What a rush, closing on that first rehab deal! Now it’s time to start making every mistake in the book, at least that’s how it was for me. On the surface it looked like a great deal. I had purchased a bank REO for about 60% of the market value after repairs. I had construction experience and a lot of enthusiasm. What I didn’t have was any idea of how to manage a project like this. Another minor snag was that I had spent every dime I had to acquire the property, but that’s what credit cards are for, right?

I bought the house for my own personal use, buying a fixer allowed me to live in a better neighborhood than I might otherwise be able to afford. Because I was going to live in the house as I renovated it I didn’t have the same sense of urgency that I would if I needed to do a quick flip. I also knew that it would be a great learning experience since we learn best by doing. Unfortunately we also learn the most from our mistakes, I just wish I hadn’t learned so much!

Let the Mistakes Begin!

My first mistake was that I didn’t have a home inspection before the purchase. My thinking at the time was that the house is going to be totally renovated so what difference will it make? The power and water were off which would make it difficult to check many things and I didn’t want to “waste” the $300. The bank was insisting on an as-is purchase anyway. The bank was also giving me the financing so I didn’t have a lender demanding actual proof that things worked.

So what was wrong? It might be easier to list the things that were right. The heat was a hot water system with an oil-fired furnace. I knew from looking at it that the unit was only a couple of years old, no problem right? Wrong, the system was not properly shut down and all of the seals dried out. I owned the house for three days and I was already hit with an unexpected $2,500 replacement. After the new furnace was installed I learned that the water had never been drained from the system which caused the water in the pipes to freeze and rupture most of the lines. Cha-ching! Other “little” things that were wrong would include termites using the front of the house for a midnight snack, and carpenter ants devouring about a quarter of the roof deck. Cha-ching! There were live electrical wires buried in the wall along with other electrical problems. Cha-Ching! The list went on and on.

I made the classic rookie mistake of underestimating the amount of work that was needed and the length of time that the project would take. Another mistake was not having sufficient capital to keep the project going. I hadn’t explored my financing options or taken the time to learn about the reality of rehabbing houses. I watched shows like Home Time and This Old House and thought that this would be a lot of fun.

The funny thing is that despite everything that went wrong it was still a profitable deal. Sometimes it’s better to be lucky than good, I benefited because the market had appreciated. If the real estate market had been flat or declined I would have lost a bundle on this deal. The education that I received, however, was priceless.

Know What You Don’t Know

Before jumping into your first rehab you need to do an in-depth evaluation. Not of the property or the neighborhood or the real estate market. You need to take a hard look at yourself. What are your strengths and shortcomings? What do you do well and where do you need help? I think that most rehabbers are optimists by nature. You have to be in order to see the possibilities and believe that you can turn that dump at the end of the street into a palace. That optimism can be a double-edged sword if you aren’t careful. Optimism can cause you to think that a project will be easier than it is, take less time than it realistically will and will sell for more than the market will allow. I am not suggesting that you analyze everything to death but that you do frequent reality checks. Rehabbing can be very satisfying and financially rewarding but it isn’t always easy.

If you find yourself in a hole, stop digging! – Will Rogers

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Tags: fixer, real estate investing, rehab, rehabber, Rehabbing

Thanksgiving is a time of year where people will traditionally pause and reflect and give thanks for their good fortune. For me this is relatively easy because I have so much to be thankful for. Many people are not as fortunate, some a victim of circumstance and others suffering the consequences of poor choices that they have made in their life. However there are many that have been blessed with good fortune yet do not seem to realize or appreciate it.

There seems to be an insatiable appetite for news about celebrities behaving badly and getting into trouble. The media is all too happy to feed this hunger. There are so many stories about spoiled brats whose main claim to fame is an accident of birth, their parents were rich and famous. Where is Paris partying this weekend? Is Lindsay back in rehab? Have any pop stars shaved their head, molested children or put their own children in danger? This is the most important news of the day? It’s absolutely sickening.

To me some of the most disappointing figures in the public eye have been professional athletes. For generations children and adults alike have looked up to these athletes as role models. There have always been some athletes that exhibited an unsavory side, but lately there seems to be an over abundance of prima donnas who seem to think that their superior skills on the playing field give them carte blanche off of it.

