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Showing posts with label rehab. Show all posts
Showing posts with label rehab. Show all posts

Friday, June 28, 2013

Insurance for Real Estate Investors

Distressed Property Insurance

As our group started out as specialists in distressed properties, one of the problems we came across was insurance coverage for asset and worker protection. We thought if the Bank won't insure it, no one else will. But let’s look at it from the Lenders point of view.

167 Street Living Room Unit 2 Rehab Duplex
Why would you Insure this Property?

Investors always preach, leverage someone else's money not yours. That's true but Lenders are taking a risk. What happens if an injury occurred on the property or the asset burns down? The Lender is either stuck with court costs, fines, hospital bills or his money is gone due to the lack of insurance. So FYI...Lenders are going to make you insure the property. We rather get our own policy than make forced payments to the Lender's insurance policy.

Depending on your exit strategy, you will eventually need some type of insurance.

Front View 1184 Rehab Duplex
Would You Insure This Property?

Below is an outline of some of the coverage’s we implemented while bringing properties back online:

Types of Insurance Coverage or Services

  • Builders Risk Renovation Policy - Provides coverage that protects a person's or company's interest in materials, supplies and equipment used in the rehab or construction of an asset should these items become lost or damaged.
  • Liability Insurance - It protects the property owner in the event he or she is sued for claims that come within property boundaries. The policy is designed to offer protection against third-party insurance claims, like contracted workers or tenants.
  • Windstorm - Most policies issued today DO NOT cover damage from high winds. It is very difficult to get a windstorm rider due to the size of the deducible, ranges from 10K to 15K.
  • Flood - Damaged caused by rising water. Broken pipe or hoses causes damage to interior of unit or building. Flooding caused by storm surge.
  • Fire, Theft and Vandalism - During rehab you can expect one of these three items to occur. Are you protected from these likely events?
  • Insurance Loss Consultants - Provides Claims Representation to Policyholders. If you experience an event that financial hardship will occur, the insurance company is going to use every resource available to limit the payout amount and the policyholder is expecting the repairs to be done with no out-of-pocket expense, including the deductible. Insurance Loss Consultants make sure that the investor receives the largest benefit to which they are entitled under the insurance policy.
  • 4 Point Inspection is required if an investment property that your company or contractor is restoring is older than 30 years or being refinanced. Insurance companies will want to check the following four systems before issuing a Homeowners policy:
    • Roof
    • HVAC - Heat, Ventilation and Air Conditioning
    • Electrical
    • Plumbing
  • Our Contacts - These are companies that specialize in issuing policies that are going to protect you against the hazards of being a real estate investor.

In the beginning of the rehab depending on your exit strategy, insurance might not be needed but you will eventually. Remember, any property has value even if you can't see it. Are you prepared to lose that value if you don't insure it?

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Written by Bob Burns.
 
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Sunday, June 2, 2013

Do Your Due Diligence before Purchasing

You think you found the property you are going to make some money on but once you close on a property, responsibility for this asset becomes all yours, good and bad. In order to be a successful real estate investor you need to make sure you don't make any mistakes. If you do, it will be small one and easily forgotten when you cash your first check.

Below is a list of items you should be checking before you make an offer.

