Author: GRLonergan

Rehab or Prehab for Retail Sale

Do you want to put in all the work required to totally renovate a house to resell or would you like to repair only the essentials and make a few cosmetic changes? Whether you choose to rehab or prehab, there’s money to be made when you market your property right.

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Several factors must be considered when marketing a rehab or prehab, fixing only critical problems inside and making the property attractive on the outside.

  1. Identify your target market.
  2. Create your marketing strategy for resale, including positioning the property correctly.
  3. Show your distinguishing style on the inside.
  4. Make the outside attractive.
  5. Double check the details.

IDENTIFY YOUR TARGET MARKET

If you are rehabbing, you are probably targeting the traditional home buyer or investor who wants to buy and rent. Depending on the price, you might specifically target deal hunters.

For a prehab, you could have three markets – deal hunters, flippers, and remodelers.

CREATE YOUR MARKETING STRATEGY FOR RESALE

Price is king and positioning is queen!

Obviously you need to check comps in the area so you can buy and sell at a competitive price. Comps also may provide insight into whether rehabbing or prehabbing makes more sense.

If you are rehabbing, you’ll need to position the house as the best move-in ready option available. Prehabs must be positioned as the best deal on the market for someone who doesn’t mind doing a little remodeling to make the house their own at the best price. This strategy opens the market to real estate investors.

Position with professional pictures! Cell phone cameras simply won’t do your masterpiece justice.

Mention renovation loans in your advertising if you are prehabbing. The projected renovation costs can be factored into the overall loan amount if the prospect qualifies. This can help prospective buyers understand their options more clearly.

Create a resale marketing strategy that fits your style. A Realtor® likely will encourage you to advertise or show the property only after it is 100% complete. Waiting can cut into your profits, however. Every investor wants real estate to sell fast, so some begin the marketing process on the first day the property is acquired – especially when the target buyers want to complete some of the renovation themselves.

Should you incorporate a few upscale popular features? It depends on the neighborhood and what the buyers expect. Rather than focusing 100% on sticking to a  budget when making these kinds of decisions, always consider buyer’s preferences. House renovations that are based solely on a budget can become costly if the house doesn’t sell at the right time! It may take a granite counter top, for example, to catch the eye of the right buyer in your geographic market.

If you’re selling to an investor, verify their funding source before you sign a contract.

SHOW YOUR DISTINGUISHING STYLE ON THE INSIDE

First, have it cleaned by a professional. Clean sells. Clean both inside and outside the windows as well as the window sills so prospects will get a great view rather than being distracted by bugs and dust! Clean out the closets and other storage spaces. Most people want storage space, so make yours look as spacious as possible. Be sure all pet hair and pet odors are gone. (Prospects can smell someone else’s pet when they walk in the door.)

Feature the uniqueness of your house. What makes it stand out from the rest? You may want to add your personal style to distinguish it from all the neutral houses they have seen. (Don’t go crazy! Beware of flashy paint color, for example. I tried to sell a house that featured burgundy walls several years ago and had no takers until I painted the walls a more popular color. Lesson learned.)

A little staging in the living space, kitchen/dining, and master bedroom can go a long way toward helping your potential buyers visualize what it could be like to live in the house. A simple, affordable example is to use attractive bedding. It doesn’t have to be expensive; you may want to purchase a used bedspread, for example. Be sure everything looks tidy. No clutter!

MAKE THE OUTSIDE ATTRACTIVE

Make a good first impression with curb appeal. Follow a landscape plan even if it is a simple one. For example, incorporate a flower bed or a few well-designed flower pots, remove all the weeds, and maintain the lawn. Trim trees if they are obviously overgrown. Place trash and recycle bins out of site. The bottom line is that you want the property to look attractive and clean.

DOUBLE CHECK THE DETAILS

Be very choosy about your contractors and pay them well if you wish to build relationships for future real estate projects. Only accept quality work, regardless of whether you are doing a rehab or prehab.

Double-check ALL the work. It’s not about trust; it’s about your investment. You have the final responsibility for Quality Control.

