Thursday, March 31, 2016

how to finance raw land for sale. Team Thayer #realestate #realtor #housing #mortgage #homeloans #property #finance #oregon

The sale of raw land is made easier when the owner offers seller financing.
Getting financing for the purchase of raw land is the most difficult loan to get.
Buying raw land that has no improvements and getting a mortgage to finance your purchase requires an approach that is different than if you're buying a house. The most direct line of action is found in the locality of the land, meaning lenders and credit sources that know the area and are used to lending locally. Most major national financing institutions do not get involved in land loans. Begin your financing search by preparing your portfolio to include information a lender requests before considering a purchase loan, knowing that financing for raw land is the most difficult of loans to get.


Identify the land you wish to purchase and then contact the local governmental agencies to determine the zoning of the property. Get a recent land survey from the seller or hire a professional to develop one for you, as easements and access are vital to the value of the land. Contact the utility companies servicing the area the land is on and get an approximate price to install gas, electricity, water and the sewage systems necessary. Put all this information into your land portfolio.


Get a survey and any flood or hazard reports that are available regarding the land. Determine if a sales trailer or mobile home can be erected during the construction phase by speaking with your local zoning office.


Hire an architect to do a rough drawing of any improvements you wish to add to the land. Include the full architectural fees in your land portfolio. Speak with a general contractor to get a rough estimate of building costs, and include them as well.


Present your land portfolio to a local loan officer, together with your personal credit information to substantiate qualifying for a loan. The loan you are asking for is known as a “story loan” because its approval depends on the story you’ve developed as to why the lender should consider your purchase and plans.


Ask the owner if he’ll finance your purchase. Consider offering a substantial down payment with the offer, and show the owner your building plans and your schedule of completion. Most seller-financed land purchases are short-term and are replaced by a conventional mortgage loan when the building is complete.


  • Insist on a warranty deed and clear title to the land at closing.
  • Expect to pay a down payment of between 20 and 50 percent when applying for a land loan.
  • It may be possible to get a home equity loan on property you already own to finance the purchase of the raw land. There isn’t any risk to the lender, as the loan is secured by your developed real estate; the interest rate on an equity loan is typically higher than that of a conventional loan, but lower than that of a land loan.

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Fannie Mae’s Shrinking Mortgage Portfolio. Team Thayer #realestate #housing #market #news #oregon

Fannie Mae’s gross mortgage portfolio resumed its contraction in February following a rare month of expansion in January, according to the GSE’sMonthly Volume Summary for February 2016released on Wednesday.

The portfolio contracted at an annual rate of 27.8 percent in February, which translated to a month-over-month decline of more than $11 billion down to a value of about $337.2 billion by the end of the month.
In January, Fannie Mae’s gross mortgage portfolio experienced a rare expansion, increasing at an annual rate of 5 percent. With February’s contraction, the portfolio has now contracted in all but four months out of the last 67 months (since June 2010). The four months in which the portfolio expanded were January 2016, March 2015, January 2015, and December 2012. At the beginning of that stretch in June 2010, the amount of unpaid principal balance (UPB) of the loans in the portfolio was $818 billion.
According to a report from Urban Institute released last week which examined the GSE portfolio wind down under the FHFA’s conservatorship, the fact that Fannie Mae’s portfolio expanded in January “should not be an issue as the GSEs are reasonably close to the year-end 2016 portfolio goal. Relative to January 2015, Fannie Mae contracted by 16.4 percent, and Freddie Mac by 14.2 percent. They are shrinking their less liquid assets (mortgage loans and non-agency MBS) at close to the same pace that they are shrinking their entire portfolios.”
Fannie Mae’s gross mortgage portfolio contracted at an annualized rate of 16.5 percent for the full year of 2015 and is back on that pace for 2016 following February’s contraction. For the first two months of 2016, the portfolio has contracted at an annualized rate of 13 percent and the aggregate UPB of the portfolio at the end of February ($337.2 billion) was below the 2016 cap of $339.3 billion.
Fannie Mae's total book of business, which includes the gross mortgage portfolio plus total Fannie Mae mortgage-backed securities and other guarantees minus Fannie Mae MBS in the portfolio, increased at a compound annualized rate of 0.4 percent in February up to a value of about $3.098 trillion, according to Fannie Mae.
The serious delinquency rate on single-family loans backed by Fannie Mae declined by three basis points from January to February, from 1.55 percent down to 1.52 percent, its lowest level since July 2008. The number of loan modifications completed by Fannie Mae was nearly unchanged from January to February at 6,592 (compared to 6,599). For 2014, the monthly average of loan mods completed was 10,235. For 2015, the monthly average declined to 7,851.
Click here to view Fannie Mae’s entire February 2016 Monthly Volume Summary.
3-30 Fannie Mae graph Team Thayer

