Fixer Uppers and Rental Houses

Vacation Time

2008-07-22T20:43:00.005-07:00

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I will be out of town the next couple of weeks. Please tune in again in August.

Keep your eyes open for that next great fixer-upper property!

Terry

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Time is a great teacher, but unfortunately it kills all of it's pupils

2008-07-21T16:27:00.008-07:00

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The townhouse purchase fell through.

Everything started off pretty well. The closing for the townhouse purchase was Friday afternoon. I signed for both my wife and I since she was out of town. It was the fastest closing I had ever done. We were finished in 20 minutes.

The real estate agent gave me the keys and my boys and I went over to see the townhouse and plan out exactly we would start fixing it up the next day. This is when things took a turn for the worse.

When I opened the door I was hit in the face with a suffocating musty smell. As we walked in we heard a splashing sound and could feel our feet getting wet. We looked down to see that there was a lake inside the townhouse and the air was as humid as a greenhouse. I looked in the washroom and saw that the flood was caused by water spraying out of the hot water heater. I tried to turn off the valve but it was broken, so I went outside and turned off the water at the main valve.

After opening all doors and windows, we walked through both rooms and both bathrooms. They were all flooded, and, they all had mold on the walls and ceilings.

My first reaction was "we can still make this work!". I thought we could mop up the water and wipe the mold off the walls without too much trouble. So we drove over to
ACE Hardware and bought a wet shop vacuum, buckets, mops and paper towels.

When we got back to the townhouse and started cleaning up it soon dawned on us that we were not making a dent in the standing water and the mold wouldn't come off as easily as we thought.

So, I called the realtor and told her the situation. She immediately came over to see the house and and agreed with me that we should cancel the contract. She contacted the title company and the loan company. Today, Monday, I got my money back from the title company, all but $350 that went towards the appraisal.

It was a good thing I checked the place out right after the signing, and that it was late in the afternoon. If they had recorded the title before I saw the flooded property, it would have been a different story.

I could have waited for the owner to remedy the problem, but with that much flooding there might be hidden damage that isn't easily detected, and I didn't want to wind up waiting and re-negotiating the terms.

What lesson did I learn? In the future, I will always walk through the property one last time before signing the closing papers.

It was a good lesson to learn, and I was reminded of Hector Berlioz's humorous quote in the title to this blog.

It would have been a nice rental property, but my philosophy is that rental properties are like taxi cabs. If you miss one, there's another one coming right behind it.

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A Key Phrase to Get Seller Help with Closing Costs

2008-07-16T18:34:00.003-07:00

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I have a new article over at ezinearticles.com that shows you how to get the seller to help pay your closing costs when purchasing a house.

Townhouse Purchase Update
The mortgage company has given the green light and we are now waiting for the title company to get the paper work together. We will probably close tomorrow or Friday.

I'm anxious to get started fixing the property. My boys are out of school for the summer and they are chomping at the bit to make a little extra spending money by helping out with the repair work.

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How I got started in the fixer uppers

2008-07-14T07:00:00.006-07:00

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To view a condensed version of how I got started in the fixer-upper business, check out my article at ezinearticles.com. This is the version with no bells or whistles, and no accompanying three-part harmony.

The townhouse closing may or may not happen today. If not, Angy has to catch a flight out of town tomorrow. In that case, we will have to sign power of attorney over to me so that I can sign for both of us at closing.

Just like the recipe for my famous extra-chewy chocolate chip cookies, the plot thickens!

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Delay on Townhouse Closing

2008-07-12T05:07:00.004-07:00

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We were not able to close on the fixer-upper townhouse on Friday. The underwriter for the loan requested some more documentation. They asked for a monthly utility bill to verify our current residence, a copy of my wife's driver license to verify her complete legal name, and copies of our social security cards.

If all goes well, we will now close on Monday or Tuesday.

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Review of "One Person - Mulitple Careers"

2008-07-10T14:07:00.006-07:00

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My review of the book One Person/Multiple Careers: A New Model for Work/Life, by Marci Alboher is now on-line over at ezinearticles.com. I think it's a great book for those of us who are part-time investors with several balls in the air at the same time. One aspect of the book that I particularly enjoyed is that it describes many case studies of people who have chosen this path and tells "why' and "how" they did it. My review of the book is from the perspective of someone who keeps their day job and does real estate on the side.