SUMMARY

There’s more than one way to fix and flip a home. You can choose to completely rehab the house or prehab by repairing only the most essential areas and sprucing it up. Either way you must carefully choose your target market and use strategies to attract them to your property so everyone wins!

Gaylene Rogers Lonergan, Board Certified Commercial and Residential Real Estate Attorney | 214-503-7509 | lonerganlaw.com | Escrow2@lonerganlaw.com

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017-19. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Finding the Best Real Estate Investment Location for You

Finding the Best Real Estate Investment Location for You

Every serious real estate investor is looking for the simplest way to make the greatest profit, which depends highly on finding and selecting the real estate location that is highly desirable for your target customers. This article will guide you through selection considerations, provide key information on financial calculations, and point you to resources for finding the best real estate location for you!

As in any other business, supply and demand are extremely important to a real estate investor. Smart investors focus on securing properties that are in-demand but are in low supply to the target customers. This strategy allows your price points to be high and vacancy rates or time on the market to be low, which delivers the greatest profit.

Investing in the property that is right for you will be more efficient by following these criteria.

SELECTION CONSIDERATIONS

  1. Choose your investment strategy, such as flipping single-family homes, renting multi-family real estate, or wholesaling.
  2. After determining your general market (Dallas TX Area, for example), narrow your search to the neighborhood that offers properties that match your investment strategy. If you are searching for rental properties, for example, you need to know the cash on cash return, expected income (search com), occupancy rate (check out mashvisor.com) and capitalization rate (typically referred to as “cap rate”).
  3. Consider population trends. If the population is on an upward trajectory, find out why. Contributing factors may include job growth, housing affordability amidst the growth, and personal preferences such as topography, weather, nearby shopping options, parks, and walking trails.
  4. Research tax rates, including high income taxes and high property taxes (search the local government website).
  5. Look for safe neighborhoods. You can see a visual of the safety ratings of any neighborhood at com. I also suggest you consider driving the neighborhood at different times of the day and night, checking with the local police, and speaking with residents.
  6. Get information about recorded covenants, conditions, and restrictions (CCRs) from your closing attorney or real estate agent. These rules outline what residents of the community may and may not do, such as allowing or not allowing property owners from renting their property! If the property you are considering is a part of a Home Owners Association (HOA), find out if property owners are required to pay dues and if so, how much the dues are annually.
  7. Learn about the local schools. Every family with school age children is looking for the best school possible. There are several websites that offer information under the search term “find the best school in my area.”
  8. Do residents in your target neighborhoods typically use public transportation? If so, what means are available and how accessible are they to the neighborhood?
  9. Check out local laws such as property taxes, public services (water/sewer access, police and fire station service, trash pick-up, etc.) and any regulations specifically affecting real estate investors.

After selecting your target neighborhood/s, look for the best properties that meet your criteria.

RESOURCES

Here are a few resources that have been helpful to many other investors.

  1. Check the Multiple Listing Service (MLS), which lists properties for sale by multiple real estate brokers around the US. A simple way to do this is to search com.
  2. Drive the neighborhood to find “For Sale” signs and follow up with the realtor listed or the owner if the property is For Sale By Owner (FSBO).
  3. Tell everyone you know that you are searching for a certain type of property. Clearly and concisely describe your desired property to seek referrals and leads. Write a one-liner to share with people who may be able to help you which includes the neighborhood, the price point, and the type of property you wish to purchase. Paint a picture for those who may be able to refer you to properties. “I’m looking for single-family homes that have approximately 1,500 square feet in the Fair Park section of Dallas for $120,000 or less” is one example.
  4. Use traditional and updated marketing to bring sellers to you. Checking the classified section of the newspaper is an example of traditional marketing whereas having a blog with a large following is one updated marketing strategy.
  5. To simplify the process, hire a real estate agent that works with investors. Typically this would be a realtor who has personal real estate investment experience as well as experience working with real estate investors, is happy to make multiple offers (in the same day, if needed), and is local to the geographic area you have selected. Obviously any realtor you choose to work with needs to have a great reputation with other realtors and is known to be a person of integrity.