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Flip Houses By Getting Money from A Private Lender! Team Thayer #realestate #investing #flipping #fliphouses #housing #oregon

For some of us, it can be intimidating and downright awkward to ask for money. In the real estate business, however, leverage cannot be ignored as a way to generate much better and faster returns than using all “cash.” Have no fear, because private lenders WANT to hear from you, we want to lend to you, and we want YOU to make money, because that’s how we make money. Most savvy private lenders will ask for information that can help us determine whether financing your property is a good investment for us. You can speed up this decision, or underwriting process, by having certain things ready when you call to request a loan. In order to determine funding, a private lender may ask for the numbers on the deal, your investment portfolio, “skin in the game,” market knowledge, and your primary and secondary investment strategies.
Show Us the Numbers!
The most important number to an asset-based lender is the loan to value (LTV) percentage. Each lender defines “value” differently for these purposes, so it is important to ask whether the lender uses purchase price, appraisal value, after repair value (ARV), or a combination of these to determine the LTV. At Key Relations, we base our LTV on the appraised value of the property to be secured, and we also consider ARV when considering loans for a rehab. In addition to the value of the property, most lenders will ask for the financial projections of your property based on your planned investment strategy. Be sure to provide any pertinent information for your primary and secondary strategies, including all projected income and expenses, to include repair estimates, carry costs, market rent rates, sold comparables, net operating income, ROI, and everything else that factors in to your profit. The more detailed and precise you are, the better.
Investor Experience
Private lenders closely guard their level of risk on an investment, and one way to mitigate risk is to lend to experienced real estate investors. We want to know which markets you have experience in and which strategies you excel with. Having a prepared portfolio of your investing career can demonstrate a reduction in risk to a private lender. If you’re just starting out, that’s ok, too. Be prepared to tell us how you plan to mitigate that lack of experience, like bringing on an experienced partner or contractor, for example.
“Skin in the Game”
Would you invest in a deal where the sponsor is not contributing money? What’s to stop that person from walking away and leaving you with an underperforming property? Having some of your own money invested, or “Skin in the Game,” is important to show good faith to the lender that you believe in your deal. This does not always have to be in the form of a large down payment, and at Key Relations, depending on the LTV, we can provide funding for 100% of the purchase price. “Skin in the Game” could be a down payment, earnest money, equity from a cross-collateralized property, cash reserves for repairs and carry costs, or something else that is appropriate to your individual situation.
Market Knowledge
Comprehensive knowledge of your market is one way to overcome a lack of experience and is equally essential for experienced investors. Some things you should know about your market include micro and macro appreciation rates, major industries, major employers, median income, new permit applications, and businesses that are coming and going. Lots of valuable market research can be accomplished by a visit to your city’s Economic Development Council. Be sure to use your market knowledge when explaining to the lender why your chosen strategy will work in your market.

Private lenders want to know how you will repay your loan, so we need to know your primary and secondary investment strategies. The primary exit strategy is your plan to create value out of the property based on market demand. Will you fix and flip, buy and hold, assign, lease option, or something else? Just like smart stock traders that have two exit strategies, a stop and a limit, we want to know you have a secondary exit strategy. If things don’t go to plan, what is your secondary strategy? Will you refinance, sell, or do you have a contingency in the contract? Be sure to back up your strategies with market evidence like occupancy rates and average Days on Market.
We are dedicated to helping you get your deals funded, and we want you to succeed. Preparing the information a lender asks for ahead of time not only helps us speed up the evaluation process of your loan request, it should also elevate your level of confidence in yourself and your deal.
Team Thayer

