BuildBankroll - Chris and Jan's Featured Flip Real Estate Blog

BuildBankRoll

http://buildbankroll.com/

Education is the key to success in becoming a successful real estate flipper or investor. Others believe it just takes a strong stomach for risk and a lot of luck.   The internet provides an excellent learning ground for basics to complex and I find myself routinely looking for new ideas and websites.

BuildBankRoll provides a great balance between education and risk - call it "educated risk" which is something that Jan and I have ascribed to since day one.

BuildBankRoll is a very good website/blog by a guy named Steve in Southern California. He provides lots of education on his blog mixed in with the houses he is buying and has rehabed. Each house that he's flipped is listed in a side bar and chronicled to some extent so it's easy to see the types of properties he's flipped and the amount of work that he's done. I was surprised to see a number of houses that had fire damage among those rehabbed and it actually makes great sense as I'm sure the properties were picked up fairly cheap... a segment I had never really thought about.


Another nice feature is the quick link bar to specific topic areas such as Buying, Evaluating Deals, Rehab, etc..  Basically a rapid sort function of previously posted blogs for the topic area.

What I like most are the GOALS they set and track each month and the level of education provided in common sense lauguage. It's clear that they do their homework and vet each deal in order to find the gems. For those looking to get into flipping its a primer on the way to do it and the amount of diligience it takes to be successful.
 
The real key is they have a plan, execute against the plan, and measure performance. 
 
This is probably the number one reason for success - just because you don't make the plan goals it doesn't mean you give up.  This business takes a lot of learning and persistence.
 
We look at a lot of property evey week and this guy puts us to shame... then again we are part timers now looking forward to maybe doing it full time some day. Now I just need to get a contractors license...

Buyer Beware - Insurable Title vs. Marketable Title

We decided to walk away from the Fannie Mae property that I talked about in a previous blog as a result of this.  Turns out the last owner transfered the deed and the property was never foreclosed on which means that any problems with the title would need to be cleared at our expense!!

I found this on the web at www.activerain.com by Ron Webster a real estate attorney in South West Florida.  It provides a pretty good explanation of the differences and the risks.

General Rule: All marketable title is insurable, however, not all insurable title is marketable.

What is the difference?

Insurable title may come with a host of defects. However, despite these defects, a title insurance underwriter weighs the risks involved and allows the title agent to issue a title policy even though there may be blemishes and potential problems down the road. Ironically, should the value of the property increase dramatically, the buyer is only protected to the extent of the original purchase price.

In contrast, marketable title is a title that is clean, has no defects that will come up again in a future title examination when the property owner attempts to obtain financing or more importantly tries to sell the property. Accepting insurable title could result in problems which need to be addressed at a later date resulting in both time and money.

Title Insurance Companies may recognize a problem when you go to sell the property. Their first solution is to ignore the problem and reinsure over it again whereby they actually profit from their previous oversight. Unfortunately, many buyer's, if properly represented will not accept this proposal.

Why is this important?

Standard A - Title of the standard form contracts in Collier County, Florida provides "Title to the property shall be good and marketable with legal access, subject only to the following exceptions..."

On more than one occasion in the past year, I have had frustrated sellers lose their deal because the property was not marketable. Title companies often gamble that the issue will not come up again or will be overlooked. When problems do come up they are more often difficult to resolve requiring corrective documents in the chain of title.

What does this have to do with foreclosures?

Everything! The problem is that every purchaser who is looking for a good deal buying a foreclosure property is required to sign a contract that states to the effect "The buyer agrees to accept at closing "insurable title" provided buy the lender's closing title company." Talk about the fox guarding the chicken hen - WOW!

Unfortunately a great number of foreclosures are riddled with title problems. This past year alone I have encountered countless problems which required the lender to go back and either re-foreclose the property or obtain the necessary releases or corrective documents. In one instance a title company overlooked a multi-million dollar lien in the form of a judgment which would have remained with the property following the transfer.

As a result, I cannot emphasize the need to have an independent title exam performed for anyone who is wiling to accept the lender's title policy which often has countless exclusions for liens, etc. leading buyer's to have a false sense of security.

Another major issue I encounter when dealing with title companies involved in foreclosure is that many are run as a sweat shop located outside of the state. Not only are many of these companies unfamiliar with many of the nuances of Florida Law, a few of them are either incompetent or down right thieves!

