All Forum Posts by: Juan Diaz

 I'm sure that if you had any intention of your post in any way being serious about mathematics behind real estate investing, you wouldn't have bothered putting together something that's so clearly made up/opaque.

If you're running a model, by all means, share the details about inputs to the model.

Robert Campbell, who’s a well-regarded real estate trend-spotter based out of Southern California, has finally spoken on the bubble that’s formed in San Francisco. In his semi-monthly newsletter, he’s identified a few areas of the country as bubbly, but there is one that has become ridiculously over-priced: San Francisco.

I won’t spoil the details in his “Campbell Real Estate Timing Letter”, but I’ll pull out one public statistic from the Case-Shiller Index, and expand deeper on it. At this point in time, the Bay Area metro (five counties) has grown 82.3% over the last 4 years, while the city of San Francisco has gone up almost 100%. Over that same period of time, the country as a whole has increased approximately 29%.

That’s crazy! And completely unsustainable. Right now the Bay Area has an unemployment rate of 3.4%. That’s about as low as a major metro can get. Mortgage rates are .1% away from historic lows (thanks Brexit?). In other words, things are as good as they can possibly get economically. There's nowhere to go but down.

Dig into the employment data found here, and there are some other worrying signs. Tech employment in San Francisco (look under Computer Systems Design & Related Services) hasn’t risen over the past three months. There were big year-over-year gains, but hiring seems to have dropped off as venture capital has cooled. San Jose and Oakland show similar slow growth in recent months.

So what’s the moral of the story? Take care of your money ladies & gentlemen, and invest with caution. 

thanks--hopefully those pics serve as a good reference for the techniques I'm talking about in the article

High-End Kitchen

High end finishes start in the kitchen. The kitchen is your most important room in all flips, and so it should demand the bulk of attention for finishes. The possibilities for finishing a kitchen are immense—you’ve got cabinets, counters, backsplash, sink, flooring and appliances to worry about.

In a high-end kitchen your appliances will always be stainless steel. No other style has proved as durably popular, and no other style is as neutral. Stainless steel always looks good, no matter what style of kitchen it finds itself in. Depending on how high-end the neighborhood is, you may also need to invest in a gourmet-quality range. Some neighborhoods are much less picky—usually you can get away with the cheapest stainless steel appliances you can find in your neighborhood appliance store.

Cabinets are almost as important as the appliances to a high-end home. They won’t be the focal point of the design that appliances and countertops will be, but they are important elements of design. Your cabinets will take up the majority of the visual space of your kitchen, so it’s important that you find a suitable color scheme. Your high-end cabinets are usually going to be painted white or black, or wood stained light or dark. Another popular feature of high-end cabinets is to have a glass face, although these cabinets should only be used as foci of the design, not as the primary cabinet-type.

Countertops, along with appliances, are the major foci of the kitchen. If you’re finishing a high-end kitchen, you’ll need to have a countertop made out of stone. Usually you’ll go with natural stone, a granite, quartz or marble, although there are some good man-made stone options out there as well. Remember that your countertops need to match with your cabinets, as these are going to be the primary colors of your kitchen. Whatever type of countertop that you choose, it has to match.

The backsplash in high-end kitchens is another high-light feature. While not as important as countertops and cabinets, a custom tile backsplash can make the difference between a good kitchen and an amazing kitchen. And if you are doing high-end, I strongly recommend doing a custom tile backsplash. For lower in the high-end spectrum you can get away with doing a subway tile backsplash, but a custom tile backsplash in the kitchen costs only a little more, and provides that visual pop that can make your kitchen absolutely stunning.

The sink is an opportunity to create another gorgeous little detail in your kitchen. It’s not vitally important, but it’s a case where spending an extra $20 can make it look like you spent an extra $500. The key to maxing out the value of your sink in high-end flips is to look for a faucet that is different from your usual faucet. What you’re looking for is something that doesn’t look like it came from Wal-Mart, but that otherwise is similar to mainstream faucets.

Lastly, the flooring is another key element. While you might be working on the flooring for the whole house, it’s imperative that the flooring in the kitchen be either hardwood or tile that flow with any other hardwood or tile in the house. It might seem common-sense, but I’ve seen homes in neighborhoods that had carpeting in the kitchen!

