The remodel on our first rental is coming along excellent.  Our contractor is very motivated to move-in so he is rushing everyone along.  The kitchen cabinets went in today, the granite will go in tomorrow.

I am still at a pretty big loss on all the paperwork required to “do it right”.  I have almost finished reviewing the course we got and will start doing some research.  The goal is to have all the rental docs, the deposit in and the paperwork signed early next week.  Rental agreements, amendments, all that fun stuff need to be figured out.  I trust the tenant a lot, but I want to separate the relationships between our work and renting the house to them.

Not much else to post about right now, we are working on closing our purchase escrow on a bunch of properties and selling a bunch of properties.

House #13 got a review appraisal on Tuesday.  My partner met the appraiser out there and she told him “not to worry,” but I am worrying a little bit, based on the comps she could easily come in 20,000 low.  I printed a stack of comps (two of them where our previous sales) and we will see if she ends up using them.

House #4 the appraisal came in at the purchase price and they are working with Bank of America for the loan.  Bank of America is really slow.  The 17 day full contingency removal comes up tomorrow, I sent them the form today and we will see if they send it back signed tomorrow.

House #12 is set to fund Monday, and record Tuesday next week.  If everything goes as planned I will be really happy as that is by far our best deal yet!  The buyer has put all the money they need to escrow (almost 50,000 down on an FHA transaction).  I guess that is what happened when they pay over appraised value.

That’s all for now.

If you have read my post “FHA 90 Day Flip Rule … A Major Pain” or the latest “FHA 90 Day Rule – Revisited” you will know that you cannot sell a house until the 91 first day of ownership.  So the thought is, if you wait the 90 days and put the property under contract you should be okay, but just wait:

The FHA Guidelines also State:

that for resales that occur between 91 and 180 days where the new sales price exceeds the previous sales price by 100 percent or more, FHA will require additional documentation validating the property’s value. FHA also has flexibility to examine and require additional evidence of appraised value when properties are re-sold within 12 months.

For my properties and experience it seems the company providing the loan has huge discretion in what happens in the 91 to 180 day period.  They can ask for additional comps, a letter justying what you have done to the property or a full out review appraisal.

On two properties we have had the bank ask for a review appraisal.  On House #6 and on House #12, for House #6 the review appraisal actually came in $20,000 under what our original appraisal did.  The original appraiser wrote a letter and somehow convinced the bank to adjust the value up.  House #6 had some unique attributes about it which helped the appraiser get some comps thrown out.  For House #12, the loan processor got to order the second appraisal which helped us discuss the property and the upgraded performed to justify the value.  The underwriter also forced to get a letter from an engineer to state the property was structurally sound.  We sent in an engineers letter, a copy of our building permits and all the inspection sign offs and some before and after pictures.

Here are some things that have helped us along the way:

• Take good pictures of the property.  For House #2 and House #6 we made a four page document that outlined the things we did to the property to add value and we made two pages of before and after pictures.
• You are not going to get a value way above everything else in the rest of neighborhood.  So realize that you are not going to get paid extra to make the best property in the neighborhood better.
• Look for value adds… if you legalize additions, or add your own sq footage it is a great appraisal value play and something where the costs can vary greatly (eg. the bank can justify you selling it for $90,000 more than you purchased it for).

We received over 10 offers on House #12 in one week.  All of them over our list price.  That amazes me, there is just a huge lack of inventory in this market.

Our escrow price is about 50,000 over any of the other good comps, so I am wondering if we are going to have appraisal issues.  There is one property that might fit, that is where we need to be.  The appraiser we use says he can use other offers in lieu of comps, which surprised me.  He still needs a couple “real” comps, but multiple offers go a long way in increasing the value.  I will keep you updated on how we do there.

The hardest part is to decide what buyer to work with.  Go with the highest offer?  Go with the biggest down payment?  Go with the most experienced agent?  Go with the buyer who has the most pre-qualification finished?

We have sure learned a lot with the properties we have in escrow.  Cash is KEY! The guys who can barely scrape the 3.5% needed to close seem to always have issues.  They typically have lower credit scores.

Experienced agents really help. On one of our properties, the agent presenting the offer was a first-time agent.  It really caused huge issues, paperwork was done wrong, his expectations where unrealistic.

In a seller’s market (which oddly enough) it is right now.  Due to a lack of available inventory.  Get a buyer who has as much of the pre-qualification paperwork complete.  If it’s an FHA offer, have them send the Desktop Underwriter approval.  You want more then the standard loan pre-qualification letter, because pretty much anyone can get one of these made.

With the new appraisal issues, we actually prefer FHA offers versus conventional.  FHA offers allows the agent to pick the appraiser where as with conventional and VA offers the appraiser is randomly assigned.

The key is too be patient, I have negotiated with weak buyers, put the property into escrow and the next day I got a much stronger offer.  In one case we put the property into escrow at 179,000 to a VA loan and I got a cash offer of 175,000 the next day.  It was too late to pull out.

We listed House #12 on Wednesday.  It was a great deal, but needed a ton of work.  There was a large fire, we think set by the previous owner, that started in the garage and moved up and basically burnt right through the middle of the house.  We closed escrow on it February 24 and had to get full permits with the City.

The Front

Before

After
The landscaping was not quite finished when this picture was taken, but you should get the idea.

Kitchen

Before

After

Family Room

Before

After

Master Bath

Before

After

We got our first offer today, it was above our asking price.  Our biggest issue with this house will be getting it through the appraisal stage.  But overall, we are extremely happy with the finished product and the payday should be pretty good for us too, probably the best one yet!

I figured the Fire House we have in escrow will be a good case study as it will be about a 6 month project and will take a lot of work a long the way.

We put it into escrow about a week ago.  This one was a first day listing with a new agent.  When we saw it come up, we chased it aggressivley and ended up in a bidding war with another investor.  Typically, we do not really mess with best-and-final offer deals.  So we did not raise our offer and the other investor got it.

Two weeks later the agent called us, and the other investor backed out.  We re-submitted our original offer and put it under contract at that price.

We have received a ARV appraisaled of about ~$230k and our budgeting ~$80k for repairs.  It seems like the fire started in the garage, right down the center of the house.  So it will be all new drywall, new cabinets, new flooring and new bathrooms.  Estimating repairs on this project is very difficult, but we have tried to be very conservative.  The house was built in ~1980′s so it is pretty good layout and has a nice pool in the back.

Our architect and engineer is started plans and permits and we should close escrow around the end of January.

Wish us luck, this should be a meaty deal!