Monday, December 31, 2012

How to buy a house

When we came to our first home-buying experience, we realized we had NO idea how to do it, or any idea of all the 'hidden costs'. Here is a simple breakdown of the steps involved in buying a house.
  1. Pre-Approval. Before even looking for a home, you need to know how you are going to buy it. Either get pre-approved for a mortgage, or have other financing in place. To get pre-approved, go to a bank or a mortgage broker. 
  2. Find the house! This is fun part. You get to find and pick your favorite house within your pre-approval price range.
  3. Make an Offer. If you have a Real Estate Agent, they will prepare the contract for you. If you don't, you need to find your state or province's basic contract to use to make the offer.
    1. Fill out the legal property information.
    2. Initial all pages of the contract.
    3. Insert your conditions, such as 'subject to Home Inspection'.
    4. Choose your condition removal date, and closing date.
    5. Have part of your down payment ready to put in Escrow/Trust with your lawyer. This lets the seller know you are serious.
  4. Negotiate. The Seller will often come back with a counter offer after you submit your original offer. Be ready to negotiate the terms before finalizing the offer with the seller. You will still be able to negotiate price after the offer is accepted, depending on what you find wrong with the property during the Home Inspection.
  5. Inspection Period. See our post about this step.
    1. Set up all financing. (This can include a surprising amount of paperwork to prove to your lender that you are qualified to buy the house and pay the mortgage payments.)
    2. Get a Home Inspection. ($200-$600.)
    3. Re-negotiate the Price if there are things wrong with the property.
    4. Set up Home Owners Insurance.
    5. Set up Life Insurance. Most mortgage lenders require you to have life insurance.
    6. Set up utilities to come under your name upon closing.
    7. Understand your mortgage terms: points, interest rate, amortization period, mortgage insurance, early payments, etc.
  6. Closing
    1. Deposit your down payment in trust with your lawyer before the closing date so it is clear to be transferred on the closing date.
    2. Meet with your lawyer to sign all the documents. He will provide you with the deed and title. He will give you a closing estimate price, which you will pay him. If the estimate was high after everything clears, he will refund you the proper amount when he sends you all your official documents. (Mortgage documents, Land Title and Deed.)
    3. After you meet with your lawyer to sign closing documents, he will notify you as soon as money and title have transferred, and give you the keys to your new home!
  7. Closing Costs. There are lots of potential closing costs, and no great way to figure out how much they will be without some research. Some potential closing costs include: lawyer fees, title search and title insurance, government recording fees, adjustment for property taxes, credit check, and survey/appraiser fees. Some of these will be paid to your lawyer, others to the mortgage lender. A good article I found on closing costs can be found here.

Inspection Period

What is the Inspection Period when buying a house?

The Inspection Period is the time between when your offer to buy is accepted, until you remove your conditions and sign the final contract to buy the property. The amount of time can be anywhere from 5-14 days. During this time you have the option to back out of buying the house. You will get a Home Inspection done by a professional, to identify any problems with the house and negotiate your final price. During this time you can also show the house to potential wholesale partners. By the end of the Inspection Period, you must have financing in place, that is you must be cleared for what ever type of financing you are using to buy the property, be it a traditional mortgage, a hard money loan, investors funds or your own cash.
At the end of the Inspection Period you will sign a final copy of the contract to buy, removing conditions and settling on a final price. You then have a period of time before closing, what ever you have negotiated depending on financing and other circumstances.

Continuing the story of our first deal, we had a 7-day Inspection Period. Our original plan for the property was to wholesale it. We set up a date to get into the property when we had our Home Inspector, contractors, interested investors and a bank appraiser come. Everything happened on that one day. It was a bit of a zoo! The reason we had all the investors come at once was to create urgency. The house was a great deal, and they all knew it. We found one main problem area in the Home Inspection, but basically the house just needed updating. We gave all the investors instructions to contact us within 3 business days with their offers, and we would go from there. The day of the inspection we had an investor let us know that they were very interested in buying the house with us as a joint venture. In the end, this was the offer we accepted and thus began our first investment property experience! Immediately after this investor contacted us, they began getting financing in order and on 'condition day' we signed the final contract with them.
After Condition Day, we had 7 days before closing. We used this time to line up our contractors of choice to begin work as soon as we had possession of the property.

Monday, December 17, 2012

To put a house under contract

Real Estate Advanced Training is great. But what about Basic Training?

All those Real Estate education companies are selling Advanced Training, but when it came right down to it, I found out we knew more about OWNING a property than about how to BUY a property.

How do you buy a house???

You could get a Realtor and they take care of it for you, just tell you where to sign. However there are situations where you don't necessarily want to use a Realtor. In that case, where to start?

First, you need to know what money you are buying the house with. If you are getting a traditional mortgage, you need to talk to your banker or mortgage broker and get Pre-approved. Sellers won't waste their time on you if you can't actually buy the house.

