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

Real Estate: Property Inspection Day

Making progress everyday in your business requires certain activities that you need to do. Establishing a routine helps to keep you moving forward. Saturdays are a good day to do property inspection. We frequently go look at property on Saturday because the pace is slower. The calls are less on this day and we can concentrate on the job at hand.

When you go out bring a clip board to make notes or a worksheet that is marked up as we go through properties (email me and I will send you our worksheet). You will need this worksheet or notes because after a day of looking at property, even if you look at three house, they all start to swirl around in your head. Inspecting a property will take time at first because you may be new to the process and want to be very thorough. But after a few times you will notice that a lot of the same improvements are needed on houses. You will always want to paint the interior and exterior of the hosue. Replacing the flooring is a must. All the items that make a house sparkle must be replaced or repairs to like new condition. Here is the list you will always want to repair or replace:

1. Paint inside & out
2. Flooring
3. Electrical outlets
4. Light switches
5. Light fixtures
6. Toilet
7. Tub/shower (repaint at least)
8. Paint kitchen cabinets
9. Paint or replace countertop
10. Landscaping (Front new sod and scrubs & sod in back)
11. Door hardware (if it does not match)

There are other items we will consider replacing:

1. Windows
2. Interior doors
3. Garage door
4. AC Condenser

Tomorrow we will review the steps when inspecting a property and what to look for.

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