The Newsletter Approaches!

Well, it's nearly November! I can't believe it!

I just returned from a wonderful camping trip. Sure, I took the cell phone and worked out some details for the two closing I have on Monday but it was a very relaxing trip. All told, I "worked" my real estate venture, or adventure, for maybe 20 minutes. This business has allowed a lot more camping and family time. Have I mentioned lately how cool I think this business is? (I know, I know!)

Anyway, a reminder to all! I will be sending out my next newsletter Tuesday or Wednesday of next week...the beginning of the month. I've gotten email asking when the best time to sign up is...well, it's NOW because I have a killer special report I'm GIVING away, and a new information packed issue is about to be published. You don't want to miss this one!

Go, sign up now! You won't be sorry! It is my MISSION to make sure my subscriber list is pampered and KNOWS they are appreciated!

Here's the link: The Rehab Real Estate Central Newsletter

http://www.rehab-real-estate.com/rehab_real_estate_central_newsletter/

Oh, and after you read the Special Report, I'd love to hear what you thought of it!

New articles

Here's another article!

I enjoy writing, especially about a topic that I find RIVETING! It helps me when I'm writing about a subject that I know folks are interested in and I sincerely hope these articles are helping folks out. Judging by the kind words I've received via email, these help out.

In this latest article, I address the NUMBER ONE thing that keep folks poor, and keeps folks from changing their own lives for the better!

If Real Estate Investment Is So Great, Why Doesn’t Everyone Do It?
Feel free to post comments here or send them to me directly!

For a full list of articles, click here!

An Update

This is kind of the slow part of this project. I hate to keep telling you that the rehab is in progress, but it is and things are slowly coming together.

I don't go to the property everyday. The young man who is heading up the rehab is someone I trust, so I don't feel like I have to be there daily. He keeps me up to date via phone, which is something I really appreciate!

I suspect we will be done with the interior of this property in some 10-12 days, then we'll have to solve the expensive water/septic issue. This rehab has turned out to be an extensive one, so it will probably take a month. I've made the decision NOT to market this project to the rental market until the water issues are solved.

I will continue to keep you posted!

Exciting News

I'm only distributing this news to my blog and newsletter subscriber. I am hearing that an exciting new product is coming on the market. In fact, I suspect this will turn the real estate investment world on it's ear.

I can't say much about it other than to say this product will get more people out there in the trenches and changing their financial future than any before. I can't wait to tell you more, but for now we'll all just have to wait.

You can bet I'll be relaying more information as it comes available.

Bruce

Getting it Done!

The big launch of Rehab-Real-Estate.com is going well. Well enough to catch up on this blog. It's amazing how much in involved with getting the world's greatest real estate investment site off the ground. :)

It's off to a great start too. I published a long-awaited Ebook entitled "12 Things Real Estate Investment Gurus Won't Tell You" and I'm giving, yes GIVING, it away to anyone who signs up for the Rehab Real Estate Central newsletter. Yes, I'm giving away an ebook to entice folks to sign up for something that's going to MAKE them money. But, it's working and the list is growing nicely!

Okay, this rehab is plowing along nicely. The initial job was to install the AC vents. We do that first thing because cutting in vents can make a mess, and I've had installers step through ceilings. It's just easier to do this prior to the spraying and texturing in case some patching needs done.

In the kitchen we had to make a decision as to whether to leave up the tile board or not. By tile board, I'm referring to the 4' by 8' sheets of board designed to look like tile...but it doesn't. As you'll see in the the picture, we found it a mess underneath and opted to leave it up and apply a heavy texture to the wall instead. The heavy texture will add a nice touch to the kitchen.



Next steps are a roof repair and enclosing the porches.

Catching up!

I've been really tied up with the launch of rehab-real-estate.com, so I'm a little behind on postings!

I'll be caught up soon. Here are a few new articles! Please give them a read and let me know what you think.

http://real-estate-rehab.com/neighborhood_value.php
http://www.real-estate-rehab.com/pump_up_the_value.php

BTW, if you haven't seen the site in the last couple of days, get by http://www.rehab-real-estate.com and take a look!

Go get em!

A New Wrinkle!

I met with my handyman today and got his started on the project...in other words gave him money!

Anyway, while there, a lady appeared at the door and proceeded to tell me quite a story about how the property used to be hers.

What most interested me about the story was that she mentioned that the property had not water or septic...all that was on her property and she was going to cut it off!

Hmmm, do I have a house without either?

Time to do some checking around, but for the time being nothing changes. I still have a rehab to complete.

IF the septic and well have to be installed, that's okay. I have plenty of room in this deal for unexpected surprises.

More on this soon!

New article released!