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Tuesday, March 29, 2016

10 questions to ask a potential real estate agent or broker. Team Thayer #realestate #housing #market #news #oregon

1. What percentage of your clients are sellers (versus buyers)?
Agents who mostly work with buyers will have a different set of skills from those who primarily represent sellers. You want to make sure this person is an expert at knowing how to land a home in your desired neighborhood.
2. In which neighborhoods do you primarily work?
You want someone who can spout off neighborhood stats like a true local. Your agent doesn’t just need to know the market valuations in Eugene, Or, they also need to know the valuations for each specific neighborhood, from Oakridge to Cottage Grove.
3. Will I be working with you directly?
In other words, will your agent handle all aspects of the transaction or will they delegate some tasks to a sales associate or administrative assistant? A knowledgeable assistant can be invaluable, but you want to make sure you can connect regularly with your agent.
4. Do you work full time or part time as a real estate agent?
Many agents work part time — and that’s fine. But if you expect them to respond to your queries in a timely manner, it’s worth asking how available they can be when you have questions or want to tour a property — especially if your schedule isn’t very flexible.
5. How many home sales have you closed in my desired area?
Success counts. You want someone who has a proven track record of closing deals.
6. How many other buyers are you representing now? How many sellers?
Hint: The busiest agents often are also the most efficient.
7. Is your license in good standing?
You can check an agent’s certification with your state’s department of real estate. Many states provide this information online.
8. How many years of education and experience do you have?
Experience and continuing education typically make for better agents. And it doesn’t hurt to ask if they own their own homes: A Trulia Trends study shows that 85% of brokers and agents are homeowners.
9. Are you also a broker?
What’s the difference? Well, a broker is usually someone who has pursued education beyond what’s required by state laws. This person will probably have passed a broker’s license exam, which can indicate a commitment to real estate as a career — and to above-and-beyond customer service.
10. Can you provide me with the names and phone numbers of past clients who have agreed to be references?
Insights from past customers can help you learn more about an agent and give you a greater comfort level.
Picking a real estate pro is a key decision in the home-buying (and selling!) process. So many great real estate professionals are out there willing to work hard for you, so consider the advice above as you make your selection.

2016 Housing News, Economy Receives a Slight Boost—Maybe? Team Thayer #realestate #housing #market #economic #news #oregon

ups-and-downs-graph1-300x198The U.S. economic picture has been mixed as of late, as job gains were back up in February but the growth in financial markets such as stocks, U.S. dollar, and oil prices, has not been enough to offset the flatness in economic growth.
The economy received a slight boost Friday when the Bureau of Economic Analysis (BEA) announced that the gross domestic product (GDP) grew at an annual rate of 1.4 percent in its third and final estimate for Q4—an increase from 0.7 percent in the first Q4 estimate released in January and 1.0 percent in the second Q4 estimate released in February.
“Final fourth quarter GDP numbers showed slight improvement over earlier estimates but represented a disappointment as a close to the year,” Fannie Mae chief economist Doug Duncan said. “The 2 percent growth rate fourth quarter over fourth quarter for 2015 correlates with the majority view in our National Housing Survey that the economy is on the wrong track even though this current expansion is now the fourth longest since World War II.”
He continued, “The upward revision in consumer spending's contribution to growth is consistent with our expectations that consumers will provide sufficient support to keep the economy from backsliding. However, that will be insufficient to push the economy forward beyond the 2 percent rate of growth as the decline in corporate profit, the drag of the strong dollar, and the manufacturing slowdown all suggest 2016 will be more of the same for growth.”
GDP growth, even with the slight upward revision for the third Q4 estimate, was still down by a full percentage point over-the-year (2.4 percent for Q4 2014).
GDP Team Thayer Eugene Oregon
“The slow down in growth over the year reflects drags from slowing PCE (personal consumption expenditures) growth, inventory adjustments following an earlier surge, declines in the energy sector based on collapsing oil prices, and to a lesser extent a strong dollar weakening exports,” said National Association of Home Builders (NAHB) Assistant VP for Forecasting and Analysis Robert Denk. “Upward revisions to PCE growth, a winding down of energy sector declines, more sustainable inventory investment, and a modest weakening of the US dollar so far in 2016, potentially spurring exports, combine to point to accelerating GDP growth going forward.”
Even with the increase in GDP production for Q4’s final estimate, housing’s share of the GDP effectively remained unchanged at 15.30 percent, according to the NAHB. The NAHB reported, however, that the building and remodeling component of housing, residential fixed investment (RFI) had expanded for the fifth straight quarter up to 3.32 percent of the total GDP.
RFI, which is the measure of how homebuilding, multifamily development, and remodeling contributes to the GDP, during Q4 2015 was at its highest level since the first quarter of 2008. According to NAHB, RFI’s 3.32 percent share of the economy amounted to seasonally adjusted annual pace of $547 billion, which was an improvement of 2.42 percent over the third quarter. RFI contributed 0.33 points to the growth of the GDP during Q4, meaning that without RFI, the GDP would have increased by 1.07 percent without RFI. Historically, RFI averages about 5 percent of GDP.
The other housing component that impacts GDP, housing services (which includes gross rents and utilities paid by renters, estimates of the cost to rent owner-occupied units, and utility payments, represented 11.98 percent of the economy, which calculated to a seasonally-adjusted annual rate of $1.97 trillion. Historically, housing services have averaged 12 to 13 percent of the economy.
Earlier in March, the Federal Reserve deemed economic growth insufficient enough for a rate hike. In Fannie Mae’s March 2016 Economic and Housing Outlook, Duncan stated that “We see lingering effects of the strong dollar, low oil prices, and soft overseas demand creating a drag on economic growth. However, the economy appears to have regained some footing after a slowdown in the fourth quarter of 2015, as stocks bounced back and oil prices have risen amid a strengthening labor market. Current labor market and inflation conditions continue to support our expectation of a fed funds rate hike of 25 basis points each in June and December.”

