Are you flipping houses without a license?

As crazy as that sounds, if you are buying a house in the state of Washington and fixing it up then resell it you may be breaking the law. I was notified in the local real estate investor’s association newsletter that any investor “Flips” it, is now required by Washington State Law to become a registered contractor.

I have read the law on the Washington State website. It was passed in an attempt to regulate unlicensed contractors and passed unanimously in the legislature and the senate and then signed into law by the Governor on May 11th.

This law is well and good but the problem as I see it is the definition of contractor:

"Contractor" means any person, firm, or corporation who or which, in the pursuit of an independent business undertakes to, or offers to undertake, or submits a bid to, construct, alter, repair, add to, subtract from, improve, move, wreck or demolish, for another, any building, highway, road, railroad, excavation or other structure, project, development, or improvement attached to real estate or to do any part thereof including the installation of carpeting or other floor covering, the erection of scaffolding or other structures or works in connection therewith or who installs or repairs roofing or siding; or, who, to do similar work upon his or her own property, employs members of more than one trade upon a single job or project or under a single building permit except as otherwise provided herein. "Contractor" includes any person, firm, corporation, or other entity covered by this subsection, whether or not registered as required under this chapter.

What does this mean to us real estate investors. It means that we are limited in what we can do, even to our own property. I also received an email from a friend of mine Dean Dretske who wrote about it in his blog and covered it really well. Please visit his site to read this well written article.

How did something like this slip through without anyone knowing about it you may ask? Good question. It was done under the guise of protecting the public like so many good intentioned but poorly executed laws. It was directed at people posing as contractors but the law stepped over the line into personally owned real property. I believe that they were also trying to generate revenue for the government as well as it will make more people become contractors.

This is another case of one industry saying “thank GOD they are going after someone else rather than me”; which in turn had an adverse impact on many industries ours included. Keep a watchful eye on the regulators because they see themselves as protectors and sometimes get a little power hungry.

The only way I can see around this law is to register your company as a general contractor and get the appropriate bonding and insurance; which will just add to our underlying costs of doing business. This is just one more thing for us to do in order to comply with the law and protect ourselves. Becoming a contractor is not the end of the world and is not overly difficult. But it will be a barrier to entry for many people getting into real estate investing but most will take up the challenge.

In the mean time you can attend your local REIA groups to find out what else is going on with your legislature. Maintain a defensive posture and form a legislative watch to see these things coming down the pick. Put your money where your mouth is. When our local REIA club tried to raise money for this effort not many people donated because they didn’t see this affecting them. Dust off the cob webs from your wallet and join together to combat poorly drafted legislation.

Also with the Sub-Prime melt down and the increasing foreclosure rates there will be more government action coming down the pike.

Be mindful and alert and take action against them. Be above board in all of your business actions so as to not give them a reason to see ghosts in the wood shed and cover yourself in everything you do with appropriate disclosures and CYA forms. And find a good legal counsel who knows the intricacies of real estate and investing.

And as the Sergeant from the old show Hill Street Blues use to say – “Hey, Let’s Be Careful Out There!”

5 Sub-Prime effects that investors need to know NOW!

As a real estate investor you are keeping up with the news that is affecting our industry, aren’t you? Since the beginning of March we have been riding the crashing wave of the sub-prime mortgage market. It has been all over the news and written and talked about on internet forums, blogs and chat rooms extensively.

Let’s quickly review what a sub-prime loan is for those who may need to be caught up. Sub-Prime lending has been around for decades. It is when a lender lends money on a property that does not meet the conventional underwriting requirements. An example is a loan to someone with a low credit score, low down payment or does not have verifiable income.

These have become widely used in the last 4-5 years as a way to sell more property and to cash out some equity in a property that has really spurred the growth of the economy since the dot.com crash of 2000. It has been fueled by extremely cheap money made available by low short and long term interest rates. As I write this article I am waiting for the Fed Chairman Ben Bernanke to tell us whether he is going to lower the interest rate as expected or not. I imagine that he will.