I also recommend visiting Marci's New York Times blog entitled Shifting Careers: Smart Thinking at Work. It regularly provides thoughtful stories of interesting people who approach work to the beat of a different drummer.

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Closing day approaches on fixer-upper townhouse

2008-07-07T18:47:00.006-07:00

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The purchase process is winding its way toward a conclusion for the fixer-upper townhouse I am purchasing. I had the inspection done last Wednesday (naturally, I followed the inspector around so I could see the problems that he saw), the appraisal should have come in today, and we are closing Friday.

The good faith estimate from the mortgage company came in at around $650/month PITI. I plan to charge $775 for the base rent on the new townhouse. We put 20% down on the $105,000 sales price, and the seller cooperated by paying for part of the closing costs out of her proceeds at closing. (I'm going to discuss that in more detail in a future post.)

It's a property that's really worth a hoot because it has all the right things wrong with it. It needs paint, needs vinyl tiles replaced, needs wood putty in door holes, a few outlets are cracked, has some oil on the driveway, and it has a few leaky faucets. On the plus side, the A/C is only one year old and the roof is solid. And all the appliances work. It should take about week to get it in ship shape.

The best part about the deal is that my other unit, 3 doors down, rents like hotcakes. As soon as we put the For Rent sign up, we have people knocking on the door. I've been waiting for another one these units to open up at a decent price.

On another note,

There's a good aritcle comparing oil vs. latex paints over at fliprent.com.

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Update on Townhouse Purchase Offer

2008-06-28T06:55:00.003-07:00

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I offered $100,000 on the $115,000-listed townhouse. The owner came back with $110,00. I came back with $105,000, and the owner accepted my offer. More details to come.

It seems that more houses are now being priced to sell. The agent selling the house that I am purchasing told me that she priced the house 10% below what other, similar houses were selling for. Even after that deduction, the owner took 10% less than the lower price. I think there are a lot of motivated sellers out there right now.

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Fixer Jay Webpage Worth a Look

2008-06-20T21:02:00.004-07:00

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One of my favorite real estate investing authors is Fixer Jay DeCima. He has a very informative webpage at www.fixerjay.com. I regularly check out his blog posts located on the website.

As I have mentioned before, I think Jay's books are exceptionally good guides to learn about the fixer-upper business.

Here is a review I wrote about Jay's latest book:

Start small, profit big in real estate

The Quickest Way to Lose Money

What is the quickest way to lose money in real estate?

Find out in my latest ezinearticles.com article.

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Making an Offer on a Townhouse and Mulitple Careers

2008-06-18T03:52:00.007-07:00

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House Shopping

I am making an offer on a fixer-upper townhouse. It's a 2 bed 2 bath unit in a row of about 10 townhouses, where I already own another townhouse. It's not the proverbial "worst house in the best neighborhood" but it's located in a mixed lower-middle to middle-class neighborhood where there is good demand for housing.

They are asking $115,000 and I am offering $100,000. I'll let you know how it comes out.

One Person/Multiple Careers

I began reading Marci Alboher's intriguingly entitled book One Person/Multiple Careers. It's interesting to read about other people doing similar multiple careers to what we part-time real estate investors are doing. I'll post a review of the book here soon.

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Real Estate Investors and Recession

2008-06-07T05:59:00.005-07:00

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Looking for ways to get through the recession?

Check out my ezinearticles.com piece entitled Proactive Responses to Recession - 7 Creative Ways to Make Extra Money With Real Estate.

Over at rei.locomonowebsite.com the next installment review of Fix em Up, Rent em Out is up. It is entitled Seeking the ZEN within Rental Properties.

The article is all the more interesting because Mark discusses his own insights and experiences from running a house painting business. It's well worth a look!

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Fixer Upper Business Highlighted in Newspaper Article

2008-05-31T08:29:00.004-07:00

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The Tucson Citizen Newspaper highlighted the fixer upper business that my wife and I operate in Thursday's paper.

Entitled Learn to Fix Up Houses, Rent Them Out it describes some details about our business and mentions my book.

Who says newspapers aren't interesting anymore?

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Should You Retire with Stocks or with Real Estate?

2008-05-28T21:28:00.007-07:00

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Is now a bad time to retire? That's the question asked by John, an attendee of an at an investment seminar. In a recent newspaper article by Chuck Jaffe entitled Retiring when the market is down is costly if stocks provide nest egg addresses that question.

