Digging for Gold – Investing in Condemned Properties

To some people, broken windows, dilapidated roofs or collapsing porches mean trouble. Other people see dollar signs.

"More than 60 percent of the houses I have bought in Tampa were condemned properties," says Rushing. "I have yet to lose money on those."

How Properties get Condemned

Local authorities condemn buildings for a variety of reasons. In some cases, the government wants to build something in its place and will condemn the property as part of an eminent domain proceeding. Or, it could be a construction, maintenance, or pest issue that makes the structure unusable for its original purpose. In some cases, the repair or maintenance needed is relatively straightforward, but the owner does not always have the resources or know-how to make the repairs or renovations.

In these cases, the owner is almost always a motivated seller. Selling the property may help the owner get at least something for the asset, as opposed to having to let the property sit fallow for months or years. Owners of such homes are frequently willing to sell at substantial discounts. That could mean opportunity for you, the investor.

Finding Condemned Properties

There are a couple of ways to find condemned properties. You can drive around neighborhoods, though it can be hard to tell if a property is condemned just by driving by. For example, some buildings are condemned for nothing more than a non-functioning fire alarm or sprinkler system. If the owner can't make a repair, the structure could look fine from the outside.

You could also enlist your local intelligence network within your favorite neighborhoods. These are neighbors, real estate agents, contractors and other people who can tip you off about a possible purchase opportunity. This is a great way to go, because it gives you an advantage over other bidders for that particular property.

Finally, you could check your local government's list of condemned properties, generally available through its website or by visiting City Hall. In some areas this is less advantageous because the same information is available to all real estate investors at the same time; you may have more bidders on any given property by relying entirely on public records. Nevertheless, opportunities still exist with any of these techniques.

Identify Liens, Encumbrances and Other Issues

Don't go into a deal blind, warns Rushing. Before you sign off on a deal, contact your local government's Department of Condemnation. Rushing asks several questions:

• What, precisely, are the violations that caused the property to be condemned?
• Are there liens on the property?
• Will the government agree to a settlement?

This last factor alone can be tremendous: One of Rushing's deals had a $20,000 lien attached to the title. But when Rushing showed he had the resources to make the needed repairs, the government agreed to waive all but $500 of the encumbrance. All Rushing had to do was show a bank statement as proof of funds, proof that he was authorized to take over the property and the seller agreed to sell the property to him, and a personal letter demonstrating that Rushing knew what the code issues were and had a plan to bring the property back up to snuff.

Financing Condemned Property

Unless you have a track record, or plan on living in the home, finding financing for condemned properties in need of extensive repairs can be a little tough. You may have to settle for a lower loan-to-value ratio. If you have a track record of success, however, and if you can show the lender that after buying the property, you still have the necessary resources to restore the property, you will have better luck.

Meth Labs – Special Considerations

Chrystal methamphetamine is bad news in a lot of different ways. From the point of view of a real estate investor, you need to be extremely careful when investing in these condemned properties, because even after you get the place cleaned up, you must still disclose to prospective buyers that the property was, in fact, used as a meth lab.

Because of the extreme toxicity and persistence in some of the chemicals frequently used in methamphetamine production, the city will generally condemn any property used as a lab pending an extensive clean-up. Depending on the environment, this can be an extensive and pricey HAZMAT project: All absorbent materials will have to be replaced. Not just carpets and furnishings, but also things like drywall, topsoil, ventilation, plumbing and septic systems. You may need to use a qualified HAZMAT contractor. Costs can potentially reach six figures and higher for extensive cleanups. You would need to have a very deep discount indeed to make this a profitable endeavor. For more information on cleaning up a former meth lab, see this publicationby the State of Oklahoma.

Who Should Consider Investing in Condemned Properties?

This isn't for rookies. However, if you have solid experience in the ins and outs of real estate investing, along with skills at estimating repair costs, adequate reserves, and the ability to go without a renter for as long as it takes to make the repairs, buying a condemned property could be a tremendous opportunity.