The biggest issue that we as a nation is having with the sub-prime fallout is record foreclosure rates. Just today RealtyTrac, Inc. reported that the foreclosure rate for August 2007 more than doubled from the same time last year. It is up 36% from the previous month alone. The top 10 states for foreclosure are Nevada, California, Florida, Georgia, Ohio, Michigan, Arizona, Colorado, Texas and Indiana. This is absolutely amazing.

What does this mean to you as an investor?

1. You will not be able to get 100% loans especially on a non-owner occupied property. This will require you to put more money down on a purchase if you use conventional strategy of buy & hold or fix and flip.

2. No-Doc and Stated Income loans are going to be harder to find. If you are a full time real estate investor without a regular W-2 type job you will find it more difficult to qualify for loans for your property. I have it on good authority that if you can prove your income with Tax returns and or bank statements you will find it much easier to find capital but be aware you will need to bring some money to the table. You will find it almost impossible to find a 100% LTV loan right now.

3. Rising interest rates on those adjustable loans that have been made in the last 3-5 years. What this means is that if you purchased a home either using an adjustable rate mortgage or take over one subject to that was made since 2002 and they are maturing, your payments are going to go up. Probably not just a little bit either. I have talked to people who had their mortgage payments almost double in the last year. Ouch. I can tell you that their incomes have not kept up with that.

4. Houses are selling more slowly that they have in the past. Not too long ago in the area where I purchased houses regularly we had an incredible 18 days on market. That means from the time a house was listed with an agent the house was under contract to sell in just 18 days. And that is average for all houses in all price ranges for that area. I will tell you that in August that same area had a “Days on Market” of over double that. Ahh what a difference a year makes. This is still fantastically fast for most markets; Denver is looking at over 180 days on market average. (Note: sure makes it easier to buy houses now because people are more motivated)

5. Limits the number of buyers for properties when you sell. As an investor you count on either renting out or selling your properties quickly. Right now it is making it more difficult to sell your house to the first person to come along. Quite a few of the buyers over the last couple of years are now out of the market. Either they can’t afford the house or they are afraid of what the market is going to do and are holding off for now. This is not all bad though, it makes the other property owners more motivated to work with an investor on either price or terms.

The Sub-Prime market and the slowing housing market in general can be a big boon to you as an investor. You just need to have the right tool in your tool belt to make the most of the situation you find yourself in. There are cases where buying and holding make sense, as well as using one of the more creative investing techniques. So just keep your eyes open and make the most of it.

Just in Case You Missed It...Here Are Our Renegade Real Estate Warrior Winners!

Congratulations to our Overall Winner: GERALD ROMINE

Also, congratulations to our winners of each industry category...

Motivation Warrior of the Year - Bill Twyford
Wholesaling Warrior of the Year - Charles Petty
Rehab Warrior of the Year - Pete Youngs
Subject To Warrior of the Year - Terry Wygal
Short Sale / Foreclosure Warrior of the Year - Mark Klee and Caryn McKinney
Asset Protection Warrior of the Year - Darius Barazadeh
Marketing Strategies Warrior of the Year - Dave Zahala
House Finding Warrior of the Year - Reggie Brooks
Business Tool Warrior of the Year - Gerald Romine
Creative Financing Warrior of the Year - Edwin Kelly
Investing Strategies Warrior of the Year - Dave Whisnat

You can check out the final scoreboard by clicking here.

Thanks to everyone, presenters, hosts and attendees. I know that all of you were able to learn a lot of really good information from the speakers. I would say that my favorite were Dave Zahala talking about using Radio and TV to get leads, Mark Klee and Caryn McKinney and their presentation on buying houses post Bankruptcy. There were many others that I was impressed with and learned a lot from. But Hey, I can only have a couple of favorites, right?