I cannot begin to tell you of the excessive mistakes and charges I have discovered and corrected on behalf of buyers. Ironically, I have never once seen a mistake on a closing statement benefit a buyer. Common examples are shifting closing expenses to the buyer which were not a part of the contract such as the seller's documentary transfer tax, charging unconscionable fees for title examination, title searches and settlement fees which were not part of the contract, shifting past due assessments and other seller obligations onto the buyer.

So often buyer's haggle over the purchase price and overlook some of the biggest expenses of sale on closing statements. Many times seller's dangle the carrot of even offering to pay for the cost of the title insurance provided you close through the seller's closing agent. In essence, a number of times there may be hidden defects or costs involved. Remember the old adage "if it sounds to good to be true.....

At the end of the day, protect yourself, protect your buyer and be sure to engage a qualified Real Estate Attorney to perform an independent title examination any time the seller offers to provide title insurance because insurable title does not necessarily mean marketable title.

Fannie Mae - WTF - You'd Think They'd Just Want to Sell It

Jan's been restless lately and she's on the prowl for another place to rehab.  We found a ban owned condo in a nearby golf course community named Peridia where we've rehabbed 3 houses and hooked up with Roger Cumbie to take a look a few days after it went on the market.  The place actually looked pretty good and I was glad to see that the whole place had already been tiled (my back is thankful).  I estimated that we'd possibly get by with only putting around $5K into it before we would get it back on the market which would mean that we'd have it on the market in a couple of weeks since it was almost all cosmetic stuff that we would do.

HOWEVER much too our amazement the bank actually had placed a few conditions on the property purchase. Some of this stuff we've seen before in the old days when investors were a dime a dozen.

SURPRISE 1

The first thing was that for the first two weeks it was on the market the property could not be purchased by an investor - in other words someone who was not going to live in the unit for the first year.  If you disregarded this and did buy and sell the bank reserved the right to come after you for money.. basically a penalty clause.  So we decided to wait the two weeks and see if the property was still available.

Turns out we were the only ones who looked at the property so we decided to put an offer in before the asking price primarily because no one else looked  at the property and also so we can get the property for as little as possible (we are cheap - but  prefer to think of us as helping someone get rid a property)

SURPRISE 2

So we could live with the first surprise but the second one was a bit more restrictive.  In the event we sold the house within 3 months for more than 20% that what we bought it for there was another penalty.  So say we bought the place for $100K we could not sell it for more than $120K within the first three months we owned it...  which by the way is prime time for resale here in Florida (snow bird season first 4 months of the year).   There goes the profit and the prime season to sell..

So what to do?

What we decided is to make an even lower offer because of what I call the "time of money".  Seems they are not really all that keen to sell the place so perhaps a low offer will wake them up!  We'll let you know it goes...don't they want to sell the place?  and why rule out buyers that have money regardless of how long they may own.. besides we're going to do the work to make it sellable so why shouldn't we reap the reward.

Real question is the logic behind the restrictions..

Well it turns out the house is a Fannie Mae house and all the surprises and all the surprises are part of the Fannie Mae Addendum that they add to all sales contracts..  There some resources on the web such as Home Path that provide information on Fannie Mae properties and several blogs and are specifically about the addendum such as Source of Title.  Source of Title has a entire list of links to other blogs that discuss the legal impacts of purchasing property.

Chris and Jan Land Developers (Part 3)

Part 3 - The  development process continues

Plant More Trees

Along the way with trying to subdivide the property and get the application into the county I ran across some unusual requirements.  It really made me wonder what the government does - check boxes?  or come up with reasonable approaches.  One of the requirements was a 10ft buffer around the perimeter of the property.  Within the 10 ft buffer there was a requirement to have a certain size tree spaced a certain amount in effect creating a wildlife buffer of some kind.    The tree survey had to be included on the submission to the county.  To meet this requirement I spent a weekend mapping every tree around the perimeter of the property in the 10 ft buffer. This was then provided to the surveyor to create a plat showing the trees and size of the trees.  Remarkably the county wanted me to plant even more trees to meet the requirements. Bear in mind that the 4.4 acres already had over 400 trees of various sizes... In pointing this out to the county planner I found out she had never visited the property.  Eventually she agreed to drop the requirement for more trees.