Latest Breaking News on Housing Market

First up is some positive breaking news for the housing market. Shadow inventory of homes is declining, providing a dose of good news for the glum housing market. Shadow inventory, or homes on the verge of foreclosure, fell to 1.6 million units representing a five-months supply in July compared to 1.9 million units representing a six-months supply a year ago, according to CoreLogic. It’s a good sign that troubled homes, normally headed toward foreclosures, are getting sold faster. Lesser inventory will help stabilize falling prices on homes for sale. Of course we won’t be seeing a drastic change in numbers, but even a small percentage of troubled homes off the market is a blessing for sellers and the industry as a whole.

"The steady improvement in the shadow inventory is a positive development for the housing market," CoreLogic Chief Economist Mark Gleming said in a press release. "However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time."

Housing Prices Increase, but not Enough

Some more indication of baby steps toward a market recovery. For the fourth consecutive month, home prices were on the upswing in July compared to the previous month. But the bump wasn’t good enough to give the market a clean bill of health, yet. According to data released by S&P/Case-Shiller Home Price Indices, home prices across 20 major urban areas in July remained flat when adjusted seasonally, and down 4.1 percent compared to a year earlier, despite showing a 0.9 percent gain. The trend of prices rising is a good sign, analysts said.

"With July's data we are seeing not only anticipated monthly increases, but some fairly broad improvement in the annual rates of change in home prices," said S&P's David Blitzer, according to an AFP story. However, he said, "if you look at the state of the overall economy and, in particular, the recent large decline in consumer confidence, these combined statistics continue to indicate that the housing market is still bottoming and has not turned around." Prices across the country were at the level of 2003, according to the report.

Mortgage Rates Continue to Slide

Here’s more music for the ears of potential homebuyers. Nudged by the Federal Reserve’s proposal to reduce borrowing costs, mortgage rates fell to the lowest in Freddie Mac’s recorded history this week. Rates on a 30-year-fixed loan hit an unimaginable 4.01 percent, down from 4.09 percent. On a 15-year loan rates dropped to 3.27 percent. The lucrative rates are aimed to lure consumers toward buying and refinancing their existing mortgages. Many are taking the bait. According to the Mortgage Bankers Association, there was a 9.7 percent rise in loan applications last week. However, a good section of consumers have not been able to take advantage of the rates because of stricter lending standards.

Existing Home Sales Drop

Some good news for buyers which turns out to be not-so-good news for sellers. Sale of existing homes dropped 1.2 percent in August, according to an index by the National Association of Realtors. The measure shows that sales dipped to 88.6 percent in August from 88.7 percent the prior month. The data, which takes into consideration signed contracts but unclosed deals, shows that the numbers are higher when compared to the same period last year, but that’s hardly a consolation since last year’s showing was affected by the expiration of a federal tax credit for homebuyers. Lawrence Yun, NAR chief economist in a press release blamed the numbers on an uneven market.

“The biggest monthly decline was in the Northeast, which was significantly disrupted by Hurricane Irene in the closing weekend of August,” he said. “But broadly speaking, contract signing activity has been holding in a narrow range for many months.” If you are looking to buy, now may be a time to get involved in the market, Paul Dales, senior U.S. economist for Capital Economics, told the Wall Street Journal. But, a lot of people have been unable to cash in on the situation, he said. Some analysts blame the job market and slipping consumer confidence. In these shaky times, many people prefer to rent than invest their savings on a new home.

*** For more real estate market tips and resources, visit TulsaHomeGuru.

Selling a Home with Cement Asbestos Tiles, Termites, or Vermiculite

Selling a home may seem like a challenge for the homeowner who has discovered termite damage, vermiculite, or asbestos components. A home that contains harmful building materials or that has been treated for termites can be sold, however, if certain steps are taken. If you know your home has been treated for termites or contains vermiculite insulation, asbestos siding, or asbestos cement tiles, or if the buyer's inspection reveals one of these issues, knowing the facts can help make your sale go more smoothly. As a seller, you're generally required by law to disclose what you know about your home's termite damage, asbestos tiles, vermiculite insulation, or asbestos siding. The regulations governing disclosures of material facts vary from state to state, but most sales do require a signed statement of known issues.

