Archive for the ‘buying foreclosures’ Category

Time to Seriously Consider Refinancing as Interest Rates Drop

Tuesday, March 25th, 2008

Now may be the time to refinance your house, take some equity out, and use it for a down payment on another investment property. Today, I applied for a refinance loan myself. I am getting my financial ducks lined up to purchase another fixer upper house this spring.

According to today’s Baltimore Sun article A Ray of Light for Housing, there is good news for buyers in that mortgage rates, appear to be falling. The average rate for a 30-year fixed loan has fallen under 6 percent, according to a Mortgage Bankers Association survey, and they expect it to show another drop tomorrow. The Federal Reserve’s new lending provisions for banks, announced a week ago, are already helping, they say.

With many foreclosed properties popping up on the MLS, and lots of short-sales available, the time may be ripe to buy. Prices are negotiable.

As investors, we know that refinancing at a lower rate gives a tremendous boost to our cash flow. Equity is the silent wealth builder, generated as tenants pay down our mortgage for us. We can judiciously tap into that equity by refinancing and investing it into new rental properties.

If you buy a fixer-upper and the numbers don’t work for you to rent it out, consider living in it for a few years until the market improves. Then you can sell it at a higher price when the market recovers, or rent the house out and buy another property to live in.

I’m not saying it’s time for you to buy, but as investors it may be time to start doing some warm up exercises and take a few practice swings on the sidelines.

For another perspective on the status of foreclosures see Foreclosures Produce Deals, but No Steals at

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Serial Home Buyer/Seller Tax Exemption, Part 5 – sources of fix-up houses

Tuesday, January 15th, 2008

Sources of Fix-up Houses

For serial home buyers/sellers who utilize the federal tax exemption to pay no capital gains tax, a key to making the process work is to find lower-priced houses in need of repair.

There are good deals to be had even though we just operate on a part-time basis. The pros – the full-time investors – will get eye-popping deals, but there are still enough good left-over deals for us small time operators to get a share of the pie also. It’s like a yard sale. The people who get the huge bargains will be up before dawn, knocking on doors before the yard sales are scheduled to start.

Nevertheless, there are still some bargains left when the rest of us show up a little later in the morning. For my wife and I, finding good fix-up deals primarily involves reading the newspaper, checking the internet, and driving through neighborhoods.

A good source of fix-up houses are those repossessed by banks. These are houses where the owner cannot make the payments on his bank loan and is forced to leave the house when the bank takes it from them. Often the former owner will express his bad feelings toward the bank by destroying fixtures, doors, walls and other parts of the house. While this may give the house an unlivable appearance, most of the damage is fairly easy to repair. This is just the type of house the aspiring handyman investor is looking for, as it has built-in equity because the damage is only superficial.

A second source of good fix-up properties is from the Veteran’s Administration (VA) and Housing and Urban Development (HUD). These properties have had owners who cannot make payments on their loans from these respective organizations, and the VA and HUD have repossessed the houses and put them back on the market. VA and HUD houses are usually offered at a fairly good price, below market if they need serious fix up work done. As in bank repos, the owners have either let their houses run down and are generally in need of, at minimum a paint job, and sometimes a more major fix-up.

My Example

I purchased a VA home, in 2003, in a nice neighborhood that scared off many other investors because there had been water damage to the ceiling in both bathrooms. Upon close examination, I traced the damage to some cracks in the water cooler on the roof. Was it worth it to pay $105,000 for a house in a neighborhood where similar houses sold for $150,000 (and now sell for $200,000)? You bet it was. I could replace the cooler and repair the ceiling for $2,000 to $3,000. The remaining $45,000of equity went to the only person who took the time to climb up on the roof and thoroughly examine the cooler with a flashlight. That was me. HUD, VA and repossessed houses from other federal agencies can be found at the HUD/VA website.

