Fliperati

As of this past Wednesday, I am officially the owner of a small 3-bedroom colonial in north Jersey.  For someone who has never owned anything worth more than $2,000 in his life, the closing was not nearly as dramatic as I expected — even though I have suddenly become solely responsible for more than $300,000 of mortgage, insurance and tax obligations tied to a property that is currently in pretty sad shape.  I think the collective competence of my attorney, mortgage broker and real estate agent gave me great peace of mind at the closing table, so it was well worth the effort (and expense) of assembling a good team for this first venture.

The value of my team became even more apparent to me when the sellers’ attorney entered the room flustered, sweaty, disheveled, out-of-breath and more than half an hour late.  His glasses were falling off his face and he was desperately struggling with a loosely organized stack of papers clutched at his chest.  The scene very much resembled a bad sitcom and I had to pinch myself a couple time to make sure I wasn’t hallucinating.  And while he may very well have been an excellent attorney, he was clearly not very organized and did not spend much time reviewing the documents we were signing with his clients.  It was painfully obvious that the (elderly, kind and trusting) sellers had absolutely no idea what they were agreeing to other than the bottom line amount of the check they were leaving the office with.  This was a pleasant development from my perspective because it made the closing go quickly and without any complications, but it made me wonder how many other people buy and sell their homes with blind faith in their attorneys and brokers.  I could muse about this topic at length, but I’m trying to keep these postings a little more focused and avoid digressing too far from the nuts and bolts of my investment activities. 

Stay tuned for details on my first crack at the renovations in the weeks to come.

Comments(2)

I haven’t ever given much thought to the “no money down” approach to real estate investing (perhaps because I’m fortunate enough to have a decent amount of savings), but I was pleasantly surprised by how little cash I will need to close tomorrow.  After evaluating a number of different scenarios with my mortgage broker, we ended up structuring the financing for this property as a plain vanilla 30-year fixed rate mortgage with a 5% down payment.  We looked at interest-only and adjustable rate mortgages, but as an investor planning to hold the property for only a short-period of time, the traditional fixed rate structure made the most sense because it had the lowest up-front costs.  Even better, I was able to get a “seller’s concession” written into the contract where the purchase price is increased by approximately 3% and that increase is then applied toward my closing costs (which is just a convoluted way of borrowing for the out-of-pocket settlement costs).  See a breakdown of the closing costs associated with this property below.

The end result (assuming the closing coordinator doesn’t call a fourth time to change the final figures) is that I will be paying out a total of approximately $16,500 to acquire this property after the closing costs not covered by the seller’s concession and the 5% down payment are tallied up.  That comes out to only 6% of my $285,000 purchase price in cash spent to buy my first house, which is a pretty attractive figure in my opinion.  That percentage goes up a little bit if you include the cost of the property inspection, homeowner’s insurance, and flood insurance, but it’s still less than 7% of the purchase price even with this all-inclusive view.  This leaves me with a bit more cash in my pocket for the renovations and on-going expenses than I had originally budgeted for, so I’m feeling pretty good about the project so far.  They key will be reselling this property on schedule to prevent the hefty carrying costs from eating all my profit away.

Comments(4)

I had an encouraging discussion with my architect-of-choice this afternoon when she called to let me know that she had stopped by the property to check out the existing garage.  She also snapped some digital pictures of the property and reviewed the relevant zoning codes to see what our options are for rebuilding the existing structure.  I was extremely excited to learn of these developments because all the architects in the area seem to be buried with existing projects and I feel very fortunate that this particular architect is able to make time for my garage plans (she’s nice!).  I don’t have a fee quote from her yet, but we’re meeting tomorrow before the closing to review her ideas and talk about the details of the project.  Her thinking is that the house would be more marketable with a slightly larger garage (the existing structure is quite short) and I’m interested to pick her brain about a few other items, such as the awkward closet upstairs and the potential breakfast bar addition.

Comments(1)

Much has been said about the ramshackle garage on this property that needs to be torn down and replaced, but I’m just now getting around to finding an architect to draw up plans for the new structure.  Without a better alternative, I simply scrolled through the phone book (online) and looked up a few local architects with the hope that someone from the area would be familiar enough with the township rules to get the plans approved on the first try.  What I found was mostly a bunch of individual architects who seemed to already have more projects than they could ever need.  I suppose this is not out of the ordinary — especially for early summer when everyone is thinking about the projects they had on hold all winter, but it’s still a little discouraging.