Selling a Home with Cement Asbestos Tiles

The first key to selling a home with cement asbestos tiles is to know the facts. Asbestos contamination is an issue that's received a lot of attention in the last few decades, but asbestos is only dangerous under certain circumstances. Asbestos is a mineral silicate, once admired for its fire-resistant and insulate properties. While it is no longer used in the United States due to the dangers of inhaling the glass-like dust particles, it exists in an undisturbed state in many American homes. Asbestos tiles, if left alone, are not dangerous. It is generally inadvisable to tear up cement asbestos tiles, and selling a home with cement asbestos tiles that are undisturbed and intact may in fact be easier than selling a home with airborne construction debris. You do have a legal obligation to disclose known asbestos in your home, but buyers should know that asbestos tiles are common in older homes. Friable flooring is flooring that can be crushed or turned to dust by hand. Cement asbestos floor tiles are only dangerous when particles can be inhaled, so your potential buyer may agree that leaving the floor undisturbed is the best option when dealing with asbestos.

Selling a Home Treated for Termites

Selling a home that's been treated for termites should not be particularly hard if you can demonstrate how the problem has been controlled, how the damage was repaired, and how you've continued to protect the home from ongoing termite damage. Potential buyers may ask to see paperwork, which could include descriptions of the termite damage, bills from termite treatment professionals, or inspection reports showing the extent of termite damage. If the buyer's certified termite inspection reveals untreated termite infestations or previously undetected termite damage, steps will generally need to be taken to control the problem before the sale can go through. Termite abatement should be handled by a skilled professional for reasons of safety and effectiveness as well as for the sake of adequate documentation. If a termite inspection reveals evidence of termite damage but no live insects, the home will still be considered infested unless there is proof of prior treatment. It is to your advantage, as a seller, to have a termite infestation professionally treated before selling your termite-damaged home.

In some states, there will be specific questions on seller disclosure forms which relate to termites. Oklahoma, for instance, asks sellers to answer if they are "aware of treatment for termite or wood-destroying organism infestation," and if there is a "termite bait system installed on the property." No matter where you live, your obligation as a seller is to be honest in answering all questions about termite infestations and treatment.

Selling a Home with Asbestos Siding

As in the case of cement asbestos tiles, asbestos siding is dangerous when it's damaged, crushed, or turned to dust. As long as the asbestos siding on your home is intact and in good repair, buyers may wish to cover rather than replace the siding. Whether or not you cover asbestos tiles before selling your home, you are required by law to disclose their presence to any potential buyers. Buyers may want to know what condition the tiles are in, and many inspectors will recommend simply covering asbestos tiles with vinyl or HardiPlank siding rather than undertaking an expensive removal process. The most common management procedure for undamaged asbestos siding is to encase or cover the asbestos tiles with new siding. Since many homes were covered in asbestos tile siding in the 1970s, most home inspectors will be familiar with the most affordable and safe management methods.

Selling a Home with Vermiculite

Vermiculite is a mineral substance that is often found in attics, especially as insulation in the spaces between joists. The product, which looks like course sand or gravel, is made by heating tiny mineral flakes to create puffy particles with fire-resistant and insulating properties. While vermiculite insulation can be excellent at retaining heat, it can also be dangerous: before 1990, most of the U.S. vermiculite supply came from an asbestos-contaminated mine. The mine, near Libby, Montana, produced vermiculite under the brand name Zonolite. Since so much vermiculite was produced at the Libby, Montana mine and is contaminated with asbestos fibers, it is generally advisable for homeowners to treat all vermiculite insulation as a potential source of asbestos dust. As in the case of asbestos siding or asbestos tiles, vermiculite insulation is best left undisturbed. If it can be left alone, it should be - this means not walking on it, not spending time in the attic or using the attic for storage, and not attempting to remove vermiculite insulation without consulting a professional. As a home seller, your responsibility is to disclose the presence of vermiculite insulation to potential buyers. You may want to research the cost of vermiculite removal, especially if it is in a high-traffic area or if the home is going to be remodeled. Working around vermiculite insulation can be dangerous, and renovations should be undertaken with care.