I'm taking a day off from commenting on this project, but tomorrow I'll have some news on it.

I spent today putting the finishing touches on an article. It's entitled "Where Investing and Speculation Collide." There are three way to get it:

It's located at: http://www.real-estate-rehab.com/speculation_vs_investing.php

or send an email to: investing_speclation@myarticleannouncer.com to get the article via email

or point your RSS reader at: http://www.real-estate-rehab.com/rehab_real_estate_articles.xml

I hope you enjoy the article!

Bruce

Closing Details

The numbers I'm getting are from my closing statement, also known as a HUD-1. It's called a HUD-1 because the form is a standard U.S. Department of Housing and Urban Development form...in fact, it's their form 1!

Anyway, the numbers worked out such that the sales price was $39,500 with an assignment fee of $5000 (so in effect the price to me was $44,500. My total closing costs were a trim $4251.

Included in these closing costs were:

Loan origination - $1275
Appraisal - $325
Flood cert, underwriting fee, doc prep, etc. - about $400
My insurance - $400 (for 1 year premium)
Title examination - $55
Closing fee - $125
Title search - $125
Title insurance - $401
Recording and doc stamps - $600
Intangible tax - $131
Survey - $275

This isn't an exhaustive list, but this gets the high points. I provide this so you understand that lots of money is sent around by the closing, or title company. Everyone's got their hands out in a real estate transaction.

Do I let that bother me?

Heck no! There's still plenty left for me to complete this rehab, AND plenty of equity in this property for me to later refinance or sell.

As I mentioned yesterday, I got much more mortage than what this house cost. In fact to begin this rehab I'll have $21,000 in a contruction account. I'll pull this money out in probably three draws.

The first will be $10,000 which I have already requested and will have in hand any day.

Now, we start rehabbing!

Closed it!

Great News!

I closed on this property. There was a lot of interest in getting this closed on Friday supposedly to save some insurance payment on the other side.

I found out that unbeknownst to me there were many investors vying for this property. I had no idea. In addition, I learned this property was tied up with title issues for over 6 months! Well, this is what title insurance is for. If issues come up from this point forward, my policy will cover my losses.

I have every confidence that they are cleared up because I closed with a title company known for their thoroughness.

Tomorrow, I'll will disclose some number from closing, but I am safe in this property with around a $40,000 spread between the subject-to (after repaired) appraisal and what I paid for it. They aren't always this good...

Pre-closing mundane stuff!

The only other significant item (besides arranging the mortgage and the appraisal) that requires my attention prior to closing is insurance.

And, insurance is getting less and less mundane all the time, especially when I do business in a town on the east coast, and especially since insurance companies are taking a bath this year.

In fact, with two other of my properties, I've had a particular insurance company drop me. The word I'm hearing from inspectors and other investors is that are dropping anybody they can. So, since investors deal in older homes, we get the boot first. They are getting pretty creative about it. On one property there are two steps up to enter the house. They are cancelling me because I don't have a handrail. What a hoot! A handrail? If I put one there, they would simply go back to the property and find something else to drop me for. The reality is that when they want to stick it to the little guy, they will.

For this new purchase, the route to take for inexpensive insurance in a builder risk policy. This is fine while the construction is going on but as soon at there is a tenant in it, I have to change policies. The premium on this builder's risk policy came to around $400 per year. Not bad. I'll only need it for a few months max.

Now in general, other investors are probably going to be your best source of finding who's got the best insurance deals. So if you need it, ask around. Chances are you will start hearing the same company again and again and they are probably a good bet.

Remember though, cheaper is not always better.

Myself, I'm looking into a commercial policy that will encompass all my properties. The insurance per unit will be about the same, but I will have the added benefit of a large liability portion. When I buy a property, I make a call and it's added.

What I'm thinking is that by the time I get this property rehabbed and rented, my commercial policy will be in force. I am told that per property, I'll probably be paying around $400 each per year, which is very competitive, and I'll be covered for liabilities that I'm currently not covered for.

I'll let you know, but it appears that if you have more than a few properties, a commercial policy is the way to go

Moving toward Closing

Where I last left off, I've inspected, run the numbers, and I like the property. In addition, I've signed an assignment of contract, so it's mine!

Usually there is a couple of weeks between this point and closing. In that time, I have to get a few things done. The biggest this is arrange for the mortgage!

I advocate already having a source of money PRIOR TO finding a property. You should already be set up with a few hard money mortgage broker and lenders. It's not a hard process. They'll ask you questions, some might check your credit.

Where do you find these lenders? The best source is asking around other investors, wholesalers, etc. What surprised me when I first got into this is HOW MANY THERE ARE OUT THERE, in my area at least. And, they all work a little differently.