To see Chuck Jaffe's opinion and my "unbiased" take on it, check out my new ezinearticles.com piece entitled Is This A Bad Time To Retire? Not If You Have Rental Properties.

Also ...

The fifth installment of rei.thelocomonowebsite.com's review of "Fix em Up, Rent em Out" is now up. This post is called Financing Your Fix-up Properties.

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4th Installment of "Fix em Up, Rent em Out" Review

2008-05-25T21:07:00.003-07:00

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The Fourth installment in the review series on my book "Fix em Up, Rent 'em Out" is now up at the locomono rei blog. This installment is entitled "Know Your Nuts and Bolts First." The article also provides details on how to win a free copy of the book!

Some other good blog articles to check out:

In Which the Author Talks About Everything In the World, Including Real Estate at flipthyhousel.com
Home Price Decline Steepest in 21 Years at dequalss.com/notetalk
Are You Qualified to Sell Your Own Home? at fsbojane.com
1031 Exchange at retalsrus.blogspot.com
How Passive is Your Passive Income? at livingoffdividends.com

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Due Diligence and Property Inspection, Part 9: Qualifying the Inspectors

2008-05-16T13:53:00.007-07:00

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Buying fixer-upper houses, repairing them, and renting them out is a safe way to generate short-term income and long-term wealth. But, how can you be sure that a house is worth what you are offering to pay for it? Based on experience, we can eyeball the property and probably be able to make a pretty accurate estimate of its worth 90% of the time.

However, that's not good enough. We need more information than our educated eyeball can provide. In order to:
1.) avoid any surprise defects after its too late, and
2.) negotiate a lower selling price for the house,
we hire a professional inspector to do a physical and structural inspection.

For the last post related to due diligence see Due Diligence Property Inspection, Part 8 - pest control and property damage.

Most purchase agreements require the seller to deliver the property in good physical condition with all basic systems in good shape, unless the seller discloses otherwise. Generally, the inspection process reveals deficiencies that need to be corrected, whether they were disclosed or not.

So with inspection reports in hand, you are armed to arrange for the seller to correct the noted items at his/her expense. The seller is trapped in a corner. He reads the report and sees the photos showing the inescapable evidence that repairs are needed. He either makes the repairs or you walk.

Inspect the inspectors before you hire one.

Most investors hire a property inspector based on the advice of a real estate agent, which is not necessarily a bad way to go. But, you will be spending a tidy sum to hire an inspector, so its best to interview a few before deciding. You may see a big differences in experience, qualifications, and ethical standards. I would never hire an inspector who would not allow me to accompany him during the inspection.

Tagging along with the inspector presents a great opportunity to learn about your property, and will arm you with knowledge that will be invaluable throughout your entire ownership of the house. You're the one paying for the inspection. How can the inspector say no?

If you want a true professional, hire a full-time inspector who perform 100 inspections a year and who carries "errors and omissions" insurance. This coverage tells you that the person is working full time in the field and is participating in ongoing continuing education.

To locate certified inspectors and find out more about the inspection process see the American Society of Home Inspectors web page.

Ask for a sample of one of the inspector's recent inspection reports prepared for a comparable property. And, require your finalists to provide you contact information for 3 people who have used their service in the last 6 months.

Price should be a secondary concern because like other professional services, they often pay for themselves. An internet estimate of inspection costs indicates that prices range from $215 to $750, with an average price of $260 (in the southwest where I live).

Earlier articles in this series:

Due Diligence Part 7, Physical and Structural Inspection

Due Diligence Part 6, Tricks Sellers Use to Avoid Inspections

Due Diligence and Fixer Upper Properties Part 5 - the "as-is" sale

Due Diligence, Part 4 -- Disclosure Requirements

Due Diligence, Part 3 -- Inspecting the Property

Conducting Due Diligence, Part 2 -- Reviewing books and records

Conducting Formal Due Diligence

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Third Installment of "Fix em Up, Rent em Out" on REI Locomono

2008-05-12T21:55:00.003-07:00

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The third installment of the review of my book "Fix em Up, Rent em Out" has been posted at rei.thelocomonowebsite under the title Learn to Do.

Mark describes in detail how the book promotes the attitude of become self-sufficient and learning to do all the various aspects in the fixer-upper business.

There's still time to enter the contest to win a FREE copy of the book! Here are the details.

