Should You Spend Money on a Home Inspection?

I just had a conversation on whether it is smart to hire a professional home inspector.  There were many arguments for getting the home inspection done by a professional and a few arguments against it.  I think it is very important to get a home inspection done on any potential purchase, but I don’t think you always need to pay for it.  There are certain circumstances where a professional home inspector is a waste of money and may even cost you a deal.

Experience

The decision of whether to get a professional home inspection done will depend greatly on the amount of experience an investor has. 
I think almost every new investor should get a professional home inspection done.  As a new investor you need to learn every detail you can about properties you want to buy and about what repairs to look out for in future properties.  As a newbie, I would actually walk through the entire inspection myself with the inspector and pick their brain about everything.  Ask about the roof, foundation, electrical, plumbing and anything else the inspector looks at.  Your are paying at least a few hundred dollars for this inspection, so get your monies worth and grill that inspector!
A new investor may be shocked at the amount of items a professional inspector will find wrong with a home.  The inspector’s job is to find everything that is not perfect on a home and most do a very good job of finding faults in properties.  I am a Realtor, and I have had quite a few buyers scared off by the little things inspectors find in properties.  I always try to show buyers the serious faults in a home and hope they will look at the minor issues as just minor issues.  

What a Home Inspector Actually Does

In my experience a home inspector goes through the basic systems and looks for any obvious issues.  If he finds obvious issues, he usually advises the potential buyer about why he thinks there may be a problem and then advises that an expert be brought in to evaluate the situation further.  For the experienced investor who is paying the home inspector a large fee for his services, this can become frustrating.  You pay a professional for their opinion ( the inspection is an opinion they have no liability in most cases),  then when they find something wrong, they need to bring an expert in to see what is really wrong.  If they find mold, they want a mold expert, if they find a crack in the foundation, they need a foundation expert, a roof expert, an electrician, a plumber etc.  The catch is, the inspector won’t find these experts for you, that is your job an in many cases those experts will charge as well.
If you are a new investor and don’t know how to spot these potential issues, then a home inspector can be a great resource.  If you are a seasoned investor who can spot potential trouble areas in a house, why not bring the expert in to begin with and save the $400?  Better yet, have your general contractor go through the house and find any trouble areas and have him bring in any experts needed.

Repairs That Are Planned

When doing a fix and flip, repairs are almost always required and in some cases a total remodel is needed.  On many of my buy and holds, I do a complete remodel as well.   If you are buying a home that you know will need new electrical, new plumbing, new roof, new paint and new floor coverings, why are you hiring an inspector to look at the plumbing, roof and electrical?  Decide what parts of the house you want to save and have an expert inspect those areas of the home.  It seems silly to have an inspector go through the entire house when you know you are going to remodel half of it in the end.
If you still want a professional inspection done on a home you know needs a lot of work, see if the inspector will negotiate with you.  Ask him if you can get a price reduction on the inspection if he skips the roof, skips the plumbing or doesn’t have to test every electrical outlet.   A great idea I heard on the forums is skip the written report from the inspector.  It takes a lot of time for the inspector to write up a report, download pictures and make it all look pretty.  If he only has to give you a run down without that fancy report, he may be able to reduce his price as well.

HUD Inspections

HUD has an inspector do an inspection on every HUD home before they are listed.  Even though an inspection is done on the home, please do not depend on it for your inspection.  When the HUD inspector is looking at the house, the electric, gas or water is usually not on.  That means he can’t test the furnace, hot water heater, or the plumbing, except for an air test.  The inspector looks at the roof, by visually inspecting it from the ground.  I have heard of many HUD inspectors say a roof is fine, when it had damage and needed to be replaced.  If you are buying a HUD home, do not depend on the HUD inspection to tell you everything.
Investors are given a 15 day inspection period from HUD after they have a bid accepted, but it really means nothing.  HUD will not give an investor their earnest money back if they cancel due to inspection results.  Even if the HUD inspector said the plumber held pressure and it turns out there are 30 leaks, HUD will not return the investors earnest money.  HUD will not make any repairs based off the inspection either.  Please do your due diligence before making a bid on a HUD home so you do not lose your earnest money.

REO Inspections

Unlike HUD, some banks like Fannie Mae will turn the water and utilities on for you for your inspection.  In some cases, the bank will even repair the plumbing for you if they find leaks when they are de-winterizing the home.  I always find it beneficial to get an inspection done on a bank owned home, because you might get some free repairs out of it.  That is, unless you are in a bidding war and you decide to remove your inspection clause to get the house.

Conclusion

I think every investor should have an inspection done, but that does not mean they have to have a professional inspector do the job.  Every house is different, but look at the repairs you know need done and determine if an expert can check out the rest for you or if you can get the inspector to reduce his price for you.