Due Diligence on Your First Deal

Duplex Kitchen before rehab in Wynwood Miami
Wynwood Duplex Kitchen before Rehab
  • Inspection
    • Upon Entering the property look for visual clues that indicate the current condition of the house.
    • Look for things that should be there but are not.
      • A bedroom without a closest. HUD would not consider this a bedroom.
    • Look for things that are there but shouldn't be.
      • A window inside the house that isn't an exterior window. Could be a porch that was closed in years ago.
    • Looks for points of failure
      • Connections: bathroom fixtures, underneath sinks....
      • Intersections: roof, ceilings and walls, walls and windows, floors and walls, water stains...
      • Windows and Doors: water leaks, holes, broken or cracked pains of glass, widows and doors open and close properly...
    • Black Mold - Indication of moisture buildup.
    • Termites - Big problems for us in Florida and Puerto Rico.
    • Asbestos - Probably present in older homes. Need to check for this.
    • Environmental Hazards - Underground oil tanks for heating, septic systems. Check the property history.
  • Comparables or Appraisal - Before purchasing the property see if you can get your hands on:
    • Recent property appraisal less than 90 days old. Ask the seller if he/she has a copy. Dania Beach Duplex rehab, number 36
      Dania Beach Duplex Rehab
    • Try to determine the After Repair Value ARV by getting three property comparables within a 1 mile radius and less than 90 days old.
    • Use the Maximum Allowable Offer MAO Calculation to help determine your purchase price.
  • Title Search - Make sure you use a Title Company that understands how investors think and work. Every Real Estate Investment Club can recommend one. You assume Tile companies know what they are doing but I have gotten burned many times due to Title Company mistakes. Make sure they check for:
    • Open Permits - This has caused us more problems when we go to SELL an asset in our portfolio. It is usually the BUYERS Title company that finds the mistake and causes delays with the closing. MAKE sure they check for Open Permits!
    • Liens and Violations - Make sure they check for pet violations (Pit Bull), water, city and county liens. Check:
      • The City where the property is located: City of Miami, etc.
      • The County: Dade, Broward, etc.
  • Taxes - Check to see if back taxes are owed. Usually the Seller pays the back taxes but it is good to know while you are negotiating terms and price before you make an offer.
    • Most tax records will indicate if the structure is legal or not.
      • If you see on the tax rolls the structure is listed as a 2 bedrooms and 1 bathroom and on the MLS it is listed as a 3 bedrooms and 2 bathrooms there maybe a problem with the investment property as being legal or not.
  • History - Most counties will have a history of the property since it was built. It will contain information about the property that can be used to determine what has been done legally with permits, liens, violations, former owners, etc.
  • Zoning - You must know the current zoning for the individual parcel of land and its existing structure. You need to know what is the permitted use and current usage. Knowing this information can help you with your rehabbing plans and exit strategy.
  • Survey - You may want to order a survey before purchasing to see if the investment property has any encroachment issues.

These are some of the items we look at before making any decision to BUY. As you gain experience a lot of these items will become second nature and you will be able to apply this knowledge to tweak your success as a real estate investor.

Do you have any tactics you apply before you purchase a property? We would love to hear from you. Write your comments in the comment field below.

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Written by +Bob Burns.
 
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Bob Burns at Bahama Beach Club Ft. MyersBringing It to the Beach Baby!
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Wednesday, December 21, 2011

Secure Your property for before Rehabbing!

After completing several property rehabs in Miami-Dade County, Florida, I wanted to try something out of the county but still in Florida. My parents lived in Sarasota, Florida so I thought this would be a nice place to start. Distance would be an issue but my father was down for the winter and he could check up on the progress being made on the individual properties. Also, my Dad is an electrical contractor which brings many rehab benefits but that is a future REIC posting.

I found a duplex FOR SALE fairly quickly on Debbie Street, Sarasota due to the advantage of attending Sarasota REIA group meetings on Florida's Gulf Coast. Other than the distance, four hour drive, I felt this would be like any other rehab.

I decided to start in February with a two week property visit. Well during that time, several problems arose that I didn't experience before, like:

  • Most of the properties were on well water. Hard on the pipes, fixtures and tasted awful. Our duplex had city water service which was a blessing but caused me a problem I had to resolve.
  • Septic Tanks! No county sewer systems had been installed. The drain field was the front lawn and it was clogged.
  • Clothes Washer waste water line emptied onto the backyard lawn.
  • Pine trees over fifty high. Pine needles build up on the roof and lawn.
  • Gravel driveway that the neighbors thought they could use to park their cars.
  • Drug addicts lived about 50 yards away in an apartment.
  • On and On and On....
But the one problem that cost me the most in time and money was the city water lines.

Apparently it was very expensive to get connected to Sarasota's water system due to high impact fees. Impact fees are the city's way to tax you for hooking up to the water system network. You have to pay for the following:

  • Impact fees
  • Installation fee for digging up the street and installing the water meters.
  • Hire a plumber to run lines from the city's water meters to the duplex's water system.
  • Had to pay twice since it was two separate water meters, one for each unit of the duplex.

Luckily, my duplex already had these meters installed by a previous owner. The problem was the neighbors knew this and thought they could help themselves to the city water from our duplex. They would go to our outside water fixture and fill their 5 gallon water containers.

