While I was working at the major manufacturing
company, I held the following positions:
One
of my primary responsibilities over the last 25 years was
the financial analysis of acquisitions and major projects
to ensure viability of each project. This included in depth
analysis and due diligence of sales forecasts, cash flow
projections, projected cost savings and asset verification
for each project. I now bring this same business philosophy
to real estate investing. These basic philosophies are:
Discover
a potential investment
I
look primarily for single family residence properties
that have some distress and where the seller wants to get
rid of it. Right now there is a large inventory of bank
owned properties (aka REO's or Real Estate Owned). Unfortunately,
it appears that this economic situation will be with us
for some time. I look for properties that may need basic
rehabbing such as painting, carpeting, cleaning and
other minor repairs. The property also has to be located
in a neighborhood that appears to be stable where homes
are still being purchased or easily rented out. My primary
targets are for homes that are being sold in the $75K
to $150K range and are approximately 60% to 70% of current
market values. This allows for you to rehab the home
and have positive cash flow once the project is complete.
Furthermore, these are considered "first time home
buyer"
properties which seem to be the primary sales in today's
real estate market. There are many government programs
circulating right now that help first time home buyers
with tax credits and deductions.
Perform
Due Diligence
This
is a key ingredient to successful investing regardless
of your method of investment. For real estate, you should
start off with a top level analysis indicating the neighborhood
characteristics. This includes reviewing recent sales,
current active listings, other foreclosures in the area
and current rental rates. Once a project passes the first
hurdle of due diligence, a visit to the property is mandatory.
This will indicate (in most cases) any problems with the
property. But please remember that foreclosure properties
are sold "As-Is'. This means that you get not only
everything that you see, but also everything that you do
not see. I strongly recommend getting a professional property
inspection on any property that you become serious about
PRIOR to submitting an offer to purchase the property.
This will be money well spent.
Submit
the Purchase Offer
Remember that foreclosures
are bank owned properties and they sell the property "As-IS'.
They also have quite a few "addendums" that they
will require for you to sign. You should read the addendums
in their entirety and seek legal advice if you have any
questions regarding the forms. The bank will also verify
that you have the funds to close the deal. You will need
to provide them either a verification letter from a mortgage
company indicating that you have been approved for a loan
or proof that you have cash sitting in the bank. Right
now with the credit crisis, cash is king when submitting
an offer. Many people are starting to use Self-Directed
IRA's as a means to access cash for their real estate holdings.
A good source of information regarding this is with Pensco
Trust. Once the purchase offer has been submitted,
be patient. The banks have their hands full right now and
sometimes it takes them a little time to get back to you.
Rehab the Property
I like
to take the "Wal-Mart" approach to rehabbing
a property. Anytime that Wal-Mart builds a store, they
try to get the store built in the shortest amount of time
so that they can start selling their products. Your approach
to rehabbing your property should be no different. I would
advise getting your rehab contractors in for quotes after
the contract has been accepted. Hopefully we have performed
our due diligence in the beginning and have purchased a
property that only needs a "shave and a haircut" which
means that it needs a good painting and carpet replacement.
You may have other minor repairs needed, but you should
develop a budget at the beginning of the project and stick
with it. Do not overspend on your rehab costs or it will
affect your investment return. With the economy in it's
current condition, cost savings can be found in both the
labor and material costs for your rehab project. Fantastic
savings can be made by purchasing materials from the Internet.
I have read many discussions
regarding whether you should perform the rehab yourself
or contract it out. One side says that you should
perform as much of the rehab yourself. This is great if
you have the time and fortitude to see the project to completion
and will certainly reduce your overall rehab costs. The
other side of the discussion states that you should contract
everything out so that you can be investigating the next
property investment. I personally take a mixed point of
view. I generally take care of many of the smaller projects
like replacing door knobs, light fixtures and landscaping.
I don't ;like painting nor do I know how to lay carpet
so I contract these items out. You will need to determine
who does what, but keep in mind that you want the rehab
complete in the shortest amount of time.
Put your Property on
the Market
Once the rehab is nearing
completion, you should put the home on the market as either
For Sale or For Rent. You can either use a real estate
agent or you can market the property yourself to avoid
the commission paid to the agent. Just remember to market
the property on every avenue that you can. It's very important
to get your property in front of as many people as you
can.
If you decide to rent the
property while the market recovers, the most important
issue is to check on your potential tenants. In Georgia,
you are allowed to request a credit check admin fee up
front for background and credit checks. Be sure to perform
a background check to make sure that you have a good reliable
tenant. There is nothing more frustrating that to have
to deal with deadbeat tenants that you eventually have
to go to court for eviction. Reduce the possibility of
this happening to you by performing your due diligence
on the new tenant.
I have an email bulletin that I send out
weekly that shows New foreclosure properties in the Coweta
and Fayette counties. Please submit your email if you would
like to receive the bulletin. I hate Spam, so you will receive
a confirmation email that you will need to click on to complete
the subscription. You can always quit anytime you like.
