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Hey Fellow RE Investing Fools. Mark Im glad to see that this board is doing so well. In only 13 posts Ive already learned about Estoppel clauses mind you I never even heard of this before anywhere.

Now an update. Again Im in NYC Queens to be exact. Im currently looking at a Brownstone in Brooklyn an REO. I located it through a Broker, who is somewhat capable in no money down deals...I say somewhat capable.

Heres the Stats
Property is a Legal Three Family
With a Livable Basement.
Bank was asking $165. I got the Broker to touch base with the Bank and see if they were willing to go down to $155. He got back to me on monday said yes.
Market Value for a comp in the neighboorhood = $200-260K.
The Building could be rented as follows
The 3 Floors could rent for as low as 650 to as high as 800 without electricity. I would only worry about heat and water.

Heres my PROBLEM, the tenants are still in the building. The Broker has assured me that the bank will be filing the eviction process at the end of the month. AS a result I have yet to see the entirior of the Building. Structurally speaking it seems in good shape. I know the Brownstones in the neigh. are about 40 to 70 yrs old.

Because on the front end the numbers seem so good. iam seriously considering this deal.

Heres what Im figuring...with 203K which the property qualifies for. I projected a 203 loan of 20K bringing the total loan amount to $175, Im willing to go 5K higher to 80. Looked around and was able to get an idea of mortgage numbers. seems I could get a mortgage at rougly 1685 a month. with three percent down on the $155K.

Heres what I need to know what clauses should I attach to the offer is I do decide to go with this property. I know for sure that I must put some clause to the effect thta my ofer is contigent on the inspection of the property seeing I still have yet to see the interior.

Also it has the potential to be upgraded to a legal four family. But that would just be icing on the cake for later if I decided to actually keep the property for a good rental dont see why i would not.

This post is already too long and I apologize but I need some valuuable input. What am I forgetting what do I need to include in the final offer. What should I be keeping my eyes out for etc.

Ohh I also have been contacted by a pre foreclusure owner of a 3 family house in queens in my neighborhood. I will post this on later.
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Welcome back.

I will post quick, because I am off to look at foreclosures in my area.

(Jump on that foreclosure. Those deals can be super sweet).

Your broker should be able to put in all the clauses you need. Use his experience. One thing to ask him about is a clause limiting your liability to your earnest money. If you mess up, they can not sue you beyond the earnest money.

Your broker can put in an inspection clause. This is standard. Make sure you have the right to inspect and cancel w/out penalty. I have made many offers without seeing property, so this is not unheard of.

One other piece of advice: make sure you know where every penny of renovation money is coming from before you make the offer. If you plan on refinancing to get cash out, make sure it is arranged up front. You don't want a great deal, but money to make it work.

Keep us posted,
Mark
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"Your broker should be able to put in all the clauses you need. Use his experience. One thing to ask him about is a clause limiting your liability to your earnest money. If you mess up, they can not sue you beyond the earnest money.

Your broker can put in an inspection clause."


I acknowledge that I am not unbiased, but letting our broker draft clauses for your contract sounds ill-advised to me; about like asking your lawyer to locate and show you properties. In Texas, it would be considered the unauthorized practice of law (unless the broker was also an attorney) and be prosecutable.

"This is standard. Make sure you have the right to inspect and cancel w/out penalty. I have made many offers without seeing property, so this is not unheard of."

I agree whole-heartedly that an inspection clause almost always makes sense, even if you have seen the interior, and especially when you have not.

Just my $0.02. Regards, JAFO

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OK Guys thanks for the input. i must agree with JAFO on one point. I know Im just a newbie but it seems to me that having a Broker handle my clauses is a little like walking a tight rope without a net. I would much prefer paying a lawyer who at least has a true binding agreement with me than a Broker who might still be just out for his own profit.

I do feel somewhat better having heard that some of you guys actually make offers without actually seeing the property in question. I guess I will just have my lawyer sit with me and input all the valid clauses that i need.