Baseball home run king Barry Bonds, long ago convicted in the court of public opinion, has been indicted on perjury charges. Baseball is in the midst of a steroid scandal involving an unknown number of stars that used the drugs to enhance their performance. Roger Goodell, the new commissioner of the NFL, is implementing a new personal conduct policy in response to several scandals that rocked the sport. Adam “Pacman” Jones was involved in many off-field incidents, which culminated in his guilty plea to charges stemming from a shooting incident at a Las Vegas strip club that left a man paralyzed. Tank Johnson, formerly of the Chicago Bears, was suspended for a weapons related incident. At times it seemed that so many members of the Cincinnati Bengals had been arrested that they would have a hard time fielding a team at all. Track star Marion Jones pled guilty to perjury charges, which effectively ended her career. Former heavy weight boxing champion, Mike Tyson, is in trouble again after being arrested on drug charges. After making more than $300 million in his career, Tyson is practically bankrupt. Let’s not forget OJ Simpson, he’s in trouble again. Although it may look like a rerun, he is facing a trial in Las Vegas on kidnapping, robbery and weapons charges. It never seems to end.

To be fair, there are many professional athletes who do outstanding things for the community. Many stars have charitable foundations and participate in many worthwhile endeavors. Hurricane Katrina brought out the best in many of them including basketball stars LeBron James of the Cleveland Cavaliers and Dwayne Wade of the Miami Heat. Baseball Hall of Famer, Roberto Clemente, was killed in a New years Eve plane crash back in 1972 while delivering aid to earthquake victims in Nicaragua. Would we have heard of his humanitarian efforts if he hadn’t been killed? It just seems that all of the negative news prevails and that the media has a penchant for reporting all of these stories that the public can’t get enough of

What has all of this got to do with real estate? I’m glad you asked! Last week I traveled to New York for a wedding. Before moving to Las Vegas I had lived in the region my entire life and I have maintained an interest in the area, especially in matters concerning real estate. While in NY, I heard about a real estate company called Omni New York, LLC ( www.onyllc.com ), that specializes in the acquisition and rehabilitation of inner-city apartment buildings. Being a rehabber I was naturally curious about what they did but the more I heard the more interested I was in their story.

New York City has an extreme shortage of rental housing, much of it rent controlled, and as such many building owners are not very motivated to keep the buildings in good condition. Many buildings that provide housing for low-income tenants are funded by the Federal Government through the Section 8 program and are required to maintain the buildings to a certain standard. However many of the building owners will take the subsidies without performing the necessary maintenance which cause the properties to deteriorate and ultimately results in the loss of Government assistance.

This is where Omni comes in, they will purchase these distressed properties with the intent of rehabbing them. The primary aim of the company is not to buy buildings and get the tenants out so they can repair them and make a fast profit. What they do is bring the units up to acceptable standards while allowing the tenants to remain in place. This helps to provide much needed housing for low-income citizens of New York City.

While this is a very worthwhile objective, what captured my attention was one of the primary individuals in the project. The company was co-founded by former baseball all-star Mo Vaughn. As one of the top sluggers of his era, Vaughn earned millions during his career. It would have been very easy for him to sit back and enjoy his time in retirement, instead he chose to involve himself in a project that gives back to one of the communities he played in.

Had Mo Vaughn been arrested for being involved in drugs or beating his wife or abusing children it would have been all over the news. Yet here he is doing something of great importance and nobody notices or even seems to care. How many other athletes, movie stars or other celebrities make contributions that go unnoticed? The answer is an awful lot, maybe it’s time we took notice of their efforts instead of gloating every time one of them gets into trouble.

Mo Vaughn understands the meaning of giving thanks for what he has and giving back to the community that helped him earn it. Do we? This Thanksgiving season let’s remember to give thanks for what we have and give back where we can.