The Anatomy of a Real Estate Contract

This is going to serve as an overview of real estate contracts.
This blog post is intended to provide general information regarding real estate contracts, specifically residential resale of single family residential housing, but in no way does this constitute as legal advice.
I am not a lawyer, nor have I played one on TV.

The Parties

The parties section of the contract will typically contain information for both the buyer and the seller. If you are buying in an entity be sure to note it here. If the property is still owned by the estate, you will likely need to write in “estate of” name of deceased person on title for the sellers portion .
Similarly, if someone has power of attorney for the seller, they can write in their name here as well followed by “POA” or “Attorney in Fact”.

Sales Price & Financing

Although this section may seem fairly obvious, I have heard of many stories where both investors and real estate agents fill it out incorrectly. Typically this section will be broken into two parts, one for the cash portion of the sales price, and another for the financing portion. If you are doing an all cash offer, put the sum total sales price here and put $0 or mark through the financing section of the contract. Be sure to fill this out completely.
For example, if you are acting as a real estate agent in the transaction, and representing the buyer, if you leave one of these sections blank you will essentially have an incomplete offer. Not only that, but it looks very unprofessional if you do not fill out the absolute basics of the contract correctly.

Earnest Money

Earnest money is sort of a interesting subject, in essence it is to show how series you are about buying the property. I find it funny because if I am writing the contract obviously I am interested in purchasing. Earnest money can sometimes be considered “hard” (non refundable) as well. Typically 1% of the purchase price is put down as earnest money.

Addendums

Common addendums that you might use include: sellers disclosure or property condition, lead based paint, mineral and gas rights and any personal addendums that you use for your real estate transactions.  Some addendums such as the lead based paint addendum may be required by the state but only if the property was built prior to 1978.

Special Provisions

Many promulgated contract forms will have a section for special provisions. Here is where I typically list any personal addendums that I may be attaching to the contract, or disclose that I am a licensed real estate agent but not acting as one in the transaction. You can also include special instructions like buyer to pay all normal closings costs.
In addition, you can be creative with this if you are making a ton of offers such as this offer will expire by (insert date and time here).

Use Your States Standard Promulgated Contracts

I recommend using your states standard promulgated forms for whatever type of real estate transaction you are participating in. There are multiple reasons for doing so, unless you already have a custom contract prepared for you by a real estate attorney. For one, using the states standard promulgated form typically puts both you and the seller on equal footing. If you're investing in Connecticut, just email me and I'll send you a local contract.

5 Smart Ways to Spend More NOW to Save Big LATER as a Landlord

As a landlord and a business person, you should always be striving to improve the bottom line.
Doing so however is not always easy and can actually require you to spend time and money up front for a return later on. For some, spending upfront can be hard to do, it can seem counterintuitive. But I have learned over the years that spending the money and time now really does save in several key areas.

1. Find and Keep Good Tenants

Turnover is a killer. Reducing turnover will significantly reduce your expenses and save you money. Think about it, when tenants move out there are all sorts of administrative and rehab expenses, often running into the hundreds if not thousands of dollars. Finding tenants who will stay long term is one of the keys to this landlording business.
It begins with screening. Watch out for frequent movers. Pay for a credit and criminal history background check. Spend the time to check all references before giving them the keys. Then work hard at keeping them happy. Respond to their requests. Fix any problems quickly and keep your properties neat and tidy. A little upfront here can go a long way later on.

2. Install Energy Saving Devices

Utilities are another major expense. Usually, unless you rent single family homes, the landlord has some utility payments. It is common for the landlord to pay for water. Thus, low flow faucets are the name of the game during rehab.
I have also been amazed at how much less electricity those new fluorescent bulbs use and how much longer they last. These things do cost a little more, but over the long term, they are worth it for the reduced utility costs

3. Challenge Your Property Tax Assessment

I do this on just about every property I purchase. I have found that the local property assessor’s values are often tilted towards the high end.   After all, their unstated goal is revenue. If you buy properties at a discount like I do, you can use your purchase prices to significantly reduce those assessed values, thus reducing your property tax bill and increasing cashflow.
Be forewarned, this is a time consuming, bureaucratic process, but it can be very rewarding as the new value will likely be in place for several years.

4. Maintain

Small problems can turn into large ones very quickly. It is best if you catch and fix these small problems early. The old saying is true about maintenance; it costs money because it saves money. Don’t let a little problem like a sink leak turn into a major ceiling repair. One way to do this is to regularly conduct inspection of your properties. Tenants for whatever reason will not always tell you when there is a problem. You have to stay on top of things.

5. Refinance

Interest rates have never been lower. Commercial loans as of this writing are hovering somewhere around 5.5 to 6.5 percent. That is incredible! There really is only one way rates can go, and that is up. Refinancing and lowering your borrowing costs now can really save you money if you plan to hold a property for any length of time. Yes there will be closing costs, but remember to look at the bigger long term picture.

