FIX OR FLIP A HOUSE?
As an Investor your exit strategy when purchasing a home is very important. As an Investor you should have more than one exit strategy for example: buy, fix and then flip or hold, wholesale during the contract inspection period or purchase and flip “as is”. Every Investor should have a formula when purchasing a property.
Recently I partnered with a student on a house in Tampa, Florida. The student was in my mentor program and it was her first deal. She found the house by sending a yellow letter to the Sellers. The Yellow Letter said “Hi, I am interested in buying house for CASH at 123 Main Street. Please call me at 321-555-5555. Sincerely, Student’s name”. The Student received a call from one of the Sellers and she filled out the Seller Information Sheet. We did a conference to the Seller and built more rapport.
The Student made an appointment to go to the house and take pictures of the houses. She emailed me the pictures of the house so we could look at all the repairs necessary and make an offer on the house.
During my conference call with the Seller and the Student we found out that two elderly women (sisters) inherited the property and that one of the women still lived in the house. The house was approximately 1100 square feet, built in 1920 and had a separate 340 square foot house on the lot including a one car garage. The houses and garage were all wood frames and were termite infested and had major wood damage due to termites and water. In addition, the plumbing, flooring, windows, doors, kitchen and bathrooms all needed to be updated. The houses already had updated electrical boxes and could be considered a 3 unit. The Buyer would have to confirm with zoning if a 3 unit would be allowed on the property. The driveway of the house is very narrow and the houses were right next to a commercial car lot with a solid brick wall. The neighborhood at the time of our first offer was selling in the $200,000 range. We also found out during our call that there was two houses filled with furniture and personal items that would have to be moved in addition to a one car garage stacked to the top. The Sellers were elderly and they needed help paying for the move of the personal items and additional time to move the items out of the home after the sold the property.
After reviewing all the pictures and discussing all the repairs, we made an offer on the house for $35,000, we would pay for the closing costs, give $2,000 over and above the purchase price to help with the moving of items and give them an additional 30 days after closing to move the items. This offer was made in late 2016. We found out that the sister that lived in the house was really not the Seller that would make the final decision. The Sister that didn’t live in the house was the Personal Representative (PR) of the Estate. She also received offers from other Investors which were higher than our first offer. I had not personally seen the houses nor had I driven the neighborhood. My value was based on houses that had sold no more than 6 months ago and no further than .5 miles away.
We submitted a higher offer of $66,000 to the Sellers. We found out that the PR had already met with her attorney on another Investor’s offer which was lower than our offer. I normally will not increase my offer to my best offer without personally going to the house. However, due to the fact that there was another offer that the Sellers were going to sign that day, we submitted our offer. This offer was submitted in September of 2017. We discussed with the PR all the terms and conditions of the offer. The PR liked the other Investor and the Seller who lived in the house liked my Student personally.
My Student followed up constantly with her Seller and the Seller had to follow up with her sister (PR). We had gone back and forth so many times and they had said they were going to sign our offer and send it back to us, however, we never got it. It got to the point that as a seasoned investor that I knew that the Sellers were playing games with us and shopping our offer. The PR Seller contacted me in late December of 2017 and started asking the same questions again regarding our offer. I sent her an email that stated this is our highest and best offer and they need to make a decision with the offer and quit wasting our time. My Student almost had a heart attack from my email. Every Investor should know when to do a “take away offer” and that was what my email was. We didn’t hear anything from the Sellers until February 2018.
In February of 2018, both Sellers signed the offer, made minor changes, and I signed the contract again. My contract had a 10 day inspection period. Due to the major damage on the home and termite damage, we had a home inspector and a termite inspector. I personally went to the house to do my own inspection and drive the neighborhood. The inspections on the houses and termite inspection showed all of the above damage as mentioned above. When we submitted the offer, we did not know of all the damage as I made offers based on the pictures of the house.