Once you have located several prospective homes, you need to know which one to buy.

FINANCIAL CALCULATIONS

Analyze and compare your prospective investment properties to determine income potential for the different properties you located by using these calculations.

  1. Net operating income – Net operating income (NOI) is a calculation used to analyze real estate investments that generate income. Net operating incomeequals all revenue from the property minus all reasonably necessary operating expenses. NOI is a before-tax figure that excludes principal and interest payments on loans, capital expenditures, depreciation and amortization.1
  2. Cash flow – income minus expenses (as described above) including loan costs (usually a mortgage)
  3. Depreciation – income tax deduction allowing recovery of the cost of purchased property or assets used in the business
  4. Rent/Price Ratio – median price of homes in your desired neighborhood divided by the median annual rent. A lower price to rent ratio is preferred.

CONCLUSION

Business investment is about profitability. Real estate investing requires you to be extremely careful about selecting the type of investment and its location then actually finding options that meet your criteria. After running the numbers on multiple properties, you can make a good business decision as to which real estate property is worthy of your investment dollars!

Gaylene Rogers Lonergan | Board Certified Residential and Commercial Real Estate Attorney | The Lonergan Law Firm | escrow2@lonerganlaw.com | 214-503-7509

Call 214-503-7509 and ask for Moe to schedule a consultation.

Resources

1Investopedia: “Net Operating Income”, (2018, Dec. 12). Reviewed by Will Kenton.. https://www.investopedia.com/terms/n/noi.asp

Retrieved 12/26/18

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017-18. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Planning for a Home Inspection in Texas

You have cleaned outside and inside to make your house attractive to buyers. You even may have  gotten rid of a few things. But don’t forget to prepare for the home inspection.

Whether a buyer is planning to live in the house or rent it, he or she will need to be assured of which systems work and which don’t. If the buyer isn’t happy with the outcome of the home inspection, they may cancel the contract or ask to renegotiate the price, as the home inspection is a contingency in most contracts.

One of the first actions to be taken once a contract to sell the property is signed is that the seller must provide a Seller’s Disclosure of the property condition in writing to the purchaser.

“Seller disclosures in Texas are governed by Texas Property Code Section §5.008. That statute provides: ‘A seller of residential real property comprising not more than one dwelling unit located in this state shall give to the purchaser of the property a written notice’ of material defects in the property. The statute asks sellers to use the disclosure form developed by the Texas Real Estate Commission (TREC), which is a state agency charged with generally overseeing the real estate market.

“This form must be delivered to the buyer ‘on or before the effective date’ of the property purchase contract. In other words, you cannot have the buyer sign the purchase contract and become bound by it, and then a week later, hand the buyer a disclosure form saying that the electricity in the house does not work.” 1

Failure by the seller to accurately disclose known property defects can result in serious legal issues for the seller. A seller can be sued for misrepresentation, fraud, and even violation of the Texas Deceptive Trade Practices Act for intentional concealment of known property defects that go undisclosed.

I have consulted with numerous homeowners over the past several years who were sold properties, sometimes by investors, only to discover that serious property defects were covered up cosmetically and not disclosed. Such actions by sellers have often resulted in extended litigation, costing both sides a great deal of money.

The inspector’s job then is to report all deficiencies and/or safety violations according to code, so everything will be inspected, not just the items identified in the Seller’s Disclosure of property condition.

You may expect that the foundation, shingles, gutters, toilets, plumbing and electrical will be checked. But don’t forget that the not-so-obvious will be reported, such as cracks, water stains, broken windows, and improper venting.

To be competitive, you’ll want to prepare for the home inspection by following these guidelines.

