Deciding If an Opportunity Is Right for You

Although the decision to invest or not is binary, the question really boils down to, “Is this the right investment for me right now?”

This post originally appeared on the Hermit Haus Redevelopment website on 2018-11-27.

Your reason for investing should drive the type(s) of investment(s) you invest in. To oversimplify a bit, there are two investment strategies: building wealth and creating income. In the real world, these two strategies are not mutually exclusive. Where you are in life will influence your strategic choice.

Let’s look at an example rental house that requires no initial out of pocket investment. We’ll assume the debt on this property covers the initial renovation and all the costs of acquisition. We’ll even assume the house provides positive cash flow from the time it’s rentable—$50 each month after allowances for debt service, taxes, insurance, vacancy, maintenance, and capital replacement (big ticket items like HVAC units that can’t be expensed off in one year).

Multiple Perspectives

Here are a few ways to look at this opportunity:

The Waiting Game

When you’re not confident the market will continue to rise, it’s better to be cautious about acquisitions. What do you think the future holds?

This post originally appeared on the Hermit Haus Redevelopment website on 2018-06-18.

I’m back.

I haven’t posted anything for a while, mainly because I haven’t felt like I had anything constructive to say. You see, we’ve been selling off our inventory, as Suna and been talking about. But we haven’t been buying anything. Not since December.

Other people were buying things, but we kept walking away without buying or letting other people out bid us. That made me feel as if it were my fault. I must have been doing something wrong.

But I wasn’t.

You see, the only thing worse than no deal is a bad deal, and bad deals are all we’ve been encountering for the past few months. And I’m not the only one.

According to Sovereignman, Warren Buffet has been going through the same dry spell.

So… here is the most successful investor in modern history who:

1. Didn’t buy anything in 2017;
2. Is stockpiling a mountain of cash;
3. Is now selling an asset that he would typically hold forever, because another company made an absurdly high offer for the business

...[I]t seems pretty clear from Buffett’s actions that it might be a good time to take some money off the table and wait patiently for the compelling opportunities yet to come.

Buffet himself has noted that he walks away from more than 100 “opportunities” for each deal he closes.

That got me thinking about my friend Shenoah Grove who points out that the Austin market is now almost ten years into our five year business cycle. And even though the market doesn’t show any signs of slowing down, you have to worry if it is too hot.

Following Buffet’s lead, I think it’s time to wait for deals that are so compelling that they’ll fund themselves or make money even if the market turns down. We may even have some of those on the horizon.

Stay tuned. Or better yet, help us find a really good deal. We believe in sharing the wealth.

What Do You See?

What do you think of when you see something like this? If your first thought is, “I wonder how I can use this location to make money,” you may be an entrepreneur.

This post originally appeared on the Hermit Haus Redevelopment website on 2017-04-25.

What do you see when you spot an abandoned building or a closed business?

The trick of being a successful entrepreneur, especially a commercial real estate investor, is to see opportunity where others see failure.

This fact was brought home to me by the recent closing of the Sonic Drive-In in the small town where I spend most of my time these days. This being a Small Town, the closure was a big deal and sent the small town grapevine into overtime. All kinds of reasons for the failure were floated until another business closed for failure to pay sales taxes to the state. (We know this because the state is auctioning off all their assets.)

But the one thing that nobody talked about in either case was: "What’s going to happen to the building?" Okay. Nobody talked about the loss of a handful of sub-minimum-wage jobs, either, and they certainly should have. Finding new jobs in a rural small town is no easy matter.

Spork intentionally reuses old Sonic locations to its special purpose niche. Photo source: Dallas News

In kind of a combination of those two thoughts, my initial reaction on seeing the sign at the Sonic (I learned about the other closure much later) was, "I wonder what kind of business could go in that location." You see, a drive-in is a very special-purpose building. There aren’t a lot of other options for using it. In fact, there are so few options and it is so costly to build that Sonic has a program to repurpose other commercial buildings as drive-ins.

So there aren’t many alternative uses for a defunct Sonic, but there are a few. I’m going to list some, and I invite you to add anything else you can think of to the comments. I’d like to figure out how to bring at least a few jobs back to the local economy.

• Another drive-in or eatery
  Okay. That’s kind of a no-brainer. I’ve seen several old Sonic locations recycled like this. There’s even a Dallas chain, Spork, that targets old Sonic locations to put in "high-end" drive-ins.
  But the question here, is why did the Sonic fail? Sonic, after all, has extremely well-honed systems and a national advertising budget. If a Sonic with these advantages fails in a given location, what are the chances of a one-off restaurant succeeding there? Restaurants have a higher initial failure rate that just about any other business. One reason may be that they are so easy and cheap to start. Like many mom-and-pop businesses, restaurants tend to be under-capitalized, making it difficult to survive until they can become profitable a few years down the road.
• A used car dealership or other business office
  As with any investment, having more than one exit strategy is key to success.
  I’ve seen this happen in South Texas. The used car inventory was parked under the awning, and the kitchen became the sales office. But that business eventually failed, and the location is now an insurance office with plenty of covered parking. The used car idea is also being tried again in Missouri.
• A flea market or art fair
  Wouldn’t this idea just be perfect, assuming you could get the location cheap enough to be profitable? Each stall could be a vendor’s booth. Customers could drive through the location and only stop if something caught their eye. Of course, parking might become a bit problematic if you had enough traffic.

