 |
Real Estate Articles By Reggie Brooks
Abandoned Properties – One Of The Best Kept Profit Making Secrets
REHABBING FOR BIGGER PROFITS
Free Money….. No, Really! It’s True!
Abandoned Properties – One Of The Best Kept Profit Making Secrets
By Reggie Brooks
When I began my career as a real estate investor, I stumbled across a little known area of real estate that had the potential to make us a ton of money. This was an area of the market that went unnoticed by most people. This was the area of abandoned properties.
How To Profit From Abandoned Properties
You might pass these properties on a daily basis, but just never paid much attention to them. You could be passing up hundreds of thousands of dollars in profits! These are properties that the owner has walked away from for whatever reason. It could be a divorce situation, an illness, a death in the family, a job relocation, or any number of other reasons. Do we care why? Absolutely not! Don’t waste your energy trying to figure out why sellers do what sellers do.
A $58,000 Profit Right Across The Street
I remember a young lady in one of my 2 day classes. In the first day of class, we taught a whole day of unconventional ways to find profitable deals. One of those methods was how to find and profit from abandoned properties. The next day, the young lady came to class and told us an interesting story about an abandoned house right across the street from her house. She said that when she got home from the first day of class, she put her key in her front door to go inside. Suddenly, for no apparent reason, she stopped and immediately turned around. Across the street was an abandoned house. She had unconsciously seen the abandoned house every time she walked out of her front door, but until now she just never paid any attention to it. The windows were broken out, the grass was high, there was trash in the yard, and on and on.
After the class was over, the young lady stayed in touch with me. I had asked her to keep me informed as to the progress of her deal. It took her around three months, but in those 3 months she successfully purchased the property, fixed up the property, marketed the property, and made a profit of $58,000! By the way, she had no money, no credit, and no job, but she was still able to make this kind of profit.
Why Abandoned Properties?
When you work with abandons, you have an excellent opportunity to use the best financing in the world – seller financing. There are several reasons why we prefer seller financing over conventional financing.
Rarely will a seller ask to see your credit report. If you have credit problems, it usually will not become an issue. Many times the seller is completely open to many creative strategies that will help to eliminate their abandoned property problem. After all, what does the seller have to loose? His abandoned property is just sitting there not making any money.
The seller may have a mortgage to pay on it every month, because he wants to keep his credit clean. More than likely, he’d like to rent it or sell it but he feels that he’d have to spend a lot of money to fix the property up before he could market the property. In the meantime, another month goes by and another mortgage has to be paid. The taxes and insurance will also have to be paid. Money will still have to be spent on maintenance and upkeep. The repairs might become extensive, since the property is vacant and subject to vandalism. The neighbors are probably complaining about the eye sore. The Department of Building and Safety might have become involved. This can all add up to the seller having to spend a sizable chunk of cash every month, which can also represent a sizable headache for the seller. You guessed it. The seller is probably very motivated!
How Do We Find Abandoned Properties?
Here’s one of the easiest ways to find abandoned properties. The first thing to understand is that the more affluent the area is, the fewer the abandons you’ll find. The less affluent the area, usually the more abandons you’ll find. I encourage you to find an area somewhere in between the two extremes. If you keep your eyes open, you’ll find properties that might have the windows broken out, they might be boarded up, you might see the grass and shrubs overgrown, you might see trash, handbills, newspapers and other signs that this property might be a good candidate for a profitable abandoned property.
Keep a pen and a pad of paper with you at all times. I teach my students to take different routes to and from their normal destinations and write down the addresses of any properties that might be abandon property prospects. This might require that you leave home a little earlier than usual, but it is certainly worth it if it brings you just one abandoned property deal.
Using A Little Known Government Program With An Abandoned Property
Several years ago, I was taking my aunt to an appointment with a dialysis center when I came across an abandoned four unit building. This property showed all the classic signs of abandonment: boarded up windows, tall grass, trash, etc… I wrote the address down and called my title company as soon as I got a chance. I gave them the address, and they gave me the owner of the property and the mailing address. I wrote an offer and bought the property for $82,000. We fixed the property up using a little known government program called the Rental Rehab Program to maximize our profits. This program provided a 3 to 5% loan when the prevailing interest rates were 12% The program also allowed any qualifying tenants to drastically reduce the amount of their out of pocket monthly rent by going on the Section 8 Government Subsidy Program after the rehab was complete. The average wait for the Section 8 Program at the time was 6 to 8 years. This was truly a win-win deal for everyone involved. We kept the property for a number of years, putting a positive cash flow in our pockets every month. We eventually sold the property and made a lot of money.