Second, you need a contract to buy. This doubles as an offer form. You fill it out and give it to the seller. Once you agree on the terms, the offer-to-buy turns into a contract-to-buy. Where do you find a contract? Ask the seller if they have a contract for you to use. If they don't, use your state/provincial standard 'Real Estate Purchase Contract' form. Google it.

Third, fill out the contract form, and be sure to include your conditions and an inspection period. Conditions are your way of saying, "I want to buy this house, but only if...".  Typical conditions are:

  • subject to home inspection (you hire a home inspector to check out the house for any major problems).
  • subject to financing (your buying the home is conditional on being able to get the money).
  • subject to partner's approval (as an investor, this sometimes becomes your only out if you need one).
Fourth, submit the contract offer-to-buy either to the seller or the seller's lawyer, and wait to hear their counter offer!

The very first home we ever bought was an investment property. We had our eye out for undervalued homes (buy at a discount). We heard about a property going into foreclosure down the street from us, and we decided to put it under contract and try to wholesale it, or get investors to buy it with us. "Ok," I thought, "I'll put it under contract." Then I realized I had no idea how to do that.  I called a mentor, and asked who I should talk to in order to submit an offer. This house was just barely being repossessed by the bank, there was no Realtor involved, no For Sale sign; so I wasn't sure who to contact. My mentor suggested asking the owner for the contact information of the lawyer who was dealing with the foreclosure. That is a touchy subject to ask a going-into-foreclosure-owner. Ideally  we would have liked to help the owner before he went into total foreclosure, but in this case it was too late. I was able to find a phone number for the owner, and, though I felt rather brazen, I did get the information I needed: the lawyers name and phone number that was in charge of repossessing this man's house. If you can't find a phone number, a last resort is to knock on the door and talk to the owner face to face.

Because we contacted the lawyer before the bank found a Realtor for the property, I negotiated the terms directly with the bank's lawyer. It was a series of faxes and scan&email the contract. We probably had 7 to 10 versions of the contract before settling on a final version that the bank accepted. (I had a private little victory dance once our offer was finally accepted :). The final version wasn't pretty-- lots of crossed out lines, initials where anything had been changed, and a grey haze from the multiple faxings. But hey, it got the job done!

Once your offer is accepted, you have an inspection period during which you get the home inspection and secure financing. If everything checks out, then you remove your conditions and your offer to buy  becomes binding.

Stay tuned for our "Inspection Period" post to find out more about this stage of buying a house, and for more  on the story of the foreclosure!

Friday, November 30, 2012

Edmonton Market Trends 2012

Overview of market trends in Edmonton:

Spring: March-May. Not many houses on the market yet, but many buyers = high selling prices.

Early Summer: May-July. Many more houses come on the market, as a result house prices drop slightly, though buyership remains strong and many properties have multiple offers, giving sellers their asking price. Not much negotiation room. Days on Market still competitive: 10-30 days.

Fall/Early Winter: November- December. Few buyers, though the buyers out there are usually serious. House prices dropped $10-$20k from Early Summer prices. Days on market seem like infinity.

*These trends are per my experience as an active buyer in the market from March-July, and as a seller in the fall/winter.  Individual experiences may vary.

If you're in the market for buying a house to renovate and resell, don't buy in late summer! Turn around time should be 3 months or less, so the perfect time to buy is in the winter when house prices are low, and competition is low so you have more ability to negotiate your terms. Also, buying in the winter should put you ready to sell at the best possible time: Spring!
-buy in the winter, sell early spring

Buyers Market: Fall and Winter. Sellers are a bit more desperate, though your choice of homes will be fewer.
Sellers Market: Spring and Summer. Lots of buyers keep prices competitive.

Multiple Offers: this is the best thing for a seller, and the worst thing for a buyer.

Thursday, November 15, 2012

My Yellow Brick Road

I want to give a brief overview of the education and experiences we've had thus far in our Real Estate career, in effect our "Yellow Brick Road." Once done with this, I can get to blogging about specific issues, like how to buy a house? and, what to look for in order to create a basement suite in a home, etc.

*BRIEF* Overview:
Rich Dad evening Seminar
Rich Dad 3-day event
Family Home Helpers
Steve Martel evening Seminar
Rich Dad Advanced Training
Buying a Foreclosure
Steve Martel 3-day event
Buying our own home, Looking for Secondary Suite Potential

*Not so BRIEF* Overview:
Easter 2012 was my very first Real Estate Seminar. It was with Rich Dad/Poor Dad, and it was an evening, about 2 hours long. I was skeptical going in. I hadn't read anything by Robert Kiyosaki at that point, but my husband had and I know I was curious. I AM the one who signed up for the seminar, after all! By the end of the seminar, they were offering a three-day course on Real Estate Investing for about $200. We signed up. (I was to discover that three-day weekend courses are very common in the Real Estate world).