1.9 Mile Sidewalk

One interesting requirement was to install sidewalks between the subdivision and schools if less than 2 miles away.  The property as it turns out was 1.9 miles from Johnson Middle School which created a problem.  They also wanted us to install sidewalks on the highway frontage - some 300+ ft in total.  Bear in mind that in the entire Elwood Park subdivision (covering a couple of miles) there was not a single sidewalk. The nearest sidewalk was in Sabal Harbour over a mile away.  Eventually they realized how silly this was and waived the requirement.  They did however make us sign a statement that did not relieve us from the obligation in the future.

The Lucky Fire Hydrant

Another requirement had to do with fire hydrants and required that the closet hydrant be within 400 ft of the property.  Another subdivision that was created a mile away had to install a hydrant at a cost of $70K before the subdivision would be approved.  Lucky for me there was one within 200 ft.  I did not know about this before we bought the property.  I consider that my lucky fire hydrant.

The Septic Resolution

Because of where the property was located (rural) the local sewer system had not been extended to area.   This meant that I had to also obtain a septic resolution which would basically state that there was sufficient room for the septic system and that the ground was sufficiently porous for the drain field.  Seemed a little silly since all the surrounding properties had septic already.  Luckily I located a septic company that provided me an estimate along with some estimated calculations from a friend at an engineering company for a nominal fee I had what was needed for the county... another piece of paper.

The public notice and being on TV

Eventually I had everything needed and then the county was able to put the application on the county commission docket since every approval had to go through the commission for approval.  This also meant that we could now put signs for a "Notice of Public Hearing" on the property and advertise in the local paper (which we had to pay for).  I still remember watching the commission meeting on TV.  The head planner presented the proposed zoning change and outlined the subdivision as well as recommended it for approval.  It was approved unanimously!!

To get to this point took almost two years!

We eventually sold one of the 1 acre lots right after we got approval and last December sold the remaining 2 lots.  In the time between selling all the lots we paid lots of property taxes and had the property bush hogged regularly.  With the crash of the market it had taken almost 5 years from the time we bought the property to selling it all.  We learned a lot along the way and had great partners in my sister and brother in law.  I got lucky on a lot of aspects as you have read and this could have been one of those to walk away from.  We've learned that you can't make money on all of them and the important point is to learn and get smarter with each real estate deal we do..  if it was easy anyone would do it.

Chris and Jan Land Developers (Part 2)

So now that we have the lot clearing under way I started to deal with Manatee County Building Department which handles subdivisions.  The acreage was zoned for up to 6 residential units / acre so to divide 4.4 acres into 8 lots would appear to be a no brainer.  And that's exactly the problem - the people that came up with the land development code had no brains!

In order to subdivide we had to get a surveyor involved to survey and and to create the sub division plan to be submitted to the county.  Not sure how we found him but we ended up using Clements Surveying in Palmetto after interviewing a number of local engineering companies.  In some cases the engineering companies would not even call me back.  In a couple of other cases they would give an estimate of $30K or more.  These guys were reasonable and fair from the start.  Remember this is the tale end of the boom here and everyone was extremely busy.

Kim Holbrook at Clements Surveying was great and truly went out of her way to help.  Along the way we had a few delays getting the tract surveyed before we could even subdivide.  Jimmy Clements the owner must have contacted every surveyor that ever did work in Elwood Park to make sure he got it right and he did.  At the end of the day we did not want to worry about the property lines.  He swore he would never do work in Elwood Park again - I think he liked the challenge.

Throughout the process I dealt with a number of people at Manatee Planning Department and really learned a lot about creating a  subdivision.  Needless to say there are countless rules and regulations as outlined in the Manatee County Land Development Code and plowing through the code was an education unto itself.  Luckily we fell into the Minor subdivision realm as outlined below:

902.1.1. Minor subdivision shall mean any residential subdivision containing less than eleven (11) lots or parcels of land; and does not include any type of non-residential subdivision. The minor subdivision shall front on an existing public street or private street built to the current Manatee County Development Standards; and which meets the following three (3) requirements:



1.Not involving the establishment of a new street;
2.Not involving the extension of any public facility mains within the rights-of-way and creation of any new general public improvements involving the review or approval of construction drawings, as determined by the Planning Department excluding individual lot service connections; and
3.Not in conflict with any provision of the Comprehensive Plan, Land Development Code, Building Code or other officially adopted plans, policies or regulations.

Basically what this meant is that if I built a road I was screwed and would fall into the major subdivision category which meant more government. 

