monthly mortgage payments being late. I was managing all those properties myself since in most cases paying to have a real estate agent to do that was not practical.
I also had a real estate license during some of those years, but let my license expire when brokers I worked for didn’t want to present my offers to sellers.
Their job is to present all offers and when they hesitated or refused to present my offers it wasn’t right. So that led me to give up my real estate salesman license. Once I did that, it freed me to make my own offers which was a good thing – keeping all real estate deals private and being able to present offers myself.
But now I had two houses left that I had to take back or that didn’t sell fast. Real estate was in its usual cyclic downward trend so I decided to get rid of all my real estate except my home in Lake Elsinore which we had been living in for several years. Even my home had a VA loan on it since I am a veteran of long ago.
But on my home I put $30,000 down since it cost more than what the VA would finance. In fact, they didn’t even offer VA financing on my house, but I convinced the builder to give me a VA loan. They really didn’t want to because the VA inspects the houses they guarantee a loan on. But there were no problems and I had gotten a VA loan, the best type of home loan since you could sell it with someone assuming the loan.
Things have changed since those days, and VA and FHA loans now need anyone assuming such a loan to qualify for the loan and there are some other requirements. In addition, back in the late 80s, I believe, the federal government changed the tax laws making it very undesirable to carry an assumable loan and adding low limits of the amount of such a loan before the tax penalties kicked in.
Back to the near present, all my previous properties I had a mortgage on have been long since sold or disposed of. I took a long break from real estate investing since my old techniques no longer work well and property value and prices went way, way up in value. It was nice not having problems with mortgage money on rental houses. But it seems like once you do some real estate investing the bug never leaves you.
A surprise big pay check
Right about 2002 or a couple of months before, I got a call at my job. I was a programmer working in Hemet California. The call was from an escrow company. The person that owned that risky townhouse I had bought some seventeen years earlier was refinancing it and I was going to get a check. Now mind you, that was definitely a risky investment right from the start.
I took a chance four times with that property. First in creating an assumable loan on it, second selling it to a seemingly shady investor, thirdly letting another investor assume the loan, and lastly letting that same investor sell it to his sister (who also assumed the loan) who didn’t have spotless credit buy it.
Maybe I was lucky, maybe I had good judgment, who knows. But during the life of the loan (17 years) I made about $2400 a year from the monthly mortgage payments and received another $43,000 at the close of their refinance escrow. Not bad for essentially a small amount of paperwork (creating a wraparound mortgage), initially running a small ad for the property, and collecting monthly mortgage payments.
To top it off, the property was bought on a no money down deal, and also sold on the same terms to an investor. The main thing I did was some slight bit of arithmetic magic allowing me to make money off of a large amount of money, $70K from a $65K buying price, with $5100 down payment, and scheduling escalating monthly payments as the loan matured.
Time to get back into a buying mood
When the year 2002 rolled around I thought seriously about buying another house. But this time it would be for our little home RCFE business. I didn’t particularly like that type of business, but it could pay the bills if you could get clients – which by the way, are difficult to get unless you have very good connections or pay a very high fee to placement agencies.
This time, with some money in the bank, we looked around our general area for such a house. We wanted to buy a new house for our purpose so all our looking was restricted to new homes. At the time homes in our general area were selling from about $200,000 to about $500,000+ depending on which city or area the homes were in.
After a short period of time looking at new homes we found a new home in Menifee California that fell out of escrow. It was about 20-25 minutes from our home. We decided to buy it. House prices in that tract were escalating as they were in all areas so we didn’t have too many second thoughts about purchasing it.
We got the builder to make a few concessions on the house and it went through escrow without a hitch. We still own that home and there is an active business in it. Even though, it has had its ups and downs as businesses often do.
Along came the recession
Along came the big recession which started in about late 2007 or early 2008. I saw the value of that house go down from about $430K down to about $125,000 or less. It was also located in the Inland Empire right next to Canyon Lake or Sun City.
It had cost us right around $200K so it knocked the wind out of us knowing we had lost at least $75,000 on paper and a whole lot more in appreciated value on that house. My wife had wanted to sell it when it was at its highest point, but I had refused and I never hear the end of it even to this day.
My wife, however, is not taking into consideration that if we had done what she wanted, which was to buy another house as an investment at the high prices they were then, we would be in a much worst situation than we are in now. Such a purchase of at least $450K or more would leave us at a loss of at least $200K or more right this very minute.
As it is now, real estate prices have been going up the past year about $60 – $100K or more depending on location. So our $200K purchase on that house is now back to somewhat higher than the price we paid, and prices are still escalating fairly rapidly. So rapidly, that a new goal of purchasing another new house is now dead in the water; prices escalating so much they are now out of the range of prices we can afford for an investment house.