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Justin Lee Thayer is Lane counties expert in market analysis fo

News On The Bank of America Crisis. Team Thayer #realestate #housing #market #news #oregon

heavy mortgage and crisis-related litigation and operating costs.”
Crisis-related litigation plagued Bank of America in 2014. The bank reached a settlement with the Department of Justice in August of that year for $16.65 billion over the sales of toxic mortgage-backed securities in the run-up to the financial crisis; litigation costs and other expenses related to that settlement took a big chunk out of the bank’s 2014 net income. The $1With the release of the company’s Q1 2016 earnings statement right around the corner, Bank of America CEO Brian Moynihan said in his letter to shareholders in the 2015 Annual Report that the bank is “no longer clouded over by 6.65 billion settlement remains a record for a settlement between the Department of Justice and a single company over matters related to the 2008 financial crisis (it was eclipsed only by British Petroleum’s $20.8 settlement with the DOJ in October 2015 over the Gulf oil spill).
“This progress is the result of continued strong business performance, no longer clouded over by heavy mortgage and crisis-related litigation and operating costs,” Moynihan said. “Over the past several years, we’ve followed a strategy to simplify the company, rebuild our capital and liquidity, invest in our company and our capabilities, and pursue a straightforward model focused on responsible growth.”
For the full year of 2015, Bank of America more than tripled its net income from the previous year ($15.9 billion compared to $4.8 billion). The bank’s earnings for 2015 were the highest since the pre-crisis year of 2006 (net income of $21.1 billion).
“Other general operating expense decreased $16.0 billion primarily due to a decrease of $15.2 billion in litigation expense which was primarily related to previously disclosed legacy mortgage-related matters and other litigation charges in 2014,” the shareholder letter said.
Moynihan’s announcement follows what was largely a positive second half of 2015 for Bank of America. In November, independent monitor Eric Green reported that the bank was well ahead of schedule to pay off the $7 billion in consumer relief required by the August 2014 RMBS settlement. In December, the Federal Reserve approved the bank’s resubmitted capital plan after spending approximately $100 million to “get the process right for resubmission,” Moynihan said. Nine months earlier, the Fed announced that Bank of America must submit a revised capital plan due to certain weaknesses in the Charlotte, North Carolina-based bank’s capital planning process the Fed located in its annual Comprehensive Capital Analysis and Review (CCAR) conducted in early March 2015.
Bank of American’s earnings statement for the first quarter of 2016 will be released on Thursday, April 14.
Click here to view the entire 2015 Annual Report for Bank of America.

