Critical Mistakes for the Investor to Avoid: The Loan
by John Occhi REALTOR
Realtor Consultant to Foreclosure Investors

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Many real estate investment mistakes can be avoided all together if the investor simply compares apples to apples when considering different loans.

I know, it sounds obvious, but sometimes I think loan packages are as confusing as buying a mattress. You know, you have seen the news expose on the mattress industry where a manufacturer will produce the exact same mattress and sell it under a different model name to each of its retail distributors so the retail guys can advertise the lowest price on that model...because it only exists in that one store.

And that's the way loans can be spun. The same item can be called so many different things and the pricing can either be in basis points, a percentage or even a flat dollar amount - almost impossible for all but the sharpest of experienced investors to sit down and truly compare loan opportunities.

Now, I am a REALTOR®, I don't pretend to be an expert on mortgages - those guys make enough money putting together loans that they don't need my input any more than I want your lender driving around with us throughout Riverside County or any where else in California, looking at investment real estate. They do their thing and I do mine. Together we form your team - so it is important that you work with a lender that can give it to you straight and if there are variances in any of the products he suggests to you, make him break it down so you are comparing apples to apples and leave the oranges in the trees.

Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,

John Occhi, Hemet CA REALTOR

Critical Mistakes for the Investor to Avoid: Down Payment
by John Occhi REALTOR
Realtor Consultant to Foreclosure Investors

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When an Investor is looking to purchase Investment property there are many different factors to be considered in every transaction - especially true if we need to make sure there is a positive cash flow every month.

One such critical decision that must be reached before the offer to purchase real estate can be consummated is the buyer must determine how much of a down payment he (or she) will be putting into the deal.

                                                               

In the past, investment property typically required a minimum 20% buyer contribution - which made a property cash flow much easier.  More recently many investment loans were available with only 90% cash-in.  There have even been some creative loan packages that would allow a well qualified investor to finance an investment property with 100% financing - although I do believe that has disappeared fro the time being.

Lets assume a 6% interest rate on a $300,000 investment.  A 100% financing would require the buyer to pay $2,206 a month in Principal, Interest, Tax & Insurance (PITI).  The same home with a 10% down-payment would reduce the monthly PITI down to $2,026 and a 20% down-payment would then bring the monthly obligation down to only $1,846.

If this property will only rent for $1,500 a month, then you had better be prepared to step up the down payment to a whopping 39.33% or $118,000 if you want a 2% positive cash flow every month

So. I am hoping that you can see how a simple adjustment to the amount of money you put down on a deal will have a significant impact on your monthly cash flow.

I hope this little lesson will at least enlighten you to fully analyze your financing for your next real estate investment opportunity. 

If you would like to know how I can help you achieve your investment objectives please feel free to contact me directly.  I am not a "guru" selling books, CD's, DVD's and I don't even have my own seminar tour to invite you to.  Like you, I am looking for serious individuals to partner with.  My role is REALTOR®, focused primarily in Riverside County but licensed to buy and sell real estate all over the State of California... and yours is Investor.  Yes, we can both do our job without the other, but why?  Together we can create some much quicker profits for each other.  So please, if you want help, consider me as your REALTOR®

Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,

John Occhi, Hemet CA REALTOR 

Investor Mistakes that Can Really Bite:   Interest Rate
by John Occhi REALTOR
Realtor Consultant to Foreclosure Investors

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Minor mistakes can often make or break an otherwise great real estate investment deal.  There are some very subtle differences in the way an investment deal is packaged that can have a ripple effect and can literally either cost or save you thousands of dollars over the lifetime of the particular deal.  Conduct each real estate investment deal the same as the one before it and you will multiply either the savings or expense associated with the way you structured the deal.

                                                             

Interest rate is one of the most critical factors in a long term "buy and hold" real estate investment.  If you end up financing the deal for the wrong interest rate on your mortgage, it will cost you thousands and thousands of dollars over the life of the loan and real estate investment property.

The right interest rate can make the difference between positive cash flow and negative cash flow.  Yes, you will still generate equity over time with most real estate investment deals, but having a positive cash flow is often the make or break criteria when analyzing an investment opportunity.