If you are considering investing in single family houses just know that any such investment is subject to the normal ups and downs of the real estate cycle. I learned in college that that cycle is roughly every six years. This obviously is not cast in stone and another huge upward or downward spike can certainly happen again.
When I took real estate classes way back in the 60s the reason I didn’t get into it at that time – aside from the money it usually takes, was due to a downward spike in prices right after I got my AA Degree.
Priced out of the market
Although I am not actively looking anymore for an investment single family home, if a good opportunity presents itself that I can take advantage of I will. Every so often I ask about real estate activity to a realtor friend who lives close to me. He owns a lot of property in the general area of about a 40 mile radius of me.
I go through his listing every once in a while, but unfortunately prices are going up fast and prices in my range are of mostly old small houses, many in undesirable areas. Those are not houses I am interested in at this time. The cheapest new houses of reasonable size in this area of the IE start in the low $300K range with many more back to near $400K and more.
That’s my short version of most of my real estate ventures. I haven’t spent the time doing more in real estate lately due to significant money requirements and spending a lot of time writing articles and maintaining all my websites. Also a large number of the houses for sale at this time are bought by investors. I’ve read that about a third of all homes are purchased by investors.
It is difficult to compete with all the cash offers on homes. A lot of people in California have plenty of cash and can pay for a house 100% cash. It takes a lot more money, better job, and better credit rating to buy a house nowadays due to the recession and the housing financing debacle being a large part in causing it.
However for the innovative person it is still possible to do what I did, but if you do look out for any negative tax ramifications involving carrying back large wraparound mortgages or trust deeds.
Visit the Inland Empire
The Inland Empire or IE as it is often called are San Bernardino County and Riverside County, which are just inland of Los Angeles County. If you have never heard of the IE or Inland Empire where I was buying property, know that it is just one of many large areas in Southern California.
In fact, part of it goes to the Arizona border in the east and to the Nevada border in the north if you consider the whole two counties of Riverside, which I live in, and San Bernardino County, the largest county in the United States.
The Inland Empire is a large part of Southern California where property is still within reach of many average people. Right next to the IE is Los Angeles and Orange Counties where, property generally costs a lot more. That’s why the population in the IE exploded since more people could afford homes in this area than the other two neighboring counties.
Unlike being within a half-hour drive from Los Angeles, the Inland Empire, which is about 45 minutes to maybe an hour and fifteen minutes at the closest to Los Angeles, does not have nearly as many attractions as being close to LA or even Orange County where Disneyland is located.
But if you know someone here and come to visit or want to see other areas in Southern California here are some of the places or things you might hear about or visit.
The Inland Empire is served by three major local newspapers:
- The San Bernardino County Sun, which serves primarily the San Bernardino Valley region.
- The Inland Valley Daily Bulletin.
- The Riverside-based Press-Enterprise also has a few editions over the area.
There is also an Inland Empire edition of the Los Angeles Times. There are a few regional papers which include:
- High Desert: Antelope Valley Press, Victorville Daily Press and the Barstow Desert Dispatch. Both Victorville and Barstow have a Sunday edition circulated across both areas called the Press-Dispatch.
- Palm Springs & Coachella Valley: The Desert Sun
Riverside County has 12 federally-recognized Indian reservations, which ties it for second most of any county in the United States. (San Diego County, California, which is right next to Riverside County, has the most, with 18 reservations.)
- Agua Caliente Indian Reservation
- Augustine Indian Reservation
- Cabazon Indian Reservation
- Cahuilla Indian Reservation
- Colorado River Indian Reservation (partly in La Paz County, Arizona and San Bernardino County, California)
- Morongo Indian Reservation
- Pechanga Indian Reservation
- Ramona Village
- Santa Rosa Indian Reservation
- Soboba Band of Mission Indians
- Torres-Martinez Indian Reservation (partly in Imperial County, California)
- Twenty-Nine Palms Indian Reservation (partly in San Bernardino County)
The Indian reservations are not tourist areas. However all the Indian casinos are located on Indian reservations and are open to the public. Pechanga Casino is only about a half hour from my house. It rivals the large casinos in Las Vegas and most surely takes away some of their potential business since most people in the Inland Empire can go to a casino within an hour at most if they live east of Los Angeles. Las Vegas and all it’s casinos are less than 4 hours drive from my home.
San Bernardino County
- • Total 20,105 sq mi (52,070 km2)
- • Land 20,052 sq mi (51,930 km2)
- • Water 53 sq mi (140 km2)
Population (2010 Census) 2,035,210
- • Density 85/sq mi (33/km2)
- • Total 7,303.13 sq mi (18,915.0 km2)
- • Land 7,207.37 sq mi (18,667.0 km2)
- • Water 95.76 sq mi (248.0 km2)
Population (2010 Census) 2,189,641
IE Culture and Activities
The Inland Empire is adjacent to the San Bernardino Mountains. The mountains are popular for hiking or just having a relaxing drive. Lake Arrowhead and Big Bear are just some of the lakes located in the mountains. Lake Arrowhead becomes very popular in the summertime, while Big Bear becomes popular in the winter for skiing and snowboarding activities. Various locations in the Inland Empire provide venues for cultural performances and entertainment.
