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Title Insurance and Why You Need It

Title Insurance and Why You Need It

What is Title Insurance?

Buying an investment property is one of the biggest purchases anyone can make. To protect the investment from tangible, physical damage like fire, storms or vandalism, hazard insurance is often purchased. What if mistakes are made related to the legal ownership involving the property being purchased? This is where title companies and title insurance come into play. While hazard insurance is easy for most of us to understand, title insurance is often an afterthought, as it occurs automatically as part of every transaction at a title company.

If you are new to real estate investing, you may not be completely aware of why you close at a title company in the first place. Also, there are many investor programs and seminars out there that discuss acquiring real estate without stepping foot into a title company. Many of these “no money down” strategies can create enormous problems for investors, the most important one is losing money! Before we spend time addressing why you should purchase title insurance, let’s make sure there is a thorough understanding of what a title company does.

Value of a Title Company

A title company is a neutral third party that assists in the conveyance (or transfer) of ownership between sellers and buyers of real property. Title companies make sure that the title (proof of ownership) to a given property is legitimate, and free and clear of all liens and judgments before a transaction is closed. Title companies offer insurance on the title to the buyer (called an owner’s policy) and also to the lender (called a mortgagee’s title policy) if the property is going to be financed. These title insurance policies ensure there are no other claims against the property, for example, by other family members or heirs, or by vendors who may not have been paid by the seller of the property for work performed.

A Real-World Example

Consider the following: You buy a house that is deeply distressed.  You execute the documents, money changes hands, and you take possession of the property. Two months later, an heir to the property has their attorney contact you stating they have legal rights to the property and are going to sue for possession. Maybe this happened to be from an estranged sibling of the seller, who is still entitled to their share of the property. You are blindsided by this.

Scenario A:  You closed this transaction by getting the deed to the property conveyed to you directly by this seller or someone who claimed to be the owner of the record, without closing at a title company. You trusted the tax records and thought no one else needed to be involved from the seller side. Also, you were super excited about the deal and just wanted to focus on getting possession. The seller was behind on their mortgage, and your plan was to catch up on the note and start making payments. You even gave this seller $10K for the deed to the property, as this was an incredible deal that you didn’t want to lose. Now you are in a situation where you are most likely going to lose money and/or the property. If you think this hasn’t happened before, think again. There are many stories out there similar to this one.

Scenario B:  You closed this transaction through a title company.  You call the title company who issued the policy and file a claim. At this point, the title company will handle the heirship issue, and you will either be getting money back or be allowed to keep the house.

Performing transactions without a title company can be a recipe for disaster. Not only can you lose all of the money invested and/or the property, but you may also be in a situation where you need to hire an attorney to defend yourself, potentially costing thousands of dollars in legal fees.  

While there are many federal regulations regarding real estate transactions, most real estate laws are governed by the states. Title companies understand not only how heirship issues are addressed, but also how liens and encumbrances to title impact a specific deal, based on the laws in your state. Relying on them is critical to having a successful transaction, and protecting you as an investor.

Conclusion

As a long-time private hard money lender in Texas, we have seen many title issues not get resolved in the closing timeframe of the buyer and seller. In fact, many may not get resolved without legal pursuit. However, doing all of the research to discover what is needed to effectively close a real estate transaction is what a title company gets paid to do. This is why closing at a title company and buying title insurance should not be a consideration, but a requirement in every real estate transaction you pursue in Texas.

Defining the Term “Real Estate Investor”

Defining the Term “Real Estate Investor”

There’s a lot of misinformation out there regarding real estate investors and what you have to do to be considered one. I don’t know why, but I think it may have to do with how real estate investing is portrayed in the media. So let’s clear up this confusion right now.

What A Real Estate Investor Is Not!

I recently watched a documentary about the 2008 market crash. In one of the segments, they interviewed homeowners who borrowed against the equity in their home, anticipating the value would go up so they could sell the house and make a profit. I’m sure you have heard stories like this and may even know people who did this.

