David Dobler

Ethics in Real Estate Investing

To become a successful investor, it is important to follow an ethical code. Ethics are a set of rules that governs a person or a group’s conduct. The fact is that some practices of real estate investors fit into unethical categories without their realization. Listed below are some unethical practices followed:

Hiking the property value and keeping lenders in the dark
It has become very common these days for mortgage brokers to hike the property value above its real value while helping people take risky loans. The lenders who are not locals of that area offer 80% loans for these properties. This has resulted in loans being made on properties with no equity to homeowners who do not have the credit to support such a mortgage.

Buyer Beware
Another common thing that can be witnessed today is the “wholesaling” of property that is based on a falsely hiked value of the property. This changes the entire logic behind wholesaling. In the good old days, wholesalers would leave a huge portion of profit in the deal for buyers. Nowadays, they sell property at huge prices where buyers are not able to make any money from the deal. These kinds of wholesalers target the new and inexperienced investors.

Landlord Ethics
Though problems between neighbors are common, it cannot be ignored by their landlord. They do have an obligation to the neighborhood where the property is bought. Property owners should take a serious look at how their tenants are, in terms of not only paying deposits and rent but also screening them for good neighborly behavior before they lease the property out to them.

Essential Real Estate Contract Clauses

A good real estate contract is one that helps to protect both the buyer as well as the real estate broker. In a typical scenario, the broker will only have a standard contract that will contain clauses that lean towards the broker and you, the buyer. Here are a few essentials that you must look for in a real estate contract:

“And/or assigns” or “and/or Nominees” - Replace the “and/or assigns” with your name to have the right to assign your contract. The words, “and/or nominees” gives the right to place title of the property in the name of a trust. In case you see an “anti-assignment” provision, remember to cross out the clause.

Inspection Clause - Ascertain the right to inspect the property before a specific date. Make sure that you do not have to hire a professional inspector. This clause should also permit you to cancel out the agreement if you find that the inspection clause permits you to cancel the contract when you find something wrong. In most cases, this occurs when the seller is not willing to fix or come down on the price.

Right to Extend - If a buyer is not willing to close out, the seller has a provision to default the buyer. Most contracts would have a certain date for closing and if you want to buy extra time, specify the closing date with “on or about” words. It is your right to extend the closing date if you have proper reasons to do so.

Choice of Escrow Company - Choosing a title or Escrow Company will always let you have control as a buyer.

Split Funding

Split funding is a fabulous way to engage in real estate investing. As long as your negotiating skills are up to the mark, this method will net you some quick profits with minimal effort.

The basis of the deal is that you offer a small sum as down payment to the seller and agree to pay the total balance within a specified period. Once this deal is secured, you can go about making the renovations needed to bring the property up-to-date. By doing this you increase the property value. Therefore, you can sell it for a higher price than purchased which ultimately nets you a handy profit.

The following example illustrates this process:

You come across a house that is selling for $60,000. You should consider how much it would cost you to renovate the house so that the value goes up. Let us say that it will cost you $5,000 to get the value up to $75,000. The first step is to negotiate the price to something you are comfortable with, say $50,000. Once this is through, you should offer the seller $6,000 up front and the balance $44,000 in 6 months. After he agrees to do this, you can complete the repairs, find a buyer for $75,000, sell it and pay back the original seller his lump sum. In this process, you can see that the profit margin is about $20,000 not bad for a little bit of smart negotiating.

Now the real reason why this is a great way to make money is that you can have several deals of this nature going on concurrently by virtue of sinking in only a small amount in initial investments. If you are worried about not being able to sell within the specified period, do not fret. This is where your negotiating skills come in; simply renegotiate by getting an time extension. Once you get the hang of this, you will find that this is an excellent way to invest in real estate.

Flipping Works

Two popular methods of investing in the real estate game are known as ‘flipping’ and ’speculating’. The latter is part of the former method but is a high risk/profit approach.

‘Speculating’ works by purchasing undeveloped property and selling it based on its future value. For example, if a condominium complex is being planned, you will buy a condominium even before construction begins and sell it before the construction is completed. The problem with this method is that if the housing market collapses, as it has now, you are left “holding the bag” if you have not sold the property yet. This is why it is known as a high-risk method.

The method of flipping, however, is much more secure and largely unaffected by market collapses. A collapse is actually a good thing because it allows you to purchase a property at a very low price. You can then proceed to renovate it and offer it up for a higher value, thereby making a decent margin overall. At the very least, you can get rid of it for cost so you are more or less guaranteed of not making a loss.

