There’s a couple good deals for you below, but first, a bit of admin
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1808 Brookline – Belmont 2 bedroom, $650 rent, for only $42,700
40 Wampler – Harrison Township 3 bedroom, $650 rent, for only $29,700
First, a little background. I bought a property as a short sale a couple months ago, closed at the bank’s title co, got the HUD, paid the bank, and the mortgage is released. I titled the property in a Land Trust with my LLC as Trustee, and me as the beneficiary. It’s a cash purchase, so I have no mortgage on the property. Just another routine transaction. Or so I thought.
I did my marketing, found a buyer (I used an agent this time), signed a contract, etc. Buyer selects Lawyers Title, where the buyer has done multiple transactions. Nice and routine, just the way I like it.
And then it hits. I get an interesting call from the title company. “We need the Beneficiary to give the trustee written permission to sell the property. Oh, and legally, we need the Beneficiary information so we can attach it to the deed.”
Silently my head is screaming “Huh? Hello? Have you ever done a Land Trust before?” Verbally, I tried to explain that a land trust is gives the beneficiary PRIVACY, so as to NOT put their name in the public record. I’ve done this many times, and putting the beneficiary in the public record has NEVER been needed to sell a property. Nor, has any additional written permission been needed, as the Land Trust already covers that. After a brief conversation, it ended with “That’s what our Attorney said.” While the voices in my head are screaming “Your attorney is an idiot!” I’m calmly asking to speak with the attorney. She promises to have him call me.
And the attorney calls. And I repeat the previous conversation. So he quotes the Memorandum of Land Trust, “With the consent of the Beneficiary, the Trustee shall have the power to….sell the property”. He reads it to say the beneficiary must give additional permission, I read it to say the beneficiary gave permission by creating the trust. Deadlocked. Not a big deal though, I can give myself permission if it makes them happy. However, the attorney continues to insist the beneficiary info gets attached to the Deed. But don’t worry he says, “it’s an attachment. Nobody would really look through the attachments.”
Really? Then why bother with the attachment? This is a sign of problems. Are there more?
Meanwhile, having kept my infinitely patient and smart agent in the loop, my agent is talking with the Title Co, and gets some additional info. The underwriting guidelines are the issue. After three phone calls and 30 minutes of conversation with the title company and the attorney (and no attorney bill) he’s never mentioned he’s following the underwriting guidelines. He’s been giving me the impression that this is a legal issue. (attaching the beneficiary info to the deed is NOT in the guideline)
So, my infinitely patient and very resourceful agent gets a copy of the relevant underwriting guideline from Lawyers Title, whose underwriter is LandAmerica, aka Commonwealth Land Title Insurance Company, Lawyers Title Insurance Corporation, Transnation Title Insurance Company (No wonder they went with LandAmerica).
And now it gets even better. What they had not told me yet, was in addition to the issues already at hand, the underwriting guideline states the original owner (the seller I bought the property from) must sign the new HUD. It’s not like they actually signed a HUD and a deed at a closing at a title company already. Oh, wait, they did. Apparently being the beneficiary and the trustee isn’t good enough. The PREVIOUS owner must sign off on the following sale.
Here’s the BEST part, because there is not enough already. The proceeds check gets written payable to the trustee and the PREVIOUS owner. Hello? I PAID the seller for the property already. I own it. WTF do I need the previous owners signature to sell it. AND you want to make the check out to both of us? Really? How intelligent is that? How do you think that conversation would go?
“Hey, I bought your house at the short sale a while back and you didn’t get any cash. Now I’m selling it for a profit, and the title co is going to make a check out to both of us and you need to sign it over to me.”
I can see that going really smoothly.
Making a check out to the Trustee and the Beneficiary, while still wrong, is more logical.
I read the guideline. The problem is the assumption made by the underwriter in the beginning of the guideline. The underwriter assumes that because a land trust is sometimes involved in a distressed property, “subject to” or “short sale” situation, that ALL land trusts are treated as something questionable. Their presumption is that ALL land trust transactions are a problem. This is the same as saying some people in sports cars speed, so treat all sports cars as speeders. You sir, are presumed guilty, and will be treated as such.
At this point, it becomes obvious I cannot surmount these problems. So, I give the seller the opportunity to choose another Title co. He declines, and his agent requests a release of contract and earnest money, and of course, I comply. He was not the culprit here.