In the documentary, these people were viewed as “real estate investors” who were speculating and ended up getting burned because the value of their home actually went down and they were underwater (owed more than the house was worth). Anyone not in the real estate business might believe these people are real estate investors, but this isn’t what those of us in the industry mean when we use the term.

For better or worse, this is how real estate investors are most often portrayed in the media. This, of course, is totally absurd. A homeowner is NOT a real estate investor. Your home, contrary to what you have heard, is not your biggest asset. In most cases, it’s your biggest liability. It pays you nothing, and in fact, can become a bottomless pit of money.

Now don’t think I have something against homeownership. I love home ownership. I just don’t think someone is a real estate investor simply because they purchased a homestead.

Also, “speculating” is not in the vocabulary of any successful real estate investor. By speculating, I mean buying a property with the expectation or hope that it will be able to be sold for a profit, usually due to positive market conditions, but doing so with the risk of a loss.

Furthermore, a real estate investor is not a handyman, painter, plumber, electrician, landscaper, or any other type of contractor. It doesn’t matter if you are one of these by trade or not; you should not be at your investment house fixing it up, making improvements to it yourself, or doing any type of work to it personally. Separate your day job from your investments.

What should you be doing? Focus on managing your contractor and finding your next deal.

So, What Is A Real Estate Investor?

As the saying goes in the real estate investing world, “you make money when you buy.” Therefore, a real estate investor is not a speculator. A real estate investor looks to acquire a property where value can be added, either by themselves or someone else, where there is equity and most importantly, where a profit can be made. Whether you are wholesaling, flipping, or renting property, if you are doing it for the purposes of making a profit, then you are a real estate investor.

If you are a Real Estate Investor looking for a hard money loan, contact the best in Texas today!

Top 10 Steps for Selling Faster

Top 10 Steps for Selling Faster

The goal for any investor, who is flipping a property, is to get in and out of the deal as quickly as possible at the price they want. 

There are many books on flipping. Rather than reading an entire book (or several books) on how to sell your property faster, I am going to list my top 10 steps you need to take to achieve this goal.

There are so many examples where investors skip one or more of these and completely blow up their deal. However, if you follow these, you will be in a much better position to sell your property faster and for the price you want. 

 

