Posted by: Nick Johnson in Single Families, Remodel, Rehab, Recession, Real Estate Investment, Real Estate Agents, Private Lender, Preforeclosure, Offer, Motivated Sellers, Mortgage, Market Prediction, Investment, HUD, Hard Money Lender, Getting Started, FSBO, Foreclosure, Financing, Economy, Due Dilligence, Bank Owned on
Feb 18, 2009
Over the past 12 months my partners and I have been buying single family home foreclosures. Homes are selling for deep discounts and providing high cash-flow rates once rented. Our strategy is not to buy and flip, but to buy, rehab then rent to provide cash-flow and capital appreciation. On the surface this may seem as easy as drinking coffee because of the high number of foreclosures available. But don't be fooled with high quantity and low prices. Buying foreclosure properties is not as easy as it may seem. Buying houses for cash has been our strategy which is one way to up your chances of success. Refer to my previous article "Buying Real Estate With All-Cash" In todays article I'll outline another strategy that when paired with all-cash works for us.
Relieving Some of the Burden
Buying homes at deep discounts for cash relieves vacancy pressure as there is no unerlying mortgage. You may still have a lean on the property held by a private lender but hopefully you have worked out the terms so that you have 60-90 days until your first interest payment. Racing out to find a tenant before your first payment is no longer a pressing issue. You can be more choosy when screening tenants. You can hold closer to your asking rent price and not decrease it just to get the property occupied. You can save money by performing more of the rehab yourself. These are just a few of the benefits.
The Problem With Real Estate Agents
As easy as it might seem to buy real estate at low prices, a problem has arrisen that must be addressed if we are to successfully close deals with banks. I have found, as with many of my collegues that seller real estate agents have all the control when it comes to you submitting your offer, deciphering which offers to submit, how much information they tell you ahead of time, and lets face it some blatently do nothing. As a buyer in the past I have typically used a buying real estate agent to help me track down candidate properties, perform showings and leg work. As a result I did not close many deals dispite offering near or above asking price. The reason...
Posted by: Nick Johnson in Rehab Money, Rehab, Recession, Offer, Motivated Sellers, Mortgage, Market Prediction, Investment, Getting Started, Foreclosure, Financing, Economy, Due Dilligence, Bank Owned on
Feb 03, 2009
In an up and down market there are those investors that will dig up opportunities regardless of the state of the economy. In the current climate banks are holding on to their cash with a wait and see attitude. Savvy investors are finding that buying with "All-cash" works as a viable strategy for acquiring residential and commercial bank owned properties. Investors with a wait and see attitude for institutional lending and financing are missing a great opportunity to buy while everything is on sale. Rock bottom prices in the residential and commercial markets in part have been driven down by the scarce availability of credit.
A Hostile Lending Environment
Currently, savings and loan banks, an alternative to commercial lending institutions and private lenders, will typically finance up to 65-70% percent of property values. Buyers in some cases are required to bring 30-35% to the closing table to even be considered. The Commercial Mortgage-Backed Securities (CMBS) market which has traditionally produced many lenders eager to compete for loans has been stalled since the 4'th quarter of 2007. For example: In the first 3 quarters of 2008 only $12 to $13 billion worth of commercial loans were securitized. Already, 2009 is on its way to having the lowest production of securitized commercial loans in 10 years as stated by Commercial Real Estate Direct. Some banks, in order to finace a new project, are requiring developers to pre-lease roughly 70 percent of office/retail units and housing. Shorter amortization periods and higher interest rates added to the mix creates the perfect storm for an even more hostile lending environment.
Wholesaling or "flipping" a property involves finding a fixer-upper, snapping it up, and immediately reselling it to another investor who will rehab the property and make a profit from the improvements. There below are tips for those who want to get started with wholesaling.
The first step in wholesaling is finding a bargain or "distressed" property. These are often FSBOs (For Sale By Owner's) or properties listed on the MLS (Multiple Listing Service). The most important step, though, is making the offer. You can't make a profit if you don't make an offer.
You must keep the customer- the ultimate buyer who will be doing the renovations- in mind when you make your offer. Some wholesalers use a speculative strategy and make large amounts of money off one deal, but a more conservative strategy often nets as much income when it's applied steadily over many deals.
Posted by: Shirley_Brown in Remodel, Rehab on
May 27, 2008
There are two main ways that home owners can add value to their homes: remodeling or adding on. Remodeling or adding an addition to a house will also help to get a home ready for sale. However, it is important to understand which of these approaches is the right choice in a particular situation so the owners should always consider how the changes will help and who will be most impressed by the changes.
Generally speaking, men pay less attention to the special, fancier features of a home like Jacuzzi tubs or well-lit bathrooms. They often prefer brown or grey decor, with a large work area and loads of privacy. It is also a common belief that men prefer "fixer-uppers," but they actually like low maintenance houses so they aren't constantly being asked to repair things. If left to their own devices, men would often prefer faucets, toilets, sinks, baths, floors, mirrors, cabinetry, appliances and furnishings based on their industrial strength qualities as opposed to their beauty.
