July 2010

Investment Exchange

An educational real estate newsletter

CALCULATE REHAB COSTS

Upward of 80 percent of foreclosure purchases require rehabilitation (rehab) improvements before they're in livable and/or sellable condition.

These fixes range in size, scope and cost, from installing a small broken window to repairing major structural/foundation problems.

Indeed, it's important that at first blush you are not dazzled by a rock-bottom price, forgetting about the very likely repair and improvement costs.

Some properties are simply so damaged that there's little more you can do than hire a wrecking crew. That's when you can end up over your head.

On the other hand, with many properties a little rehab can go a long way. And this is how the real deals are won.

It's common for many would-be buyers to overlook mega profit potential in properties that just need a few coats of paint and some yard work. You must have a keen eye that can detect the small differences between a money pit and a moneymaker.

Homes in need of rehab are at the heart of the foreclosure industry. It's hard to turn a $100,000 profit on a "move in ready" house!

This month's newsletter is all about priming you for rehabbing your distressed property. You'll learn how to find great contractors, money-saving "Do it Yourself" (DIY) projects, which problems to look out for and much more.

As always, Foreclosure.com is here to help every step of the way.

Continue reading to learn how to squeeze the most value out of your property. Your next windfall could literally be hiding behind some overgrown bushes and a few piles of debris.

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Site feature spotlight

MONEY FOR YOUR REHAB

When it comes to foreclosures, renovations often mean far more than just changing the locks and replacing a few light bulbs.

Many foreclosure properties are actually in such poor condition that they don't meet Federal Housing Administration (FHA) standards, which also means they don't qualify for FHA-backed loans.

To put it simply: If you want to qualify for the most affordable mortgages on the market, you need to get your property up to FHA standards.

Enter the FHA 203(k) loan and renovation program.

The program lends money to foreclosed property buyers so they can do the renovations necessary to bring their houses up to snuff.

Market analysis has revealed that buyers and investors who take advantage of the program create 15 to 30 percent equity over and above the costs associated with acquiring and renovating the property.

It's a significant bump in equity that can translate into a lot of extra dollars come selling or renting time.

To help acquaint you with this exciting incentive, we invite you to take advantage of our webinar FHA 203(k): The Insider Perspective 345.

Taught by industry expert Greg Story, this course is now available On Demand, which you can watch whenever and wherever you are.

The webinar covers:

• Federal guidelines and standards for the 203(k) program
• Identifying key renovations that add instant value to a property
• Bureaucracy pitfalls of the program and how to avoid them

This information and more is available to you thanks to FHA 203(k): The Insider Perspective 345. It's the missing link between you and an accessible, affordable mortgage, not to mention mega profit potential.

If you're at all interested in distressed property investment, you need to educate yourself about the opportunities available to help you realize your goals.

FHA 203(k): The Insider Perspective 345 is a great place to start.

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Web site search tips

REHAB HELP JUST A CLICK AWAY

Rehabbing almost always comes part and parcel with a foreclosure purchase. It's a big part of the reason you're getting such a great deal on the price.

So instead of being put off by seemingly complicated renovations, first see if there is affordable help nearby. What you might save at the hardware store and on labor, could be nothing compared to the cost to clean up your mess.

Foreclosure.com makes it easy by putting you in touch with the right people to help you review your options, estimate your rehab costs and get the job done right ... the first time.

Once you've found an intriguing prospect property on Foreclosure.com, click on it to get to the listing details page. You'll know you're there when it says "Foreclosure Listing Information" near the top of the page, along with the property address.

Scroll down the page a bit and you'll see a box entitled "Resource Center." The first link in that box is "Need a Contractor?"

That one link is your key to locating reputable contractors all over the country and right in your backyard. These professionals are all licensed and ready to take on everything from kitchen remodels to trash removal to pest control.

Once you've clicked on the "Need a Contractor?" link, you'll be taken to the "Guide to Home Improvement" website, which allows you to customize your contractor search based on the work you need done. It's as easy as checking the boxes that apply to you.

Want to learn more about the rehab projects for your property? No problem — just scroll down any page on the "Guide to Home Improvement" website and click on "Home" at the bottom.

There you'll find helpful articles, tips and tricks for planning and executing any home improvement project, on time and on budget.

The keys to any successful foreclosure rehab are planning and having the right team behind you. Your contractors play a crucial role in that team, so it pays to educate yourself and find the ones who will do your job best.

Start your search on Foreclosure.com today.