Never in the field of human conflict was so much owed by so many to so few. – Winston Churchill (speaking of the Royal Air Force after the Battle of Britain)

Tags: Mo Vaughn, new york, New York Real Estate, Omni New York, rehabber, Rehabbing

It was the best of times. It was the worst of times.
By the end of 2004 I was totally frustrated with the Las Vegas real estate market. As a rehabber my business model is to find distressed property to purchase at a large discount. The goal is to repair and renovate the house in order to bring its’ condition up to the area standard after which the property is sold for a profit. However the market was so hot that even a house in terrible condition would receive multiple offers very quickly, often at an amount higher than the listing price. Houses in poor condition were selling at prices that were as high as homes that needed very little work. It made no sense to buy at retail prices and add money for renovations only to hope that the appreciation continued.

Las Vegas is the kind of city that television stations would send rookie weathermen to in summertime, it’s hard to mess up a forecast that is always the same – sunny and hot! It seems that the city was attracting amateur house flippers as well. People from California and other states were cashing in their home equity in order to jump on the soaring real estate market. In a classic case of a rising time floating all boats, even a property that was totally trashed would command a high price. It was definitely the best of times for a seller but the worst of times for an investor looking for a good value.

Amateur Night at the Apollo
I was having a cup of coffee at a Starbucks when I overheard the conversation at the next table. A blue-collar pool maintenance guy was talking to his yellow pages rep about placing an ad when his phone rang. From what I could hear he was talking about a house that he had listed and my ears perked up. Apparently a pending deal was falling through. He got very animated and started saying to the agent “the heck with ‘em, cancel the deal! The house will be worth $50,000 more in another two months anyway and we’ll sell it to someone else”. This was a revelation to me in that I realized what was going on, the amateurs were jumping into the market and running amok. For me it was time to sit on the sidelines or look to other markets.

Inmates Were Running the Asylum.
Las Vegas had become another example of the inmates running the asylum. People who had never invested in real estate before saw this as easy money, after all their home had gone up significantly in the last couple of years. Hairdressers, bartenders, parking lot attendants and a slew of others were getting their real estate license to sell houses on the side. Many were jumping into the mortgage lending business because there was a fortune to be made. These people had never experienced a down market and thought that real estate will always go up. The true professionals in the business found themselves competing with all of these newcomers. There were always cases of pros losing deals because a prospective client had an aunt, brother, cousin or uncle in the business but now it was getting ridiculous.

Full Circle
Fast forward to 2007 and the picture is totally different. The Las Vegas market is back to a pre-boom sales pace. In September there were only about 985 single-family homes sold from MLS listings yet there are over 7,000 agents in the area. Listings of houses and condos are at all time high with more than 25,000 currently available on the MLS with 40% of those vacant. Las Vegas is one of the largest foreclosure markets in the country and many of these wanna-be investors have lost their investment properties and the nest eggs that were used to buy them. Real estate agents and mortgage brokers are leaving the business in droves, layoffs in real estate related businesses have been occurring with great frequency and the media is having a field day with all of the bad news.

It is now the worst of times for someone trying to sell a home. For an investor there are bargains galore, it is definitely the best of times. The average person is talking about how bad the market is and how it will take many years to rebound. The savvy investor is jumping on opportunities while the amateur waits for fear of making another mistake. When the market rebounds and begins to peak the savvy investor will cash in his profits by selling to the amateurs who will get in at the tail end of the market cycle once again. As usual, history will repeat itself.

Failure is simply the opportunity to begin again, this time more intelligently.
-Henry Ford

Tags: las vegas, las vegas real estate, rehabber, Rehabbing, vegas real estate

CashflowandEquity.com is the website of Cornerstone Investment Group, a company that has gained recognition for its specialty–offering turn-key properties to real estate investors. Simply put, this investment company promises to ease the “headaches of being a landlord.” No simple task, but the company says it can do this by providing properties that are “renovated,rented and with available property management.”

