Emerson Update: Progress to Date

We are starting to get our pricing on Emerson. We have one more contractor we are getting pricing from and we will be ready to begin.

We will also be starting a series of videos that will have two purposes.

1. The first is to show exactly what work will be done to the property. This video is intended for the prospective buyer. We have found that a video showing the rehab progress creates excitement about the property but also shows the buyer exactly what work we have done. A lot of times a buyer comes into our property and they see the new paint & carpet, etc and it does not show the full story of what we went through to rehab the property. The video does that for us.
2. The second is a learning aid for those investors that have not done a rehab or those that want to compare notes on how we do it. There are many ways to do rehabs and we are constantly learning and refining our process. We will show the process we go through rehab a property. All the steps and missteps we take to get a property ready for sale or lease.

Today we will be going out to Emerson and begin filming our progress on the project. This first video will be a site survey and overview of the property. Please let us know if you have and questions or comment as we go through this process. We want to provide relevant information to you.

Why You Need a Realtor

If you have been an investor for any length of time and have gone to any real estate seminar you will hear how real estate agents are the scourge of the industry. I have been to dozens of bootcamps and workshops and everyone loves beating on the real estate agent. Like they caused all the problems the investor had on their last deal.

Yes, like in every profession, you have people who are not professionals and do not know what they are doing. Real estate is no different. But I am here to tell you that you need and want a professional Realtor on your power team. A professional is someone who understands how an investor thinks, knows to ask what they are looking for and not afaird to say when they do not kow something. They know their market and can bring deals to the investor. A good realtor will save you money and time.

I can relate a costly mistake we recently made. We were selling a house and it was a good house with a good profit margin on it. But we gave thousands of dollars based on a disclosure. A simple disclosure that we signed and left off limiting laungage about the max amount of the repairs we would agree to pay. A typical thing to do according to a realtor friend of mine. We missed it and we had to do the repairs that we could have split with the buyer. All to save 3% on the deal. By the way, the cost of repairs is more than the 3% we would have paid the realtor.

So have a real estate agent on your power team and tell them up front what are your expectations. If they do not meet those expectations then let them know ad find another one.

Real Estate: Emerson Update

So pricing for the rehab we will be doing in Tracy has started to come in and frankly I am a little surprised. The first price is landscaping.

The scope of work is as follows:

1. Clean front and back yard
2. Install sprinkler line and heads
3. New sod in front and back yard
4. New bushes
5. Repair fence in back yard

The rice we got for the scope of work was $11,550. WOW!! That seems very high. I am hoping the other numbers will come in more down to earth (pun intended).

I will keep you updated as we continue the rehab in Tracy. Visit our website, JM2 Sells Houses, to get more information on this property. We are offering it as a Lease Purchase Option.

Real Estate: 410 Emerson Ave Rehab

Now that we are getting another rehab project going, I should step back-up and give you a little back ground on. I mentioned in my last post that the house is 1050 square feet in size with 3 bedrooms and 1 bath. The house was built in the 1950s. Good, solid house that has seen better days but it is in a neighborhood that has held up well. It is certainly the worst house in a good neighborhood.

We purchased the house from a woman who needed to get out. We will now spend the next five weeks preparing the house to be leased by a future homeowner. The budget is tight on this one, but this economy is getting us some fantastic prices from contractors. I believe we can get the price down to $15,000. That would be great.

You can check out the house at our website JM2 Sells Houses.

See Ya,
Mike

Real Estate: Property Inspection Day (Part 2)

Here are the steps you will use to inspect a property:
Start outside

1. Landscape
2. Foundation
3. Exterior surfaces
4. Check trim at windows & doors
5. Check the eaves
6. Check roof shingles and surface

Move inside

1. Check for cracks in walls
2. Look at ceiling
3. Check plumbing under sink
4. Check plumbing fixtures
5. Check cabinets & countertops in kitchen
6. Check windows
7. Check flooring
8. Check faucets in bathroom & kitchen
9. Check HVAC
10. Look at electrical outlets.

