Low-end market houses becoming affordable for first time buyers, and Weekly Blog Roundup

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The real-estate slump has an upside for first-time home buyers looking to spend $200,000 or less. As median-home prices continue dropping, the supply of homes for sale in the much-coveted low-end market is swelling.

The subprime debacle, foreclosures and "short sales" in which a buyer offers less than what is owed the bank, continue to drive Phoenix real-estate prices down. That, in turn, makes more homes than ever affordable for first-time home buyers. Bidding wars on "short sale" properties with multiple offers are breaking out.

Under-$200,000 market gives home sales a push in the Arizona Republic describes this new phenomena.

Weekly Blog Roundup

Thee were some truly outstanding posts this week. Some highlights from this week's blogs include:

Conniebrz.com hits the jackpot at a thrift store; notetalk's article gives good insight into what home buyers are looking for in a house; extremeperspective sees lease-to-own as a way out of a financial spot; johnreed.com tells us, in his own "sensitive" way, why we don't need advisors, networks or mentors (okay, I admit that's his webpage, not a blog); wealthisgood deals with tenant problems, and retals'r'us is closing in on selling a property.

Also, gatherlittlebylittle describes the epiphany that inspired him to put his financial house in order, and moolanomy describes differences between Prosper vs. LendingClub.com peer-to-peer lending.


Thrift Store Shopping: Major Score at conniebrz.com
Characteristics of First Time Home Buyers at dequalss.com/notetalk/
Where to Get Rich? at extremeperspective.blogspot.com
Do You Really Need Team of Advisors? A Network? A Mentor? at johnreed.com
There is Light at the End of the Tunnel at rentalsrus.blogspot.com
My Financial Epiphany: The Storm of My Life at gatherlittlebylittle.com
LendingClub Highlights and Giveaways at moolanomy.com
Late Rent, and Landlord Craving at wealthisgood.blogspot.com


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Due Diligence Part 7, Physical and Structural Inspection

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The due diligence period is the time period between the acceptance of the offer and the close of escrow. It is the time to find out if you really want the property. If you find something wrong with the house and don't wish continue with the purchase, you can ask the seller for adjustments, or get out of the contract. Following the outline in "Investing in Real Estate for Dummies," we now look the first component of actual inspection: the physical and structural inspection.

Areas that you may want to hire experts to help you inspect:

-overall condition of property
-structural integrity
-foundation, crawl space, basements, sub flooring and decks
-roof and attic
-plumbing system
-electrical system
-heating & A/C
-landscaping, irrigation & drainage
-doorways, walls & windows
-moisture intrusion
-seismic, land movement, or subsidence and flood risk
-illegal construction or additions and zoning violations

Be careful to check for water intrusion and signs of toxins and mold. These can result in property damage and negative health effects.

Tell-tale signs to watch for that might indicate serious structural issues:

Cracks: Some hairline cracks may be naturally occurring settlement of the structure over time, but if you can stick a screwdriver into the crack, something else may be going on.

Unleveled or squishy floors: Walk through the property and look for floors that slant or slope. And watch for soft spots in raised floors.

Misaligned structure: You can use a handy laser level (that seem omnipresent in the hardware stores) and see if floors, walls and ceilings are uneven or out of plumb. Watch for doors or windows that don't open or close easily.

Grounds: Be sure the property drains properly. Excess groundwater, poor drainage, or cracked/bulging retaining wall are signs of soil issues.

Moisture intrusion: Look for ceiling/wall discoloration and stains. Living in an area where flat roofs are common, my wife and I automatically check the ceilings of all potential investment properties. Musty odors could indicate moisture issues. Sump pumps anywhere on the property are a red flag.

Plumbing leaks: Check under sinks, supply lines for faucets, toilets, dishwashers, and washing machines.

