Showing posts with label arv. Show all posts

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
- 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.
- City of Miami – Micro Film Department, 4th Floor.
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.

Related Links, Tips, Blog Postings, Presentations or Articles:

Miami-Dade Municipal City Codes web page.
Florida's Public Housing Authority PHA Contact Data web page.
Real Estate Tip: Make sure you have the mail forwarded to your business address after you purchase a new investment property....Why?
Hash and Profile Plus Tags
- #MAO #HUD #ARV
- +MAO +HUD +ARV

Written by +Bob Burns.

####

Bob Burns at Bahama Beach Club Ft. Myers

Bringing It to the Beach Baby!

+Real Estate Investor
about.me/RobertKBurns
Telephone #: 305-586-5280
email: sec8@planocho.com

Monday, March 26, 2012

Real Estate Investors need to use an Action Plan.

There is a saying among Real Estate Investor's - "You Make Your Money when You Purchase the Property not When you Sell It."

There are so many things that can go wrong so it is important to make sure you buy the property right.

Smart Real Estate Investors need to develop an Action Plan before they are going to purchase an investment property. This plan should include the following:

Identify a possible property for investment.
- Make sure your SELLER is MOTIVATED to do the deal.
Perform a market analysis.
- What are going to be your carrying costs for the next 90 Days. Principal, Interest, Insurance, Taxes, Utilities, HOA fees....
- After Repair Value ARV - What is the property worth after repairs. Look at the COMPS! Yes, the comparables.
- Calculate your repair costs.
- Calculate your Fair Market Rent FMR. See if the property is going to cash flow.
  - See previous posting and video about calculating Fair Market Rent FMR
Secure Your funding for:
- Purchasing the Asset.
- Carrying Costs.
- Repairs.
Note: Don't forget to pay yourself for all this work you are doing!
Make an OFFER based on the Maximum Allowable Offer MAO Rule, using ARV, Carrying and Repair Costs.
- See previous MAO post at Using the MAO rule for determining your Investment Property Offer Price.
What are you going to do with the asset? Develop an EXIT Strategy:
- Flip the property for a profit or
- Hold the property for Cash Flow.

This is the basic action plan which needs to be very fluid. Things change and you need to adapt.

Turnkey Property!

One of the more successful Action Plans we have used is to bundle a Section 8 or Plan Ocho tenant within the property FOR SALE. The tenant is part of the BUYER's Turnkey Package.

TURNKEY means the BUYER simply needs to turn the key to the front door and start making MONEY.

All the hard work has been done for the BUYER:

Buying a Property that will Cash Flow.
Rehabbing the property and brought up to Code.
All utilities are functioning.
Finding a reliable tenant.
- We use Section 8 as a great resource for tenants because it is a very popular program for housing.
- Section 8 Web Sites for listing Your Investment Property.
Asset Protection strategy is already in place.
Selling the Investment Property with minimal Closing Costs.
Optional: Have it already furnished.

Investors should provide a turnkey solution for all their properties they plan to sell in the near future.

BUYERS like the idea of purchasing a property that comes bundled with a tenant.

Action Plans allow for Immediate Cash Flow and no Headaches!

Written by Bob Burns.

####

Money in The Bank Baby!

Real Estate Investor
about.me/RobertKBurns
Telephone #: 305-586-5280
email: sec8@planocho.com

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Monday, January 23, 2012

Do You need FUNDING to be a Real Estate Investor?

Eventually a Real Estate Investor will hear about a deal that is too good to pass up but their CASH is all tied up in another deal. There are no funds to purchase or repair! Time to borrow money!

But before the phone call is made, Investors need to:

Act Quickly before the deal is sold to another investor.
Ask questions about:
- Will the owner accept "No Money Down?" If not, what is the minimum down payment?
- Can the down payment be something other than cash?
- Will the owner hold paper? If so, up to what percentage?
- What are the monthly carrying charges? (Insurance, utilities...)
Determine the properties Maximum Allowable Offer MAO so you can make an offer that is going to make you money quickly.
Make sure you have multiple exit strategies.

Once you feel comfortable about the terms of the deal, time to dial your Lender's number! Good Real Estate Investors always have funds available 24/7 to take advantage of transactions that magically appear.

Lenders are adverse to risk so here are some questions you should ask the funding entity:

What states are they licensed to lend money?
Will they fund the deal based on the After Repair Value ARV (good) or the contracted price on the Purchase Agreement (bad)?
Will they fund the repair costs?
Is there a Prepayment Penalty?
How long can the investor borrow the money for?
Up to what percentage will they fund? If your contracted price is $150K and they will only fund 70% what is the total amount that they will lend? Answer:$105K. That means you have to come up with $45K. OUCH!
If needed, can the investor get more time?
What are the repayment terms? Are these terms negotiable?
Are there any Closing Costs, Points, Etc.?
What are the Minimum and Maximum amounts I can borrow?
Are there funds available 24/7 to take advantage of NEW investment opportunities?

Every real estate transaction is unique so there are different type of loans you can use for each deal depending on the parameters. Here are a few names you have probably heard of: