All Forum Posts by: Alex G.

My biggest issue with a 2-story house in a moderately priced neighborhood is heavy increases in costs of upkeep or rehab for that matter. The 2nd floor exterior is usually siding, not stone or brick. Replacing the siding is a major expense; painting the siding and trim on the 2nd floor could run up $3-5K in expenses by itself.

On the interior, even with the same overall footage, a 2 story is always much more expensive to paint. You got stairways and high ceiling foyers / living rooms that are hard to get to for the painters - and it’ll cost you dearly when the time comes to paint. Stair railings are a pain in the butt to paint and will add to the costs.

When putting in flooring you now got stairs to deal with. Your typically installer will charge you $45 per stair in labor to install laminate or wood, plus increased cost of materials for stairnoses and such. Stairs are also an area of high liability, if you fail to maintain your railings in good order and somebody falls.

If you’re tiling the floors upstairs, you’ll often have to put hardy board on your subfloor before you set the tile. That again will result in higher labor and materials costs.

@Joe Scaparra already mentioned the extra risks from leaks in the bathrooms situated upstairs and higher costs of repairs when they leak through subfloors. 

One significant positive for a 2-story is - with the same footage you got a lot smaller footprint. This translates into a larger backyard - a more desirable feature for a tenant or buyer. You also got a smaller roof and may save money on roof replacement.

If there is a choice, I’m all for 1 story houses. That said, sometimes the right deal comes along and it doesn’t matter if it’s a 1-story or 2-story. You just have to figure the cost increases into your spreadsheets.

Happy bargain hunting!

@Danny Webber Your #1 may be easier said than done for those who were caught by surprise in this crisis. 

Thinking out loud on the subject of stacking cash: selling properties, taking cash out mortgages on personal home and rentals, selling stocks, getting signed up with HMLs who are still lending, getting bunch of credit cards with cash advance priviliges. 

What other steps can you think of for getting liquid?

As to #2 - I'd expand that to getting familiar with buying on seller financing in all its shapes and forms: lease/options, pure options, contracts for deed, taking over payments on existing loans, wraps, traditional "seller carry back" financing. Even possibly partnering up with sellers thru equity sharing agreements or JV agreement (especially for fixer properties, or stalled remodeling and new construction projects).

Usually the 2 best indicators of the market pace slowing down are (a) build-up of Actives with a steadily increasing ratio of Actives over Pending, and (b) longer days on the market. Both of these will drive the prices down over time.

Once we get into a 5-6 months supply of inventory from our current, pre-crisis levels - then the type of conversations listing agents have with sellers would have to change. They’ll be talking about coming on the market at lower prices than other listings to get some traction. They’ll be talking about doing a lot faster price reductions when the listing isn’t moving, etc.

However, these trends often take 9-18 months to develop. Sellers are known to be slower than than market to adjust to new realities of supply and demand.

I’m curious to see if the large number of “temp offs” and the expired and withdrawn that are not re-listing right back, in fact, might be temporarily reducing the inventory and helping other current sales to occur. 

I'm a bit surprised by the number of Pendings in the SFR segment. Going strong as if nothing changed. As of now, most realtors are probably still telling their clients everything is peachy, just need to exercise caution when showing.

 I'm frantically trying to wrap up our current rehab in hopes of catching some of these fearless buyers unfazed by the virus who are still out there paying premium prices.

The only way we're going to see any changes in the market is IF and WHEN there is some serious inventory buildup in the Actives, and average of 4-5 months in "Days on the Market" column. 

 It will take some major job losses in Austin to slow down the pace of buying and major consumer loss of confidence. That's not going to happen overnight. It might take 12-18 months to see if the inventory supplies are trending substantially up. If that's not the case, though hard to imagine, we may not see any major changes in the market locally. 

Just got this email:

"Thanks for requesting an offer on ....... from Opendoor.
Given the uncertainty surrounding the impact of COVID-19 across our markets and concern for the health and safety of our customers and employees, we are temporarily pausing the purchase of homes. When the situation changes, we'll reach back out. Thank you so much for your understanding during these unprecedented times."

They are operating on low margins and can't handle the uncertainty. But we can. With their massive advertising they were picking up most of the low hanging fruit. There will be some vacuum created by their departure, even though it may be temporarity. 

I'd say we ought to get busier.

I am curious how one would define a "guaranteed ARV." At any given time in the same subdivision we may have similar size and age homes being remodeled and sold. Yet there is a substantial end price differential from one remodeler to the other. This is usually due to a different level of the finish out and overall quality of work.

In a $500K price range, these end prices could vary by $50K-$80K. What I most often see is wholesalers advertising houses with the highest ARV that you could find in MLS, while not having enough margin to allow for a corresponding high budget to get the project to that highest ARV level.

I tested 5-6 people on Fiverr who claimed to have access to Lexis Nexis, TLO and such skip tracing tools. Gave them a name to trace and checked the phone numbers they delivered against the numbers from my own access. All of them swore to me they had access to the real system. NONE of them had the phone numbers right, even the best rated sellers. I guess people who buy from them  don't have a way to check what they get against the real thing.

I did find a provider on UpWork who had the exact thing I wanted. For $1.50 per name they pulled the exact data I asked for. I like to collect quite a bit of data on owners (family members, alternative addresses, deceased info, BKs and judgements, etc.) when I skip trace. They had it all, and it was the same as in my own DB.

When you need 100+ of these or even a few hundreds, it could take hours and hours to DIY. So for $1.50 per name the service was certainly well worth the cost. However, there was no DNC data there, so this may have to be done separately.

I bought several in the 90s. 

