What To Do When You Buy An Investment with “Tenants in Place”.

When taking over a property be sure you know who the tenants are.

If you have followed this blog for a while, you know that I specialize in Residential Rental Real Estate and that we also provide Property Management Services.

REO/Bank Owned properties generally will give you possession at close of escrow without any existing tenants.   However, in many “short sale” situations,  you may inherit some existing tenants.

If you have just purchased your first investment with a “tenant in place”, you may or may not be lucky.    On the one hand, you won’t have the prospect of doing a “turn over” right away,  which can cost a couple thousand in painting, carpet replacement and clean up.  However, on the other hand,  you may wind up having problems with the existing tenants if you aren’t careful.

Ok then… what do you do to protect yourself…?

If you and your agent are using the California Association of Realtors Form, Residential Income Purchase Agreement (RIPA – revised on 4-10-2010), there are some great “due diligence clauses that pertain to “Rental/Investment” property.  Paragraphs 9. A. Rental/Service Agreements,  8. B. Income and Expense Statements and 8.C. Tenant/Estopple Certficates.

I am going to summarize them below.

Rental/Service Agreements – You won’t get these on a Bank Owned/REO in most cases because the property is vacant.   If the property is occupied, this paragraph requires that the Seller is to provide copies to you of all Rental and Service agreements.   These normally would not only include the Lease agreement, it would also include, the tenants’ payment history…   any rebates, the date of their tenancy, copies of service agreements,  such as a Landscaper’s Maintenance Agreement and copies of the water, sewer and garbage bills.

Income and Expense Statements You won’t get these on a Bank Owned/REO and rarely on a Short Sale.   They are either Bank Owned and they don’t have them anyway and on a Short Sale you won’t get much help from the Seller,  in most cases,  unless it’s been professionaly managed.

Tenant Estoppel Certificates –  These are important…!  These documents are filled out by the existing tenants and given to the Buyer.   These certificates will have information, according to records of the Tenant.  They will show what the rent is, what they said they paid for a deposit, if they were given any kind of “incentives” or “rebates”, who the original tenants were and who lives there now.   Any conflicts with the statements and records of the owner and the tenant should be resolved before the close of escrow.

Now while I’d love to have copies of the current tenant leases and service agrements, the income and expense statements, it’s  not a deal killer if you can’t get them.

Why…?   Because when we obtain “Tenant Estoppel Certificates”, these will sufice for a short time as enough information to allow you to take over the property until you get the tenants to sign a new lease/rental agreement,     Since we can’t get the Income and Expense statements, we’ll still get copies of all of the existing, water, sewer/storm drainage and garbage bills so we can have an idea of what our “fixed expenses” will be.   We will be able to figure out what the Real Estate Taxes will be (approximately 1.25% of the sales price) and we’ll obtain a quote from your Insurance Agent to find out what your annual Hazard Insurance will be.

What we won’t know will be the variable costs associated with maintenance and repairs.   To avoide unforseen issues, you should obtain a Termite Inspection, a Roof Inspection and Certification.  If the property is currently occupied the Tenants will tell us what doesn’t work.

With all that information, you should wind up with a good idea of what the condition of the property is.

Finally, I will say that even with all that information, something may come up that was unforseen inspite of your due diligence.  Hopefully, because you did exercise your “due diligence”, you will mitigate most problems so that they are small ones.

Make it a Great Day…!!!

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Fixer Upper Duplexes Profiled Here

Come and Get ’em – They probably won’t last long….

I was out and about yesterday for the first time in a while looking at property.   If you follow this blog on a regular basis you know I haven’t been posting for about two weeks.   The reason is not that there haven’t been good deals out there, it’s just that I have been busy writing up proposals and Realty World Capital Trade Group, of which I am a member,  had a Trade Booth at the California State Fair that I committed to to attending.

In the process I met a lot of nice folks and got more of a feel for what is happening in the economy.   While some folks were complaining about their houses being “upside down” we did meet some folks that were looking to get into the market not only as first time buyers but investors as well.

