11 Tips to Buy a Flipped House
Investors in California have been busy buying distressed homes to rehabilitate and renovate then sell for a 10%-50% profit margin. As a buyer, when you see a house that has been recently renovated, you need to ask your realtor if this renovation was done by the homeowner or flipped by an investor. There is an evident difference in the quality of workmanship and possible lingering issues yet to be addressed. Buyers: Do Your Homework. Ask for existing inspection reports Prior to submitting an offer, ask your realtor to request any inspection reports done by the seller or a previous buyer. Some investors will perform at least a pest inspection to avoid surprises that put a damper on the sale during a transaction. The seller must share the inspection report with potential buyers. So, do not hesitate to ask. Perform as many types of inspections as possible If the seller did not perform any inspections, you have no way of knowing the condition of the major parts of the house unless you order those inspections yourself. Yes, inspection cost is a direct up-front cost to buyers. Therefore, a set-aside budget for inspection costs needs to be accounted for prior to committing to purchasing a house. On older homes, the buyer should do the following inspections: Pest/termite, home, roof, sewer, and heating and air (HVAC). Structural inspection is necessary if recommended by any of the inspectors above or if you see a need for it. Be present during Inspections Inspect the House Thoroughly: Most buyers depend on their realtors or other agents to be present during inspections. Buyers do not need to be present during the entire period of inspections. However, it is extremely important for buyers to free themselves and be present by the end of inspections… say the last 20 minutes. Inspectors usually walk you through the house and show how things operate on one hand. Most importantly, they show you where the repair is a must or if the repair can wait. Being present during a walkthrough with inspectors will help you make a sound decision when you ask the seller for repairs. Check if Crawl Space is a Nightmare Houses either sit on a concrete foundation or a raised foundation. Raised foundation homes, especially those older homes, could have major dry rot and fungus. They might also have active termite and/or rodent activity. If the access to the crawl space is small and your inspector is unlikely to fit in, do not encourage skipping the crawlspace inspection to just finish the inspection task. You can ask the company to send someone who could fit through the opening. Rule of Thumb, since buyers are not likely to visually inspect the crawl space, ask the inspector to take photos for you. Pest inspectors usually do not take photos for the purpose of the report. If you do not ask them, they will not take any photos. If you are not present at time of inspection, you will miss on that opportunity. Venting is another issue in the crawl space. There must be a way for air to circulate under the house. If there is not sufficient venting from all sides, mold might build up and cause health issues and damage to subfloor wood. Check Cracks in Concrete Foundation If the house you are buying is on a concrete foundation, you need to watch for cracks and the size of cracks in concrete. If you see tangible-sized cracks in concrete outside the house, but running inside the house, you need to examine where the cracks are going inside the house. If there is a new carpet where you expect to see the tail of the outside cracks, then you have a problem that is worth checking. A structural engineer will be able to examine if the structure has major issues to address. Do not ignore Electrical Wiring and Main Switch Fire Hazard in Main Panel: Old main switches could be a fire hazard. Electrical re-wiring in an older house is a very expensive item for investor flippers. Re-wiring requires a licensed electrician, who usually charges thousands of dollars. Most flippers leave that task undone! Bad electrical wiring could lead to fire. Hidden wires in the attic could spark and lead to lighting of the insulation material. What’s in the Attic? Normally, there is insulation, air ducts, water pipes, and electrical wires in attics. The attic is also a storyteller. You can find out more history about the house than what’s in the living space. Inspectors, sometimes, find charred wood, which is clear evidence of a past fire. Most flippers do not know about a past fire if they have just recently bought the house and they have not done an inspection. It is a negotiation item for the buyer. The attic could have active rodents or evidence of it. The attic could have low or no insulation, which contributes to low-efficiency home and high utility bills down the road. Make sure the attic is properly inspected. Roof Inspection is a Must Water penetrates through rain boots on the roof. Roof repair or replacement is one of the high-ticketed price items in flipping a house. Almost all investors selling in the summertime will ignore roof repairs because shingles are dry and leaks do not show. If they are selling in a rainy season, they will do minimum repairs to cover any issues. The home inspector will climb and take photos. He also could recommend a roof specialist if he suspects major issues. Watch for mildew on shingle edges, missing shingles, debris from adjacent trees, and any patches recently done. Ask the seller to do all repairs Seller should agree to do all health and safety issues that appear on any and all inspection reports. Not all sellers agree to all repairs requested. As a buyer, you need to weigh in the cost of any items that are left unrepaired. Such items could jack up the home price for you and you might be better off buying a different property that do not have such issues. Pick Best Time to Buy a Distressed House Rain season is the best time to buy a House: Flipped homes are sold all year round. Buyers should buy flipped homes winter season and even best during the rainy season. Make sure to schedule an inspection on a rainy day! Why? Because only rain will show you if there are any leaks in the roof. Only rain will show the condition of the crawl space, which sometimes functions as a water collection pot. If that’s the case, major work needs to happen to divert water from going under the house and causing thousands of dollars in damages. The dual-pane windows will fog or you will see water condensation inside, which is evidence of the failing seal of the windows. Call, text, or email for advice on any issues you might have or to hire a realtor. Do You Want to Buy a Flipped Home? A professional realtor will handle your transaction and related inspections: Make sure that your realtor is a savvy agent when it comes to inspections. Your realtor needs to be equipped with sufficient knowledge about what to look for in a flipped home. Having fresh paint, granite countertop, new kitchen cabinets, and new floors might only be a trap for first-home buyers. Do not fall into that trap. What is hidden under and behind those nice finishes could be a deal breaker if you are lucky to discover them. For all your questions, contact me.
