One Man’s Trash is Another Man’s Treasure!

We have all heard the many sayings like "One Man's Trash is Another Man's Treasure" or "Dumpster Diving" or "Landlords are Cheapskates" and  many more. No one wants to admit it, but hey, when you have rental property or commercial property in the low income part of town, new is not always best.

We have a warehouse in a rough neighborhood. It was been broken into many times, I think we only made police reports 3-4 times when the damage was really bad or a major expense. Most of the time we just fix the problem. We have a low fence, 4 feet tall with barb wire on top making it 5 feet tall total. That is pretty short for a security fence to keep people out. Also the gate is gone, someone cut the barbwire, climbed the fence, stole a truck, and drove it trough the gate!

Luckily by driving through a locked gate, the fence caused enough damage to the stolen truck that the criminals only made it about a mile away, before ditching the truck at a park. The Police recovered it early that morning.

Anyway, the gate is gone, and the fence is short. We do have some massive 1/4 thick steel pipes with about a 6 inch diameter. The kind that a vehicle couldn't drive through. We plan to make a perimeter with the heavy pipe and then extend the height of the existing fence. Since we already have the pipe, all we really need is more chain link material.

The brand new option is to buy a new fence for $8-$10 thousand dollars to protect a old warehouse surrounded by homes that sell for less than $10,000. I also learned a lesson from another low income area landlord about the negative affects of making a rental property look "too nice" for the area. Sometimes you want your property to blend in with the rest instead of sticking out like a sore thumb.

So a few months ago I put an "items wanted" listing for chain link material in a group of other business owners. A lot of people tear out a chain link fence and either save it for something else, or just throw it away. I didn't have any results from the ad, but I was at the dump today to throw away the old sliding door and materials from that house, when I noticed some guys trying to unload a large roll of chain link material!

I told them I could use that chain link and they said great, they also helped me unload my trailer to make room for the chain link. I got 3 rolls of it and several fence pipes, for free. Once we get someone to help "grow" the existing fence or create a new gate using some of the material from the dump, I will post some pictures. But for now, here is the free chain link material from the dump since I was at the right place at the right time!

chain-link-from-dump

Sliding Door Leaking, Busted, Replaced

On one of the rental properties we have, the back door, which was a sliding glass door, had been broken and sealed shut with caulking. The glass was a dual pane window so one pane was broken and one pane of glass was still in place. I guess it no longer slided to open and close because it was sealed shut so it basically became a window instead of an operational door. Right next to that door/window was a walk through door to the garage and an additional walk through door to the back yard, so this was a low priority fix. Its one of those things that's different from buying as a landlord or buying as a rehabber. A rehabber would have had to fix the door right away in order to resell the house. As a landlord, it was something that needed to be fixed but was not an urgent fix, since there was another back door to provide an escape in case of fire. I say that because if this was the only back door, meaning the front door was the only other door to enter/leave the house, then of course it would have been a high priority for safety reasons.

But we put it to the low priority list for future repairs and focused on getting the high priority major repairs done so we could get a tenant in the house for cashflow. It was months later that we received notice that sliding door/window was leaking rain water into the house. It was starting to ruin the new flooring we had installed before the tenant moved in.  So we had a decision to make, we could try to reseal the door/window or go ahead and replace it. We decided to go ahead and replace it. We removed the original sliding door and it is leaning up against the house in the photo below.

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The other stationary door decided to shatter and you can see the mangled frame above and the rest of the glass ended up in a bucket.

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That was about half of a 5 gallon bucket and all the debris on the porch.

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Once we got the old door removed, it was ready for the new door.

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We already had the new door and we decided to go with a french style door instead of another sliding door.

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From there the door was installed and we got lucky and the door went in level and opened and closed smoothly without a lot of adjustments.

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We were able to use the old metal trim to match the rest of the house and only had to install one board on the top to fill in a gap. We also used the new smart key door knobs so that we could match the new door knobs to the existing keys for the front and other back door.

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The old trim, and lots of caulking were used on the inside but its hard to get a good photo when the light shines through the glass.

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This whole procedure only took about half a days worth of work, 3-4 hours but there were 4 of us on the job.