Top Ten Steps for Selling Faster

  1. Make sure your rehab is 100% complete before you market the property. This means you have done everything, including the final make ready so that it is clean and green. This means clean inside and out, with the landscaping and drive-up appeal looking great as well.
  2. List your Property on MLS – To get maximum exposure, you want to list the property on the MLS, preferably with an agent/broker that works your area. Discount brokers are generally a bad idea, as they have the potential to be unresponsive to buyers and their agents. You may have heard the saying, “You get what you pay for.” That totally applies to discount brokers.
  3. Photos – Before the property goes active on MLS, be sure all of the photos look good and you approve of them. You’d be surprised at the ones we see that still have a mop and bucket, cleaning supplies, etc., in a photo from the final make ready. Or, have some area of the house that looks dirty online. Don’t be the seller with that listing.
  4. Discuss the proper pricing with your agent, and be sure not to overprice the property relative to the overall subject’s market. This is a common mistake that will force an early price drop so you can ultimately get showings. If you get showings right away, that’s an indication that you are properly priced. If you don’t get showings right away, that is a strong indicator that you are overpriced. The market will generally tell you what the price needs to be based on other active listings (your competition) and recently sold comparable properties.
  5. Once it’s active on MLS and you start getting showings, make sure your agent gives you feedback from the buying side. It’s important to know what the market is saying. It may be something you can address quickly and maintain your pricing level. If it’s something out of your control (i.e., your property is on a busy street) you may only be able to address this through a price adjustment.
  6. If you have to lower the price, be strategic about it, and lower it to the correct amount. Large price drops don’t look good, and too many reductions in price can give a false impression of something seriously wrong with the property. That can make your property sit even longer on the market, forcing you to be more motivated to further lower the price to get it sold.
  7. When you get an offer(s), make sure your agent gets an approval letter from the buyer’s lender. This is often overlooked as everyone assumes that all buyers that submit offers are qualified. However, nothing could be further from the truth. Not getting this confirmation can end up costing you time and money, if the buyer has to back out of the contract because they were never approved to buy it in the first place.
  8. The best offer is the one that is the most qualified financially and will close on time. Usually, but not always, your first offer is your best offer. There are some exceptions to this that I address as it’s own topic here. Once you select the best offer, get ready for the inspection process.
  9. You are most likely going to get an inspection report from the buyer that has a list of everything they want you to do in order for them to close. While it may be frustrating to get this request, maintain your composure and focus on the right things. If you overlooked something major that any buyer is going to discover, you will probably need to get it repaired. Things like the roof, foundation, HVAC, hot water heater, etc., are big items that you can expect to see if they have any defects. Your agent will help you negotiate these items. It is always better to concede with some agreed-upon dollar amount, credited to the buyer, so they can repair the item(s) themselves, and you can continue to move to close. This will save you time, money and headaches. You don’t want to fix a bunch of items, only to have the buyer back out, and your next buyer request totally different things. Get these worked out with this buyer as best you can.
  10. Appraisal – Once you are through #9, one final remaining requirement is the appraisal. Access needs to be given to the appraiser, and if it’s on a lockbox, that makes the process easier. Once this appointment is set up, I encourage you to meet that appraiser at the property and give them a copy of your original appraisal, if you have one. This gives the appraiser valuable information that they can use for their own research. It helps them understand how the value was originally determined and hopefully arrive at or above that same value, depending on the market conditions at the time. If the value has been met, chances are you will be moving toward closing very shortly.

That’s it! Follow these steps and you will be on your way to faster sales.

 

Contractors – Setting Your Expectations

Contractors – Setting Your Expectations

When it comes to contracting work, there are three things we all want: good, fast and cheap. There’s also an old saying with real estate investors, “You can have any two of these.”

For those of you who don’t quite get it, this means if you want fast and cheap, the quality of the work is probably going to suffer. If you want good and cheap, it’s going to take a longer time to complete the project. If you want good and fast, it’s probably going to be expensive.

Many real estate investors, myself included, want to keep costs to a minimum. It’s natural to do this no matter how big or small the project. However, it’s important to keep in mind what you are ultimately trying to accomplish based on your investing strategy, so you can determine the level of work the project is going to require.

For example, if you are keeping the property as a rental, you may not require the same finish out as you would with a property you are flipping. If you are wholesaling the property, you may need to get an estimate for both rent-ready and full retail sale because your sale price is going to reflect the work required.

Once you know what you are going to do with a particular deal, you can get the appropriate contractor(s) to help you estimate the scope of work. Most do not charge for this but want to get the business. Keep this in mind so you don’t overuse someone. If you decide to wholesale full time and are not quite comfortable estimating the scope of work, you will need to work with someone that you can pay (a nominal amount) to work up a bid for you.

The Key Traits and Behaviors of a Good Contractor

A good contractor, in my opinion, is someone who:

  1. Is full time in their line of business (i.e., general contractor, electrician, plumber, foundation repair, HVAC, etc.)
  2. Has several years of experience (5+)
  3. Is conscious of the needs of his/her client
  4. Can effectively manage their money (or has someone do this for them)
  5. Has the ability to assess a real estate investor’s needs and can quickly put together the correct repair estimate or scope of work
  6. Can manage their client’s expectations
  7. Above all else, is honest

I know that sounds like a lot to ask for, but such contractors are out there, and you need to find them. How? Ask other investors in your network, and/or get referrals from reliable sources. A contractor who meets the criteria above is one who can give you an accurate assessment of the scope of work needed, along with the cost, and do so in a timely manner.