As for the money for repairs, what I figured was this. I am getting preapproved by one lender and looking to get this process done with another as we speak. Both are working the numbers to include the 203K loan of $20K. I got the first lender to give me some figures he came in at $1686 a month for the mortgage. Now Im trying to get him to put his preapproval in writing and have my lawyer look it over, who knows what kind of snake might be lurking around the desk...lol. But I figure if all else fails Ill just have an escape clause in my offer stating that if finance is not applicable I walk from the deal. Can I do this??? have any of you actually done this.

Ohh and now that Im beginning to understand this 203K better, I msut say what a Country..lol. I mean assuming the repairs on a deal of this nature comes in under sayyy 10 or 15K, I could theoretically walk from this deal with enough cash to finance another deal the next day, God I love this business :)

As for the inspection are there certified inspectors and what about liabilities. How do you know the inspector knows what hes talking about. I was told that the Bank would be the one to choose the 203K inspector seems like I might have no control over this.

Well I must be running now, I will give an update as soon as I can get in touch with more info.

Hopefully by Saturday I will have more info on my preforeclosure prospect. Im trying to make it down to the courthouse on Friday morning and get friendly with the clerks, I understand their is a WEALTH of information just waitng there for me. Thanks Guys I will post again soon

Isiszion...
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Ill just have an escape clause in my offer stating that if finance is not applicable I walk from the deal. Can I do this??? have any of you actually done this.</*>

You can do anything you want in a contract, as long as it is legal. I always write a contingency clause for financing and an "acceptable" inspection in my offers since I always make an offer before I have seen the property. (Don't get me wrong. I do my homework and know within a couple of percent what the property's market value is before I do this.) I don't know about back East, but out here in the West, making a sight-unseen offer is the best way to let the owners know you are a serious investor, not a looky-loo. The main thing I would caution you about is making sure the evictions can be done in a timely manner. Are any of the tenants still on a lease you'll have to honor? What is the amount of notice to vacate do you have to give in your state for carry-overs after the lease expires? There's a reason that property is priced that low. Better find out if you're dealing with a "don't wanter" and why they don't want their property anymore so you don't end up in the same boat!
Good Luck,
Chris

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Whoops! Guess I'd better practice my italics!
Chris
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With respects to JAFO31, who I know is an attorney, the completion of predrafted contract forms, such as those that might be supplied by state or local boards of Realtors, are typically excluded from practicing law without a license statutes. While I have no problem with a competent broker drafting your contract, you may also want a competent attorney to review it before submission. As a Realtor who does some commercial work, I actually welcome this as it would serve to lessen any potential liabilty on my part and I just might learn something.

As far as special stipulations in a contract for any income property, please consider the following:

1. Require copies of all leases within x days of contract acceptance and originals of all leases delivered at the closing. You should retain the right to terminate the contract if, upon review of the written leases, they are unacceptable or present any unresolvable issues. Examples might include options on the same space granted to multiple tenants, long term fixed rate leases etc. Landlords can create all manner of liability for themselves with poorly written leases. You don't want to buy into that liability if you don't have to.

2. Require that rents be pro rated as of the closing date. You don't want to allow a seller to retain a month's worth of rents collected on the first when you purchase the property on the second. The implications are even greater in the event any tenants have prepaid rent.

3. Require the Estoppel Letters that Rick Rogers discussed in his post. These will confirm lease terms, security deposits and the date to which rent has been paid by the tenant.

4. Require that the seller retain liability for any security deposits not actually transferred to you, the buyer. The leases and Estoppel Letters will identify these but the language needs to be in the contract.

5. Isiszion, in your case you may want a provision to extend the closing until the bank has either filed, or actually evicted, any tenants that you are counting on not being there. I know nothing about landlord / tenant law in NY. If it is a lengthy process, see if the bank will do all the dirty work before your interest meter starts ticking.


These are general suggestions that I put together in between kids' homework, baths and bedtime. I may think of others, or there may be others that your competent broker or competent attorney can recommend.