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Hot off the press

KNOW BEFORE YOU BUY

When purchasing distressed real estate, you need to be able to spot the lemons.

HouseMaster®, a leading home inspection agency, cautions that foreclosed properties are only great deals if the amount of required repair work costs less than the overall increase in value gained as a result of those repairs.

According to a recent HouseMaster® study, the five primary repair issues in a foreclosed property are:

• Moisture-related problems
• Defective gaskets, valves and hoses that are either leaking or could cause damage
• Vandalism
• Insect and rodent infestations
• Blocked or damaged sewer lines

"Now is a great time to buy a home," said HouseMaster® President Kathleen Kuhn, "especially for first-time buyers," but she advises careful inspection before commitment.

It is also advisable to construct a worst-case scenario budget for a property rehab, especially because certain distressed properties have restricted availability for home inspections.

One way to tell how likely certain repairs are is simply to look at the age of the property. For example, HouseMaster® estimates that more than 40 percent of houses over 30 years old will require replacement and/or repair of their plumbing systems, whereas houses 12 years old or less are only 9 percent as likely.

Exterior inspections are very important, too, and can often be estimated without formal home inspections. Signs of vandalism or infestation should be noticeable from the outside, as well as the general condition of the house exterior.

Short sales and bank-owned (REO) properties usually offer the most opportunity for thorough home inspections, although in the case of REO properties, often the uncovered issues will remain the responsibility of the buyer.

By contrast, sheriff sales often occur without any kind of formal inspection because properties are sold at auction in "as-is" condition.

Get reliable advice from contractors and other experts. Visit Foreclosure.com today.

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Our success stories

EDISON'S FORECLOSURE-TURNED DREAM HOME

Edison DaSilva is not just a Foreclosure.com employee, he's also a happy Foreclosure.com customer.

Two years ago, Edison purchased a tired-looking foreclosure in a nice gated community in Lake Worth, Florida. Today, he's turned a fixer-upper into one of the nicest houses on the block.

Edison found the five bed, three and a half bath single-family home on Foreclosure.com and went to check it out in person. The neighborhood was great, but the house itself was in need of major renovations.

And renovate he did.

With the money he saved by purchasing a foreclosure, Edison was able to paint inside and out, redo the kitchen and all the bathrooms, put a new fence in the yard and switch to energy efficient light bulbs.

He also put in new hardwood flooring throughout the house and installed a solar panel water heater &mdash two upgrades that added major overall value to his home.

To cut costs, Edison did most of the demolition himself. He found reliable contractors for the rest of the work by asking for referrals from his new neighbors.

Edison's story is a perfect example of how to best navigate a foreclosure purchase:

1. Find listings from a trustworthy source like Foreclosure.com
2. Choose an undervalued property in a prime location
3. Save money on renovations by DIYing the parts you can handle yourself
4. Select contractors based on reputation, not just cost
5. Fix/upgrade items that add the most value to your investment

What advice does Edison have for others undertaking rehab projects?

"Be prepared for the surprises that you will encounter," he told us, "because it could be a budget buster. There is no renovation that will be completed without a few surprises on the way."

Very sound advice.

In fact, when you're preparing your renovation budget, it's a safe bet to add an extra 10 percent to your anticipated expenses as a nice cushion to help ensure you aren't blindsided by unexpected costs.

Congratulations on a smart rehab, Edison. Glad we could help!

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Real estate tips

HIRE YOURSELF, SAVE MONEY

The "Do it Yourself" (DIY) movement has taken the home improvement industry by storm.

It's no wonder DIY projects have become so popular. When it comes to rehabbing your distressed property purchases, there are several things you can do yourself, without paid help, to save some much-needed money, including:

• Debris removal. Borrow a buddy's truck or rent one to remove trash, tree clippings, etc. from your property.
• Yard care. Mow the lawn, pull weeds, trim hedges and plant flowers.
• Painting. Patching walls, scraping off old paint and putting up new coats are easily done.
• Cleaning. After the contractors leave, there's still a lot to do: Wash windows, dust, clean floors and fixtures, etc.
• Staging. Although professional home stagers get paid big bucks for a reason, try a few simple things on your own first.
• Bring in furniture, hang window treatments and add artwork.

These are all relatively easy projects that can save you money by not hiring a professional to do it for you.

DIY'er beware: While these projects will save you money, they probably won't save you time. Naturally, experts tend to get the job done more quickly, but if you don't mind a little elbow grease, it's good way to keep coin in your pocket.