I hope this little nugget will at least cause you to think about your financing for your next real estate investment opportunity.  If you would like to know more please feel free to contact me directly.  I am not a "guru" selling books, CD's, DVD's and I don't even have my own seminar tour to invite you to.  Like you, I am looking for serious individuals to partner with.  My role is REALTOR®, focused primarily in Riverside County but licensed to buy and sell real estate all over the State of California... and yours is Investor.  Yes, we can both do our job without the other, but why?  Together we can create some much quicker profits for each other.  So please, if you want help, consider me as your REALTOR®

Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,

John Occhi, Hemet CA REALTOR 
Realtor Consultant to Foreclosure Investors
Mission Grove Realty

Dream Home or Nightmare?
by John Occhi, Hemet REALTOR
Mission Grove Realty

Working with a lot of Short Sale and REO properties there is always the risk of a health hazard when entering a vacant home for the first time.  You just never know what you might find.

                                           

Have you ever opened a refrigerator in July after the electricity has been turned off for a week?  How about if it was stocked with opened dairy products?  Maybe a few meat products?  Some decaying vegetation of some sort?  Not to mention all the fuzzy green and white stuff that seems to be growing everywhere...?

If you ever have the opportunity, I hope you are wearing sandals; otherwise it will probably knock your socks off.

                                                                                                  

Not All Health Hazards are Booby Traps

Unfortunately, many leaving the home under less than ideal circumstances will resort to certain booby traps that can really get very nasty.

One of the biggest problems that neighborhoods face when homes are abandoned is the pool.  It becomes a breeding ground for mosquitoes and the Nile virus and other deadly diseases can easily be introduced

Is this Your Dream Home?

Imagine moving onto a quite residential street where your neighbor across the street has a magnificently manicured lawn and 20 palm trees outlining the property.  It is beautiful and you are so proud to be in such a wonderful neighborhood full of beautiful homes.

Then one day, you watch your neighbors move - using a rental truck.  They don't have a crew that brought in your furnishings.  No, there are several people helping out, but they really don't look very organized.  They are getting rowdier and rowdier as the day moves on and more cases of beer arrive.  You find it strange, since there is no real estate sign in the yard...but you never got to know them, so you don't give it much of a thought, other than you home the new neighbors will be nice and have kids to play with yours.

A couple of weeks go by and the lawn is getting a bit overgrown and the weeds are popping through the planters.  You still don't think much, after all its only been a couple of weeks, right?

The weeks slip into a month and you notice the lawn is really looking overgrown.  It now has it's own weed problem and turning brown, after all it has been a hot dry summer.  You figure out that no one has been watering, since even the palm trees are losing their luster and turning brown at the tips of each palm.

One month turns into two.  You hear the kids telling ghost stories and you are now really concerned.  There is now no chance in the world that the lawn or the pretty flowers in the planters will ever come back and those palms look like they could go up in a blaze if so much as a loose burning cigarette butt found it's way near them.

Living in the desert, you never thought mosquitoes would be a problem.  It turns out the haunted house has a haunted pool in the back yard that looks like the Irish Beer you drank last St. Patrick's Day - only much worse.

The fruit from the trees along the side yard have become over ripe and fallen to the ground creating a mess and attracting all sorts of bugs and vermin.

You wonder if this once beautiful home will ever sell and be restored to its former glory.  Then the long awaited real estate sign goes up and you are hopeful.  But nothing happens - other than another house down the block is about half way through the same cycle - you wonder if maybe that lawn could be saved.  You ask yourself, "Why did I ever move to this dumpy neighborhood?" as you swat away the buzzing mosquito and watch the large blackbirds sitting on the fence across the way - and now you wonder what died in there.

The truth is the house has died and it is taking the neighborhood with it.

I hope this never happens in your neighborhood - but chances are it already has.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR
Hemet CA Real Estate

Investor Mistakes that Can Really Bite - Contractor's Fees
by John Occhi REALTOR
Realtor Consultant to Foreclosure Investors

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Don't get me wrong, contractors earn their money, especially if you negotiate fairly and have a clear understanding of what will be done with what materials and how much you will pay.

