So I see one of my friends that I haven’t seen in a while when I was in Florida, and she tells me I look disgustingly skinny (basically, she calls me a hideous freak). Well, I tell her that I’m training for a marathon, so I’m sure that has something to do with it. And here’s the other reason: I HATE cooking. I have the worst eating habits. If it’s not in the frozen food section, can’t be cooked in a microwave, or made by my personal chef (Mr. Boyardee), then I don’t eat it. Anyways. About two months ago I’m at Giant staring at the TV dinners and Healthy Choice TV dinners are 50% off (yes, you know where this is going). I pretty much bought out the store and now have a lifetime supply of Healthy Choice meals. The problem is, that these meals have about .003 calories. So over the next few months I will probably wither away and die (how come they couldn’t have Hungry Man dinners on sale….gosh!)

Before I start to look like Nicole Richie back in the day, let me go over the paperwork needed when you have found a tenant/buyer. Here are the 9 necessary docs.

1. Property Condition Move-In Form - Walk through the property with the tenants and note any problems, blemishes, etc….
2. Renter’s Insurance Form - The tenants have 7 days to fax back the form with proof of renters insurance (I also staple the card to the form of the agent I work with).
3. New Tenant Information Form - A welcome letter for your new tenants. This letter should list the names and phone numbers of all utility companies, the day the trash is collected and anything else they need to know about the property.
4. Property Maintenance Agreement - This form states that the tenants are responsible for the first $300.00 in repairs and they must also get a home warranty. (I have my tenants use American Home Shield).
5. Option Agreement - States that the tenants have a one year option to buy the house at x amount of dollars. And that if they violate the terms of the rental agreement or any other agreements, the option becomes null and void. (This does NOT get recorded at the courthouse. You only record the option agreement between you and the seller).
6. Payment Policy - This form only has a few sentences in huge font that state: Your company has a zero tolerance policy for non-payment of rent, that evictions start on the 5th and there are no exceptions. (and that you can murder them for non-payment of rent…..I wish).
7. Property Disclaimer Form - This is the same form you signed with the seller. Each state has their own disclaimer/disclosures about the property.
8. Lease Option Disclosure - This form says that the tenants understand they have an option to purchase this property. And that you might not be the owner of the property and may only have an interest in the property (this is important….in a sandwich lease option you only control the property and you need to disclose this).
9. Rental Agreement - This should be iron clad and cover everything. My current lease is 7 pages. Make sure you have your lawyer review it. (Maybe in another post I’ll go over the key paragraphs of my lease).

Well, this week I’m headed to Florida again. I’m driving down, because I’m going to leave a car there….so I’m looking forward to a good ole’ 12 hour road trip. And in my car will be all of my real estate and marketing CD’s so it can be a productive 12 hours. By the way, right now in my microwave is my Healthy Choice mash potatoes (I think that’s how you spell potatoes, but I’d better ask Dan Quayle) and broccoli meal…..de-lic-ious! Til next week.

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Tags: buyer, lease option, real estate investor, real-estate-deals, tenant

The other day I went to a listing appointment and gradually asked enough pointed questions and did enough research that I passed on listing the property. Upon first glance the lot seemed simple, but I noticed some odd layout to the side of it that made it unclear where the property lines ran. After doing research I found that the lines were absolutely crazy. This is an old section of town and the agreements through the years with neighbors left the property legally with no ownership to the side of the house and half the front yard.

It was the oddest example I’d seen. The property had all kinds of gentlemen agreements about who could use what piece, and the house is owned by someone who’s had it 25 years. I could see someone buying it and all the agreements not known, then the buyer having to face litigation problems in the future if anyone came to claim their piece of the property.

Perhaps the attorneys would discover it doing a title search, perhaps it could be missed because of all the convoluted arrangements. The point is that while doing inspections get a survey done so that you have all the information. Coordinate all inspections, physical inspection of a building’s systems and structure, with inspection of all leases, with title search, with special environment inspections for that area, with a survey. Then do a little snooping.

When problems, or red flags, occur, check them out thoroughly. I was once representing a buyer back when seller’s were responsible for termite inspections before closing. I convinced the buyer to have someone go by and inspect the home on the buyer’s dime to double check. I had received a clearance from the seller that no termite infestation was present and had a letter from the termite company. While the buyer’s inspector was not looking for termites, he did notice signs of infestation. I called the listing agent and the listing agent said that she trusted the termite company and that my guy was not experienced to determine infestation. On my dime, I had another pest control company go out with the buyer’s inspector, and they found infestation – I went over and saw the termites with my own eyes.