How to Evict a Tenant Without Losing Your Mind

Today we’re going to talk about that subject that no one likes to discuss. It’s the topic that no one even likes to think about. It’s so miserable that, well, we would all feel better if we pretended that it didn’t exist. I’m talking, of course, about evictions.

One of the sad realities of being a landlord is that no matter how well you perform your tenant screening, and no matter how good of a manager you are, there is always a chance that you might have to evict one of your tenants. This sucks.  There is no gentle way to say it. It just totally sucks. The media unfairly portrays landlords as being greedy, heartless misers. But in reality, the vast majority of us are compassionate human beings who hate to put our tenants out on the street.
As a human being, on a purely emotional level, we feel their pain. But we also have mortgages to pay.  We have tax bills and insurance bills and repair and maintenance costs and management fees. We just can’t allow people to live in our houses for free.  Besides, if we did allow that, we would be unfair to all of those hardworking tenants who pay their rent in full and on time.

What reasons might you have for evicting your tenant? Failure to pay the rent is one of the most common reasons, but in addition you can evict your tenant for:

• Destroying the property
• Violating the law (for example, if you suspect that your tenant is selling illegal drugs from the property)
• Disturbing other tenants (for example, if the tenant is frequently throwing loud parties)
• Hosting unauthorized tenants or sub-tenants (for example, if only two people are on the lease but there seem to be eight people living there)

What should you do if you have to endure an eviction?  Here is my three step process for how to evict a tenant.

1. Learn the Landlord Tenant Laws in Your State on How to Evict a Tenant

Pretend that you are back in high school or college, and you’re about to take a massive final exam in which you will be quizzed on every detail of your state’s landlord tenant law.  Study it with that degree of discipline and scrutiny. You should have done this already, by the way.  If you’re a landlord, you should know your state’s landlord tenant laws like the back of your hand. But take a moment to review this carefully so you can make sure that you don’t make any missteps.

2. Document, Document, Document

Over-document everything.  Take photos, take videos, make duplicate copies of every form.  Send everything through certified mail, and make copies of all of the confirmations.  Backup all of your data into a cloud service like DropBox, so that in case your hard drive crashes, you can still access all your records.

3. Ask Landlords in Your Area to Recommend a Good Eviction Company

In many cities across the U.S., you’ll find companies that specialize in handling evictions.  These are referred to as eviction service companies.  They are incredibly knowledgeable about the eviction process and local eviction laws. They also often tend to have close relationships with the police marshals and the sheriffs in your locality.  After all, this is what they do, all day, every day. They can handle the service for you, so that you can make sure that everything is being processed “by the book.”

You don’t want a judge to throw out your eviction because of some type of “i” you didn’t dot or “t” you didn’t cross.

Local real estate investors in your area should be able to recommend an eviction company that they’ve worked with before, so ask around.  If you don’t know any local investors, Google the name of your state plus the words “real estate investor’s association,” or Google the name of your city or state plus the words “eviction services companies.” Yes, you can handle the eviction yourself, but remember that you’re dealing with a highly regulated legal proceeding.

If you overlook some small detail regarding the proper procedure and format, then the eviction might not be granted.  You’ll have to start the process over again, and that will take up even more time. And when you’re not receiving the rent money, that time is incredibly expensive. Furthermore, using an eviction service company will spare you from many, many hours of frustration, headaches, and anxiety.  I would gladly give somebody a few hundred dollars in order to substantially increase my peace-of-mind.

The bottom line is that evictions are never fun.  They stink for both parties; the landlord and the tenant. But using a professional eviction services company can help you minimize both your risk and your frustration.  

3 Commonly Overlooked Property Expenses

I’ve seen many different spreadsheets and pro-formas over the years, calculating potential return on investment for a given rental real estate investment. It’s not uncommon to find wholesalers inflating returns by eliminating all sorts of typical expenses (ie. vacancy, property management, insurance, etc). While this may trip up a newbie investor, most folks know to build in the usual expense categories when developing a pro-forma. Even so, I find it interesting how infrequently I’ll see the following three categories in a typical ROI calculation:

Turnover

What is turn-over expense? It’s money spent on a property when a tenant moves out to get the property ready for the next tenant. Inevitably, when a tenant moves out of a property there is some level of work needed to get the property in marketable condition. Most investors will touch up walls and paint (if not completely re-paint), clean and replace flooring as needed, take care of minor handyman items, etc. All of this can easily add up to over $1,000 (and sometimes much more) depending on the size of the property and the condition that it was left in.

While most investors have a line item for maintenance in the pro-forma, I find that it’s rarely enough to include turn-over expenses as well. Maintenance is really an ongoing budget item as repairs will inevitably be needed over the life of the property. Turn-over expense is really associated with the moving in and moving out of tenants.

