Another Facelift

This is a duplex I bought in the late 90s … it was aluminum siding — still is — but was looking a little tired, to say the least. I recently sold it on a land contract to a wonderful family, who started making improvements immediately.¬†FSCN0518IMG_2874

Take a look at this exterior before and after! They’re not quite done, but they’ve replaced some windows, made it into a single family home by opening up the downstairs living area, replaced the front door, and repaired and painted the siding and brick front porch. They also tore out the old shrubbery and put in new plants. They put a big vegetable garden in back.

This home is over 100 years old, but is built better than many of our newer homes today.

These people wouldn’t have been able to purchase a home the traditional way, as they have no credit and the banks have tightened the purse strings so much.

They gave me a large down payment and I didn’t charge them much for the home … they’ll own it within the next couple of years. They’re enjoying the pride of home ownership, and I’m so happy to have helped them achieve this dream … we’ll definitely maintain a relationship going forward. ūüôā

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Protect Your Investment!

When you own a property, your hope is that it will increase in value over the years.¬† This is true whether you live in it or use it as a rental.¬† It’s easier to maintain your own residence because you’re there every day and tend to notice the items that need attention, like a leaky sink or roof, a cracked window, peeling paint, etc.

But when that home is a rental, you have to make a concerted effort to get inside and take a look … for maintenance issues, and tenant cleanliness issues as well.

For my Indianapolis rental properties, I try to do apartment checks after we’ve had a good soaking rain.¬† Here are some things I always check:

  • Smoke alarms
  • Furnace filters (they should be changed every three months)
  • Ceilings (for leaks)
  • Under every sink (again, for leaks)
  • Floors around toilets and tubs (are they soft? If so,¬†there’s a water leak somewhere)
  • All rooms for cleanliness

I do the same for all of the rentals I manage for other people.¬† It’s important that your tenants see your face from time to time.¬† When they know you care, they’re more likely to care!¬† And of course, there’s a clause in my lease allowing me to evict if they don’t maintain the property.

At some point down the road, whether it’s your own home or a rental, you’ll want to sell.¬† If you protect that investment now, your efforts will be rewarded in the end, when you plan your exit strategy.

Happy investing!¬†¬† ūüôā

Rent-to-Buy Gone Wrong

A rent-to-buy, or land contract, is a great way for someone with less than stellar credit — or even no credit — to buy a home.¬† I’ve done a few of these over the years and for the most part it’s been a good thing.

The buyer gives me a down payment, at least $1,000, and I work out payments over a set period of time.¬† I include interest, property tax and insurance in these payments.¬† Interest is 10%.¬† I know, that’s a lot, but since these people are higher risk, they understand the reasoning behind the high interest.¬† And I make the payments within their budget.¬† We discuss this beforehand.

I’ve had three buyers default.¬† One got in an argument with his boss of six years and quit.¬† Another had a major health problem resulting in high medical bills, and couldn’t continue to make payments.¬† 95% of the time, when people can’t pay, they just quietly admit it and leave.¬† They feel badly and know they must vacate.

On just one occasion, I had a buyer default and not leave.¬† He decided to stay to the bitter end, so I had to enlist the help of my real estate attorney and file foreclosure on him.¬† The process took about three months and cost me $600 in fees, but I got him out.¬† Unfortunately, the buyer owed meabout $2400 in payments by the time it was all said and done.¬† So, I’m glad I got a $2,000 down payment from him up front!

Also, he really disappointed me in the way he left the house.¬† Here’s some video I took after he left:

As you can see from the video, he not only left it a mess, he also took (stole) some things.¬† Frustrating, yes, but you can’t worry about the stuff you can’t control.¬† So I moved forward, and rented this home out to a wonderful guy who now wants to buy the place.¬† It worked out.

Doing a rent to buy is a great way to make money for yourself as a real estate investor, and to provide housing for people who can’t buy a home in the traditional way.¬† It’s worth checking into . . .

The American Dream Revisited

When people ask me about buying rentals in Indianapolis, I like to tell them stories like this one.

