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Top Five Things to Consider for Ordering a Land Survey

On more than one occasion, I have seen investors have to clean up a mess after closing that could have been prevented had they ordered a land survey. Unfortunately, most Real Estate investors avoid getting surveys. Why? They don’t want the added cost in doing their deal, they don’t believe surveys are that important, and land surveys can take time to get, potentially holding up their closing. In this blog, I discuss when you should consider getting one. But let’s cover some basics first.

What Is a Property Survey?

For those of you new to real estate, a survey is a graphical diagram used to depict the boundaries of a property and illustrate the exact amount of land that is owned. Surveys will show any easements or encroachments on a property. For example, if the neighbor’s fence is encroaching on your property or sewer lines run through it, a survey is going to reveal that. These issues can range from being insignificant, where nothing needs to be addressed, to serious and need to be resolved before closing.

What Issues Can You Experience?

Maybe your neighbor’s shed is inside your property line, or the in-ground pool was installed over the utility easement, or your driveway starts on your neighbor’s property, before connecting back to your property. All of these can present problems after closing.

What problems can you have? – Problems with your neighbors, problems making any improvements to the property, incorrect or skewed appraisal values – are just some of the things that could be avoided by ordering a survey prior to closing. While you don’t necessarily need to order a survey on every deal, you probably want to take note on when you might want to order one so you don’t experience any of these issues with your deal.

Top Five Things to Consider for Ordering a Land Survey

  1. The property is located outside a metro area or what we would refer to as “in the country.” This also applies to properties, not in platted subdivisions. If you are buying a property like this, you want to make sure that the boundaries are accurate and the amount of land included is what you are expecting. Also, you want to be sure there are no encroachments or easements that need to be corrected before you close.
  2. The property is on an old site or the existing survey on file is old. “Old” is subjective, but probably anything built before 1940 should automatically warrant getting a survey. It’s worth noting that even if the seller has the original survey from their purchase if the survey is older than seven years, the title company may require a new one in order to issue any additional survey coverage.
  3. The improvement is oversized for the existing subdivision (i.e., a McMansion). You may have seen these houses in some older, more established neighborhoods where original homes are being torn down, and new houses that take up a larger portion of the lot are being built. If you are buying a deal like this, be sure to get a survey to make sure any improvement is within the boundaries.
  4. The legal description is metes and bounds as opposed to lot and block. This is typically seen on older properties and/or properties outside a metro area. Metes and bounds can be very lengthy and contain reference points to mark the boundaries. If you see this in the title commitment, definitely get a survey.
  5. Utility easements don’t always warrant getting a survey. However, if there is a sewer line easement, you should get a survey to determine where the line runs on your property.

In addition to these five points, the fact is you may be required to get a survey if you are refinancing or selling and a traditional lender is involved. However, if the seller has a survey when you close on your purchase, you may not have to get a new one if the title company will accept it. Always ask the seller if they have one when you are contracting the house, but don’t make it a deal-breaker if they don’t have it. Just order one at the time of purchase and get the additional coverage (for a nominal fee) from the title company.

Five Costs Real Estate Investors Typically Forget

New (and even some experienced) real estate investors often think there is more money in a deal than there actually is because they are focusing on gross profit and incorrectly calculating their net profit.

For example, a house with a $100,000 ARV that needs $20,000 in repairs and purchased at $50,000, yields an average net profit of around $13,500. While the net profit may appear to be higher, as it looks like there is much more equity in the deal, let’s discuss why this is not the case.

There are five costs incurred at the sale of a property that goes into a formula we will use to calculate the net profit. These costs are:

  1. Seller’s Closing Costs: This includes the title company escrow fees, title insurance, recording fees, and any other title company costs.
  2. Carrying Costs: This would include utility ex­penses such as water, gas, and electric, as well as any interest expense if you borrowed money to purchase the property.
  3. Seller Concessions: If your buyer doesn’t have enough money to bring to closing, they can ask you, the seller, for some assistance. This assistance means they want you to pay for some of their closing costs and/or lender costs. Many lending products allow for up to six percent in seller concessions. Although a buyer will seldom ask for this high of an amount, just know that they can.
  4. Commissions: If you are listing the house on the MLS (which you should be doing), you are going to have to pay your agent or broker a commission. In most markets, six percent is the norm.
  5. Pro-rated Property Taxes: As a seller, you will have to credit the property taxes to the buyer for the current year up to the date of closing on the sale. So if you sold the property on May 31, you would have to credit exactly five months’ worth of property taxes to the buyer at the sale closing.

Keep these costs in mind when you are making your decision to buy a deal you are planning on flipping, and use them to determine what you are going to net at closing. Remember, your costs will vary based on the value of your deal, as well as how long you own it before it sells.

If you have Real Estate deal in mind and looking for an experienced hard money lender in Dallas, TX, contact us today or call us at 214.219.0360.

How To Get Stuck In Hard Money with 4 Rentals

Creating cash flow is one of the many benefits of building a rental portfolio. Just like starting any new business, taking it one step at a time, in the beginning, is important as you will make some mistakes and learn as you progress. Rental properties are no different.

If you are reading this you most likely understand the benefits of owning rental properties and how it is the most powerful tool for building wealth. However, before you decide to ramp up your portfolio at lightening speed, consider the following situation I have seen with many of my clients and what has prompted me to share this with you.

A Common Rental Scenario

Ready to take it to the next level, Joe buys 4 houses within a 45 day time period (with 2 different hard money lenders) and begins the improvements. Joe is building a rental portfolio and these were the first 4 deals he has purchased. Although he is part of a real estate investor training program that provides coaching and mentoring to real estate investors, Joe decides to do it his own way.

Because he is new, he doesn’t understand that buying this many at one time is going to prevent him from refinancing into a lower interest, longer-term, conventional loan (like you can get from Fannie Mae) as soon as his rehab is completed. Why? His limited experience has exposed him to risk that an underwriter is going to reject. The underwriter’s response to someone like this is – “Joe purchased too many properties at one time and we are not comfortable financing them as he has no experience in the rental business”.

The reality is, Joe was told by his lenders not to buy more than 2 properties and ended up being stuck in multiple hard money loans paying high interest for over a year. After a year (meaning after 12 months of what is called “title seasoning”) the level of perceived risk by most underwriters is reduced and Joe can try again. At this point, he is so frustrated with the ongoing process of getting a conventional loan (by going through this same process with 3 other lenders, only to experience the same rejection for the same reason) that he finally goes to a small bank who is comfortable with the risk and is willing to do a single portfolio loan with all properties under 1 note and lien.

However, instead of getting a 30-year note with a low-interest rate, they have a 15-year note with a much higher interest rate (cutting his cash flow in half). Also, the only reason this bank is going to finance Joe’s deals is because he has waited long enough, is creditworthy, and will base the financing off the value and not the purchase price (most small banks will not do a portfolio loan based on the value of the property until after 12 months). Had Joe tried this with the bank 2 months earlier, they would have either said no or would have based the loan on his cost (or value) whichever is less.

I think you get the point here. Be patient with your investing and take it one step at a time. Be sure to get approval from a conventional lender, or a hard money lender who works with multiple conventional lenders, and get their feedback regarding your financial situation and creditworthiness as a borrower. It’s not just credit score and income that determine your qualification. Your reserves and experience impact the number of deals you will be able to refinance at one time. These lenders will be able to tell you what you are qualified for in terms of dollars as well as the number of deals you can do simultaneously.

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