We came home with a few books, and one by Robert Kiyosaki titled "Unfair Advantage." I recommend the book. It is all about financial education-- education that is completely lacking in our public education system. This was around the same time that I was voraciously reading "The Big Short" and "Boomerang" by Michael Lewis about the state of finances in 1st world countries, and what crookery was behind the economic crash of 2006-8 in the USA.  I was totally fascinated, and reminded of how messed up our financial system is. The stock market is worse off than gambling. Anyhow, I recommend those books as well, but back to the Yellow Brick Road...

We went to the three day Rich Dad training in May. It was awesome. We met many other investors, received very good information, and all in all it was worth the $200. Then they tried to sell Advanced Training. Of course we wanted to sign up. The only problem was the cost. To the tune of tens of thousands of dollars. GAG. Ya, we were still recovering from being poor college students. This was way out of our league. But we negotiated a deal with them, signed up for one course, and thereby had access to a community of other investors. I think that community was the most beneficial part of the deal. We started having Cash-flow parties (playing a board game about financial success  called Cash-flow).  We were invited to dinners and other networking events. I hesitate to say networking, as that word has always had a bad flavor for me, but really what these events did and are doing for me are being a continual source of information. I can ask questions, hear others' stories, get ideas and names of contractors or whoever I many be needing to get a-hold of.

At the Rich Dad 3-day event we met a man who already owned a Real Estate business. He had previously done a lot of flipping- buy, renovate, resell. At the time of the Rich Dad conference he was acting more as a quazi-Real Estate Agent, but for people selling without an agent. He had creative ideas about financing and helping people get into a home with bad credit, ect. There is a very real market for this kind of a job. I decided to team up with this guy and give it a shot. The company, Family Home Helpers, was a good one, but I had no success  and after about 4 months I threw in the towel. What it taught me, however, was important. I got a lot of experience making cold calls, talking to people about their homes, home values, and Real Estate in general.

My husband had heard some things about a guy named Steve Martel, a Canadian Real Estate Investor. This was special. Rich Dad basically dominates the Real Estate Education industry, and they, along with most of the other companies are American-based. Many of the Real Estate ideas are relevant in Canada, but most of the policies and implementation plans are somewhat different in Canada, as there are different laws. So when we heard Steve Martel was coming to town for an evening seminar, we signed up. They gave some awesome information on analyzing properties that we hadn't been able to get even in the 3-day Rich Dad event, and we were very pleased. We also went to the seminar expecting to be sold something. We were right. Another 3-day event. This one was more like $500, but we were very impressed with the detail and information we got that night, and wanted more. We signed up.

About this time we heard about a house down the street going into foreclosure. Everything we'd been taught so far said to JUMP! I got a hold of the owner right away to find out the bank and lawyer's information. We used the information learned from Steve Martel on analyzing properties to see if it would be a good deal. It definitely appeared to be a money-making prospect, with several ways to go about it. We of course had no way to buy the house ourselves, but planed to wholesale it to another investor who could then renovate it and sell, or put a renter in it. The trick is to get it under contract with some exit strategies in case it doesn't work out, and then figure out what to do with it. I had no idea how to put a house under contract. I had to ask lots of questions and do a ton of research, and I'll definitely be writing a post about what I learned!

Next step on our Yellow Brick Road was the Advanced Training we purchased through Rich Dad. We chose to do an online version first, with the option to go to the 3-day course live as a refresher later on. This was July. The course we chose to take was all about Rent-to-own, or Lease-options. Lots of great info, and we got way more up close and personal with contracts and paperwork. Being familiar with the required paperwork is a huge part of Real Estate, and one that was previously totally foreign to me. The courses were one or two evenings a week, broadcast live over the internet.

Towards the end of this course, we got the Foreclosure down the street under contract, and went about trying to wholesale it. It was fun! Unfortunately we didn't get the offer we'd hoped for (I think I needed a bigger pool of investors to contact about it). However, a family member stepped forward as interested investors, and so we decided to buy it together with them, and do the renovations-reselling ourselves! Thus began our first investment property adventure.  We were really investors now!

July was a busy month for us!! As mentioned, we had the evening classes with Rich Dad. We also went to the 3-day Steve Martel event, mid-July. I spent most of July negotiating the contract to buy the foreclosure (I was AMAZED at how slowly the process went). We had also been going out with a realtor to find a home to buy for ourselves, and actually left the Steve Martel event one evening to sign the contract to buy the place we were hoping for. So it was, that by August, we were in the process of buying two houses at once, and 'swimming' in Real Estate education.  We made sure, with the property we bought for ourselves, that there would be the potential to create a rental suite in the basement, keeping an 'investor mindset', even when buying our own home.