David
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OK Chris, give me an example if you could of exactly how I should write up an offer or the contract that would include all those points. Thanks for the insight, at first I also thought what must be wrong with the property if its priced at that price. Butthen I got to thinking if this is an REO would the bank now just be interested in recouping the money it put up for the loan, perhaps this is why its so cheap. Im checking further though.
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LOL Ohh David I just asked Chris for these examples. Thanks for the insight. Ohh Chris feel free to add to Davids response. Ohh wait Im gonna have to print this post David I need it for my files. Thanks again.
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Isiszion, in your case you may want a provision to extend the closing until the bank has either filed, or actually evicted, any tenants that you are counting on not being there. I know nothing about landlord / tenant law in NY. If it is a lengthy process, see if the bank will do all the dirty work before your interest meter starts ticking.

Good advice. In my post about the quad I bought (downside of leverage), I mentioned that there was one eviction in process when I bought the property. In my state, I was not able to "take over" the eviction process, since I was not a party to the original filing. The process had to start over again.

Fortunately, they left about 10 days after the court date. If they had bothered to show up in court and realized the judge had dismissed, they probably could have stayed rent-free another month or 2.

Having said all this, if the deal is good, these are minor inconveniences. A lawyer could have helped, had I been smart enough to use one. Don't let a few month's lost rent cost you 10-20k in profits.
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reman: "With respects to JAFO31, who I know is an attorney, the completion of predrafted contract forms, such as those that might be supplied by state or local boards of Realtors, are typically excluded from practicing law without a license statutes."

Yes. You should really understand what the reuirements are for your locale and also what is the normal practice. In Texas, completion of predrafted forms published by TREC (Texas Real Estate Commission) by a licensed agent is not considered the unauthorized practice of law; those forms are primrily oriented to residential home (whether SF, attached, or condo) and not commercial deals. The exclusion does not cover drafting additonal provisions to be inserted into the contract.

"While I have no problem with a competent broker drafting your contract, you may also want a competent attorney to review it before submission."

Hear.

Agents, like any profession or occupation, can vary in their abilities and skills. I have worked with some great agents who were invaluable and a pleasure to work with. I have also worked with others who are more hindrance than help. I realize that generalizing can be dangerous, but in my experience, FWIW, the longer the agent has been licensed and the more commercial transactons they have been involved with, the higher likelihood of being a better agent.

reman started a nice list. I would also suggest reviwing all builder service contracts and insurance policies.

Just my $0.02. Regards, JAFO

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OK Isiszion, I will be happy to give you an example. Give me 'til tomorrow to "get my ducks in a row." I don't want the boards to go down for maintenance while I'm in the middle of this...
Oh, I'm assuming your going to use a realtor.
Please let me know if my premise is incorrect.
Chris
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Yes Chris your premise is indeed correct
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OK, Isiszion, here (finally) is my post to your offer query:
First, a disclaimer: I am neither an attorney nor a broker.
I had a look at some of my old offers (through agents) and they all are pretty standard. There are sections covering all the basics such as inspection, (which I leave at least 10 days to get done),loans, etc. There is a section near the end for "additional provisions" where you can slot things you want to add.
You also usually have to pick how to title the property (joint tenant, tenants in common). Make sure you know the difference since the default is (at least, in my state), tenants in common. Things could get messy for a surviving spouse if you die without a will and a tenants in common title.
Good Luck,
Chris
There was good advice to run the contract past a (real estate) attorney before you submit it. Good advice because that attorney is the only one involved in the offer process who is working for you. (Oh, don't confide in the realtor what you're willing to pay. They have to relay this info. to their client, the seller). Also, ask for a copy of a blank offer and read it until you understand it, yourself. Invariably I have found errors on offers that were run past brokers. Leave no spaces blank.
You'll also have to decide whether to check the specific performance box or liquidated damages box. The pros and cons on this alone could run a whole other post.
Lastly, if you're planning to rehab and flip the property for a "quick" profit, make sure you have all your construction arrangements (including financing)ready the day after you close. This is the scary part, but owning a building without having a clue what's next is worse...
And don't forget to take a walk-through just before closing to make sure all those nasty, old appliances are still there (since you put them in the contract, didn't you?)
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