Sale Of Rental #1 Moving Forward

My agent and the buyer's agent all got quotes for repairing the roof - I think I've seen about 6 different quotes. All are around the $7,000 to $8,000 range. The roof is not damaged enough for insurance to cover it, so that's out. The buyer and I have renegotiated and we are now back to their original offer price of $50,000. That $5,000 less than the original contract price, but it's still less than what it would cost me to repair the roof, so I'm coming out a bit ahead there. (I won't be coming out ahead on the entire property though.)

We are still going to try for our original close of escrow date of July 2 - which is Wednesday. Not sure this can happen, but the title company is going to try. They are unable to locate the abstract of the property, so I've given them the name and company of the title agent I worked with when I bought the place. There were potential title issues then and they had to do some work to clear it up. To my knowledge, it was cleared up, but I guess they didn't return the abstract or something.

The title company is also going to fax me all the paperwork to sign and I will need to overnight it back so they have it on Wednesday. I just realized my wife's name is on the paperwork too. This will be a bit of a hassle since our signatures will need to be notarized. There is a notary in my office, so getting mine done is no problem, but getting hers will require some running around. And, of course, I will need to wire the title company some funds. I did find out that the buyer already has all the paperwork and their funds at the title company.

Good News For Flippers!

Here is some good news for anyone flipping properties. The FHA is waiving it's anti-flipping rules and will now insure mortgages on properties that have been owned by the seller for less than 90 days. The waiver is in effect until June 2009.

Full details here.

Roof Problems

The roof on Rental #1 is quickly becoming a big problem. Got this email from my agent today:

Termite damage under the house to the supporting rafters. Around $2600 to repair/replace, buyer has enough to do this himself. Roof has 3 layers on it. Original layer is wood shingles, two are composition shingles.

Inspector did notice some shingles missing on one side of house, suggested we try to get insurance claim as you know. He informed the buyer that he should get a bid on roof due to fact this could create some problems in future and insurance coverage could be one of those problems. We have sent two roofing companies we use out to get estimates, both have come back with the comments that the roof is not showing any leakage nor missing enough shingles and their thoughts are the insurance will probably reject any claim. The roof is still a problem. It does have some areas that are caving due to the weight of the layers and the fact that wood shingles are attached to the rafters, not to deckboard, so adding the age of original roof and the 2 layers of composition shingles, this is why the sagging is occurring.

This is creating a new problem for the buyer. He will have trouble getting insured and he does not have enough money to cover the problems underneath the house and the roof, which is going to run around $7,000-$8,000 to tear out completely and replace properly. He was told this by a roofer he called out and was confirmed by our two roofers.

I do want to get out of this house and now I am facing the prospect that insurance may not cover the repairs. Looks like the buyer and I will be going back to the negotiating table soon.

Pointless Contract Verbiage

The buyers for my Rental #1 had the inspection done and they found a couple of things. There is some roof damage that appears to have been caused by the storms on June 4. Some floor joists are rotten and need to be replaced and there are some other minor issues. The buyer is willing to do all the repairs except for the roof. My agent suggests that I file a claim with my insurance to get the roof repaired.

Now, you may recall this offer was as-is. My agent said the buyer was still within their inspection window and could back out of the contract based on the inspection results. So I asked my agent, if the buyer can still request I make repairs and can still back out of the contract and get their deposit back if I don't make the repairs, what exactly does as-is mean? She had no satisfactory answer. I don't feel I really have the standing to fight this. The contract did state that, even though it was an as-is offer, the buyer still had the right to inspect the property. When I read this, I thought it meant they still had the right to enter the property before the close of escrow to inspect it. Apparently, other parties feel it means they still have the right to cancel based on the inspection results. In other words, the words as-is in the offer are meaningless. It ambiguous enough that I don't want to bother fighting it.

My insurance deductible is $1,000. We're going to call the insurance agent and have them send someone out to look at the roof and see if it warrants filing a claim. If it does, we are going to ask the buyers to split my deductible with me.

Looks like we definitely will not make our July 2 close of escrow date. I hope we can close before July 15 though, so I don't have to make another mortgage payment.

Another Investment Made

Today I made another real estate investment. I'm a hard money lender in a first mortgage on a single family home in Oakland, California. This was a property the buyers picked up at a foreclosure auction. The amount owed on the defaulted mortgage was $495,000. The bank set the opening bid at $202,000 and the buyers got it for one cent more than the opening bid. There is probably about $25,000 worth of repair work to be done to it and three independent people have appraised the property at $325,000 to $350,000 after repairs. The buyers are contractors and each is a multi-millionaire. Les, the guy who I partnered with on my previous hard money deal in Louisiana, has known the buyers for over a decade and has found them to be very honorable.

