Home > Archives for August 2005
Wednesday, August 31, 2005
From what I can tell, this property is not yet listed in the MLS, so the owner may not have an agent yet. I'm going to send him a letter today and hopefully, if he does decide to sell, I can do it without an agent, thus saving him some money on commissions (which, of course, means I don't have to pay as much).
I did some research on him this morning and it looks like it's the second mortgage that is foreclosing. He bought the property as a new home from the builder in 1995 and refinanced once in 1997. The home owner's association also filed a lien against the property in 2004 for about $2,000 in unpaid fees and took him to court to get that paid in 2005. The civil judgment hasn't been released yet, meaning he still owes them. With late fees and court fees, the amount is now around $2,800.
So my letter will emphasize that I used to be his neighbor, that I can buy his house quickly if he wants to sell it, and that he can save some big bucks on commissions by dealing with me. If I don't hear anything back in a week or two, I'll send a follow up letter. I sure hope the closing on the house I am selling now goes smoothly. It's scheduled to close on 9/16. If all goes well with this guy, I may need my cash by then!
Monday, August 29, 2005
- Fascia boards and trim have wood rot / deterioration on northwest corner of patio cover. I will fix this. There is about a 6 inch section of wood at the corner that has some wood rot. You can tell the bottom half of the piece of wood was replaced previously. It looks like whoever did the work previously didn't get all the rot.
- Electric panel cover missing blanks. I will fix this. This showed up on the inspection I had performed when I bought the house. I had mentioned to the electricians I hired that I wanted this fixed, but I guess they forgot. This isn't a big deal. Basically it looks like two circuits were moved in the electrical box and the blanks that cover the old breaker locations were not installed.
- Screen door at main entry needs repair / replacement. I will fix this. The inside handle is missing.
- Laundry drain pipe vent needs to be installed up through the roof to the outside. I will fix this. The laundry room of this property is attached to the enclosed patio and the vent pipe extends up to the ceiling and stops, so it vents into the room. I made things a bit easy here for my handyman because the range vent hood I bought was a non-venting model. The old one vented to the roof. Since the laundry room is on the other side of the kitchen wall, we're going to extend the laundry vent pipe in the attic and join it to the old range vent pipe, which is not being used anymore. My handyman won't need to cut any new holes in the roof this way. This item also showed up on my inspection.
- Closet door guides in the guest bedrooms are missing. The closet door in one of the bedrooms needs to be adjusted. I'll fix this.
- One of the guest bedrooms has a broken window. When I looked at this, the crack is a little 1.5 inch semicircular crack that runs from one edge, out a tiny bit into the window, then back to the edge. I was going to not fix this because it's such a tiny crack, but my handyman tells me replacing the window isn't difficult and the glass should only cost about $20, so I'll fix this as well.
- Ceiling fans and lights in master bedroom and one guest bedroom do not work. I know these work because I checked them when I bought the house. The problem with the one in the guest bedroom was that the fan direction switch was in-between positions. I pushed it all the way up and it worked. Issue solved! The one in the master bedroom however, doesn't work. I know this one worked before and, when I had the electrician pigtail all the aluminum wiring, I had him do the fans as well. His work order shows he did this fan and that he tested it afterwards. I checked the circuit breaker and that was ok, so I have no idea why this fan decided to stop working. My handyman will check it out and, if necessary, replace the fan with a cheap one.
- Drain leak at kitchen sink. I don't see it. I filled both sides of the sink with water and let them drain simultaneously. No leak. I let the water run for a while on both sides and saw no leak. The only thing I can think of is that, if you feel the bottom of the cabinet, there is a spot under the drain pipe that feels like there might have been water there once, but I imagine that happened during the installation of the cabinets and sink. So I just tightened all the plumbing joints and reported the leak was fixed.
- Exhaust fan from hall bathroom terminates in attic instead of outside. This is something else that showed up on my inspection and I had asked my handyman to fix it earlier, which apparently, he didn't do. The attic entrance is actually in that bathroom, right next to the fan, so all I had to do was open the hatch and I could see the vent hose not going anywhere. There is a vent in the attic wall right next to it. I suggested to my handyman that he might be able to route the vent hose to that, thus avoiding the need to put a hole in the roof. He said he'd check to make sure that was ok code-wise before doing it. Anyway, this is another item I will fix.
