�ݺ�ߣ

TREIA
Tiffany Elder, MBA
8/30/2012
www.tiffanyelder.com
www.coralbuilt.com

 The information in these pages is for
informational purposes only. The Author makes
no representations or warranties, either express
or implied regarding this information. While
every effort has been taken to ensure the
accuracy of this information, the content is
naturally subject to change. The reader agrees
that in no event will The Author be held liable for
any direct, indirect, or consequential damages
arising out of action taken, or not taken, related
to the information included herein.

 Former software engineer
 Realtor & Managing Broker of Paradigm
Properties
 NC Licensed General Contractor
 Full-time in real estate since 2003
 Investing activities include
rentals, wholesaling, rehabbing, historic
restoration, condo conversion, shortsales, new
construction (residential and commercial) , tax
credit projects, private lending

Rehabbing
 How to Finance
 How to Pick ‘em
 How to Fix ‘em
 How To Sell ‘em

 Bonus: Historic Restoration

 No pics…just knowledge!

 What’s your goal?
 Rehab and resell
 Rehab for rental
 Level of repair you’re willing to take on
 Risk versus reward tradeoff
 Financing source
 Determines the type/condition of the property
you will buy

This comes first!!!
 Cash
 Conventional financing (“livability rule”)
 Floor coverings, windows, etc..
 Can limit the properties you can buy
 Advise your lender of your plans (short-term)
 Higher rate versus points
 Hard money lenders/private lenders
 Self-directed retirement accounts
 Commercial lenders
 ???

 Removes the limitations of traditional financing
 Leverage your retire accounts to fund deals
 More stable returns
 Secured by real estate
 Faster retirement account growth
 Must follow SEC guidelines
 No self-dealing allowed
 Must use a qualified self-directed account
custodian

 Roll funds over to a self-directed IRA
custodian to fund your account
 Determine the type of investment
 Send a Letter of direction to custodian
 (Custodian will not advise you during the
transaction. They only manage the account)
 Purchase/Fund the deal

 Best candidates: Individuals/friends with funds in
retirement accounts or IRAs that are losing value
 They serve as your “bank” and you pay them
interest.
 Depending on the type of account used, the
interest they receive may be tax free
 Same process as for your personal self-directed
account, but…
 Always get proper insurance
(renter/vacancy/fire/GL/etc…)and record the
deed of trust/promissory note

 Your purchase price is 50k
 15k in repairs
 5k misc. costs (closing costs, utilities, etc…)
 ARV is 100k
 Structural repairs needed, therefore conventional financing won’t work
So…
 You borrow 70k from your private lender at 10% for 1 year
 Secured by the property at a safe LTV
 After completion and refi/sale, your “bank” make would not s 7k and you
are left with 23k equity in a deal that you would not have been able to do
otherwise
 WIN-WIN is important
 Higher risk deals require a higher return for the “bank” and vice-versa.
 Use funds for residential, commercial, land development, company
purchases, etc…
 Avoid prohibited transactions and self-dealing

 Wholesalers
 FSBO
 County sales
 Realtors/MLS*
 Craigslist*
 Newspaper*
 Pre-foreclosures

*Look for key terms (handyman special, needs
work, hidden gem…)

 Ugly homes in pretty neighborhoods
 Homes in need of updating/cosmetic repair
 Desirable location (even if it is a lesser home)
 Close to shopping/amenities
 Strong school district
 Path of revitalizations
 Tax-friendly districts
 LOCATION, LOCATION, LOCATION
 You need to be where buyers/renters want to live
 ???

 Functionally obsolete
 Walk through bedroom to get to kitchen
 5 beds/1 bath
 Anything that sticks out like a sore thumb
 Extensive structural work (unless you have the stomach for it)
 Undesirable location (harder to retail)
 Near utilities/railroads
 Far from conveniences/amenities buyers want
 Weak school district (especially for larger homes)
 Very busy streets
 “Weekend additions”
 Flat roofs (unless you are familiar with these)
 Steep driveways
 Environmental challenges (oil tanks, lead paint, asbestos, etc…)
 ???

 County property/tax sites
 Zillow/Cyberhomes/Trulia/Tota View
 Google maps
 Drive-bys (know your competition)
 Realtor CMA
 Proprietary tools (CRS, etc…)
 ???

Formula #1
(ARV*70%)- rehab costs – 5k = max purchase price
BUT don’t miss out on formidable opportunities
just because they don’t fit this formula.
Formula #2
ARV-rehab costs-profit-10% of ARV =max
purchase price
(10% covers brokerage fees, soft costs, buyer CC,
etc…)

ARV = $150,000
Home needs 20k in repair

Formula 1:
 Max purchase price =
(150k*70%)-20k-5k =$ 80,000
Formula 2:
150k-20k rehab-20k profit-15k = $95,000

Investigating these will help to ensure that your estimated costs are
on target:
 Inspections (home, pest, etc…)
 Repair estimates
 Violations/lis pedens against the home
 PRIP violations
 Flood zone
 Zoning (especially in multifamily properties)
 Permitted use
 LOCAL Historic district (GIS)
 Unpermitted work
 Consider taking state home inspector’s class if you plan to rehab
often
 ???

