Checklist prior to buying

[Oliver J fryer]

Howdy all!

I am very new but wanted to put this out there for anyone interested in contributing their 2 cents! My goal is to have a solid checklist complete and then close on my first property within the next 6-8 months (may seem long, but I am military and have a big move coming up plus some other financial objectives)... I may dabble a bit in trying to do a wholesale during this time and I will definitely continue reading and listening to podcasts and hopefully networking!

Feel free to take away from this or add to it! Let's build something great!

FIND A DEAL - Where can profit be made?

Start with a neighborhood or zip code to focus on, check with realtors on where other investors are looking

1. Tax delinquent properties
   1. Local assessor to get contact info - see description below
   2. May be best to just get a plot of land
2. Mortgage delinquent properties
   1. Local County Court - ask for “Notices of Default”
   2. County Recorder - http://www.netronline.com/ search via zip code for foreclosures
   3. Contact Lenders - ask to speak with who handles foreclosures

3.Go through a wholesaler******* This could potentially save you massive amounts of time and headache

1. Craigslist ‘handyman’ specials - these guys have already done searching

2. Network and get to know actual wholesalers - people who find the best deals for you

4.listingbook.com - get hooked up on it by a real estate agent and updated for the NEWEST listings

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LOOK AT THE DEAL - Is the property worth crunching numbers on?

trulia.com - look at crime rates, street views of properties, GIS driven data for house values, previous price points

rentometer.com - use free searches to determine average rent in an area based on the address and number of bedrooms

Is the property generally rentable or sellable in that area? (college/jobs/hospital/military base/growing area)

Is the property within 10 minutes of important centers?

Legal: Is the area pro-tenant or pro-landlord? Is the area difficult to do construction in?

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CONDUCT SOME PERSONAL ANALYSIS - How profitable can it be?

Are there environmental risks in the area?

Does the area have an inclining or declining population?

Is there a single industry/center in the area that drives jobs? If so, how confident are you?

Are businesses starting there or do they appear to be moving out?

Is crime in the area self-loathing or is it money making? (vandalism and destruction vs drug dealing and prostitution)

Is someone currently living there?

Is the house livable? If not, what will it need? If so, is there a certificate of habitability?

‘Hidden factors’ that increase value

Frontal curb exposure - is your house narrow or broad in comparison to others?

View from back yard - are you looking at someone else’s house?

Privacy from neighbors - can they see everything you do?

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CRUNCH THE NUMBERS - How much should I spend/how much could I earn?

Calculate your bottom line using 70% of ARV (After Repair Value).

Do not spend more than (.7*ARV)-RC (Repair Costs)

Example: House is appraised at $100,000 *if repairs are made*...7*100k = 70k.

Repair costs are expected to be $25k. 70k-25k = $45,000 (DO NOT BUY THE HOUSE IF IT IS OVER $45k)

Take another look at the ‘going rate’ of rent in your area, make sure your cash flow is enough to cover ALL costs and include a buffer for taxes and unexpected repairs.

Look at the property yourself - try to eliminate assumptions.

Have a trusted professional assess and confirm info about repairs that may have been overlooked.

Look at how much work you can do on your own and compare it with contractor rates to complete all repairs. If everything makes sense at this point, pull the trigger!

STEP 1. “BUY”

If you get it for 45k, then add 25k in repair costs and you're at $70,000 of money spent…. Then ideally, you have already profited $30,000 because you stayed under the ARV.

STEP 2. “ADVERTISE”

Before beginning the rehab (perhaps during final estimates and planning), start advertising the property via a third party or something with a time stamp. This will allow some tax efficiency later on. (look up operating vs get ready costs)

Advertising should begin your tenant application and screening process for the eventual move in.

STEP 3. “REHAB”

Even if you find beautiful hardwood floors under nasty carpet, keep in mind your focus is ‘tenant proofing.’ Save really nice repairs for the day you decide to sell the property. Save money where you can, depending on time, resources, and skills you have.

STEP 4. “RENT”

Focus on getting tenants that will pay consistently, not damage your property, and not waste your time. Since you just rehabbed a place in a good location, it should be an easy thing to accomplish.

STEP 5. “REFINANCE”

Since buying a fixer upper is generally cash heavy and now your property is no longer a fixer upper, its time to get a traditional mortgage and pay you (or your investors) back. Sticking with this example, we have $70k in the property and that is equal to .7 of the ARV. Coincidentally, that is what most lenders will be willing to do! After this, only money out of pocket will be closing costs.

At this point you own 30% of the equity in a house, have established a positive cash flow, and are prepared to begin the next project.

STEP 6. “FORECAST AND MAINTAIN”

Begin collecting data and attempting to forecast. Preventive maintenance, strong tenant screening, and good management will produce the most predictable outcomes. Budget for unexpected repairs. Plan for at least one month vacancy each year. Incentivize tenant replacement and good behaviors.

Risk 1: Check with a few lenders to see how well you may or may not qualify for a refinance. If you cannot refinance, you may look into selling the property after the tenants’ first lease is over.

Risk 2: Time or cost of repairs can quickly take profit off of the table. The risk is that a great portion of your own capital gets locked up while you miss out on potential tenants. Build a buffer of time and repair cost accounting.

Additional info

WHOLESALING

listingbook.com or equivalent service

updates via email bank owned properties, price changes within range, new lists at/below $50,000 (not worth $50k)

Send realtor offers with number/house address… they send to banks.. maybe 1/10 accept an offer

Realtor gets a contract for you

You go check out the property to ensure nothing is crazy

You may be prompted to put down a deposit about $1,000 (don’t have to)

Check that the title is clear

Place the house back on the market “handyman special”, cheap, cash, phone, email) at least $10,000 more than your offer.. eventually you may build a ‘buyer’s list’

Get the new buyer to sign the contract with the realtor

TAX DELINQUENT PROPERTIES

Local assessor - contact for people with delinquent property tax records —> excel list

Sort excel for names, addresses, amount of taxes, taxes that are 2 years old (and older)

Contact the owner via letter ‘im oliver, I see that your property is behind on taxes…’

“Dear Mr./Mrs. X, Due to public records I have been made aware that your property in XYZ county and XYZ state is currently delinquent for non-payment of property taxes. If you have already found a way to solve this delinquency, that's great. If not this could lead to the issuing of a tax lien and the subsequent foreclosure of the property through a tax lien foreclosure. If you have found a way to resolve this, that's great. If you are not interested in your property anymore and would like to sell it to me, please contact me. I have many happy customers.”

If owner responds positively, make an offer… 100, 200, 1000….

If accepted, be prepared to pay all of the back taxes OR wholesale the property to someone else