My Student and I drove the neighborhood and found out that there was a lake down the street, and the values of the houses were from $200,000 to $300,000. Prior to driving the neighborhood and seeing all the other houses that sold and were listed for sale; our intention was to reduce our offer based on all the damage. However, after looking at all the above information we accepted the house at $66,000 and set the house for closing. Total cost of repairs would range from $75,000 to $95,000 should we decide to retail the house.
We had to help the Sellers go through all the items in the house, pack them and delivery them to Seller’s new house which was 1 hour away. It took my student and I along with my son three times to take all her belongings to her. We set the house for closing and changed possession to the closing date.
My 3 man rehab crew was busy with two other houses in the Orlando area so we decided to list the house for $109,900 cash only with my agency. We received 7 offers and settled on an offer for $117,000. My Student had spent approximately 40 hours on this property during the 2016 to 2018 time frame. We owned the house for a total of 14 days and have made a profit of approximately $40,000.
I hope this article helps educate you on making two offers at the same time opening the doors for more deals.
Happy House Hunting!!!
Kimberlee Frank
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MORE DEALS WITH SELLER FINANCING
Are you tired of paying high interest on your real estate deals using hard money lenders? Well there are several different ways you can reduce your interest when talking with Sellers. Many Sellers would love to get cash for their house at their price. However, as an investor our cash offers are much lower than what price the Seller would like to receive for their house. Whenever I meet with a Seller I have done my research as to how much they owe on the home, what price they are asking for their home and what cash offer and terms offer I am willing to pay. This allows me to purchase more houses than the average investor. How do you find these Sellers? A partner of mine saw a U-Haul truck at the Seller’s house and asked him if he was interested in selling the house. I then went over there and looked at the house as he was moving out. I went back to the office and emailed him an offer. I hadn’t heard from him for a while so I followed up with a text and he said “I am glad you contacted me, I lost your number”. Remember 80% of our business is done through following up on our offers and leads. You never know when the Seller is motivated to sell the house.
How do you consider making a cash and/ora terms offer? I make both offers at the same time. First, you need to know your exit strategy for the home ie. buy to fix and flip, wholesale or buy to hold. When you are in a Seller’s market and the value is increasing on a regular basis, it is ok to pay more for a property if your intention is to buy and hold it. This home a 4 Bedroom, 3-bathroom, 2 car garage home with approximately 1900 square feet located in Florida. I went on www.rentometer.com to determine what the median rental rate is in that area for a home this size. It was $1,725.00 per month. I knew that I could rent the home quickly, if I wanted to buy and hold it. The inside of the home was in great shape. The interior paint of the home was average with small repairs to fix the minor holes in the wall, all 3 bathrooms had minor issues such as plumbing, toilets, and cabinets that needed to be completed. The tile in the house was old and ugly but if I kept it as a rental, I would not need to replace it. The remaining floor in the house was laminated wood in great shape. There was approximately $5,000 worth of work inside of the home, if I wanted to freshly paint it and fix all the items stated above. If I was just going to rent it, I could get away with only putting $2,000 into the repairs to get it in ready to rent. The outside of the house needed $10,000 to $15,000 worth of repairs to the siding, windows, air conditioner should I decide to retail the home. Or $5,000 just to repair the siding and two windows that were leaking. I made a cash offer on a house in the amount of $120,000 and $140,000 on terms. The After Repaired Value is $220,000 in today’s market. The terms the Seller and I settled on was $150,000 with $10,000.00 down, a 1 year term, 6% interest only at $700.00 per month. The Seller would hold a first mortgage on the property. Remember I made the terms offered so I submitted an offer based on what I wanted to put down on the home, how long I wanted to have them hold it on terms, and what interest rate I wanted to pay on the home.