Points to focus on in your rehabs:

 Structural and Systems
 Kitchens and baths are key
 Curb appeal and first impressions count (15 second
rule)
 Give it character
 WOW items (focus in a few…buyers won’t remember
all of them)
 Learn the norms in the area and make it slightly
better
 BUT …Don’t overbuild

 Build your team
 GC versus Handyman
 Size of the project (NC $30,000 threshold)
 Permits
 Multiple “parts” to the project
 Your experience
 Hands-on vs. hands-off
 Don’t let cost be the decision-maker
▪ Contractor cost
▪ Contractor experience and supplier discounts
 REMEMBER…
 Your time is valuable
 You get what you pay for

IF you choose to work with a contractor:
 Get references
 Check license status
 Check insurance (call yourself)
 Work agreement in writing
 Lien waivers (you’ll need this when you sell)
 EPA RRP Certification

 Habitat stores
 Large discount suppliers
 Surplus Warehouse
 IKEA
 Historic salvage warehouse
 WindowWorld
 Local investor references (TREIA, etc…)s
 ???

 Beware of tradesmen that tell you your project
doesn’t require a permit.
 Check with the city/county/municipality if you aren’t
sure.
 Certain items require permitting
 Plumbing, electrical, HVAC, decks, structural
 $ amount of project may require a permit
 Not pulling a permit can cost you later
 When the county inspector drives by and notices work
being done onsite.
 When your buyer’s Realtor/ home inspector does their
research.

 Pre 1978 housing requires additional attention when renovating
 If you are disturbing an area greater than 6 sqft of the interior of
the house or 20 sqft of the exterior of the house
 You must give a copy of test results to homeowner or tenant with
in 30 days of test.
 You must give the homeowner or tenant a pamphlet advising of
the hazards of lead base paint. They must sign in recognition of
pamphlet.
 You must keep documentation of test in file for 3 years.
 You must be a certified RRP Renovator to oversee the removal.
(Make sure your repairman/contractor is certified).
 Follow the rules (these apply to landlord/maintenance work too)
 Up to $30k fines PER DAY
 IF YOU WILL REHAB OLDER HOMES REGULARLY, GET
CERTIFIED

FSBO
 Pros
 Costs less
 Works well in high-demand areas
 State disclosures still required
Realtor
 Pros
 More visibility (Realtors, buyers, and several online
venues through MLS)
 Assistance with the negotiations and closing process
 Good cop/bad cop filter

Be aware of changes in financing
 90 day FHA rule
 Verifying your repairs for your buyer’s lender
Be aware of limitations at time of purchase
 Deed restrictions
Make it appealing to buyers
 Quality work
 Incentives
Make it appealing to Realtors
 Good condition
 Incentives

 Buy right (make your money when you buy)
 Price to sell
 Keep landscaping in order while on the
market
 Use safe numbers
 Conservative estimates for resale
 Exaggerated estimates for rehab costs

 Renovate the home to your personal tastes
 Overbuild for the area
 Stray from your budget (make tradeoffs)
 Overlook the small stuff (switch
plates, knobs, etc…)
 Forget about curb appeal
 Forget to consider soft costs
(utilities, insurance, buyer CC, prorated
expenses, etc…)

 Tax credits
 30%
 20%/20%
 To qualify (for income-producing property)
 Contributing home must be in a NATIONAL historic
district
 Minimum rehab = adjusted basis of the property
 MUST follow the Secretary of the Interior’s Historic
Restoration Guidelines
 Must follow hold-time requirements
 Visit NC State historic preservation website for
more info

 Qualify the property
 Application
 “Before” photos
 Project description
 Fees
 Rehab
 Finalize application
 “After” photos

 Vinyl siding
 Non-conforming replacement windows
 Removing plaster
 Changing floorplan in main rooms
 Changing exterior on street-side elevation
 Note that not all project costs are eligible for tax
credits
 New construction
 Landscaping
 Etc…

 $30k purchase price (assume purchase price =
adjusted basis) , $30k renovation, $5k misc.
costs
 $100k ARV
….
 $65k total project cost
 40%*30k renovation costs – $12k tax credits
 Realized project cost after tax credits= $53k

 You have a…
 100k home with only 65k invested
 35k equity
 $750/month rent
 $500 PITI

 =$3000 annual cashflow
 $12,000 tax credits
(Historic tax credits can minimize or eliminate your
tax bill! Chat w/ your CPA for restrictions)

 $50k purchase price, $125k renovation
 $325k ARV
….
 $175k total project cost
 40%*125k renovation costs = $50k tax credits
 Property rented for $2100/month
 PITI = $1200 per month

 Cashflow = $900/month ($10,800 annually)
 Equity = $150k
 $50k in tax credits

�ݺ�ߣ

SMART Real Estate Investing

More Related Content

SMART Real Estate Investing

Editor's Notes