A Lesson in Due Diligence - Posted by Michael

Posted by Joe Kaiser on June 12, 2007 at 20:59:11:

We did an entire training program. This blog was to market it. I’ve taken it
down since it’s no longer needed.

A Lesson in Due Diligence - Posted by Michael

Posted by Michael on June 09, 2007 at 07:58:40:

Part of being an Intelligent Investor is understanding the investments at the Intrinsic Level

A Lesson in Due Diligence

The Intention of this email is to educate some of the newer investors in our midst, not to slam someone’s attempt at doing business. It is very easy to get caught up in a deal at face value. Then get sold thru hype and salesmanship and make a mistake. Here are a few things that has happened to Mike Thompson and myself lately. We thought these were worth sharing.

This is a recent thing I observed
I got this email about some Wholesale Properties

The Best Deal on a DUPLEX in Fort Myers. A couple blocks from Lee
Memorial, this location can’t be beat!
2429 Canal St, Fort Myers, FL 33901, duplex, 3bed/1bath with a den
and a 1bed/1bath
About 5k in repair needed. This is an assignment of contract, Comps
for this property range from 153k -190k
Your price only $102,000, pics and more at http://www.buyahousefromray.com/2429canal

This struck me as an a opportunity. I was excited! My research shows mulit-family properties are the most stable and tend to survive down times better than SFR. Its a good day when you get to buy some Cash Flow!

County Info Here: http://www.leepa.org/Scripts/PropertyQuery.asp?FolioID=10173641&AppraisalDetail=True&TaxYear=0#Appraisal

I was going to tie this up, until I physically checked out this deal.

What did I find

County records show it is classified as a duplex.The improvement type is Single Family. It was built as a SFR and a Mother-in-law suit added after the fact. Its does appear that the City is OK with the Mother-In-Law suite being there. Its not a true Duplex. It is still Multi-Family though. From other deals I have done. Sometimes a lender will require to have a few comps that are similar to this not duplexes. FYI
This Property has a pitched roof. That should have shingles on it. The property has 90 LB Rolled Roofing ( this is meant to be used for Tile roofs not as a stand alone roof surface). I could not tell if it was hot mopped down or if the cold cement was used. If it was hot mopped? it may be to code? This type of a roof has a very short self life. Its the preferred roof of people who hack together the rehab. I bought a house with 5 layers of rolled roofing on it at one time. One on top of the other. Its caused the floors to be uneven. From the weight.
Looking in the Window at Ungrounded Outlets
Package AC Unit Looks Very Rough. These are very inefficient. That means higher utility bills. Expect more tenant turn over
Electric Company has pulled Both Meters. Meter Can Lids were still there. Always Check that. They get stolen so people can turn on their power.
Properties that sit vacant for a while tend to have drainage problems when re-occupied. Plan on snaking the main drains.
City Of Ft Myers has an orange sticker on the house instructing tenants to move out. this is a very serious issue as I am dealing with the City Of Ft Myers right now. They are on a crusade for some reason. Plan on having to have an engineering report. The Issue was for Plumbing and Electric. With the City of Ft Myers this is something to factor in.
To check Properties in the City of Ft Myers here is what you do, send a fax requesting if there any open code issues to Pat Parker, 239 332 6721, City Of Ft Myers, she faxed me the code issues within a few hours.
Here is the sellers motivation to sell. 1 $0.00 To RICHIE ADAM K CITY OF FORT MYERS 6/4/2007 Lien O L PT8,9 BLK D PINEHURST ADDN 2007000176781
2 $0.00 To RICHIE ADAM K CITY OF FORT MYERS 3/13/2007 Order O L 9, PT 8 BLK D PINEHURST ADD TO BLK D 2007000082462

Jalousie Windows, these are very inefficient which will cause your tenants to have higher electric bills causing tenant turnover.
I did not check about the water meter. There is probably only one.
I am sure there are many more issues but I left looking further was a waste of time.
I also did not look into the comp range as the deal was way-out of the ball park.
850. Rent for the House MAX
525. Rent for the Studio MAX
1375 Total

the rent market is in the tubes as we speak. The shape this property is in, would not lend to those rents. If they did agree to pay that. They would move out quickly and tenants remorse would be quick. The type of tenants who will live in a substandard property cost you more money than they make you.

Lets break This Down
Your price only $102,000,
Rehab work 5,000.