If you've discovered termite damage, asbestos tiles, asbestos siding, or vermiculite in your home, then as a seller, you have the legal responsibility to disclose these issues to a potential buyer. With appropriate management, however, asbestos, vermiculite, and treated termite damage can become minor issues that won't stand in the way of a successful home sale.

*** For more real estate market tips and resources, visit TulsaHomeGuru.

How to Negotiate: 7 Clever Home Buying Negotiation Tactics

Getting the house you want at the price you want can be tricky – even in a buyer’s market. Sometimes a home seller just isn’t willing to budge on price. Don’t despair! There are other ways to sweeten the deal and drive it to close in a buyer’s market. Here are seven tips on how to negotiate with a home seller.

Get the Dirt on the Home Seller

Learn as much as you can about the motivations and situation of the home sellers. For instance, if they’re living in the house and they need flexibility around the closing date, you could offer to be flexible on closing if they move on terms. In the case of estate properties, take some time to learn about the heirs - where they live, what kinds of houses they live in and whether or not they are in legal or financial trouble. It sounds creepy, but most of this information is available for free online once you have the names of the home sellers. You can also research obits and marriage documents that are in the public domain. The more you know, the more leverage you have when it comes time to negotiate.

Know What the Property is Worth

Work independently or with your agent to research comparable sales in the immediate area of the home, then make an offer at least 10 percent below what the market says it’s worth. Dig into the details to figure out how the home you want to buy stacks up against comps, and look for ways to communicate the legitimacy of your offer or requests by backing it up with data. For instance, if all comparable sales have a pool, waterfront property or updated kitchens and the house that you want doesn’t, point that out. Use this data to justify your offer or other requests to create value if they won’t budge on price.

Don’t be Afraid to Ask

If there are things that you want or need to feel comfortable with the deal, ask for them. The home seller can always refuse, but if you don’t ask, you don’t know. If you’ve created leverage by learning about the property and the seller’s situation, you can use this information to ask for things, such as repair of items found during the inspection period or appliances that weren’t listed on the original contract for the house. Don’t make assumptions. Even if your realtor balks at the idea, always ask.

Offer a Quick Close

The faster a deal gets done, the more quickly the home seller can cash out their asset and move on with life. Homes that remain on the market or unsold for extended periods of time become costly to sellers (especially if they’re unoccupied) and start to decline in condition. Offering a quick close builds confidence with the seller as it means that there’s less time for things to go sour with the deal. If you’re situation allows for this negotiation tactic, you might be able to either lower your price or get other benefits in exchange.

Make an As-Is Offer and Ask for the Furniture

If you want to make a reasonable but low offer on a property, consider the pros and cons of presenting an “as-is with right to inspect “ offer. The upside is that you can walk away from the deal if the inspection frightens you. The downside is that what you see is what you get, leaky plumbing, termites, mold and all. If you really want a property and are willing to take it as-is, but aren’t really comfortable with the seller’s floor price, ask for the furniture or other non-fixed assets that make the deal more palatable such as a boat or fitness equipment.

Ask the Home Seller to Cover Closing Costs

If you’re apart on price for the home itself, one way to get around the cash crunch and get a deal done is to meet the home seller on price, but ask them to cover all or part of the buyer’s closing costs. Some home sellers might balk, but if they’re able to do this and want to finish the deal with a sale at a particular price point, this technique can work.

Be Willing to Walk Away

Buying a home can be an intensely emotional experience, but at the end of the day it is really just a business transaction. This means you can’t get attached, and you have to be willing to walk away if you’re unable to negotiate with a home seller or if the seller becomes unreasonable. If the seller’s agent senses desperation or over-eagerness on your part, they might interpret that as a signal that they have the upper hand. Silence can be your friend. Hold your cards close and always be willing to walk away.

*** For more real estate market tips and resources, visit TulsaHomeGuru.

New Houses vs. Old: How Do You Know Which is Right for You?

Finding your perfect home is not always as easy process. With the surplus of homes for sale in most cities, buyers may find there are many properties –both new and old - that meet their search criteria. Choosing whether to renovate an old house or buy a new one can be a tricky decision for some.