Team Thayer

Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287

Positive Pending Homes Sales Data Examened! Team Thayer #realestate #housingmarket #housing #econimocnews #oregon

Mortgage contract signings began 2016 on a low note, falling to their lowest level in a year after hitting its highest average year in nearly a decadedue to two pressing factors that are keeping buyers out of the market: inventory and home prices.
However, despite the rough start to the year, pending home sales recently rose to their highest level in seven months and are still higher than a year ago.
The National Association of Realtors (NAR) reported Monday that its Pending Home Sales Index rose 3.5 percent to 109.1 in February from a downwardly revised 105.4 in January and is now up 0.7 percent from 108.3 in February 2015.
The NAR noted that although the index has now increased year-over-year for 18 consecutive months, the annual gain last month was the smallest.

NAR Chief Economist Lawrence Yun said, "After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year and a modest, seasonal uptick in inventory. Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what's being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau."
Collingwood Managing Director Thomas Cronin said of the pending home sales report, “It seems that the key here, is the fact that this is the 18th straight month of improvement. Yes, we could use more supply, yes, we could use more new construction at the lower end yes, we would like rates to remain low. But at the end of the day, this has been a solid performance.”
Ten-X Chief Marketing Officer Rick Sharga was among the housing experts who were more cautious about celebrating the pending home sales report or calling it a comeback, saying “The year-over-year number is the one to pay attention to. Last year, March home sales fell,off dramatically after a very strong February. With pending home sales up a scant 0.7 percent from last year, it seems like March existing home sales may not give us much to get excited about.”
Sharga continued, “The dramatic increase in pending home sales from January to February probably has more to do with January numbers being extremely low (and revised downward for this report), and some delays in contract execution due to bad weather in the Northeast and Midwest, which both had significant month-over-month gains.”
Pending Home Sales February 2016
Source: National Association of Home Builders

Existing-home sales suffered last month due to the continuous imbalance of extremely low inventory levels and rapid home price appreciation.
The NAR reported that existing-home sales decreased 7.1 percent to a seasonally adjusted annual rate of 5.08 million in February from 5.47 million in January. However, the report noted that despite last month's large decline, sales remain 2.2 percent higher than a year ago. Existing-home sales do not appear to be slowing down home prices appreciation. According to the NAR, the median existing-home price in February was $210,800, up 4.4 percent from last February's median price of $201,900. This marks the 48th consecutive month of year-over-year gains.
"Any further moderation in prices would be a welcome development this spring," Yun stated. "Particularly in the West, where it appears a segment of would-be buyers are becoming wary of high asking prices and stiff competition."
The NAR expects existing-homes sales this year to be around 5.38 million, up 2.4 percent from 2015. The national median existing-home price for all of this year is expected to increase between 4 and 5 percent.
Chief Economist of, Jonathan Smoke noted, "Low inventories and tight credit will limit the gains we will see in 2016. However, given the level of pent-up demand evident in web activity and stated buyer intentions for 2016, we should see this spring materialize as the busiest season of sales since 2006."
Click here to view the full pending home sales report released Monday.

Team Thayer

Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287

Is The Rate Of Actual Homeownership Declinig? Team Thayer #inevestor #realestate #housing #market #news #oregon

While many housing fundamentals have been nearing their pre-recession levels for months or even years in some cases, the nationwide homeownership rate sank to a 48-year low of 63.4 percent in the second quarter of 2015.