The Best Financing In The World
With the property needing as much work as it did, it would have been almost impossible to get a conventional bank loan to finance it and, at the time I was in no position to pay all cash. So, what is the solution? As I mentioned before, seller financing is the best financing in the world. The seller of the property financed the entire deal for us.
Here’s the point: Abandoned properties are one of the best kept money-making secrets in our industry. They are very good candidates for many of the government loans and grants that can super charge your profits. Tap into this area of real estate and watch your profits soar.
Rehabbing For Bigger Profits
by Reggie Brooks
A thorough inspection of the subject property will serve as a basis from which to begin the rehabilitation. Until you are experienced enough to perform this inspection yourself, it is wise to seek the services of a competent professional. Most contractors will give you a free estimate of repairs when they know they stand a chance of getting the job.
You may consider exercising your option to do the work yourself. In the beginning, it might be worth while to spend your time working on your properties, but as the number of properties you own increases, you’ll be better served to delegate your fix up work to some one else, while you focus on finding more deals. If you are going to do a fair amount of work on your properties, always keep in mind that if you’re not a plumber, electrician, roofer, carpenter or such, don’t try to tackle jobs that are beyond your skill level. Leave those jobs for the professionals.
Another word of caution. Many times you’ll find that a little cosmetic repair will bring a property back to life, thus saving you lots of money. It is important not to over-rehabilitate your project. If the property is in a low to moderate income neighborhood, the amount of money you spend on such items as flooring, plumbing fixtures, door hardware, etc. would probably be lower than that of a property in a high dollar neighborhood.
Do a little shopping around for the best prices on materials. While your local hardware store may fill your needs when it comes to small items, rarely can they compete with the large contractor warehouse type stores. If you are planning to do some or all the work yourself, I recommend that you purchase good quality tools. Much money is wasted on cheap tools that have to be re-purchased over and over again. If you’re performing a small job and have no desire to do your own contracting work, then it doesn’t matter as much.
Be aware that you can rent almost any tool you’ll ever need from an equipment rental yard. Look in the local telephone directory under “Rental”. While rehabbing the property, pay particular attention to the following:
- Curb appeal: Exterior paint and landscaping are the first and the last thing a buyer or renter sees. Don’t skimp – make a good impression. More than likely they’ll drive by at different times of the day and night. Give them something pleasant to think about.
- If you’re remodeling (moving interior walls around), try to create a design that will give the property an open feeling.
- You may find it more cost effective to replace old, outdated kitchen cabinets with new ones. Look in your local phone directory for cabinetmakers and compare prices.
- Consider using ceramic floor tile instead of sheet goods. It may be a little more expensive, but it will pay off in the long run.
- Consider installing ceramic counter tops instead of the formica type. Not only are they more durable, they are also more attractive to potential renters or buyers.
When rehabbing, some of the areas to focus your attention are:
- Foundation
- Plumbing system
- Electrical system
- Roofing
- Interior walls
- Exterior walls
- Landscaping
Foundations
The two most common types of residential foundations are the concrete slab, and the raised foundation. Properties that are built on a concrete slab are secured by anchor bolts protruding from the concrete. Also, they have no crawl space to allow a person to get under the property.
The raised foundation is one where the property sits on top of a continuous concrete foundation that extends around the perimeter of the building. This type of foundation does have a crawlspace which allows a person to crawl under the property. Some of the signs of possible foundation problems may include, but are not limited to:
- Major cracks in exterior walls
- Major cracks in interior walls
- Doors and windows operating improperly
- Floors not level
If the subject property shows signs of possible foundation trouble, and if the profit potential is great enough, have a foundation expert take a look at it before you make a commitment to purchase.