So here are two great prospects, one of which I know has been part of the “shadow inventory” that I’ve talked about before.

Prospect #1

10152-10154 Crawford Way, Sacramento, Ca 95827 – Listed at $113,850.   While I didn’t go inside this property, I do have an idea of what it’s going to take to fix this one up.  It’s  boarded up which makes it look nasty… it does have a partial new fence on the side street (this is a corner lot), the landscaping is well… pictures say a lot.  The listing doesn’t show Central Heat and Air so the “fix up” costs I’m projecting would include adding this and the “usual re-hab” costs. 

When it’s all done, you’d have one nice piece of investment real estate.   There have been several foreclosures in this neighborhood that have been picked up and rehabbed, one is just across the street.

Prospect #2

3425 Viking Drive, Sacramento, Ca 95827 – Listed at $186,900.   This one has been sitting on the market since August 19th.   The duplex on the right of this property is also in bad shape.  I haven’t checked but I think it’s bank owned as well.   There are some nice properties just across the street and around the neighborhood.

The prices on these Duplexes are cheap enough now that you can do the fix up and still make $$$.   After this kind of investment in “fix up”, you’d only be doing the “normal maintenance” that is associated with any kind of rental real estate.

If any of these properties pique your interst drop an email my way at:   favinger@rwnetwork.com or call me at 916-203-1260.

In the mean time…?

 

MAKE IT A GREAT DAY….

A Flip That Might Be a Win-Win….IF…?

A Win-Win Means There Must Be a Profit for Buyer & Seller.

I profiled this property back in May when it first hit the market..   Click here for the Cash Flow I projected back then.

I even have Video:

Right Side Video of 10414 South White Rock

Left Side Video of 10414 South White Rock

Now They Want to “Flip It”.

The folks that got this Ranchor Cordova Duplex put it back on the market on July 7th or so.  I watched this property because I knew they had made a “smokin buy” at $127,000.  But…..at their new “asking price” of $229,000 I thought they were really going over the “Hog Line”.

So after a couple of price changes, they’ve lowered the asking price south of $200,000 to $195,000…  still what I consider to be a little high.

Here’s what I think should be a “win-win” for the investor who only paid about $127,000 for this around  May 20th of this year.  Click Here for what I think the sales price and cash flow would be and then you tell me if the Seller makes money and the Buyer has a good deal too – A Win-Win….

 

Maket it a great day…!

Getting Out Bid for the Duplex you want…?

I know what you thnk… “What’s the deal here…?”

According to my partner Carl Cooley, Broker, we’ve had about 4 months of increasing prices.   You know… I don’t know what to tell you except the following and you come to your own conclusion.

Last weekend I wrote.. I think 8 offers… Only one of that group was accepted and that was a short sale on a condo for about $45,000.00.

The other offers were for properties that I have posted on this site before.  On every occasion I was given the  usual “bring your highest and best offer” verbage from the listing agent.  I found out that several of these offers were “all cash” including the ones that I presented.

Folks.. you have to be careful here because I think the Banks are holding several more of these back, because they want to keep the prices up.

The economy in improving.. and yea I know we’ve got about 11% unemployement here in the Sacramento Area, but you see signs everywhere that it’s not “dead”.   Take a drive anywhere around this region and you are going to see construction sites working.

The Builders haven’t realy gotten back in the market here to build new inventory, although there are projects working.   So while we have some high unemployment numbers there is a lot of money looking for a home now.

Be carefull that you don’t get caught up in the frenzy because these things have to pencil out to make them attractive.  On just about every deal we do, I tell prospective Buyers to be prepared to invest another $10,000 to $20,000 in “fix ups and upgrades” to get the rents you’ll need.

Make it a great day

There is a lot of Competition for Bank Owned Duplexes….!

SO MAYBE YOU SHOULD “FISH WHERE THEY AIN’T”

“Fish where they ain’t” is a slogan I got from Ed Keller, another long time Real Estate Broker from one our Realty World offices in Amador County.   I have his link on my side bar if you want to check that area.

So with those words in mind I’ve been scouting out potential cash flow opportunities besides those that are Bank Owned/REO type of situations.