By the end of the year in 2015, the homeownership rate had clawed its way back up to 63.8 percent, but the full year of 2015 still represented the 11thconsecutive year of decline since hitting an all-time peak of 69 percent in 2004.
Why does the homeownership remain low while other housing fundamentals continue to improve? An analysis from the Federal Reserve Bank of St. Louis titled “If Housing Markets Are Recovering, Why is the Homeownership Rate Still Falling?” provides some of the answers. According to one explanation, the sharp increase in homeownership during the 10-year period prior to 2004 played a role.
“Perhaps this period represented an unsustainable shift of many financially weaker families out of rental housing into homeownership, which subsequently reversed with the bursting of the housing bubble and the onset of the Great Recession,” said Bill Emmons, Assistant VP and Economist with the St. Louis Fed.
From 1968 until the late 1990s, the homeownership rate fluctuated between 63 and 66 percent over the three decades, which is likely the range to expect in the future, according to Emmons.
“Evidence supporting the return-to-normal hypothesis includes greater-than-average declines since 2004 in the homeownership rates of younger, less-educated and nonwhite families—precisely the financially weaker groups that moved into homeownership most rapidly during the housing boom,” Emmons said.
While it is possible the homeownership rate could decline further and even dip below 60 percent under the “retreat-from-homeownership interpretation of recent experience,” it is still too early to determine if the homeownership rate is on the path to “normalization” or if is in the midst of retreating, Emmons said, but one thing is certain—that the homeowership rate is not likely to approach its peak of 69 percent in the near future.
3-28 Homeownership graph

Team Thayer

Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287

How Far Has The Bank Foreclosure / REO Market Fallen? Team Thayer #realestate #foreclosure #foreclosures #reo #bankowned #oregon #housing #investor #market

The steep decline in the number of REO properties in the last five years or so since the foreclosure crisis peaked has been one of the buzz topics in the mortgage industry. As more jobs are added each month and the unemployment rate has dipped to pre-recession levels, the number of foreclosed homes has seen a corresponding substantial decline.
Just how many fewer REO properties are out there now compared to the total of REO properties at the peak of the crisis? The FHFA’s Foreclosure Prevention Report for Q4 2015 said that Fannie Mae and Freddie Mac owned a combined total of 72,783 REO properties as of the end of the fourth quarter—less than a third of their peak total of slightly more than five years earlier—in Q3 2010, Fannie Mae and Freddie Mac owned a combined total of approximately 242,000 REO properties. That quarter, property acquisitions outpaced dispositions by the count of 124,000 to 74,000.
3-28 REO
The 72,000-plus REO properties owned by the GSES represented a decline of 6 percent from Q3’s total of approximately 77,000. The 6 percent over-the-quarter decline was attributed to property dispositions outpacing acquisitions by the count of 25,531 to 21,100 during the quarter. The 21,100 acquisitions represented a decline of 6 percent, while the 25,531 dispositions represented a decline of 20 percent over-the-quarter for Q4.
According to FHFA, about 14 percent of the GSEs’ REO inventory was located in Florida during the fourth quarter of 2015 (about 10,000 properties). About 19 percent of the inventory was concentrated in four Midwestern states (Illinois, Indiana, Michigan, and Ohio).
While the number of REO properties owned by Fannie Mae and Freddie Mac in Q4 2015 was approximately one-third of its peak total from five years earlier, the number of completed third-party and foreclosure sales was less than one-fifth of its peak total from Q3 2010. During the fourth quarter of 2015, there were 25,096 foreclosures completed on Fannie Mae- and Freddie Mac-owned single-family residential properties; in Q3 2010, foreclosure completions reached their peak total of 138,000. Likewise, foreclosure starts also peaked in Q3 2010 at 339,000 but by Q4 2015 had declined to 65,000.
Click here to view the FHFA’s entire Foreclosure Prevention Report for Q4 2015.

Team Thayer

Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287

Monday, March 28, 2016

Flipping Houses 101: Opportunity In a Setback! Team Thayer #realesatate #realestateinvestor #investing #investor #flippinghouses #oregon

Flipping houses is a great way to get your foot in the door of the real estate investing industry. While it can be frustrating at first, with the proper systems in place – and of course practice – you will be turning over properties and making profits in no time. In fact, according to RealtyTrac’s 2015 Q4 Home Flipping Report, the number of active home flippers is at its highest since 2007, with the average gross profit yielding 55,000 dollars.

However, it is crucial to remember that investing in a property should be solely based on hard numbers, not emotions or hope. This is not to say that the process shouldn’t be enjoyable or fun, just be sure to avoid becoming too personally invested – it’s always about the bottom line.
With that being said, what happens if your well thought out plan does not pan out the way you hoped?