Start outside:

1. Landscape: Note condition of the landscaping; we are looking for curb appeal. Is the automatic sprinkler system working?
2. Foundation: Any cracks larger than ¼” in width and go from top to bottom. If you see this condition, call for further inspection by a structural engineer.
3. Exterior surfaces: Does it need paints (for us that is always yes)? Note repairs that need to be done. Are there holes the siding or stucco? Does the house have gutters? Note these conditions.
4. Check trim at windows & doors: Check the trim for dry rot. Does it need repair or replacement
5. Check the eaves: Condition of eaves – cracks or dry rot. Are there any gutters? Are they any leaks or rust stains on the gutter?
6. Condition of the roof - is moss growing on it? (It certain does around here). If it is asphalt (or composition shingle) look for turned-up corners this is a sign of ware. Try to determine the age of the roof. Asphalt shingles can last 25 to 50 years depending on the type. If it is wood shingle 20 years is about max. Spend some time on the roof because it can be a big expense if you need to replace it.

Inside:

1. Check for cracks in walls: Large, wide cracks can be a sign of settling in the house. Some cracks are to be expected but never wider than a ¼”
2. Look at ceiling: Looking for stains from a roof leak. If you see a large stain then have a roof inspection by a roofing contractor
3. Check plumbing under sink: Check all the sinks to see that the plumbing is OK. Look for stains under the sink for signs of a leak. Rotten wood is a clear give away.
4. Check plumbing fixtures: We replace all fixtures so this is not a big deal. But check for leaks around fixtures
5. Check cabinets & countertops in kitchen: Can the cabinets be used again or paint. If the countertop is tile, it can be painted (by companies that paint tubs) this will save money over retiling.
6. Check windows: Leaks around the windows. Do they operate
7. Check flooring: We always replace the flooring. Check for stain marks on floor – if necessary lift the flooring
8. Check faucets in bathroom & kitchen: We will replace these items
9. Check HVAC unit: Locate the unit. If it is old – have it inspected to see if you need to replace.
10. Look at electrical outlets: We replace all the outlets and switches with new when we paint the walls. It gives it that fresh look.

This is the preliminary inspection we do before we buy a property. After we have made an offer and before we close we will have a property inspection done by a 3rd party to confirm our initial inspection. Anything that we missed or that will impact the purchase price and our profit we will renegotiate with the seller. Don't force the numbers to get a deal. A deadly and common aliment with investors who really want to get a deal. Whether if its your first or 50th it is always lurking. Follow the numbers and they will never lead you astray.

See Ya,
Mike

Can You Still Make Money in Real Estate as an Investor?

I know I wrote about this last November but I realized that I did not answer that particular question. I was derailed into the real estate market. But the question asked here is "Can You Make Money in Real Estate?" especially in the economy we are in.

My answer is still YES! But how you make money has changed radically in the last six months. I will relate what changes we have gone through to illustrate. In May of 2008 we were running a good direct marketing campaign to a lot of different people (Out of area owners, high equity owners, distressed owners, etc..). We would get a good response from our mailings. But around August we started to see a change. The number of calls were decreasing. We compensated for this by increasing our mailings and the number of calls stabilized. But we kept having to increase our mailings to keep the number of calls coming in the same each month. Also the number of appointments to talk to sellers fell also. As the economy started to sour, people decided that change, any kind, was bad. Everyone wanted to stay in their homes instead of making a moving.

Meanwhile the number of closing we did each month was decreasing. Also the exit strategy changed very quickly. We discovered, fortunately for us, the exit strategy we were basing our business model on was not going to work. Any business model that relied on a retail buyer (average Joe in the market place - that needed a loan to buy) was not going to qualify for a conventional loan unless they had a sterling credit rating. Fewer and fewer were in this category everyday. We switched our buying & selling model to a buy and hold model. We buy, with private money, with the idea of cash flow each month. The big payoff will occur years down the road. We still pull a small amount out at closing, but the primary focus of the property is positive cash flow. We stiff offer our properties with owner financing (8% down payment) and Lease Purchase Option (3% Option Fee) which generates lots of calls.

The days of buying a property for 60% on the dollar, rehabbing it and selling it for 95% on the dollar to a retail buyer are gone for now. We need the credit market to stabilize first and then resume a reasonable practice of lending before we can think about that again. I do not know when that will be, but I will be watching for it and as soon as I see it I will let you know.

