All Forum Posts by: J Scott

Sounds like you already have an idea of how to find, analyze and close on a deal, so basically what you're looking for is someone who can:

- Submit an offer for you;
- Deal with the paperwork;
- Help with negotiation process
- Get you to closing

For the most part, any agent can do these things, and if you let the agent know that you pretty much are just looking for someone to manage the deal, most agents are happy to just play that role.

Of course, if you don't mind doing some of the work yourself -- writing the offer, arranging closing, dealing with paperwork, etc -- you may be able to save some money on the deal if you let the other part know they won't have to pay an agent on your side, and their agent is okay with giving up part of the commission.

What's going on with your previous buyers? Have they stopped buying? Have they just stopped buying from you? Are they putting in their own offers on REOs?

Ask the buyers that you have relationships with what is going on...they can tell you a lot more than we can...

As for finding new buyers, until you know why your previous buyers aren't buying anymore, you won't know the best way to approach new ones...

Just my experience, but I would never market a property until after it's staged...

You only get one opportunity to make a first impression, and any buyers that might show up during the rehab and not find the house to their liking, certainly won't come back later.

But those same potential buyers -- had they shown up only after the house is completed and staged -- might really like it.

By showing a potential buyer before the house is completed, 99 out of 100 times you're just losing a potential buyer...

Again, just my experience and opinion...

I've had banks tell me that I could use my own closing attorney, but that I'd be on the hook to pay the title search and insurance fees (something they normally pay), as they'd be doing that work with their firm anyway...

Originally posted by Bob Mc Intosh:

Would either of you mind sharing what you send to your contractors? I am just getting started into rehabs and would love to see what you guys have!

It depends on whether I use a GC for the project or sub the project out directly to multiple contractors, but I always start with a Scope of Work document. That document can be handed to my GC for a full bid or can be broken up into pieces and handed to individual contractors.

I also use this SOW as part of my contract(s)...

Here is an example of one of my SOW documents that I could just hand to my GC for a bid:

http://www.reistartup.com/wp-content/uploads/Second_Chance_House/Scope%20of%20Work.doc

If I was going to sub it out myself, I would break the SOW into the categories above (as opposed to breaking it down room by room), and hand off the specific requirements to the specific contractors...

Which contingencies in particular did the addenda remove?

As Jon mentioned, the addenda shouldn't impact your due diligence period (though sometimes the bank will refuse to give you one in the original contract), and it certainly won't impact your ability to get clear title.

In fact, most REOs will close through the seller's closing attorney or title company, and in most cases the seller will pay for the title search and title insurance. You shouldn't have to do anything except show up at the closing table with your funds or financing...if the seller can't get clear title, that's their problem, not yours (though the deal might not close in this situation).

Originally posted by Heather Pelletier:

What percentage do you consider "serious"?

If you're trying to get a traditional Fannie/Freddie backed loan from a typical bank that is selling REOs, they're going to look for a 680 credit score and about 20-30% down these days...

It really depends on the kind of lender you're talking to and the kind of loan. For example, a large bank may only care about your financial situation (credit score, income, cash reserves), while a hard money lender might only care about the investment/deal.

Additionally, if you're applying for a traditional loan with a large bank, the information they're going to want is going to be a lot different than if you were applying for a commercial loan.

Can you give a bit more information about the lender/loan type you're working with?

Quick primer:

- Your income is the amount of money you take in each month. It probably comes from rent, but might also come from extra money you might from leasing parking spaces in front of the house/building, or from leasing a washer/dryer to your tenant, etc. The total amount you collect each month is your income.

- Then you'll have expenses. These include your property taxes, insurance, maintenance, utilities (if you pay them), property management (if you hire someone to do it), lawn care, HOA dues, etc. Many people also include vacancy in their expenses, meaning that if you expect your property to be vacant for let's say 1 month per year, your vacancy expense is 1/12 of your income (from above).

- When you have your income and your expenses all totaled up, you can determine your "Net Operating Income" (or NOI) with the following formula:

NOI = Income - Expenses

So, a house that rents for $700 per month, and where you get another $50 per month for use of the garage, has a total income of $750. If you then spend an average of $350 per month on all your expenses, your NOI is $400 per month (though generally NOI is expressed in yearly terms so your NOI would be $400 x 12 = $4800).

The general rule of thumb is that expenses will total between 40-60% of income, depending on a lot of factors. Many people like to use "the 50% rule" which means expenses are half of the income (if your income is $750/month, your average expenses will be about $375/month).

- Now, the one expense that wasn't included in "expenses" was your debt service (your mortgage payment). If you subtract this payment from your NOI, you get your "cash flow".

So, in the example above, where your NOI was $400, if you have a $48K loan at 7% amortized over 30 years, you're payment is about $320/month. So, your cash flow would be:

Cash Flow = NOI - Debt Service, or
Cash Flow = $400 - $320, or
Cash Flow = $80

So, after everything (except taxes), you take home $80/month from this property. That's your cash flow.

Many investors like to see $100/month in cash flow for each of their units...

I'll let your attorney tell you for certain, but he may very well recommend not marketing your investment to anyone who is not an "accredited investor."

By this I mean:

http://en.wikipedia.org/wiki/Accredited_investor

Generally speaking, an accredited investor is someone who has $1M+ net worth or makes at least $200K per year.

Based on that, your scope of potential investors may be small.

But again, your attorney can give you his legal recommendation...