- Interior water pressure is low and both bathrooms. I will not fix this. Truthfully, the water pressure seems fine to me.
- Main entryway security light not working. Fixed this. Just needed to replace the lightbulb.
- Master bedroom door strike plate needs adjusting. The door doesn't latch closed unless you push hard. What a ticky-tack thing. I'll fix this.
- Caulking needed around shower enclosures. I'll fix this. The caulking has some gaps in it in both bathrooms where the drywall meets the shower enclosure.
I sent my response to the buyer's list to my agent. She's typing it up on the correct form for my signature and then we will fax it back to the buyer for his approval. Tomorrow is the end of his inspection period and the point at which his deposit becomes non-refundable.
Friday, August 26, 2005
If you do call in, watch out for the upsell. (Watch for it on their website too.) All you need is a D&B number. They will try to sell you a whole credit building package. The one on the website is $499 and the one they pitched on the phone was $799. For the purposes of building business credit, you really don't need these (from what I've read).
Thursday, August 25, 2005
I received an application in the mail from Chase Bank for a business credit card. Normally, I throw these in the trash, but this one caught my eye because it offers a cashback bonus. You earn 3% cashback on purchases at gas stations, restaurants, office supply stores, and home improvement and hardware stores. All other purchases earn 1% back. Based on what I have read on other personal finance blogs like Savvy Saver and Personal Finance For The New Age, this sounds like a pretty good deal. There is no annual fee and all charges for the first year are at 0% interest. After that however, the interest rates are killer. They offer the program at three different levels: The Elite level gives you a 8.99% rate. The other two levels (I forget what they are called) give you a 13.99% and a 20.99% rate. Of course, they don't tell you what level you will qualify for until after you apply. But reading the fine print discloses some additional gotchas: They can change the program at any time. They can change the interest rate at any time. They can changed fix interest rates to variable or variable to fixed at any time. And, the killer, the interest rate will NEVER go lower than 8.49%, 13.49%, or 20.49%, depending on what level you qualify for.
I would never get a card with terms like this for my personal use. In fact, I probably wouldn't even get this card for a business. However, I am lucky in that my house flipping business is basically a cash business. I have my investor's money to use for all expenditures and therefore, I never need to carry a balance on a credit card. So now I'll use this card to buy all the appliances and materials needed for rehabbing a home, collect the 3% cashback bonus, and then pay off the bill in full each month.
FYI, I couldn't find this offer on Chase's website anywhere, so it might not be offered online.
Tuesday, August 23, 2005
Monday, August 22, 2005
Today, I received a fax from my agent of the earnest money deposit receipt. I also received a contract addendum that changes the name of the buyer from agent's name and nominees to the name of the agent's father, the actual buyer. This is functionally equivalent to assigning the contract but was done via a contract addendum rather than a separate assignment document. My agent also said she did not receive my signed agency disclosure and listing agreement that I faxed last week, so I had to re-fax those.
When I got home, I had a paperwork package from the escrow company waiting for me with more stuff to fill out:
- Proceeds Authorization - how I want my money from the sale delivered to me
- Seller's Escrow Information - data needed by the escrow company (any mortgages, any HOA, assessments, my social security number, etc.)
- Terms of escrow - the terms and conditions of escrow. This is standard legal stuff detailing the escrow company's role and duties.
- Notice of Title Policy Discounts - notification that I may be eligible for discounts on title insurance because I recently purchased title insurance when I bought the place.
- Checklist of things I need to do.
If past history is any indication, in addition to the above documents, I will probably need to provide a copy of the articles of incorporation of my LLC to prove I am the manager and am authorized to act on behalf of the LLC.
The title policy discount is a nice touch. I knew that if you got title insurance recently through the same company, you could get a discount, but this says I may get a discount even if the policy was purchased through another company.
And speaking of discounts, I need to make sure they give me investor rates. My agent told them , but I like to follow up myself to make sure.