In order to get things moving with the county a Land Development Application needed to be completed and submittted along with a multitude of attachments.  Now bear in mind this is not just any application. And the Application only came after a completness review and meetings with the county.  In order to subdivide we also needed to rezone and the county wanted to retstrict the lot size to 1 acre which meant the zoning went from RES6 to A1 (Agricultural - 1 unit /acre).  They also wanted to take right of way on the street which amounted to 0.1 Acre. 

Here's a copy of the transmittal page to the county.  Notice the number of copies of the application thats needed - 18!  Welcome to government! and what I learned was that those copies were needed for at least 16 different government departments to review.  No wonder it takes so long to get anything done anymore..

More in Part 3 - Chris Amstutz the Developer..















The waiting

Chris and Jan Land Developers (Part 1)



Aerial view of Elwood Park with arrow pointing to the Lot

About 5 years during the height of the real estate boom and about 6 months before it imploded we purchased 4.4 acres of vacant land in an area of Bradenton called Elwood Park.  Elwood Park was originally subdivided ~50 years earlier and at one time was an outpost on the Braden River that feeds into the Manatee just east of downtown.  The property belonged to an estate and had been "lost" for 50 years. For some reason someone had continued to pay the taxes and now there were over 25 heirs to the former estate. Apparently the guy had bought it as an investment, never used it, and died.  I drove by this property every day on the way to work and one day saw it was for sale - so I started to look into it.



8 lot subdivision concept

The thought was to sub-divide the property into 8 lots and sell off the lots and in the process making lots of money.  The property was approximately 300' (frontage) by ~600' deep.   It had never been developed and was heavily wooded and very overgrown.  The first time we attempted to walk the property it took us over 30 minutes just to get halfway into it.  Buying the property and walking through it turned being the easy part.


The first task was to clear the under brush which included an amazing amount palmetto bushes.  We took several bids and eventually ended up with a local firm.  Before bidding I encouraged each contractor to look at the property before hand whcih most of them did.  I also negotiated the hauling off of the debri as part of the deal (this would prove key a month later).  Others would just throw out and number and hope that it stuck.  I finally agreed to terms with one and they began clearing after a week or so. 

After two weeks of non-stop clearing and taking more away than thirty 30 cubic yard roll-off containers of debri I started to get some push back from the contractor.  In addition to alot of trash, they had also found over 200 tires on the property which apparently had come from the adjacent property over the years (but no way to prove it).  The place was so overgrown you could not see the trash or the tires.  He had underbid and was complaining about how he was losing money - the original contractor had also sold the contract to a buddy who was actually doing the work.  We finally worked it out after some haggling and he was gone.   I ended up spending alot of time at the lots after that hand clearing areas and taking another 5-10 truckloads to the dump.  Everytime I looked around I found more garbage and trash under brush and alomost all on the north side - it had become a dump for the neighbors after all those years.

More in Part 2 of Chris Amstutz the Developer..

On the Hunt for the Next one - Could it be a short sale?

Jan's bored and looking for another project.  No rest for the weary!

 We are looking at two properties this week - the first one's a one bedroom condo a couple of buildings south of our place on Lido Key with marginal beach views.  The other is a three bedroom, 2 bath, 2 car garage condo near the first one with beach views that we could easily live in.  The one bedroom is a short sale for $90K, the other one is $595K - wow!!

It seems it's hard to find anything less than $100K around here and most one bedrooms sell for ~$150K so we could be on to something...This would be a good winter project and hopefully (god willing) we can clean it up, add some paint, and new furniture and flip it within two months during season.  This means we'd be done before April and just need to sell it.... which always puts us on hold before we buy the next one.

A short sale also takes longer.  Depending on how closely the seller is working with the bank the price may have been pre-negotiated in advance. Essentially the bank has agreed to write down the difference.      However, it's not uncommon that when you make the offer on a short sale property it takes up to 45 to 90 days for the bank to approve the deal.  In the meantime they hold the money and kinda put everything on hold while you are patiently waiting.  I'm not sure what takes so long but in some cases we've seen some amazing deals.. 

The one bedroom deal short sale for $90K has a first mortgage of $222K and a second mortgage of $60K for a total of $282K.  This means the short sale is 32% of the mortgaged amount.  Hard to believe but there are lots of those around here - Welcome to the epicenter of the mortgage crisis.

Wish us luck

If you are interested in educating yourself about Short Sales there's a ton of information on the internet.  A Couple of links that I found useful are listed below.

Short Sales - about.com

Short Sale Process