Buying this home on terms has allowed me a couple of options: First, I could just fix it up and flip it with only putting out $30,000 for repairs and down payment. I would of course, have to pay the money payment to the Seller, pay for the insurance, taxes, and utilities during the time I am fixing it. Or, I can fix it up and then after 1 year of paying on it, apply for a mortgage to hold it for long time. Let’s use the example that I am going to fix it and then rent it. I put $10,000 down, $2,000 on the inside for repairs and $5,000 on the exterior (which is a preference) for a total of $15,000. It would take me 30 days to do all the repairs which could be done quicker and have it ready for rent which is another $700 due to the Seller. I now have a total of $15,700 in the home. Should I rent it at $1,725 per month for a total of 1 year it would bring in $20,700 in rent. I would still owe $8,400 to the Seller. $1,300 for insurance, $1,700 for taxes for a total of $11,400 minus the rent of $20,700 leaves $9,300 minus the down payment and repairs leaving $6,400 out of pocket expense after a year. Then after owning it for 1 year, I can apply for a mortgage based on the appraised value and not the purchase price. This will allow me to refinance the home in the amount of $176,250 with cash back in my pocket for repairs at 75% Loan to value ratio based on an appraised of $235,000 a year later or higher.
I hope this article helps educate you on making two offers at the same time opening the doors for more deals.
Happy House Hunting!!!
Kimberlee Frank
Like me on www.facebook.com/foreclosuresgonewild
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Crushing Code Violations and Liens
When purchasing properties it is always best to order a Lien Search which costs about $125.00 to $150.00 as the search shows any open permits, liens for cutting grass, violations for exterior repairs, tax information on the property and water utility debts. The Lien Search is separate from the Title Search and open permits and/or code violations that are not a lien yet on the home do not show up on just a Title Search. You must have a Lien Search that will contact all parts of the City and have them advise if there are any code violations not yet filed as a lien.
I have been purchasing properties from individuals who have inherited a home from a family member, like a mother or a father. Individuals who inherit homes that have no debt on it and there is only one heir, usually take longer to file an estate, go through the house for belongings, repair what is needed and then either rent it or sell it. I have found if there are multiple heirs to the property, the probate to the estate, repairs to the home, are normally done within 6 to 9 months once they start the estate process. I believe this to be true because the heirs want their money now and don’t want to wait. However when there is one heir to the estate, it takes them years to grieve and settle the estate. During this time, they may not be able to keep up with the yard or exterior maintenance which then allows the City to have the lawn mowed and give them violations due to the condition of the property. Unfortunately, since there is never an estate done right away and/or a change on public record of the new owner or their physical address, all notices are sent to the home and/or attached to the door of the home. The mail is usually returned because the house has been tagged as vacant from the Mailman so the violation never gets to the heir unless they find it on the door. If they do not go over to the home for months, they don’t ever receive the notice.
Recently my partner, Kristen, and I entered into a purchase agreement to buy a home from an heir. Her mother had died in 2010 and she herself is 70 years old. We ordered title work and a lien search only to find out that there was a lien on the property due to the condition of the pool, (green and mucky), torn screens on the enclosed patio and that one of the enclosures did not have a permit. Many investors would take title to the home with the exception to this lien. The investors will buy the house and they will request the City to reduce the lien. Each City has their own way to handle reductions in Code Liens. Prior to purchasing the property I would highly recommend that you check into how you can have the Code Lien reduced and removed from the title to the home as closing with the lien may mean you accept the home and the total amount of the lien is due and payable. The City of Maitland informed me that if the home was sold to another person without first having the Seller apply for the reduction and receive it, that they would not negotiate with the new buyer/owner because they were well aware of the total amount due on the property and therefore no reduction would be granted. Other cities that I have been involved with are willing to take a discount on their code lien violation for hard costs paid by the City to cure the violation. The City of Sanford will allow a reduction; however, they do have a maximum amount that they have agreed to charge for a violation which is $2,500.00 no matter what the lien amount is owed.