In addition to doing a good job, the landscape company was willing to work with me. Normally, they collect payment at the property after the job is complete. Since the property is vacant, they couldn't do this. Believe it or not, this company does not accept credit cards, so I couldn't even pay over the phone. They suggested that I leave a check under the doormat, but I told them the property was an hour away from my house and I couldn't do that easily. They agreed to let me mail in the payment that day. And they performed the work on a Saturday too!
While I was at the house this morning, a neighbor came over and started talking to me. He said the landscape company had a bunch of people working there. We got to talking some more about the previous owner and the neighbor was probing me for what I paid for the house and what I sold it for. I didn't see any harm in telling him. He's glad that the sales price is high because it helps his home value. I did find out a funny story about the previous owner: I guess he liked to tell stories with a little bit of embellishment. As the neighbor told me, according to the previous owner, I bought the house by bringing over cash and counting it out to him on the hood of his car!
In other news, I submitted the SPDS to the new buyer on Thursday. I haven't heard anything else yet on the sale and I'm just waiting now for them to have their inspection completed.
Wednesday, August 17, 2005
YOU MUST SEE THIS NEWLY REMODELED HOME... THIS 3 BEDROOM 2 BATH HOME BOASTS NEW PAINT AND CARPET THROUGHOUT.. NEW OAK KITCHEN CABINETS.. NEW COUNTERTOPS.. NEW RANGE/OVEN.. NEW DISHWASHER.. NEW GARBAGE DISPOSAL.. NEW SINKS.. NEW BATHROOM VANITIES.. GREAT FOR ENTERTAINING FRIENDS AND FAMILY.. THIS HOME IS READY TO MOVE INTO AND THE SELLER CAN CLOSE AS FAST AS YOU CAN...
One of the keywords was maple. That didn't apply to my property, but oak did, so I had my agent substitute that. Also, move-in-ready was a keyword and that was included in a slightly modified form. New, another keyword, was inserted all over the place :-)
So how did the psychology experiment go? Well, it's hard to tell because Phoenix is such a seller's market right now. I received a total of four offers in four days: two were at full price, one was more than list price, and one was under list price with the caveat they would go over list price by a certain amount. All in all, good bids! But it's hard to tell if the wording caused them or market conditions did. I do know I'll keep using these words in future listings, just in case!
The next step is providing all the paperwork the contract states I will provide to the buyer: the lead based paint disclosure, the SPDS (seller property disclosure statement), and a list of any insurance claims against the property.
I faxed over the lead based paint disclosure this morning.
I have requested and received a CLUE report from my insurance agent on the property. A CLUE report is a report provided by the Comprehensive Loss Underwriting Exchange and it lists all the insurance claims against a property in the last seven years. I knew from when I purchased this property that there was a claim filed for roof repair due to hail damage a couple years ago. This needs to be disclosed to the new buyer. This was also the only claim that showed up on the report.
The SPDS is 6 pages of questions about the condition and history of the property. For this property, there are only two issues that have to be disclosed. The first is the roof repair. I'm attaching a copy of the CLUE report to this document, as well as a letter from the previous owner's insurance stating what the repair was for and when it was fixed. (I asked for this when I purchased the house. I don't need to provide it, since the CLUE report shows the same thing, but I'm trying to "kill them with kindness" here.) The other thing I need to disclose is the aluminum wiring issue. Normally, this might give a buyer pause, but in this case, it allows me to show I have fully repaired the problem. I will be attaching the invoice for the copper pigtailing work that I had done by a licensed electrician. And, of course, I am writing the magic phrase on the SPDS as well.
The next step is to wait for the buyer to have an inspection performed and to get their list of items they want corrected. As with everything in real estate, the items on the list are negotiable. I'm hopeful things will go smoothly. The buyer is a real estate agent and I'm sure she understands she is buying a 30+ year old house, so it won't be in immaculate condition.
Oh, the one other thing is the yard clean up. I submitted a request for a quote via a website yesterday, but never heard anything back, so I had to make a phone call today. The company will be out at the house tomorrow at 10 AM to make an estimate and then the work can be performed usually within a week after that.