Should I Completely Renovate an Old House or Buy a New House?

When deciding on which type of house is right for you, it’s important to take into consideration the following factors:

Style – For many, the allure of an older home is its character and uniqueness. Many of the homes being built today are tract houses that lack personality and quality of construction. An older home will have the charm that many buyers are looking for, rather than being a “cookie cutter” model that someone else has. However, they require a lot of TLC that many buyers aren’t cut out for. Knowing whether to choose an old house or buy a new one largely depends on your style preferences. Do you prefer clean lines, open concepts and a modern look, or are you into a more traditional floor plan with closed rooms, built-ins and nooks?

Lifestyle – Think about how you like to spend your free time. Do you enjoy working on projects, building or creating things at home? Or would you rather spend the evenings and weekends outside of the house, traveling, hiking or shopping? If you answered the latter, an old house may not make sense for you in the long-term as they typically require more maintenance and care.

Resources – Aside from the funds needed to purchase the home, do you have the budget and resources to update and maintain an old house? Even an older home that has been updated can be expensive to maintain due to scarce availability of certain building materials and original fixtures. Many buyers become “house poor” after making their down payment and buying a house. With no savings they have little budget left over for these house updates. If you don’t have the resources to dedicate to updating and maintaining the home, it may be a better choice to buy a new house. Newer houses typically need no initial repairs, no additional budget and are move-in ready.

Patience – Old houses have character, but maintaining that sense of charm doesn’t come easy. Unless they were recently updated, older homes require time and energy to restore. Because they were built in a different time period, older houses may require custom or hard-to-fit materials, appliances and fixtures that many contractors are not skilled in using. These material and construction delays can greatly extend your project deadlines.

Knowledge – Are you knowledgeable about construction and home improvement? Knowing how long restoration and maintenance projects will take and how much they will cost is a major prerequisite for purchasing an older home, especially if you’re planning to completely renovate an old home. If you’re tight on budget and resources, are you able and willing to do some of the work yourself?

An older home can be a quality investment with long-term potential and timeless style. A newer home can be a no-hassle, peaceful retreat that doesn’t require extra money or time to move in. If you do the right planning and homework ahead of time, you’ll be able to find the house that fits your needs, budget and lifestyle and relax, knowing you made the best decision in choosing your new home.

*** For more real estate market tips and resources, visit TulsaHomeGuru.

Should I Sell or Rent My Home? A Quiz to Help You Decide

To sell or to rent. It’s a tricky question, especially in a down market. If you are relocating or just ready to move on from your ball and chain of a house, renting might make more sense than selling. Here is a quiz to help you decide whether you should sell or rent your home.

Can You Afford to Sell Your Home?

Here’s an example of a situation where a couple had to examine how affordable it was for them to sell their house. The couple knew they wanted to move to a new home, but they live in an area of Florida where houses have halved in value since the peak in 2006 - the same year their house was purchased. As they debated whether to sell their home, they realized that if they chose to sell, they would be forced to take a $150,000 cash loss, not including closing costs. They looked at the numbers and decided they could not afford to sell their home. For them, it made more sense to rent their home and purchase a second home that then became their primary residence. When you rent, you may take a loss on a monthly basis, but you do not have to come up with the cash to satisfy the loan immediately upon sale. If you sell at a loss, then there is no tax benefit.

Can You Afford to Rent Your Home?

Research the going rents in your market using tools like the MLS listings and craigslist.org. Look for comparable properties in your neighborhood or similar neighborhoods to get sense for what your home might bring in as a rental. It is important to take features like square footage, number of rooms and upgrades such as granite kitchen counter tops, location and proximity to desirable schools into consideration while looking for comps. You can also talk to real estate agents and property managers to get their take on pricing. If it turns out that you can’t cover your mortgage with the projected rent, then calculate how much of a loss you can take to still be able to afford to rent the house.

Do You Need Tax Deductions?