I came across two duplexes that are side by side on the corner of Gibbons and Walnut – 3852 through 3858 Walnut Avenue.  CLICK HERE FOR A CASH FLOW ANALYSIS

These properties have been on the market for over 90 days.  Rents vary from $700 to $900 per month.   I based my market analysis on $900 per month.  You can go and get a rent comparison to see that $900 is possible.

I think these could be a good deal if you can buy these right.   My cash flow figures were based upon sales prices of $200,000, but these should sell for a lower amount based upon the rents that they are getting now.

However when you are a landlord that prices your units below the market, you will then make it difficult to sell at top dollar, which I think is the case here.   But… these duplexes have a good location in my opinion.  They do need some curb appeal updates and probably will need some interior work as well to get that top dollar income.

In other words, since no one else is bidding on these as far as I know, maybe if you “fish where they ain’t” you might get a decent catch.

Make it a Great Day….

Bank Owned Four-Plex – Carmichael, Ca

BANK OWNED FOUR-PLEXES… ARE THEY A GOOD DEAL….?

If you have known me a while, you know I am not a big fan of Four-plexes in this area.

The reasons are as follows:

  • Most are flats – 2 units down and 2 units up
  • Most have no covered parking
  • No private patios or yards
  • No Firepaces
  • No Dishwashers
  • No Washer/Dryer Hookups – although they might have a coin-op Laundry Room
  • Located in a high density area of other rental units

However – Check this one out at 5720 Engle, Carmichael – These Four  Plexes  were built in the late 80’s.  They have just about all the amenities of a single family home or a duplex,  that are excluded in the list above.   Those missing amenities are pretty typical of most of the Four-Plexes in the Sacramento Region.

Click here for a Palm Treo video of the exterior taken this past Saturday, July 25th.  This property is located on the corner of Engle and Sareco Court.   If you go to google maps you can get the “street view” of this property.

You will notice in the slide show above that this is a nice area that is not all apartments another “plus”…!

Hot on the Market – Fair Oaks Duplex – Rare Pride of Ownership

 

I get excited when I see a Duplex like this on the market.

This is one of those rare duplexes that has a 3 bedroom 2 bath on one side and a 2 bedroom 2 bath on the other.  Both sides have 2 car garages.   This looks like a single family neighborhood and across the street are new single family homes.

When you have a duplex that is in decent condition, almost rent ready, it’s not going to be on the market long.

Click here for some pictures and a “proforma cash flow analysis”

Here’s a YouTube Video I took with my Palm Pilot… This is of the interior of the 3 bedroom unit.

Click here to view  

Hey if you want more information on this or any other residential investment property in the Sacramento Region, just drop me a note.

 

 

In the mean time…?

Make it a great day….

Check My Ed’s Hot Picks Page – Investment Real Estate Deals..!

 

PRIDE OF OWNERSHIP TYPE INVESTMENT REAL ESTATE CAN CASH FLOW:

I’ve posted some new prospective Cash Flow opportunities to the Ed’s Hot Picks page that you might want to check out.

An Interesting Nine Units

One of them is a 9 unit property that I has been on the market for a long time and recently went into foreclosure so you’d better hurry.  

This property consists of two parcels.  A notice of default on one of them was filed in April and the other one just a few days ago, so the clock is ticking.  Call me for more information – 916-203-1260.

Financing if you need it will be an issue, especially on the 6 unit parcel.

A Duplex that could be owner occupied on one side.

The other property that was recently added is a duplex in a nice part of Citrus Heights, that is a 3 bedroom 2 bath on one side and a 2 bedroom 2 bathroom on the other.  The notice of default on this one was filed in April, so this one is getting down to the wire. 

As I have said in earlier posts…  I don’t always post these deals here, but if you check the Ed’s Hot Picks page I do update it a lot more often.

 

In the mean time…?

 

MAKE IT A GREAT DAY….