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Chapter 2 Review of "Fix em Up, Rent em Out" Now on Locomono REI Blog

2008-05-09T21:07:00.003-07:00

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The review of Chapter 2 of my book "Rent em Out, Fix em Up" is now up on REI monoloco blog. The article is entitled And the Big Question, WHY?

The review covers shifting from "assets" to "income" and 5 unassailable reasons why you should invest in fixer-uppers.

And, as though that weren't enough reason to charge over to the site, Mark is offering the chance to win a FREE copy of the book just for answering a question that he posits after the article!!

Other good blogs to check out:

It's sad to see Connie at Conniebrz.com leave the blogoshpere, but you can read her parting words entitled And Thanks! For All the Fish .... Good luck Connie!

But We're Paying Full Price addresses the issue of buyers creating never-ending repair lists for sellers, at flipthyhouse.com.

Find out what is The Best, Cheapest Investment When Selling at fsbojane.com

Rentalsrus.com explains why now is a good time to invest in the article A Question From Jack.

Want to retire early? Read Early Retirement Requires Financial and Lifestyle Planning at getrichslowly.org.

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Book Review of "Fix 'em Up, Rent 'em Out" at LocoMono REI Bolg

2008-05-05T14:59:00.006-07:00

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There is an excellent chapter-by-chapter review of my book Fix 'em Up, Rent 'em Out: How to Start Your Own House Fix-up and Rental Business in Your Spare Time at the ever-insightful LocoMono REI Blog.

The first chapter of the book is reviewed under the title Energy and Life Focus. More chapter reviews are set to follow.

Other recommended recent blog articles:

Personal Finance for the Real Estate Investor–A Primer
at TwoWiseAcres.com.
Buyers Opt for Less-Than-Conventional Selling Tactics at FSBOJane.com
Tax Advantages of My Rental Property at theworldofwealth.
Mother’s Day Gift Ideas at moolanomy.com.

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LLCs and Protection for Rental Properties

2008-04-30T20:42:00.003-07:00

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This article is in response to a comment on my last blog article.

I don‘t have my properties in an Limited Liability Company (LLC).

The issue is that unless you own your rental properties outright (that is, you still have a mortgage on it), you must get the consent of your lender to transfer the title from your name into an LLC without triggering the "due on sale" clause in your mortgage. A “due on sale” clause in a mortgage states that upon the sale or transfer of interest in the real estate the lender has the option of calling the loan due. If they called the loan, you would have to pay back the loan in full.

So, in general, LLCs are not an option for people like me who have mortgages on their rental properties.

For rental properties, I recommend a three track approach to protect yourself from lawsuits.

1.) The first layer of protection should be an insurance policy that protects your assets if someone sues you. If someone trips on a rug in one of your rental properties, and decides to try and hold you liable, your insurance company should defend you in court. If they don’t, you sue the insurance company. I have the standard $300,000 protection on each of my rental houses. Some people keep a $1 million umbrella policy. You will have to decide how much protection you need.

2. Second, provide a safe living environment for my tenants. I make sure everything works properly (toilets, ovens, coolers, etc.) and I remove hazards as quickly as I can (low hanging branches, electrical short circuits, etc.). If I get a call from a tenant for a legitimate repair I try to respond as quickly as possible. Usually that means sending my handyman over to make the repair.

3. Third, keep a low profile and take precautions when doing business with the public. You should have tenants mail monthly rental checks to a post office box instead of to your home residence. Have your phone number unlisted and use a pay-as-you-go cell phone. Because you own real estate, some people may view you as wealthy target, so look for ways to lower profile your profile.

I take the advice of J.J. Luna in his book How to Be Invisible when he says, “do not, as long as you live, ever again allow your real name to be coupled with your home address.”

Get Your Windshield Wipers Fixed Before it Rains

As a landlord, there are times when you have to make difficult decisions. Once I had to call the cops to remove a former tenant from one of my rental houses. (Don’t ask, it‘s a long story.)

Had my personal information been commonly knowledge, the tenant could have tried to track me down to even the score. I didn’t have to worry about it since he never had that info, and it would take a lot of digging to find it. They may look for me, buy I’m not going to make it easy for them to find me.

Of course, that example is the exception. Most tenants are reasonable people. But, for the infrequent bad apple, we should have our defensive obstacles already in position before we need them.

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Book Review of "The 4-Hour Workweek"

2008-04-26T04:39:00.002-07:00

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Ever wonder what it would be like to trade your 8-5:00 job in for a 4-hour workweek job?