By the end of the month, I had a very large water bill which I couldn't figure out why? My rehab contractor said he never used too much water. I thought I had a water line leak from the meter to the duplex.

One day in July, my rehab contractor said he saw one of the neighbors filling up their containers and told me about it. I was flabbergasted but realized that this was going to be an ongoing problem!

Below is picture containing the anti-theft water system parts and installation video.....

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Written by +Bob Burns.
 
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The caricature of Bob BurnsLife is a Beach. Go Find Yours!
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Friday, March 11, 2011

Real Estate Investment Strategies
for Rehabbing Houses

As you are starting out on your road to become a successful Real Estate Entrepreneur, you are going to eventually purchase a property that has a lot of


equity but you need to extract that it from the property by repairing or rehabbing it. One of the best ways to generate cash as an investor is to rehab properties for resale.

Buyer Beware!

Rehabbing can make you money but you as an investor have to be careful. Two of the biggest mistakes made by 1st time rehabbers are TIME & MONEY.

Although your actual time commitment is minimal, these projects from purchase to sale, take a significant amount of time. To finish your rehab project, plan six months to one year. That means you may not see any profit for a while. Hopefully, your projects will finish much faster, but mentally commit yourself to problems and delays that will hurt your projected completion date.

The second negative is MONEY. Unless you have a partnership arrangement, you will have to come up with money for these projects. MREIA consistently puts $10,000 to $20,000 in repairs alone into a house. Add that to your purchase price and you can see you'll need access to quite a bit of cash. Plus, that money could be tied up for 180 days or more.

These negatives aren't anything you can't overcome. You'll see how important it becomes to have a well thought-out plan to minimize the negatives and accent the positives of rehabbing a property.

Estimate Repairs - Rocket Science?

Once you have found a property to rehab, you need to get a good, not great, idea of how much money you are going to need to repair. Dealing with sellers they always place the repair costs to a minimum. What ever amount they say I double it. Estimating repairs isn't as difficult as you might think. Once you rehab a couple of houses, you'll know what you're repairs will run. This is where a check or punch list becomes invaluable.

Your Finished, NOW it is time to get PAID!

The marketing strategy is to develop several plans to help you get to your objective - MONEY now or in the near future. You, the rehabber have several options:

  1. Rent It!
  2. Sell It!
    • For Sale By Owner (FSBO)
    • Hire a Realtor.
  3. Lease Purchase It!
    • Combination of Renting and Selling!

Rehab Process Outline Here it is:

  1. We are going to find a distressed property that has mucho equity!
  2. Buy it using a formula (MAO Rule) that calculates your holding & rehab costs.
  3. Rehab the property to bring it back to neighborhood standards or beyond.
  4. Develop a marketing strategy that will attract either an investor or owner occupant.

Written by +Bob Burns.

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Wednesday, December 22, 2010

Make sure you have the mail forwarded to your business address after you purchase a new investment property....Why?

I made the mistake of purchasing a property for rehabbing for about 50K and not forwarding the properties mail to my business address. It was a duplex but both buildings were gut jobs. See pictures! The City of Miami placed a violation on the structure for being unsecured. This violation was mailed to the property address but since the property did not have a mail box, the post office refused delivery. One of the terms of the violation was the structure must be secured within so many days or a $250/day fine would be imposed.

Guess What?

This violation was written before I even purchased the property. It had been sitting abandoned for years so you can imagine the size of the fine. My Title company missed it so I was never aware of it until I started to repair the property.

Well the fine had accumulated to $250K. Now, I do not know about you but I wasn't going to pay a fine that was more than the property was worth. So after speaking with the Title company, the area inspector, the City of Miami mitigation committee, I was able to mitigate the lien down to a manageable level. I would tell you how I did it but that is another blogging event.

 So the violation was resolved! The City doesn't want to make it impossible for you with unmanageable fines. Their objective is to make you correct the violation and comply. I was doing them a favor by bringing an abandoned property back online and producing additional tax revenue. The moral of the story is to make sure you are getting the properties mail. I would have known about the violation a lot earlier in the process if I forwarded the investment properties mail to my business address.

Written by +Bob Burns.

####

The Internet Kahuna Bob Burns MREIA Logo"Pain is Temporary, Regret is Forever!"
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Telephone #: 305-586-5280
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