We recognize how critical it sometimes is to draw as soon as possible. We’re on it.
We’ll work with your scope of work, though we prefer our format. It’s one page and simple for all involved to follow. We typically do just one physical inspection, usually at about 40-50% completion. Otherwise, photos and videos are sufficient. But the fees (just $200 for a rare physical inspection, and $35 for each wire) are deferred until you sell your property!
Each project is unique. Each client’s strategy is unique. Thus, our loan structures are unique. We’ll work with you to create terms and structures that fit your unique needs.
Because we’re confident in our underwriting and in our clients, we’ll often offer to defer all typical, upfront loan costs until you sell your property. This includes any agreed-upon points, the 3rd-party fees for loan docs and for an appraisal (we pay these invoices for you, and then you reimburse us when you sell), and even the first month’s prorated interest. We often even defer any wire, inspection, and extension fees. This allows you to minimize your upfront and carrying costs so that you can better manage your projects.
The timing of offers and closings are critical in this industry. We understand. We try to make ourselves available even at odd hours to give a quick analysis of your project and a preliminary loan offer. Most of our clients have our cell phone numbers. We’re ready.
Our clients of course do more initial research on each project than we do because they’re taking on the most risk. However, we’ve been involved in thousands of projects and thus have experiences and advice that we’re glad to share. Sometimes the advice is cautionary, sometimes its optimistic, but it’s all intended to aid in our clients’ successes as real estate investors.
Buy-and-sell strategies are profitable only if sold before the breakeven point. That is because flip projects do not generate income during the holding time. The profit gap will shrink and eventually close because holding costs continue to accumulate. After this breakeven point, the property is now being held at a loss. It’s important to coordinate all plans with partners to optimize the execution time.
There are certain attributes of homes and neighborhoods that may negatively affect a property’s value, and so it’s important to consider these when estimating a property’s After-Repair Value (ARV). Here are some common “obsolescences”, as they’re often called, to consider:
EXTERNAL OBSOLESCENCES
High Schools and Middle Schools
Being close to a good elementary school often gives a boost to a property’s value. However, middle schools and high schools can sometimes invite mischief. It may be prudent to be mindful of this when considering a buyer’s interest in the subject property.
Proximity to Busy Transportation Routes
Airports often invite heavy road traffic and certainly airplane noise.
Major road traffic can sometimes make for a loud home, an unsafe home for children, and/or an inconvenient and dangerous place for ingress and egress.
Trains are loud and cause vibrations. Both of which are particularly unfavorable for families.
Power lines, water towers, etc. offer undesirable views, dangers, and sometimes inconvenient easements. Proximity and views should be considered.
Adjacency to commercial and retail will create much more traffic and noise than a home more interiorly located in a neighborhood. However, in some neighborhoods, proximity to grocery stores and other conveniences can sometimes be a bonus.
A bad neighbor can hurt an otherwise desirable house. Consider neighbors with neglected homes, dangerous dog breeds, etc. Further, neighborhood homes with security bars on their windows may indicate a presence of crime.
Properties in or near a flood zone may create concern for buyers, as well as an additional expense for flood insurance.
INTERNAL OBSOLESCENCES
Layout
In general, primary bedrooms should have bedroom access to an exclusive bathroom, etc. A poor layout can turn off many buyers.
Additions and Conversions
Additions and conversions may not warrant the same price per square foot as the original floorplan. It’s often dependent on layout, quality, and the neighborhood.
Upgrade Level
Not all homes warrant the same level of upgrades. Or, put another way, the costs for some upgrades are not always recaptured in the sales price. Homebuyers in the $400,000+ range are often more particular than homebuyers in the $200,000 range. It’s simply a matter of price and desire. For example, high-end appliances may be necessary for a $400,000+ home, but overkill in a $200,000 home where a buyer may be simply shopping for a solid, functional family home.
We sometimes see, and always look for, premiums and discounts on a location relative to its neighboring school districts. For example, a home may be near and similar in style to comps that suggest a value of x. However, upon closer examination, all of those comps are in a far superior school zone based on state performance rankings and reputation, and, when reexamined, buyers pay 20% more for those homes just to send their children to that particular school. This contrast is sometimes very significant and seldom caught. Not even appraisers often consider this. We recommend using sites like SchoolDigger.com to investigate further.
Brokers and wholesalers have a valuable role in real estate investing. They’ll help find both investment opportunities and loan opportunities. But it is also important to recognize that their incentives are not always in your best interests. They get paid on optimism, not results. It’s you, the investor, that takes the risk. So be careful and skeptical, and we’ll be the same. Your success is our success.
When a seller qualifies for an exemption but their purchaser does not qualify for the same exemptions there may be issues with the closing. Often the tax office will remove an exemption post-closing and when the exemptions are removed, the county has the right to go back and true up the tax account. When they do this they issue what is called a supplemental tax bill. This supplemental tax bill is typically sent to the unsuspecting buyer who is now responsible for payment of the taxes. This tax bill is often several thousand dollars and comes as a shock to the buyer. Even worse, if the tax bill goes unpaid then the taxes become a lien on the property.
When you have an issue that could result in a post-closing tax bill or proration issue, we recommend you seek guidance from our trusted MW Law-Alamo Title closing team before the contract is executed so there are no surprises after closing. www.mwfirm.com