I recently got a call from a small bank loan officer I'd work with in the past. His bank was once quite active in investor bridge mortgages (quasi-hard money, I'd call it), but had quit doing them 6-8 months agao. Well, they wanted get back into that business in a limited way. He offered me a loan for cheap on my next project. Apparently they liked the way I operated and wanted to do business with them again.

So, I called this loan officer up and he agreed to give me the mortgage (after approval from their loan committee). That was a pleasant surprise. The hard money I was expecting to use was going to cost 4 points and 14%!

Let me translate. 4 points is what it costs to borrow the money (call it a broker fee, other fees, commission whatever). 14% is the interest rate. I know...ouch! These lenders are expensive, but they incur a fair bit of risk. They don't want the house, and investors are traditionally a risky loan.

...tomorrow more on the other minutia required before closing.

New Article Posted

All,

I've just posted a new article. What I did was make a full-blown article out of a questions received on via my discussion group.

The article - Click here

The discussion - Click here!

Bruce

Appraiser Toils and Troubles

This house that I'm buying is mere blocks from a large military installation. In fact, you can almost throw a rock from the property and hit the back fence of the installation in one direction. On the other side of this neighborhood is an interstate (with enough trees between the interstate and the property to keep it very quiet. This whole neighborhood borders on a very nice part of town with great real estate values.

I would consider this a pocket neighborhood, mostly blue collar folks. The area is mostly single family detached properties with a few trailers dispursed throughout.

So, I've decided to buy the property, I've found a great mortgage source (more on that later) and the appraisal is ordered.

Then I get a call from the appraiser. He likes the area, but is having difficulty finding "comps" or comparable sales in the area on which to base his value. He's finding LOW comps because of some foreclosures that always happen in this kind of neighborhood, but not many that will help me get a fair value. He's finding lots of new construction kinda comps in nearby neighborhoods, but nothing near age of the property I'm buying. So, he says, the appraisal is tricky and will take a few extra days.

When this happens, the appraiser usually has to use comps a little further from the property, and annotate why he's using them.

I don't get too worried about this kind of situation. It's happened to me before and everything worked out pretty well. This usually means that many of the homes in the area have had their current owners in them for many years. I take that as a good sign.

So, the few days pass and the appraisal comes back for $85,000, or $5,000 less than what I'd base my numbers on. So, I have to review them...remember, I've got $1,000 of my money tied up in the binder. That's all. If the deal looks bad at this point, I can walk and I only risk losing $1,000.

So let's evaluate:

Purchase price: $45,000
Rehab costs: Around $10,000
(I include my marketing and holding costs as part of the rehab.)
At $85,000, my hard money at 70% of the as-repaired value would mean my mortgage will be $59,500.

- minus $45,000 (purchase price)
- estimate $5,000 for closing costs (probably high)

This leaves $9,500 left for the rehab. So, I can trim my rehab a little and still have this property ready to sell or rent for none of my own money.

It's still a keeper with a great spread!

Next Steps

I decided I could buy this house.

The numbers looked like:

Purchase price: $45,000
Rehab costs: $10,000
(I include my marketing and holding costs as part of the rehab.)
We are guessing the appraised value will come in at $90-95,000. At $90,000, my hard money at 70% of the as-repaired value would mean my mortgage will be $63,000.

Let's do the math backwards and see how this works:

Assume my mortgage amount to be $63,000
- minus $45,000 (purchase price)
- estimate $5,000 for closing costs (probably high)

This leaves $13,000 left for the rehab. What isn't used for rehab is mine to keep (and to pay interest on).

So for this property, I will have enough to buy the property, rehab it AND put a little in my pocket.

So I decided to buy it.

I called my wholesaler immediately after inspecting the property and told him I'd take it.

The next day we met and we filled out an assignment of contract. This is nothing more than a document where I agree to accept the sales contract that he's got on the house for a fee. The fee is how he makes his living.

Here is a sample assignment of contract

So, do I care that he's making $5,000 on the deal. Heck no! I stand to make plenty. I know folks who really get hung up on how much a whoesaler makes. I really don't understand that. As long as the wholesaler leaves room in the deal for me to profit, I don't give a hoot about what he's making because it just doesn't matter to me. He's got the house I want, so I gladly pay what he's asking so that I can move my financial goals forward.

If you have endless hours to ferret out deals and you want to tied them up with a contract in hopes that you can find a rehabber to fix them, go for it. For me, my time, and my goals, I rehab.

Now, what I'm looking at is a no-money down deal. In fact, I'm making some money at the beginning! You know, I do these deal quite frequently, yet I still have folks tell me that you can't do no-money-down deals. Or, they look at me funny like I'm pulling a fast one. Folks, these deals ARE out there!

