As I said earlier, I believe that it is a good idea to purchase a home warranty to cover major items for the first year that you own a new property, but watch out of you have a claim!. Having a warranty is especially good for an older property or one that was foreclosed and bank owned like this one was. In this case the warranty has already paid off, but I had to negotiate with the warranty company to make it save me money.<< MORE >>

We got the 4-bedroom unit rented within a week of completing renovations.  The other side (3 bedrooms) took a while longer, but it was rented by mid-October.  Now everything is going well.

Here's the picture of my latest purchase after doing some landscaping and painting the front porch.

I had also worked in advance with my contractor to begin the needed work as soon as I closed and they did begin on July 26.  As of the date I am writing this note, they have nearly completed all work on the project.  They found a few additional issues during the work on this place, but the additions will cost less than $1000.  Both units should be ready to show to tenants this week.

We had both settlement and closing on this new property on July 22.  Since the purchase contract said that the deal must be closed by July 26 and July 23 is a holiday with the 24th and 25th being a weekend, I worked with my lender an title company to fund and record the property on the 22nd if possible.  They were able to do this because I worked with them in advance.  Closing is when the lender has sent funds to the title company an the title company has recorded the deed at the county.  My title agent also let me know that they would not be able to record if I brought a certified check, but that they could do it if I wired my down payment from the bank.  This cost me about $20, but was worth ensuring that I was closed before the deadline.  Remember, that settlement is when you meet with the title agent and sign all of the papers, but you don't own the property until closing.  Most purchase contracts have a deadline for both. 

I've hit a bump in the road of financing my latest purchase.  As you may have seen in one of my earlier posts, I asked the seller for a significant (about 4%) payment of my closing closing costs.  Well yesterday, my lender was about to send the final loan documents to the title company and did one last review.  They found that Fannie May has a rule where the seller can't pay more than 2% of the buyer's closing costs on an investment residential property.  This means that I need to adjust the purchase price and seller paid closing costs down by about 2% of the purchase price.  So I spoke to the seller's agent and submitted an addendum to the seller requesting this change.  It should just be a formality since the net price remains the same.

I finished my Due Diligence today with the receipt of the preliminary title report or "PR".  This report shows what the title company will cover in their title insurance policy and that they expect to be able to provide clear title with any exceptions noted.  This should be read carefully.  I also have the report from the home inspector, a quote from the roofer for replacing the roof and a quote from my property manager/general contractor for fixing the items noted in the inspection and additional items like painting needed to attract tenants.  I also received the appraisal to verify that I will not be paying too much when I add the purchase price and renovation costs.  With the appraisal, I can see that I'm getting a very good deal.

Late on Thursday, June 17 I got the contract back signed by the bank officer. It is interesting how long things take at big institutions, but in this case the delay is a good thing for me. As I noted in my last entry, my due diligence clock didn't start until both parties (me and the bank) signed the contract. Since, since I already had all inspections scheduled, this just as the effect of giving me a longer due diligence period. That is a very good thing in case something takes longer than expected.

I received the bank contract on Friday, June 11. After reviewing it carefully myself I discussed it with my wife, my broker and gave a copy to a title agent I know for her review. On something complex like this, you want to get opinions of what pitfalls there are in the contract from those close to you and real estate professionals. When discussing the contract with the title agent, I was pleased to find that her company does frequent settlements for banked owned properties and she was familiar with this contract. That was terrific because she was able to point out somethings in the contract I did not notice.

Since I started working with the home inspector, contractors and loan officer before submitting the original offer I knew that I could get all of my inspections and appraisal within my due diligence period. Further, after speaking with everyone and listing the possible problems, I decided to go ahead and sign the bank's contract on Monday, June 14. Yes, there is some additional risk with this transaction compared to others that I've done, but I know what those risks and believe have a plan to mitigate them.

Be very careful of the terms when purchasing a bank owned property. << MORE >>