Once you find this contractor, they need to be added to your team, and you need to find two backups/replacements for them. Sometimes deals move fast, and you need an answer right away. You may not have time to get that particular contractor to the property.

Also, contractors can go bad. There may be changes to the people on their team, they may get overextended, or something else may prevent them from either showing up or doing a good job on your project. You get sideways with your contractor and decide–no more! Hopefully, you won’t experience this too many times before you find the right ones.

Once you get to a point where you have experience and have some projects under your belt, you will be able to keep solid, consistent contractors busy enough that they will take your call. And make sure to pay your contractors on time. You will then have added a key member to your team, and be on your way to having success.

If you are a Real Estate Investor, looking for a Hard Money Loan in Texas, contact us today!

Finding Wholesale Deals Part 3 – Direct Mail

Over time, the deals I have purchased with the most equity came from a direct-mail campaign. I could go on and on again here, but instead, let me give you a few quick examples:

Example #1: I once bought a deal for $100 that was worth $85,000. It needed $40,000 in work. With $45,000 in equity and $850/mo in rent, it was a great deal with multiple investing strategies available (could be wholesaled, retailed, or rented). I still have it as a rental.

Example #2: I bought another deal worth $190,000 for $56,000. It needed $63,000 in work. With $71,000 in equity, it made for an amazing deal. I sold it at full market price after I cash flowed it for a few years.

Example #3: I purchased a house for $13,000 that needed $48,000 in work. ARV was $125,000. I cash flowed this property for several years and then sold it for a nice profit.

There are books written on direct mail marketing. Therefore, the purpose of this blog is to illustrate the power of direct-mail campaigns, along with a high-level overview of how they work, and what it takes to have success with them. As you can see from the examples above, direct mail can be an extremely effective tool.

But, it’s important to note, that it’s also a time consuming and expensive method for finding deals. If you decide to execute a campaign, you will need to budget for the cost and make sure you can follow it through to the end. The goal here is to send enough mail, to generate enough call volume, to produce qualified leads that can be contracted.

Direct-Mail Campaigns

As it sounds, a direct-mail campaign involves sending letters and/or postcards in the mail directly to prospective sellers. You might think sending something just to say “We Buy Houses” is a waste of time because no one reads “junk mail,” right? Well, not everyone throws it in the trash. There is something about holding a physical letter or postcard that makes it personal and gets a seller’s attention. Some people do read such cards and will call you, at which point you will need to qualify the opportunity.

Consistency is the Key 

Direct mail requires consistency. It cannot be emphasized enough here that without consistency, you will NOT have ongoing success with direct mail. This means having a series of organized mailers intended to drive call volume from qualified sellers where deals can be made. Remember, it’s not a one-time event.

Before you can send any mail, you will need to get your list from a reliable source. Creating lists from tax records, MLS records, or simply buying lists from other service providers, is where you want to start. Once you have the list, you will need to narrow your criteria for what you are targeting (i.e., owned home for 20 years, specific square footage, year built, etc.).

The most effective way to implement a direct-mail campaign is to mail to the same group multiple times (four to five times) with a different message each time. For example, you might take a list of 5,000 (or any manageable number where you can handle the call volume) and set up a letter/postcard to go out every four to six weeks over the course of five to seven months.

Answer the Phone

Once your campaign is underway and mail is out the door, your phone is going to ring. Be sure your phone is charged and you are prepared to take the calls. Failure to be prepared here is going to cost you leads. Have a call sheet available with questions centered on determining the two most important things: The amount of equity in the property and the amount of motivation in the seller. If you have both equity and motivation, that’s a recipe for a great deal.

Conclusion

You will need to determine what your budget will allow in a direct mail campaign, as you will have better results with a larger volume of mailers. If you don’t have several thousand dollars to invest or the time needed to complete a five-month campaign, utilize the other methods such as driving neighborhoods and getting referrals.

 

 

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