fliprent

Getting good water pressure in your flip or rental is essential to happy home ownership.  I for one cannot stand it when I get in the shower only to get that soft sprinkle of water that takes ten minutes to get the soap out of my hair.  This typically occurs in older homes and in the inner city where the pipes are older and the water lines require upgrading.

 One way to begin diagnosing the problem is to use a water pressure gauge.  You can use these to check the water pressure outside of the home.  If the pressure falls between .40 to .70 it usually indicates normal water pressure coming to the house.  If it’s less, you may want to call your water company to see about increasing it.  If your pressure is within this range then the problem could be the flow inside the house itself. 

If you are flipping an older house then you probably have old corroded pipes which will restrict the flow of water to the fixtures.  Many of these older homes have galvanized pipes as well.  Have a plumber run a new copper main cold water line from outside the house where the pressure is normal.  In some cases you will need to call the water company to have this done.  You can also run a new line directly to the shower/tub that you are installing.  The plumber can also run a hot water line directly from the hot water heater.   Another cheaper option may be to use a shower head that actually boosts water pressure with volume controls.

As some of you know I like to show my readers a project from start to finish.  I put a contract on another one today and should close within 45 days or so.  Hopefully if everything goes well, I will start the pictures and posts within a month or two.  As you know the Hopkins Project is on hold for now.  I was told I would have a letter within 2 months and there are only two weeks or so left.  At that point I am going to restart that project and just let the chips fall where they may.  Here are the details on the Old E. Baltimore project category.

• Purchase Price 37k
• COMPS 75K
• Approx Rehab Costs 20k (Conservative)
• 3 Bedroom 1 Bath Rowhouse

Current Condition:  New Drywall, New Plumbing, New Paint, New Carpet, New fixtures (some missing).  I found out that the previous investor took the furnace, refrigerator and stove out before the foreclosure auction.

This property was owned by another investor in the area.  We have crossed paths several times but I didn’t realize that it was hers until after the sale.  She owns hundreds of properties in the city but she was basically in over her head and her balloon payment was due on several of her properties.  They were all auctioned off today but I believe she managed to stop one of them.  This kind of thing happens to many investors and we must all fight through the failures in order to reap the rewards.   She actually didn’t do too badly because one of them sold for more than 60k over what she paid. 

Rent comps are between 800-1200 for a 3 bedroom 1 bath in the area.  The math looks good and the price was cheap so I’m pretty happy so far.  Now lets hope there aren’t any encumbrances in the way as I go through the due diligence process.  As always, stay tuned by clicking the Old E Baltimore Project category.     

In this series I am outlining clauses commonly used in real estate contracts.  Use this information as a reference but do not repeat any examples word for word in a contract.  Consult an attorney in your local area for more details.  You can read Real Estate Contract Clauses Part 1 for the first five clauses or click on the contracts category to follow along with this series.

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As you can probably tell the Hopkins Project house is still on hold.  I’m waiting to hear something from the city but my loan will not allow me to wait much longer.  Most rehab loans are for one year and mine is no exception.  Even if you are using hard money, there is normally a time frame of one year before you will need to refinance or pay in full.  This project has been a cluster from the beginning.  Each day costs me more money that I may not get back if the city does decide to take this property.  I have had some high ranking individuals paying close attention to my situation, so hopefully that will keep the city honest in their negotiations.  But that’s a story for another day…

Not only do I have to continue to make mortgage payments each month but my builders risk policy is set to expire soon and it does not come cheap.  Builders Risk insurance is required for rehabs and new construction.  Because it is not a habitable dwelling, insurance providers will not cover it with a typical home owner’s insurance policy.   Builders Risk insurance protects the homeowner against damage to the property.  Bank rehab loans also require that house flippers attain builders risk insurance.  You may be able to obtain typical home owners insurance on the property in cases where the home is livable or has an occupancy permit.  Just make sure it covers the type of damages that occur during a remodel.      