High End Bathroom

Like the kitchen, the high-end bathroom is going to need certain touches to get the best return on your investment. The high-end bathroom requires attention paid to the shower and bath enclosure, vanity, backsplash and wall, and flooring.

The vanity and shower are going to be the big focal points of the bathroom’s design, while the tiling and flooring are going to play the role of the cabinets. When you remodel the bathroom, the tiling and the flooring are almost one entity. Your floors are going to be tile in the vast majority of circumstances, and if they’re not, only rarely should you think about another surface. What a tile floor and tiling on the walls mean is that your bathroom floor and wall tiles are perceived to flow together almost as one design element. This almost requires that the coloring should be similar from the floor to the wall. When you’ve got high-quality flooring and wall tiling in light colors that are cleaned to shining, this creates an optical illusion that makes the bathroom seem immense—much more than it actually is.

Some high-end bathrooms will be tiled floor-to-ceiling, but you will more likely find yourself in a situation where you’re tiling a section near the vanities and a section around the shower. In this case, carefully choosing the paint or textured wallpaper can give the illusion of floor-to-ceiling tiling, and thus make your remodeled bathroom appear more expensive than it actually is.

The focal points of the high-end bathroom, the shower or bath and the vanity, are a little more complex. If you’re doing true high-end flip, you’ll want to make sure that your shower enclosure has, at the very least, tiling on the interior of the shower area. Tub and shower combos that include a plastic shower surround are absolutely out of the question—tiling is the way to go.

The other aspect of the shower that’s vitally important for high-end homes is the shower door or curtain. Almost all high-end bathrooms will have a clear glass shower enclosure. I have yet to see a high-end home that uses a curtain instead of glass. Some glass shower enclosures will also have metal dividers and metal on top of panes of glass. These showers are better than curtains, but in general, the less metal the better for high-end flips.

As far as tubs are concerned, most high end flips will have a separate tub and shower. Freestanding tubs are the way to go for high-end flips, although surprisingly not all high-end flips will require a tub. High-end flips will always require a shower, however.

Lastly, you’ve got your vanity. When you’re flipping high-end homes, you want your vanities to look as custom as possible, which usually means freestanding, or the appearance of freestanding. Pedestal sinks, as well as double-vanities are other popular touches for high-end vanities.

High End – the Rest of the House

Now that you know what to do with the kitchen and bathroom, you’re ready to pay attention to the rest of the house. Fortunately, the rest of the house won’t require the same sort of custom touches. Most of the detailing of the rest of the house is going to come through staging.

One place you can add detailing is the trim. Usually older houses will already possess good-looking trim that can simply be retouched to look as good as the day it was made. If you don’t have existent good-looking trim, fortunately you can use a slightly different paint color to make the trim truly pop.

Light fixtures are another good option that can help add value. Recessed lighting is popular, but also expensive. It’s surprisingly easy to create the feeling of recessed lighting by selecting fixtures that are flush with the ceiling, and come in a more expensive-looking finish (usually rubbed bronze). You can install these fixtures throughout the house, and then choose more custom lighting for the kitchen or bathroom. Buying a chandelier for the kitchen or dining room and custom lighting for the bathroom can make it seem like you’ve done expensive custom lighting throughout.

On the exterior of the house, driveways and landscaping are good ways of adding curb appeal and pop to your high-end flip. There are many ways of making the landscaping and the driveway look custom, and for ideas, I encourage you to look at the internet. Different areas will have different standards, but there’s always a large variety of options. Regardless of what you do put in for landscaping, you will want to put in fresh turf and built-in irrigation on a timer shortly before the open house.

The last word of advice that will help your high-end flips have success is this: work with a designer. If you can find a good-quality designer, they will usually be able to produce a plan for you that includes specifications for interior and exterior colors, finishes, vanities, and fixtures, all for under $500. If you’re a beginning flipper that doesn’t know where to start, these specs can be a valuable starting point, and they are usually free if your promise to use their staging as well. As a beginning flipper, this is incredibly valuable, as they will not only help you plan the look of the house, but also bring staging that will match the finishes.

 thanks Nick! 

Most people like to ignore this kind of thing, but being in touch with the legal side of your investments has really helped me out

 My pleasure, if you follow this, you'll probably be pretty successful. Most people are really nervous about actually ringing doorbells and talking to people. It's such a small thing, but it can be incredibly helpful.