Vertically Integrated Lending Arm

To make turn-key type investments virtual no-brainers, Cornerstone offers a financing arm for properties bought through its website. The “Preferred Lender Program” -the company promises, will take any potential sting out of qualifying, which anyone who has ever purchased any property can tell you can be a consumer nightmare. But, Cornerstone says it offers fast closings and low down payments. This doesn’t mean, of course, that just anyone can benefit from the lending program:

**The potential buyer MUST have a minimum credit score of 620
**Must be 18+ years of age
**And, have a buyer debt-to-income ration not exceeding 50%

Focus on Foreign, In addition to Domestic Investors

So far, so good. These folks seem to have given much thought and have apparently covered all possible angles. For example, this is the first company I have seen that also caters to the foreign investor looking to buy property in the U.S….it does this through it website http://www.usacashflowproperties.com

Strategically Locates Properties in Affordable Western New York State

Of course, Cornerstone has a strategy: to locate properties in Western New York State. I personally believe this is a good plan since properties in this part of the country are extremely affordable at this time. But, even white clouds can have a darker lining. There is plenty of evidence that the area is not exactly on the upspring. The City of Rochester’s own estimate is that nearly 66% of the structures in the city are rental properties. And, over in ever snow-bound Buffalo, nearly 59% of the city’s structures are rental. The obvious down side to this is there is also plenty of evidence that areas with a greater concentration of home ownership,for example,tend to have residents sharing a far more attractive socio-economic profile. And, while The Economist just published a story concluding that Rustbelt cities such as Buffalo have a real chance to stage a dramatic comeback, it cautions at the same time that this is not likely to occur overnight. In part, this is due to the economies of Buffalo and Rochester which are not ,what one might call,booming. And, there has been talk and unfulfilled promises before by civic leaders that both cities would have a major turnaround. So, only time will tell.

But, one doesn’t need time to tell that all this translates into cheap properties, yes, but also properties not likely to see much appreciation in the short term.While the properties offered by Cornerstone all come complete with built in equity, investors should be made aware that it is of vital importance to closely examine and consider cash-flow.

Established Property Management

As for its much advertised property management, Cornerstone has established relationships with various companies making it possible to offer management services at 10% of collected rents. Just some of these services from management include:

• Rent Collection
• Dealing with various Rental Public Assistance Agencies (i.e., Section8 )
• Tenant Issues
• Repairs and Maintenance
• Inspections
• Tenant Placement
• Lawn and snow removal services (when needed)
• Monthly statements with Expense records

You should be as comfortable with your property manager as you are with the management company you have hired. With that in mind, we’ve assembled a few important points to consider and have gathered them here

Large Availability of Properties for Rehabbers and Landlords

This company works not only with landlords but also with other types of investors. And, since it can secure properties at wholesale prices, it can sell these properties directly to rehabbers–and, still turn a small profit. So, if you happen to be a rehabber with a yen for Western New York State, all you need to do is fill out a form and you are now in the loop to learn about upcoming deals.

Finally, the properties themselves. As of today, Cornerstone has 177 properties listed on its site. After browsing for just a minute or so, you can see there are many potential opportunities for investors large and not so large.

So, if you are in the market to pick up some affordable, cash-flow properties, I’d certainly take a serious look at Cornerstone Investment Group via its website, cashflowandequity.com. It is a company that seems to have its act together, offering deals that should make it easier for newbie and hand’s off investors alike.

NOTE: This was a paid review. If you are interested in having your site reviewed, please visit our advertising page

Tags: cashflow, equity, landlord, property, real estate investing, rehabber, turn-key, wholesaler

From the time I was very young I had an entrepreneurial mindset. I did everything I could think of to make money, from selling Kool Aid in front of my house when I was very little to selling soda to thirsty golfers on the course at the age of ten. It was also at the age of ten that I started working for my brother in his construction company (so much for child labor laws). My job at that time was to hold things while he nailed them or to help with the clean up when a job was done. I wound up working for him during my summer vacations and occasional weekends throughout the year all the way through school. He taught me an incredible amount about working on houses, but more importantly, he taught me to be independent and not rely on a 9-5 job.

I went on to college after high school and tried my hand at engineering. That wasn’t what I wanted and I left school for a while but later returned to study investments and finance. I took a position in the financial services industry and eventually became a Certified Financial Planner (CFP) owning my own firm. I did this for better than 15 years but it was not as glamorous as movies like Wall Street made it seem. I grew tired of the constant struggle to make a living and I was looking for something more.

In my financial planning practice I worked with a lot of wealthy people and came to learn that many of them didn’t find their fortune by investing in stocks, bonds and mutual funds. These investment vehicles were what they were using to diversify their assets after they became rich. Most of those that didn’t get rich through an inheritance had accumulated their assets through a business that they had started or by investing in real estate. It was definitely an “ah ha” moment when I realized that.