As a parting thought on the Renegade Real Estate Warriors webinar series is that it was an ambitious undertaking. There were too many presentations, too many technical issues and frankly too many things happening back to back. We all live and learn any time we test something. I guess this is what Thomas Edison meant by trying many things because some were bound to fail. Or in this case be too much info in too short a time.

But thank you for sticking in there with us. I know that I speak for Karen, Terry, Russell and myself when we thank you all for being there with us for the last couple of busy months.

Now it is time to take what you have learned from these webinars and apply it too your business. Go take some action...

The Art of Renovation

Renovating houses has been on my mind for a while now. As you know my family and I just returned from the Philippines. While we were there, we were having my Father-In-Laws house renovated. I had to stop and wonder about just why we do renovations on properties that we own.

With a personal residence we do so for a variety of reasons, update the house to keep it current, add new features to make it more livable, make things bigger or just more functional. But with investment properties that we are going to be selling or renting there are really only three things we are doing:

1. Maximize the resale value

2. Attract buyers or renters

3. Sell or rent the property quickly.

We need to do all of that while keeping in mind the budget and the speed that we can complete the tasks.

When I talk to a lot of new investors they still look at the rehab as if they were going to move into the property. They want to renovate the house to its maximum potential, adding rooms, enlarging kitchens and baths, putting in granite and high end appliances. They think that they need to do all of this to achieve those three previously stated goals. But let me tell you that from personal experience you do not have to go to extremes.

First, do you understand the differences between the two classifications to renovating a property: Rehabbing and Remodeling. The difference between the two is easy; are you moving walls? And are you required to pull permits? If the answer to those questions is yes then you are doing a remodeling. I draw the line at rehabbing. It is faster, costs less and I can maximize the value of the property while maintaining my tight deadline.

I typically concentrate on the two areas that sell most homes, Kitchens and Baths. This is where I spend my time and money. I also paint the interior of the property and update the carpet and flooring. I usually upgrade the doors, trim and molding to a similar look of a high end property. I replace the light switches, outlets and covers, as well as the door hardware to make the things that people touch feel new. I duplicate the look of a high end home by putting in fixtures that are knock offs of those high priced items in the Street of Dreams houses.

The landscaping and curb appeal are important as well. I make the house inviting to those passing by. I want people who see the for sale sign in the yard feel that they must take advantage of our instant open house to see what this house looks like. My goal is to make the potential buyer just die to have this house as their own. Whether selling or renting you want the same emotion from your customer.

But contrary to conventional wisdom I will spend a fraction of what people expect and get in and out of the house in record time by following the systems and procedures that we have in place. By using the proper professionals and having a standard list of materials I have this down to a science. Our goal is maximizing the value of the house; while obtaining the highest return on investment for the money spent.

And please remember, time is money when you are rehabbing. Every day you go over your allotted time you are losing money and not just the holding costs. If you miss the peak selling cycle you can loose your entire investment if the price of housing declines or interest rates rise.

Systemizing your business is where you make your profit in this business. Streamline and automate tasks with checklists and requirements for your contractors. Work with those best expert professionals who can do your tasks properly the first time without having a bunch of call backs. Do your job up front to minimize change orders and you will find that you are able to achieve your goals of getting the house sold soon after you purchase it.

Making money faster is the only way you can survive. Cash is king, having equity tied up on a house that you are trying to sell will not put clothes on your back of food on your table. So get that rehab finished and cash the check. Then go and do it all over again. That is the business that you are in.

Just in Case You Missed It...Here Are Our Renegade Real Estate Warrior Winners!

Congratulations to our Overall Winner: GERALD ROMINE

Also, congratulations to our winners of each industry category...

Motivation Warrior of the Year - Bill Twyford
Wholesaling Warrior of the Year - Charles Petty
Rehab Warrior of the Year - Pete Youngs
Subject To Warrior of the Year - Terry Wygal
Short Sale / Foreclosure Warrior of the Year - Mark Klee and Caryn McKinney
Asset Protection Warrior of the Year - Darius Barazadeh
Marketing Strategies Warrior of the Year - Dave Zahala
House Finding Warrior of the Year - Reggie Brooks
Business Tool Warrior of the Year - Gerald Romine
Creative Financing Warrior of the Year - Edwin Kelly
Investing Strategies Warrior of the Year - Dave Whisnat

You can check out the final scoreboard by clicking here.