What is Escrow?
Escrow is a trusted neutral third party. They have the job of a trustworthy entity that communicates with the seller and the buyer equally. They keep the buyer's and seller's investment safe till the transfer of ownership. Once the buyer and seller sign an agreement, one of the realtors will hire an escrow and title company. A unique number is assigned by the company to every transaction. This is called "open escrow". This unique number is used as a reference to this specific property, buyer, seller, lender, bank, brokers, agents, etc. The buyer will use it to wire the initial deposit (earnest money) and the down payment to the escrow account. In a way, escrow is like the accountant in a property sale. They keep the buyer's initial deposit in a safe account called the "escrow account". Then they will either hand to the seller along with the lender's funds after the sale is final or return to the buyer if the sale is canceled. Because the escrow company takes orders from buyer and seller or their agents, they try to stay transparent to all parties. They will provide answers whenever they are asked as long as they have the information requested. Property Reports Escrow and Title companies also order required property reports, such as Natural Hazardous Report, Title Insurance Policy, and Preliminary Title Report, which they review in order to provide the buyer with a clear title for the property they are purchasing. They also prepare final settlements to buyer and seller. The final settlement document shows how much each party has in credit and debt by the closing date. In addition, they prepare all documents for signature and recording and they coordinate all appointments. If the seller or buyer cannot sign in person, escrow assigns a notary public to carry the closing documents to that party and collect all signatures. Escrow Fees For all their services, they charge about 1% to 2% of the home purchase price. Buyer and seller decide who pays escrow fees and may agree to pay it either by the seller, the buyer, or split between both according to the purchase agreement. In general, Southern California companies charge more than Northern California companies. Some companies charge base fees even if the transaction is canceled. Escrow Facts Other free services provided by escrow are pre-transaction services, such as buyer's and seller's net sheet, neighborhood mapping of homes, and mapping of owner occupancy and tenant occupancy. Most likely, realtors pick their favorite escrow company to work with. They are familiar with their staff, work habits, and have established a way to reach them at all times. Sellers and buyers would not mind which one to work with and they cannot tell the difference. Sellers and buyers who use the 1031 exchange program would prefer to stay with the same escrow company that handled their first transaction. (This is only for 1031 exchange customers. All others can skip this statement). Call or email for a free consultation.
Invest in Real Estate: To Rent or To Buy?
Everyone needs a home. Should you rent a home or should you invest and buy your own? It may seem like a simple question, but the answer is different for everyone. Until 2007, many people considered real estate to be a bulletproof investment. Houses almost always appreciate, right? Today, we know that is not the case. There are potential risks, but there are also many advantages. To find out if homeownership is for you, there are a few things you should consider. What a Perfect Investment Looks Like In a perfect world, what would homeownership look like? The most important thing is your quality of life. Your home should meet all of your needs, and you should enjoy living there. This includes both the features of the home, as well as the local amenities. When it comes time to sell, you should earn a tidy profit and qualify for it to be tax-free. This is what renting vs buying is all about. The Financial Differences between Renting and Owning In the short term, renting appears to be the cheapest option. You don’t have to worry about maintenance, insurance, property tax, or a hefty down payment. If it costs $2,000 to rent and $3,000 to own, you might think that owning is more expensive. For some people, the cheaper option is better. Renting can save you money in the short term, but there are a few things you’ll miss out on. Choosing ownership gives you a mortgage interest tax deduction, and the profits from the sale of a home that are appreciated are very likely to be tax-free. You can rent the same place for 20 years and never get a cent back. Putting that same money towards a mortgage could have bought you a house. Why not buy now? The past is gone, and the future is unknown. There is no better time than now. Stretch Your Dollar with The Right House Haven’t found your dream home? In some cases, it’s worthwhile to buy a home with less appeal. When a home is unattractive, dated, or simply in need of a coat of paint, you’ll be able to purchase it for less than the appraised value. You can invest in some renovations, improving the chances that you’ll profit when selling. Not much of a handyman? Buy a home in an up-and-coming area? Neighborhoods going through the gentrification process, or property just outside of a quickly growing city stand a much higher chance of appreciating. Timing is Everything If you want a real estate purchase to be profitable, timing is one of the most important factors. You’ll want to buy a home when prices are low and sell when they’re high. How much is a home worth? It’s not the number on the appraisal report. It might not even be the price it’s listed for. Homes are worth what they sell for. Although nobody can predict what the housing market will do, your real estate agent understands the local market and can give you the advice you need. They’ll be able to help you buy at the right time and can help you time the sale as well. Every Situation is Different People buy real estate for various reasons. Some want to get the home of their dreams, while others want to see a return on their investment. If you can clearly define your needs, a real estate agent can help you determine if there is a home that will help you reach your objectives. Whether you want to make an immediate return on the investment or a long-term return, we can help you achieve these goals. Simply call or text 530.400.0496 to get your thoughts focused and finalized. This could be the best call you have ever made. Call or email for a free consultation.
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