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Septics & Wells

Question:
Hi Tony. I am in process of purchasing a property with a private well and septic.
 
Have you owed any properties with private well/ septic?
 
Do those become more expensive to own than those on public water/ sewer?
 
-A.
 
Answer:

WARNING!!!!!

KEEP IN MIND THE FOLLOWING ANSWER TO YOUR QUESTION IS JUST MY PERSONAL OPINION BASED ON MY PERSONAL LIFE EXPERIENCE AND SHOULD NOT BE INTERPRETED BY ANYONE AS ADVICE, INSTRUCTION, CONSULTATION OR SUGGESTION OF ANY KIND- GET IT???!!!

YOU NEED TO DO YOUR OWN RESEARCH ON WHAT YOU NEED TO DECIDE, AND YOU ARE THE ONLY PERSON RESPONSIBLE FOR YOUR DECISIONS- SEPTICS AND WELLS ARE SERIOUS ISSUES TO CONDEND WITH AND COULD SERIOUSLY AFFECT THE VALUE, MARKETABILITY AND DESIRABILITY OF A PROPERTY!!!!!

 

In many areas of the country having a septic & well is the norm- And in many cases it could be a plus. Simply because you don’t have to pay the consistently increasing utility bills we get monthly. HOWEVER, THIS IS A SERIOUS CONSIDERATION & SHOULD NOT BE TAKEN LIGHTLY!

Personally, I would rather have septics and wells than ever deal with LA County or ANY county water Dept.…!

 

However, the down side is if anything goes wrong- and they do- you are on the hook for the cost of repairs- so I suppose it’s 6 of one or half dozen of another…;-)

 

What can go wrong? A LOT!!!

 

1-      The Well could go dry and potentially render your property WORTHLESS! Cost to drop a new well- (IF POSSIBLE) in my area depending on who you hire to do it – $5,000 to $15,000 average… without too many complications, but there really is no FIRM number, just a MINIMUM!  It depends on many factors but primarily how deep they gotta go- Typically if the water table in your area is good (HIGH) it’s no big deal.

2-      Then there’s the water flow as in GPM- (Gallons per minute)- the higher the better,  if too low, a holding tank might be required.

3-      Then the quality issues. There are companies who will come out and test water quality, and also many options on the internet.  

4-      TIP- If you have cattle grazing nearby, expect fecal matter in your water, IT’S GOT TO GO SOMEWHERE 😉 But even that can TYPICALLY be cured with a UV light installed onto your filtering system- cost- about $100 to $500 depending on where you get and who installs… Internet is great place to learn all this stuff and find great remedies for reasonable prices. The best part is all this is pretty basic and common sense.

5-      Then, minerals in water – arsenic, iron, bacteria … you name it.

6-      Then the cost of the filtering system you might need to resolve the problem. On the other hand, I have never seen a problem that could not be resolved. DON’T FREAK OUT!

7-      If the Well is already in and working, have it checked out before you close escrow as a contingency of purchase- typically repairs if needed are no big deal.

8-      Septics- depending on what kind it is, what it’s made of will determine whether you will LOVE them or HATE them- BOTTOM LINE- IN MY PERSONAL OPINION,  Concrete RULES!

9-      There are many types that range from plastic to Metal (metal suck and won’t last- water, metal …never a good mix for the long-term). Again, cost to drop in a new one can range all over the place depending primarily on who you hire to do it. Most folks that deal with this try to screw you for as much as possible by complicating EVERYTHING! The actual cost of let’s say a 1200 gallon tank (the size goes according to how many bedrooms in the home and your local county/state regulations) USED TO RANGE from about $900 to $1500 (I may be behind the times on these costs as it has been a few years since I dealt with one of these repairs). TYPICALLY…They will bring it out and drop it in your pre-dug hole- this does NOT include any other costs like hooking it up or creating leech lines… Anyway, research is KING in all this and the INTERNET is you lifeline and salvation-

10-   TIP- TAKE YOUR TIME WHEN EVALUATING THE PROPERTY & ANYTHING HAVING TO DO WITH REPAIRS TO ANY OF THESE ITEMS, WELLS OR SEPTICS!!!