  1. Sometimes inspectors are early, so be prepared . . . you probably don’t want to see someone poking around outside your bathroom window while you are brushing your teeth.
  2. You know to clean the house; however, to make it easy for the inspector, you may want to go the extra mile, such as cleaning or changing filters, replacing batteries in smoke detectors if needed, replacing torn screens, and trimming trees near the roof.
  3. Even if you have moved prior to selling the home, the utilities must remain connected so the dishwasher, furnace, stove, furnace, A/C and receptacles can be checked.
  4. Ensure all pilot lights are lit.
  5. Make access easy to the A/C, furnace, water heater, garage, basement and attic. This includes removing brush, snow, trash cans, and the like. Provide the garage remote/key as well as keys to any additional buildings. Electrical boxes and sprinkler systems must be available for inspection. Unlock gates.
  6. If you have replaced the roof, furnace, A/C or other item, fixed a leaky faucet, or have proof of an insurance claim, give the inspector the documentation.
  7. You and your pets should leave the house for at least three hours.

If there are any items that do not pass inspection, you must decide whether to make the repairs and not take a chance on losing a prospective buyer or try to negotiate with a buyer. For example, you may agree to fix some items or reduce the price of the home to the degree necessary for the repairs to be made.

Being prepared for the home inspection is an important step in the sales process and will give you an advantage in a competitive housing market!

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1Farkas, Brian. “Selling a Texas Home: What Are My Disclosure Obligations?” https://www.nolo.com/legal-encyclopedia/selling-texas-home-disclosure-obligations.html

References

Farkas, Brian. “Selling a Texas Home: What Are My Disclosure Obligations?” https://www.nolo.com/legal-encyclopedia/selling-texas-home-disclosure-obligations.html

Gordon, Lisa (2017, March 14). “Selling Your House? Better Prepare for the Home Inspection”. https://www.realtor.com/advice/sell/prepare-home-inspection/

Weintraub, Elizabeth (2018, August 24). “How to Get Ready for a Home Inspection”. https://www.thebalance.com/get-ready-for-a-home-inspection-1798690

Zillow’s Home Sellers Guide. “How to Prepare for a Home Inspection”. https://www.nolo.com/legal-encycopedia/selling-texas-home-disclosure-obligations.html

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2018. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Gaylene Rogers Lonergan | Board Certified Residential and Commercial Real Estate Attorney | The Lonergan Law Firm | escrow2@lonerganlaw.com | 214-503-7509

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CALL US AT 214-503-7509. ASK FOR MOE TO SCHEDULE A CONSULTATION

 

Incorporate as an LLC to Protect Your Personal Assets and Reduce Your Risks

If a lawsuit were filed against your real estate business, are you sure your personal assets would be protected?

      

“Consider the situation in which the owner of an investment property leases it to a tenant who decides to throw a big party, during which one of the tenant’s guests falls over a balcony. In today’s legal climate, it is quite possible that the injured guest would pursue a claim based on the ‘unsafe condition’ of the rental dwelling. More often than not, the owner would be named in any lawsuit resulting from the incident.

“If that rental property were owned by a real estate investor individually, he or she would be named in the lawsuit and would have to defend his or her personal assets from the plaintiff’s claims. In contrast, if that property were owned by an LLC, the owner’s risk exposure would be insulated by the protection of the company, leaving only the assets owned by the LLC (as opposed to all of the owner’s personal assets) exposed to potential lawsuits.”1

As a real estate investor, you know you have a lot at stake. Incorporating as an LLC can provide numerous protections to help you preserve your personal assets and reduce other key risks that could cripple or devastate your business.

Here are six of the most significant benefits of incorporating as an LLC.

  1. Reduce Risk of Personal Exposure

If your business is incorporated as an LLC, your personal finances have a veil of protection against lawsuits and creditors. As in the illustration above, if you were to be sued in relation to a property you own, being incorporated as an LLC limits your personal liability. So rather than the lawsuit being aimed at you personally, it will be aimed at the corporation and only the corporation’s assets are exposed. And there is no shortage of potential lawsuits. If a fire were to erupt on one of your properties and spread other places, the corporate veil of the LLC would protect your personal assets from paying for the damages. A testy tenant could cost you untold amounts personally unless the LLC is in place, the title is held by the LLC, and the lease is with the LLC. If a tenant’s guest is harmed, a lawsuit could be pursued. There are many other examples but the point is clear!