NEXT UP: PEST CONTROL AND PROPERTY DAMAGE

How to Completely Remodel a Kitchen for Under $4,000 (Part 2) at twowiseacres.com

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Weekly Blog Roundup - Fixer Upper & Rental Tips & Other Useful Information

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How do we find of satisfaction in life? In our consumer society, we are molded to think buying the latest high density TV or other useless products, that instead of making us happier, only wind up wasting our time and costing us more. Usually these are products that we'd wiser, deeper, and more insightful people by not owning them. How many CDs, or DVDs, or McDonald's hamburgers do we truly need to make us happy? Only $25 and a gym bag at christianpf.com is a particularly thought-provoking article along these lines.

But true contentment in life is found through introspection and reflection. By looking inside we can overcome our wants that lead to buying useless products, and lead us to what truly makes up happy. What makes you happy? As unique individuals, we much dig that out of our own inner self.

We don't always have to blaze a new path, we can learn from others that have already blazed the path. The best blog posts, like all great writing, have a way of inspiring us, teaching us, and serving as a beacon to draw us a new direction. Below are some blog postings that might serve as beacons.


Managing Tenants Part Four: The Home Office (a thing of beauty and a joy forevermore) at Biggerpockets.com.

When Tenants Don’t Pay (Part 2—The Reality, The Reason, and the Response) at twowiseacres.com.

Spinning Plates at rentalsrus.blogspot.com.

Poor, Poor Neglected Real Estate Blog at flipthyhouse.com.

Renting vs. Buying - Myths that created the housing bubble and the foreclosure crisis at Iboughtaduplex.com.

Setting rental rates for Condo #1 at livelearninvest.com

Feb19Condo Conversions and the Dark Underbelly of the Subprime Mess at spencerbarron.com.

Outwardly Simple and Inwardly Rich at millionairemommynextdoor.blogspot.com.

Did My Realtors Lie to Me?? at wealthisgood.blogspot.com.



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Due Diligence Part 6, Tricks Sellers Use to Avoid Inspections

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Continuing the Due Diligence series for those who buy fixer-upper properties. The due diligence period is the time period between the acceptance of the offer and the close of escrow. It is the time to find out if you really want the property. If its not as good as you thought, you can ask the seller for adjustments, or get out of the contract. Following the outline in "Investing in Real Estate for Dummies," here are

Two tactics that sellers use to avoid a thorough and detailed property inspection

1. The buyer offers the buyer a warrenty or property protection plan that covers repair costs for major systems and appliances of the property. Although they may sound good on the surface, in my opinion these plans don't usually live up to expectations because:

a. they can have an up front cost of several hundred dollars;
b. there is a deductible of $25 to $100 each time you file a claim; and,
c. when you file a claim, you may find that what you thought was covered may not
actually be covered due to exemptions in the policy.

About four years ago, I bought a house with a pool and the seller included a property protection plan that purported to cover the pool too. When I called the company to get the pool repaired, I was informed that the contract included an exeption that excluded any work on underground pipes. This must save the plan's company a lot of money, as I imagine that most pools have underground pipes. Granted, I never read the fine print in the contract. I just believed the splashy promises on the cover of the information brochures that said the pool was covered. My bad, but the brochures are misleading at best.

2. Sellers have a house inspection done ahead of time, so they save you the time and the money by providing you with a copy of an inspection report. If the seller was trying to put something over on you, they may contract with an inspector that has a reputation of not being diligent when examining the house. I think this can also be a good thing, as you can review the seller's inspection report and pass it along to yourinspection team. It may give you a good general idea of the condition of the house to start with.

When to make use of inspections

Looking at it another way, when you are selling a house, I think it is a useful step to have an inspection done by a reputable inspector. This way you show you have nothing to hide, and it serves as a good starting point for negociations. The buyer may have another inspection done, and if it turns up the same things that your inspection did, it may serve to build trust with the buyer.