Thanks to everyone, presenters, hosts and attendees. I know that all of you were able to learn a lot of really good information from the speakers. I would say that my favorite were Dave Zahala talking about using Radio and TV to get leads, Mark Klee and Caryn McKinney and their presentation on buying houses post Bankruptcy. There were many others that I was impressed with and learned a lot from. But Hey, I can only have a couple of favorites, right?

As a parting thought on the Renegade Real Estate Warriors webinar series is that it was an ambitious undertaking. There were too many presentations, too many technical issues and frankly too many things happening back to back. We all live and learn any time we test something. I guess this is what Thomas Edison meant by trying many things because some were bound to fail. Or in this case be too much info in too short a time.

But thank you for sticking in there with us. I know that I speak for Karen, Terry, Russell and myself when we thank you all for being there with us for the last couple of busy months.

Now it is time to take what you have learned from these webinars and apply it too your business. Go take some action...

Wealth Acceleration Strategies for Real Estate Investors

We will all agree that real estate is the best way to build wealth. Using real estate helps by using one key method that almost every other investing strategy does not offer. That being Leverage or borrowing against your property to control something more valuable than the amount of money invested. I can hear you yelling; “What about trading stocks on margin?” Yes, you are right that with a trading account you can trade limitedly on margin or only putting a fraction of money up for the stock. But that is very limited compared with real estate.

I have done a 100% LTV mortgage on an investment property before. Now since the Sub-prime melt down you will not be able to do that for a while. But still, people routinely buy property with less than 20% of the purchase price down.

Assume you are going to buy a single family house to rent out for 5 years and then sell. So you buy a $400,000 single family house purchased using a 80/15/5 conventional mortgage. What does that mean? 80% LTV first mortgage, 15% LTV second mortgage and 5% down payment. You bring $20,000 plus closing costs to the escrow company when you buy the property. So for $20,000 you control a $400,000 piece of property. Your monthly payments on your mortgages are $2,100 including your taxes and insurance. You receive $1,800 rent on the house. And it is vacant for 1 month out of every 12 months because of finding new tenants. Now this is a very conventional deal but very realistic in our current market.

Let’s take a look at the numbers:

	Monthly	Annually	Total
Costs	$2,100	$25,200	$126,000
Income	$1,800	$19,800	$99,000
Net	($300)	($5,400)	($27,000)

So looking at the numbers this way it does not look like a very good investment. Paying someone to live in your property $27,000 for 5 years. Remember this does not take into account any repairs or tax implications these are just the raw numbers. But let’s look at it a different way. We are going to assume for the sake of argument that the property appreciation is 10% annually using round numbers. This a absolutely achievable in the Seattle market but will vary depending upon area. Here is really what you are controlling:

Purchase Price:	$400,000
Future Value 60 Months 10%annually:	$644,204
Total Equity Growth:	$244,204
Total %	61% total growth

So your investment of $20,000 plus your additional expenses of $27,000 of holding cost will bring you an additional $197,204 over that same 5 years. How many of you would spend $47,000 to make $244,204 bringing you a rough profit of around $190,000. That is really the true path to wealth in real estate investing. The use of leverage is really what makes this happen for you. If you were to just invest the same $10,000 at a 10% annual interest you would only make $6,105 instead of the more than $190,000. So using the leverage only found in the real estate make you very wealthy when used over time.

Now most of you know that I am a big proponent of creative real estate investing and may think that there is something hypocritical about talking about going and getting a loan and investing for the long term. Remember. This is tactics that I use to make money to invest long term for growth. So this is very true of all real estate. So please take the time to develop a strategy to use the best of both worlds.