All Forum Posts by: Maria Stewart

I agree with @Westley. I think I would take it a step further. Here is my process when evaluating Rent or Flip. In my opinion this is the first thing to do on every single property.

1. Determine the lowest amount you can purchase the property by reviewing the current comps in the area

2. Determine what the comps of the top properties in the same neighborhood (within 1 mile). Make sure you use the same square footage and type of home (don't compare a one story with no garage to a two story with garage for example).

3. Determine the difference in #1 and #2. If the difference has enough room to do the renovation (similar to the features in the highest comp you found in #2) AND get profit then it is a flip. (You may need to add another step to determine the renovation budget, but you seem pretty smart so I think you can figure out a good ballpark guess here) If there is just enough to do the renovation? Move to step #4

4. Determine how much rent you can charge by contacting a property management company or a site like rentometer.com (This is where Westley's advice comes in). 

For clarity, here is an example. 

Property Price = $100,000

Highest comp = $250,000

Estimated Renovation = ???

But you have $150K to work with in this example. So depending on how much you want to earn (and how much needs to be done) this may be a good deal. Say the house just needs a new kitchen and baths. Maybe you can do this for $50K? How much profit would that be? (Score!)

Hope this helps!

Maria

Thanks for the clarification. I would still recommend the steps I suggested as they all apply. I was stuck in a hard money loan for six months because I finished my renovation too late (end of September when all the families stopped buying due to the school season). It was tough making those payments AND deal with other rentals. With my situation, the house sat empty because I didn't want to put a tenant in and risk them damaging the house. 

Anyway, looks like you are on the right track. 

Find a realtor that works with investors if you can. They have a better idea of what is needed and some steps to take when evaluating a home to renovate and possibly flip. I only recommend dual agency (you use the same agent as the seller) for those who are advanced investors. Dual Agents become paperwork handlers as they can't effectively be an advocate on either side without violations. 

My additional advice:

1. Get a contractor immediately and have them create a list of items required and estimates.

2. Have your agent do a few things: 

 a) provide comps of the house as is, then provide a second set of comps which include the features YOU want to add to the property to make sure you don't over develop. If there are no houses in the area for $230K it may be hard for you to get $230K. 

b) send you the history of the property (in the MLS) to see if any other accepted offers were placed on this house. I was able to negotiate a $20K discount by looking in the history. Found out that the seller listed the house with another agent 6 months prior $20K less. Unless renovations were done, why not accept the price you listed 6 months ago? They did!

   c) Also, ask for the tax records to see if you can figure out how much the owners own on the house. I guarantee you if they owe $140K (for example) they would probably not entertain your $135K offer because they would owe the bank at closing AND have to pay commissions for agents on both sides. 

3. If you buy, make sure your inspector is the very next phone call made and have them thoroughly inspect the place. You want to know everything. A good inspector's report should have pictures referencing the issues and I recommend being there for the inspection. Make sure the agent puts proper clauses in to allow you to back away from the deal with your earnest money as soon as you find something you don't like. 

Feel comfortable negotiating down the cost further to compensate you for necessary repairs. This may help you as it ensures repairs are done like YOU want them AND reduces the cost of the house. You were planning on renovating anyway right? 

Pay extra for a sewer inspection because the line to the street is your responsibility and can get costly when you have to dig up the yard and sidewalk to repair. 

Hope this helps!

Maria

I would do some research on the web as various banks have different ways of sharing available properties. I have yet to see any one place have just one list since banks all over have foreclosed properties in any given area. 

Some sites I might recommend for starters:

auction.com

http://www.zillow.com/york-sc/foreclosures/

foreclosure.com

http://www.realtytrac.com/mapsearch/sc/york-county...

http://www.realtor.com/foreclosures/York_SC

http://www.homes.com/for-sale/york-county-sc/forec...

http://www.bankforeclosuressale.com/list/sc/york.h...

I know it is work, but it is free and can get you started until you find someone with those lists. 

I have a "day job" and I got my real estate license. I grew frustrated with agents treating me and my rental investment business as one of the many clients and giving incorrect comps (which can change a plan from a quick flip to a hold (rental)). 