The Victoria Gardens Cultural Center, which is owned and operated by the City of Rancho Cucamonga, opened in the Fall of 2006 providing theatre, concerts and family entertainment to the region. The San Manuel Amphitheater in San Bernardino’s Devore neighborhood is a very large outdoor amphitheater. Ontario Mills, a shopping mall and lots of other businesses draws more visitors annually than Disneyland.
San Bernardino’s “Route 66 Rendezvous (the largest classic car show in the US),” an annual street fair and classic car show, draws a half-million people from around the world. The Palm Springs Aerial Tramway in Palm Springs is a popular attraction, rising to more than 8500 feet overlooking Palm Springs and the desert cities area.
Los Angeles/Ontario Airport (ONT), located in Ontario, CA is usually the most convenient for any traveler going to/from the Inland Empire, and it is also used by many in the Los Angeles area. If heading further east in Riverside or San Bernardino counties, the Palm Springs Airport (PSP) will be of convenience to those traveling near that city.
Other commercial airports in the Greater Los Angeles area include Los Angeles (LAX), Burbank (BUR), Long Beach (LGB), and Santa Ana (SNA).
IE Universities and colleges
- Brandman University, part of the Chapman University System – Moreno Valley, Palm Desert, Temecula
- California Baptist University – Riverside
- California Southern Law School – Riverside
- California State University, San Bernardino, Palm Desert Campus – Palm Desert
- College of the Desert – Palm Desert
- La Sierra University – Riverside
- Mayfield College – Cathedral City
- Mt. San Jacinto College – Banning, Menifee, San Jacinto, Temecula
- Palo Verde College – Blythe
- Riverside Community College – Moreno Valley, Norco, Riverside
- Santa Barbara Business College – Palm Desert
- University of California, Riverside – Palm Desert, Riverside
- University of Phoenix – Murrieta, Palm Desert
Inland Empire Attractions
- several museums in the Inland Empire
- Living Desert Zoo and Gardens
- March Field Air Museum
- Mission Inn
- Orange Empire Railway Museum
- Orocopia Mountains Wilderness
- Palm Springs Desert Museum
- Ramona Bowl, Home of The Ramona Pageant
- Temecula Valley AVA Wine Region
- Western Science Center
County Parks and Trails
- Jensen Alvarado Ranch
- Lake Skinner Recreation Area
- Santa Rosa Plateau
- California Citrus State Historic Park
- Lake Perris State Recreation Area
- Mount San Jacinto State Park
San Bernardino County
- The Mojave National Preserve
- Calico Ghost Town — northeast of Barstow via Interstate 15
- Zzyzx — a small desert settlement that used to be a health spa and is now the Desert Studies Center
- Joshua Tree National Park
- San Bernardino National Forest — home to Big Bear Lake outdoor activities
- Goldstone Deep Space Communications Complex
- Snow Summit and Bear Mountain (Ski Area) though technically located in Los Angeles County, is close proximity to San Bernardino County.
The largest casino in the state of California is the Pechanga Resort and Casino in Temecula. Other notable casinos include the Morongo Casino, Resort & Spa,
- Spa Resort and Casino in Palm Springs
- San Manuel Indian Bingo and Casino in Highland
- Soboba Casino in San Jacinto
- Agua Caliente Casino in Rancho Mirage
- Spotlight 29 Casino in Coachella
- Havasu Landing Resort and Casino at Havasu Lake
- Fantasy Springs Resort and Casino in Indio
- Cahuilla Creek Casino in Anza
- Augustine Casino in Rancho Mirage
National protected areas
- Cleveland National Forest (part)
- Coachella Valley National Wildlife Refuge
- Joshua Tree National Park (part)
- San Bernardino National Forest (part)
- Santa Rosa and San Jacinto Mountains National Monument
There are 19 official wilderness areas in Riverside County that are part of the National Wilderness Preservation System. Some are integral parts the above protected areas. Some extend into neighboring counties.
There are at least 28 incorporated cities in Riverside County and 24 such cities in San Bernardino County. Here are a few of them with about 50,000 population or more, in 2007, plus Lake Elsinore where I live, (which now in 2013 has about 53,000 residents). I generally bought property within 55 miles of my house.
San Bernardino County
So even if the Inland Empire is off the grid compared to other Southern California tourist attractions there are many attractions here. Many of the mountains are in the Inland Empire and so are the deserts. You can take the 15 Interstate Freeway all the way from San Diego through the Inland Empire to Las Vegas Nevada and well beyond to Utah and further north.
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