So who’s at fault in this fiasco? Clearly it’s not the buyers fault. Do I blame the local Title Co office? No, they are following the Underwriter guidelines as they are required to do. However, they chose their underwriter. Do I blame their local attorney? No, he’s following the same guidelines. The real problem is with a single bozo or underwriting counsel that wrote the guideline in the first place. They made a lot of assumptions, and applied them incorrectly to all Land Trusts, not just the ones at issue.
They decided that because a Land Trust has been used in one type of potentially problematic transaction, that all Land Trusts are a problem. Had they wrote the guideline to say that a specific type of transaction is the issue, and a Land Trust may be an indicator, then they would be on better footing.
So what’s the result here? The buyer lost a great deal. The Title Co lost this closing and any future closing from me. The buyer’s agent lost a commission. The seller lost a couple weeks of time and needs to find another buyer.
So, I have a great deal on a property in Southwest Ohio. Anybody interested? You can use any title company you like. Well, almost any title company.
Turnkey rental properties are good investments, especially if you are short on time. However, there are some pitfalls too. A turnkey rental property may come from a provider, the MLS or any other source. A turnkey property could be fully renovated, ready to rent or currently rented.
I’m here on the ground in the Midwest in glorious Dayton, Ohio. I’ve bought and sold turnkey rental properties, and seen what many people offer as a Turnkey rental. I’ve also bought “turnkey” rental properties in areas thousands of miles from where I lived.
Here is what I have seen and experienced, and how to avoid some of the big problems that come up.
First, you MUST have a good team where you are investing, even if it’s local. Your number one local person is your property manager. They are overseeing the long-term performance of your investment, and are the most important team member to get right. I’ve been ripped off by bad property managers, anything from non-performance, to them actually stealing the rents and security deposits.
Are they licensed in their profession (if required)? Ohio law requires Property Managers be a licensed real estate agent. Are they? I get a surprising number of calls from people with bad managers who aren’t even licensed. Interview several while you visit the area. Personalities differ. Prices vary. Most PMs in our area charge about 10% of collected rent. That gives them a good incentive to keep your property maintained and rented. Your Property Manager also becomes a source for rent amounts, values, and other team members.
Taking even basic steps will save a lot of grief. Check the BBB and Angie’s list. If someone has a ‘D’ rating do you really want to hire them?
Contractors seem to have a whole different ethic when someone is not overseeing them. A good local property manager will keep this in check. I bought a “finished” house from a lady in Florida, who had fantastic pictures showing it the house done. Unfortunately, the “contractors” only painted two walls, then set a small piece of new carpet in the corner for the photo. Several of the bath and kitchen pictures were from a different house. They set some fixtures in place, but didn’t install them. The owner paid them based on the pictures they sent, but nobody local walked through the property. She was not happy with the pictures I sent her. Of course, once the truth was known, nobody could find the “contractor”.
Look for recommendations from other investors and landlords.
Second, you MUST visit where you are investing. There is nothing like getting you boots on the ground and walking the neighborhood. I am continually amazed by the number of people who will spend $30,000, $50,000, or more, on a rental house, but won’t spend $500 on a plane ticket.
Third, pay for a property inspection ($500-$600). You’re about to spend thousands of dollars on a property. Get an independent assessment of the property condition. I tell all my potential buyers to do this too. It’s good business for me and protects them. The last property I sold, as a result of the inspection, I paid $906 to have a roof repair done. I didn’t know about it before the inspection, and I do not begrudge it to the buyer. I told him the roof was already repaired. (It was, but not correctly). If you’re working with a formal Turnkey company, did they do all the repairs correctly and fully? An independent property inspection will tell you.
Fourth, run all the numbers. I see a lot of properties advertised with a claimed ROI, but they fail to account for ALL the expenses: Taxes, Insurance, Management, Maintenance and Repairs, Reserves, Vacancy. Then, independently verify if the numbers given are close to being correct. A small overstatement in the projected rent, and a couple missing or understated expenses can make what looked like a great deal into a real alligator that you’re endlessly feeding.