Tuesday, August 16, 2005
Yesterday afternoon, my agent received a rather strange offer: it was from a family-run real estate agency here in the Valley which is rather large and whose members are all Realtors. The offer was for $175,000 but the buyer's name was "name and/or nominee." Of course, anyone who has read anything about birddogging recognizes that phrase and what it means - that the person making the offer likely won't be the buyer and will be looking for someone else to buy it. The offer also wanted a 45 day escrow (30 is normal) and they wanted their earnest money to be refundable anytime during the first 2 weeks after contract acceptance. The cover letter to the fax stated that this agent had lots of investors willing to buy properties. It also stated they would beat any other offers by $500 up to a maximum price of $184,000.
I rejected this offer. Or rather, we were going to sit on it until Wednesday, 9 PM, which was when it expired. I felt this offer was obviously a mass-market type thing by an agent who puts out tons of offers in the hopes of getting one accepted and then finding a buyer for it. The way it was written, I wouldn't have been able to entertain any other offers for two weeks and, if the guy changed his mind or couldn't find a buyer, he could walk away for free, wasting two weeks of my time. We decided to sit on the offer for as long as possible before rejecting it because this would give us a competing offer if another offer came in. A little ammunition for a bidding war, if you will.
Late last night, my agent got another offer. This one was from the agent of the guy above who rejected my counter offer. She decided the property would be great for her father, so she put in an offer for $181,000 with a $2,000 earnest money deposit and a $7,000 down payment. The deposit is non-refundable after the inspection period. They are paying for the appraisal and home warranty. Her father is pre-approved from his bank. This offer was for $1,000 over list price and I can't find anything else wrong with it. I accepted it and escrow will be opened today!
He probably isn't the cheapest cabinet guy around. However, he is honest, fair, and incredibly dependable. He cares about getting the job done right. He works with several investors who flip properties, so he knows time is of the essence when replacing cabinets. He manages projects well. If you need cabinets, I can't recommend him highly enough. He is a franchisee of Kitchen Solvers and his contact info can be found here. His name is Keith Wolfram. Tell him Shaun sent you. (This is an unsolicited recommendation.)
Monday, August 15, 2005
The buyers did not want to agree to my counter offer to make the earnest money non-refundable after the inspection period, so that deal is gone. My agent says this, along with the use of an FHA loan (which is usually used by people with poor credit), indicated a weak buyer.
But we've got another offer on the table. This one is for $185,000, which is $5,000 more than the list price. However, the buyer wants a seller's contribution of 3%, which is $5,550. Now this buyer also did not want a home warranty and there is no $410 fee associated with an FHA loan like the last offer, so on the surface, it looks like there is only a $140 difference between the two offers. However, I would need to pay commission on the higher selling price. That's an extra $200 I'd have to pay, meaning this offer is now $340 less than the previous offer. Other details are a $1,500 earnest money deposit and a $5,500 down payment. The buyer has a FICO score of 805, which is great. Apparently he's got money, but it's in accounts he doesn't want to touch - IRAs, 401(k)s, etc. This is the reason for the seller contribution.
We're countering back with a seller's contribution of 2%, or $3,700. As before, we are asking the earnest money deposit be non-refundable after the inspection period.
It sounds like a great offer. The only strange thing is that it's an FHA loan. My agent said she hasn't seen one of those in 3 years. I counter offered with the condition that the earnest money is non-refundable once the 10 day inspection period has passed. They have until 5 PM today to respond.
Because this is being bought with an FHA loan, the buyers are owner-occupants, not investors. It also means there are likely going to be some additional hurdles to jump through and I would not be surprised if this sale did not go through. First, the FHA will not issue a loan if the seller has owned the property for 90 days or less. I pass that test, since I've had it for almost 6 months. However, if the seller has owned if for less than 12 months, they may require two appraisals to verify the purchase price. Full details of their requirements can be found here. My agent says sometimes they will want two appraisals, and sometimes they will accept one appraisal, but it will be reviewed by a second person. The other reason I think this sale may not go through is that, during my research on the seasoning issue, I came across the maximum amounts FHA will loan for Maricopa county: $172,632. The buyers will need a loan of $174,400. Oh, scratch this. I found another site that gives a bit more detail. That $172,632 amount is for non-metro areas of Maricopa county. For the Phoenix - Mesa - Scottsdale area, the max is $214,700. So it looks like we're ok there.