The cons are: 
- These are all cash sales in Texas, i.e., you have to pay the full bid after conclusion of the auction in certified funds. 
- Pretty stiff competition against some VERY experienced people with decades of buying at the auctions.
- You can't see the inside of the property, so you're taking significant risks as to the condition. You have to price in pretty aggressive amount of repairs, especially for older properties. You can assume some percentage of them will have foundation problems, system problems, roof leaks, etc.
- Significant title risks. No title insurance available at the auction. Properties are sold "as is, where is, subject to any senior liens or other legal matters". It means you have to do a fair amount of title research yourself or subscribe to some service that will provide title research for you - at least for the properties you'd like to bid on.
- You have to drive by and take a close look at all properties you plan to bid on - to make sure there is still a house there. I remember a property once was sold at the auction that was hit by a lightning and burned to the ground. 
- There is the risk of damage to the property after you bought it, before you can get hazard insurance.
- The owners might still be occupying the property. In this case you will have to go through eviction to get them out. Some may be pissed off and intentionally damage the property.
- You may have a risk of a litigation after buying on your hands, IF a homeowner claims a wrongful foreclosure or similar dispute with the lender. That will tie up the property (and your money) in court for a while.
- There is a possibility of a homeowner filing bankruptcy after the auction which will complicate the eviction process and delay your possession.
- There is a possibility of unpaid property taxes, HOA dues, city or state liens that may attach to the property and will become your responsibility and increase your costs.
- If there are IRS liens against the owners, you won't be able to get title insurance for up to 180 days after the auction. IRS has the right to redeem the property from you with 180 days by paying you the amount of your bid. I.e., you shouldn't really improve the property during that time or IRS may become of beneficiary of your rehab work. And you'll have your money sitting idle for 180 days if the property does get redeemed.

Pros: (assuming the property is already vacant or occupied by tenants, and no legal disputes with the homeowners)

- It could be a lot cheaper buying process since there is no formal closing process. There are no closing costs, title policy, financing costs, filing fees, etc. You just get a deed from the foreclosure trustee, and you own it.
- It's also a lot faster buying/possession process . No contracts, no negotiations, no escrow period, etc. You can win an auction bid in the morning and show up at the house with a locksmith in the afternoon to take possession (if it's vacant). 
- In case of a senior lien foreclosure, the auction sale will wipe out various junior liens (mortgages, judgements or mechanics liens, etc) in the process. Both senior and junior lien foreclosures clears out all unsettled estate issues. As a result you get a good title, where otherwise you'd have to pay these lienholders and settle/probate estates to get the purchase closed through a title company. 
- Owner doesn't have redemption rights (barring any litigation for wrongful foreclosure). So the sale is final (see exceptions for IRS liens above).

It's a pretty technical field in the title / legal areas. I suggest studying the subject well before you plunge. There is a fair amount of risk involved. Some of the newer properties (<10 years old) with a very short history of ownership and mortgages may be a bit safer. Primarily because not much history and deterioration happened since they were built and sold the first or second time. It's a lot simpler to check the title on these for DIY person.

I suggest attending a few auctions and doing a good bit of research before bidding. Also determine the max bid for each target property and never step over it. Sometimes it's not easy to stop in a heat of the auction.

Good luck!

You also need to pay attention to tax rates in the area you're considering to buy. Rates could vary dramatically around Austin metro.  A 1% tax rate difference on a $200K property translates into a $2,000/year or $167/month cash flow. On a $300K property it's a $3,000/year and $250/month correspondingly. Across multiple properties this could swing your cashflow wildly.

As an example, in Austin an average tax rate is 2.23%. Some parts of Round Rock have 3.17% tax rate while others 2.3%. 

I'm paying 8% and 1-1.5 points on short term HMLs in Austin. This is a repeat business rate. Most lenders are asking/offering loans in the 10-12% + 2 points. Most will charge $600-$900 in legal doc preparation fees. Most HMLs will charge a processing fee that could vary from $695 to $1500 (that I'm not paying).

I'm presently a lot, A LOT!! more concerned with the legal terms I'm signing. And you should be too.

A month ago I had to cancel a 30-years fixed rate refinance HM loan at 5.25% the day before closing. They sent me their loan docs for review. They had questionable, over-reaching and (in my opionion) even downright illegal terms in their legal docs. A whole lot of investors probably don't bother to read fine print when it's spread over 100 pages of legal docs. But you better. 

To put it in a proper perspective, these 30 years fixed rate rental property HM loans are advertised as based on LTV / Fico / Rental cashflow with no tax returns, no personal qualifications, no DTI requirements, no financials but a couple of bank statements to show your liquidity.

Imagine finding clauses like these: 

1. You grant the lender an irrevocable power of attorney to control all your assets, sell them, tap into them - do as they please, while the lender explicitly disclaims (you release them from) all liability for any action, inaction or mistake they may make in doing so. What's more - that POA is there EVEN IF you are not in default on the loan.

2. You are required to provide annual tax returns and financial reporting (that you were not, when getting the loan approval.) If you don't provide such accounting, your interest goes up by 5% APR. So you're now at 10+% on your 30 years fixed rental loan. Great!

3. If you do provide annual financial accounting and tax returns - any substantial change in your financial situation puts you in default and gives the lender grounds for foreclosure. 

4. If you even decide to borrow with a 2nd mortgage against your equity that you may have after owning a property a while - you are in default.

5. If somebody files a lien against you - you're in default.

And on and on...

On a short term HM loans  to fund a flip or similar I find that some of these HM lenders still put similar provisions in the docs. However, in this case you already have a plan to get rid of this loan by selling or refinancing into something else. 

You are at a less of risk for having your lender enforce some of these wild provisions... Unless your project goes south. Nobody plans for projects getting derailed. However, based on the number of rehab loans being foreclosed each month in the Austin metro - it's not a totally improbable event. So, pay attention what you sign no matter how much you want to get their money.