Beware of Paranoid Realtorsby Al Susoeff
I know that most of the time you get very specific coaching or training from me, but this post is going to be half RANT and half training. Most of you know my opinion of realtors. For those that don’t it goes like this: There are a handful that are worth a rip, the rest are MORONS! Incidentally, the handful that is worth a rip are almost always investors as well…How do you think I know this? So, today I am going to go through a well known realtor’s blog post and so you what they think of us investors, and how they get in the way of getting deals done. Guys please do not hear me knocking ALL realtors. Like I pointed out a minute ago there a handful of good ones out there, and you need to make it your mission to find them. My realtor is worth her weight in gold! And by the way, you are absolutely not going to be doing investing without them, so find the good ones, and don’t let the bad ones ruin your day. The realtor’s post will be in Italics, and my replies will be in regular text: “Don’t be lured by a fresh coat of paint, shiny new appliances or slabs of granite on the counters, a foreclosure flipper home can have plenty of things wrong with it under the surface — things that you may not discover until it’s too late to do anything about it.” Hey folks, don’t be lured by a home owner by an owner occupant either. There is a saying in this business; “buyers are liars and so are sellers”. “When an investor picks up a bank-owned home, either by buying that home in a bulk purchase directly from the bank or by bidding on the home at an auction, the foremost thought in that investor’s mind is making a profit.” So I guess homeowners are realtors are NOT trying to make a profit? “But when you see the home for sale, you’re looking at its aesthetic value and how that home fits your parameters. Because of its emotional appeal, you might not notice construction defects.” “I am not saying that all investors cut corners when they rehab a property.” No but you sure are eluding to it aren’t you… “ Many investors are conscientious and hire quality construction crews. But some investors — and you rarely know which ones they are by looking at them — hire the cheapest labor they can find and use the least expensive materials in an attempt to boost their profit margins. Hey, at least they hire crews. I go through houses every day that some homeowner tried to fix himself. Even a drunk crappy contractor could do better. “Here are some areas of concern: Mold Some bank-owned homes sit empty, without heat or air conditioning, for months. If a pipe leaks or moisture is present, mold may grow and spread. Mold remediation costs thousands of dollars. Would an investor paint over the mold? What do you think?” OK, so here I am irritated enough to just about kick this guy’s butt. I mean let’s face it, he pretty much comes out and calls us crooks! Hear me on this MOLD IS NOT A PROBLEM! I did the research and wrote a book myself on it called “Black Mold: It’s effects and How to Rid Your Home of It”. The EPA has absolutely no regulations regarding mold, and the only problem a person might have with it that we know for sure is extreme allergies if they happen to be sensitive. Persons at risk include the elderly, babies and anybody with a compromised immune system, (like an AIDS patient). If you have a mold problem it is easy to fix and probably will NOT cost thousands of dollars. Step 1: get rid of the moisture, Step 2: kill the mold, Step 3: repaint. Only on rare occasions have I had to remove a bit of sheetrock or some flooring, and it did not cost me thousands, just hundreds. (By the way, if you want some really good info on mold, click here to go to the products section of my blog and get yourself a digital copy of the book…way cheaper that the paper copy at Amazon) “Pest Reports Investors purchase bank-owned homes in “as is” condition. Banks rarely pay for pest work. Left untreated, termites or powder post beetles could be devouring the structural integrity of the home. The interior walls could be supported by rotting studs.” I do not know of any mortgage company that is going to let a buyer purchase the home without a termite inspection and in most states a termite contract. Investors have to buy them just like sellers…problem solved…duh! Oh, and By the way, Look at a realtors “contract to buy” sometime. Just so you know, when you buy a home, the day you close you have taken it “As Is”. How do you think I know this? “Asbestos A quick and easy solution for covering linoleum flooring that contains asbestos is to lay laminate or ceramic over it. If the underlayment is not securely fastened to the subfloor, it could break free over time. Ditto for the exterior siding. What’s under the new siding?” OK, so the law is different from state to state, but in Arkansas, we cover those old asbestos shingles with sheathing and or siding all the time, Why would it matter what is underneath the siding if you have it sealed in? The same goes for a subfloor. The problem with asbestos comes when you break it, cut it or do something else such that the fibers get crushed up and airborne. From there they can travel into a person’s lungs and cause cancer. The chances of cancer from a few fibers in your house is fairly rare. The guys who get cancer from asbestos are usually those working around all