To find bank repos and other fix-up houses, my wife and I carefully scan the newspaper classified ads every day and we spend weekends driving around areas where we might like to buy. We bought our first bank repo by responding to an ad in the newspaper. Based on the ad, it appeared to match all of our requirements, a fix-up house priced at below-market in a nice neighborhood. I visited the property with my handyman friend, made an offer and purchased the property.

To purchase VA and HUD repos, you can also pick up printed listing from real estate agents, some of whom specialize in such sales. Recently repossessed homes are generally listed every two weeks.

Serial Home Sellers, Part 6: Examples

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How to Learn the Skills to Repair Houses, part 1

Tuesday, September 25th, 2007

I recently received a question asking, “My background is not in the building trades. How do I learn the required skills to start a business in repairing houses and renting them out?”

In terms of how to learn to repair houses, I will answer that question in two parts. The first part today, and the second half of my answer will be in a subsequent blog article.

How to learn the appropriate skills:

1. Learn by doing. When Orson Wells directed his first movie, “Citizen Kane,” he said that he felt “like a kid with a giant train set.” One nice thing about buying a fix-up house is that it’s like having giant practice house, where you can practice learning to do repairs. Since the house is already pretty well beat up, its OK if you make a few mistakes along the way. You can always go back and correct them later.

My philosophy is that the best way to learn is by doing. Granted, you have to gradually work your way up, if your are beginning near the bottom. At first you will have to hire out for most of the moderate or difficult repairs. Make sure you watch, or assist in doing, the repair when you pay someone to do it. That way you can do it, or at least do part of it, the next time you encounter the same situation.

Just last week, I had to hire someone to repair my air conditioner in a house that I am living in and fixing up at the same time. I took time off my 9-5:00 job to be on the roof with the repairman and observe what he was doing. I saw all of the tests that he performed with the multi-tester to identify what was wrong. The problem turned out to be two capacitors that were blown. If a similar problem arises in the future, I will know how to check and replace the capacitors myself.

If you have to pay someone to make a repair for you, make sure that you get your money’s worth by watching the repairman, and learning how to do it yourself.

2. Take community college classes. Most community colleges offer courses in the building trades – plumbing, electrical wiring, air conditioning and furnace repair, and woodworking. For a fairly low price, you can learn how to make repairs like a pro by taking these classes. I have taken several classes and they have been well worth the investment of time and money. Besides leaning the skills in a supervised environment, you also learn how to use the correct tools in the proper manner. As part of the program, students are required to take an 8-hour OSHA course in how to be aware of work site dangers, to do work in a safe way, and to avoid accidents. I highly recommend that anyone who does repair work take the OSHA class.

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Schuab on buying bargains during the real estate meltdown

Thursday, September 20th, 2007

John Schuab is one of my favorite writers on real estate investment. He’s been investing and teaching for a long time and he almost always has valuable insights to pass along. His book “Building Wealth One House at a Time” is one that I refer to often. Here is a review that I wrote of his book at (You’ll need to scroll down to see the review.)

Schuab recently posted a very good article on his website entitled “Buying Bargains as the Sub-Prime Market Melts Down.” He makes the point that “cash is king,” and the true bargains are available to those with cash. He provides a good description of why the market crashed, and how to approach purchasing properties under the market conditions that we now operate under.

Schuab suggests:

“Target several of the best neighborhoods in your town. Neighborhoods that you know will appreciate in value over the next ten years. Walk those streets looking for empty houses. Some of my best deals have been in the better neighborhoods in our town. Your competition will be looking in the traditional rental neighborhoods. Avoid the competition and buy better properties at bigger discounts.”

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Home Foreclosure Insights on NPR

Thursday, September 6th, 2007

The latest in a string of good news for real estate investors is that home foreclosures rates are surging to new records. An interview on NPR this morning with Glen Daniels, a director at, offered some insight into their business. Daniels says that the amount of foreclosure properties that he deals with are up but the number of buyers are down. This is because buyers are are uncertain about what the market will do next, and because of the credit situation with banks tightening credit lines which make it harder for buyers of qualify.

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