See Ya,
Mike

How to Combine St Patrick's Day and Real Estate

(Before you read this – go get yourself a green beer and speak with an Irish brogue (that is a fancy word for accent)) I was going to title this blog "How to Use a Leprechaun to Sell real Estate", but I just couldn't get it to work. Anyway..... Aahhh St Patrick’s Day – my Irish side always comes out on this day – well everybody’s Irish side comes out on this day. I have been thinking of how I can sell more houses and St Patrick’s Day is a perfect day. What better day to sell than on a day that is so GREEN. Our slogan for today should be: “You Don’t’ Need the Luck of the Irish to Buy One of Our Homes” We have programs for anyone who wants to own a part of the American Dream today.

But I want to think bigger. There was no ground swell for my “Forget the Flowers, Buy a House” Valentine’s Day program. In fact I got a few nasty emails from florists on the suggestion at all. But everyone is Irish today and they love green. I was thinking of having a slogan for today: Don’t Go to the Pub – Buy a House & Save the Money. But I like to go to the pub. So maybe I should modify it to be: Go to the Pub after you Buy the House and Celebrate with Friends” Everyone wants to celebrate when they buy a house and with today’s prices you cannot go wrong. In fact I believe if you let everyone know you just bought a house at the local pub you would get more than a few pints on the house or from other patrons.

So plan your day by calling your Realtor and tell them what type of house you are looking for and go buy a house. The economy will get an immediate boost. Much quicker than the stimulus package that was approved last month.

Maybe we need some help and I do not mean Washington DC. I was thinking more in the form of a Leprechaun. I have heard that if you trap one they have to reveal the location of their pot of gold and with the price of gold I am sure we could purchase many houses. So I did some research on how to trap a Leprechaun (the internet is a wealth of knowledge… isn’t it). You can use a box, net or any other clean container. The bait is very important. Yes you guessed it – Leprechauns love Lucky Charms cereal. So make sure you add them to your bait. Since Leprechauns are greedy, money is always a good thing to use and lastly they like four leaf clovers. Placement of the trap is critical to success. Rainbows are good to use on or around your trap. Set the trap and wait for the Leprechaun.

So we have our game plan.
1. Trap a Leprechaun
2. Get his pot of gold
3. Call a realtor
4. Buy a house
5. Go to the pub to celebrate

Well maybe just the last three items on the list, but it is fun to think about the other two. As we all know home ownership is the fastest way to better self-worth. We could use that today.

Irish Toast: May the roof above you never fall in,
And those gathered beneath it never fall out.

Irish Blessings; author unknown:
May the road rise up to meet you, may the wind be ever at your back. May the sun shine warm upon your face and the rain fall softly on your fields. And until we meet again, May God hold you in the hollow of his hand.


See ya at Mike’s Roadhouse on Dale,
Mike

You're Crazy if You Buy Real Estate

I hear that a lot from people I run into. I hear from people I don't run into. Just mention real estate anywhere and someone has an opinion. The majority of them use the same quote: "You're Crazy if You Buy Real Estate" I then have to stop and give them the same speech I will paraphrase here. Let's look at the facts; I will take my area - Modesto, CA because I know it better. You have to admit that it is by far the worst area to buy real estate in or is it.

First the bad news:
1) The median sales price for homes in Modesto CA for Dec 08 to Feb 09 was $130,000. This represents a decline of 8.5%, or $12,031, compared to the prior quarter and a decrease of 42.2% compared to the prior year. Sales prices have depreciated 43.9% over the last 5 years in Modesto.

The average listing price for Modesto homes for sale on Trulia was $229,216 for the week ending Mar 11, which represents a decline of 22.1%, or $65,042, compared to the prior week and a decline of 1.5%, or $3,578, compared to the week ending Feb 18. Average price per square foot for Modesto CA was $104, a decrease of 32.9% compared to the same period last year. (Source taken from Trulia.com)

2) Modesto also has been overwhelmed with about 5,200 foreclosed homes, more than 8 percent of its total housing market. The new foreclosure statistics, provided exclusively to The Bee by MDA DataQuick, show how widespread the crisis has become. Every ZIP code in the region has been hit, from rural hamlets such as Keyes (14 percent) to commuter meccas like Lathrop (21 percent). Homeowners defaulted on nearly $3.9 billion worth of mortgages in Stanislaus since 2007. (Source taken from ModBee.com: Article Date Jan 18, 2009)

If you bought a home in 2006, it doesn't get much worst than that. So while this affects current home owners it represents an opportunity for new homeowners and investors.

