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Hardcord Flipping: Building an Addition

1011649_10201132447646086_1974265827_nOur Hardcore Flipping: Building an Addition event this Saturday was a huge hit!

We had over a dozen attendees spend two hours of their Saturday morning beating the heat to learn how adding an addition to a flip can lead to bigger profits…

More Opportunity:

Looking at a home to flip using its existing footprint can significantly reduce the number of deals you find and future potential profit of those that you do buy.

The home we previewed was 832 square feet with 2 bedrooms and 1 bathroom on a large 9,000 square foot lot.  Further, the kitchen area was separated from the living room and the attached garage was not accessible from the main residence. The infrastructure of the home was solid, but the After Repair Value as a 2 / 1 didn’t pencil.

With some imagination, the investor on the project designed a 450 square foot addition which included a new master bedroom / bathroom and direct access to the garage. Additionally, the proposed renovations opened the kitchen area to the living room giving the appearance of more space.

The result of the addition and modified floor plan should result in a $75,000 to $80,000 increase in the sales price. It also made the property more marketable because it now could target a larger pool of buyers looking for a 3 / 2 configuration.

Potential Hurdles:

Adding an addition to a flip can be very profitable, but add substantial risk.  Some of the biggest hurdles for novice investors considering an addition is to formulate an accurate budget and project timeline.

In most areas, building an addition will require building plan approval from a local building/planning department.  Before purchasing a property with an addition in mind, visit the local building/planning department to verify that your property would allow for an addition.  Further, based upon new regulations, the existing structure may need to be updated to new building codes which could make the project costs unreasonable.

Creating your project budget takes careful preparation.  If you are not a contractor, be sure to work with a licensed contractor that specializes in building residential additions and has worked with the specific building / planning department that would handle the approvals on your project.  Review the budget carefully with the contractor and ask where potential cost overruns could occur. Be sure to add a contingency to the budget in case unexpected repairs are required.

Conclusion:

Our Hardcore Flipping: Building an Addition event this Saturday offered our attendees a in depth clinic on successfully building an addition to a flip.  We covered topics such as how the investor designed the new configuration for the project, the hurdles he faced though its construction, and the expected sale proceeds he should receive from the additional square feet.

Don’t miss our next Hard Flipping event.   Be sure to add your name to our monthly newsletter by clicking here and/or periodically checking our website for new events.

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Argument for Cash Flowing Assets

Since beginning my career in real estate, I have employed the Warren Buffet style of investing.  I seek assets that offer immediate, stable income in the short term.  The primary reason that I utilize this strategy is that it offers immediate cash flow and provides for predictable outcomes in both strong and weak markets.

Why Buy Cash Flowing Assets?

I acquire cash flowing real estate and invest in short to medium term real estate debt because I can’t predict market fluctuations.  Sure I can recognize when the economy is slowing or when it appears to be building steam, but to predict the magnitude of these peaks and valleys is impossible.

Acquiring real estate for cash flow takes most of this guessing game out of the calculation. Consider that in the last housing downturn, rental rates remained stable nationwide and actually increased in some markets.  This happened for two reasons, many homeowners quickly became renters and home builders stopped building new supply.  The result was an increased demand for rentals and upward pressure on rental rates.  A huge win for a cash flow investor.

During this same period, the demand for short to medium term debt spiked as real estate investors flooded the market to acquire distressed residential property.  The problem was that the debt needed to acquire these assets had disappeared.  Investors who maintained liquidity were able to fund these borrowers with short term loans at very high interest rates. Instead of doing the heavy lifting of locating a distressed asset and rehabbing the home, these investors simply sat back and loaned out their capital.  Another huge wing for a cash flow investor.

In both cases, the investors that were able to take advantage of the market sought assets that offered consistent monthly income.

Cash Flowing Assets Predict the Future?

How do cash flowing assets relate to predicting the future value of real estate?

Consider that in 2006, cash flow investors found it very difficult to acquire income property that offered an attractive yield.  Home prices were simply too high for the income they produced.  Many cash flow investors probably scratched their heads thinking their cash flow models were incorrect and some may have even mistakenly changed their strategy to take advantage of the appreciating markets.

The same phenomena occurred in the debt markets.  During this period, many private lenders were forced to take greater risks on assets that were outside their comfort zone to obtain their desired yield.  These greater risks included loans at higher loan to value ratios, lending on undesirable assets such as raw land, and to borrowers with little to no experience or weak credit.

