Monday, September 9, 2013

Homes purchased at Flipping Formula Seminar

I was comfortable purchasing homes at the Flipping Formula Seminar in Las Vegas in June feeling that at least basic requirements had been met on the homes offered. But I have a couple of updates that I wanted to bring to you.

If you buy homes at the seminar expect the following:
1)      If something can go wrong it probably will.

2)      You are signing a contract that states you are buying the home “as is” and “A Non-refundable deposit of $1000.00 is offered by Buyer. Buyer understands this deposit is non-refundable for any reason, including Buyer’s or Seller’s failure to complete this transaction. Buy and Seller agree that all deposits and earnest monies become non-refundable 14 days from the effective date of this contract…” The contract states several times that home is bought “as is,” and there are no warranties of any kind.

3)      Now I know that buyer beware and buyer is responsible for due diligence.  I had that 14 days to have property inspected. I should’a, could’a, would’a have had someone in the two states inspect the property even though they were sold at the conference. But I was expecting that if Flipping Formula was going to bring them as carrots to the conference that the houses would at least be insurable. I was told both were occupied and the one in question is a Section 8 home, so that means it had to go through Section 8 inspection. At least in San Diego, California the Housing Authority (funded by HUD) is very stringent on the condition of the homes. They made me remove the 3 prong plugs because the third prong was not grounded on my San Diego property. That’s how picky they are.

4)      It looks like you will have to go through two property managers—the first one is the company/property manager that sold you the property. This company answers to the seller (owner). But then when you finally close escrow, you have to switch to another property manager that will answer to you. After going through a considerable amount of paperwork, notorized with two witnesses for one property manager I was informed within two weeks that they were no longer going to be managing the property and I would have to find another company.

5)      Expect that you will need to get property insurance before you close escrow so that the escrow company can pay the insurance.  So don’t wait until they contact you for the information, because they might not do it and you might find you own a house with no insurance on it. That was what happened to me. I found the house had closed about two weeks prior and I had no insurance on it until I was able to find a company that would insure the property sight unseen.

6)      Expect that if the home is very old (one of mine was built 1953 and one was 1935 which it does not tell you on the property description information), you are going to get 50 questions from the insurance company. They want to know when the roof was replaced, what type of circuit box is installed or does it still use the old fuses; the wiring grade; if there is copper wiring, plastic pipes, when was plumbing replaced. I didn’t (and still don’t) know most of these answers, so the insurance company took me on faith when I told them I was just guessing on a lot of the questions because I didn’t have any information on the houses themselves. Maybe that is why they are canceling the insurance because I guessed or maybe there are real reasons. I have yet to find out.
7)      Most recently this original insurance company has informed me that they have to cancel the insurance   because the property is in such disrepair that they cannot insure it. (It took several weeks for the insurance company to send the inspector so I don’t know how the property looked back when it first closed.) So I am scrambling to see if I can find another insurance company in the area that will insure the property as well as scrambling to see exactly what is wrong with it that an insurance company would refuse to insure it.

8)      Now one insurance agent stated he drove by the property and looked at the house; he needed a picture of the circuit breaker but he thought he would be able to insure the property as long as he had that picture.

9)      Don’t be surprised if you have to keep checking (hounding) the factions that are involved with your transaction in order to know what is going on. It was only after I inquired as to the status of my property that I found out one had finally closed about July 19, 2013 and that I had had no insurance on the property for about two weeks. So I scrambled to get insurance on a weekend.

Some additional points: Purchased the homes 6/15/13. It took a little while to get my funds transferred from my regular IRA to the self-directed IRA with Horizon Trust so homes did not close until mid-July.

1)      I finally got a Warranty Deed effective July 15 that was filed with Jackson County on August 12, 2013 for the home in Missouri. The manager for the Missouri property always returned my calls and tried to help me through the process. He was the one who finally sent the Warranty Deed so I would have proof I actually owned that home, but I never did get any closing or settlement statement.

2)       I received the closing statement and title insurance on the home in Illinois from Horizon Trust Company, but never received a deed or warranty for the home in Illinois. So even though it looks like the home closed, and I am told I own the property, I have no deed to show I actually own it. 

I am trying to be reasonable regarding these transactions. I was not expecting the Taj Mahal, but I thought the property would at least be insurable.

So I guess my final word of warning would be that if you buy any property at the conference, immediately go online and Zillow the house, run it through PropStream (you can see some history in PropStream) and a couple of other programs to be sure you know everything you can about the property and hire a property inspector to get it inspected and the report back to you before the 14 days are up. And that 14 day starts the day you sign the contract not the day you go home from the conference which means you might already have lost three to four days before you get home.

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