You can often take losses and costs from rental properties as tax deductions. In addition to deducting the cost of your mortgage beyond the rental income, landlords can often deduct all expenses associated with the rental, including property management and maintenance fees. Consult your accountant to ensure that you know what the costs and benefits will be from a tax perspective before you make the decision to rent rather than sell your home.

Can Your Credit Take the Hit of a Short Sale?

If you don’t mind sacrificing your credit score for a few years, you can’t afford to rent and you really need to get out of your house, then a short sale is always an option. A short sale is a real estate transaction in which the bank agrees to accept less than the amount owed on the mortgage to release the owner from their financial obligation. For example, if the mortgage on a home is $200,000 and a buyer makes an offer for $150,000, the bank may accept this offer and forgive the additional debt. Besides mucking up your credit, a short sale can also contribute to your tax bill. Often, the forgiven amount (in this case, $50,000) can be added to your tax bill as taxable income. It is important to consult a lawyer or accountant so that you know the details of how a short sale will impact your taxes and your credit before you move ahead.

Should You Sell or Rent Your Home?

Depending on your immediate financial situation and long-term outlook, it can make more sense to rent rather than sell. In some cases, a short sale is the best remedy for escaping an underwater property and moving on with your life. Before you make any decision about renting or selling, be sure to consult a lawyer or accountant for customized consultation so that you fully understand the tax ramifications and benefits given your unique situation.

*** For more real estate market tips and resources, visit TulsaHomeGuru.

How to Pick a Property Manager

Investing in rental property? Think of property management as a tool, and possibly leverage your resources:

A stranger is about to move into what very likely used to be your home. And you're busy. You don't have time to manage the details of your own household much less fix broken toilet handles at your rental property. Enter property management companies. For those of you who enjoy finding renters, running background checks and putting up with service calls from your residential tenants, have fun. If you'd rather not deal with the grit, grime and daily responsibility of renting out a residential property, here are some tips on finding a property manager who will find a responsible tenant and give you comfort that your property is well-leased and is being properly maintained.

Do your own research
Research local rents by checking out rental listings on craigslist.org, and check zillow.com rent Zestimates for homes in your area with similar features and square footage. Property managers are motivated to rent your home for the maximum that they can get since they typically take a percentage of the rent as their fee, but they might not be tuned into values for your type of home in your particular neighborhood. Also, laws differ from state to state. Do your due diligence on the tenant-landlord laws for the state that you live in to understand your rights as a landlord before you enter into conversations with property management companies.

Get recommendation
Never hire a property management company without a recommendation or two that you trust. If you can, try to find both a realtor and a landlord who have worked directly with a given company. Get local recommendations and keep in mind that performance of a national company can vary from market to market.

Explore your options
Some companies offer leasing services only, which can be cheaper than leasing and maintenance. It really depends on how much time you have to dedicate to the rental. Make sure you understand the tenant-landlord laws in your state so that you know how long you have to respond to a tenant request - and whether you want to deal with that.

Tune into their communication processes
Interview a few different companies and see how they respond to your inquiries. If they get back to you immediately, that's agood sign. If it takes a few days, weeks or months to connect - not so good. If they're late to appointments, don't show up or don't call, also not so good. Take this as a sign of how they'll work with you throughout your relationship.

Read the leasing agreement
Ensure that you're covered and have the power to remove a tenant who doesn't pay the contractual rent and that property damages are covered by an extra month's rent and security deposit. Also make sure that, based on the laws in your state, the leasing agreement allows you to release yourself from the relationship with the property management company if they do not hold up their part of the agreement.

Gut check their process
Ask your property management company representative about tenant approval process. Find out how they market properties, what kinds of tenants they install, and what a typical lease period looks like at their company. Also make sure that you understand their background checking process to ensure that both credit and criminal background checks are performed, as well as character references.

Expect to pay for it
Most property management companies charge one month's rent plus 10 percent of the monthly rent, which normalizes out to an 8.5 percent fee. You have to decide if this is worth it to you. Choosing to go with a property management company can make your life easier since all you have to do is wait for the direct deposit. Just make sure that you understand what you're getting into before you sign up.

*** For more real estate market tips and resources, visit TulsaHomeGuru.