A few fun facts to consider while making the decision to obtain the license:

1. To practice (which includes your own deals) your license must be held by a brokerage. 

2. To work 100% for yourself, you can take the broker's exam (after 2 years as an agent and so many transactions). 

3. Becoming an agent has costs to operate Day 1 which includes: additional car insurance (required to drive people around), licensing fees, dues (state and national), fees to operate a Supra key, to be on MARIS (MLS), prepaid legal fees, etc. Expect about $3000. This does vary depending on what your brokerage requires. Up the fee more if you are at a brokerage that charges you for office supplies, office space, business cards, advertisements, etc.

AGAIN I will repeat, these costs vary state to state, brokerage to brokerage. My point is it isn't free and go find out before starting! Use @John Cohen advice and investigate there. I highly recommend going with a bigger brokerage first to learn the ropes, contract language and tricks to the trade. Many new agents are enticed by the lower commissions at other places and miss out on the resources available at larger ones. Remember you can move your license at any time.

Hope this helps!

Maria

Congrats on your decision to buy a property!

I have used Hard Money to purchase and renovate a number of my rental properties (and some flips) and I work with investors who use this medium to reach their goals. I'll give you my professional and personal opinion so you can make an educated decision.

The one mistake I have seen people make repeatedly is obtaining a hard money loan without the "get out" plan. Hard money interest (as you just mentioned) is much higher than traditional. The best case scenario is to have a refinancing bank standing at the ready BEFORE you get that hard money loan. A lot of things can happen between now and 8-10 months from now. You really don't want to lose the property (especially if you renovated it) to the bank because of lack of payment). Most hard money lenders I have worked with have a 6 month loan with the option to extend 1-2 times for 1-2 months. Each extension required a sizable "fee" of $500+ (I would look into the terms carefully with hard money lender before proceeding).

My advice: Shop around with refinancing banks and tell them your situation. Find one that will refinance you with credit as is. If they can't, find out the score needed (which may be 620 for example). Only obtain that hard money loan once you have a bank that will work with you on the back end. You may also want to discuss with the refinancing bank your renovation plans and expected home value BEFORE you start to ensure you don't 1) over develop, 2) values are in line with their value numbers. Have your agent run comps in the area with features you expect to include once your renovations are complete. Some banks would even allow you to use their appraiser to value the property and the "after" renovation estimate and tentatively sign off on approving your refinance (contingent on your finances, credit score and renovation plans). Using their appraiser is important because for THAT bank, it is the only appraiser's opinion that matters.

Now  once you have that in place if you want to wait to refinance for 8-10 months, fine. Me? I have done my hard money loan and refinanced the very next month after renovations are done to avoid several months of high interest payments. 

Good luck!

Maria

Due to the tight housing market, rental markets are still hot. Inventories (for home sales) are expected to shrink around 10% (nationwide) and up to 30% in the hottest markets (San Francisco, New York etc). Rental rates have been up by 5% (nationwide) over the last few years, but after looking at the current numbers, industry predicts rental increases going forward to drop to around 3% (source: Realty & Kiplinger Letter Aug 22, 2016).

Now that you have some of my background information... My opinion: After determining if you want this tenant, a rental increase of $25 (or 4.5% increase) is appropriate and in line with national averages. Do your research on sites like rentometer.com which will reveal what similar properties like yours are renting. I would also suggest being strategic about the timing of the increase as others have stated. 

Some of my clients have done a number of things to entice tenants to stay such as guaranteeing a 4% rent increase per year versus a market increase at time of lease signing. Have this in writing and make it a part of a two year lease could reduce your chances of vacancies (locking them in for a 4% increase year one and another 4% year two which gets you close to the amount you wanted originally). This may also be an option if you wanted to keep the tenants by only increasing it once to sign that two year lease. The idea being: the amount of additional profit gained by the increase may not cover the amount of time the unit is vacant (if you force an increase the second year to get to your desired $45 monthly increase).

Overall, all tenants should be accustomed to some sort of rental increase as cost of living increases annually as does the cost of ownership (i.e. taxes, etc). 

Hope this is helpful and good luck!

Maria