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Whether you are considering buying your first personal residence, or your first investment property, there are a few key things to look for when purchasing a home. They may seem like common sense, but doing your due diligence on each and every property will save you money. Careless mistakes are made every day, and it is better to be prepared and informed than to lose money on a deal.

First, we will explain the things that you must thoroughly inspect on the exterior of a house.
• 1. The roof: Make sure that the roof is in good condition. Roofs can be extremely expensive to fix, and can greatly increase your rehab costs.
• 2. Windows: Windows are one of the biggest selling points on houses today. Potential buyers will be more impressed with double-pane, vinyl windows than single-pane wooden windows. (*Remember, as an investor you want to spend money fixing things that will help sell the house. However, don’t forget that you will not be living in the house, and every item does not have to be up to your standards of living. A big mistake that new investors make is putting too much money into rehabs that they will not get back out once they sell the home. Make your investment property just a little bit better than the other houses on the block so that it will sell. Make it appropriate for the neighborhood.)
• 3. Siding/Wood/Brick: Check if any of this will need to be cleaned, repaired, or replaced.
• 4. Foundation: this is hard to inspect when people are living in the property that you would like to purchase. A good test to see if there are major foundational problems is called “the marble test.” To do this test, stand at one end of the house and put a marble on the floor. If the marble rolls down at an angle rapidly, you know there are major foundational problems, and this property could be more of a challenge than it is worth.
• 5. Landscaping: curb appeal can help to sell a house! (As an investor, you must always consider your exit strategy.)
• 6. Central Air: if the property you are interested in buying has been sitting vacant, make sure to check if the outside central air conditioning unit is still outside. People like to steal these, and you do not want to have to pay to replace this.
• 7. Garage/carport: the size of the garage is a “deal breaker” for some people. If they cannot fit their car inside, they will be unlikely to purchase the home.

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Here is the second installment of what to look for when buying a house.  Make sure to check out all of these important parts of the interior of the house.

1. Flooring

Carpet: It is almost always recommended that you replace the carpet.  New carpet is a good selling point amongst realtors, and therefore worth the investment.  But, remember to shop around for the best price.

2. Walls

Drywall is fairly inexpensive, so holes in walls are not as big of a problem as they seem to be.
3. Kitchen

• Instead of replacing cabinets, which can be costly, put in some elbow grease and strip, paint, and add new hardware.  You will save a lot of money, and they will look like new.

• Appliances

• Counter tops

4. Bathrooms

• This is very important room for many people.  This is also a room where mold can accumulate and damage can be done.  Because of this, it is imperative to do a full inspection. Check the shower, and check for mold.  To avoid missing damaged areas, get on your hands and knees and check every area of each bathroom in the house.  You will be happy that you did.

• How many bathrooms are there?

• Shower/Tub : it is not necessary very often to replace these.  However, resurfacing them can make them look like new.

• Is there mold?

• Sink/vanity: Nine times out of ten, you should replace the sink and vanity.

• Toilet: Nine times out of ten, you should replace the toilet.

• For less than $500 you can make a bathroom look brand new.

• If you make the kitchen and bathroom look brand new, your house will sell with fewer days on market.

5. Bedrooms

• Legally, a bedroom must have a window and a closet.  You can create your own closet and turn a 3 bedroom home into a 4 bedroom home.  However, you may need a permit for this, depending on the electrical situation in the house.

• How many bedrooms are there?

• How many closets are there?

• What are the sizes of each bedroom?

6. Basements

• Fixing up basements can add much value to a home, and help it to sell faster.  You will need a permit to do this, however.

• Usable square footage of a basement (and sometimes attics) is determined by ceiling height.  To be considered a finished basement, the ceilings must be 7 feet high.

• In order for basement space to qualify as a bedroom, it must have a closet and an egress window.  An egress window is a window that one can crawl through.  This relates to fire safety.

7. Other items

• Air conditioner

• Furnace

• Water heater: New water heaters draw in buyers, and they only cost $300-$400 to replace.  It is also a good selling point if the water heater is high efficiency.

If you look for these elements in a house you are looking to purchase, you will be on your way to determining how much it will cost to fix up, and if it will be a good investment property for you.

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It is no secret that America is facing an unprecedented foreclosure crisis.  But, what happens to all of those foreclosures if no one buys them at the auction?  Well, the banks have to take back the properties, and they become Real Estate Owned, or REO.  Contrary to popular notion, the banks do not want to take these properties back.  These properties become non-performing assets for the bank, and hinder the bank’s borrowing and lending powers.  Because these properties propose such a negative situation for the banks, they become very motivated to sell off these REO properties.  Since the banks are motivated sellers, they are often willing to accept deeply discounted offers for REO properties.  This presents an incredible opportunity for real estate investors to buy properties for prices far below market value.

It is often a good idea to focus on REO’s that have been back on the bank’s non-performing asset list for more than 90 days*.  If you try to negotiate a discount with the bank before 90 days*, you could face more resistance from the bank.  Also, there is a very small group of realtors in each area that are able to market REO listings.  It is crucial to find out who these realtors are in your area, and contact them if you want to excel in purchasing REO properties.

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There are currently around 5 million homes in foreclosure in the U.S. right now.  It is reasonable to expect that there will be at least 12 million more homes going into foreclosure within the next two years.  Because of these astronomical numbers, many people are scared of investing in real estate.  However, this market creates the ideal situation for real estate investors.  Our philosophy is to respond to market trends, and pick investment strategies that work in today’s market.  Because so many people are facing foreclosure, real estate investors have the power to help distressed homeowners in need, and obtain properties at deeply discounted prices.  Since this is such a popular topic right now, we wanted to take some time to clarify some terms, and how they relate to you as an investor.