In both cases, cash flow investors that maintained their discipline survived the collapse and were well positioned to profit from it.  These cash flow investors didn’t predict the future or breadth of the correction, but they knew values were too high and thus employed a wait and see strategy.

Buying assets for their cash flow will position a real estate investor for long term success.  No matter if an investor is focused on acquiring income property or high yielding debt, cash flow is a good prognosticator of future market direction.  Further, utilizing a cash flow strategy, investors will position themselves to take advantage of the market when there is opportunity.


Hurdles to the Housing Recovery

The housing market continues to recover at a healthy pace.  One could almost say that the recovery is over and we are now experiencing a period of pure growth. According to the most recent Case-Shiller report, home prices increased 12.1% in their 20-City Composite between April 2012 and 2013.  This is great news for an industry that has been stagnate for over 5 years.

There are several factors that have contributed to this growth, but several obstacles could jeopardize it.  The following are several hurdles that could impact the housing market over the next 24 months.

Interest Rates:

The sudden jump in interest rates over the last quarter hasn’t gone unnoticed.  Interest rates primarily affect the first time home buyer market as this market segment is typically more “monthly payment” conscience.

Consider that every 1% rate increase on $100,000 adds roughly $58/month in payments for a homeowner assuming a fully amortizing 30 year mortgage.  Assuming that the US existing home median sales price was $208,000 in May 2013 and considering that most first time home buyers use some form of government controlled loan program requiring only 3% down, these home buyers are now are paying roughly $115/month more than last quarter.

In most markets, the monthly payment for home ownership (principal, interest, taxes and insurance) is substantially less than the market rental rate for that same home.   Until these two data points become more inline, home prices should continue an upward trend in these markets.

Dissolution of Fannie and Freddie

A bipartisan group of senators introduced legislation that would dissolve Fannie Mae and Freddie Mac over the next 5 years.  The idea is to shift more risk to the private industry by requiring private market participants to take a greater share of the first loss on mortgage backed securities that are insured by the government.  In other words, we the government don’t want to foot the bill when the housing market crashes again.

Simply not going to happen.  Though most economists would agree that the lending industry is better suited for the private market, the real estate lobby is simply too big for the government to dissolve both of these entities.  We talk about the third rail in real estate being the mortgage interest tax deduction, well Fannie and Freddie would be a new fourth rail.

General Economy

The US economy continues its tepid recovery.  According to the Department of Commerce, the gross domestic product (GDP) increased 1.8% in Q1 2013.  The leading contributors to the increase was manufacturing and the farm industry.  Considering that sequestration has made its way into economic output through lower government spending, these numbers could be worse.

Most households feel better today about their financial position than 12 months ago. Many have probably put their foreclosure or short sale behind them and are watching their credit scores recover.  Some may even be considering ownership again, or at least a new car.  That being said, non-discretionary spending remains a vital component to a strong economy and is an excellent indicator of overall confidence.

The housing market should continue its period of growth over the short term.  The major risks to this recovery will be the movement of interest rates, government action as it relates to Freddie and Fannie, and the general economy. These risks are manageable and shouldn’t impact the housing recovery tremendously in the short term.


Price Appreciation: Top 5 States

San Diego, CA – The top five states in price appreciation over the last 12 months appear to be located in the west, according to a recent article by Mortgage News Daily.

The article reported that CoreLogic released its Home Price Index which concluded the top five states were Nevada (19.3%), California (18.6%), Arizona (16.4%), Hawaii (14.6%), and Idaho (13.5%).


THOR Starts Year Strong

San Diego, CA – THOR Financial is pleased to announce that it has started 2013 with a bang closing two fix & flip loans in San Diego, CA.  In each case, the borrower intends to complete a full interior and exterior renovation and reintroduce the property back to to the market.

The first loan of $207,600 is secured on a duplex in Chula Vista, CA.  The borrower acquired the property from a probate sale.  The property requires interior and exterior cosmetic updates.

The second loan of $180,000 is secured on a residential property in Oceanside, CA.  The property was heavily damaged by fire and smoke.  The borrower intends to complete a full renovation on the interior and exterior of the property.

THOR Financial specializes in financing short term hard money loans for investors flipping homes.  Our experience and strong capital position allows us to fund fix and flip loans quickly.