The problem that I have fallen victim of and seen on many occasions is allowing a contractor to be paid in full before the job is done. I don't know what it is about these guys, but they always seem to have a reason why they need to get paid, as the job is nearing the completion.

It is typically some hard luck story. They will usually come in and work really hard for a day or two and then say that they need some more money because... maybe it's one of their guys or their wife or ... who cares - it's an excuse.

What will undoubtedly happen is the contractor will get your final payment and then never come back. Maybe, all they have to do is the job clean up. Maybe they just need to put up the finish trim. Who knows? Really, who cares?

So do yourself a favor and NEVER pay a contractor until the job is finished - 100% satisfied. Don't ever pay a licensed contractor in cash. When you cut the last check, wait a day after completion and then put it in the mail. This way you are sure you are satisfied with everything.

If the final payment is no less than 5% or 10% or even 20% of the job, it is enough to make sure the contractor is there - after all, you are holding his profit!

There is not much more to say on this topic - just be careful in your negotiations and job management and the cost of the contractor should be nothing more than a legitimate business expense for your real estate investment.

Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,

John Occhi, Hemet CA REALTOR

Investor Mistakes that Can Really Bite – Tenant Screening
by John Occhi REALTOR
Realtor Consultant to Foreclosure Investors

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If you are going to invest in real estate you are going to have to deal with a tenant – sooner or later. Even in your perfect business model of flipping properties, every now and then you are going to get stuck holding the bag longer than you wanted to and the only way out will be to rent the place.

Perhaps the deal is such a good one that you end up wanting to keep the property – maybe you have some insight on future growth and believe you will see great appreciation in a short time, if you could just hang on to the property.

Tenants are not all bad. Many times they become your buyers and in other circumstances, they have friends who are in similar situations and looking for a good place to live – so they refer them to you, because you are a fair and honest landlord who does a good job maintaining the property.

So yes, sooner or later you will deal undoubtedly deal with tenants.

When you do deal with them never let your first impressions guide you. When folks are looking to rent a new place, they put on their very best behavior – sort of like a first date. Remember, what you see is not always what you get.

You may want to check out the article I wrote about Rental Agreements and repairs – you can follow the link to:

Investor Mistakes that Can Really Bite - Tenants

CREDIT CHECKS

So, you will want to check them out. You should have a local Tenant screening service in your area. This is a service that at a minimum will check the public records for your county to see if the applicants have been evicted form other homes or apartments. You can expand the search to more counties and even the statewide and a national level. Each expansion will cost a little bit more money – but typically well worth it to spend it now, then later.

These services will also be able to provide you with credit checks and even criminal background checks, for an additional fee. If you have many units, you may be able to work out a volume deal.

Don’t be afraid of spending this money – heck, you can even collect it from the applicant as a processing fee, application fee or even call it a credit check fee. In most cases they are not the uncommon – and since it is time consuming, you can even add on a few extra dollars for your time.

VERIFY YOUR APPLICATION

It has always been easy to put in friends as your previous landlord or employer to verify the info that has been submitted to you. Today with all of the cell phone numbers we have access to, it is very easy to verify your won application – so check it out for yourself and not with just a phone call.

To verify the current landlord and the reason they are leaving, you can run a Property Profile that your Title company can provide for the address the applicant is moving from. Contact the owner – by maid if need be, but contact them. Drive by the place and make sure your tenant is really living there. If it is too far to drive by, send a postcard with the words “ADDRESS CORRDECTION REQUESTED” at the bottom of the envelope. If it comes back with any other info – then you have a flaw in the application.

Do the same with the Employer – look them up on Google to make sure they are a real company. Contact the personnel department if they have one or call a publicly obtainable number – not the one on the application. Check out what you need to know. If you need to submit in writing – take the time and do it right.

NEVER MAKE A RUSH DECISION

Finding the right tenant can make or break you as a landlord and real estate investor. In California, a tenant who has been educated by watching Jerry Springer, Judge Judy and other day time TV Shows may be able to successfully stretch out the eviction process for 6 months or more – and that’s six months of no rent, on top of the month they missed before you started the process.