AC Not Cooling Down Because of the Ductwork

There are many reasons that an AC will stop cooling and some things can be fixed by a handyman and some items need a HVAC Service Technician. I received a call from a tenant and it ended up being an AC problem that I could fix myself. The complaint was that a couple of rooms weren't cooling and some rooms were. The detail that made it an easy problem to solve was that on the vents on the outside of the house, that vent the "crawl space" with the "outside", had cold air coming out of them. Obviously the house had to be built on what's known as a "pier and beam" foundation meaning that the house was setting on beams, that were supported by piers, so that anyone could crawl around under the house. These are usually houses built before the 1970's and before they were built on concrete slabs that you cannot "crawl" under. I really prefer these houses for rental property because they are so much easier to fix when you need to get under the house. Also if you want to add bathrooms, laundry rooms, etc... you have easy access to plumbing drain pipes, or adding more of them up under the house.

So this particular house has a crawl space, and the AC ducts and vents run up under the house to each room. My first thoughts were that ductwork had somehow opened up under the house. There are basically 2 types of ductwork used in houses. The original way was sheet metal ducts that were put together with snug fits and the old style "Duct" tape that held the ducts together. That old style "duct tape" is what became famous and is still used for other purposes by many people today. The new style duct tape is actually like a thin metal foil tape that you peel the wax paper off of (like a sticker you peel and stick) and then wrap the ducts with it. Also nowadays the sheet metal is also held together with sheet metal screws. The other common type of ductwork is flex duct which is plastic supported with a wire wrap and insulated. This ductwork is held onto the vents with large Zip Ties. One common problem with these underneath a house, is that critters can chew through them. Critters like mice, rats, squirrels and even opossum or raccoons.

So back to the problem, since they didn't use sheet metal screws and just old style duct tape and wire hangers to hold the ducts up into the vents, over time (50 years or so) the duct tape loses its adhesion and some of the wire hangers rust through, the ducts can drop from the vent and that creates and open duct under the house. That means all the air that was supposed to go into a certain room, is now being blown out under the house in the crawl space area.

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When I crawled under the house, that is exactly what happened. Three of the ducts had dropped from their vents.

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It was very easy to fix, the ductwork was raised and pushed back into the vent. Then I used a few sheet metal screws to hold it in place.

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The next step was to use for fabric webbing strap to support the ductwork.

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I also used some of the newer metal foil duct tape to seal around the seam from duct to vent and then also to tape the insulation back to the vent. The only advantage to doing this work, was that the crawl space, which is usually very hot in the summer, was nicely cooled down, so that it was comfortable to work in.       2015-06-26 17.11.40

More Electrical Work on the TulsaMeetingRoom.com

I was able to get some more electrical work done on TulsaMeetingRoom.com.

The structural post that holds up the ceiling is going to be used as a post inside of our social bar. The bar will be 4 feet wide and 16 feet long and the center post will be coming up through the bar. We are adding plugs so that people setting around the bar can plug in their gadgets to charge them up!

The electrical panel has a lot of room to add circuits but we haven't even used the 10 that are already wired.

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The supporting post in the room is going to be where the social bar will be.

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We added some outlets and USB ports so people can charge their cell phones, tablets, or laptops.

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Rain, Rain, Go Away

I know we need rain, but too much rain is as bad as not enough rain. Flooding and saturation is everywhere.
I received a call today after the plumber rooted out the sewer line that was backed up. The Resident in the home said “Call the Plumber back, he did something wrong and the AC vents are flooded with sewage.” I told her that I didn’t think it was related to the Plumber and I would call Tim, my HVAC guy, first. Tim said that they were not related issues and that he has seen it happen before. With all the rain we have been getting, and the ground being totally saturated, the ground water had seeped into the HVAC duct work under the home.
It was just a coincidence that she noticed it after the Plumber left. Tim said that over 100 gallons of water was in the duct work and that it needed to be pumped out. He also told me that air ducts get dirty over time and that when they get wet, they can stink like sewage. The good side is that when they flood, and you pump out the water, you are also getting a good cleaning of the duct work.
We used a Little Giant sump pump and a 14 Gallon Shop Vac to pump out the water. The sump pump ran for about 45 minutes and I dumped out the shop vac 4 times. That was a lot of water that seeped into the duct work.
Tim also told me that this kind of thing can happen only once or twice when there is heavy rain fall, like we are having now. On occasion, some house may have their duct work flooded more often. In that case you can have a sump pump permanently installed. The plenum is the lowest spot of underground air ducts when and IF they were installed properly. A sump pump with a float lever can be installed in the plenum and when water enters the duct work, it can float the switch to “on” to pump out the water.
Since this house was purchased this year, we do not know the history on the duct work being flooded and with the large amount of rain that Oklahoma is having this year, we decided not to install the permanent sump pump at this time. I am hoping that this flooding was just a fluke thing with all the heavy rain. If this becomes a regular thing where the ducts get flooded often, then the permanent pump may be the best option.