While men are more influenced by a large garage/workshop and a secluded, it is the women who are responsible for 80% of all home buying decisions, so they are the ones to keep in mind most when considering these projects. The areas that generally influence the decisions are the kitchens and the bathrooms, so these areas should be highlighted in the improvement projects. If remodeling both isn't an option in order to get a property ready for sale, the owner should then look at which area needs the remodel more, while at the same time considering the costs of both options. Since men spend less time feathering the nest, we see that, contrary to popular belief, men really tend to follow the lead of the women.
Although these general observations will certainly not apply all the time, remaining mindful of these gender-preferences will help in the decision making process. By bearing these preferences in mind, owners find it wise to focus their remodeling towards the lighter, prettier options. Since the women are making most of the purchasing decisions, remodeling should focus on their interests.
A smart way to purchase property without regrets after the sale consummates, is to put safe guards in your sales contract that give you a safety net. One of these nets is to always make any offer subject to a SATISFACORY property inspection. Now, whether you can perform this yourself or hire a professional, you still have a legal way of voiding the contract to purchase if something should be revealed that could cause potential financial risk down the road for you. Finding such an inspector is not a hard task and word of mouth within the real estate community is usually the best route. But you can also locate potential inspectors on the internet as all should be licensed with their state.
You are looking for hidden or masked areas of structural, electrical and plumbing problems that the owner is purposely or inadvertently not disclosing that could be major issues down the road for you. If you feel you possess adequate expertise to perform your own inspection, be sure to pay close attention to the following list of possible trouble areas:
Another area of concern that most home buyers take for granted, is past land use that could have caused residual soil contamination. Such as, if a gas station or industrial business that typically used gas or cleaning solvents in the past or the property was used as a dumping ground for hazardous/toxic wastes of some kind.
In flipping homes, there are certain aspects that a real estate investor has to endure. These are to buy low-priced homes, renovate and sell them again at a higher price. Although these things may seem easy to some people, there is still another important aspect of home flipping that needs to be handled well. This is about negotiating with contractors to do the renovation works, which can be a huge challenge. It is here where a person's negotiating skills will come to work. Searching for reliable and reputable contractors alone is never easy. Negotiating with them especially for an affordable labor cost is all the more challenging.
With quality, monetary issues are rampant in today's investor/contractor duality. Nothing induces chaos quicker than the mismanagement of funds, especially if your resources are limited. So, what can go wrong?
The opportunity of a profit is the foremost reason firms go into business, and it should be no surprise that the notion of making some bucks is on the minds of both the contractor and the rehabber; however, the modus operandi of the project-from both sides-is not equal. There are different motivations for each party-the investor wants to make the most amount of money while keeping costs low, while the contractor wants to make as much for a less amount of work. As with most things in life, moderation is key; a medium must be reached.
You're riding high. Armed with pre-foreclosure lists, you've gone door-to-door and established a relationship with a motivated seller. With the closing day looming, it's time to find the right contractor to "make the magic happen." You've done your homework and proposed at time schedule, price analysis and-obviously-expected income.
But... something changes. Now maimed with an exceedingly outstanding budget and a ticking clock, you're trying to work a miracle in salvaging your investment. Instead of working with your contractor, you seem to work against your contractor. It was going so well-so, how did this happen?
The biggest culprit in the breakdown of investor/contractor relationships is communication-or the lack thereof. Good communication between you and your contractor is the best way to ensure that your project runs smoothly without any glitches.
Fortunately, there are measures you can take as an investor. The first is called a contractor's agreement, a pledge that outlines all possible provisions for the most common glitches in investor/contractor relationships.
In my investment journey over the years, I have made every possible mistake and would like to share with you what to be cautious in your rehabbing career. My first investment home taught me how easily things can go wrong.
First thing is that the notion of ‘Buy, fix, sell' is not a sure-fire formula for massive profits. Don't be seduced by the promise of fast money. If it was easy everyone would do it! Adding value to property can rapidly increase your wealth. But no, it is not a miracle cure or a 'get rich quick' scheme. Your results will ultimately depend on the amount of time, dedication and effort you're willing to commit.
If the real estate mantra is ‘location, location, location', then it should be ‘research, research, research' for buying investment property. 90 percent of the battle (and 90 percent of your time) is locating and purchasing the right property. So do your research, view properties, negotiate, then research some more.
There will be times when, despite your meticulous research and planning, the property doesn't sell. Prepare for external influences beyond your control with an exit strategy. For example, be willing to rent the property for twelve months if the market isn't favorable when you're ready to sell. There is no shame in holding a good property. But more importantly, never enter into a project if you don't have an exit strategy and be flexible to take on viable alternatives to your strategy.
Posted by: Alan Brown in Rehab Formula, Rehab on
Apr 19, 2008
You probably heard of the saying "you make your money when you buy, not when you sell". Let's say you buy at market value and hold your breadth for the appreciation to get you out of the whole, you are not an investor, you are a speculator.
Whether you buy and hold, or flip, or a wholesaler selling to a rehabber, the heart of your calculation is the estimated (ARV) after repair value of a house. Be cautious to get recent sales of comparable properties, to accurately estimate repair costs with considerations of an extra 10% for intangibles. Be sure to take into account all costs involved, including closing costs, interest on loans, insurance cost, taxes, marketing costs, and utilities, etc. Remember to take into account the costs associated during the repair period and during the time it takes to sell the house after it's being repaired, basically, your holding time. Your holding cost will vary depending on the market and the economy, so you should consider an average of six months or more between the time you purchase the property and the time you sell it.