Roseville Four-Plexes – Got Some Ca$h Flow

July 14th – about 8:45 PM

 

Bread and Butter Four Plexes with Cash Flow Potential:

 

If you are a return visitor here you probably have not seen too many Four Plexes on this site that I have analyzed.  If this is your first time here because you are looking for an investment, I hope you find the information here useful and informative.

 

I may not post a daily entry to this blog here, but I will update this site at the ED’S HOT PICKS page frequently.   If you go there now you will find two potential Four Plexes listed under Roseville that I have provided Cash Flow analysis estimates.

 

I am very familiar with this area.   These Four-Plexes are what I call a Bread and Butter type investment… meaning they don’t have a lot of amenities such as central heat and air, individual laundry hook ups, fireplaces or sometimes even a dishwasher.

 

However, they are located in Roseville surrounded mostly by single family homes.

 

Both of the properties that I analyzed need some work on the curb appeal and the usual interior fix up.

 

If you are a long term investor and like to fix up properties and upgrade them, there have been other investors in the area that have done just that.  I’ve seen them add Central Air, upgrade landscaping and provide covered parking all of which does help to get a better quality tenant.

 

Bookmark this site and come back from time to time to see new postings on ED’S HOT PICKS

 

In the mean time…?

 

MAKE IT A GREAT DAY…!!!

The 1031 Tax Deferred Exchange is still around

 

Now’s the time to “Move Up”…? 

I got a Newsletter from Leonard Spoto of  Asset Exchange Company that I thought I’d share with you.

If you’d like more information regarding 1031 tax deferred exchanges, then check them out here and down load articles that will probably answer most of your questions. 

What follows is a part of their most recent “newsletter”.   I hope you find this useful and informative.

 

Trading Up in Today’s Market

 

Many of our clients are taking advantage of the turmoil in the real estate market by trading up. The theory is simple: a declining market favors investors who are trading up because the higher the property value, the greater the decline in real dollars assuming both properties are declining at the same rate.

 

There are also a lot more buyers who can come to the table with a 20% down payment on a $500K property than a $1MM property. Bernard P., a recent Asset Exchange Company client acquired his first commercial building after selling a $550K rental property in South San Francisco. Asked the motivation for his trade his answer was simple “there are great deals out there right now on the big stuff and we had plenty of interested buyers for our sale property. The time was right to trade up.”

 

Trading up with a 1031 Exchange also allows you to keep all of your money working for you. Taxes on the sale of an investment property can be as high as 1/3 of your total gain. But by entering into a 1031 Exchange before the close of escrow on the sale property, those taxes can be deferred (and possibly avoided altogether) allowing investors to get maximum value out of their real estate transactions.

 

 

 

Real Estate – An Hedge Against Inflation

 

Depending on which economist you read you may be inclined to believe that the US is headed towards an inflationary economy. The theory is that because the Fed and it’s counterparts around the world have been printing money to combat the global recession, inflation is a natural consequence. If you buy into this argument, you may want to consider investing in real estate as a hedge against inflation.

 

With real estate, if you have a low-rate, 30-year, fixed mortgage, your note will become a thing of beauty as prices rise:

 

– Your property value will rise

 

– Your rental income will rise

 

– Your mortgage payment will remain fixed

 

– You will repay the loan with cheaper dollars

 

There is plenty of disagreement, of course, among top economists regarding inflation. Some argue that with unemployment figures at a 26 year peak and plenty of idle factory space, rising prices in the near term is not a concern.

Real estate investors need to remember however, that a hedge against inflation is just one of the many benefits of investing in real estate.   Frequent readers of this newsletter will note that we often discuss the numerous tax advantages to owning real estate including:

 

– Ability to depreciate real estate hence reducing (or eliminating) your reportable taxable income from the property

 

– Ability to write off expenses

 

– The mortgage interest deduction

 

– The ability to sell real estate and either avoid and/or defer the payment of capital gains taxes

 

One thing for certain is that plenty of opportunistic investors are finding value in today’s real estate market.

 

 

Contact Leonard for more information regarding your 1031 exchange at Leonard_Spoto@mail.vresp.com and tell him Ed Favinger sent you.

 

 

Make it a great day…!