Ways to Sell Real Estate in Oklahoma (other than for cash)

Jason WIndholz

Now, I am not an attorney and this is not legal advice but merely my thoughts and opinions on how I do owner financed deals in Oklahoma.

There are many ways to sell or “rent to own” real estate in Oklahoma and if you read my blog “Judicial Foreclosure VS ??? in Oklahoma” I went over the reality that in Oklahoma, when selling on terms to people who will live in the home, we are pretty much going to face a judicial foreclosure if we end up in court to get the property back. So since we are pretty much stuck with that, we can look at other pros and cons of different ways to sell on terms.

Now we do have Lease Options and Lease Purchase techniques that I went over in my blog “Lease Purchase VS Lease Option” but in this blog we will discuss the different ways to actually “sell” the house on terms and the pros and cons.

Now there are a couple of things that apply to any seller financing strategy and one is the amount of down payment. Small down payments are easier to walk away from but if a buyer puts down a really large down payment, they usually wont walk from that. As an investor selling on terms, we don't want to end up in court so its best to avoid court. We can do that by buying the buyer out: paying them to leave once they are in default. Many buyers just walk, or abandon the house once they get behind. Now if they haven't left I usually start with “If you just move out, I won't pursue the back payments you owe” They way they can get a fresh start somewhere else and I can get the house back quickly. If they don't leave with dropping the back payments, the next step is giving them moving money once they are out. Something like $500, $1000, $1500, etc... to move. It depends on how much hey put down and how much its going to cost in court costs, attorney fees, and underlying payments before you get the property back. If its going to cost a few thousand dollars to get the property back in several months, its better to offer them the money if they get out immediately. If you do that , DO NOT PAY THEM UNTIL THEY HAVE MOVED OUT and also have them sign a release so they can't come back and sue you later.

Now lets get to the different ways to sell on terms.

1. Contract for Deed, also referred to as “Installment Land Contract” or just “Land Contract” and another common term is “Agreement for Deed”.

Now a contract for deed is when the seller enters into a purchase contract with the buyer and the buyer makes payments to the seller for the purchase price. The deed to the property stays in the sellers name until the buyer has paid off the debt to the seller. Once the seller is paid in full, the seller will deed the property to the buyer. It is similar to the way banks finance cars. The bank holds the title to the car until the buyer pays the bank back. When the car is paid off the bank will give you the title.

Contract for deeds are a great way for investors to sell property with and usually only a last resort as a way to buy property on.

Because the seller holds the deed to the property until it is paid off, as an investor selling we are in more control. Yes, in Oklahoma we still have to judicially foreclose if the buyers fights back, but in reality, most buyers who default usually move out owing a few months payments instead of trying to get it caught up. Usually they can move into a rental cheaper than catching up their contract for deed. So for the ones that move out or we pay them to move out, we get the property back and the deed is still in our (entity/land trust) name so our title is not clouded up. It is easier to resell to a new buyer. Now that is assuming that the contract for deed is NOT recorded. When we sell with contracts for deed we DON'T want them recorded to cloud our title.

Now when we use that method to buy, we do want it recorded. Now you may be thinking “why would an investor buy that way?” Its not our first choice but in some deals and with some sellers its the only way to make the deal work.

2. Giving the buyer a deed and taking back a mortgage. This is the normal way be buy when we get a bank loan, we get the deed and give the bank a mortgage on the property. We can sell with seller financing and give the buyer a deed and they will give us back a mortgage on the property. This type of transaction is recorded so when selling, we have to “get the house back” if the buyer defaults. Whether you foreclose to get it back or buy the the buyer out, there will be paperwork recorded to get the property back. Since Oklahoma is the only state left that still uses abstracts, then all the paperwork filed to get the property back will have updated on the abstract. That is more money out of the sellers pocket.

So as an investor when selling, I would rather use a contract for deed instead of a deed and mortgage because of the title issues and abstract in Oklahoma. Now with a sophisticated buyer, usually on higher priced homes, you may have to use this method. A big down payment will make this method worth doing. Now in some states like Texas and California it is WORSE to use a contract for deed because of state laws but this blog is for the pros and cons in Oklahoma.