What does one do if you cannot make a sale due to the collapse of the property market? Well, there is a solution for that scenario too. The rental market is generally high when the sales market is low. So, as long as you do not mind playing landlord for a little while, you can still make money up until the time you are able to sell the property.

As you can see, sometimes the conservative approach can yield better results in real estate investing than high-risk methods.

Top Seven Questions You Should Ask When Buying a Condo Hotel Unit

Condo hotels are the newest trend to hit the real estate market. Condo hotels mean condominiums that are situated within a four or five star hotel.

The concept involves the ‘condo’ being used by the owners whenever they like that are put up for occupation when they do not want to use it. The revenue generated by renting it out is shared by the hotel and the owner. Although the concept makes economic sense, you should ask a few questions before you engage in the purchase of one.

1. Is it for you? - Do not assume that this is going to be a run-of-the-mill apartment. These are fully furnished luxury condos with all hotel amenities. The price can range from a quarter of a million to about one million dollars.

2. Where is its location? - Being located in a popular tourist area will assure you of regular occupation. However, it should also be in a place, which you like as well. Proximity to an airport is also a point to consider.

3. Is it part of a franchise? - If it is part of a well-recognized chain, you can be assured that there will be constant occupation as well as higher room rates charged. This would bring about better returns on your investment.

4. Are there external attractions? - Nearby theme parks, convention centers, etc will all serve to attract visitors to the hotel.

5. Are there internal attractions? - If the hotel features a spa, golf course, casino, etc it will serve as a big draw for visitors.

6. Are your requirements met? - The unit should meet your personal spatial, aesthetic and practical requirements.

7. Does it have future value? - The property should appreciate as time passes so that your investment grows in value.

Repairing and Using your Credit

When it comes to investing in real estate, your credit status becomes very important. You must ensure that your credit is in a good state so that you are able to close deals quickly and easily. If it is not in good order, then you must take some steps to rectify it. You should begin by determining what level of repair is needed for your credit.

Obtain a credit report that will help you to assess the situation. Usually, the three types of credit issues can be categorized as Slow pay, No pay, or fraud. Slow pay refers to non-timely payments, whether this is simply due to forgetfulness or financial problems. It is best to avoid this problem altogether as slow payments can stay on record for up to seven years.

No pay, as the name suggests, is the avoidance of making a certain payment. This can happen for a variety of reasons, voluntary or involuntary. The best course of action to take is to arrive at a settlement with the creditor, which will then allow you to take the matter off your credit record. Failing to do so, can result in this staying on record for up to seven years. Fraud is very serious and must be cleared up as soon as possible. The practice of stealing identities is becoming more and more prevalent and therefore, you must always scrutinize your statements and take the matter up with the law. Be persistent as fraud can harm you in serious ways.

Once you have repaired your credit, use it wisely when investing in real estate. After all, you do not want to go through all the hassle of making sure your credit is in good order only to squander it on a bad investment.

Saving up to 90% on Title Insurance

If you are in the real estate business, then you must have paid for title insurance. Real estate investors often question what title insurance really is, and reasons for its requirement. Another concern is how they can save money on title insurance.

The Title Search

When you are selling a property, the Title Company or attorney then performs a title search. They follow the chain of title as far back as 50 years and trace ownership through deeds listed in public records. They also check against mortgages previously recorded and liens that have been released. Once the documents have been reviewed, the Title Company or attorney then sets out to prepare a ‘title insurance commitment’.

The Title Insurance Policy

This insurance policy is not like the usual insurance policies that you might come across. It covers events in the past as well. For instance, if a previous occasion might put the current ownership in jeopardy, then the title insurance company will in fact defend the claim and pay for any damages with relation to the property. Keep in mind that this insurance policy is not one that takes care of claims based on any events that take place after the issuance of the policy.

Ask for a ‘Re-issue’ Rate

Title insurance policy coverage commences from way back then until the date of the transferring of the title of the property. This means that the longer you own the said property, the more you will have to pay in terms of policy costs. Therefore, the shorter the time you own a property, the risk of a claim against the title is very small. For cases like this, insurance companies will then offer the owner “re-issue” rates. This rate offers the title insurance policy at a discounted rate if another policy on the very same property was issued during the last few years.

