Investing 101

Are you interested in putting your hard earned dollars to work investing in a property in the northern California communities in Sacramento, Placer or surrounding areas? If so, read on...

The different types of sales you may encounter

REO homes are homes that the bank has foreclosed on, and are generally priced pretty competitively, often going for 1-2% over asking price. In Placer County the homes are highly desired and usually go quickly often $5,000 to $10,000 over asking price. The closing process usually is done within 30 days and most often the bank asks for accelerated inspection and loan approval times.

Owner occupied homes that are on the market now are usually priced at the discounted REO prices because of the competition, so excluding these homes can be a mistake; and often talking directly to the buyers can allow for a bit more negotiating power especially in the area of repairs. But in the rental or investment (or 1st time home buyer) prices of $200,000 and under there are fewer owner occupied normal sales these days. Your options really open up when you go over $200,000 - there is a bit less competition.

Short Sales are homes that the owners are negotiating with the bank to have the bank forgive all or part of the difference between the market value of the home and what they owe on their mortgage. The process really varies depending on the seller. In some cases the seller has already talked with the bank and may have an ‘approval price' to work with. So, for short sales the process is for the buyer to submit an offer to the owner, and then the owner picks one (or more) offers to present to the bank. Prior to sending the offer to the bank there may be a counter offer from the seller. The bank and the buyer often have a negotiator assigned to them and based on their conversation the bank may counter. This negotiating process often takes up to 60 days. THEN escrow starts and inspections occur.

So, why even offer on a short sale? If time is on your side it can work to your favor. Also, right now there are a lot of short sales available.

Inspections

REO and Short Sale properties are almost always sold "As IS". The bank is already losing money and does not want to put anything more into the house. The buyer really needs to do a home inspection to verify the condition of the home and many lenders require a copy of the home inspection. This used to be included in the escrow costs, but it's more common now to have the buyer pay for the home, pest and possibly a roof inspection at the time of the inspection. The default purchase agreement gives the buyer 17 days to perform all inspections, but as I mentioned above, it's more typical for the seller to cut this down to 12 , 7 or even 5 days. Fortunately you can typically get all these inspections done in that time period.

Area(s) to search

Have you thought about the area(s) to search in? Antelope is one of the best areas locally for homes in this price range, although homes in other areas do pop up.. The banks are gradually releasing more REO homes on an almost daily basis. What I do is set up a home search that reports new and changed listings that is reported each day. That way if a well priced home goes on the market you can check it out quickly. If it's priced well, it goes in the first week usually, 30 days tops. Elk Grove and Natomas also have good buys on newer homes.

Price range

Also, what price range are you looking at? And how much can you put down? How much can you put into the house in repairs? The best buys often require some repairs. Carpet & paint is most typical, but sometimes drywall, windows and doors may need to be fixed. Sometimes homes even in good areas have had their A/C stolen; although sometimes you can get the bank to pay for HVAC (Heating, Ventilation and Air Conditioning) repairs. Sometimes the home requires new kitchen cabinets or a roof. Priced right and depending on how long you plan to keep the house this may be OK, but your initial cash outlay may be different. It also depends on how ‘handy' you are or what friends you have to help... ;-). The larger your down payment, the more attractive your offer is to the seller.

Rental Expectations

Rental expectations are another item. In all real estate its LOCATION, LOCATION, LOCATION, har har. We've heard it before. Homes in better areas sell and RENT for more $'s. That's why Roseville, Rocklin and Lincoln are still ‘hot' properties. They are just less expensive than before. If you go to some areas of Sacramento there are ‘great' home prices, but I've seen homes that with for rent signs out front that appear to have been empty for months. How much can I rent the house for and will it stay rented? I use some of the rental web sites to gauge how much my clients can get for homes in the area. R&D Property Management is great for this area at R&D Properties. A Google search is also a great way to gauge current rental prices for homes - generally looking first at the number of bedrooms, and secondly the square footage. Desirable areas rent well.

Type of home

Condo, halfplex, townhouse or detached home? All have their advantages. You can often get condos in good areas especially in this area including Lincoln. There are HOA fees for Condos but that often includes exterior maintenance, common areas including a pool sometimes which can both save you money and time taking care of the exterior but also making it more desirable to rent. Even detached homes may have HOA fees depending on the area - these are most common with newer developments.

Who manages the property?

Will you be managing the property yourself? (Or do you want to be the one that gets the call at 2 a.m. to fix a leak?). Again, we've recommended R&D properties and have had good feedback. Their rates are on their website, and you can factor that in with the rental analysis.

Financing

Have you talked with anyone about financing? Talk to your realtor for recommendations if you don't have someone in mind. In today's market I always recommend someone local and full time to handle the fast pace of typical transactions.

Process

Prior to submitting an offer we typically need a deposit check (kept on file at the brokerage and not given to the escrow company until we get an offer accepted, and we use that 1 check for all offers submitted), a loan pre-approval document, and then combine these documents with the offer.

Next Steps

Right now there are 138 properties listed in the Roseville, Rocklin, Auburn, Lincoln & Antelope area between $140,00 and $180,000. This includes condos, detached homes, etc and is REO Bank Owned homes, Short Sales and ‘regular' sales. I picked this price range because they seem to be the hottest properties for investment and 1st time home buyers.

Next Steps -

1. Fine tune your requirements. More than likely, these will change as you look at houses and gain a better understanding of what the market actually is. Based on your requirements I can set up a home search.
2. Meet and go over what we call our "green folder" process. We have a process that we follow at Neighborly to ensure that everything is covered.
3. See some homes! Finally the FUN part. It's an education to actually see what's out there vs. what we see on the web. (We can combine #2 and #3 together depending on your schedule).
4. Put some offers out there. Yes, plural. Usually my clients have multiple offers out because of the competition.