The problem with Code Violations fines they will not stop accruing interest and fines until the problem has been resolved. Fixing the screens and tting the pool in shape is an easy one. However, the issue of a permit for an enclosure is another. Many homes that I have purchased the Sellers have either purchased the property in its present condition like enclosing a garage without a permit and/or adding an enclosure on the house without a permit years and years ago. So what do you do? You then make a decision to either remove the structure and/or obtain a permit to confirm that was built up to code. I just fought with the City of St. Petersburg on a pre-existing garage that was built prior to 2001 which they had an application allowing us to apply for a permit on a pre-existing structure. This is called a grandfather clause which allows us to obtain a permit and not have to bring it all the way up to 2017 code. The application for a pre-existing structure informed us of everything needed to show that the house already had this done prior to purchase and/or prior to the year they have on their application. This particular enclosure was put on prior to 1984 and prior to the Seller’s mother purchasing the property. We looked for a survey but couldn’t find one and since the title company is no longer in business, we were unable to find out who did the survey as the survey would had reflected the enclosure on the drawing. The City of Winter Springs does not have an application for a pre-existing structure. So … the enclosure was torn off the home allowing the City to come back out to the home and see that everything is up to code based on their violations and they now can stop accessing the fines of $500.00 a day on the home.
I am presently dealing with the City of Winter Springs wherein I am assisting the Seller on the Petition to Reduce the Violation. After weeks of waiting, I received a call from the City informing me that the lien of $176,500 for the above violations can be reduced to $17,650.00 which is 10% of the lien amount. In addition, they said that the Seller could not sell the home to an investor and she has to sell the home to a homeowner who will be homesteading the property. I was shocked to hear the amount that they agreed too and in addition, requiring technically a deed restriction on her new buyer. I informed them that they are being unfair to a Seller with a First Violation and being unreasonable requiring her to sell a home to a homeowner due to the condition of the home. Also based on the fact that she has already entered into a purchase agreement to sell the home and that the Buyer did all the repairs to the home prior to closing. I informed them that they are discriminating against investors who are fixing up homes and increasing their taxes. I requested a copy of their ordinances which informs you of their policy when it comes to negotiating liens. I looked at the ordinance and right there in front of me it mentions that should an investor purchase the property with this lien on it, they can obtain a reduction on the lien but it will be based on the purchase price of the home and potential profit that they would receive from the sale of the home. It also mentions in a paragraph about selling to a homeowner too which is what they are requiring. I then prepared additional facts regarding the argument as to why the City should reduce the lien for more than $17,650.00 and not put a deed restriction on the home to sell to a homeowner. I am now waiting to find out if my argument is acceptable. If it is not, then a hearing can be held before the City for consideration.
I really feel bad for Sellers who are going through a hard time grieving the loss of their parent and unable to even walk into the house. Cities should not take advantage of Sellers and make them pay an unreasonable fine amount. It is the Sellers’ responsibility to give clear title to a Buyer and the funds come out of the Sellers side not the Buyers. Yes, many of you would have said “ok” to the lien reduction only if they remove deed restrictions and close the transaction. However, I believe that the amount is too high and I will fight a little harder with the Seller’s help to reduce it to a reasonable number, remove the deed restrictions and then will close. All investors should do the same and help protect the sellers.
I hope this article helps educate you on how dealing with the City for code violations and/or liens is very important.
Happy House Hunting!!!
Kimberlee Frank
Like me on www.facebook.com/foreclosuresgonewild
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BIGGER PROFITS WHEN YOU BUY A SHORT SALE AND RETAIL THE HOME!
When I am purchasing a property either for myself or with my student/partner, we determine which exit strategy is the best for both parties. Knowing whether you want to wholesale a property for a small profit or rehab/retail it for a big profit is important. Many investors start off with wholesaling the properties because they either don’t have a money lender or partner to help them rehab/retail the house and sell it for a bigger profit. If this is you, then I believe you really should find a partner or money lender so you have more than one exit strategy.
When you purchase a short sale, some of the lenders will put a hold time for the new buyer requiring them to hold the property for 30, 60 or 90 days before they can resell the property for a profit. In addition, they may tell you that you can only make a certain amount of money on the property if you sell it earlier than 90 days. Holding doesn’t bother my student/partners or myself because we normally choose to rehab the property and retail it for a higher profit.