11-   ALSO- Remember to ALWAYS have a contingency in your offer for Well FLOW & PURITY TESTS (Many times you can get seller to pay and in some states it is mandated that seller pick up the cost for at least the minimal testing. Remember you can expand tests to cover a broader range of items checked at your request just by agreeing to pay the additional minimal expense.

12-   WELL… the bottom line is you should NOT be afraid of Wells or Septics  AS LONG AS YOU DO YOUR due diligence and understand the simplicity of both and what could go wrong. Both will require ongoing minimal maintenance, But nothing that should scare you or prevent you from moving forward on a buying a profitable deal- We have rentals with septics and I personally own a home with both.  

13-   Just do your work- understand what you need to check, HAVE CONTINGENCIES IN PLACE JUST IN CASE YOU DON’T WANT TO DEAL WITH WHAT YOU DISCOVER- Consider this an opportunity to learn something that will help you feel confident about buying these types of properties in the future- MOST investors RUN when they hear WELL or SEPTIC and guys like myself understand that this is just an opportunity to NEGOTIATE the BETTER purchase price.

14-   Forgive the lengthy response- and REMEMBER- THIS ANSWER IS NOT ALL YOU NEED TO KNOW ABOUT WELLS AND SEPTICS BEFORE YOU PULL THE TRIGGER!

15-   DO YOUR RESEARCH! DO NOT RELY ON WHAT I WROTE HERE AS THE BIBLE ON WHAT TO DO – Ultimately it will be YOU who has to deal with YOUR decisions! GOOD LUCK!

Posted on

Submitting a very low offer on an REO, agent perception

Question:

Hello Tony,

Thanks for your excellent “tip” after the Inland Empire Investors Forum meeting in Corona about pursuing the REO Pendings, instead of the Actives, for any that fall out.

I have one question that I hope you can lend some perspective on.

If the REO Broker’s lender accepted the high, over-listing offer that keeps happening in Moreno Valley on the homes that I’m making offers on… what is the conversation like with the REO Broker when I can still only offer 65 percent of ARV minus repairs, and that isn’t very close to the listing price… lower than probably several other all cash or hard money offers they got the first go-round?

Obviously, your brokers call you and they know what you’ll pay. I am dealing with these brokers for the first time, as I will not use my buyers agent. I’m going to be asking these REO brokers (or their own buyers agent) to write up my offer directly if the pending sale falls out… but it will more than likely be much lower than the asking price.

Because of the over-bids on low REO inventory, I get the feeling I would be upsetting them or getting off on the wrong foot with them with the TNG offer I need to make.

Just curious how you perceive that conversation if you were me (essentially unknown to them), how you think that would go, and is it a risk for the first impression or relationship building you teach in your course.

Also, as I mentioned, I’m interested in your small group mentoring program when you get it up and running again.

Thanks for your consideration.

Best regards,

B.S.

Answer:

Sorry it’s taken so long to get back to you. Here’s the short answer, I never worry about how an agent “feels” about my offers or me, for that matter, that’s counterproductive. Next time you’re speaking to an agent, start the conversation with a question. Ask them this, “If you’re listing a property for sale, and you had one of these two offers to choose from, would you like the highest offer or would you like the one that’s going to close escrow?” Obviously, they would love to have the highest one close escrow. But, in today’s market that’s far from reality. There are just too many hurdles to clear from the moment the offer’s accepted to that closing that can screw up that deal. It’s not your job to educate experienced brokers and agents. But unfortunately, that’s exactly what you end up having to do. And this is exactly the reason why I place such importance and emphasis on you staying on top of the specific day to day changes affecting your target market.

40.5% of buyers could not secure a mortgage. 36.5% of buyers changed their mind. 5.6% of buyers did not have a down payment. 0.0% of owners decided not to sell. And a whole bunch of other ones ran like hell once they figured out how much they’d have to spend on fixing that house.