If they accept my counter-offer, then it looks like the place is sold and the only thing I have to worry about is the dual appraisals. If they do not accept my offer, I'm not too worried. My agent said she had a couple other agents express interest. She was trying to get them to submit their offers before the reply-by deadline of this FHA offer, but it didn't happen. So there could be other, non-FHA offers out there, waiting to come in.
This was more than I expected, but I'm not too concerned. Why? Well, for one thing, there was the $13,000 phone call. For another, well, you'll see in my next post!
Friday, August 12, 2005
Thursday, August 11, 2005
Of course, this leads me to reassess my valuation skills. I had seen some higher priced homes show up on the comps list, including one that sold for $225,000. Some had pools. I figured a pool added $20,000 to the price. My agent said it only adds about $10,000. A two car garage adds a bit (my property just has a 2 car carport) too, but not a huge amount. I think, in my mind, I had assumed the higher priced homes were in immaculate condition or had some other features that I couldn't tell from looking at the comp list. I guess I need to change my thinking a bit.
I went to the property this morning and everything looks good! The cabinets are finished!! Finally!!! I spent about 45 minutes cleaning up the place. There was a bunch of sawdust from the cabinet install to vacuum up, plus all the boxes for the cabinet doors had to be thrown out. I installed the bathroom light cover and the sink hole plug. The old kitchen countertop was on the back patio. It's too big to fit in my car as is and I didn't want to spend the time taking it apart, so I moved it under the kitchen window, where it is out of sight from inside the house. With all the boxes and wood cuttings, the two trash cans are filled again. I have not done anything with the dead weeds in the yard and one bathroom is missing a shower curtain, but I'm not going to do anything about those unless the buyer requests it.
I did take pictures of the cabinets and I was all set to include them in this post when I realized I forgot to bring the camera's USB cable to work with me. So pictures will have to wait until this evening. Sorry!
I'm listing the house at $167,000. We'll see if we get any bites. Hopefully, my agent will have it listed and a Realtor lockbox on the place in time for the weekend.
11:05 AM Update: Just heard back from my agent. The signpost for the For Sale sign is being ordered today and the house will be in the MLS by this evening. FYI, as I mentioned way back when, I instructed her to use some special words and to avoid using others in the listing to try to get a higher price.
Wednesday, August 10, 2005
Now, I know that probably comes as a surprise to many people. After all, this is just a simple little cabinet job. I mean, how long can it take, right? And the guy told me he would be done yesterday...
Ah. Nothing like some sarcasm to start the day off right. I ventured out to the house this morning and discovered the remaining two cabinet doors were still not installed. I was pissed and proceeded to give my lungs and vocal cords quite the workout. I left, forgetting to install the new bathroom light cover.
So I get to work and figure I'll wait until around 8:30 or so to call Keith. At 7:00, I get a call from him. He said he was wondering if he could meet up with me at the house this morning. When I told him I was already there and gone, he was taken aback. Yesterday, when I told him I was going to swing by before work, he assumed I worked the standard 8 AM to 5 PM hours. Actually, I work 6 AM to 3 PM, so when I visit somewhere before work, it's really early. I told him the doors weren't installed. He said he knew that and he didn't get over there last night because he wasn't done with another job until 10 PM. He said he was going to pick up some coffee and get over to the house this morning and finish. He'll call me when it's done.
It looks like things will be done today. At least I hope they will. If so, I'll email my agent the property details to get it listed, but I will still need to go back there for some work. The stove was still not put back in place and, although the debris from the cabinet install was swept up, it was still in a pile in the living room. Not sure if Keith will clean this up or if I have to. And of course, I still need to install the bathroom light cover and the sink plug.