Stay alert and be thorough with all inspections and at any sign of trouble go into detective mode and bulldog the problem until you are satisfied you understand the full extent. Too many times people ignore red flags and pay dearly later. We’ve had flooding problems in Savannah, so I started the practice of going around asking neighbors whether water drains or stands in that area – I often get a different response from neighbors, especially if they are renting. Sellers will sometimes fudge and if water has never actually flooded the building they report no flooding problems. However, if you are going to start a restaurant and the parking lot holds water, even though it doesn’t come into the property, then you would probably want to find a higher, drier location.

As stated in a previous post the contract should allow you to easily walk away if the problems mount and the seller is uncooperative, or seems to be hiding information. Be a detective, follow leads thoroughly – hear loud warning sirens at every sign of a problem.

I would also ask that you consider something that seems out of place here, but I feel is very important, the psychological factor. Sometimes we get bogged down in nuts and bolts and miss some obvious parts of every process. One of my first posts here talked about the excitement of investment and how the excitement can cloud judgment. What happens in the inspection process is minimization of problems due to the excitement of finding a “good deal”. You might say – “oh, I can fix that” – or, “that won’t cost much to remedy.” As someone who’s underestimated repairs before, I urge you to overestimate repairs, especially on older properties, because what seems like an easy fix can turn out to be more complicated and costly once you’ve gotten into it. What you thought you could do yourself winds up something that requires an expert’s knowledge and skill, then you wind up spending in the thousands when you estimated in the hundreds. Don’t underestimate the repairs and don’t overestimate your ability to fix them.

It would pay to have an experienced, objective tradesman give you a good estimate, then if you can save money doing some of the repairs yourself, fine, but at least you will have the correct estimate with which to negotiate.

Tags: buyer, Buying real estate, flooding, inspections, inspector, real estate, real estate inspections, real estate investment, seller

Nine Ways to Turn a Solid Walkthrough to a Solid Negotiation

If you’re new to real estate investing, trying to determine how/when you should buy a place you plan to resell, rent, or rehab, these tips will guide you through the rough spots of deal-making:

1. Do your homework
If you know the specific location where you want to buy, compare listing prices of similar homes in the area. In this buyers’ market, you can afford to make a lower offer than the listing price. Yet keep in mind that insultingly low offers will only make for bitter sellers, so plan to make as fair a judgment as you can, keeping in mind that, right now, the ball is in your court.

2. Know what cards you hold
Talk to mortgage institutions before you start negotiating. Knowing exactly what you can afford will guide you to properties within your budget, meaning you won’t waste your or the seller’s time. Also, being prequalified immediately makes you a more serious buyer and thus more attractive to sellers.

3. Ask questions
Bring a standard list of questions to ask for every home walkthrough, but do your research and ask very specific questions on the nuances of each home. What are the maintenance costs like? What appliances need to be updated? This can all affect your offer, if you decide to make one.

4. Engage the seller
“Oh, I love these window treatments and that refrigerator. Can these stay with the home?”
You may have already known that the treatments and appliances stay with the home, but if you are visiting with a home seller, asking “dumb” questions will engage the seller to talk in greater detail about the extras and amenities offered with the home. The more you know, the more negotiating power you will have.

5. Use “positive manipulation”
Manipulation isn’t always bad–you know that the seller wants to sell the home. Understand the selling motives, and let them work in your favor. If you know the sellers are moving because of a job, they will want to sell as soon as they can. When time is of the essence, offer them expedience and you might be able to make an offer in your favor.

6. Call their bluff
Take a closer look at the home. Notice wear and tear, scuffing, and the overall condition of the home. If the seller claims “new” carpeting and you can see that it clearly isn’t, they could also be bending the truth about much larger issues. Don’t buy Funny Farm when there are countless new and impeccably maintained homes on the market.

7. Always be willing to walk
While you may not literally be “walking away” from the home, many sellers are certainly eager to grab your attention if you express a mild interest in the property. If they know that you are interested, but more than willing to look elsewhere, they will use what they can to grab your attention. Lowered prices, add-ons, and included amenities can sweeten any deal.

8. Act fast
While it’s comforting to know that you’re buying in a buyers’ market, your ideal property is still liable to be taken by someone else. If you find the home that you really want, don’t hesitate to make the offer. While the odds may favor you, don’t forget that there still are other buyers to compete with.

9. Know that your best ally is yourself
After you’ve gained all the knowledge you can about the home, the seller, and your own finances, trust yourself to make the best decision. Knowing that you have a multitude of choices means that you deserve to find your dream home! Playing “dirty” really means that you should be a savvy buyer, with lots of knowledge (and the favorable market) on your side.