  1. Protect Other Investments

If each of your properties is held in a separate LLC and a tenant sues the LLC, all your other properties are protected. In Texas, a Series LLC can also provide that protection without the necessity of separate LLCs being incorporated.

  1. Receive Tax Benefits

Perhaps the most significant tax benefit afforded to owners of LLCs is avoiding double taxation. “Since there is no separate LLC tax, the owner can avoid double taxation on both the rental income generated by the property and the appreciation in value of the property upon disposition. Moreover, the owner of a single-member LLC can deduct mortgage interest similar to a sole proprietor based on current IRS rules.”2

  1. Protect Against Co-Investors

If your real estate partner should die, become incapacitated, or oppose you professionally, your business risk would increase dramatically unless you have an LLC operating agreement in place. This document allows partners to determine the protocols for disputes or if one owner decides to leave the corporation.

  1. Improve Credibility

Having initials after your name that indicate an education level or certification carries a lot of weight! For the same reason, the term “LLC“ being a part of your company name demonstrates that you take your business seriously.

  1. Peace of Mind

Knowing that you have taken such a significant precaution to protect your personal assets by incorporating can allow you to relax a little better when your head hits the pillow!

Your personal assets need to be separate from your business assets in order to protect you and your family from any of the mishaps that can happen in business. Incorporating your real estate business as an LLC provides the necessary corporate veil to do just that. When each of your properties is incorporated separately, you have additional protection that may save your business should you be sued.

There is one warning, however. You must operate the LLC as a standalone entity with its own identity, i.e., separate bank account, separate books, and accurate paperwork. Otherwise you could lose the “corporate veil” and others could reach your personal assets. A lawyer can help you with advice on how to ensure you are protected.

Next Step

The Lonergan Law Firm, PLLC, can help you protect your real estate business by setting up your LLC. Contact us by emailing Escrow2@LonerganLaw.com or by calling us at 214-503-7509 and asking for Gaylene’s personal assistant, Moe.

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Footnotes:

1 Weaver, Jeff, Esq. LegalZoom.com. “Forming an LLC for Real Estate Investments: Pros and Cons”. https://www.legalzoom.com/articles/forming-an-llc-for-real-estate-investments-pros-cons. Retrieved 9/29/17.

2Weaver, Jeff, Esq., “Forming an LLC for Real Estate Investments: Pros and Cons”. https://www.legalzoom.com/articles/forming-an-llc-for-real-estate-investments-pros-cons, LegalZoom.com, January 2014. Retrieved 9/29/17.

RESOURCES

Esajian, J.D., “Five Mistakes to Avoid when Forming an LLC”,   https://www.fortunebuilders.com/forming-a-real-estate-llc/, Fortune Builders. Retrieved 9/29/17.

Incorporate.com., “Incorporate a Real Estate Company or Form an LLC”.   https://www.incorporate.com/real_estate.html, The Company Corporation. Retrieved 9/29/17.

Law Inc., “Why LLCs are Crucial for Real Estate Investing.” https://www.lawinc.com/llcs-crucial-real-estate-investors/, LawInc.com, July 26, 2017.  Retrieved 9/29/17.

Merrill, Than, “A Beginners Guide to Starting LLCs for Real Estate: Part 1.” https://www.fortunebuilders.com/beginners-guide-starting-an-llc-part-1/, Fortune Builders. Retrieved 9/29/17.

Weaver, Jeff, Esq., “Forming an LLC for Real Estate Investments: Pros and Cons”.   https://www.legalzoom.com/articles/forming-an-llc-for-real-estate-investments-pros-cons, LegalZoom.com, January 2014. Retrieved 9/29/17.

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017-2019. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Gaylene Rogers Lonergan | The Lonergan Law Firm | Escrow2@lonerganlaw.com |

214-503-7509