Back in 2005, I found a cute three-bedroom foreclosure and bought it for $26,000.¬† It didn’t need a lot of work, really.¬† The basement was full of junk, the place smelled like dog urine (it made my nose and eyes burn) and the previous owners had left trash all over the house.¬† It needed to be totally redone but it was structurally sound, and the major operating systems were in good shape, as was the roof, siding and garage.¬† So I jumped on it.

It didn’t take long to complete the rehab . . . I planned ahead and got it done quickly, spending about $5000.¬† ¬†After the purchase, every day that goes by is a day I’m not making money, so I organize myself and my sub-contractors and get the rental up and running.

My first tenants wanted to be buyers, so Idid a land contract with them, also called a “rent-to-buy.”¬† It didn’t work out — they defaulted — so I got them out and rented to a wonderful guy who’d fallen on hard times.¬† Bill had been in an accident and wasn’t able to work for two years, due to multiple major surgeries.¬† He tried to keep up with medical bills and just couldn’t.¬† He ended up losing his home, etc.¬† But now he was back on his feet (literally) and had a good job.¬†

I started renting to him about two years ago and he called yesterday and asked about the possibility of buying the house, below:

Of course, my first question had to do with his credit situation.¬† Bill told me he had been working on credit restoration, and also that he was going to receive clost to $20,000 in monies (disability payments) that were owed to him from the time he was injured and out of work.¬† He wanted to know how much I’d charge him for the house so I did a quick review of comps in the area —¬† comparable¬†homes for sale and sold in the area — and came up with a $50,000 price tag.¬† I felt this would hold up to an appraisal by a bank.¬† So, he’s working on it from his end, and we’ll move forward.¬† He’s excited and so am I.¬† I’ll take that money and run!¬† Maybe pay down some debt, buy another rental . . . we’ll see.

But, I’m so happy for him.¬† For Bill, the American Dream is alive and well.¬† This is why I love what I do . . .¬†¬†¬† ūüôā

Do you “Zillow?”

Back in October 2010, I wrote about a cute 3-bedroom foreclosure I’d bought. (“And Speaking of Fortunes Being Made”¬† October 2010.)¬† Before buying it, I went to www.zillow.com to check the values of the other homes in the neighborhood.¬† Zillow is a large,¬†excellent website that contains lots of interesting information about real estate across the country.¬†

When I checked out the home I was buying (listed at 30K) I found the others around it were valued between 80-85K — wonderful!¬† Zillow also showed other homes listed for sale in the area, comparable homes.¬† This house was truly a bargain, so I bought it, put about 5K in it, and am renting it out for $825/month.¬† It’s giving me an excellent return on my investment and I’m thrilled.¬† (After putting it on Craig’s List, several interested parties contacted me and it was rented quickly.¬† No problem!)

I recently read through www.inman.com¬†that Zillow is going to start estimating rental prices for homes and apartments, whether they’re available for rent or not.¬† Interesting!¬† With all the foreclosures over the past few years, the rental market is strong, and will continue on that path for the next few years.¬† Thus far, about 90 million homes are listed for rental estimates on the site.¬† Zillow plans to include rent “zestimates” for about 70% of all US homes and apartments.¬† I checked my little foreclosure to see if it was listed for a rental amount and it wasn’t.¬† (But the value estimate was 88K — yippee!¬† Great investment.)

These numbers will be valuable not just for the person looking for a rental, but for the homeowner who is moving and doesn’t want to try and sell their home in this down market.¬† Why not rent it for awhile, make some income on it, and sell later, when the prices rebound a bit?¬†

So, for those of you who are buying, renting, investing or thinking about jumping in, check out Zillow.¬† It’s legit, and there’s a lot of good information there, now including approximate rental values . . . the wave of the future.

The Jury’s Still Out . . .