In his book "How to Sell Your House in 5 Days," Bill Effros advocates having the house inspected by a professional home inspector, and if you have a well or septic system, have them inspected as well. He suggests using a company with reports that looks professional, and not a hand-written report with fill-in-the-blanks and check boxes. You want a report you will be proud to show to potential buyers. Effros says, by conducting these tests in advance, you answer buyers' questions and reduce the time it takes to close on the sale. Since you've paid for tests often not performed by sellers, your home is even more desirable to buyers, who will save money and will know what they're getting before they start bidding.

An earlier post with My Observations of a 5-Day Sale.

NEXT: NEGOTIATING CREDITS IN ESCROW

ABC of Wealth Building at moolanomy.com

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Weekly Fixer Upper Roundup of Real Estate Investing and Prosperity Blogs

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Once again, I present my unbiased, unwarrented, unadulterated and unrelenting list of favorite blog articles from the past week.


Managing Tenants Part Three: Written Criteria for Tenant Selection at biggerpockets.com
When Tenants Pay Late (Part 1 – The Initial Discussion) at twowiseacres.com
From Freakonomics at fsbojane.com/
Flowers and Shrubs and Dust Oh My at rentalsrus.blogspot.com/
Almost…To….The…Finish…Line at flipthyhouse.com/
Health Insurance, Medical Expenses, and Unscrupulous Doctors at moolanomy.com/
Compare Your Rent to Your Neighbors at wealthisgood.blogspot.com/
Frugality: Increasing Your Quality of Life for Less at mrsmicah.com
Suze Orman Gets it Right About Why Our Economy is Faultering at money crashers.com

The Zen of Repairing Properties


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Due Diligence and Fixer Upper Properties Part 5 - the "as-is" sale

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For many of us, fixer upper properties are the foundation for building wealth in real estate. Finding a good fixer-upper is one thing, but making sure we are getting what we pay for is something that often doesn't always receive the same attention as the search process does.

Continuing with the Due Diligence series and following the outline from "Real Estate Investing for Dummies," we now look at the "as-is" sale. The due diligence period is the time between the acceptance of the offer and the close of escrow, when the buyer must find out all they can about the physical and fiscal condition of the house. The purchase agreement should contain a number of contingencies that allow the buyer and seller the opportunity to cancel the transaction if certain things aren't satisfactory.

Why Houses are Sold As-is

Some sellers try to sell their houses "as-is" to avoid disclosing any deficiencies in their house. They think that they don't have to correct problems in the property during the due diligence period, and are not responsible for anything that crops up after the sale. They erroneously believe that their technique to dodge responsibility makes them legally bullet proof. What they don't realize is that the as-is strategy actually only offers minimal protection to the seller. They may still be held responsible for misrepresentation, fraud, or negligence.

When you come across a house being sold as-is, a red light should start flashing in your mind. You could be dealing with a seller that is dishonest and trying to hide significant problems that would reduce the value of the house. A house offered as-is at an unusually low price may give you a headache for a long time to come, with no relief on the horizon.

Honesty the Best Policy

When you are selling a property, don't attempt to hide anything from the buyer. For your own peace of mind, and to avoid long court battles, disclose everything of importance, and share copies of any invoices an reports that reflect on the value of your house.

An Early Experience with an As-is Seller

I once made an offer on a house that was listed "as-is." At the time, it didn't bother me that that the seller wasn't disclosing everything. It would today though. But, what bothered me more, and set off alarms in my mind, was the egotistical attitude of the seller. He wasn't willing to make any concessions and or negotiate anything. Everything had to be done his way. I was an inexperienced investor, but my sense of smell worked alright, and I could smell a rat. I think that the seller offering the property as-is was an insight into the whole self-centered attitude of the seller.

As you know, I prefer an open and friendly approach to negotiating the purchase of a house, as described in earlier posts with the "suppose that... technique" in House Buying Negotiating Techniques, and the Detective Columbo "just one more question" technique in Start Small Profit Big in Real Estate.