Bookkeeping/Tax Prep

Another budget item that may or may not belong on a specific property proforma, but should be calculated nonetheless is bookkeeping and tax preparation. For the small investor who doesn’t mind tracking expenses and doing his own taxes, this may not be an issue. However, for the investor with multiple properties and an operation more like a business with properties in multiple LLC’s, it’s likely that there are costs associated with bookkeeping and tax prep. It’s important to include these figures when evaluating new properties for acquisition.

CAPEX

CAPEX stands for Capital Expenditures and pertains to big ticket expenditures that increase the useful life of the property. I think the most obvious CAPEX type expenditures on residential properties are items like the roof, HVAC, water heater, etc. I consider this slightly different than maintenance because they are higher cost items.

It’s very common for investors to buy a property with an old roof or an old HVAC and not budget for future replacement. For example, if you determine that you only have 5 years left on an old roof and you determine that a new roof will cost around $5,000 to replace … don’t you think you should budget $1,000 per year for the next 5 years to cover this expense? It seems obvious, but I almost never see investors doing this.

Understanding the true cost of an investment is one of the most critical elements to successful investing. It’s important that investors use accurate numbers and budget for all appropriate expenses associated with a potential acquisition.

Connecticut Foreclosure Auction List (4-5-14)

The following is a list of foreclosure auctions taking place through out Connecticut this Saturday, April 5, 2014. If you'd like more information on any of these properties, simply click here to email me and I'll send you the property information sheets.

Connecticut Foreclosure Auction List

11 Hillcrest Avenue, Bloomfield, CT


21 Frank Street, Branford, CT (No Photo)
150 Pheasant Lane Branford, CT (No Photo)

313 PLATT STREET, BRIDGEPORT, CT


580 Kossuth Street Bridgeport, CT (No Photo)
377 Nichols Street, Bridgeport CT (No Photo)

415 Capitol Avenue, Bridgeport, CT


317 Court D, Bldg. 46, Apt. 317, Bridgeport, CT (No Photo)
264 George Street, Bridgeport, CT (No Photo)
44 Flat Rock Road, Easton, CT (No Photo)

32 Benjamin Street, Bristol, CT


146 Turkey Hills Road, East Granby, CT


25 Fitzgerald Drive, East Hartford CT (No Photo)
148 Highland Avenue East Haven, CT (No Photo)

51 Henry Street, Greenwich, CT 


52 Rossotto Drive a/k/a #62 & #64 Hamden, CT


472 Pine Rock Avenue, Hamden, CT (No Photo)
714 Newhall Street, Unit 16, Hamden, CT (No Photo)
2390 State Street, Unit 5-C, Ridge Hill Condo, Hamden, CT (No Photo)

127 Ansonia Street, Hartford, CT  


107 Harbison Avenue, Hartford, CT


119 Montowese St., Hartford CT


92 LAUREL RIDGE TRAIL, KILLINGWORTH, CT (No Photo)

6 Bluff Road, Ledyard, CT


117-119 Windsor Avenue, Meriden CT (No Photo)
22 Lanouette Street Meriden, CT (No Photo)

Click Here to learn more about investing in foreclosures

 

If you're interested in purchasing Short Sale or Bank Owned properties in Connecticut, please click here to let me know exactly what you're looking for.

44 Marbern Lane, Naugatuck, CT (No Photo)
18 Bridge Street, Apt 4B, Naugatuck, CT (No Photo)


422 Osgood Avenue, New Britain, CT


66 Howe Road, New Britain, CT

  435 BELLEVUE ROAD NEW HAVEN, CT


95 Glenview Terrace, New Haven, CT (No Photo)
52-54 Hallock Street, New Haven, CT (No Photo)
504-506 & 510-512 Whalley Avenue, New Haven, CT (No Photo)
 12 WASHBROOK ROAD, NEWTOWN, CT (No Photo)

23 Greenfield Lane, North Haven, CT 


42 SOUTH MAIN STREET, #107, NORWALK, CT 


7 Country Drive, Norwich, CT (No Photo)

181 South Street, Plymouth, CT


21 Bunting Road Seymour, CT  

2 Main Street, Somers, CT (No Photo)
452 Heritage Road, Unit 104H, Southbury, CT (No Photo)
32 Downer Street, Stonington, CT (No Photo)
1700 Broadbridge Avenue, Unit A44, Stratford, CT (No Photo)

385 Walnut Hill Road, Thomaston, CT 


108-110 Culvert Street Torrington, CT


 34 Taft Pointe #73 Waterbury CT (No Photo)
31 Birch Hill Drive, West Hartford, CT (No Photo)
153 Second Ave., West Haven, CT (No Photo)

108 LAUREL STREET, WEST HAVEN, CT


36 STAGE COACH ROAD, WINDSOR, CT
 


If you'd like more information on any of these properties, simply click here to email me and I'll send you the property information sheets.