10,000 to 20,000 would be a better number for the rehab.
5,000 if you did the all work yourself.
When you factor in the engineering report for the unsafe building notice and mechanicals being replaced. This could get expensive.

This a very out of shape property that need serious updating to be a cash flowing investment.
70,000 would be a better number. why do all this work to break even?
Plus you will have money out of Pocket for an assignment Fee and Rehab plus Down Payment.

Factor in Holding Costs while you get it ready to rent.
That’s money with no return for while it sits vacant…

Did this person even look at this house.?

Please email with thoughts and/or observations.

The point here is. Without thinking the deal thru. You can go from a Cash Flowing Rental witha minor rehab to this


Here is Something Mike Thompson shared with me today

Jeff
A builder in Cape Coral approached me to look at some opportunities in another state that actually sounds very interesting. He gave me his floor plan and prices, decided I wanted to do a little due diligence on my own. I called and spoke to 2 investors up there locally and also one realtor. Both had valuable info. Land prices the builder was quoting me from Cape Coral were slightly above or pretty darn close to fair market value. However, what I found out on the building side, is that I can get the same home built up there by a local builder for about $30,000 less. It’s nice to know that with a little extra effort now, you can save yourself tens of thousands of dollars in the long run.

MT

You get what you inspect!.. not what you expect!

Good Luck and Good Hunting!

SWFL REIA
1524 Jackson Str
Ft Myers Fl 33901
800 605 2910 X120
239 334 2300 Fax


Southwest Florida Real Estate Investment Association
is dedicated to providing networking and,
educational training for individuals who are interested in real estate investing

Wow, how childish - Posted by Jim

Posted by Jim on June 11, 2007 at 11:32:12:

Mike,
How many boards total did you post this trash too?
Sure, some good points, but now knowing there is a ‘beef’ between you and the company mentioned…this really shows a lack of class.
Then to top it off, this gets emailed to tons of people as well.

How about all the bogus info SWFREIA sends out in the emails?
Never had me shoot the messenger there…a move I’ll now rethink.

Dude, this was NOT cool.
So much so, it made me post to a forum I really did not want to…but this HAD to be said.

Jim

Re: A Lesson in Due Diligence - Posted by Jack E

Posted by Jack E on June 10, 2007 at 15:06:20:

“You get what you INspect not what you EXpect” A very good saying.

Re: A Lesson in Due Diligence - Posted by Joe Kaiser

Posted by Joe Kaiser on June 10, 2007 at 09:36:20:

I say screw diligence!

Let me explain . . .

I think the better approach is setting things up so the diligence part is
someone else’s burden. Make it their job entirely. I’m a deal maker, not
a property inspector, and I can pretty much guess there’s not a whole
lot of EV doing property inspections.

Set things up so the consequences of due diligent work don’t impact
you or your ability to get paid.

How?

You flip properties and put that responsibility on the end user. Your
job is simply to put that property into play and let the other investors
who only know how to rehab do all the heavy lifting parts (read: due
diligence).

Tie it up, get it listed, and let the players play.

In the meantime, you go fix yourself a turkey sandwich and when the
time is right, cash your check.

Joe

Re: A Lesson in Due Diligence - Posted by M. Osterman

Posted by M. Osterman on June 10, 2007 at 09:14:03:

When I find opportunity’s that fall into this catagory, I tend to work for a steeper discount. Many of these don’t turn to deals since I really try to get a good deal. A mentor of mine told me once that working for 10k in profit is the same as working for 100k so why look at 10k deals.

Good post.

Mike

Re: A Lesson in Due Diligence - Posted by Rich-CA

Posted by Rich-CA on June 09, 2007 at 17:24:05:

Thank you posting this. I go through this kind of thing regularly. Deal looks good. Start digging, and then it doesn’t look so good.

Yah, but … - Posted by Redline

Posted by Redline on June 10, 2007 at 10:58:13:

OK Joe let me play devils advocate.

If you tie up and market weak or nonexistent deals, it will be tough or impossible to sell them … especially in this market.

And if people are interested in buying them, you’ll end up with newbies who waste your time and crowd your voicemail (because the real investors are running away from, rather than towards you deal).

Also factor in that word gets around that “That guy always markets bogus deals, steer clear of him”.

What say you Kaiser?