Try a ‘Hold-Open’ Policy

When buying a property with the intention of selling it within the year, make a request to the title insurance company to give you a ‘hold open’ policy. This enables the issuance of a policy on a second transfer of the property instead of one on the first transfer. Normally, the seller pays for Title Insurance and in this case, you can pay only the additional 10% required and save 90% when you sell the property.

The Key to Succesful Closing

In the real estate business, following through is absolutely crucial. You will find that most people claim to see certain things through, but never do, which results in dropped deals, and overlooked tasks. Some people just keep passing on the responsibility. This unfortunately is not the ideal way to run a real estate business. You must have extremely strong ‘follow-up’ skills and be able to identify potential problems during the early stages of the process. Every single item on your checklist must be followed up on and completed.

Many a deal is lost on a daily basis in the real estate business owing to loose ends, unattended matters and unfinished tasks. A good example is a house that you have your eye on and you have 45 days to make the sale before the seller’s contract with you expires. You find a buyer who, in fact, can obtain a loan within this time. However, a few days before the expiration of the contract, you discover that the loan is not ready and that the seller already has another buyer lined up. You have lost the deal!

In such a scenario, if you had made it a point to stay in touch with the buyer, you could have made sure they got the loan in time or you could have even found another buyer in that space of time. Making sure a deal falls through can be a lot of work, but after all, it is your business and you should be the first to take the initiative to ensure that the entire process runs smoothly.

How to spot a wet basement

The Basement, simply because they are built into the ground has a greater possibility of being flooded, turning a once dry basement into a wet one. If the soil surrounding the basement is ‘water-heavy’, this then puts constant pressure on basement walls. Water also does follow the path of least resistance inside a home and over a period, does manage to get into the basement.
One of the most common physical problems encountered in a house are wet foundations and basements. Therefore, when buying a house, the basement is the first place you must check for dampness. Do not rely on seller disclosures, because the sellers might not even know about it or might even choose not to disclose water problems in the basement. If they do so, it is difficult to prove in a court of law. The process of suing the seller could prove to be very expensive as is the process to dry out the basement. Ensure a qualified and accredited home inspector checks the house.

The signs
Water stains along the walls or floor are a sure sign of a wet basement. These could be caused from something as simple as an overflowing of a laundry tub or water seeping through basements windows, walls or the floor.
Musty odour / damp smell - if there is excess moisture in the basement, you cannot miss that unmistakable smell.
Mould - it could be any colour from black, brown, yellow or green - make sure you get it tested to be certain it is mould.
Efflorescence - this causes a whitish-greyish ash on the walls that sometimes sparkles. It is cause by salt deposits left behind by evaporating water.
Spalling - when water seeps into the surface of concrete, brick or stone - salt deposits from the water cause the surface to peel away.

Potential Causes
- Ground water
- Overflowing gutters
- Insufficient gutters
- Downspouts
- Improper landscaping or grading
- Sprinklers
- Condensation from pipes
- Water leaks inside the walls

What types of home inspections can you do as a buyer?

When buying a house, a few important points will need looking into. A home inspection checklist comes in handy and ensures that all the important issues are resolved. Here are a few that must make it on your checklist:

> Roof - check the roof level, make sure it does not sag. Ensure there are no puddles of water on the roof which could indicate improper drainage systems. Check against previous repairs as well.
> Wiring - look first for frayed or exposed wires. All electrical outlets must have undamaged covers. Ensure the house has a breaker box and not fuses. The breaker box must be labelled properly.
> Windows/Doors - doors should be in good condition with working locks and aligned properly. Windows should be free from broken glass and should not stick when opened or closed.
> Hazards - check if the house is prone to any hazards in the region such as earthquakes, hurricanes, etc. Look into the records for hazardous water or soil condition on or close to the site.
> Wood destroying pests - make sure none of them have made their presence felt in the house. Insects such as termites, wood-boring beetles, carpenter ants and bees can cause way too many problems for your house.
> Heating and Air-Conditioning - engage an HVAS specialist to check the furnace and the heat exchanger in the house.
> Chimney - make sure the smoke is discharged properly. If not, a chimney inspector will be able to help you sort it out.
> Lead-Based Paint - get the house tested for lead-based paint. If tested positive, a certified lead abatement contractor must be hired to remove the contaminant.
> Foundation - ask your home inspector to verify the solidity of the foundation of the house.
> Sewer / Septic System Inspection
> Easements and Encroachments
> Water Systems and Plumbing
> Mold - a test of air quality will tell you if mold is prevalent in the house.