I'm also trying to do a series of posts on some of these back-to-the-basics style of topics, so you can hop onto my profile and see some of the other conversations that I've started recently where I share my perspective on other topics, in similar detail.

 In California all foreclosures go to auction, so that's the way to go when you're buying. You need to show up in-person to bid

The only exception are tax sales, which depend on the county, but are usually done online for Northern California.

I thought I'd share my approach and strategy to buying foreclosures that has served me pretty well.

Foreclosures – Assessing Value

When you buy a foreclosure, not only are you assuming liens on the property, but you’re also assuming other risks as well. You’re assuming the risks of an unknown property, because it’s impossible to fully inspect a foreclosure before you buy it, barring some lucky circumstance. This risk premium is what can make foreclosures such a bargain, but it’s also something that you can guard against by understanding clues that tell you the story of the house, and what repairs you’ll have to make.

First off, if you’re buying foreclosures at the sale you’ll need to see the property before you buy. Never buy a property that you can’t see for yourself before purchase! Later on as a more-experienced flipper you might have a knowledgeable craftsman look at houses for you, but in the early stages of your flipping career it is absolutely crucial that you spend the time to look at the house yourself. I’ve personally learned this lesson, sending in someone that I trusted who turned out not to be able to recognize a huge problem in a house. I had sent my friend to look at a house for me, and he told me that everything looked fabulous, it was already finished, painted, and looked good. I trusted him, and bought the house at auction. It turned out that the foundation was sinking into the ground, and I had to pay a tremendous amount of money to lift the house, and re-do the entire foundation. His untrained recommendation cost me thousands of dollars, and we lost money on that house.

What you want to do in a foreclosure is simple. Go up to the house, and ring the doorbell. If someone rings the doorbell, you have a chance to talk with them, and potentially learn more about the house. Introduce yourself, and have a little chat with them if you’re able. Ask them about the house, the neighborhood, their life. Some people are willing to talk, and they might even invite you into the house. Others will respond angrily, and shoo you out.Regardless of what happens, you’ll have gotten more information about the house and the person within.

If the person gives you permission, you might even be able to poke around the house, crawl in the crawl space, check out the foundation, and get an up-close look at the condition of the inside. If you don’t, you’ll still be able to make a good assessment of the house from the outside.

When you’re at the house, step across the street and take a good look. Does the roof look new? If the roof is in good shape, that’s a big-ticket item that you won’t have to worry about. Take another look at the house. Are all the lines straight? A crooked house or a sagging roof can betray significant foundation work that needs to be done, which is another huge charge. As a beginning flipper, you’ll want to avoid that.

Now take a look at the yard and condition of the house. Is the yard weedy and overgrown, or is it neatly manicured? Oftentimes, a neat yard means that someone cares about taking good care of things. They might not have the best and nicest, but they’ve taken care of what they had. If you spot peeling old paint and a lawn that looks taken care of, that usually means that the inside is in good shape. If, on the other hand, you spot broken windows, damage to the outside the house, or any more significant exterior damage, that usually means that the owner has applied a similar level of care to the inside of the house.

You’ll want to move in closer, and look at the house where you can notice finer details. If there’s wood siding, is it in good shape or is there dry rot? What’s the condition of the porch steps? If there’s a fence, what’s its condition? Is the driveway going to need repaved? Knowing beforehand if you’re going to have to replace any of these items allows you to add that cost to the mental price of the house. The major item that you can look for as you’re also examining these smaller items is the condition of the foundation. If the foundation is exposed, or if you’ve got permission to go into the crawl space, you can look for significant cracks or defects in the foundation. If you find any large cracks or damage to the foundation, that’s a red flag. You can also look for other signs of potential cost or value, such as illegal square footage, large garages, or huge yards.

Now it’s on to the neighborhood. What was it like? What are the houses on your block like? Are they nicer or less nice than the surrounding neighborhood? Is there graffiti or trash readily visible? Are the houses falling down or in good shape? Are there unfriendly-looking people lingering in the street? Are there any cool restaurants, shopping or parks in the area? Who are the people in the neighborhood, are they families with young children? Elderly? Young couples? Singles? Is it a mixed neighborhood, or is there only one dominant culture? Each of these questions will bring you closer to understanding who is living in this neighborhood, and understanding why they’re in this neighborhood. Each of these groups has extremely different tastes, so you will have to customize the house according to the taste of whatever group is most likely to buy in the neighborhood, which will factor into how much you will need to spend on the house to get your highest value.