RL

Re: Yah, but … - Posted by michaela-CA

Posted by michaela-CA on June 10, 2007 at 20:02:03:

That’s exactly why I refused to get on any wholesaler’s lists, when I still lived in Atlanta.
The rehab and comp numbers were out of line with reality.
But there are sooo many newbies in Atlanta, that the wholesalers will always find willing buyers.

Michaela

Agree - Posted by Jack

Posted by Jack on June 10, 2007 at 19:15:03:

I get emails from deal makers like that all the time. I research I couple of their “deals”, determine they either don’t know what they are doing (or think that I don’t know what I am doing), and then I put them on the “don’t waste my time list”.

Re: Yah, but … - Posted by Joe Kaiser

Posted by Joe Kaiser on June 10, 2007 at 14:54:55:

Greg,

You’ve never blue pen flipped, apparently. :wink:

We list the properties we tie up and put all of that on the seller, the
agent, and the buyer.

Blue Pen Flippers put properties in play and get the heck out of the
way.

How it plays out is other people’s business and if the property is
overpriced or under due diligenced, we’ll all find out soon enough (and
have the “next step” in the process long since figured out and ready to
deploy).

That’s what I say.

Joe Kaiser

P.S. My new blog is now up at Pushed to Shove. Please join in . . . I
could really use the support. Thanks.

Re: Yah, but … - Posted by Greg

Posted by Greg on June 11, 2007 at 09:56:11:

Joe, I went to your push to shove site. By your comments on your site, I had no idea then were trying to get that kind of $ from you. Its a shame really. Here you are trying to help people, who in some cases would end up with far less. Sounds like you need a top top notch Attorney. Good luck, hang in there.
Greg

The Kaiser Speaketh. - Posted by Redline

Posted by Redline on June 10, 2007 at 21:19:03:

Foolish of me to think you hadn’t figured on this, and probably a thousand other angles as well.

Seems hairy … but then again I guess the hairier the deal the more skim.

OK send me my complimentary course copy ASAP! lol …

RL

Re: Yah, but … - Posted by Eric in FL

Posted by Eric in FL on June 10, 2007 at 15:39:28:

Joe,

I have always been impressed by your negotiation and deal making techniques but the reality of that scenario will dramatically lessen the investors you can flip to in the end. Unless you are specifically targeting newbies and part timers which I suppose could work especially here in Florida. Relationship building is your key to success with the seller but you are burning the end user relationship which does not compute to me. I know “sweeping rationalization” but not caring what happens in my community gets around faster than the news on Paris Hilton.

-Eric in FL

Re: Yah, but … - Posted by David C. Cooper

Posted by David C. Cooper on June 10, 2007 at 15:31:55:

Joe,

I did a google search for “Pushed to Shove” and “Joe Kaiser” blog, but couldn’t find anything. Would you be so kind as to provide a link?

Thanks!

8^D

Re: Yah, but … - Posted by Joe Kaiser

Posted by Joe Kaiser on June 10, 2007 at 18:32:02:

Eric,

Believe me, the real estate agent tunes in to it pretty quickly, as does
the buyer. We need the buyers’ feedback to be able to negotiate a price
that gives us the profit the owner promised us going in.

It’s a listed property upon which everyone can opine. That exposes it to
the marketplace and gives us a good feel for where we’re at.

There’s no burning the end user or not caring. Where you came up with
that I don’t know.

Joe

Re: Yah, but … - Posted by Barry (FL)

Posted by Barry (FL) on June 10, 2007 at 17:11:51:

www.pushedtoshove.com

It’s here: - Posted by Jason (AL)

Posted by Jason (AL) on June 10, 2007 at 16:51:24:

thebluepenflip.wordpress.com

Here we go again … - Posted by Lee

Posted by Lee on June 16, 2007 at 10:42:03:

Dang it…

It seems like I had better start saving my pennies up for your course.
Curiosity is getting the better of me. I just gotta understand this system and put it to work in my town.

Joe, you rascal, you always get me like this!

But every course of yours that I have purchased has been darn well worth it. The R.O.I. is staggering!

Thanks for delivering good value.


For the rest of you, go to:

http://www.creonline.com/catalog/c-251.html

(And no, I'm not a shill.  I just know a good deal when it kicks me in the pants.)

Re: Yah, but … - Posted by Bob Smith

Posted by Bob Smith on June 11, 2007 at 14:02:11:

So you’re not negotiating a sales price with the owner, you’re negotiating the profit margin (“the profit the owner promised us”)?