Real Estate Investors Blog

What is ARV? I’m asked this question all the time from other Real Estate investors. So I’ll try my best to answer them here so others can benefit from the answers.

After Repair Value (ARV): Basically, what would a house sell for if it was in a sellable condition? If you work with an agent on occasions, you can ask them to pull a Brokers Price Opinion (BPO) for you on the property. Before asking, make sure you have worked with the agent or a least you are planning to work with that agent in the future, their time is very valuable too. If you subscribe to the Multiple Listing Service (MLS), you can pull a BPO on your own. It will give you a list of homes within a mile from your subject property and that has closed in the last 6 months or so. A BPO is like an estimated appraisal of worth. It’s not an appraisal, it’s just a close estimate of future value. You can look for comparable homes that are within a mile of your subject property that are as close in square footage and amenities as your subject property. Amenities meaning, does it have a garage, attached or detached, fenced in yard, finished basement, etc. Try to find other properties that closed within 6 months of the current date or less, don’t use closings that occurred over a year in the past for your estimates. In slower markets you might have to go further than a year and a mile to find your comparable, just try to keep them under a year from closing and less than a mile from your subject property if at all possible. The further you have to go the less accurate your estimate will be.

Once you have these numbers and addresses, drive by the comparable properties that you located during the above process. I’ve got some questions:
1. Do they resemble your subject property?
2. Does the neighborhood look comparable to your subject properties neighborhood?
3. Are they in the same type of neighborhood?
4. Always look at these properties as if you were planning on buying and living in the property, put yourself in your future buyers shoes.
5. Does your subject property’s neighborhood look trashy compared to the comparables that were pulled?
6. Does the comparable have the same number of bedrooms and bathrooms?
7. Does it have the same amenities; garage, finished basement, or a fenced in backyard, etc.?
8. When was the comparable built compared to your subject property?
9. Is your subject property an older style home? Have all the other properties in the area been facially upgraded on the outside?
10. Does the area of your subject property have boarded, abandon, or trashy properties around it and your comparable doesn’t.
11. Can you make your subject property look like the comparables you are using?
At this point you might have to pull different properties if your comparable properties are in a really nicer or worst neighborhood.

You can work up an average and this should be fairly close to what you can sell the house for after you have it fixed up. This should give you are fairly accurate estimate of the properties future worth. As I said, the further off your comparable is the less accurate your estimate will be. If you analyze your comparable neighborhoods, you can figure out how much more a property is worth if it has an extra bedroom or bathroom. At that point you can compare a 3 bed-2 bath and a 2 bed-2 bath just by adding or subtracting the amount of increase or decrease for having or not having the same amount of bedrooms or bathrooms. This is basically what an appraiser will do. They have the skill to compare a 4 bedroom home to a 2 bedroom home by knowing how much to subtract from the value of the 4 bedroom home to calculate the value of the 2 bedroom home.
In the next article I’ll cover renovation or rehab costs of the subject property itself, the one you are thinking about buying.

Robert Lett
3904 Central Ave. 107
Cheyenne, WY 82001

Real Estate Investors wanted nationwide: http://www.BuyWyomingHomes.com.
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Our blog can be found at the web address above.

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People use to ask me how I got into Skip-Tracing all the time. And how I even thought to get in such an industry. Well, the release of the Internet to the public back in 1994 almost did me in. I went from business-to-business Information Brokering to Skip-Tracing and Background Security Checks. In a matter of a year, many of my clientele decided that information was free and they could get it on their own with the ‘brand new’ Information Highway. Ok…

Skip-Tracing can be a great home business, but it’s a lot more than just a little online research. You might start online, but you’re not done even then. You will probably have to contact neighbors, relatives, friends, and the subject themselves, if you can find them and if they will speak with you.

We are usually hired to locate someone that either owes money and/or has a court case against them or they have a warrant for their arrest. You might also be required to locate someone that has just been missing or an adult run-a-way. You have to treat each of these different in your search strategies. You might be trying to locate witnesses of a crime so they can tell their side of the story.

There’s always the, “Can you find an old girl or boyfriend”. Which aren’t very hard but due to the privacy laws, we can only contact the subject that you’re looking for and see if they want to contact our client. You sure don’t want to help a stalker or someone even more dangerous find their pray. You would basically give your clients’ contact information to the subject and it’s up to them to contact your client. This way everybody is in agreement when the contact is made.

If you are searching for someone who is hiding from authorities, you aren’t as limited to your methods of locating the individual. These types of searches are some of the most interesting and exciting. Pretexts are used to ‘trick’ a person to get in touch with you so you can serve process or a subpoena. Basically, a pretext allows you to say you’re someone you’re not. Be careful, some of this deception is illegal in some states, always check your local laws. Pretexts can never be used if you are just trying to locate someone for your client. If there is a pending court case on an individual, then using the pretext might be your best bet. A pretext is how you can get information from relatives, friends, and neighbors, otherwise, they probably won’t talk to you at all. You just have to use your imagination, the sky isn’t the limit.