Now some good news:

Affordability is up:

Stanislaus County (which Modesto is apart) homes are the most affordable in California, followed by Merced and San Joaquin counties, a study released this morning showed.

The new calculations show that Stanislaus's median-income families now can afford to buy 71.1 percent of homes on the market. Three years ago, just before the housing bubble burst, only 3 percent of Stanislaus homes were affordable to median-income families. (Source taken from ModBee.com: Article dated Feb 19, 2009)

With the median price of homes down (as shown above) more people can afford to buy a home. Homeowners get a tax credit of up to $8,000 is now available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. Unlike the tax credit enacted in 2008, the new credit does not have to be repaid.

What is not to love about buying real estate. While I took the Modesto market, the price slide has hit every market. Lets look at it from the investor side. The median price of a home in Modesto is 130,000. We would buy a home like that for $81,000 (assuming repairs on a foreclosed home), pay a private lender 8% interest only ( loan amount would be $100,000) $667 per month. We could rent the house out for $1150. A positive cash flow from a house in California, WOW!. We could pay a higher price purchasing it from a seller with equity if they could wait for their money, but that is another blog post. We are not selling any property to a retail buyer (Are You Expecting a Retail Buyer). All of our properties are available as either Owner Financing or Lease Purchase Option. This helps fill our properties much quicker.

So the next time someone says to you: "You're Crazy if You Buy Real Estate" just refer them to this post. Now go out and buy some property. Email any questions you have.

See Ya,
Mike

Real Estate: Are You Expecting a Retail Buyer?

I know I was. Let me back track a little. What I mean by this title is you think you buy a property, do a little rehab and resell it. I mean that is what I have seen on TV. Well that is not how it works. We had a property just like that. If you expect to do some work on a property and resell for top dollar, I am here to tell you that will be a tough road even if you give the buyer a great price. Let me explain with our example.

We purchase a great piece of property. We bought @ 60 cents on the dollar and we were looking to sell at 75 cents on the dollar. Great profit for us and a great deal for the buyer. Well it is not as easy as that. We do have it sold but what we went through to get it sold was more than I thought we would need to do.

We put the house on the market for a great price. We posted it on craigslist everyday. We got lots of calls while we were still in escrow. We got so much activity that we did not fix the property up. We just cleaned it out and thought people would come by the carpool. We held our Open House and people showed but a lot of them came with their realtors and they were not happy that we did not list the property and were not paying any commission. We did not think we needed to - big mistake. It will not cost us money but it did cost us time. So no offers after the first open house.

Plan B: We spent two weeks cleaning, repairing, painting the house. We put in a new floor and cleaned the backyard. We also did a flat fee listing with a 5% commission for the buying agent. We raised our price to compensate for the listing and repairs. Second open house: We got a few people through the house. Not as many as the first open house. But the agents did start to notice the property. We also had agents going to the property during the week to preview the property for their clients. We got questions about the rehab and why the kitchen was not done or that there were no blinds on the windows or dual windows. We acknowledged all of these items but pointed to the fact that the house was well below market value. But this pointed to the way the market is right now. Buyers can be very picky and want it all. They want the price lower and the property in pristine condition and and and... you get the idea.

So we answered all the buyer's questions and gave allowances for some rehab, but the house is sold and we can move one.

What have we learned:

1. Perform full rehab on property
2. No retail selling (unless you are selling at 50 cents on dollar)
3. Sell with owner financing
4. Lease purchase option

So sell at your own risk but it would behoove you to sell with owner financing and not rely on a retail buyer. It will help you sleep better at night. Now that we have that property sold I know I will. Our focus will switch to an owner financed property we have in Ripon. Anybody want to buy or lease a 3 bedroom/2 bath, give us a call or visit our website: JM2 Sells Houses

See Ya,
Mike

Real Estate: Part 3 of How We Analyze REO Properties

Hey everyone,
Here is the last part of my 3 part series on how we analyze foreclosed properties in minutes. In the first one we showed on we enter the basic information and how it is used by the software; the second one showed the repair estimate module and how you just have to select what is needed and the costs are calculated with a fudge factor.