Determining market value is frequently a challenge, especially in hard hit areas. An appraisal will give you a formal written opinion. An agent can give you their opinion. Using third-party sources like Zillow, gives you data, but will mislead you. You can see the price, but what was the condition? Were the nearby sales all finished properties? Or do they need substantial work? Are these even comps at all? Is it the same school district? All are factors in determining property value.
What do you do in an area where people are buying cheap properties, putting substantial dollars into renovations, but not selling them? All the sales are low, but the values are obviously more. Ultimately, a property is worth what a willing buyer and seller agree it is worth.
In summary, if you are considering a turnkey rental or ANY rental property you need to:
This double is what you’re looking for!! This property is turnkey and can be a truly hands-off investment for you. Double digit returns are right here.
One side is already rented for $450. The second unit will be ready this week. Then the property manager will find a highly qualified resident to rent it. This side will rent for at least $450. Total rent is $900. Tenants pay all their utilities.
A fantastic, professionally licensed property manager is in place!
Each unit is 2 Bedroom, 1 Bath, 1200 square feet.
Property taxes are currently $1150 per year. Easily reduce those with a Board of Revision complaint.
Lead Paint is found in approximately three-quarters of the homes built before 1978. As a general rule, the older a home, the stronger the risk of lead paint.
Lead paint used in most homes built before the 1950s had higher concentrations of lead, with lower levels of lead used until 1977. In 1978, the U.S. Consumer Product Safety Commission banned the use of lead paint in housing. On April 22, 2008, EPA issued the Renovation, Repair and Painting Rule. It requires that projects disturbing lead paint be done by EPA certified renovators. Large fines can be given for not complying with the rule.
Lead paint may be found on any surface but is most commonly found on exterior painted surfaces, interior woodwork, doors, and windows. When properly maintained and managed, this paint poses little risk. Lead paint that peels or deteriorates is especially risky; friction surfaces (windows and window sills, doors and door frames, and stairs and railings) are also a concern.
A lead paint myth claims that children must eat lead paint chips to develop lead poisoning. People are exposed to lead through the lead paint chips and flakes you can see, and also through the fine dust that forms. This dust gets on carpets, floors, furniture, toys and other objects, as well as on the hands of children and adults in the home. The lead is ingested when the lead dust on their hands is transferred by touch to their mouths.
The only way to positively identify lead paint is by using a test kit. As with any test, false readings are possible. The EPA approved test kits have high accuracy. You may want to repeat the test to ensure accurate results.
Your goals drive the path to follow. Which deal do I do? Is it a good deal? Is it a good deal for me?
Each of you have different goals for different reasons, but there is commonality in all of them. Some of you are simply interested in Real Estate. Some want to make extra income or even go full time. Some are looking to expand your retirement portfolio.
Why are you here? What is your goal?
Take some time and think about it. Write it down and define it. What are you trying to accomplish?
Goal: Additional retirement income. Why: Work plan is not sufficient.
Now define it be very specific. Put a number on it. Give it a deadline.
Generate $5,000 per month net income from rental properties in 15 years.
Now expand the details a little bit is there anything else that completes the goal?
The properties will be free and clear, and managed by a property manager.
Now we have a solid and specific goal. Next is to start sketching out how to get there. This is where the education and experience really starts to kick in. If you’re still pretty new to real estate, you may need some help here. Ask others with experience for input.
I will acquire 1 rental property per year for the next 15 years.
Notice, it doesn’t say “I will acquire rentals”. It is specific. “I will acquire 1 rental property per year”. Can you do more? Yes, but this is your target. Again, expand the details a little bit. Is there anything else that explains how you are getting there?
In 15 years I will sell selected properties to leave the remainder free and clear.
Now you have a Goal, and plan to get there. The next step is to fill in the details.
I will identify and study a primary technique to acquire properties by April 30, 2012
I will interview, then select a licensed property manager by April 30, 2012
I will learn property evaluation by May 31, 2012
I will set my property criteria by May 31, 2012
I will set my deal criteria by May 31, 2012
I will submit 3 offers by June 30, 2012.
Continue to fill in the details. Keep referring to your Goal and Plan. Fill in every detail you can think of, no matter how mundane. Prioritize. Set dates.
Remember, this is the plan today. It will change in the future. That’s ok.
This is a great exercise to work with your partner, or another Real Estate Investor.
Know where you are going. Otherwise, how will you know when you get there?