As fate would have it I was in search of a home at this time and I thought that I could buy a house in a better neighborhood if I bought a “fixer” and used my construction experience to rehab the house. The movie The Money Pit could have been made about this rehab, if it could go wrong it did. Nightmare on Elm Street had nothing on this house! Somehow I got through it and the house slowly evolved into a nice piece of real estate. I had acquired the “rehabbing itch” and decided that I needed to do it again. The next time was a much better experience and I made a tremendous profit. I remember people telling me that I was out of my mind and that I should buy a house that didn’t need so much work. When my project was finished they were amazed at the result.

Now it is 15 years after that first disaster of a house and I haven’t looked back. I could have gone the traditional route and stayed in the corporate world and spent my life enduring the rat race like so many others. Was it easy? Absolutely not, it was a lot of work and I took a lot of risks that others wouldn’t. I have had several people look at my lifestyle and say to me “you’re so lucky!” to them I say that luck had nothing to do with it. I am where I am because of the choices that I made along the way, some were good choices and some were bad but I learned from them all. Most of all I had a plan and I followed it, I succeeded because I kept going when others would have quit. I remember when I first started as a stock broker an industry veteran told me that if I would spend ten years working harder than other people were willing to work I could spend the rest of my life living like other people were unable to live. No where is that more true than in real estate investing.

I wanted to use this column as a way for you to get to know me a little. In future columns I will share different experiences I have had and things that I’ve learned along the way. If you have specific questions or topics that you would like me to cover please let me know and I will attempt to answer them.

In closing I would like to share some words that have inspired me. They are from the poem by Robert Frost, The Road Not Taken:

Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

Tags: rehabber, Rehabbing, Richard Warren

We’ve been working hard to build up our blogging team for you and are happy to announce another talented professional to our team of experts, Richard Warren.

Richard has been investing in real estate since 1985 and began rehabbing in the early 1990’s. With a background in financial planning, Richard learned that most of his wealthy clients had acquired their money from a variety of ways, but real estate stood out for him as one of them. He began investing in Long Island, NY, but after moving to the Las Vegas Area, he, of course began investing in real estate and rehabbing properties around there.

Richard has been a great contributor in our forums as Rehab702, and has also participated in our investor interviews know as Meet the Investor. We are extremely happy to have him join us as a part of our blogging team!

Lets all show Richard a warm, BiggerPockets welcome!

For more on Richard, visit our Contributors page.

Tags: las vegas real estate, meet the investor, rehabber, Rehabbing, Richard Warren

We’ve all seen the reality TV house flipping / rehabbing shows . . . Flip this House, Flip that House, Property Ladder, Flipping Out, etc. These shows, I believe, have both positive and negative implications for those watching them. Here are just a few:

Pros of House Flipping TV Shows:

• Potential flippers are inspired to get up and get involved in the real estate investing business.
• Potential flippers can make a lot of money rehabbing properties.
• Newbies get to see an overview of what it is like making a living investing in real estate and from flipping houses.
• Homeowners can get many ideas for things to do to improve the value of their homes.

Cons of House Flipping TV Shows

• These shows glamorize what is a difficult business by showing experienced professionals in action.
• These shows rarely detail how to purchase a property below retail outside of going to foreclosure auctions.
• These shows don’t teach people how to analyze the financial side of a potential flip.
• These shows rarely, if never, deal with how to finance a flip, including getting a mortgage, hard money, construction loan, etc.
• These shows give newbie investors unrealistic time and money expectations for potential flips.
• These shows don’t help potential flippers figure out how to budget for repairs.

Granted, these shows are simply entertainment, but for many people, they do create a false impression of life as a full-time flipper/rehabber. On the other hand, they have lit the fire under tens of thousands of people’s backsides and have inspired a new generation of newbie or wannabe house flippers and real estate investors.

With all of this in mind, I have one question for you all . . .

Do you think House Flipping TV Shows are more of a positive or negative influence on new investors?

Tags: Flip that House, Flip this House, flipper, house flip, Property Ladder, real estate, real estate investing, rehabber