Do yourself a favor, stop worrying about all the other offers – cash or otherwise. Focus your attention on the numbers that you need to hit so you can secure a profitable deal. Stop listening to your mind giving you all the reasons and excuses why everyone is going to hate you. If I’ve said it once, I’ve said it a million times,
“your mind is not your friend.” – Vernon Howard.

Focus on providing a solid offer that you can stand behind and close on without hesitation. Make sure that you remind the agents you’re working with of the percentage of fall outs that are presently being experienced in the market due to all of the reasons that I’ve already stated. Over time, this is what will give your offers their strength and solidify your deals.

This may take a little bit of time and some effort on your part. But just like any other mental conditioning, it’s your job to consistently remind them of the nightmare of accepting a supposedly “higher, better” offer that will, more than likely, crash and burn, in exchange for your superior offer that WILL close escrow and secure them a commission check.

Piece of cake, right?

Best,
Tony

Posted on

Soliciting private money for flipping vs. buy & holding

Question:

Hi Tony…and thanks a million for this invaluable forum!

Got one for you about private lenders. I’ve started talking it up. I’m going to focus primarily on flipping in the beginning but I want to hold some as well once I get rollin. When I explain the dual focus some are asking the rate difference. I explain that the rate to retail is higher than holding on rentals. I’d like a better answer.

What should the difference be? If retail is say 9% what would long term be?

(if that was answered in your course…plz forgive me!)

Last one…should the Note provide the ability for the lender to convert if they like? It seems prudent to craft that in with friendly language along the lines of “we have the right to convert” so people know it’s possible from the outset and so I don’t have to go back and explain it once things are in motion.

One person said straight out…”I like the rate and security but aren’t crazy about it being short term.” I’m guessing that on occasion I’ll need to finance out retail money with different lenders who would be happy with less for a longer term. But it would be nice to convert people if I choose and/or if I need to because the property isn’t selling for one reason or another.

Did I say thanks?

Many, many, MANY thanks Tony.

-M.

Answer:

Okay, out of the gate let me just make one point very clear. When you’re trying to solicit money from people that have it, they’re motivation for lending it is as varied and different from one to the other as are grains of sand in the ocean.

You’re job is to attract the money based on the probability of a successful outcome. The two things that anyone lending money is typically focused on is:

1. The return ON their investment
2. And the return OF their investment
(the latter being the most important).

How you structure the notes (conversion) or the interest rates is solely up to you. What they will accept, you’ll soon find out, is solely up to them. I have found that what buys me the most leverage when wanting to skew those negotiations or numbers in my direction, typically have to do more with how good my deals are and how good I am at making them reach a happy and profitable conclusion.

I cannot, in good conscience, give you specific advice on what interest rate you should offer between short-term and long-term money, as I honestly believe this is a moot issue. Industry standards on this topic are clear and available for anyone who cares to look for them. Most investors know they can easily place their money with professional, respected hard money lenders like The Norris Group and earn an easy, effortless 12% on short-term and 9% on eight year financing.

I have found that the more geographically local the investor lender to my specific Target Market, the more familiar they are with my individual properties, my level of knowledge and experience, and successful track record, the more motivated they are to jump on my wagon and the stronger position I hold for negotiating. This typically becomes a “their money is chasing my deals” rather than the other way around.

I hope this helps.

Your friend always,
The Big Cheese
Tony
;D

Posted on

Banks not looking at offers less than 85% list price

Question:

Tony:
I am following your course more or less to the letter and made some good listing agent contact. I have to admit I am surprised how these guys are surprised to have me come to their office and just chit chat about general things rather than fly in saying I am an investor and need some good deal. I have never come into their office and said I was an investor and that really seems to take tension down a notch or two. Of the 3 I have met one has already asked me to come again for lunch and he was putting me on his 1 call list. I also have a couple of cash buyers and made a few offers. I am stoked!

