Basic Real Estate Questions

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Basic Real Estate Questions

Kyle Dube
Member since 2022 · 9 posts · 2 votes

Hello everyone. After reading a few real estate investing books and watching quite a few podcasts I have some basic questions I hope I can get answered. Thank you for the help and I hope everyone has a great day!

1. After reading Brandon Turners book "The Book on Rental Property Investing" a section mentioned risks about lien. I'm not familiar with the term, but I do understand it involves debt of some sort. What exactly does this term mean and where does debt come into play?

2. What exactly is underwriting and what does this process entail? Where does this process take place in when making a deal happen (i.e. Before closing, after closing, when you first make an offer, etc.)?

3. How do you estimate rehab costs when first looking through a home? Without a proper inspection it almost seems like you have to use the eye test and experience to guess what the costs for a rehab may be?

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  • James York
    Member since 2020 · 137 posts · 158 votes
    4y

    A lien is typically referring to debt secured by the property. Under normal circumstances, it’s not a bad thing, it’s just a factor that needs to be considered. Underwriting is generally used to describe the process of working through the numbers of a deal. If I rent for this much and have this much in expenses, will I make any money? That’s obviously a gross oversimplification. The rehab budget is tough. It takes experience. That experience can be yours or you can bring it with you (think contractor), but someone needs some experience. Don’t guess if you have no idea what you’re doing. If you’re wrong on the high end, you don’t get a deal and if you’re wrong on the low end, you risk losing money. Keep reading!!!

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  • Austin Johnson
    Investor · Jefferson City, MO · Member since 2020 · 190 posts · 178 votes
    4y

    1.a section mentioned risks about lien. I'm not familiar with the term, but I do understand it involves debt of some sort. What exactly does this term mean and where does debt come into play?

    if you take a mortgage out on a property (the remaining 70-75% of the purchase price once you pay 25-30% down) the mortgage company has a lien on your property. if you hire a roofer to put a new roof on and you dont pay them. they can play a lien on your property. If you fail to pay your taxes for 5-6 years in the state of Missouri. the state COULD place a tax lien. what does it mean? it means upon selling the property, those liens get paid off first BEFORE you. 

    2. What exactly is underwriting and what does this process entail? Where does this process take place in when making a deal happen (i.e. Before closing, after closing, when you first make an offer, etc.)?

    Underwriting is the basic math to see if a deal works. So, I'm in multifamily real estate. our underwriting is a wee bit more than single family but I'll keep it to SFH. (if you're interested in MF, let me know!) *edit. underwriting should happen before making an offer in SFH. it's not a lengthy process so always see if a deal is even worth offering on before offering!*
    you can use the bigger pockets calculators for SFH underwriting. it's the rental income, expenses, mortgage costs, renovations, etc and the total profit at the end. to quote my friend Brian Briscoe "rent comes in, bills get paid, the rest is profit". under writing is figuring out the rents and expenses to track the profits.

    3. How do you estimate rehab costs when first looking through a home? Without a proper inspection it almost seems like you have to use the eye test and experience to guess what the costs for a rehab may be?

    you're right. you can use general rules of thumb. but for most accurate (esspecially with the 9.1% inflation we're seeing) contact a local flooring company and get a quote. say $4.50/sqft installed? so now we know a 1k sqft house needing all new flooring will run us around $4500. i would suggest doing this for all major things. roof, flooring, drywall, painting,etc etc etc. maybe even find a foundation contractor. 

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