Now as an investor buying, I would prefer the get a deed and give a mortgage method to buy compared to a contract for deed.

One other thing to mention on mortgages, is that there are 2 types of mortgages in Oklahoma. A regular mortgage and a mortgage with a power of sale. A regular mortgage must be foreclosed by filing a suit in court which is a judicial foreclosure. A mortgage with a power of sale is foreclosed by holding a auction to sell the property WITHOUT going to court first. Now other states use a “deed of trust” or a “trust deed” instead of a mortgage in order to avoid going to court to have an auction to get the property back. Now Oklahoma state laws says that a deed of trust and any other instrument shall be considered a mortgage so they don't fall under the Oklahoma Power of Sale Mortgage Foreclosure Act. If you want the power to sell to avoid court you need to use a mortgage with a power of sale and follow all the steps in the Oklahoma Power of Sale Mortgage Foreclosure Act.

Now if you do use the deed and mortgage route to sell a property on terms, then as an investor you want to have the power of sale and avoid court. Now when you buy, you don't want to give the seller the power to sell so you would want to buy on a regular mortgage.

Now in my blog “Judicial Foreclosure VS ??? in Oklahoma” I went over that fact that if a buyer homesteads a property and requests a judicial foreclosure then you still have to go through a judicial foreclosure even if you have a power of sale mortgage. But there is always the chance they don't homestead the property or request the judicial foreclosure so it is better for an investor, when selling and taking back a mortgage to get a mortgage with a power to sell.

One more thing to note on power of sale mortgage in Oklahoma, the buyer can only request a judicial foreclosure if they homestead the property so when selling to investors the power of sale will hold up because it is not our primary residence and we can't homestead it.

So to sum it up, when selling with terms in Oklahoma I prefer to use the following techniques in the following order based on the buyer and amount of down payment I get.

  1. Lease Option
  2. Lease Purchase
  3. Contract for Deed
  4. Mortgage with Power of Sale
  5. Mortgage

Now when I am buying I want to buy in the reverse order.

Because every deal and every seller or buyer is different, you need to be aware of all the options and use the best one for that particular deal.

Lease Option VS Lease Purchase

Jason WIndholz

Many people refer to rent/lease now and buy later type deals as Lease Option, Lease Purchase, Rent to Own, Lease To Own, and probably a few other nicknames to mean basically the same thing. Some people don't realize that there is a technical legal difference in the paperwork that make a clear distinction between Lease Option and Lease Purchase. In some states that may not be a big deal but in Oklahoma it can be a VERY big deal. In case of a default, it can mean the difference between an eviction or a judicial foreclosure (1-2 months VS 4-6 months).

So first, lets look at the technical legal difference: A lease (or rental agreement) will be roughly be the same in either situation as long as the lease (or rental agreement) doesn't make a reference to “option” or “purchase”. So for the second part: option VS purchase, an option is a unilateral contract and a purchase agreement is a bilateral contract.

So what does that mean? A unilateral contract is a one way contract, one party (the seller) is obligated to comply with the agreement and the second party (buyer) is NOT obligated by the agreement. That means in a Lease Option agreement, after the lease is up (or when the option is due), the seller MUST sell to the buyer, but the Buyer has the option to actually buy the property OR just walk away from the deal. Since the buyer is not bound by the option agreement, making it a unilateral (one way) contract which is referred to as an “option” on the property, the buyer can change their mind and move on. Options are used in many types of cases of residential and commercial transactions and can be used all by themselves. All the option does is tie up the sellers property for the buyer and give them the choice to buy it as agreed upon or walk away in whatever time period is agreed upon. The lease or rental agreement is what allows the buyer (tenant in that particular document) to occupy and live in the property.

Now the Purchase Agreement is a bilateral contract, which means that both parties (buyer and seller) are obligated and bound to preform under the contract. The Seller has to sell the property and the buyer has to buy the property. The Purchase Agreement (sales contract, purchase and sales contract, or whatever else they may be called) is no different from the kind Realtors and Attorneys use on a daily basis. Whether the closing date is set for 30 days or 1 year, the agreement itself IS a contact to sell a property to a new buyer.