One thing all the agents have told me though is the banks (fannie mae) won’t even look at an offer less than 85% of the mls list. The properties I am looking at are for the most part not the ones just on the MLS but older properties and have either been a BOM or had price reductions. Have you faced this “nothing less than 85%” threshold? I am going to keep doing what I am doing but not spend time on the fannie mae and freddie mac properties.

D

Answer:

D, I LOVE YOU! YOU’RE DOING A GREAT JOB! It’s wonderful to see when somebody gets it! It’s not that complicated, is it, D? It’s not like we’re reinventing the wheel here.

The 85% thing is real. However, so are the deals that fall between the cracks. The bottom line is this, all listings that do not sell during the initial listing period MUST be reduced until sold – NO EXCEPTIONS! No one at the lenders office owns this property personally. No one at the lenders office holding the title to this nonperforming dead asset gives a hoot about holding onto this pig longer than they have to, that property has got to be sold at some point. And that always occurs when the listing price is lowered enough to motivate someone to pay for it.

Now here’s the thing, every time an REO listing sells, what I mean by that is goes pending, and then falls out before the close of escrow, the asset manager’s as well as the listing REO broker’s motivation for liquidating that property increases at an alarming rate. When a deal falls out of escrow that’s the time that the REO agent and asset manager are most highly motivated to cut listing price and accept concessions to get rid of that property. And if anyone tries to tell you any different, they are full of crap.

You have to make a lot of offers at your prices, meaning, at prices that make profitable sense to you as an investor. Always respectfully, intelligently, and calmly explain to the listing agent or your buyer’s agent how you’ve arrived at your final offer price. Always remember that if an REO listing agent is hinting at the fact that they do not want to submit the offer on a Fannie Mae or Freddie Mac listing because it is not within the 85% of listing price AND you know that number will not work for you, it is important that you explain to the agent not only that that price doesn’t work for you but that you are still interested in purchasing that property once it is reduced to a reasonable listing price. Remember to always leave the agent with those words “I WILL BUY IT.”

One final note, please remember that all of these regulations, these 85% rules, these 90 day restrictions will all get kicked to the curb sooner or later. The problem is we never know how or when. Here is what I do and I suggest you do, stay the course. Ignore the chatter, be aware of these senseless stupid rules and regulations that they keep adding and removing faster than you can spell them. In other words, this market, if anything is fluid, ever changing and will eventually turn completely to our benefit as investors. And the only reason this will happen is because the lenders are completely motivated by greed and self-interest. This is the only thing that you can absolutely unequivocally rely on. These guys will hand us their butt on a plate when they finally realize that is what will put the most money in their pockets. How do ya like them apples?

Big Hug
Love,

Uncle Tony

Posted on

Investor funding falls through, now what?

Question:

How can I keep my credibility intact with REO agents when submitting offers if my investor decides for what ever reason not to fund a deal I was expecting him to cover. This could also apply to rehab contractors I suppose.

Is this just the risks that go with using equity partners?…Any thoughts….

-M.

Answer:

To minimize the possibility of destroying your relationship with an REO agent before you even get started, you MUST make sure that you’re investor/partners are solid and committed. One of the ways you can do this is to have a joint venture entity and bank account that they have committed funds to prior to submitting your first offer. However, no amount of legal paperwork or promises are going to hold someones feet to the fire that becomes consumed with fear over their inability to choose wisely. You must spend time with your fellow investors, especially if they’re new to the business, to make sure that they understand the reality of this business and the true profitability of your proposed deals.

The worst thing you can do to yourself is to get anxious and partner up with just anyone because they have a fat bank account. The responsibility of making good decisions falls squarely on YOUR shoulders. You’re the one that has to be aware of who you’re dealing with. You’re the one who’s responsible for your team showing up and doing what they have to do or at least being prepared with one of several back up plans.

If you’re going to hunt bears, you better have more than just one high powered rifle and one bullet. If not, when you’re head’s rolling around on the ground, and your body’s still standing…you’ll have no one to blame but yourself for being way too optimistic.

Posted on

Hard Money vs. Private Money

Question:

What’s the difference between a hard money lender and a private investor and does using one have an advantage over the other?

