Tag Archives: house

Buying an Investment Property Sight Unseen

house
A little over a year ago, I purchased an investment property in Kansas City, Missouri. I have never been to Kansas City, Missouri. I bought the property sight unseen. I live in New York City and can’t afford rental property in this area so I decided to invest out-of-state where the numbers make more sense. I am a risk averse person and buying something sight unseen sounded crazy. I just didn’t have to time to fly out there to see the property personally. However, ultimately, I determined that me physically going to the location wouldn’t have made that much of a difference. Was it really necessary to drive around the neighborhoods, look at houses, and speak to the staff of company I was looking to purchase my investment from? With the power of the internet, I can research the neighborhoods, look at pictures and videos of the houses, and speak to the staff of the real estate investment company over the phone. I know very little about housing construction and the extent of my home improvement skills is changing a light bulb and hammering a nail into the wall. Yes, it is pretty pathetic. I am much better off in leaving this to the experts.

Here is what I did instead:

First, when choosing someone to work with, I went to the forums of Biggerpockets. There are many people asking for references and a few names consistently came up as being trustworthy. I contacted the people who gave the good reviews and asked them more specific questions about how their investment was going. I googled those companies and checked if there were complaints on BBB. The most important thing when investing (and especially when investing out-of-state) is to trust the person you are working with. And even if you do trust the person, you must always make sure to the best of your ability that what they are saying is true. Trust, but verify!

After narrowing down the companies that had great reviews, I contacted them and asked them more specific questions regarding the investment. If the person I spoke to take forever to reply to e-mails or phone calls or if they sound shady or overly optimistic about their investment, sounding like they were making a sales pitch, I’d be less inclined to work with them. Sure, an in-person meeting may be slightly better way to determine whether one can be trusted, but I don’t think it was absolutely necessary.

Researching the neighborhood and property:

Zillow: This is one of the best tools giving you a good amount of information about the property and neighborhood. It will provide you with a “Zestimate” which is their estimate as to the approximate value of the property. They seem to do a pretty good job estimating how much the property is worth. You can also look at the comparable sales in the neighborhood. There are also ratings for the schools in the neighborhood. Another great tool that Zillow has is their rent zestimate which estimates the amount of rent you can probably get from that property. It is a pretty good estimation but also check out Rentometer, which also gives a rent estimate. Another thing you can do is to call up local property managers and ask them how much rent they think you can charge for that property.

Trulia: It provides similar information to Zillow, but I like using Zillow better. I do like Trulia’s Crime Map which shows the amount of reported crimes in that neighborhood. It also has information about demographics as well as average commute time and businesses in the neighborhood. For more information about crime, SpotCrime is also a good resource. Another great resource with a wealth of information about various neighborhoods is neighborhood scout. (You will have to pay for more advanced data)

The Biggerpockets forum is not just a great place to get recommendations on companies to work with, but it is also a great place to find which neighborhoods you should invest in. There are plenty of helpful people who will tell you what areas to avoid and which areas are a good investment. Also, check out the City Data forum where there are many locals who will provide information about the neighborhood you are looking into. The Biggerpockets forum is geared towards investors whereas the City Data forum seems to be people talking about their neighborhoods generally and helping those who plan on moving there with information. Another way to look at the neighborhood and house without traveling there is to use Google Street View. Of course, these pictures may not be up-to-date but it still gives you a feel for the neighborhood.

Seeing the property- the turnkey company, realtor or whoever it is you are working with will send you pictures and/or videos of the property. If you want to make sure these pictures are accurate, you can hire an independent third-party to take pictures of the property and send it to you. For $69, WeGoLook will send an agent to the property to take some pictures and verify the condition of the property.

Finally, after all this research, I think that an inspection and appraisal of the property adds an extra layer of security. If you are taking a mortgage on the property, the bank won’t want to take the risk of giving you mortgage with a property that is in horrible condition and about to fall apart. The home inspector has no incentive to lie about the condition of the property. Consider using a different home inspector than the one recommended by the turnkey company or realtor you’re working with to ensure there is no conflict of interest.

I’m not saying you should purchase real estate out-of-state without seeing it. If you are able to fly out to see the properties offered, check out the neighborhoods, and talk to the people you will be investing with, it’s a great idea. I’m just saying that it is doable even if you cannot personally go there. Just make sure you do your due diligence. Investing in real estate has risks and investing in a property out-of-state has increased risks, but they can be reduced.