Tuesday, August 9, 2005
Monday, August 8, 2005
It wasn't a totally wasted trip out there for me, though. I vacuumed the house and threw out some boxes that were left from the installation of the bathroom sinks and faucets. (By the way, these cordless vacuums are fantastic! Lightweight, cordless, and they pick up fairly well. They won't do heavy cleaning, but they are great for doing a final touch up.) I also did a tiny bit of painting. The new cabinets that go over the stove are shorter than the old ones. Since the place was painted before the new cabinets were installed (yeah, I know.. stupid move), I had about a 6 inch wide strip of old paint visible. So I painted over that. There were also some cardboard boxes laid down ages ago by the appliance delivery people to protect the carpet . I finally hauled those out. I also took the full trash cans out to the curb for garbage collection, which happens today.
While there, I noticed that the light fixture in the master bathroom was missing the glass that covers the light bulbs and that one hardware mounting hole in the new kitchen sink was not covered. So on the way home I stopped by Home Depot and picked up the light cover (around $11) and a hole plug ($1). After I bought the plug, I starting thinking that maybe that hole was for the dishwasher overflow drain, so I might not need the plug. I need to check that out. I still need to get an air conditioner filter, but I didn't have my tape measure with me, so I don't know what size I need. I'm just going to get one of those cheap $1 filters. I know if I don't, the home inspector will note it.
The yard still has weeds in it. Most are dead and I think I'm just going to leave them. The guy I spoke with last week did indeed blow me off. I even called him back and left a message, but he never returned my call. I tried calling someone else and he told me that he only does weed pulling in the spring. Apparently, he's got so much work he can turn jobs down. If the house is listed and doesn't sell for a month or so, I may revisit this and pretty up the yard at that time, but I'm reaching the point where I just want this to be done, so I'm willing to forgo some stuff I would ordinarily do.
Depending on what Keith tells me when he calls me back today, I am planning on heading out there tomorrow morning before work and finishing up these last details and then getting it listed for sale. I suspect I won't hear from Keith until towards the end of the day because he spent the weekend in Las Vegas at a bachelor party :-)
Friday, August 5, 2005
The author states "The powerful lure of tax-free profit is one reason that home prices have risen at a nearly 7% annual rate, vs. about 4% for the stock market since 1997." Although he mentions it briefly, he dismisses all-time low interest rates as a major factor (perhaps the major factor) in the real estate boom and instead seems to think everyone is buying a new home every 2 years solely for the tax benefit. He also misses the boat in assuming it is owner-occupants (the only ones eligible for this tax break) who are driving up the housing market. What I believe is really happening is investors are buying houses for rentals, not to live in. Turning a profit on these investments is pretty easy, given low interest rates. That is what is inflating the price of a house.
Had he really understood real estate investing, rather than railing against the tax break on the sale of a primary residence, he would instead be railing against the tax advantages of the 1031 exchange, which allows investors to defer capital gains tax on income property indefinitely.
Finally, he states "As much as possible, the tax code shouldn't bias investment decisions." On the contrary, the tax code is expressly designed to bias investments toward what the government believes people should be investing in. Take, for example, all the tax benefits of owning a small business. The government wants businesses created so that more jobs can be made, jobs from which the government collects payroll taxes. The tax code encourages investment in real estate so that a healthy housing market is maintained and the government does not have to provide shelter for millions of people.
Tuesday, August 2, 2005
The yard guy called this morning and said he could get the yard done today. He was a bit put off when I told him no one would be at the house. He said I needed to be there to tell him exactly what needed to be done. I explained the yard is all rock and I just need all the weeds pulled. There is really nothing ambiguous about it. He said he'd call me again when he gets there. This was about 2.5 hours ago and I haven't heard back, so I'm wondering if he just blew me off.
I got the invoice for the tree trimming, so that should be done. I'll check tomorrow when I go out there before I pay it.
I ran comps again and, as Scott alluded to in the comments to my previous post, the increased holding time I have encountered has worked to my benefit. Using the same source, comps for the property went from an average of $99.94 / square foot in March to $102.65 / square foot in May to $112.20 today. That's an increase of $12.26 per square foot, which translates to an extra $16,600 for this house. Yeah, that pretty much covers my holdings costs of $160 a month!