The loan is for 1 year with interest only payments at 12% with a balloon payment for the entire principle due at the end of the term. No prepayment penalties, standard late fees. The net to me is 10% since 2% is taken for the servicing of the loan. The first mortgage is for $156,000, so the loan to value ratio is between 45% and 48%, depending on which appraisal you use.

I'll refer to this investment as Hard Money #3, with #2 being the Louisiana deal and #1 being the small loan I did about three years ago.

Offer Received On Rental #1 (Updated)

I received an offer today on rental #1. I'm not going to list the details until we get a signed contract (or until we walk away from negotiations). This is simply because I know there are people who read this blog that know where this property is located and I don't want to give away too much during the negotiating period. I will say however, that the offer was for below my asking price, but it was for as-is condition. That's a big plus for me, given that the property isn't in the best neighborhood and seems to have a habit of falling into disrepair rather quickly. Still, their offer price was too long for me to consider, so I'm going to counter-offer. My counter-offer is still below the max amount the buyers are approved for. Another plus is that they want to close in less than a month. The as-is clause and less than a month till close makes me believe this is an investor making the offer, not someone who will live in the place.

Update: I got a fax of the offer this evening (I just had an email from the agent before) and, if I read it correctly, it looks like they accepted my counter-offer of $55,000. Strangely, the agent never faxed me the full contract for the offer. All I have is the addendum page and the page with the price, which was changed to show $55,000 and which I initialed. I'll get all the pages before I sign anything.

One very important fact the agent did not tell me: this is an all-cash offer! When the agent told me the buyer was approved to $57,000, she was incorrect. The letter from the bank, which I got a copy of, actually says the buyer has $57,000 on deposit with them. The contract addendum states this is a cash sale, the sale is as-is although the buyer can still inspect the property before close of escrow, and that I will pay property taxes through the close of escrow date. Note sure why the agent didn't think to tell me this was a cash sale. It's obviously a big plus for the buyer. Escrow is to close on July 2.

I'm Back ... But Only For A Short Time

I've returned from my cruise and am trying to get caught up on everything. Unfortunately, my mother-in-law is critically ill and probably will be passing any day, so I expect to be taking off again sometime soon for her funeral.

The cruise was fantastic! We went to several cities in Italy, Barcelona, Monaco, and Tunisia. This was my first cruise and now that is the only way I want to vacation! It's awesome! Fantastic food, relaxing accommodations. I couldn't ask for anything else.

Of course, being interested in real estate, I quizzed some of our tour guides about local real estate prices in the various countries we visited. In Monaco and Monte Carlo, housing prices start at 30,000 Euro per square meter. At exchange rates as of this writing, that works out to about $500,000 per square foot. But the good news is, if you make Monaco your residence, you won't have to pay income tax or inheritance tax, so if you have a high income (and if you are looking to live in Monaco, you do have a high income), you'll recoup your investment pretty quickly. We were in Monte Carlo a week after the Formula One Grand Prix, so we got to see the grandstands and pit garages, which were still set up, and drove on part of the course. In Rome, prices for buying an apartment in the city run around 1.5 to 2 million Euro. On the Isle of Capri, prices are even higher. (On a side note, we saw the Capri residence of Italian designer Versace. The house itself is modest, but the location makes it worth a fortune. It's the white house directly above the orange cactus flower in the picture. Click to enlarge.)



We also visited the Coliseum, the Vatican, the Sistine Chapel, St. Peter's Basilica, Sorrento, Carthage, Florence, the Blue Grotto, saw Michelangelo's David, went to the Uffizi Gallery (where we saw works of art by all of the Ninja Turtles), Barcelona, and so much more. I took over 800 pictures! (Thank goodness for digital cameras!) There is so much more to talk about from the cruise, but this is a real estate blog, so I will try to refrain.

Back here at home, things are moving along. Rental #1 has had the repairs completed and is now listed for sale. It's listed at $58,000, which is much less than I paid for it, but this is what my agent thinks it can sell for.

Multi #1 finally closed escrow at the end of May. The previous owner had started the process of raising rents and we will continue that process as lease come up for renewal. The capital improvements we planned are now starting to be implemented. The initial focus will be on touching up the paint, changing the sign (we had to change the name of the complex as a term of the sale), and installing a water feature. I look forward to seeing the first financial statement at the end of the month.