So for a Real Estate Investor on the Seller's side, it doesn't matter which one you use because the seller is bound by both agreements. Now some may want to bind the buyer rather than giving them the choice to walk away, but Oklahoma Statutes (law) will make you want to reconsider your ego on giving the buyer the choice. Lets look at reality, if a buyer can't buy, or doesn't want to, can we really force them to? I mean if they were qualified to buy with a new loan in the first place, why would they even use the lease option/purchase technique at all? Its similar to a rental agreement VS a lease in a regular rental situation but that is another blog all by itself! A real estate investor (PRO) VS a regular person just wanting to live somewhere, kind of makes the courts and a jury lean towards favoring the regular person over the pro. So the odds are slim to none to make them buy if they don't want to or they can't get financing.

OK, aside from that debate, what does it matter to an Oklahoma Real Estate Investor?

Options (one-way contracts) done just right, mean that you can evict in case of default. Now anything that gives the buyer equity (two-way, or sloppy one-way contracts) can result in a judicial foreclosure. Evictions can sometimes be done in less than a month and judicial foreclosures can take several months and some of them have lasted over a year so its important to use the proper wording in your paperwork and in what you say.

If everything goes according to plan then does it really matter what the paperwork says? No, its only when things turn bad that the paperwork is pulled out and gone over in court. Our goal is to have them pay on time and maybe refinance us out in the future! For us as an investor, things mainly go bad when the tenant/buyer defaults so we need to be prepared with the right paperwork in case we have to go to court.

So in Oklahoma, a properly structured Lease Option can be LESS devastating than a poor one or a Lease Purchase. You may be wondering what a “poor one” means referring to a lease option. Well, its any lease option that gives the optionee (tenant/buyer) an equitable interest in the property, and remember, a plain and simple option will not do that. What CAN do that? Many things such as: additional down payments, monthly rent credits towards the purchase price, or anything that gives the optionee (tenant/buyer) any kind of equity in the property. Now some of you may be wondering isn't a down payment or option fee the same thing? (the money a tenant buyer pays to move in)? The answer is yes AND no. It all depends on what you call it and the wording in the paperwork. A straight option just gives the optionee (tenant/buyer) the right to buy the property in the future, and it ties up the seller to sell it for the agreed upon terms. Even if the option fee is deducted off the sales price, it does not constitute equity, but a down payment to purchase a house can transfer an equitable interest. So in Oklahoma, make sure you use the right words "option" and get the words "down payment" out of your vocabulary. When speaking to prospective tenant/buyers, I like to use the term "move in money" meaning the amount of money a tenant/buyer needs to move in: first months rent, security deposit, and the option fee.

A real estate investor in Oklahoma should use a straight option with a lease to avoid a judicial foreclosure if you want the least amount of court hassle from a defaulting tenant buyer. That is just my opinion as a real estate investor, so check with your attorney to find the best method you should use.

P.S. if you find a better way for Oklahoma Real Estate Investors to Rent/Lease to Own properties, then let me know!

Don’t Skip Steps When Investing!!

Jason WIndholz

When we do things over and over we get accustomed to things going good and we might be tempted to skip a step or assume that what we are told is true. I just let something slide that almost cost me!

I just bought a property that has an existing tenant in it. I have a form that I get the tenant to fill out before I close on the property. It will basically verify the rent, deposit, current status, special arrangements, etc… I talked to the tenant and the landlord (seller) before closing but the tenant was not returning my form. I assumed what the landlord said was true and if was a problem the tenant would have brought it up to me. I should have made sure I got the form from the tenant before I closed but I let it slide.

The landlord said there was no paperwork because it was all word of mouth. He also said the tenant was current and paid no deposit. Those are things a buyer needs to know and verify the tenants side of the story before buying the property. Right after closing the tenant wanted to meet in person and show me some things in the house. I did my inspection of the house so I wasn’t too scared but I got a very big surprise upon my visit.

The tenant showed me paperwork she had with the landlord. It wasn’t just a lease, but “lease to own” paperwork. In fact, it was a lease to own that had been extended after the first year. Luckily the second lease to own had also expired and the tenant was getting ready to move out but that could have been a major problem on the property.

Selling the property does not wipe out existing contracts on the property. It could have caused a major cloud on the title. This particular deal worked out but it reminded me of the importance of using the proper paperwork and not skipping any steps.  Never assume what Seller’s are telling you is correct. Half truths or omitting past information can cause a nightmare on your investments. If you buy a property with an existing tenant be sure to verify all the details from the tenant and hear the tenants side of the current situation.

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