Is it really a feasible option, or just wishful thinking?

To find out, see my review of Justin Ferriss' book "The 4-Hour Workweek" at ezinearticles.com.

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Book Review of "Upside Up Real Estate Investing"

2008-04-21T21:49:00.009-07:00

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Upside Up Real Estate Investing: Successful Strategies to Make Money in Any Market is a real estate investment book that not only covers the basics with exceptional style and insight, but also brings new wrinkles to the table. "Upside Up" is just such a book. Not surprisingly, the book is written with depth and insight by an investor who has a profound knowledge of his field.

Follow this link to see my complete ezinearticles.com book review.

Other recommended articles:

Calculating Depreciation for Residential Real Estate Investments at twowiseacres.com.

Is the Time Right to Invest in Real Estate? Chicken Little vs. PollyAnna at biggerpockets.com.

Back on the Market at rentalrus.blogspot.com.

What I've Learned from my Rental Property at wealthisgood.blogspot.com.

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Five Questions to Identify Motivated Sellers

2008-04-18T20:59:00.005-07:00

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Thinking about buying an investment property?

Check out Real Estate Investing - The 5 Magic Questions at ezinearticles.com, by Robert Rentalman (yes, Rentalman).

The MARLA formula consists of 5 magic questions that will help you quickly weed out the motivated sellers from the rest of the pack. MARLA is an acronym for Motivation, ARV (After Repair Value), Repairs, Loan balance, Asking price. For more details on the 5 magic questions, take the link above.

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Buying in a Down Market, and Finding Ideal Tenents

2008-04-14T14:47:00.003-07:00

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I'd like to share with you a couple of good articles I came across recently.

5 Tips for Buying a Home in a Down Market
by Bankaholic.com

The subprime mortgage bust has scared a lot of people away from the housing market. The nightly news is filled with images and stories of everyday Americans who are losing their homes because they made greedy and uninformed decisions, they were taken advantage of by predatory brokers, or a combination of these situations. However, the news isn’t all bad. This decline in the market has dropped prices and made housing affordable to many fiscally responsible renters who never considered home ownership to be an option.

If you find yourself house-hunting, make sure that you follow these five simple steps to take advantage of this downturn in the market; if you don’t, you could be the next sad story on your local news. Click here for full article.

What Makes an Ideal Tenant?
by Resty Malia

Who are the Folks That Makes an Ideal Tenant?

Finding the right tenant is a common challenge that most property managers encounters at one point or another in their life. The following bits and pieces of information in this article will allow you to have a better idea in picking the right or ideal tenant.

Searching for the right tenant can be simple or even a challenge sometime, but having an idea of the different types of America's work force qualities as tenants could help you decide and screen the right and ideal tenant for your property.

So you have done your credit check with your prospective tenant ( you done it, right?) and now you're probably wondering what part of the demographics would make an ideal tenant.

Generally there are Four (4) Population Strata or Groups where your prospective tenants will be coming from. Click here for full article.

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"Fix 'em Up, Rent 'em Out" now available as e-book via PayPal

2008-04-11T21:20:00.005-07:00

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In a never-ending effort to provide incomparable service to the blog community, my book Fix 'em Up, Rent 'em Out: How to Start Your Own House Fix Up & Rental Business in Your Spare Time can now be purchased for $9.00 for immediate download via PayPal.

To order, select the "buy now" link in the side panel below the Amazon.com link.

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Ode to Grout

2008-04-07T13:19:00.009-07:00

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There are very few conversations that include the word "grout" in them. Grout is one of the most under utilized words, and unappreciated substances in the English language. Yet, where would tilers be without grout? And yes, where would all of us who have tiled floors or walls be without this cementy substance?

This weekend, in a never-ending effort to finish repairing our fixer-upper house so we can rent it out, the family undertook to tile the closet floor. This was one of several smaller projects that remain to be done before we can call this house finished.

Here is how it went down.

Step 1.

Number 1 son expertly cuts tile for the floor (note ear plugs -not an MP3- for protection).

Number 1 son precisely mixes the mortar to the right "peanut buttery" consistency.

Number 2 son carefully transfers the mortar from the mixing bucket to the transfer bucket.

Number 2 son and I precisely apply mortar to back of tile. Number 2 son expresses amazement over incredible precision.

Angy relentlessly spreads the much-anticipated "grout" into the spaces between tiles.

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