All Forum Posts by: Chris Low

The only time I've heard of that is with some special purchase programs, such as HUD, as some of the other comments have said. They do this to encourage homeownership, rather than rentals or absentee owners. Usually it's in an economically depressed area with distressed homes. The government programs are trying to salvage the neighborhoods or improve them. Homeowners typically take better care of their homes than do tenants and absentee landowners. However, I've never heard of a piece of real estate that can't be bought with all cash or a hard money loan (not that there aren't any - I just haven't heard it before), in which case you can do whatever you want with it. But if you're buying through a government sponsored program, they will impose restrictions.

We call that "90's oak". It's actually one of the bigger dilemmas when we look at a house that needs cosmetic work. If they need any kind of work at all, we'll just replace them. But, if they can be painted, we'll try to salvage them. If you were dealing with a higher $ home, I'd say they need to be replaced. But you can get cabinet paint from a paint store (I wouldn't use the big box brands) and should be able to do a nice, relatively inexpensive paint job.

I wouldn't be so quick to dismiss the lease option. If you haven't already read it, I really recommend you read Making Big Money Investing in Real Estate without Tenants, Banks or Rehab Projects by Peter Conti & David Finkel. This is essentially the book on lease options. It has tons of advice, forms, real life examples of successful deals, lots of 'what if' scenarios to walk you through things that can happen. It's very thorough. I always wondered why someone would want to rent to own a house until I read that book. Your low credit score couple are actually your prime targets. If they had good enough credit to get a conventional loan today, they would. But they don't, which is why they're looking into a lease option. Divorce (or so I'm told) actually can negatively impact your credit score so that isn't a fabrication. To be in the low to mid 500's there's probably more going on, but again, that's exactly the kind of person who will be interested in a lease option. They need time to rebuild their credit and that lease option is giving them the time. You're about as protected as you can be by the non-refundable up front payment. You might consider raising it by a few thousand to weed out less serious buyers. And I disagree that you have to worry about them trashing the house. Why trash a house you're going to own? Regular tenants are far more likely to do this than lease option tenants. But regardless, don't take advice from people who haven't done it (including me!) Consult the experts. Start with the book. I think you can even find Peter & David here on BP.

I think you did just fine. It's totally ok to be conservative - especially when starting out. I would not buy any property without an inspection contingency. That's a huge red flag. Unless you really, really know what you're doing, or you have a construction company so you know you can deal with whatever the inspection turns up, or you have the cash to be comfortable taking on a high degree of risk (and even then it would have to be a helluva deal or why would you?), it's better to take the conservative approach in my opinion. Yes, you're going to miss out on properties. But as people say over and over again, you make your money going in. And, I personally like the advice that if you're not a little bit embarrassed by your offer, you're offering too much. You had a number that made sense and you stuck by it. Nothing wrong with that. You'll find the right deal. And, this one may even stay on the market due to the seller's requirements, and eventually see a price drop. You can always go back to it later if that's the case.

Hey Josh - welcome. We're investors in the Redding area, too (Cottonwood). It just so happens we've got a project we're looking at that could use an architect's input if our offer gets accepted. Not sure if you're looking for a mentor, but it might work out. We should talk. Feel free to message me.

Michael - just a word of caution. We've moved away from using the $/sq. ft estimating technique. It just would never get us close enough. I think the reason is that your repairs tend to come from multiple categories: very cosmetic(carpet) to fairly substantial (new kitchen cabinets and appliances) to major systems (HVAC, roof, electrical) but rarely falls squarely into just one of those three categories. It can get you a very rough estimate, in our opinion, but we find breaking down your estimate into major line items will get you much closer. Here's a list of the major line items we tend to calculate on every flip:

- roof (removal or re-roof? Dry rot repair AND roof replacement? Sub-roof damage repair?)

-HVAC, furnace, evap cooler

- windows

-flooring (by type, sq. footage and quality)

- trim for windows and floors, interior & exterior trim (figure linear ft. This really adds up!)

- sub-flooring repairs

- kitchen & bathroom remodel (just a new vanity or total re-do?)

- moving walls?

- electrical?

- appliances (range, dishwasher, garbage disposal, vent hood, water heater. Note: we don't budget for refrigerators in flips. Buyer has to provide that.)

- Exterior & interior paint (pretty much every house needs this)

- garage doors & garage door openers?

- plumbing?

- landscaping?

- Interior & exterior doors

- Inspections

- Permits

- cleaning (there's a lot of dust and mess after a remodel)

This isn't every cost, but we do find these are the biggies. After you've looked at enough houses and priced enough material (seems like we lived at Home Depot for a couple of weeks) you can run these numbers pretty quickly. We still do refer to J Scott's book for estimating, also, but have come to rely on our own numbers. Our numbers are local and current, and sometimes that makes a huge difference.

Also - just an FYI. After buying a ton of stuff recently at Home Depot, I was talking to a manager at Lowe's. He was a little offended when I told him how much we had bought at Home Depot. His first response was "we'll match their prices." I said "yeah, but only if it's the exact same item, right?" He agreed that was true. But then he went one better. He said, 'look, we really want your business. Gather a list of the products you want, email it to me, and I'll run it through our pro discount program. It will save 5% - 20% off each item." I still had a lot to buy so I went home, scrolled through their website, picked out about $2500 worth of stuff and emailed it to him. Sure enough, he came back with a line item price on every item showing the amount each was discounted. The total discount on the order was about 15%, which in my book is substantial, especially since we're not a huge buyer yet. Better yet, he has consistently applied that same 15% to every product I've bought since. I'm not here to plug Lowe's. I don't prefer their product over anyone else's - big box store products are all pretty much the same - but I'm telling you this so you know to ask for it. Ask for it anywhere. DON'T act like a typical retail consumer when you go to purchase your products. Let them know you're in the business. It makes a ton of difference.

Good luck!

We've got a similar situation, Wendy. We've been in contract on a short sale since Oct. 2015. We made the offer sight unseen because we were fairly confident there wasn't a lot of work needed but we couldn't verify that because the tenants were being uncooperative and wouldn't agree to any showings. So we took a gamble, made the offer, the seller accepted since no one else had offered since they couldn't view the property. We knew there would eventually be an inspection period and we could back out then if we were wrong about the needed repairs. Finally, after about 60 days, the tenants agreed to a showing. We were relieved to find it needed even less work than we assumed. We knew it needed a new roof and exterior paint, and it does, but that's all we need to do. We plan to BRRR it (or maybe even lease option it) IF the short sale ever closes. I haven't found any lender that says X amount must be spent on it to qualify for a refi. They really only care about the market value at the time you're going for the refi.

It is harder to find good deals in today's market, but many people make a killing when they're able to shift their model when things change. Once thing we've learned about investing is that there are countless ways to make money in real estate. Some are better known that others, like buy-and-hold and flipping. Now might be the time for you to widen your farm area or think about other investing vehicles. Auctions? Buying tax liens or tax deeds? Lease options? Commercial? Mobile home parks? Passive investing like RealtyShares or a syndicated deal. Just sayin, you have a solid foundation but it might be time to shift.

Grow, grow, grow!

I agree with @Kim Tucker that, on a short sale, there is a clause that prevents the buyer from selling or even renting back to the previous owner. We just signed docs on a short sale through Bank of America and it spells this out. But with a house that's gone to auction, I don't know that the same applies and have a feeling it could vary by state. I'd talk to a real estate attorney. Seems like it would work, but you want to know for sure.