Remember that lost cash flow is gone forever. Yes you may end up with a judgment –but the probability of ever collecting it are slim, so take your time and carefully screen your tenants and select the right one for your investment property.

Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,

John Occhi, Hemet CA REALTOR

Investor Mistakes that Can Really Bite - Tenants
by John Occhi REALTOR
Realtor Consultant to Foreclosure Investors

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All Real Estate Investing boils down to one of two strategies. Granted, their are many subsets of each real estate investment strategy - but every investment is either a "Buy and Sell" investment scenario or a "Buy and Hold" your real estate situation. What else can there possibly be?

I prefer my involvement to focus on the quick cash flow "buy and sell" strategy - or flipping as it is often called. Flipping will generate huge amounts of cash flow, if done properly. I do believe though that the "Buy and Hold" method of real estate investing is the true path to long term wealth.

However, like so many others in the industry, I have my reservations about being a landlord and having to deal with tenants. Well, I recently had a conversation with a dear friend of mine who has a number of rental units here in Hemet, CA. He assured me that he never has a problem with a tenant, because he trains the right from the beginning.

His first advise is to never use a boiler plate rental agreement that you pick up for free or inexpensively as part of a catalog of forms. He tells me that like everything in life, you get what you pay for. He has a custom agreement that is revised annually by his attorney, accounting for every change in the law. He had his agreement crafted by an attorney and he has never lost in court with it yet.

When I asked to see what made his agreement so special, he informed me that based on the terms of his relationship with his attorney, the only way I could see it was if I were to rent a unit from him or pay his attorney. Smart man wh9o knows how to protect his assets, but now I want to go to the local court house and see if I can pull the file of an eviction he just finished, to see if I can find a copy of this "special agreement". (But that wouldn't be very Christian of me, now would it - I have no use for it, I just want to see what it says and I am not going to rent from him just to find out!).

The second issue my friend shared with me is training the tenants to take care of his property. If he ever has a tenant do any damage and calls him to fix it - he does and then he bills them for it. Stopped up toilet because of a feminine napkin - that will cost $75. Broken Window - that's $75.Replace the garbage disposal - $150.

He says if you don't charge them then you are telling the tenant they don't have to take care of your property and that you are giving them permission to treat you like their personal maintenance company. Next thing you know, you are getting calls at night, then the weekends and before long, you'll get a call on a holiday. Well, he charges a 50% premium for after hours and a 100% premium for holiday or Sunday emergencies.

My friend tells me his favorite is when he gets a call telling him that the rental unit has been broken into. He'll question what was taken and the tenant typically says nothing, but that either a window was broken or a door needs to be repaired. He knows the answer to the next question before he asks if they filed a police report. "Well, no" he is told and so he bills them for the repair - often upgrading the broken door to a brand new one. He tells me that it is very rare a tenant will file a false police report because they really don't want the police snooping around their rental unit.

My friend loves Hemet CA rental units - he has me looking for a nice four-plex to add to his inventory of over 60 rental units in Hemet California. He promises to teach me more on this topic and what I learn I'll bring back and share with you, so come back and check often - better yet, go ahead and subscribe to my blog to keep up to day.

Hoping to make your California Real Estate Investment...
A Pleasant and Profitable Experience,

John Occhi, Hemet CA REALTOR

Until Next Time, Have a Blessed Day,

John Occhi, ePRO & Five Star Certified REO REALTOR®
www.JohnOcchi.Com
Hemet - San Jacinto Valley, CA
The Excellence in Real Estate Team @
Allison James Estates & Homes
2281 W. Esplande Ave, #102-B
Next to "Starbucks"
San Jacinto CA 92582
(951) 654-5550

     

 

This blog and the contents written here is the intellectual property of John Occhi, San Jacinto Valley REALTOR® in the South West Riverside County region of the Inland Empire of Southern California.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance.

This blog is part of the ActiveRain Real Estate Network, which is a social network highlighting the best of Web 2.0.  Information is provided with the intent of educating and assisting home owners, home sellers, home buyers and real estate investors with information the can be used to make better real estate decisions.

I am proud to be a full time REALTOR® who is proud to be a contributing member of the ActiveRain community.