the time: navy personnel, pipe fitters, and folks like that. Again this realtor is just trying to scare people, because a scared and uneducated person is MUCH easier to control than one who is qualified to argue with you. Building Permits Did the investor add or remove a room or make any type of improvement that required a permit? You might not know because it’s unlikely that an investor will disclose every job performed. Some work could have required a permit while no permits were obtained. Homeowners are WAY more likely to do this than investors. Let me just ask you something? Did you get a permit the last time you painted your home? The last time you hung a few ceiling fans? I have my electricians and plumbers pull permits for my homes when the job is in excess of maintenance or repair, and you should too. If you add a room, have the contractor pull a permit. If you are painting, or if the water pipe leading into the house breaks, that is usually maintenance and repair in most states. Check with your municipality on this one, they can be a great help, but again, this realtor wants to trash the investors when I am guessing that many of his homeowner sellers do the same thing. “Substandard Building Materials Unless the foreclosure flipper is a high-end home, it’s likely that the investor purchased bottom-of-the-barrel appliances, low-end cabinets made from pressed board and inexpensive plumbing fixtures or cheap dual pane windows, which may quickly wear out. You won’t know if the contractor used half-inch or quarter-inch drywall unless you remove receptacle covers and measure.” Obviously this guy is does not know much about construction. Last time I checked quarter inch dry wall cost MORE than half inch, it is special order at Home Depot. So, just guessing here, but I think the average investor or his contractor is going to stop and Lowes or Home Depot, pick up the readily available stuff and go to work; not wait for 3 weeks to spend more than the materials already there. And, if you really want to see low end cabinets, check out many of the brand new subdivisions being built in suburbs all over America. This is not an investor problem it is a cultural issue with us wanting it now, wanting more than we paid for, and accepting planned obsolescence. That of course is a political and social rant more suited for a later blog. “Unlicensed Sub-Contractors It is possible the investor’s contractor may have hired undocumented / unlicensed workers below minimum wage to perform complex jobs for which the workers were untrained. Even a simple job such as hanging drywall, mudding and sanding can be done incorrectly, and you won’t know until the screws start popping out months down the road.” DUDE! Screws don’t “pop out”, NAILS DO! In order for a screw to “pop out” it would have to like spontaneously decide to turn counter clockwise, like a dozen times, all this while buried in a bed of hardened drywall mud. Ok, I see that happening….NOT! “90-Day Flipping Rule The 90-day flipping rule applies to seasoning of title. Many lender guidelines and overlays require that the investor own the property for at least 90 days before the buyer’s lender will make a loan to that buyer. The contract date must be at least 90 days after recordation of the investor’s deed. FHA temporarily lifted this rule from February 1, 2010 through January 31, 2011. However, there are restrictions that apply even during that period, some of which depend on the percentage ratio of the new sales price to the original sales price. The bank may require receipts to prove substantial work was completed to justify the new sales price.” OK, so the investor proves what he did. So what is the problem here? How many home owners or realtors can prove what they did? “Mechanic’s Liens on Foreclosure Flippers In California, for example, sub-contractors have 90 days to file a mechanic’s lien for unpaid work. This means if a contractor did not pay a sub-contractor or if materials were delivered without payment, a buyer could find that a lien was filed against the home after the home closes escrow.” This final bit of drivel made me laugh the most. Although what the realtor says is totally true, how many contractors do you know much less sub contractors who typically live from paycheck to pay check, that would wait around 90 days to file a lien if they did not get paid. Most of my contractors expect their money when the job is complete, and many of them have worked with me for years, so it’s not as if they do not trust me. I asked my electrician how long he would wait before filing a lien, and he told me that if the client was an “unknown” he would likely file it immediately upon the clients refusal to pay, and on bigger jobs the lien is already in place and when he is paid he give a “release of lien” along with warranty documents and such. So, the moral of the story boys and girls is don’t let some bully realtor get you scared into thinking that all the investor robber barons are out to get you. Should you do your homework? Absolutely. However, in my experience, you are just as likely if not MORE likely to get screwed by a owner occupant seller as an investor. How do you think I know that?
Al Susoeff, Jr. is a Real Estate Investor, Trainer, Coach, Author and Civil Engineer from Central Arkansas. You can read more of his articles at www.ASusoeff.com