Locating property owners that have abandon a property is another faucet of Skip Tracing. This is in part, how I got into real estate investing. You locate an individual that has given up on a property and plans to just let it go into foreclosure. If you can contact the individual and offer them something on the property, they almost always say yes to your offer. Due to the fact that they were planning on walking away from it and letting the bank take it back. At least this way they won’t end up with a foreclosure on their record, and they can now buy a home later down the road when they’re ready.

You might want to search an entire county to see where all the filed foreclosures may be. This gives you an unlimited supply of possible deals. And you can assign these deals to other real estate investors, for a fee of course, usually for 8-10% of the future profits in the deal.

Some owners whom might own out-right or free-and-clear, which means they have no mortgage, are only paying taxes and insurance each year. At this point they may be able to leave the property vacant and since it’s not costing them a lot, they aren’t worry about it. Usually the property is not in a sellable condition, which hopefully only means it just needs some cosmetic fix up, or paint, cleaning, and maybe carpet. They might be happy to sell it at a good discount in as-is condition. Which can mean a nice profit for you to get it fixed up and either sell it or get it rented out depending on the location and economy at the time.

I’ve had quite a few tenants that have done damage to one of my units and just skipped out before paying the next months’ rent, it’s probably worth going after those individuals for small claims court reasons. These are usually pretty easy to locate and you can have them served by a process server. At least you might get some of your money back that they cost you in the beginning. You never get it all, sorry.

There are many different areas you can get into as a Skip-Tracer. Usually, you can find something you’re interested in and passionate about, and you’ll be able to find a good fit as a Skip-Tracer. Mine just happened to be real estate and locating those that own it, and it’s really helped me out through the years. You can make a lot of money in this business and it is very rewarding.  You might not get rich, but you can live very well as a Skip-Tracer. One nice thing about being a Skip-Tracer is that when a client tries to skip out on your bill, you can and will find them.

If you can teach, and you know your business, you can offer to mentor individuals and help them get into the Real Estate investment arena. I’ve paid thousands of dollars to get just three days of this type of hands-on training! I would have given anything to get this type of training for free! And these individuals will make dedicated employees and partnerships down the road. You might think you are creating competition, and you might be depending on your market and location. I’ve invested for most of my career in a large area like Los Angeles and for the last three years I’ve been in a small town, Cheyenne Wyoming. And even in the smaller places, I’ve never created competition for myself. But I’ve taught and created some really good Joint Venture partners that I’ve used ever since.

Why would anyone want to work for free or very low pay? This can’t be fair! If you have any training at all, be it in Real Estate or any other business, you know how much education costs. And if that training was worth taking, how much did you pay for it? And these individuals can get this training through you for free. I sure would have rather learned this way back when I got started. That would have been great to have a training program, mentor, and actual experience for Free! Wow! The mistakes that I made after I had some training was a lot more expensive than the training itself. I made a $16,000 mistake on a house in South Carolina, and even with all the training that I had taken, the situation was never addressed during the training.

These individuals will be your Joint Venture partners that will help grow your business. Don’t be afraid to run them through every aspect of your business. Remember, you are training them. They need to know how to work the phones, market, interview possible purchases, find properties, and they can bird-dog for you while they’re learning, etc. And when they feel that they are ready to be on their own, they can either become a full time employee or they can create a company that you can work with in the future and grow both your businesses together.

If you decide not to pay them at all, you might let them in on commissions on the properties that they located as payment. Always remember, 50% of something is better than 0% of nothing. And if they decide to start their own business, you will still have the perfect Venture Partner for future. There really aren’t that many successful Real Estate investors out there to have to worry about competition. Just think of them as a partner working for different company.

Robert Lett
Investors: http://www.BuyWyomingHomes.com
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Hits home with many banks foreclosing on mortgages that they don’t even own. And most of those are in current litigation due to false documents.

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

Thomas Jefferson, (Attributed)
3^rd President of the United States (1743 – 1826)

I learned well into Real Estate Investing that sometimes it’s not what you say, it’s what you do. This was a few years after I got into Real Estate Investing back in the late 1990’s. Something I wish someone would have sat me down and told me about. And then made me believe! It doesn’t sound hard, but it is.

I remember back in the day when I thought if the there was ever a silence in a conversation, the entire conversation was dead. Human nature is to keep the conversation going regardless of how much ideal rambling-on may occur. When I started my investment career I thought I was supposed to educate my buys and sellers. I thought I needed to tell them everything that I’ve seen in the industry and help them avoid making the same mistakes that I had made in the past. To a small extent, this is true. But taking up time giving them too much advice or information that they didn’t want to begin with, will fail almost any business transaction. While you are trying to sell your product or service, people will act like they’re really interested in what you’re saying for hours. But you’re not getting anywhere as far as closing a deal. We all need to work on our listening skills.