In my post “The Party May Be Over” I discussed land contracts, which are an excellent exit strategy.¬† I’ve used them over the years to enable my tenants to buy their rental homes from me.¬† For clean, wonderful tenants who can’t obtain a mortgage for whatever reason, this is a great way to provide them with the joy of homeownership.¬†

The tenant gives me a down payment, usually $2000, and I draw up the land contract.¬† Basically, I’m the bank.¬† The tenant pays 10% interest on the loan, and is responsible for all maintenance, etc.¬† I retain title of the house until the last payment is made, and I do periodic checks to ensure they are taking care of the property to my satisfaction.

Back in 2008, the government instituted the Housing and Economic Recovery Act (HERA) and also the Secure and Fair Enforcement Act (SAFE Act), both of which were instituted as a result of fraudulent practices by mortgage brokers, who lent money to buyers who weren’t really qualified to purchase homes.¬† We all know what happened after that.¬† Many of those buyers purchased adjustable rate mortgages.¬† They were okay paying the original $800/mo. mortgage payment but when that payment jumped up to $1300 (or more) ¬†three years later, they were in serious trouble!¬† Thousands defaulted on their loans, and here we are today.¬† There were 2.8 million foreclosures in 2009, and the 2010 forecast is about the same.

Back to the SAFE Act . . . which requires¬†everyone who performs mortgage transactions to get a mortgage loan originator’s license.¬† This affects all mortgage brokers in all states, and¬†the licensing is tougher to obtain and it’s costly.¬† As with all laws, the devil is in the details.¬† Am I defined as a “broker?”¬† What are the definitions?¬† And what is the definition of a mortgage transaction?¬† Does a land contract fall under that definition?¬† ¬†

I recently listened to a teleclass given by Griffith Law Group which covered this issue.¬† Evidently, the state regulators have taken land contracts out of the definition, at least for the time being.¬† Since there’s no transfer of deed involved and we investors retain legal title, the definition doesn’t apply to land contracts.¬† There is some ambiguity however, and oftentimes these definitions take a year or more to become crystal clear.¬† So, would I do a land contract right now?¬† I might, because I’m somewhat a risk taker,¬†but I also think the original version of this law was a bit severe and the interpretations will result in it loosening up a little.

If you’re not willing¬†to take the risk, you can get around it by paying a mortgage broker to actually write a note/mortgage for you for the land contract.¬† (Make sure he/she has gotten the mortgage loan originator’s license which is now required.)¬† It’ll cost somewhere between $500-750, but it will keep you legal.

The other option, which is also a great exit strategy (I discuss it along with the land contract option in my book) it the lease option.  If your buyer may qualify for a loan in three or four years, this is an excellent plan for both of you.  Hook him up with a credit restoration company like DSI, Sky Blue or Lexington Law, and draw up the option agreement.

So in closing, the jury’s still out and the party may NOT be over!¬† Stay tuned . . .

The American Dream

Yesterday was a good day.¬† No, make that a wonderful day.¬† My tenant Jesus and his lovely family gave me the last payment on their house.¬† They are now homeowners.¬† To give you a little background, they first rented from me in 1996, shortly after the birth of their first child.¬† I was thrilled with their tenancy . . . clean people, excellent payers . . . a landlord’s dream.¬† They returned to Mexico after renting from me for a couple of years.¬† In 2000, I received¬†a call from Texas.¬† They were on their way back to Indianapolis and had saved my number, and were wondering if I could accommodate¬†them, now a family of four.¬† I happily put them in one of my duplexes.

In 2003, Jesus asked about the possibility of buying the house from me.¬† His sister lived in the back apartment and they were very happy there.¬† I sold them the house on land contract.¬† He gave me $7000 down (in $100 bills!) and we set up the payment schedule, at 9% interest.¬† For people who have marginal credit or no credit (like Jesus) this is an excellent way to purchase a home.¬† He’s never been late on a payment and has improved the¬†home in many ways.¬† Here are a couple before/after exterior pictures:

The interior changes are more dramatic; as his family grew to three children, Jesus made the attic into additional living space and added another bathroom.  It looks professional. 