Let me tell you about a home that a student/partner and I purchased. It was a short sale on a home in St. Petersburg, FL that was vacant for about 7 years. The area was an up and coming neighborhood and the two houses directly across the street from the home sold for $195,000 and $240,000 which both are smaller, only 2 bedrooms, one car garages and no pool. The area was known for termites. We replaced all rotten wood, treated the home and provided the buyer with a 1 year termite bond. So … after negotiating the deal for some time, we purchased the 3 Bedroom Home, 2 Bathroom, and Pool with approximately 1500 Square Feet for $69,900.00. The garage was already converted but needed repairs. This home was built in 1950 and needed everything from Roof, Electrical, Windows, Air Conditioning, and Pool repair. The repair budget when we started was about $65,000 and we ended up around $75,000. The short sale lender placed a 90 day hold period on the Deed so the Buyer could not sell it to a mortgage buyer for a period of 91 days. Since this was a huge rehab with a large profit we didn’t mind fixing up the home.
So what did we do to the home to get it move in ready? We were trying to keep the costs down and were going to keep the existing roof that had about 3 to 5 years left but decided to spend the additional $8,000 to replace the roof. We received multiple quotes from electricians ranging from $3,700 to $40,000 to upgrade the electrical box and replace all the switches and plugs. We ended up paying around $3,200 for the electrical. The air conditioning unit needed to be replaced so we contacted an a/c contractor associated with the REIAs and got a great deal of $5,100 which included 5 new runs, new box, new air handler and new compressor. If we didn’t have to add the additional runs and new box, we could have gotten it for only $3,500. We had to get hurricane glass windows which were almost double the amount of the windows of non-hurricane glass windows! We used Home Depot which was American Craftsman and the cost was 2 times cheaper than the quote we received from ABC Supply. We painted the vinyl siding of the house which painting any house gives a great curb appeal. We had to replace almost all the flooring in the house except we refinished about 600 square feet of wood flooring for $2,600 in the living room, dining room, hallway and 2 bedrooms. They were beautiful. It would have been cheaper if we didn’t want them to replace the bad wood in some of the rooms and two closet floors. We tiled the family room, 2 bathrooms, kitchen, 3rd bedroom, hallway, utility room and office area. We needed all new doors, hinges, knobs, some baseboards, light fixtures, ceiling fans, kitchen cabinets, granite counter tops, bathroom cabinets, new shower tile, new tub and surround, all new faucets, toilets, mirrors and more.
The outside wasn’t in too bad of shape but needed some TLC. The wooden fence around the backyard needed minor repair, we only replaced the bad pieces and power washed the fence. The backyard we covered completely with red mulch because there was no grass. The front yard, we just raked and put red mulch and plants around the flower bed area. The pool was another story. We had it acid and power washed and it still looked yellowish in spots based on the white body color. We received quotes from $3,900 to $9,800 to just refinish the body. My partner/student’s son works for a company that purchases real estate owned properties in bulk and he told us that they were just painting the inside body of the pool. We checked into purchasing the correct paint for the pool and with material and labor it costs us $1,300 to refinish the pool. The paint life line for the pool was for 5 to 7 years.
When we first started rehabbing the property the best comparable we had was a house that sold for $220,000. After rehabbing the property for 2 months, the values of the properties increased and we are able to list the house for sale for $264,900.00. We could have spent more money on the property but as an investor, you must understand that you are not going to live in the home and this is a business. So safe something for the new homeowner to do! When we sell this property, the profit to be split will be between $70,000 and $90,000 depending on if we receive our list price and/or if we have to contribute to the buyer.
If we were going to wholesale this property we would have wholesaled it to a seasoned investor with a profit of $30,000.00. Any rehab over $30,000 is very hard for a new investor and we figured without the roof that rehab cost was above $65,000. So, I am asking you was it worth the hold time and extra $40,000 to $60,000 profit to buy, fix and resell?
Based on this article, I hope I have persuaded you to start going after pre-foreclosures and retailing for bigger profits. You can also find pictures of the house on my facebook account if you would like to see the finished product.
Happy House Hunting!!!
Kimberlee Frank
Like me on www.facebook.com/foreclosuresgonewild
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