Ask open-ended questions and just listen. Listen to their entire conversation. Speak with a soft and quiet tone. And when there is a silent period, don’t speak, allow them to think without interruption. Force them to think. Silence should be a prompt for the client to go further and deeper into the conversation. Listen to what they are NOT saying. What they might be avoiding in the conversation. What makes them feel uncomfortable? When your client comes up with an idea instead of you, you are now in a win-win situation. Allow your client to come up with the negotiation, you don’t have to “talk” them into anything, you just have to agree on the negotiation that you allowed them to come up with!

In conclusion: Just sit down, shut up, and listen! It will get you further than you could ever think possible. Just a small amount of “shut-up” can get you thousands of dollars more per month. It’s amazing that just for being quiet, you can actually get paid much more. Until I learned this simple technic, I wouldn’t have believed it either. It’s one of the easiest and best business tools you can ever acquire. Good luck to your future silence!

Robert Lett
Investors: http://www.BuyWyomingHomes.com
Need to sell: http://www.SellWyomingHomes.com
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Disclaimer: This was my first year as a Real Estate Investor back in the mid to late 90’s, I was in that leaning stage.

A tenant called about an issue in his bathroom, he said the ceiling was drooping down a little. So I head over to assess the damage and repair. When I get there, I could hardly get the bathroom door open! The ceiling was hanging down about 2 feet, obviously a slow leak from the bathroom upstairs. I begin by cutting sections of the drywall that’s hanging down, a whole 4*8 sheet by-the-way. I thought I was doing great, I cut small sections and let them drop into a bucket. I was really doing a good job, not one mess on the floor. After about the second time I emptied the bucket, the last cut I made, must have weakened the rest of the ceiling. And here I thought I was removing weight from the board. To say the least, the entire ceiling collapsed on me, I was covered in drywall and so was the rest of the bathroom! Oh well, so much for not making a mess. From there I found what was leaking upstairs and took care of that issue. Now it was time for a new sheet of drywall and a lot of cleaning downstairs.

Well, I got the place cleaned up, at least the big pieces of drywall. Then I got the new ceiling up and got it taped and mudded. Now it was time to let it dry so I could take care of the sanding and painting. I looked over at the window sill, and saw that there was some loose plaster. Well, I thought, I might as well fix that since I’ve got to paint the whole bathroom anyway. And that’s when it got real interesting.

I took my trusty scrapper and scrapped the window sill. Well, about half of the sill fell onto the floor! I really didn’t scrap very hard. After a few more light scraps, I was missing the entire left and lower sill, not to mention a good quarter of the upper sill and even a good portion of the wall. In the meantime, my wife came by with lunch. I sent her to the home improvement store for a gallon of wood putty. (Oh, did I tell you, I was new at the time?) While I’m cleaning up my NEW mess and making the hole bigger and bigger, she runs to the store for me. She asks for a gallon of wood putty, and the guy asks her with a perplexed look “What are trying to do?” Hey, I didn’t know what else to ask for. He sent her back with a big bag of Fix-All. To this day, I love Fix-All! I think I could build a house with it after this situation. OK, now it’s time for the second repair.

Now that most of the wall is missing, it was time to start patching, or as I saw it, building a new wall and sill. I was too cheap to buy the required mesh backing that you should use for this type of project. So I ended up using an entire roll of aluminum foil that I had on hand to fill the 2 foot wide holes. It probably would have helped if I hadn’t ran out of aluminum foil half way through. Hey, I’m trying doing this cheap, remember? I found that while trying to work on the upper horizontal area of the inner window sill, gravity doesn’t help you at all! With no mesh, the goop kept bowing down like a beer gut. So, for the next 20 or so minutes I had to run my trill over it pushing the goop back up into place. Even after it began to set, I still had to trill it again and again over another 30 minutes while I began trying to sanding the ceiling.

All-and-all it went back together OK. After the sanding, cleaning, and painting, it actually looked pretty good. And it’s held up now for over 8 years. Sometimes it’s easier to do a job the right way the first time rather than fix a situation later. This time, I just got really lucky. I’ve long since learned, but sometimes you just have to do whatever it takes! Besides, who said you had to read the instructions?

Robert Lett
Investors: http://www.BuyWyomingHomes.com
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The 203k loan allows you to buy and fix up a property all in one transaction. This allows you to get a loan for above what the property is currently worth, in the form of a 1^st and 2^nd. Which is nice if you find a house that’s in poor condition and just needs cosmetic repairs or a little upgrading. And a “Streamline 203k” can give you a maximum up to $35,000, which would be for a major repair project. There is a small catch, though.