Answer:

Hard money lender – higher costs/fees, higher interest rate, tougher qualifying.

Private investor – Individual, typically no fees, better rates; longer term.

Posted on

Purchasing with an entity, no witholding tax

Question:

I’ve heard that if you buy using an entity, you don’t have to pay some great, big witholding tax (from California)?

Answer:

Questions regarding tax should be directed to your tax person, or attorney. I do not give legal tax advice.

http://www.ftb.ca.gov/forms/06_forms/06_593bk.pdf

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Exchange REO to another property to defer taxes

Question:

Is it possible to exhange an REO into another property in order to defer taxes and if so what would be the minimum time frame?

Answer:

You’re speaking of 1031 Exchange Rules. This is really a question for your tax person as we do not give any tax or legal advice.

However, that being said, it doesn’t matter the source of the property, whether it’s an REO or Short Sale, or owner-seller. Whether or not a property qualifies for 1031 Exchange depends on whether it complies with 1031 Exchange Regulations and your INTENT!

I suggest you do the research by checking with your tax person or the internet (such as the IRS website) for these regulations.

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Unpermitted room or addition

Question:

When a house has an unpermitted room or addition, does one still purchase it and how does one handle this situation?

Answer:

This is a complicated issue. Typically, you’d want all the square footage in the home to be permitted. However, it has to do with the quality of construction, compliance with building codes, if it’s structurally sound and safe, how it will affect your financing such as, whether your intention is to keep it and rent it and refinance it in the near future or whether your exit strategy is to flip it immediately and expect the buyer to get new financing, and whether the code enforcement office has already red tagged your house and wants you to tear down the illegal addition or if illegal additions are typical for your market.

Posted on

Precautions/Concerns with Condos

Question:

Do you write offers on condos and apartments? And what precautions/concerns does one have to take if you do?

-W.G.

Answer:

At this point in the market, I’m not making offers on condos because it doesn’t make sense in my market. I’m buying houses way too cheap.

Some of the things you want to watch out for when you are buying condos:

1. First and foremost is the percentage of owner-occupied units to rental units in the complex. In other words, how many units are occupied by owner-occupants and how many are rentals. You need to know if you’re buying a unit located within a nice, quiet, well-maintained building that reflects pride of ownership or whether you’re about to buy a unit within a building full of low income subsidized tenants which is the equivalent of a zoo. This also affects your financing, whether you’re going to keep it and refinance it or flip it.

2. Homeowner’s Association dues may be excessive. HOA dues are tied to expenses and reserves for major repairs such as replacing the roof in the future and will only increase over time.

3. Location of the unit within the complex. For example, in high rise buildings, the higher the unit’s location, meaning the higher floor the unit is located on such as a penthouse, the higher the value. In smaller buildings and townhouse type units, end units with one common wall are typically valued higher than interior units with more common walls. Whether they have views of the ocean or whether they have views of the back of the building parking area affect the value. Everything affects the value. You’re basically buying an apartment.

4. Whether utilities are master metered, or if they’re individually metered to each unit and whether you have electric as well as gas or if it’s just electric.

5. Type of parking facilities that come with the unit whether it’s an actual garage or a subterranean parking structure, how many parking spots come with the unit (one or two), whether they’re side by side or tandem – all of these factors affect the desirability and ultimate marketability.

6. Whether the building is actually converted as a condo or co-op ownership type.

As far as apartments go, I assume you mean apartment buildings and this is considered a whole other animal than single family’s individual condo units. And if that’s correct, depending on the size of the apartment building (meaning the number of units) they are typically valued on either net income and Cap Rates (capitalization rates) or Gross Rent Multipliers (GRM), or a combination of both. There are many factors that go into calculating these values and they include but not limited to:
• Unit mix (as in number of bedrooms & baths)
• Square footage
• Year built of the building
• Quality of construction
• Desirability of location
• Amenities (pool, Jacuzzi, laundry facilities, etc.)
• Master or individually metered buildings
• Gated and security building