If you think you can handle a project but don't quite have all its finer points nailed down, just check the Internet. There are dozens of free, quality sites with impressive stores of information for DIY'ers looking for tips.

However, be careful about biting off more than you can chew. A DIY project will actually be more expensive in the long run if you have several redo attempts at your own work, then give up and hire somebody.

The tighter the purse strings, the more resourceful people become. Try your hand at a DIY project and enjoy the rewards (financial and otherwise) that come right along with it.

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Deals of the Month

HOT FORECLOSURE DEALS!

Orlando, FL
$35,950
3 beds/2 baths
1,206 sq. ft.

Victorville, CA
$59,900
3 beds/2 baths
1,559 sq. ft.

Las Vegas, NV
$54,900
3 beds/3 baths
1,361 sq. ft.

Bonus Article

Closing Costs on a Renovation Loan

Prepared by Rob Zuckerman

Many borrowers are either not aware of the possibilities of a renovation loan, or have limited knowledge of the programs available, as well as the details of the individual program.

Typically, one obtains a renovation loan through a mortgage company, which could be a mortgage broker, banker, bank or a private money lender.

If one does choose a rehab loan, it is critical they are dealing with a reputable and honest renovation loan consultant. There are many types of financing options available and there could be significant differences in fees.

It's critical that a buyer is well aware of the cost differences between a non-renovation loan and a renovation loan.

Many renovation loans obtained through a mortgage company will either be an FHA loan — usually the 203K or 203K "Streamline" — or a conventional renovation loan such as Fannie Mae "Homestyle." Most programs all have similar closing costs as part of the overall costs.

Common costs include:

• Bank charges (processing, underwriting, tax service, etc.)
• Title fees (recording, owner's title insurance, lender's title insurance, endorsements, etc.)
• Settlement company costs

There are additional costs specific to a renovation loan that are often specific to the lender and to the programs offered by that lender.

Some of these items would be:

• Supplemental origination fee, which ranges from $350 to $500.
• Consultant, which ranges from $430 on a conventional loan to $1,500 on a 203K loan. An advantage of the 203k Streamline is that a HUD consultant is not needed
• Inspection fees usually range between $100 to $150 for each inspection done during a renovation. There are no inspections on an FHA 203k "Streamline" if the total work being done is less than $15,000.
• A lender might require two appraisals; one in current "as is" condition and one "subject to" the repairs, which would represent the value after the rehab is made
• Some lenders will charge an extra one to three points (each point is 1 percent of the loan amount) to offset the additional risk the lender is taking since the property will be undergoing rehab. Some lenders can offset the additional points if the borrower is willing to accept a higher interest rate. This is the preferred choice of the real estate investor who is looking to flip the subject property. He or she will pay a higher interest rate for a short term rather than invest points for the benefit of a lower rate that he won't realize since he or she intends to sell the property,
• Title updates, which can be a $150 or more
• Architectural fees

One common mistake some borrowers make in seeking financing for a rehab loan is in their requests for rehab loans. Just because a property is going to be rehabbed does not mean a rehab loan is the best choice.

It is possible to finance the renovations using either a home equity product or a conventional loan, which might be less-costly options.

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Linda's Learning Lane

BUYER BEWARE

Bringing something back to life is a rewarding and fulfilling experience.

Restoring, regenerating and rehabbing (besides sharing the "re" part of the word) all denote the rebirth or second chance of whatever it is with which you are working.

Every time I roll up my sleeves and rehab a room, house or office I feel like a creator of a great piece of art. When determining what to rehab, it's important that your project have good bones — make the home marketable or enjoyable for you to reside in.

As you consider to what extent you want to rehab, keep in mind what your end goals are. Is this project for you to live in? Is this an investment you are wanting to flip? Is this an investment you will be renting?

Once you know what the intended purpose, you will be able to prioritize what rehabbing you plan on completing and how to develop your budget. The "nice to haves" and the "have to haves" are where you will either make or break your bottom line.

In addition, as you rehab, depending on your time resources, you may want to contract certain aspects of the project out to others. Again, what are your goals and what is the return on investment you are looking for?

There are so many resources out there that you can utilize to learn how to do something you have never done before. In our CD course, for example, "Get Rich Buying Real Estate Foreclosures," we have a very robust section on rehabbing.

I love walking into a space that once made me cringe to making me feel warm all over. It's a type of a high and once you start rehabbing it can become addictive. So "buyer beware" if beauty or dollars is what you are looking for.

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