Plumbing Systems
Water flows to your property from the serving utility company through a water meter, usually located at the front property line. In very cold climates this meter may be located inside the house. The main shut-off valve to the property should be mounted above grade, and can usually be found near the front of the property on the same pipe as the outdoor faucet.
The pipes that carry water underground to the property are usually galvanized, copper, or plastic. The interior pipes are usually galvanized or copper. Since building codes vary by jurisdiction, check with your own local building department for current codes.
Water Heaters
A typical water heater is approximately 5 feet tall. At the top of the water heater are two pipes, one with a shut-off valve (the cold water inlet side). This is the valve that shuts off the hot water to all the fixtures in the property. The water pipes are usually connected to the water heater by flexible connectors.
A gas water heater has a vent at the top to allow heat and unburned gases to escape. It should be connect to a venting system which terminates at least a foot above the roof. At or near the top should be a temperature and pressure relief valve. The purpose of this TPRV is to prevent the buildup of excess heat and pressure. If it leaks, it can be replaced.
At the bottom is a valve that is used for draining the water heater. This too, as well as every other component previously discussed can be replaced if they prove to be defective. However, if the water heater is old, and looks like it may give you problems, it’s better to replace it now than to have to be bothered with it later.
Stall Showers And Bathtubs
Your property might have any combination of standard bathtub, shower over tub, shower enclosure, or stall shower. If the shower or tub has a glass enclosure, it must be tempered safety glass or approved plastic. The shower head, faucets, and spout should all be in good working condition. If not, they can all be replaced. Check and replace if necessary any worn grouting and caulking.
Toilets
Make sure the toilet is secured properly to the floor. Check for leaks around the base. If it does leak, it’s probably as simple as a new wax ring that goes under the toilet. Flush the toilet and let it fill. If it keeps running, either the tank ball assembly or the flapper may need to be replaced, or the water level should be adjusted so that it shuts off before it reaches the top of the overflow. If the toilet is cracked either in the tank, the bowl, or at the base, or otherwise causing too many problems, replace it.
Sinks
Turn the faucets on and off. They should operate smoothly. If they drip a little, replacing the seats and washers should take care of it. There should be two shut off valves under the sink, unless you have a wall-mounted faucet. The shutoff valves should operate smoothly. While you’re under the sink, check the drain lines and the trap for signs of leaking or rotting. If any of these items do not operate properly, they should be replaced.
Electrical Systems
Every circuit should have a standard circuit breaker or should at least be fused. Each room should have at least two electrical receptacles. The kitchen should have at least two receptacles that are on separate circuits. Replace all broken or cracked cover plates on light switches and wall receptacles. If possible, replace all pull-chain type fixtures with standard fixtures and wall switches. Don’t hesitate to seek the services of a professional whenever appropriate.
Roofing
Only if it is necessary should you consider adding a new roof. If the ceilings show water damage and a close inspection reveals that the present roof is deteriorated beyond repair, then you should consider the possibility of adding a new roof.
Contact several reputable roofers in your area. They will usually give a free roofing inspection. Some roofers may charge a fee, then credit that fee toward the total cost of the roof if you hire them. Gather several estimates and do some comparison shopping in order to get the best deal.
Consider another option: if you do some inquiring at your local roofing supply house, you may find roofers who are between jobs, and will re-roof your property at a very reasonable rate. You might consider buying all the materials, and getting the contractor to supply the labor.
Interior Paint
Pearl White, Navajo White, and Antique White are the common colors used in residential properties. Using a shade of white paint in the interior will make the rooms feel larger. If you hired a painter, he would probably suggest that you use flat paint in every room except the kitchen and bathroom, where you would use a semi-gloss paint. Some investors use semi-gloss paint through their rentals, because it’s easier for a tenant to wash the walls.
Water-based paints are usually easier to work with, and they usually do a sufficient job. Consider using an oil-based paint in the kitchen, bathrooms, service porch, and on the trim. You’ll find that oil based paint is more durable than water-based paint.
Exterior Paint
The exterior of the property may need to be painted. Choose a color that will resist fading and will add to the “curb appeal” of the property. If you’re not sure about a color, drive up and down various streets and see what you like. More people are attracted to the lighter colors. Choose a complementing color for the trim, and consider painting the porch the same color.