Foreclosures - Occupants

You remember your conversation with the occupant? Because that is going to come in very handy. Was the occupant an owner? A renter? Some cities and states have different sets of rules regarding occupants of foreclosed houses. In some states you’re allowed to take possession of any house with 30-days of notice, regardless of whether the person is a renter or occupant. In other places you’re not legally allowed to kick out renters, you’re required to honor the full rental contract unless they sign a cash for keys or other deal.

Beyond knowing whether they’re a renter or owner, knowing the occupant and their attitude can help you determine whether they are willing to leave, or whether they will make things difficult if you’re trying to work on the house. Because regardless of state law, if a tenant or owner decides to stay in the house, it’s going to take you at minimum two months and a thousand dollars to evict them. If the tenant seems willing to move out or accept a cash for keys offer, that’s valuable time and money that you’re saving by not dealing with the issue of possession.

Now, let me spend a little time clarifying your options with a difficult tenant. These options will vary from city to city, and state to state, but your options are usually similar. If a tenant is putting up resistance towards moving out, you can create a cash for keys offer. It’s usually cheaper and quicker to give a tenant cash for keys than to pursue a long legal process. Better to give them a thousand dollars than your lawyer, right? Sometimes a tenant is reticent towards moving because they have physical difficulty, in which case you can offer them the services of a moving truck and men to help them pack. Sometimes they don’t want to move because they don’t know what to do with their stuff. Whatever the problem is, you can come up with a creative solution that costs you little compared to 60 days and a thousand dollars in legal fees. Paying for a storage unit for three months is a small price to pay.

If cash for keys and offering other help does not work out, you’ll have to look into your other legal options. If you’re in a state where there is no tenant protection, you can hand the occupant a 30-day notice to move out. If they fail to move out at the end of that time, you can start eviction proceedings.

However, if you’re living in a state where they have many layers of rental protections, you’ll need to resort to more extreme measures to free up the property. In California there’s a law called the Ellis Act, which enables you to pay the tenant a set amount of money and legally requires them to move out within a set time period. Other states have similar legal protections. Unfortunately these measures are long and protracted, and cost a significant amount of money. In California you’ll have to pay around $10,000, and wait anywhere from six to nine months for the tenant to leave. It is infinitely preferable to strike a deal using cash for keys.

Suppose that you find yourself in a fortunate situation where you’ve got no tenants. The foreclosure that you’re looking at does not appear to be occupied. That’s ideal-it’ll save you lots of time and money. However, you’ll still have to take certain steps if that is the case. If you do end up buying this property, each state has their own set of laws regarding taking possession of a foreclosure. In California for instance, you’re required to advertise in a paper for seven days that you will be taking possession of the property, to give the former occupant time to collect their possessions. There’s also a waiting period, only after which are you able to legally discard items that are left behind in the house. Know the law wherever you are before you simply march in and start throwing things out.

Now that you know how to go about looking at foreclosures, how will you go about figuring out just what will go to sale? To figure this out, you’ll need to contact the county that is conducting the foreclosure sale. Sometimes counties will point you to the resource that you will need to use, sometimes they will give you a list of what properties will be going to foreclosure sale and when. In Alameda County, California, there is a newspaper that comes out that has a listing of each of the foreclosures that are scheduled to be sold every week. There are likely other resources wherever you’re looking to buy foreclosures. I highly discourage against using websites to track foreclosures. I’ve gone through many websites, and there’s only one that has proven remotely accurate—and that one covers only the west coast.

Sharing some of the resources I've developed and thought I'd post it here for feedback

Comping

The other element of purchasing a property, regardless of the method, is comping. Comping is one of those funny nicknames for a noun that got turned into a verb. When you comp, you’re looking at comparable houses, all in the name of finding what a house will sell for after you’re done flipping. Look around the neighborhood where the house is located. What are finished houses selling for? What features do they have?

Get on the MLS and look for houses that have similar square footage and numbers of bedrooms and bathrooms that were sold within the past six months. If you can find a house that's finished the way you plan on finishing it with the same number of bedrooms and bathrooms, you've got a pretty good comparable. You want to look for at least three comparables so that your numbers aren't thrown off by one house that received a crazy high offer.