The problem is, all the work is required to be done by a licensed contractor, which eats at your equity position in the property. Most people can at least paint, clean, and do some minor repairs, change wall plates, etc. The contractor has a certain time limit where the repairs have to be completed, usually before closing on the property. If you can get a loan for the house in its’ as-is condition. Make sure to demand that you don’t have a prepayment penalty on the loan. Take the next six to twelve months to fix the place up where the property will appraise for a higher price. Then refinance the house under a new loan. Which you’ll have to weigh-and-decide if the amount it will cost for the refinance is worth performing. It shouldn’t be more than 5%-6% of the value of the property, which they should be able to fold into the new loan. There won’t be any out-of-pocket expense. Once you refinance, your loan payment should go down and you should have a larger equity position in that house at the same time. With the current low interest rates, it might better not to even perform the refinance, it will all depend on your current situation.

Example: A $200,000 house value after fix-up. You buy the house for $150,000. It needs per contractor estimates around $30,000 in repairs. After the repairs are complete, you have a $20,000 equity position adding in what you put down on the original loan. But if you are half way handy and can operate a paint brush and roller, use a caulk gun, and know how to clean a house, you could lower that estimate by $10,000 or so. If the repairs are minor, many people can do those repairs themselves and save thousands of dollars. Always check with your local city for the required permits before starting any repair project.

In conclusion: If you can’t do the repairs or don’t have the money or time to do those repairs, then the 203k is for you. But, if you have the cash to do the fix up, and the down payment for your new house, and you are capable of doing some minor repairs, you’ll be in a better equity position down the road. And if you refinanced the house the payments might be substantially lower. You could even rent the house out for more than you’re paying on the mortgage at that point, which would still give you a tax shelter and passive income for the future. Of course, this is if you decided to move some time in the future. Try to stay in the property for at least 24 months, this way, you won’t have to pay the capital gains tax, which at one time was 42%!

Robert Lett
Investors: http://www.BuyWyomingHomes.com
Need to sell: http://www.SellWyomingHomes.com
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I thought I’d seen it all! Now these people are getting renters! This scam started up last year about this time of the year. Well, there’s a rumor that it’s happening again. It must be a seasonal thing. I’m just trying to get the word out again.

Here’s how the scam works: People from a country other than the United State will pick a city and look up what properties are for sale online and download all the pictures for the property. With that list they will go on sites like Craigslist and list them for rent at a very low price compared to the current market rents for the area. None of the communications between the potential tenant and landlord are in person or even over the phone.

All communications are done by email. When a renter contacts the scammer about renting the property, they are sent a rental application to fill out and send back, along with pictures of the inside of the property. Of course, they’re approved since there is no rental. They are then given a sob story about how the scammer had to move to some other country at the last minute for work reasons and didn’t have enough time to sell their property before they left. Then they tell the renter that they can’t show the property, due to the tenants that are currently living there. The scammer tells the tenant that he’s so sorry that he’s not there to show the property, and pleads with them to take good care of his house while he’s gone. The scammer does give them the address and says that they can go by and look at the outside of the house, just don’t bother the current tenants, which are actually the owners. If the tenant asks why there is a “For Sale” sign in the front yard, the scammer simply tells them that they were trying to sell the property and since it didn’t sell, they planned on renting instead, and they tell them that the sign will be removed as soon as the property is rented. Now, how can someone make money doing this you ask?

Then the scammer asks for the first months rent and security deposit to be mailed out of country and the scammer will get a set of keys to them the day before their move in date. Of course, no keys are ever delivered. Usually, a few days after the keys are supposed to appear, they contact who ever is at the house. Now you have a surprised home seller being confronted by someone who thought they were going to move in and rent the property. Now you have an upset home owner and a cheated renter. Some of these renters moved out of their previous residence and sometimes show up at the owner’s home with a moving truck full of their household goods. Now the tenant has less money and no home. Most can’t afford to pay another first months rent and deposit for there next “real” place to live. It’s a hard and expensive lesson.

I’ve got over 40 rental units across the nation, any time you rent you should at least see the inside of the property and meet someone associated with the property. There are Property Managers in every city, as an out-town-owner, I have a Property Manager where ever I rent. I would never expect a tenant to move into a property without seeing the inside first. If the owner is actually trying to sell the property and that didn’t work, and now they have decided to rent the property instead. And it has happened to me in the past, I would think that the property would be vacant. And the potential tenant should be able to gain access at any time. I’ve even called my current tenants that were moving out and asked them if they would do me a favor and show their place to a potential tenant, I’ve never had a problem doing that. But at least the potential tenant got to see where they were going to live for the next year or so before shelling out any cash.