Would you consider buying a property without seeing it? If you’ve done this before, are there any other resources you would recommend using?

Co-op Buying Process

credit: By Jennifer D. Ames (Own work) [CC-BY-SA-3.0 or GFDL], via Wikimedia Commons

credit: By Jennifer D. Ames (Own work) [CC-BY-SA-3.0 or GFDL], via Wikimedia Commons


As I mentioned in my previous post, we just moved to our new digs. In the last year or so, I’ve posted a few times about thinking about buying a co-op and signing the contract. When you purchase a co-op, you do not technically own the apartment, but you own shares of a co-op corporation that owns the building. So I’m not technically a homeowner, I’m a shareholder.

When I started researching about the co-op buying process, I saw an article where the writer said that a trip to the dentist to get his tooth extracted was a more pleasant process than the co-op application and approval process. I can’t say that the process was that bad, but I can see how it can be, especially for luxury co-ops in Manhattan with stricter guidelines and snobbier people. =)

Fees
Oh those pesky fees! Yes, you have to pay for the privilege to buy a co-op. Here are a list of fees I paid:
1) Non-refundable processing fee in the amount of $350
2) non-refundable credit report fee, in the amount of $75 per applicant (Don’t worry, they didn’t charge for a credit check of my 15 month old)
3)Non-refundable application fee in the amount of $500 (refunded if your application is denied). I’m sure what the difference between an application fee and processing fee is??
4) Move-in fee in the amount of $100
5) Move-in deposit in the amount of $400 (refunded when they determine that you haven’t scratched up their walls/elevator during the move and after they determine that you are in compliance with the rules, like having 80% carpeting)
The fees are to be paid using certified bank checks or money orders.

Application
The application consisted of about 30 pages asking pretty much everything they can ask about your financial situation. You also had to copy and collate 7 complete copy sets to submit. Here are a list of the main things they wanted:
4 most recent paystubs
3 most recent bank statements as well as other financial institutions (retirement accounts/investment accounts, etc)
2 most recent utility bills
Letter from your landlord (if renting) stating how much your rent is, how long you’ve lived there and that you are current on the rent payments
3 personal reference letters (per applicant) stating what a wonderful person you are and what a wonderful neighbor you’ll make. Some co-ops require professional reference letters as well from co-workers and supervisors. I should have submitted a personal reference letter from Little LRC’s friends too, written in crayon explaining that he is very quiet and doesn’t like banging on the floor.
Statement of Net worth They asked us to list all of our assets, which included not only your bank accounts and accounts with financial institutions, but also your vehicle, jewelry and furniture. They also asked you to list all your liabilities like mortgages, student loans or other debt. Surprisingly I never knew our net worth. While I do use Personal Capital to track my assets, it doesn’t include my wife’s accounts and did not include my pension information. Not sure it’s a pf faux paux not to know my net worth, but it didn’t really matter to me as long as we were living within our means and meeting our savings goals. Seeing your net worth is pretty cool and I was pleasantly surprised. I’m tempted to post it like other bloggers do, but I think I’ll keep it private for now.
Passport sized photos of all applicants (Yes, they wanted a passport sized photo of Little LRC too. They’re lucky he sat still for 2 seconds to get a good shot!)
Letter of employment from employer
Mortgage Commitment Letter
Copy of driver’s license or other government document establishing permanent residence in the U.S. I guess non-permanent residents are not welcome.

Deadline
As I mentioned, I had to submit 7 collated copies which included all the above documents. I spent a bit of money at Kinko’s and killed a bunch of trees making these copies. I was also there hogging the copier for a while early in the morning trying to get all the copies made before the deadline. Well there wasn’t an actual deadline, but I wanted to get the board approval ASAP and also, my mortgage commitment was good for only 60 days. You see, the co-op board only meets once a month, so if you don’t get it in before the first Friday of the month, you’ll have to wait until the next month. Oh and another thing, this was in July and this co-op board takes August off so I’d have to wait until September if I didn’t submit it on time! I submitted the application slightly late as the first Friday of July was a holiday and I didn’t get the mortgage commitment until that weekend. The co-op board was nice enough to take my application to review for July. They did inform me that the fees mentioned above had to be paid with certified checks or money orders and I wrote them personal checks. Argh…I need to pay more attention to the details! I ran to the bank (Little LRC in tow) to get them and ran back with the proper payment.