When you're looking at these properties, be honest with yourself. What level of finish will you be able to accomplish, compared to what's available in pictures of the house on the MLS? Unless you're an interior designer, you probably won't be able to replicate the high-end, gorgeous look that many flippers have perfected in their remodels. You'll be able to match it as you learn, but your first efforts probably won't be quite as nice as some of the more experienced flippers.

As you're looking for the properties, you also want to look through their description in the MLS. What are they talking about having? A property with more extensive work done will be worth more than one that has had fewer upgrades, regardless of whether or not they look the same. Another things to watch out for is for bonus space. Many times there is space available in the house that is not listed in the official finished square footage. Basements and attics can be good examples of this—the actual square footage can double or triple the "official" square footage.

Something else to watch out for on the MLS are views associated with the house. Views are hard to quantify, but the same house can be worth significantly more with a good view. Items like original hardwood flooring or original decorative woodwork can also increase value more than comps would seem to warrant. As you're looking through the description of the property in the MLS, you want to be on the lookout for anything that could make this property a better or worse comp. The more you know about what condition other houses were in when they sold, the better you'll be able to predict what price you'll be able to get when you're finished flipping your house.

The comps will let you know what price you can charge for the house. Based on the three most similar houses, calculate a price that you expect to get on the sale of your house. Be conservative. Better to estimate low than high! Keep in mind any extras that other houses had that your house will not, and vice versa. Use that to adjust the expected price on your flip up or down. You’ll go through this practice in more detail in the Finance section.

Remember, the best way to make a profit is to have the most realistic view of what your house will sell for when you’re finished! No one wants to be stuck for six months holding onto a house that was priced too high, or losing money because they spent an extra $20,000 on a house that didn’t need it.

Looking at other houses.

We’ve been over the basics of foreclosure investing, and now it’s time to take some of those tricks that we learned in looking for foreclosures, and applying them to evaluating and purchasing other properties. What you’re looking for from property to property stays the same, what changes is the circumstances in which you can get it done.

When you're buying a house from the MLS, or through escrow or more traditional means, you have more time to examine the house and create a better and more accurate estimate of the work involved. This allows you to come up with a more accurate estimate, as well as allowing you more leeway to negotiate with the selling party.

When you first see a potential property, you’ll want to walk in there with a realtor. Your realtor will be a fantastic resource for letting you know what sort of price you can expect to pay in this condition. They will be able to guide you as you submit an offer that is acceptable to the owner.

As you go through the house on the first walkthrough, look for the same things that you looked for in the foreclosure process. Is there any foundation damage? What is the condition like on the inside? Will you have to replace toilets, showers, cabinets, vanities, or anything on the inside? Is there a new roof or guttering needed? Will you need to replace anything inside or outside the house due to dry rot? Look out for leaks, and any presence of water within the house itself. That’s another big red flag.

Now that you’ve looked through the house, you might be able to come up with a quick estimate of the work that needs to be done. This largely depends on your experience working with contractors or remodeling homes, as many beginning flippers grossly underestimate the costs of remodeling. If you’re an experienced flipper, you should be able to have a rough estimate of price after one walkthrough of the house.

Fortunately, as a beginner there are ways to get around your lack of knowledge coming into the flip. When you’re looking at the house, you can have a general contractor come with you, and have him give you an estimate for all the work that you wish to do. This will give you a real, market-value dollar amount for the work that you’re looking at that you can take or leave. It doesn’t obligate you to anything either.

Once you’ve gotten your estimate for the cost of work to be done, you can submit an offer on the property. Work with the numbers to find out what the maximum price is that you can pay for the house in order to make the profit that you need to make minus the repairs. Once you know this number, you know that you can’t go any higher, and if the seller asks for more, you can just walk away.

 Value increase is the way to wealth, but extreme value rises only happened in markets where supply is highly constrained (East and West Coast). Betting on the value increases that California investors enjoyed during a once-in-a-lifetime housing crisis seems like a difficult strategy to duplicate. Sure, they made lots of money that way, but the odds of it happening again are pretty small.

If you're looking for rise in home values, buy in gentrifying areas before they start to gentrify, but that can be a difficult thing to identify.