This last module will show the reports and forms that are in the software and how we use them to make offers on foreclosed homes. So watch the video below and let me know what you think. I want all the feedback I can get.




See ya,
Mike

Real Estate: Part 2 of How We Analyze REO Properties

Hi Everyone,
I got a good response to the video yesterday about the software we use to analyze foreclosed properties, Thank-you. Today's video shows how we estimate repairs based on square footage. This estimate completes the other half of our calculation for our Maximum Allowable Offer (MAO).

So enjoy the video and let me know what you think. I would appreciate you input on the program. I am looking to improve it so I can offer it for sale. I would certainly offer it as a discount to those who offer constructive suggestion.



See Ya,
Mike

What We Use to Analyze Properties

We have been making a lot of offers for foreclosed properties. It helps being in the foreclosure capital of the world. We developed a program called JM2 Deal Analysis. We use the program to quickly see if the property is going to fit our criteria for buying and selling. Once we see that the property fits our criteria, we continue to use the program to refine our deal and send out PDFs of our offer to private lenders.

The video below (from our YouTube channel: mdsarch) walks thru the intro and property entry part of the program. Over the next two days I will be adding videos showing features of the software.



Let me know what you think of the program. Email me with any suggestions you may have, mike@jm2buyshouses.com

Saturday in the Real Estate World

Still working on the move today. I almost have it done. I actually unplug my computer network at my old office and reassembled it at the new location and it worked right out of the box. No technical tweaking needed. I think that is pretty good.

I have a URL I want to share with you. I found it very good in explaining the credit crisis.


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

It shows that our problems are very complicated and it will take some time to work itself out. We will need to be patient. But as real estate investors we can help the system by buy properties and offering to people who need housing. We offer houses with Owner Financing or Lease Purchase Option (Rent-To-Own). The people who defaulted on their loans will need a place to live. The number of people that need housing has not decreased. It is the pool of people who can qualify for a loan that has decrease. So this creates a niche for creative real estate investors to buy property and offer it to hard working people who need housing.

So research your market, see what is listed and at what price and look for value. Yes, even in this market you can find value. It maybe be a little beat up but we can look beyond that. What is the median price in the neighborhood. Microsoft's Streets and Maps can help you visual quantify your market. I will load property values and their address and see what trends show up. I may see a cluster of properties that have been reduced in an area that has stabilized. The values are out there; it just takes some work. A good realtor can be a tremendous asset. Make sure you include a realtor in your power team.

See Ya,
Mike

Modesto Real Estate Market

Today's post will be brief. I am in the process of downsizing my office so I have not had much time to research. But I did look at Yahoo Real Estate site for information on the Modesto market. Wow is it amazing. Here are the numbers:

Listing Type ---------------Number -----------Median Price ----------Price Change from Feb

Homes for Sale: ----------- 414-------------------$164,900------------------ (-1.8%)
New Homes: ---------------- 5 --------------------$352,000 -------------------0.0%
Foreclosures ------------3,972 --------------- $194,000 ------------------(-3.0%)

If you want to see the website here's the link: Modesto Real Estate Is there anyone who thinks we are near a bottom. I believe the median price (for foreclosures) is so much higher than "Homes for Sale" is the banks have been holding the properties 1) because they have cash from the first bail out and do not have to liquidate their inventory (at least until the regulators show up) 2) they are holding out hope that another government program will help them with their inventory. Well we are seeing that the program will help homeowners who can not make the payments by lowering their payments. But it will not affect people with loans larger than their property value. We should start to see the banks lower the price of the properties so they can get them off the books. When that happens you will see the price of the property drop again. Even if that was not the case, we are still seeing property values drop almost 2% in one month, wow 24% a year. It is no wonder that the median price in Modesto, CA is $164K down from $369,000 at it high.