Pre-foreclosure refers to mortgages that are in default.  This means that the homeowner has missed multiple payments on their mortgage, and the bank has filed a Notice of Default (Remember, the exact timeline for the foreclosure process differs in every state.  It is crucial for you to learn the foreclosure laws and process in your local area before pursuing such properties.)  However, the homeowners still have seven options to avoid actual foreclosure.

• Loan modification/refinance
• Sell the home through a short sale
• Catch up the loan
• Bankruptcy
• Nothing, let it go to auction
• Rent the property to someone else (?)
• Sell the property by marketing through a realtor

Foreclosure occurs when the homeowner has failed to remedy their pre-foreclosure situation, and the bank takes back their home.  After the bank takes back the home they will try to sell it at auction.  It is important to remember that a foreclosure is never eliminated from  someone’s credit score. Foreclosures can also lower one’s credit score by hundreds of points, making it virtually impossible to acquire another mortgage in today’s market.

After the bank has taken back the property, they will auction it off.If no one buys the property, the bank takes it back again, and it will become an REO property. There are millions of distressed homeowners in the U.S. right now.  As an investor or aspiring investor, you have the chance to help them out of this difficult situation.  It is important to realize that these homeowners are real people with real feelings, not dollar signs.  Treat these homeowners as you would like to be treated, and listen to their wants and needs.  Always operate your real estate investment business honestly, ethically, and with a desire to help others.  If you do this, you will be a much more successful investor than those who only care about money.

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A creative way of acquiring properties at discounted prices is to purchase them at auction.  After a homeowner goes into foreclosure, the bank will take back the property that was used as collateral for the mortgage.  (It is important to remember that the timeline of the foreclosure process is different in every state, and every investor should consult competent, local, legal advice when investing in real estate.)  Since the bank does not want to keep this property for a lack of ability to market, upkeep, rehab or carry the costs of the property, they will auction the property off at a specified date, time and location.  This information is public record, and can be found at your County Recorder’s Office or Website.

Auction procedures also vary state-to-state, and county-to-county.  However, these general tips should help you in gaining the ability to confidently purchase properties at auction.

Here is some expert advice on auctions:

• 1. It is crucial to remember that there are people that purchase properties at auction full-time, and are very experienced.  Do not take this as a sign that you should not attend auctions in order to acquire properties.  However, be mindful of the fact that these people know the process and the properties very well, and can often prey on new investors to hinder them from coming back to the auction. 
• 2. Because of these auction “regulars,” you should attend the auction from which you would like to purchase properties for 30 consecutive days or sessions before ever placing a bid.  This will allow you to review the process and details of your specific auction, and will give the “regulars” a chance to get used to your presence.
• 3. Sometimes, other potential investors will offer you money to stop bidding against them if they really want to purchase a specific house.  It is imperative that you do not accept this money.  It is considered collusion, and is illegal.  You can go to jail for accepting such a bribe at the auction. 
• 4. It is also very important to know that you should not use “hard money” to bid on properties at auction.  (Hard money is non-traditional financing in which one borrows money from another individual.  This individual can charge points up front, and a percentage of the profits of the real estate deal.)  The reason that you should not use hard money for auctions is because there is no way of knowing if you will get the property or not.  If you do not get the property, but borrowed money for that day, you would not be refunded the points you paid up front, or the interest for using hard money that day.  In essence, you could have to pay money for borrowing money without obtaining one property or making a dime.  Hard money is a great tool for any beginning investor with minimal cash to invest.  However, it is expensive money, and should not be used at auction. 
• 5. Even though we have stated some precautions for you, the fifth rule is to not be afraid.  Auctions can be a great acquisition strategy for some, and you can find great deals at them! Be confident and educated about the processes, and always do your due diligence before taking part in any investment.

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1. Short Sales Today

Short sales are an extremely popular strategy amongst real estate investors right now.  However, there is not much that is short about the timing a short sale.  Depending on your location and the lender you are dealing with, short sales can take an average of 3-6 months to close!  You must be patient, organized, and diligent in order to be successful at short sales.

So, if a short sale isn’t a sale that takes place quickly, what is it?

A short sale occurs when the bank agrees to sell the property for less than what is owed on the property.  This is also called selling the property “short.” This often happens in conjunction with pre-foreclosures.  When banks realize that they will not receive full payment for a mortgage because it is delinquent, they are more willing to negotiate a short sale.  This is because they do not want to take the property to auction.  Banks do not want properties to go to auction because the bank would have to pay attorney fees, trustee fees, and would run the risk of being forced  to take the house back.  The impending auction is your number one negotiation point with the bank.  As it gets closer to the auction date, the bank will most likely be more willing to negotiate a short sale.

A recent New York Times article shared the following information. “Gualberto Medina, a former state secretary of commerce who heads the New Jersey office of the commercial real estate company Cushman & Wakefield, cited a survey performed last fall indicating that half of the top 500 companies in New Jersey had laid off employees because of the recession. The same survey, produced by researchers at Rutgers University who interviewed senior executives during the final three months of the year, showed that 76 percent of companies expected to reduce, or continue reducing, costs in 2010, and 31 percent anticipated more layoffs.”

So, what does that mean for aspiring and current real estate investors?  If the worst is not yet over with job loss and economic hardships, it is realistic to assume that many more homes will be facing foreclosure.  If you can learn how to take advantage of this market quickly through gaining a knowledge of the short sale process, you can escape the “bad economy” and create massive wealth for yourself!

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