Whether you do the job yourself or you get a professional painter to do the work, insist on a good quality job. Old paint should be scraped and sanded, and any holes should be filled before primer and paint.
Consider using the same color combination on all of your projects. This way you only have to keep one color combination in storage for any touch up that might be needed.
Landscaping
Landscaping the front of your property to give it “curb appeal” is essential for getting the most from your property whether you plan to rent or sell. If you’re planning to rent the property, the nicer you make the front of your property look, the better the tenant you’ll attract.
If the grass needs cutting, you can usually hire some of the neighborhood kids to clean it up. A schedule of watering and fertilizing should bring it back to life. If it’s necessary to get the yard looking good right away, then “sod” is your answer. Most gardeners and landscapers can do a neat job with sod, and the end result can be instant lawn.
Top off your landscape with some strategically placed shrubs and some pretty flowers. You’ll be surprised at what this can do for your properties curb appeal, and ultimately, your bottom line.
It is important to continue your education in creative real estate practices. The more you expose yourself to creative real estate principles and techniques, the more you’ll learn. The more you know, the better prepared you are to solve a seller’s problems. The more problems you solve, the richer you get.
I’ll see you at the top!
Reggie Brooks
Free Money….. No, Really! It’s True!
by Reggie Brooks
Our Government makes hundreds of different programs available to distribute billions of dollars to us in the form of grants, low interest loans, and subsidies. The money is then appropriated by politicians who are smart enough to know that the best way to keep their jobs is by funneling Government money into the communities they serve. That’s where we can step up and reclaim our money.
It’s Our Money Anyway
I say reclaim because it’s our money in the first place. The Government takes the money from us in the form of taxes, then gives it back to us in the form of grants, low interest loans, and subsidies. Here’s the kicker… The Government only gives the money back to the people who learn how to get it. You have to learn how to ask for it! If you can follow instructions on an application, the chances are pretty good that you can get a grant for something.
Free Money For Almost Anything
Do you have an idea for a business? Want to invent something? Need help with living expenses? Want to change your career? Want to buy or fix up real estate? There is Government, Corporate or Foundation money that can help.
How about $30,000 to tag Grizzly Bears. Not that daring? How about $96,000 to study fish. Or $43,000 to become a French Chef. Or over $148,000 to rehab an apartment building. Sound too good to be true? Well, it’s not. There are far greater stories.
Uncle Sam Can Be Your Very Generous Partner!
You have to see the bigger picture. To us real estate investors, Uncle Sam is our best friend and a great financial supporter. If you’re a beginning investor, Uncle Sam’s going to help you by guaranteeing that you get a decent loan to buy your first house or apartment building. There are many first time homebuyer programs that were created for that purpose. If you’re having trouble coming up with enough money for a down payment, he makes it possible for you to buy with a 3% down payment (FHA), or a 0% down payment (VA). Then he makes the IRS give us a lot of tax breaks because we now own property. He even helps people in areas where people have trouble paying their rent under the Section 8 Subsidy Program. Our partner, the American Government encourages us to keep America strong by using these programs. When you learn how to use these programs, the financial rewards can be substantial.
Let The Government Help You To Make Money
Of the many different types of financial assistance available to us, I especially like the Rental Rehab Loan Program. Here how it worked for me. Several years ago, I purchased a four unit building that had my friends wondering if I had lost my mind. The units were one bedroom, one bathroom each, and were inhabited by four elderly ladies who had been living there from 21 to 24 years. The problem was that their rent had never been raised! The total income from that building was around $460 per month! FOR THE ENTIRE BUILDING!! No, I’m not crazy. I did my homework and I found a Government program called the Rental Rehab Loan Program. The program required that I borrow at least $5000 to be used for upgrades in the building. The benefit to me was that I received the money at a very low interest rate, and (much more importantly) the tenants would qualify to go on the Section 8 Government Subsidy Program!
