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Part I

Part II

BEWARE WATER DAMAGE:

Story 2

I had the house rented to a tenant that for all intents and purposes was a good tenant: rent paid on time; trouble free tenancy.

When the tenant moved out I noticed a small leak in the bathroom at the shutoff valve under the stool.  The tenants never bothered to inform about this problem and the water was soaking in where the floor meets the wall.  The caulking around the tub was also faulty and this water, and water that escaped the tub when they bathed the kids, had soaked through under the tub.  The end result was serious water damage.

I had to remove the toilet and tub/shower, tear out the floor, replace all the damaged sub-floor structure and then replace tub, toilet, and install new linoleum.

Story 3

House was rented to good tenants who took care of the home and paid the rent on time.  Whenever there was a problem they would call me and explain the problem and usually they would take care of it themselves and deduct it from the rent. 

One day I drove by the house to check on things and noticed the hose bib on the front porch was shooting out tiny but constant stream of water.  I spoke with the tenant about it and he said he would pick up a hose bib at the hardware store and take care of it.  So what’s a hose bib cost?  Less than $5.00.  Anyway, I never gave it a second thought.  My bad!

About 6 months later when the tenants moved out I went down to check on things and found that he never did put in a new hose bib.  The wood skirting on the entire left front of the porch was rotted as a result.  Not a big deal really.  But when I tore it off I found out that the beam under it that supported the entire front of the house was also rotted.  I had to go to a specialty lumber store to get a beam sized to match the old house.  Then I had to go rent house jacks to jack the house up.  Then I had to get a crew of helpers together to jack up the house and replace the beam.  I would dread to think what a contractor would have charged me to do the above.  All because of hose bib that could have been replace for next to nothing!

________________________

If you’re stuck with a home that you have to sell or rent call me – I can help.

© Randy “Lazarus” McAtee
    Owner/Broker Lazarus Realty

    559-301-1647
    email me

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I could have titled this: HOW NOT TO BUY REAL ESTATE.

I received a call from a gentleman who saw my number on a sign I had on a property I own. He told me he was from L.A. and wanted discuss investment property with me. He came by my office and the first thing I learned was he just closed a deal with another Realtor on a piece of commercial property.

He showed me a flyer his with a picture of the property just purchased, and told me he bought it for $225,000 cash and wanted to buy some more property in the area. The more we talked the more he opened up and it turned out that while he DID buy the property for cash, a substantial portion of the cash used to make the transaction came from an equity line on his primary residence.

I then asked him the question I would ask anyone who buys real estate as an investment: “So Mr. ________ ‘WHY did you purchase this property‘?”

His answer: He believed that one day he could develop it (at which time it would be a good investment) but until then he was going to rent it out. So I asked him how much he intended to rent it out for and he said he was hoping he could get $900-$1,000 per month.

It turned out that his payment on his credit line for the financed portion of the property is right around $1,000 per month. So here is what I laid out before him:

M. ______ if you put $225,000 cash in the bank at 5% interest you would collect approx $937.00 per month without doing anything: no risk, no hassles, no taxes, etc.

Every month that you hold this property you will have the following fixed costs:

• Taxes: $225.00
• Utilities: 60.00
• Insurance: 65.00
• Managment: 100.00 (unless he decides to manage it himself)
• Payment 1000.0
• Total $1450.00 PER MONTH

If you rent this property for $1000 per month it will cost approx $450.00 per month to carry it - not including deferred maintenance and vacancy factors.

SO - MY TWO QUESTIONS:

• 1) HOW IS THIS A GOOD INVESTMENT?
• 2) CAN YOU AFFORD TO PAY $450.00 PER MONTH TO HOLD ON TO IT UNTIL SUCH TIME AS YOU DEVELOP IT?

Believe it or not - he had never been asked these questions and I could tell his wheels were starting to seriously spin. He left my office and returned to L.A.. A couple of months later we met in my office again. He had contacted the City of Fresno and an architect to get an estimate of development cost (something he should have done BEFORE he bought the property) and from the information he gathered the cost to develop the property exceeded the potential income.

So now he asks me, “CAN YOU HELP ME?”

Conclusion: I found him a tenant that did a lease/option and the lease payment is close to break even for him, the option money put some cash in his pocket, the option price (if exercised) will give him a profit —- HE’S HAPPY.

If you’re going to buy real estate as an investment you need to know WHAT YOU’RE BUYING AND WHY YOU’RE BUYING IT. How simple is that? If its an investment then you need have numbers that show a reasonable RETURN ON INVESTMENT (ROI). The first thing you should ask your agent when he says that he has a good investment property is SHOW ME THE NUMBERS.

If you’re interested in purchasing INVESTMENT PROPERTY in Fresno, don’t hesitate to call me.

© 2007 Randy “Lazarus” McAtee - owner/Broker Lazarus Realty and Fresno’s Foremost Blogging Broker.

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