I had a bit more luck when I expanded my search beyond the township where the property is located and started calling other firms in the county.  I currently have three different architects reviewing the survey of the property and preparing a quote on what it will cost me to have plans drawn up.  Actually, I’m only waiting for two of them to get back to me — one guy told me it would be $500 flat unless there is something really crazy about the project.

I’m leaning toward the last architect I spoke with because she seemed very familiar with the township regulations and she even went to college with the head of the buildings department.  She sounded very busy when I spoke to her, but I’m hoping she comes back with a reasonable quote and is able to squeeze me in because she sounds like a great asset to have on the rehabbing team.

Comments(0)

After a small amount of drama surrounding my request to push back the closing date by two weeks, we have found a compromise and the property will officially be mine on June 14th.  The target closing date in the original contract was today (June 9th), but I’m going out of town on business this afternoon and there were some unresolved title issues that made closing today impossible.  When I learned of these title issues a few days ago, I put in a request to delay the closing until the 21st so I wouldn’t have to worry about my travel schedule.  I was also hoping to push the closing closer to the end of the month because I won’t really have much time to spend working on the property until July. 

Well, the sellers did not like any talk of a delay and they responded with an idignant song-and-dance about how they’re carrying two mortgages and they won’t even consider postponing the closing that far unless I pick up the tab for the mortgage payments associated with the extra days (cue the sappy violin music).  I responded with the earliest possible closing date that would work for me (the 14th) and that is apparently okay with them because they have signed off on that schedule without any more discussion of their carrying costs.

I initially felt bad because I believe they are on a fixed income and the two mortgage payments may indeed be causing them some hardship, but upon further reflection I decided that I shouldn’t lose any sleep over this because it’s not my fault that they are in their current predicament.  They’re the ones who let their home sit on the market for four months at a ridiculously high asking price and then decided to purchase a new home before they even had a serious buyer at the table, so I can’t really blame myself for being the one that is finally bailing them out of this situation.  I hope in the end it’s a win-win for everyone.

So, get ready for some actual motion on all the renovation plans I’ve made so far starting late next week!

Comments(2)

You may have noticed from the floorplans on the gallery page that two of the upstairs bedrooms share a single closet (no, this is not a result of my sloppy floorplan drawing abilities — that closet is indeed open to both bedrooms).  I assume that the majority of potential buyers would be quite turned-off by this anomaly because it totally eliminates the privacy you would expect to have in your own bedroom.  You could practically drive a truck through that opening when the doors aren’t in the way. 

My first thought was to simply put a wall up where the current clothes rod is located and divide the space into two separate closets.  Unfortunately, the existing space isn’t nearly deep enough to split the closet that way.  The windows on either side of the current closet further limit my options by preventing me from extending the depth of the existing space.  My best idea at the moment is to divide the closet in half (perpendicular to the clothes rod) and close one half off to each bedroom (pictured below).  This will separate the rooms, but the remaining closets will be very narrow and potentially scare away anyone with more than a bare-bones wardrobe.  Still trying to think of a better solution here…

Comments(2)

I’ve been away from my computer since the end of May and fresh Fliperati content has thus been lacking, but hopefully some new shots of the inside of the house will make up for my negligence.  Unfortunately, these pictures do not reflect any changes to the house (mostly since I haven’t closed yet -– mid-June is still the target), but hopefully they’ll shed some light on areas of the house that I wasn’t able to photograph during prior visits to the property.  Zoom over to the gallery to check out the new images (notice that this section of my site still isn’t looking so great –- please feel free to share feedback on why that formatting is so screwy if you’re familiar w/CCS and/or HTML).