Contact Brock VandenBerg at (888) 868-THOR for more information regarding our hard money lending programs.

Click Here for a list of recently funded Fix & Flip loans.


The 3.8% Real Estate Tax – What?

San Diego, CA – Beginning January 1, 2013, a new 3.8 percent tax on some investment income will take effect. Since this new tax will affect some real estate transactions, it is important to clearly understand the tax and how it could impact you. It’s a complicated tax, so we suggest that you speak with a CPA or tax attorney further regarding your specific situation.

To get you up to speed about this new tax legislation, the National Association of Realtors has developed an informational brochure.  We have provided a link to the brochure below.

The brochure will provide insightful information on different scenarios in which this new tax — passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Barack Obama’s health care and Medicare overhaul plans — could be relevant to you.

Understand that this tax WILL NOT be imposed on all real estate transactions, a common misconception. Rather, when the legislation becomes effective in 2013, it may impose a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will fall only on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.

National Association of Realtors – Informational Brochure


Seminar: Investing in Trust Deeds

San Diego, CATHOR Financial has teamed up with AccuPlan Benefits Services to offer a FREE educational seminar on Investing in Trust Deeds and the Benefits of a Self Directed IRA

This unbiased, comprehensive educational seminar will offer valuable insight for both new and seasoned Trust Deed investors.  In addition, this event will also provide in depth information on utilizing a Self Directed IRA to invest in real estate.

We will cover such topics as:

    • What is a Trust Deed?
    • How to maximize returns while minimizing ris
    • How to locate Trust Deed investment opportunities
    • Utilizing a Self-Directed IRA to Invest in Trust Deeds

Why should I attend?  Investing in Trust Deeds can offer a long term investment strategy that provides high yields and consistent monthly cash flow.  By attending, you will obtain a comprehensize understanding of how to correctly structure a trust deed investment to obtain the greatest security and maximize yield.

Click Here to reserve your seat today or to learn more about our event.


THOR Funds $1.02MM in October

San Diego, CA  – THOR Financial is pleased to announce that it funded $1.02 million in Fix & Flip loans in October.  By specializing in funding fix & flip loans quickly, THOR Financial has quickly become the trusted source of capital for residential rehabbers looking for an aggressive loan-to-value at competitive rates.

Below is the list of Fix & Flips loans funded by THOR Financial:

La Mesa, CA – $240,500
Santee, CA – $231,000
Lakeside, CA – $211,250
La Mesa, CA – $211,250
San Diego, CA – $130,000

Contact THOR Financial today to learn more about our Fix & Flip lending options at (888) 868-THOR.


California Foreclosure Activity Lowest Since Early 2007

Mortgage default filings in California hit their lowest number since first quarter 2007, according to an October 17 report released by Data Quick News, a leading real estate information service.

The report concluded that 49,026 Notice of Defaults (NoD) were recorded in 3rd quarter 2012, which was down 10.2 from the prior three months and 31.2% from the same period last year.  The report also suggested that banks and homeowners appeared to have preferred a short sale rather than a foreclosure as the number of short sales rose 22.9% from the prior period.

Interesting Statistics:

  • The most active beneficiaries in the formal foreclosure process during the last quarter were Bank of America (8,061), JP Morgan Chase (6,713) and Wells Fargo (5,780).
  • On primary mortgages, California homeowners were a median eight months behind on their payments when the lender files the Notice of Default. The borrowers owed a median $16,414 on a media $315,000 mortgage.
  • Mortgages were least likely to go into default in San Francisco, San Mateo and Santa Clara counties and most likely to go into default in Madera, Riverside and Yuba counties.
  • Homes foreclosures last quarter took 7.9 months to complete the formal foreclosure process, beginning with a NoD.

Link to Article:  California Foreclosure Activity Lowest Since Early 2007


THOR Funds Two Fix & Flip Loans

San Diego,CA – THOR Financial is pleased to announce that it has funded two Fix and Flip loans totaling $471,500.

Both loans are secured on residential properties in La Mesa, CA and Santee, CA.  In each case, the Borrower intends to complete interior and exterior renovations and reintroduce both properties to the market within six months.

THOR Financial specializes in quickly funding residential Fix & Flip loans.  Our long track record of successfully funding transactions has made us the leader in short term hard money loans in California.

Contact Brock VandenBerg today at (858) 613-0111 x3 to learn more about our lending programs or visit www.thorfinancial.com.