Real Estate investors need to know as much about writing contracts as they know about real estate.   This series of posts is a continuation from the Negotiating Real Estate Contracts article.  In Part 1, we will discuss 5 clauses that are commonly used by investors in real estate purchase contracts.

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House flipping without a building inspection is like shooting pool in the dark.  If you cannot see what you are aiming for then you are relying on luck to make the shot.  Unless, of course you are knowledgeable enough to detect problems with HVAC, termites, mold, foundation, rotted out framing, environmental conditions, electrical, plumbing, water damage, and the list goes on.  After a few years in the house flipping business, you may well be able to detect these problems yourself, but why risk it?

Make sure that you use an inspector that is not also a contractor because of the potential conflict of interest.  If he/she is a contractor then be sure to explain up front that they will NOT be contracted to do any of the repair work.   Any inspection should include an inspection report.  This report should list all items that require repair or replacement and potential future problems.   Be sure to ask if the inspection report will include approximate costs and estimated time frame from start to finish.  This information is invaluable when estimating repair costs, negotiating the price (when done prior to contract ratification), and determining the total funding required for a bank rehab loan.  If you do not feel like the inspector was very knowledgeable about his work, you may want to get a second opinion from another inspector.

When investing in other states or jurisdictions, be sure to use a local inspector who is well versed in the local codes, conditions, costs, and policies. 

Real Estate Money Saving Tip

“If you run a small business of any kind, you can pay your child up to $4,400 per year without the child owing any taxes, and without you having to withhold. Use $2,000 of this every year to invest in a Roth IRA for your child - no taxes will be due on the funds when withdrawn, either. Use the other $2,400 to cover school clothing or other items your child needs anyway. Meanwhile, you take a $4,400 deduction for salary to your child”  by “The Simple Man’s Guide to Real Estate”

One of the biggest obstacles I faced when starting out investing in real estate was writing contracts.  It would be nearly impossible for anyone to write a blog post (at least one that would be read) about everything one needs to know about contracts.  With that in mind, I’ve decided to provide some basic knowledge for a beginner in real estate investing.  Another thing to note is that rules and laws are mostly local.  Writing a book or post that covers the law for the entire nation would also be, well… pretty darn long.  Here are some rules that I still use today.

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So called real estate investment “gurus” offer lots of incredible knowledge at a cost of only $5000…  no wait $4000..just a second… $3000, but for tonight only $2000.  But wait there’s more, they’ll throw in two months of coaching (when there is time), a free CD packed full of “valuable information”, a free website, discounted street signs, and a group of other new investors to bounce all of your questions off of.   This is all valued at $10,000 but for tonight only they’re going to give it all to you for $1000.  But wait there’s more…

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How much do I pay for a property? 

This can be the biggest challenge for new investors.  How do I know how much to pay for a property?  There are so many factors involved that it can feel a little overwhelming.  In fact it scares some investors away from buying their first property.  I’m here to tell you that it’s not rocket science.  A class in using a spreadsheet program such as Microsoft Excel or learning to use a financial calculator might be the most difficult part of the process.   There are several performance measurements commonly used when valuing property.  Three measurements commonly used by investors include CAP Rate, Net Operating Income (NOI), and Return On Investment (ROI).  There are many other ratios and measurements used in real estate finance such as Gross Rent Multiplier, Debt Service Coverage Ratio, Operating Ratio, etc.  This information can be found in many finance books or at finance courses at your local Community College.

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Let’s get straight to the house flipping point…

 House flipping rule # 1 - Buy the smallest or ugliest house in the neighborhood. 

Being a house flipper means that you don’t mind the dirty work; or paying someone else to do it.  The main reason for this rule is based on future appraisal value.  The smallest house on the block has the biggest potential to be raised.  Once the rehab work is completed, it will appraise higher based on the new improvements, and the value of other houses on the block.  Conversely the largest house on the block is already carrying the weight of the market value.  Adding square footage for instance will not bring the same Return On Investment (ROI) as it would for smallest house.

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