WHAT TO LOOK FOR IN A PROPERTY:

*Loan to Value (LTV) this is the amount of the loan divided by the purchase price (or appraised value) of the property. Example:  You are looking into purchasing a property listed for $200,000.00. You are looking for a loan of $120,000.00. The loan amount of $120,000.00 divided by the purchase price of $200,000.00 is 60% LTV.

 

*When you are looking for how much to get your loan for remember if you are fixing and flipping for fixing and renting you want to factor in the rehab costs (the costs out of pocket to fix the place up in order to sell it or rent it).

This piece of information if not calculated correctly could make or break the deal for you in terms of cash flow, so it’s very important to get accurate numbers from either a trustworthy contractor or inspector with a written estimate of rehab costs. Here is where it pays to get a professional opinion.

 

*Lenders will look at the rehab cost vs. what the value of the property will be after the fix up (ARV = AFTER REHAB VALUE) to make sure the costs of fixing the property don’t outweigh the value of the property once it is fixed up.

Example:  Let’s say you are looking at a property for $100,000.00 your contractor gives

you an estimate of $50,000.00 for rehab costs. The lender requires at least 10% down.

So now you are looking at $150,000.00 for purchase and rehab. You have looked at other properties in the neighborhood that are of same number of bedrooms, bathrooms, and within 50 square feet of the property you are looking at getting. Your realtor tells you the comps are showing the property, once completed will come in around $250,000.00 (ARV). Let’s do the math: 150,0000.00 + 10% down $10,000.00 divided by the ARV value of $250,000.00 is 64% (rule of thumb 65% or lower is great – gives you wiggle room for unexpected expenses-anything over need to consult with lender on their guidelines and sometimes other factors will allow it to be higher. It’s all about how much risk is involved. The higher the risk the more is required of you as the borrower.)

 

*Specific things to consider when looking at a property:

–Do your homework by checking values over the last year or more in the area you are looking to purchase (neighborhood, city, and state). Are the properties holding their value in the area? Have prices in the area reflected a steady increase or decline? Check for pluses and minus, like busy streets, crime rate, schools, shopping nearby. Remember you are looking for an investment here whether short term to fix and flip or long term to fix and rent, but all the above will matter in the overall value of the property so you want the most dollar value for your investment.

–Check (through title company) regarding any liens, easements, or exceptions against the property.

–Either have trusted contractor or inspector check for the following in the property:

*Mold and or Drug residue in the property

*Asbestos – check especially in homes built in 1930-1950’s banned in 1977

*Lead paint- possible before 1978

*Leaky faucets/poor plumbing (is it up to code)

*Electrical issues (broken outlets/is electrical up to code)

*Roof age/leaks

*HVAC issues

*Broken appliances (garbage disposal, garage door, doorbell, sprinklers, kitchen appliances)

*Sticky/creaky doors or windows – open/close them all to make sure they work

*Signs of pests (dead bugs, droppings, sagging floors, small holes in wall or baseboards)

*Foundation- look for cracks above doors, large gaps or cracks where walls come together, take a ball and set it on the floors, hallway – it should stay in same place if not have foundation looked at. When in doubt have it looked at by professional.

*Fencing/landscaping

*Warranties and repair information that can transfer from seller to buyer.

 

*Questions to ask when looking for a good Contractor:

-Ask friends and other investors for referral of someone they have used and are happy with their work, reliability, communication, experience and quality of work.

-Interview several Contractors until you find the right one for you and ask them the following questions:

*How many employees do you have and how long have you been in    business?

*Ask for referral list with current and past customers and their phone numbers.

-You are looking for someone with a great reputation and quality of work.

*Who will be doing the work? Will there be any sub-contracting or will you or your team being doing the work?

*Are you insured? Ask for copy of the policy binder page showing who they are with and shows coverage. (should have General Liability and Worker’s Comp.

*Has your company ever been sued or have a lawsuit against your company?

*Have you ever sued a client for filed lien against a property?

*Have you ever declared bankruptcy or had a company under a different name?

*Ask who you can go to if the project falls behind schedule?

*Ask if their company has ever had a serious accident/hospitalization on the job?

*Ask who will be at your house and when? (They should have a set schedule.)

-in addition, make sure those individuals have had a background check on the  company.

*Ask for a written contract that you can have your attorney review before signing.

-Make sure the contract spells out timeframes, how and when the Contractor gets

Paid.

 

-DON’T EVER GIVE A CONTRACTOR LARGE SUMS OF MONEY UP FRONTESPECIALLY IF YOU HAVE NEVER WORKED WITH THEM BEFORE. (IF THEY ASK OR

-DEMAND 25-50% UPFRONT GO ELSEWHERE- A GOOD CONTRACTOR WILL HAVE

RESERVES TO GET THE JOB STARTED ON 20% OR LESS DOWN WITH SET DATES

AHEAD OF TIME FOR PAYMENTS AND MONEY FOR MATERIALS.)

-GET EVERYTHING IN WRITING IT’S YOUR ONLY RECOURSE IF NEEDED LATER.

-DON’T ASSUME ANYTHING!

 

*A professional Contractor should have enough reserves to cover minor expenses

to get the job started, except for materials – which you should order and have all

materials delivered to your property. If the contractor has a problem with this

take it as a red flag to get another contractor or tell the contractor to purchase

the materials (pre-approved by you) themselves and you can pay them when the

job is done.

*These are just a sample of questions to start with, we suggest making a

list ahead of time of all the questions you want to ask, so you won’t forget

anything during the conversation. At the end of the day, it’s all about having

a contractor that will respect you and your property, be trustworthy, treat you

fairly, and get the job done on time, meeting the budget and giving you good

quality work.