A Great Win-Win-Win Deal
All four of my elderly tenants were existing on a very meager social security income. They lived in the fear that whoever buys the building will want to raise the rent. They knew that the market rent was around $625 per month, and they knew that they could not afford it. They all thought that they’d end up homeless on the streets. They had no idea that these wonderful Government programs existed. I borrowing as close to $5000 as I could (I wanted to maximize my cash flow), and started the work on the property. When it was all over, I ended up with a really nice building with 4 wonderful senior citizens as tenants. I increased the income from the building from $460 per month to around $2600 per month thanks to my partner, Uncle Sam.
Everyone Was A Winner
Everyone won in this deal. The Government won because they were able to get the money out into the community where it could do some good. The tenants won because they were able to stay in the homes they’ve been in for over 20 years. They actually ended up paying less toward their rent because of the Section 8 Subsidy. I obviously won because I was able to take a non-performing piece of property and turn it into a success. Thank you, Uncle Sam!
Do I Need To Have Good Credit?
That depends on which of the many programs you’re applying for. There are some programs that are project based. In other words, if your project fits a certain category, the project itself can qualify for the money. It could be the real estate, the area, the tenants, or the business that qualifies, not you personally. If it’s a program that requires you to personally qualify, then your credit can become a factor. But understand this. There are programs that are designed for people with bad credit. There are even programs that require you to be turned down by a bank before you can qualify for the money!
So, How Do I Go About Getting This Free Money?
I’m going to give you a thumbnail sketch of how to go about getting this free Money. My obvious limitation is that I don’t have a full day to teach you in great detail. My hope is that what I share with you in these pages begins your great adventure in getting this money. As you begin your wonderful journey, please understand that there is a degree of work that is necessary. You may find that many phone calls and follow up are required to nail down that particular grant you’ve been pursuing. Make the phone calls. Do your follow up work.
You may find that the program is no longer in existence. Don’t despair. There may be 2 or 3 other programs under different names that have replaced the cancelled program. So don’t quit. There are so many different Government programs. Thousands of ways to qualify under different application processes. There are thousands of different corporation grant funds, foundation grant programs and non-profit organizational grant programs. If you can’t qualify for 1 program, there might be 5, 10, 25, or 50 other programs that you can qualify for.
Use The Resources That Are At Your Fingertips
The first thing to do will be to make contact with the organizations that provide the money. One of the best sources to find these organization is your public library. Ask the librarian to help you locate Corporate and Foundation Grant Sources. There are literally thousands of corporations and foundations that give away money every year. Why? Because our system makes it very attractive for corporations who earn a lot of money to give it away and write it off rather than keep it and be taxed on it. And when you factor in the great PR they get for giving money away, it’s a pretty good win-win deal.
Your Project Should Be Within The Grant Giver’s Guidelines
Once you’ve made your initial contact with a potential funding source, ask them to send you all the information they have on their grant criteria. It will more than likely come to you in the form of applications and guidelines. These guidelines will usually lay out what it takes to get funding from them. Your project must fit their funding criteria. If it doesn’t, go and find another source for funding.
Requesting Your Grant
When you’re ready to request your grant you’ll need to do so using two documents. One is a Grant Proposal, and the other is the Letter of Appeal. The difference between the two documents is that the Letter of Appeal is a summary of the Grant Proposal. If you’re requesting a grant of $2,500 or less, you can usually accomplish that by using the Letter of Appeal only. If you’re looking for more, you’ll have to use the Grant Proposal and the Letter of Appeal.
When you find the right funding source for your project, this is when you write your proposal and your appeal letters. Submit your proposal to as many funding sources as you can find. There are not many restrictions on the number of grants that you can receive. Why not get five grants instead of one? Why not ten grants instead of five. Get the picture?
Remember, You Are Entitled To This Money!
As I mentioned before, these are your tax dollars at work. Do not feel guilty! It’s your money in the first place! Uncle Sam is a very generous partner who wants to keep America strong. He does this by making funds available to be used for specific purposes. Some of those “purposes” that Uncle Sam allocates billions of dollars for are in the area of real estate, small businesses, and education. I challenge you to learn about the programs that are available for you and take advantage of them. They are there for you to use, but only if you’re willing to learn how to use them. Have a grand – Grant Adventure!
|
|
| |
Free Real Estate Teleseminar:
|
|
|
|