Most Common House Flipping Mistakes | And What To Do If You Make Them

House flipping mistakes
Even the most seasoned investors will make mistakes from time to time. However, the important thing to do when an error occurs is to not give up. This might sound a little cheesy, but if you choose to throw in the towel after one obstacle, you won’t get very far.
If you keep a well documented account of every move you make during the rehab process, you will be able to pinpoint the exact place the mistake occurred, and therefore be fully equipped to handle whatever comes your way during your second rehab. If you remember that each mistake you make is a learning experience in disguise, you will become accustomed to appreciating unforeseen complications and know exactly how to solve them. Just try to avoid the most common house flipping mistakes:
  • DIY Everything: DIY projects are always fun and they fill you with a sense of accomplishment, but when it comes to rehabs, consulting with an expert is the way to go. The thing to remember is that the home you are rehabbing is not your home, you will not be the one living in it. Therefore, if it is not up to code, there will be no family who feels comfortable making the purchase. Instead of being the person who guts the place, tiles the floors, and paints the exterior, be the person who manages the project – after all, you are an entrepreneur. Calculate the costs and hire a good contractor. Trust me, the money you spend on a contractor will likely be less than the costs of repairing your mistakes.  If you’ve already made the classic “DIY mistake” – or you are just a person who likes to learn the hard way – there is a silver lining: you’ve learned a TON about the rehabbing process. It may even help you down the line when it comes to estimating costs and negotiating with contractors; you are sure to sound like you know what you’re talking about.
  • Underestimating Your Budget And Time: The rehab process is a long one. From finding the property to evaluating your scope of work and listing the final product, you will have a lot on your plate. That being said, it is better to overestimate the costs and deadlines as opposed to underestimating them. For some reason, in the world of rehabbing, logic and reality are not related. If your contractor tells you it’s going to take two days to carpet the living room – which sounds about right – it will more than likely take a week. You may have done the math and calculated that it will take approximately $2,000 to knock down and rebuild the dividing wall between the kitchen and dining room. And then upon demolition, you find that the supporting beams are completely infested with termites – an additional thousand over budget.  A good rule of thumb to follow – especially for beginners – is to double your budget and timeline. If the final numbers are still in your favor, then – and only then – is the deal a solid one. If not, move on. After some practice, you will learn that implementing proper systems and management will produce more accurate estimates.
  • Making It Too Nice For The Neighborhood: Reality TV shows on channels like HGTV have warped our perception of the industry; they tend to make house flips look too easy. An owner might see a $20,000 chandelier that they “have to have” or an expensive granite countertop that the house “can’t live without.” While these amenities make nice additions to any home, they are not worth it for your bottom line. Even the pros can get too attached to individual properties, it happens to the best of us. However, it is important to remember that you are doing this for one reason: to make a profit.  It is also important to thoroughly inspect the neighborhood where you are making the investment. If after your rehab is complete your property becomes too nice for the block it is on, it will stick out like a sore thumb and be harder to sell. This does not mean you should keep the place a dump, it just means that it is important to look at the comps in the area.
  • No Plan B: It is crucial that you have a backup plan – or an exit strategy – if your rehab does not quite turn out as expected. My favorite strategy is: if you can’t flip it, rent it. Of course, the number one goal with any rehab is to sell the property for a higher value than you bought it, but with home appreciation rates slowing down, that is not always a possibility. Renting is a great alternative if you can’t get your desired asking price. Not only will tenants be paying off your mortgage every month, but it’s also a great way to start building long-term wealth and accumulating passive income.  Don’t learn the hard way when it comes to having a plan B. The last thing you want is for your rehab to be in its final stages while you are panicking to find a buyer. Mind your due diligence and come up with as many alternatives as possible, so that you can feel successful no matter how the cookie crumbles.
The only way you will become successful in the real estate investing world is if you can see the value in failure. It might be cliche to say that there is no such thing as failure, but when it comes to rehabs, the statement is true. Every mistake you make stands for one less mistake you will make during your next property flip. My advice to you, however, is to try and make all your mistakes on your first house.  When you start from the bottom, the only place to go is up.

Team Thayer

Justin Lee Thayer is Lane counties expert in market analysis for real estate investors. Call Justin @ 541-543-7287