Posted by: Administrator in tenants, short sale, self directed ira, renters, myblog, investment property, foreclosure, eviction, Brooklyn Troy, 401k rollover, 401k on
Feb 23, 2010
With the crash of the real estate market comes many opportunities for investors. Especially when purchasing the abundance of Short Sale and Foreclosure homes. There is however on caveat to these purchases that one truly has to consider and that is that you must honor any existing leases on the property for the duration of the lease term.
What many people are doing that no longer want their homes or are planning on letting it foreclose is relocating to a new home and renting out their previous residence. The reason for this is that these home owners choose to say rent a house around the corner for $1200, and at the same time collect rent on their home for the same or often times even more money. Well instead of paying that money to their mortgage they just keep it and use it for their own person expenses since they have decided to let the house go. All fine and dandy for them but it is the tenant who actually gets screwed over when the home is sold, or foreclosed on. Or do they?
If you've got an existing lease, the lender or whoever buys the property int he foreclosure auction has to honor your lease. The Protecting Tenants at Foreclosure Act, Pub. L. No. 111-22, §§ 701-704 (2009) became law on May 20, 2009, and applies to state eviction proceedings, and requires that a new owner who took title to residential rental property through foreclosure honor existing leases until the end of the lease term.
Even if the new owner wants to occupy the foreclosed property as a personal residence before the end of the lease term, or your lease expires within 90 days, or your tenancy is month-to-month, the owner has to give you at least 90 days notice to terminate the tenancy.
So this may help protect innocent tenants whose owners were not completely up front with the tenant but it may put a monkey wrench in your plans as an investor, especially if you plan to rehab and/or flip the home.
Posted by: Administrator in title insurance, self directed ira, retirement, rehab, myblog, land investments, IRA, foreclosure, Faisal Sublaban, Brooklyn Troy, appraisal, 401k rollover on
Feb 09, 2010
As the real estate market begins to bottom out investors are starting to flock to certain foreclosure areas. Of course what comes with the heard is the passive, casual investor. As most investors know in order to pick up these properties you need cash and these days investors are utilizing and diversifying their 401k's and rolling over to a Self-Directed IRA. Although there are a countless number of investment deals in the real estate industry one must do their homework before parting ways with their retirement money. Here are three important rules to live by before writing your first check to escrow.
1) Build Your Team Around You
One of the most important thing investors forget to do is consult with professionals. All to ofter people begin to believe that they magically after never buying, rehabbing, and flipping a home all of the sudden are real estate professionals simply because they have the IRA funds and/or cash to do so. Let me tell you even the real professionals in this industry got killed over the last to years, many of them with 30-40 years of market experience. The key to avoiding this pitfall is building a strong team around you. Don't be foolish to think that you can just figure it out as you go, after all this is you retirement you are talking about. Consulting with professional agents, escrow officers, and appraisers is a must. Yes their knowledge cost money but it will also save your money in the end as well. In the grand scheme of things what is a few dollars when you are leveraging your retirement funds in order to capitalize on the opportunities out there.
2) Make Sure to Purchase Title Insurance
Just because you are paying cash and there is no lender requiring you to purchase title insurance doesnt mean that you shouldn't purchase it. After all the lenders made you do it for a reason. There are often issues with property titles that even the most experienced title officer wont notice and you need to protect your rear end. For example who is to say that the transfer deed wasn't somehow forged by someone pretending to be the sellers. Or who is to say that the husband didn't threaten to kill his wife if she didn't sign the paperwork to sell you the home. You may think those are extreme examples but trust me I have seen it before, and these days nothing should surprise you. Point being just spring for the title insurance
3) Always Leave a Cushion
Now after you make your projections for the total cost of the proposed property you always have to leave yourself a little bit of a cushion. By that I mean you have to always expect things to cost you more. If the total rehab costs are $5,000 allocate $7500 for it. With these rehabs you always have to expect the unexpected. On one property that one of our clients purchased the estimated rehab cost was $3,000, well after getting into the rehab they noticed the floor was sinking in one of the rooms. After the contractor gave their estimate they were faced with another $3,500 unexpected cost. That additional cost could sink a deal. Another thing to plan for is having to hold onto the property for longer than anticipated. Just because you expect the house to sell in 90 days doesn't mean it is going to, especially in this credit market. You may even have to rent the property for 6 months before the market bounces back enough to sell your property. Bottom line you have to expect the unexpected.
These are just a few rules to live by when investing in real estate. The market is now at a level where investing with you retirement funds is not only feasible but can actually be quite profitable. Contact us anytime if you have any questions or just want to run a transaction by us.
