All Forum Posts by: Ed W.

@Colton Carew

While there is a reasonable chance that a Columbus area lease may be suitable, since magistrates (those who adjudicate eviction cases) in various parts of Ohio have different proclivities and there could be local laws that impact leases (Columbus has such laws), no matter where you get a lease from it is important to have it reviewed by a GOOD LOCAL LANDLORD-TENANT attorney.  How do you find them?  How about looking at county eviction records to see which attorneys are initiating a fair number of eviction cases.  Not foolproof, but a very good way to start.  Once you find 3 or 4, attempt to get references by talking to their clients (the plaintiffs).

@Robert Ellis

@Savannah Walbert

I hate to agree with Mr. Ellis :) but I've seen extra living units (units that exceed the zoning) ordered to be torn down and in over 30 years of investing in the Columbus market I've NEVER seen them tolerated. They may go unnoticed for years - even decades - but when they are discovered, the ending has always been inevitable.  I don't know if today's climate of the city recognizing a need for more housing might make some sort of small difference (something you'd have to discuss with them) but, other than that, this is an accident waiting to happen.

@Robin Roundtree

You've received a lot of good advice and, at least in one man's opinion, a lot of questionable advice.  I concede I'm a bit conservative but look in the mirror and tell yourself honestly that you have practically no real estate knowledge and no real estate experience and then ask yourself is that's the footing you want to be on as a basis for totally disrupting your life and risking $250k.  Business is about making good decisions.  

I started in this business 40 years ago where you are today.  Worse, I had virtually no money, no equity, and a wife who almost had a heart attack at the prospect of me leaving a job that helped us a lot but that I hated with a passion.  Oh, interest rates at the time for Fannie/Freddie home loans were around 10% or a little higher having come down from 14% and then 12% to the 10%.  These was a brief time prior to this where Prime Rate rose to OVER 20%.

Today you can't walk even 1 foot without tripping over real estate information, knowledge, and education.  Back then, I believe there were ,perhaps, 2 books.  Not wanting to stress my wife, I was super conservative and super careful (within the scope of my knowledge at the time) so that she would never panic.  I started making money and, if I remember correctly, I never had real estate related loss for well over a decade.  To this day, I've only had 2 losses and they totaled about $8k - a pittance when compared to the profits.  BTW, I'm 95% retired - sold all the rentals, etc.  If someone waves a juicy deal under my nose, I still jump on it.  It's in my blood.

Bottom line, I can think of not one reason to jeopardize what you have, least of all in such a dramatic way as moving out of Idaho. Even if you live in a market that's almost impossible to do a deal in (e.g., it's very small and isolated) now is the time to get a lot more real estate and investing education and keep your eyes searching for something local that you can get the seller to finance. Even if the seller says "no", you start gaining experience in negotiation which will be a key to your success. If there is a REIA or meetup not too far, definitely join but be cautious until you get a solid sense of the agendas, knowledge and honesty of the participants.

There's lots of real estate investing education at BP, online in general, and with some noted investor educators around the country.  Be cautious, almost all of the good educational courses are under $1K, the bad tend to run thousands of dollars. 

Good luck, good skill, good knowledge.    

@axe

If the attorney who reviewed your insurance policy is, at a minimum, very knowledgeable about new construction and the potential problems that can be associated with it, it sounds like you're covered.

@Axel Meierhoefer I think there is inherent value, even good value, to your general logic about tiers of protection; though, in Central Ohio, I'm not aware of there  being or having ever been any requirement of inspection specifically for rentals except for those related to Section 8. I've never encountered that in over 40 years nor have my friendly competitors who have hundreds of units.   That particular protection is not universal.  

As much value as I see in your overall logic and methodology, that still doesn't address the central question of what home warranties are providing by way of coverage. To rely on a home warranty for protection but not know what it really covers is relying upon hope, not reality as the insurer defines it.  The only way to know that is to carefully read the policies - fine print and all - of the particular policies you are considering.  My offer still holds - I am happy to carefully read what ever policy you provide me by way of a general post on BP or via email directly to me and provide my lay, but experienced, opinion relating to it/them.

At the end of the day, this is supposed to be a discussion related to the original posters question which I've quoted below.  The only way to consider a home warranty as part of the 10 year time frame he uses is to know what those warranties really cover and how much they cost to get that particular package of protections.  His assumption that a new home is free of maintenance for 10 years is faulty.  How faulty it is depends upon a lot of factors (inherent build quality, tenant quality, weather, types of animals and insects in the area, etc.) and what you can do and should do to mitigate the need for maintenance.  

" How do you value new construction as opposed to an older home that may look nice, but still older? Do you take into account that you have any mainenance for at least 10 years or not really?"

@Axel Meierhoefer

Thank you for the very helpful reply.  It provides an important step in the right direction.  

From First American's site: "First American Home Warranty offers homeowners protection against costly repairs or replacements on their home’s covered essential systems and appliances through service provided by a large network of pre-screened contractors and qualified technicians. Founded in 1984, we are a leading provider of home warranties with the experience and strength of an industry leader."