I explain the ins and outs of land contracts in detail in my book, The Landlord Chronicles: Investing in Low and Middle Income Rentals:

“The major advantages to land contracts are the following:¬†

  • I don‚Äôt have to claim all the profit in the year I sell the property; it‚Äôs spread out over the life of the loan (check this out with your tax advisor)
  • I have no responsibility for repairs or bill-paying at the property
  • The buyers are invested in it financially and emotionally, therefore motivated to take good care of it
  • Being the bank enables me to make more money on the sale, through principal and interest, than I would by selling outright
  • Land contracts provide long-term income, with little work involved

I‚Äôve had people in tears after being given the keys to their homes.¬† These are people who never dreamed they‚Äôd be able to own a home.¬† Although land contracts are a great moneymaker for me, providing these dream homes for my buyers makes me feel part of something wonderful‚Ķfor these families, the neighborhood and the city as well.¬† I love it.”

(If you’d like to check out more of my book or purchase a copy, you may go to www.authorhouse.com and click or their book store, or you may contact me personally at barb@thelondlordchronicles.net.)¬†¬† Re: land contracts, with HERA and the Safe Act (see “Is the Party Over?”) my ability to do these without a mortgage loan officer’s license may be restricted.¬† The jury is still out . . . everything depends on the interpretation of the law.¬† I’ll keep you posted . . .

The Party May Be Over . . .

For many years, I’ve used land contracts as one of my exit strategies.¬† For those of you who aren’t familiar, here’s a biref¬†scenario:¬† Let’s say I have a trusted tenant who is tired of renting and would like to buy the house he’s currently renting from me.¬† Robert’s done a great job of paying on time, and he keeps the house clean, inside and out.¬† The problem is, he has¬†bad credit.¬† He made some poor choices in the past, and there’s no way he could get a mortgage in today’s economy, even though he as a couple thousand dollars he could put forth for a down payment.¬†

This is where I come in.¬† I can be “the bank” for someone like Robert.¬† With a website like www.bankrate.com and a financial calculator, I take his $2000 down, and structure the deal.¬†¬†I set the sales price, determine how much per month he’s comfortable paying, and go from there.¬† I discuss this stategy at length in my book, The Landlord Chronicles, which will be available through www.authorhouse.com¬†by late July, or directly from me at barb@thelandlordchronicles.net.¬† The land contract is an excellent way to provide your tenants with the joy of home ownership, and also make a great deal of money in principal and interest payments over the term of the loan.

Unfortunately, with the abuse in the real estate market that occurred throughout the early 2000’s, which allowed unqualified people to obtain loans, the government has cracked down on mortgage loan originators.¬† As part of the federal Housing and Economic Recovery Act of 2008, each state is being required to pass its own set of rules that will oversee mortgage brokers, to ensure against fraud in the future.¬† In light of what happened to thousands of uninformed individuals who bought homes they had no business buying, then lost them within a few years, I quess this is a smart move on the part of the government.

However, this extension of HERA, called the SAFE Act (Secure and Fair Enforcement Act) requires all people who handle¬† home loans of any kind to be licensed.¬† This includes you and me.¬† At first I thought, “No big deal, I’ll just get licensed.”¬† Not that easy . . . it’s expensive, and you have to jump through lots of hoops along the way.¬† So, my land contract days are done, for now.

But, the party isn’t necessarily over.¬† We investors can still use the lease option as an exit strategy.¬† It’s similar to the land contract, in that you plan on selling the home to the renter.¬† But it hinges on the renter being able to qualify for a loan at some point in the future.¬† You and he can set that date between the two of you.¬† He pays extra (usually $100 or more) per month on his rent, and this applies to the down payment.¬† If he defaults, you can evict him easily, through the small claims court, just like a normal renter.¬† I discuss this option in my book as well.

If you use the lease option, you may want to research a good credit restoration company to help your tenants repair their credit.¬† So, is the party over?¬† Not necessarily, but the keg with the imported beer¬†just ran dry . . .¬†¬† ūüôā