Co-op Board Interview
For our interview, it seemed more like a foregone conclusion. I think that the application package which includes all your financial details was sufficient. They did ask us a few questions regarding whether we had pets and told us to have thick carpeting so as not to disturb those below us. However, some co-op board interviews are more intensive. They want to make sure that you’re not going to be throwing wild parties in your apartment perhaps. However, I’ve heard that some questions can border or being racist. And of course they don’t need to state a reason for rejecting you so they can often get away with it.

Rules
One of the many complaints about living in a co-op or in a community with a home owners’ association is the various rules that you must comply with. There are pros and cons I guess. Not having rules may cause headaches when your neighbors do things that would annoy you. The con is that even though you are an owner, I mean shareholder, you still need to abide by other people’s rules. I haven’t had the time or patience to read through the book of house rules. Maybe I will break out the book one night when I need good reading material to help me fall asleep. However, a few of the rules I know of for my co-op are the 80% carpeting rule and no pet policy. If you want to make renovate or remodel, you can’t just call a contractor up, you first have to get the approval from the co-op board. And of course…fill out another application. When there’s an application, an application fee is no doubt included. There is also a deposit that you must submit which is refundable.

Jumping through hoops just to become a shareholder and putting up with rules set by a co-op board may not make sense to many. However, such is the realities of housing in the NYC metro area. Buying a house is prohibitively expensive for most, so buying a co-op is the only option if you decide not to rent. I don’t think there’s anything wrong with renting, but it made financial sense for us to buy a place now.

The Top Ways Your Home is Costing You Money

The following is a guest post by Chad Dannecker

Repairs and maintenance are an inevitable part of home ownership. Putting off certain repairs can be costly to do, because they could turn into bigger repairs later or cause you to waste precious energy. Here are the top five ways your house could be costing you money, along with solutions on how to rectify these problems so they do not become bigger ones later on

1. Improper caulking
This is a relatively simple job, but one that is nevertheless often overlooked. After time, old caulking can break down and no longer perform as it is supposed to. Check the area around doors and windows to ensure there is adequate caulking in order to prevent air loss. You should also check the caulking around your toilets, bathtubs, countertops and sinks, as inadequate caulking could result in moisture getting behind these fixtures and causing damage to your walls.

2. Excess water loss
Even small leaks can cause you to use a great deal of extra water over time. To save money on your water bill, have a good look at all your pipes and faucets to see if they show signs of leaking, and then make repairs as needed. You can also save money by installing new low-flow showerheads and toilets; in some cases, you could reduce your monthly water consumption by as much as 50%.
leakyPipe

3. Inadequate insulation
If your home has inadequate insulation, it will naturally be harder to heat and cool as a result. Insulation can be purchased rather inexpensively, and can also be installed as a DIY project. If you’re unsure as to whether or not your home has the right amount of insulation, consider having a professional inspection performed. The money you spend on this inspection will more than pay for itself over the long run, should you discover more insulation is needed.

4. Pests
No matter how clean or well maintained your home is, you can still be subject to pests such as ants, roaches, spiders or even rodents. If these pests are left unchecked, they can cause serious damage to your home’s foundation, wiring or crawl space. Insect droppings could also get into your ductwork, thereby causing you and your family to suffer respiratory disorders. To avoid damage from pests, consider having a professional exterminator treat your home on an ongoing basis in order to prevent small problems from becoming bigger ones. If you’re intimidated by the cost, there are a number of do-it-yourself remedies you can use to fight pests with as well. Spray around the foundation of your home on a regular basis, and place glue traps in strategic areas to catch mice with-just be sure to keep them out of the reach of pets and children.
rodent

5. Dirt and grime

One of the best ways to prevent major repairs is to keep your home as clean as possible inside and out. Have your carpets cleaned on a regular basis, as this will ensure they last longer. Pressure wash your siding once or twice a year to prevent dirt and grime from aging it prematurely. Clean your ductwork in the spring and fall in order to ensure air is able to flow freely, as this will also help your HVAC system work more efficiently. Wash down walls on a regular basis, and you won’t have to paint them as often either.

These home repairs are rather simple and inexpensive to make, yet many times are overlooked. Take a look around your home today to see which ones if any need to be performed, and then make plans to get them done as soon as possible. You’ll not only be saving money, but you can also avoid major repairs while also increasing the value of your property.

Chad Dannecker is the team leader of Dannecker & Associates. With more than 40 years of local real estate experience, Dannecker & Associates has established themselves as the leading source of real estate expertise in San Diego.