While I liked the property, my suspicions made me pull out of the deal. The seller blew up. I guess he had already started counting his money. He angrily told me that if I had signed a contract, he would have held me to it no matter what. I thought to myself, "I sure am glad I decided not to do business with this guy. If he harbors this much anger for someone he hardly knows, who know what lies he would tell to sell a house?"

NEXT UP: TACTICS SELLERS USE TO AVOID INSPECTIONS

How to Completely Remodel a Kitchen for Under $4,000

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Due Diligence, Part 4 -- Disclosure Requirements

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Continuing the discussion of Due Diligence from the "Real Estate Investing for Dummies" outline, we turn to disclosure requirements. Due diligence is the time period between the acceptance of the offer to purchase a house and the close of escrow and completion of the sale. It is the time to get the answers to all of your questions about the house. You will never discover some of the problems that exist unless the seller tells you, which is what disclosure is all about.

The Tucson Police Example

The concept of disclosure reminds me of when the Tucson police were looking for a man they suspected of a string of burglaries. They had six photographs of the man, all taken in different locatoins and from different angles. They sent faxes of the pictures to police departments all over the country.

Three days later, Tucson received a fax from the police chief from a small town in Arizona. The report read, "We got right to work on those six pictures you sent. We'ver arrested five of the suspects, and we have the sixth under observation right now." A classic case of a cloud of confusion caused by not enough disclosure.

Disclosure Requirements Vary

Many states have seller disclosure requirements fo residential renal property with four or fewer units. Sellers are required to supply the buyer with a written statement that identifies all known structural and mechanical problems, and in many cases, the seller must complete a comprehensive questionnaire.

However, buyers of residential investment properties with five or more units or any tyupe of commercial property usually don't have the same protections. The idea is that buyers and sellers are more sophisticated and don't need a formal written statement.

My opinion is that whether or not a formal disclosure statement is required, if you are the seller, it is in your best interest to disclose all problems that could affect the value or use of the house. Two reasons to fully disclose problems are: 1) morally, it is the right thing to do, and 2) the buyer could still come back and take you to court under claims of misrepresentation and fraud. Why take the chance? Once you sell a house, you want to be done with it and not have to worry about being dragged into court.

What about if a seller offers a house on a "as-is" basis? Does he or she still have to disclose problems?

The "as-is" approach to selling is the next article in this series.


How to Sell Your Home Smart


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Weekly Roundup of Outstanding Real Estate and Investment Blogs

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Once again I present my picks of the week for best blog articles in the Real Estate Investing and Investment categories.

Piggyback Credit Histories to Increase Your Credit Score at twowiseacres.com/.
Record Keeping: Current Tentants at conniebrz.com/.
Real Homes of Genius Flashback at doctorhousingbubble.com/.
Predicting the Market at fsbojane.com/.
FSBO - Here We Go at rentalsrus.blogspot.com/.
Flipping LLCs Having Hard Times at shaunsre.blogspot.com/.
Ask the Expert with Larry Swedroe at moolanomy.com/.
Tips for Preventing Identity Theft at christianpf.com/.
My Grocery Shopping Strategy at beingfrugal.net/.
Closing Costs: The Breakdown at wealthisgood.blogspot.com/.
9 Ways Star Wars Can Inspire You to Save Money at wisebread.com/.
8 Reasons to do All Your Shopping Online at bargaineering.com/articles/.

So You'd Like to Create Multiple Stream os Perpetual Income


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Due Diligence, Part 3 -- Inspecting the Property

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Following the outline from "Real Estate Investing for Dummies," we now move to the property inpection part of due diligence.

You have made an offer on a house, it has been accepted by the seller, and you are now in a period where you must determine whether or not the house is really worth puchasing. If you inspect the property and the physical condition is not satisfactory, almost all purchase contracts allow you to gracefully back out of the deal with no loss of earnest money.

Even if the investment property looks good on paper, and your pre-offer inspection didn't unearth any skeletons, a wise investor will always do a thorough physical inspection before purchasing.