How they define "essential systems" and appliances becomes critical and the need for truly understanding the fine print necessary.  For example (and this will no doubt describe the problem incorrectly because I never purchased a property with the problem but general nature of what I'm describing is correct), maybe 15 or 20 years ago there was a new plumbing system available and went into a lot of new construction including homes in the mid and high end prices of homes in our area.  The system had an inherent flaw and, if I remember correctly, a lot of the connections where various pipes were joined failed.  To me, that sounds like a failure that First American would/should cover and, I'm speculating, does cover.  However, do they also cover the substantial damage to drywall, flooring, perhaps ceilings, electrical, etc. that are the direct result of the inherent flaw of the plumbing system?  My thinking says it should but no one from First American has ever called me for my opinion. :) 

How do they define the plumbing system?  Here is something that is part of the plumbing system that I believe should not necessarily be covered.  My guess is that they are talking about the system within the house.  A friendly competitor did some new construction.  The general contractor tied the plumbing systems into neighbors lines, not into the city's lines. Neighbors bills roughly doubled and the new properties got no bills.  VERY expensive to remediate but only a small part of the problem was within the footprint of the house.  That same contractor installed something in every bathroom upside down or in the opposite direction it was designed to go relative to the water flow.  I'm assuming that should be covered - but not enough info on First American's site to know for sure.

They mention leaking roofs.  Do they cover faulty installation or just normal wear and tear?  What about joists incorrectly installed, floors that weren't leveled correctly, flashing installed incorrectly, electric panel boxes that are faulty, driveways installed without expansion joints (I bought a house that had a foundation that was shifted the first summer because of the driveway expanding.  Big cracks in the driveway and garage floor, what had been nice brickwork was left full of step cracks around 3 sides of the house, significant steel beam in basement shifted but not enough to lose its integrity but what if it had moved enough to lose its integrity and a good portion of the floor above it just sank a few feet.  Are sump pumps covered?  If so, if they fail is the water damage to a finished basement covered or just the pump replacement?  What if it's got a battery back up.  If the battery is dead and the pump fails, is that covered differently than a pump without a battery?

These things I've described are real things I've personally encountered and are only the ones that quickly come to mind.  

My point in all of this is that repairs can be hugely expensive and how the insurer defines it coverage - in the fine print - matters a heck of a lot.  Alex, do you have a policy I could read through?  If it could be posted somehow that would be great but you could also send it directly to me. 

@Axel Meierhoefer

Thank you for your thoughtful response and an alternative to consider.

I concede that insurance of that type may have some value but I'm reasonably certain (though I don't know every home warranty policy that's available) that most, if not all, do not cover every expensive mistake a builder can make (whether intentionally or unintentionally), I don't know what their fine print says and I don't know how honorable the companies are when a legitimate claim is handed to them.  One company that I'm slightly familiar with charges close to $720/year for reasonably complete, but not totally complete, coverage.  Based on the 10 years the original poster mentioned, that's $7,200.

Like I said, I am far from even reasonably knowledgable on this issue and I will correct or augment my post if I'm wrong.  Why don't you share the company you use, the cost, the coverage, and what your claims experience has been so we can have the proper perspective and, perhaps, consider your idea as a valuable way of proceeding.

"Do you take into account that you shouldn't have any mainenance for at least 10 years or not really?"    Dangerous assumption for a buyer to make unless the builder gives some sort of iron clad warranty/guaranty; preferably, with an escrow of some sort.  Over the years, I've seen numerous new builds that developed serious problems.  So "not really" gets my vote unless there is something with teeth backing up the materials and workmanship.

@Rashid Khalil  

The question I was referring to was in the context of your original post.  It wasn't posed exactly as a question: "suggest how you believe you can accomplish your goal"  It could have been an actual question: "How do you believe you can accomplish your goal?" (this question being in the context of my reply and the replies of others)

@Jay Hinrichs

I agree with you related to the general class of sub to sellers and that many of them wouldn't quite understand about the insurance but, in general, I told all of them that we had safeguards in place to make sure their notes were paid in a timely fashion and that if their credit scores were being hurt because of their payment history prior to the sale that it was likely that their credit scores would rise after the sale (all else being equal).  Trusts make the eyes of most sellers glaze over but, if necessary, I had copy of the trust held by the bank in a 3-ring binder and some pages of the insurance policy naming the trust that often helped a lot in getting them to at least first base in terms of understanding.  We also held most properties in separate trusts and having a binder for each of those helped sellers understand that side of it.

BTW, over 20 years ago I was looking for a new title agency. Coincident to that search I got a marketing piece from a smallish agency and went to have a discussion with the 2 owners (both attorneys). Long story short, the very first deal I did with them happened to be a sub to deal , something that they had never encountered. Prior to closing (and for the HUD) I met with them to discuss the docs, explain why it was legal, and make sure we were on the same page. They were pretty comfortable but remained somewhat skeptical between the sub to itself and working with a full time investor, something they rarely did. I wasn't expecting what happened at closing. The attorney who closed it started off by politely quizzing the sellers so that he could be certain they understood what they were agreeing to - they'd no longer be the owners, debt would stay in their name and would have some impact (possibly good, possibly bad) on their credit scores, etc. With every question he asked them they were able to demonstrate that I had informed them well (plus I had it in writing from them). The attorney was comfortable after that. After I was comfortable with the agency, I introduced them to our local REIA where they were very active for many years.

Jay, kudo's from you is very high praise in my book.  I sincerely appreciate your comment.