So get your private lenders ready and make your offers as if you are selling several months in the future (i.e. 4-6 months x 2% (drop per month)). The bottom will come but I do not believe it will be from the cash flow (rents - expenses) from the properties. There are just too many of them. We continue to work with people who want to own a home and can make a rental payment( for a period of 3 to 5 years). That is how we will stabilize this make.

I guess I was not that brief. Have a great weekend.

See Ya,
Mike
Follow me on Twitter: MDSArch

The Name of the Game is Change in Real Estate

Change is the name of the game here in California's Central Valley. And after reading the paper today we may be stuck with it for a while. See Modesto Bee article: Housing programs could have little impact here The reason why the program will not help the central valley is the big price drop. The median price in the Central Valley has drop over 50% from its high. The Government's plan only deals with payments not values. So hundreds if not thousand of people who are upside down have to decide if it is worth the wait and continue to pay a large mortgage on a property that is worth 50% less than when they bought. Most people are going to walk away. One home owner I spoke with has a $500k mortgage on house that they purchased for $700,000 in a neighborhood with house selling for $200k. There is no incentive to stay. Well a foreclosure on your credit report is bad, but there will be so many people in the same boat that the credit market will have to adjust.

So what does that mean for us investors. We have to buy better and better, translation lower and lower price. As long as we have foreclosures, the median price of homes will continue to drop so the banks can sell their properties. Couple that with the unemployment rate and you have a lot of change. But that is exactly why the market needs investors. It needs individuals who will take the risk to buy the properties, rehab them and sell or rent them to people. In fact there are going to be a lot of people who had adjustable rate loans that will need to rent. Better yet - do a Lease Purchase Option and you begin to restore their dignity and self-worth of former homeowners who lost everything. While giving them the chance to owner a home.

That is why Countrywide's new policy on not allow a purchaser of a foreclosed home to resell it in the first 30 days puts one more roadblock in the marketplace. I know why they did it (fraud being a big part of it) but to throw a large wet blanket on a complicated transaction does not help the situation. What should you do? Get all the private money you and go buy foreclosed homes from banks and lower prices so you can Lease Purchase Option them. That is what we are doing.

If you have the money but do not want to go through the process of buying, rehabbing and renting then email us. We can handle all that for you and give you a good return that is secured by the property. We are always looking for private lenders.

See Ya,
Mike

Stop Being a Landlord for Your Rentals

Who wants to be a landlord? Not many people enjoy those later night calls from their tenants letting them know that the roof is leaking right on their head. Especially on a Saturday night at 11:30pm when you can't get anyone to the property before Monday and the tenant wants to know what you are going to do about it.

Well I have a solution for you that does not require you to sell your house right away, a Lease Purchase Option otherwise known as Rent-To-Own. In my last blog post I described what a Lease Purchase Option was and how we use to sell houses but you can also use it to get tenants in your properties, paying a higher rent and avoid the late night calls. Will you have to sell the house? Yes if the tenant exercises their option but you will be getting a high rental rate and peace of mind. You also help someone attain home ownership.

How does a Lease Purchase Option help me get out of being a Landlord. When we lease one of our properties we impress on the tenant that they will be owners of this property and they need to start taking care of it. This is their home and the maintenance issues are things they would have to do if they owned the home. We have not had a tenant argue with us on this issue. So we collect an Option Deposit (non-refundable) that we use as the down payment for the purchase of the property if they exercise their option and a higher rent (we will credit a portion of the rent towards the deposit). The purchase price of the property is locked in with the agreement so your know what you will be getting for the property. The property will remains yours if the tenant decides not to exercise their option. Does that happen, yes more often than you would think.

So next time you need to rent your property, especially after you just evicted the last tenant, think about a Lease Purchase Option. You will find that the tenant is more committed to the property, will require less of your time and the tenant will be happier.

See Ya,
Mike
http://www.jm2buyshouses.com/
Follow me on Twitter: http://twitter.com/MDSArch

Lease Purchase Option

We just completed our latest house sale and it was not a conventional sale. We did a Lease Purchase Option. You may be asking yourself what that means and that is OK. We get a lot of questions about that and I have added a video about Lease Purchase Option or Rent-To-Own to answer those questions.

So please review the viseo and let me know what you think. What have I missed? What s not clear?



See Ya,
Mike