Tomorrow, we talk about appraiser toils and trouble!

The Exterior

As for the exterior of this house, we are going to make some changes that will certainly make the property more valuable.

The most obvious change will be enclosing the front porch. We'll sacrifice the front porch for a bedroom. No contest in my book, because a bedroom adds heated square footage which translated to value!

Note: There is no better way to add value to a property than to add heated square footage!

We'll also make a less obvious change, and that is to enclose the back porch.

Both of these are already under the roofline, so very easy to do. The exterior of the house is T111, so the additions will blend in completely once the exterior is painted.

There is a repair we'll have to take care of under the front porch. I looks as if a support was removed at some point. We'll get some cinder blocks are re-support that area of the porch.

Beyond that, we'll paint the exterior, and remove the window AC units.

The roof shingles look to be in pretty good shape and not in need of replacing. As I mentioned previously, there is likely a small repair to the roof waiting on us, but it doesn't look major.

The fence (six foot tall wood slat) might need a board or two, but I probably won't go to the trouble of painting it.

Perhaps the biggest improvement to the exterior will be to simply trim back the trees which are hiding the front of this little gem. It's been unoccupied for a long time, so everything's overgrown.

Okay, so that's the exterior. We've already gone over the preliminary numbers. Tomorrow, we will go over the numbers again, but this time we know more as we prepare to close. As a teaser, the number on this property have changed a little from the initial thoughts of my wholesaler and appraiser.

What I saw - The Interior

Let’s talk about the interior of this house as it sat as I saw if for the first time.

My wholesaler sometime uses one of my handymen for his projects, so he’d already seen it. In fact, he’d told my wholesaler that it looked like around $8500 for the rehab, including the new HVAC system.

That seemed like pretty good numbers…in fact, I was skeptical. Wholesalers are in the business of moving houses, so when they give me numbers, they are naturally slanted toward what THEY want to do, which is convince me to buy the house. In addition, my wholesaler is also a rehabber, and no two rehabbers do things the same way. So, I suspected his rehab estimate of $8500 to be low.

The inside of the house was cleaner than most. It was small house, only about 750 square feet. The front and back porches are under the roof line so they would be easily enclosed to bring the house up in value by adding heated square footage. In the process, I’ll be adding another bedroom.

Note: In most places to count as heated area, you have to be sure you run a heat and AC vent into any new rooms you create.

The house was vacant…I later found that it had been sitting empty for over a year. The carpet had been pulled back to reveal hardwood floors in the living area. It would be nice to be able to use hardwood floors in the living room and carpet the bedrooms. We'll have to wait and see about that.

Some drywall had been torn away in the living room wall to reveal some termite damage. Nothing looked active at the time though. The damage is easy enough to fix, but I’ll have to rule out active termites as a first step.



Throughout most of the rooms, I saw the standard fare. The walls need some patching, texturing and paint. (I texture walls to hide imperfections, and the finished product is much more modern and clean than when I just patch and paint smooth walls.) See my article on knockdown texturing.

The windows were old, but seemed to be in pretty good shape. There were two window AC units that I’ll remove.

The power was off so I’ll have that to check again once I begin work. Nothing looked amiss. By that I mean I don’t see any signs of heat or sparks around outlets, and the box itself was not ancient. In fact, the house has 150 amp service, so no upgrade needed.

The water was also off, and again, nothing looked of concern. The water had probably been off for a long time, so any wet spots are probably already dry. I’ll have to check the plumbing carefully.

There looked to be one area that had a wet ceiling. We had recently had a LOT of rain, so I took this as a good sign. The wet spot was near a valley in the roof, so I think I know where to look for the problem. Inside, looking at the rafters, I didn’t see any signs of termite damage or rotting.

Now onto the two most important rooms. The kitchen and bathroom!

Kitchen: It had a nice built-in china cabinet. That I can keep. The linoleum will have to be replace. While I’m at it, I’ll probably replace the countertop and the floor cabinets which contain the sink. The sink itself looks okay. I can reuse that. Those features with a nice light fixture in the kitchen and it will look nice. You can get a small dinette in that kitchen.




Bathroom: The bathroom needed a medicine cabinet, a toilet (I almost always replace toilets at $70!), a new vanity, and the tub could be resurfaced.

All in all, my wholesalers numbers didn’t look to bad to me. I’ll probably do a bit more, so my rehab total will probably be around $10,000.

I realize that these pictures might scare some away, but after doing a few of these houses, you start to see just how nicely you can restore a house's value. By ensuring things work like they are supposed to, and making the walls and floors new, upgrading what needs to be upgraded, and putting in a few nice touches, rehabbing is not only profitable, it's satisfying!

Tomorrow, let’s talk about the exterior.