Although we investors tend to be frugal (see, skinflints), this is not the time to cut corners. You need an extensive inspection by qualified experts. I mentioned in an earlier post that I have a handyman/friend who has extensive experience in the construction & building trades, who inspects my investment properties. Unless you know someone that has that kind of background, you ought to hire someone who does.

Almost always, the inspection pays for itself. You will find problems in need of repair that are of far greater value than what you will pay the inspector. And the good part is, the seller will have to pay for the repairs if he wants to sell the house.

Many investors use a two-track approach to property inspection. You are looking for two types of problems:

1. Patent defects -- those which are more superficial and can be spotted by merely looking at the property. These include broken doors, cracks in walls & ceilings, and spots in ceilings indicating a leaky roof.

2. Latent defects -- those which are not visible to the naked eye, and are only identified through delving deep into the bowels of the house where few have treaded. In fact some potential problems, such a water pipes inbeded in the slab would be nearly impossible to evaluate. In fact, you couldn't evaluate it at all unless you had a disclosure from the seller.

Next Time: Disclosure Requirements

What is the impact of your credit score on mortgage interest rates? Find out at twowiseacres.

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Conducting Due Diligence, Part 2 -- Reviewing books and records

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Following the outline presented in "Real Estate Investing for Dummies," we continue with the key points in reviewing books and records during due diligence.

As mentioned, real estate purchase contracts allow the sale to be canceled without loss of earnest money if the buyer's physical inspection isn't satisfactory. Although, additional negociation between buyer and seller often results in the seller offering to fix the problems encountered.

Issues that are resolved during the review of books and records can eliminate future disagreements with your tenants. Verify all information in writing and set up a good filing system for your new property.

Some things to have on hand before the purchase is finalized:

1. Seller-verified income and expense statement for at least the past 12 months.

2. Seller-verified rent roll. This includes a list of all tenants, move-in date, lease expiration date, current rent, and security deposit.

3. Seller-verified list of all tenant security deposits on hand. It's best to have the seller to provide you with all security deposits so that you don't have to recollect them when you take over.

4. Tenant applications, leases, work orders and correspondence for each tenant.

5. Copies of all service agreements (for maintenance, landscaping, pest control,
etc.)

6. Copies of required governmental licenses and permits.

7. List of all personal property included in the purchase (for example, appliances, equipment, supplies and furniture).

8. Copies of the latest utility bills (electricity, natural gas, water/sewer, trash, etc.) Also, check to see if the seller has any deposits with utility companies.

9. A copy of seller insurance policy and loss history. This will help you determine how much insurance you will need to carry.

Make sure you verify the accuracy of all records you receive. Most sellers are probably honest, but you don't know if information is being withheld unless you have copies of everything that you have a question about.

Next up: Inspecting the Property

Learn about managing tenants in compliance with the Fair Housing Act at Bigger Pockets.

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Weekly Real Estate and Investing Blog Roundup

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As regular as the sun rising, here again is my unsolicited, unbiased, undervalued and unwarranted weekend blog roundup of favorite real estate and investment blog articles of the week. If you have a blog article that you think is particularly interesting, send it to my and I will have my crack advisory team evaluate it for possible (i.e., almost certain) inclusion.

Picking Tenanants, (or is that picking 'at' tentants?) at Conniebrz.com
Homemownres -- avoid foreclosures by thinking like investors at twowiseacres.com
I'm Dreaming of Spring as fsbojane.com
The Power of a Heatgun at rentalsrus.blogspot.com/
Investor's Meeting at myrei.blogspot.com/
Foreclosures as a smart financial option? at iboughtaduplex.com/
Just walking away at livelearninvest.com/blog/
Tulsa Rental Update at shaunsre.blogspot.com/
Should I get a loan to invest at gatherlittlebylittle.com/
The Big Rocks of Life at moolanomy.com/
16 Ways to Save Money by not being Normal at christianpf.com/
75 Frugal Hacks for Your Home at beingfrugal.net/



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