Comments(0)

While you don’t want to start fantasizing about a big payday before you’ve even closed on the purchase of a flip, you have to think about the resale value and profit to come up with a budget for acquisition and repairs.  To the right is a summary of the rough numbers I worked with to get to my original offer price.  I’m hoping that every line is conservative and that I have a reasonable margin of error built in, but I have a feeling some of the numbers (like the rehab costs) might spiral out of control if I run into any unexpected expenses.  On the other hand, I’m also hoping I low-balled a few numbers.  The Target Sale Price, for example, was estimated based on the comps, but I have a (completely irrational) sense that the house is really going to shine when it’s all fixed up and break through the theoretical $399,000 ceiling in this neighborhood, maybe fetching something in the $410,000 - $425,000 range.  Also, I’ve budgeted for 5% of the sales price to be lost in real estate broker commissions, but I’m contemplating going FSBO (For Sale By Owner) to pocket an extra ~$10,000.  I feel like I’ve learned a lot over the course of the purchase process and could handle the logistics of selling the place myself, but who knows if I’ll be able to find a buyer on my own.  I may go with a flat-fee service to get the place listed on the MLS and do some of my own internet marketing as well, but it might also be worthwhile to negotiate a discounted commission with my current broker and not take too many chances on my first project.  At this point I’m just trying to convince myself that I would be happy with any four-figure (pre-tax) profit on my first project and treat anything below my target as invaluable experience bought at a discount.

Comments(11)

I was surprised by how difficult it was to get quotes on home insurance when I began looking a few weeks back.  Given my current lack of insurance-worthy personal possessions, no one would be surprised to learn that I don’t know much about the insurance industry.  However, I had always imagined insurance agents as fast-talking, work-around-the-clock, bend-over-backwards-to-make-a-buck people.  That image quickly changed after I reached the third “office closed” voicemail message at 4:15 on a Tuesday.  Apparently most New Jersey insurance agencies only take calls from 10 a.m. to 4 p.m. on weekdays.  When I was finally able to talk to someone on the phone and go through the lengthy questionnaire about how old the house is, what I want my deductible to be, how many bedrooms are in the house, etc, etc (I can’t believe how hardly any of these agencies have websites where the applicant could just fill in a form), I was surprised by how high the premiums were.  The New Jersey Department of Banking and Insurance has a great website that lists the range of home insurance premiums by provider and county and all the quotes I was getting were coming in at the high end of the range.

Frustrated with the dial-from-the-phonebook approach, I submitted quote requests through a couple home insurance websites and crossed my fingers for better luck.  While this approach was convenient in that you could fill in a single questionnaire about your home and get multiple quotes back, it was supremely annoying in that you voluntarily identify yourself as somebody looking for insurance on the vast, soulless inter-web and are instantly bombarded by spam and marketing materials from all corners of the universe.  It was worth it in the end because I was finally able to get a very aggressively priced policy from a large, reputable company that was highly ranked by the NJ Department of Banking and Insurance.  Now I just hope I never have to file a claim under the policy and that the house will be sold long before my first year of coverage expires.

Comments(0)

While I feel pretty good about most of the renovation plans I’ve put together so far, I’m struggling with a few issues.  Namely:

• Kitchen Cabinets: The cabinet framing, shelves and doors are all in decent condition, but I’d like to update the look of the wood and brighten the otherwise dark kitchen area by painting them white.  My dilemma here is that I’m not sure if I want to sand and paint the existing doors or just get new doors custom made.  Sanding and painting would probably be very labor intensive and take a lot of time, but it’s a fairly straightforward process and would cost very little.  New doors could be comparatively expensive and challenging to mount in the existing frames, but it would give me the chance to change the style of the cabinets and probably wouldn’t take as much time to complete.
• Kitchen/Living Room Floor Plan: There’s a nice opportunity to create an open floor plan by opening up the walls that divide the kitchen from the living room and the dining room (Wall A and Wall B on this rough floor plan), but I’m not sure if it’s worth the expense and the hassle on this project.  It seems like a waste to have a formal dining room in such a small house and I think it would really brighten the whole first floor to open up the kitchen, but I know that costs can escalate quickly when you start changing structural items.  I doubt there will be room in the budget or the schedule for this in the end, but it’s worth considering.
• Bedrooms: One of the three bedrooms in the house is quite small (9’ x 9’) and is probably better suited as a den, but I’m wondering if the house would sell faster if I combined two bedrooms to create a master suite with a walk-in closet.  The master bedroom would still be lacking its own private bathroom and I definitely don’t want to deal with that level of renovation, so it’s probably better to leave the bedrooms as they are. 

Update: See a more detailed version of the open kitchen question on apartment therapy with lots of great comments from AT’s stellar editor and thoughtful readers.

Comments(0)