Tags: buyer, home buyer, housing, real estate, Real Estate Market

Upon signing the agreement of sale in most residential real estate transactions, the buyer pays an “earnest money deposit”, which signifies his intention to purchase the property. Typically, the earnest money deposit is held in the escrow account of the listing broker (who represents the seller) and is applied toward the buyer’s down payment and closing costs at settlement.

Know Your Rights!

The parties to any residential transaction, including the brokers, should be aware of the rules and responsibilities that surround any deposit monies that are being held in escrow—the laws vary from state to state, so it is imperative that you familiarize yourself with the laws of the state that govern your particular transaction. Using the Commonwealth of Pennsylvania as an example, a broker receiving money that belongs to another must deposit that money in an escrow account by the end of the next business day following its receipt. This duty can’t be waived and it can’t be altered by agreement between the buyer and seller or by the brokers to the transaction. Although the law is clear as to the course of action a broker must take upon receiving monies belonging to a third party, the law does not dictate who must hold the funds in escrow. Therefore, it is up to the parties to come to an agreement on who will hold the escrow; some examples include the broker for the seller, broker for the buyer, attorney for the buyer, attorney for the seller, builder, or bank. It should be stated either in the agreement of sale or by way of an addendum who will hold the deposit monies. In Pennsylvania, the standard Agreement of Sale contains a default provision, which states that unless agreed upon otherwise the listing broker holds the deposit monies until closing.

The buyer, seller and brokers should be aware of the fact that many third parties, such as a title company or bank, will require the execution of an “Escrow Agreement” as a condition of holding funds. The Escrow Agreement usually states the amount of money being held, the terms and conditions that must be met prior to the release of the funds, and a disclaimer of any liability in the event that the escrow holder releases funds upon a good faith reliance on documentation submitted by an authorized party. Further, both buyer and seller need to understand that just because the deal falls through doesn’t necessarily mean that the deposit money goes to them.

Since the deposit monies are being held in trust, both buyer and seller must agree as to the disposition of the funds before the escrow holder will release it. In most states, the escrow holder can only release funds if there is a written release executed by buyer and seller, if a settlement takes place, or by court order. Therefore, if a dispute has arisen between buyer and seller, the parties would be wise to work out some sort of agreement with respect to the escrowed funds otherwise the monies will remain tied up.

Whether you are the buyer, seller or broker involved in a residential transaction, you need to know what will happen with any deposit monies, so here’s a quick review:

1. Know the laws in your state dealing with escrowed funds- Who is authorized to hold funds in escrow? What are the escrow holder’s responsibilities? If there is a dispute between buyer and seller, what happens to the funds?
2. Identify the escrow holder in your agreement of sale or by way of addendum
3. If there is an escrow agreement, it should be reviewed by all parties. If you don’t agree to its terms, don’t sign it!

Tags: buyer, escrow, real estate, real estate attorney, Real Estate Law, seller, title

Wonder why the real estate market is in some crazy pseudo-gridlock? I’ve read many explanations of the current post-bubble-pre-collapsing housing market, but none of them hit it on the mark like the one I’m about to share with you.

Actually, according to Diane Swonk, chief economist for Chicago-based Mesirow Financial, “we are currently experiencing the worst of the market freeze, which is being exacerbated by the gap between the buyer’s desire for bargains and the seller’s fantasy of what they once thought their homes would be worth.”

It’s perfect in its simplicity. Yes, every buyer I know keeps waiting for prices to just fall already. Yes, every seller I know just refuses to sell their home because it “should” go for more from what they’ve seen in the market recently. This conflict in philosophies between buyers and sellers has put us in a state, not unlike Los Angeles traffic, of gridlock.

Take a look at the Washington Post article I found the quote in. It presents a clear picture of the state of today’s market.

I guess the question now is, who is going to win out in 2007?

Tags: buyer, Diane, estate, housing, real, seller, Swonk

Home sales going down; foreclosures going up. Sounds like a bad airplane flight, doesn’t it? Pretty bumpy going.  But, this all leads to two key questions, says  MarketWatch’s “Real Estate Weekly.”– For mortgage lenders, how much risk should they take on? For buyers, how far should they reasonably stretch their economic resources in order to buy into the American dream of home ownership?

Steve Kerch, the real estate editor for MarketWatch says that “matching a borrower and a loan is an art, not a science.” Kersch points out that to become a first time home buyer, one must be able to have a “leap of faith” and bet their income will stay high enough in the future to make the payments. By the same token, he reminds us, “It’s probably not asking too much that we allow our lenders to take that leap as well.”

Tags: borrower, buyer, home, lenders, mortgage, risk