We got possession of the foreclosure mid-August, and began screening contractors to get the renovations done. We moved into our own home the end of August, and that weekend also put in a kitchen in the basement, in order to create the rental suite. (I was vacuuming and wiping down construction dust for weeks afterwards...) September and October were somewhat painful for us, as reality and our own inexperience caught up to us. We had high hopes of getting the foreclosure back on the market mid-September, but everything seemed to take longer than projected. But by the beginning of November we had both the basement suite and the foreclosure ready to rent/sell, and began a whole new side of Real Estate: Marketing.

The 3-day Steve Martel event was fantastic. Steve Martel himself was there, as the main educator. (I have yet to meet Robert Kiyosaki, though I do hope to one day). Steve's dynamic presentations, as well as frank sharing of experiences that got him going in Real Estate were great.  Again, we knew to be prepared for the sales-pitch that would inevitably happen. Steve Martel had a different edge, though. He was selling a coaching program. 12 months of coaching, and all the "Advanced training" would be available through a website, rather than having to travel to events (though there are events, as well, if you want to go). What really sold us on the program is that he has a system in place to get coaching students set up with the needed companies, asset protection, with accounting and legal support already in place, all included in the fee. All the legalities are quite a hurdle for newbies, and many Real Estate Babies never get past the beginning steps of setting up a company.

I didn't really consider the coaching program a possibility, as it was, again, tens of thousands of dollars that we just didn't have. Even less so now that we just bought our own home. My husband, however, was convinced we could make back the the coaching program fee within about a year. We borrowed the money. I intend to be very honest on this blog about our story. So, honestly, I still sometimes have mental breakdowns and brain twitches about how far into debt we went for this business venture/education program. The only other time I ever had to borrow money in my life, it was $800. Pennies compared to this. I made it through University without student loans, something I was quite proud of. But now, no more touting my debt-free self, I am shackled. All the more motivation to make Real Estate start making us money! Not morally the best motivation, but powerful motivation nonetheless.

That's about  caught us up to current events as of this writing, so now I turn myself to item-specific blog posts, because even if we are still babies in the Real Estate world, statistics say that babies learn and grow faster than adults do!

Wednesday, November 14, 2012

Why Real Estate?

Why get involved in Real Estate?

I'll tell you my reasons.

Ever since I met my spouse, he has talked about early retirement and financial freedom. Freedom 45. Time. Time and financial means to visit family, travel the world, and endorse humanitarian and charity programs. Not that he had a plan figured out (that involved me, anyways), but that has always been the goal. That is still our goal.

So we set about trying to figure out how to get there. He once told me that if he never got married and remained living a 'university student lifestyle' with roomates at a rental house of $300/mo/per person, he could have saved up enough cash by age 35 to retire and live off the interest. He even has a spreadsheet detailing the numbers. But we got married, and I guess that sort of ruined that plan. :D  I've looked into countless work-from-home opportunities to try to find a side job that would get us ahead, and keep us ahead while I become a stay-at-home mom with our future kids.  We actually consented to meet with people from a few different network marketing companies, thinking that might be my side-job. He has researched endless investment potentials, including stocks, bonds, ETF's, REITs, investments with dividends or not, etc etc. We dabbled in some mutual funds, some ETFs, but never quite felt like we were going anywhere fast. Turtle speed would have been faster.
When we went to our first Real Estate evening seminar, the idea just made a lot of sense. The speaker was talking about better returns than any other investments we had researched thus far. He explained how Real Estate can be recession-proof (another post, stay tuned :). He talked about systemizing the process so that owning real estate could be done on the side, we didn't have to quit our jobs to be successful at it. He talked about early retirement and living off Real Estate income. He talked about passive, or residual, income. It all seemed to fit. And all these reasons have yet to be proved wrong for me, a real estate baby though I may be. Real Estate just makes sense! It may take a few years to build up our capital enough to have income from rental properties paying our bills, but to us that is a few years well worth the effort. So in we dove!

In the Beginning

Easter, 2012

My first ever Real Estate seminar.

I saw the add on facebook (I think that to date it is the only fb add I have ever used). I signed up for myself and my spouse and away we went to hear Chef Shamy talk about investing in rental houses as a retirement plan. What a new idea for me! It was convincing, too. The stock market was a continual mess with effectively flat returns for the last decade. People have started calling it "The Lost Decade." He was selling, and we signed up for, a three-day event with Rich Dad Education the following month. That cost some money, but we were pretty excited about it.

The main idea I remember from this first seminar is that you get rental properties that pay for themselves over their 20 year amortization  and then when they are paid off and you are retiring, you either live off the rental income or sell them. Pretty good idea, hmm?

And that is where all things Real Estate began for me, with a facebook add and Chef Shamy.