There are reasons why I wouldn’t try any of these ideas myself in this location. Mostly because we already have more of each of these types of business than I believe the community can support. But I’m sure there is something that can be done. I just don’t know what it is yet. Maybe we can figure it out together.

Inflated ARV: Massaging the Numbers

When calculating ARV, you have to think like a buyer, a contractor, an appraiser, a seller, and an investor…all at the same time. Any question you can ask yourself is probably important.

This post originally appeared on the Hermit Haus blog on 2016-10-07.

One of the easiest mistakes to make in renovating houses is to overestimate their After Repair Value (ARV). In this post, I’m not going to delve into motivations for inflating a house’s ARV. After all, I’ve done it to myself, so far be it for me to cast asparagus on anyone. I’m just going to talk about how it happens, and there are only a few ways:

• Use the wrong comps.
• Make the numbers fit the model.
• Mis-time the market.

I originally planned to talk about all three of these risks in one post, but I soon figured out it would be way too long. Click here to open all posts on this topic.

There are are many ways to tip the scale in favor of something you want to do. Be honest with yourself and let the numbers make your decision.

Make the Numbers Fit the Model

As I mentioned before, wholesalers know our requirements, so it’s easy for them to (intentionally or not) make the numbers fit that model. Most wholesalers understand that their long-term survival depends on their reputation, but there are exceptions to every rule. Rely on your own or a third party for your numbers.

You also have to honest with yourself. We’ve all seen (and some of us have been) someone who says, “My house has to be worth $200,000,” with the implication being “because I need it to be worth $200,000.” Buyers don’t care, and they are the ones who make the final decision about how much a house is worth. If every other house like yours is selling for less than $150,000, nobody will pay $200,000 just because you need that much.

It’s very easy to convince yourself to pay more than you should. “I can pay another $10,000. If I fix it up to be the nicest house in the neighborhood, I should be able to get $20,000 more than those other houses have sold for.” Wrong. You may be able to push the market a little. You may even find a buyer who is willing to pay that $20,000 above market, but, unless the buyer is paying cash, the house still has to appraise. And appraisers work for the bank, not you. They aren’t going to ignore the comps just because you and the buyer agree on a higher price.

Suggestions

Here’s how to avoid these traps:

• Always run your own comps and trust your formulas. Never take the word of a wholesaler, especially when you haven’t done business with them before. Be conservative with your estimates of ARC and overestimate the repair costs. It’s much better to come in under budget and sell the house for more than the inverse.
• Keep your emotions out of it. Whether you are buying, selling, or renovating, your emotions will lead you astray. If you have to, keep a disinterested professional on your team to give you value advice in each stage of the project.
• When selling, it’s okay to be near the top of the market, but don’t try to push the market higher. Price your house just below the top, and let buyers push the price higher if they want to compete for it. Depending on your project, it can cost considerably less to discount a house than to hold it for even a couple of extra months.

Inflated ARV: When a Comp Isn’t a Comp

Just looking at the map, which set of houses looks more attractive? The ones facing the park or the ones facing other houses? I’ll give the answer in the body of this post.

This post originally appeared on the Hermit Haus blog on 2016-09-26

As I mentioned in my last post, 0ne of the easiest mistakes to make in renovating houses is to overestimate their After Repair Value (ARV). In this post, I’m not going to delve into motivations for inflating a house’s ARV. After all, I’ve done it to myself, so far be it for me to cast asparagus on anyone else. I’m just going to talk about how it happens, and there are only a few ways:

• Use the wrong comps.
• Mis-time the market.
• Make the numbers fit the model.

I originally planned to talk about all three of these risks in one post, but I soon figured out it would be way too long. Click here to open all posts on this topic.

Use the Wrong Comps

We rely on comparable properties—”Comps,” for short—to make our educated guesses at a house’s ARV. If we base our estimate on the wrong comps, we can really screw up. The rule of thumb is to only use comps within a mile of the subject property. But even if all the comps are within a half mile, they may not be appropriate to our estimate. We must always consider:

• Neighborhood boundaries
• Major streets
• Age
• Condition

Neighborhood boundaries are often marked by major streets. Any time you cross a major street, you’re likely to find the character of the neighborhoods surrounding the properties vastly changed, and the neighborhood influences property values. We looked at two houses in Temple that were on opposites sides of a road. The neighborhood on the north was 20 years younger than the one on the south, but the properties in the older, established neighborhood were higher than the newer houses to the north where it turns out the ground was more mobile, leading to more foundation problems (condition).

But we also evaluated a house in Round Rock where a very similar floor plan in the house directly behind the subject house—a privacy fence separated the two back yards—was worth about $20k more. Why? The subject house had once been the edge of development. All the houses one street over were 25 years newer and in much better shape thanks to a stronger neighborhood association. The subject house was worth considerably less after renovation than the house directly behind it. This was despite the subject’s proximity to a park and an elementary school. The numbers on the subject property were very attractive if we used the more newer, more appealing houses as comps but not when we only used houses on the same street.

A novice investor once showed me a map very similar to this one to justify the price being asked for a house. I pointed out that the so-called comps were in completely different neighborhoods from the subject. In fact, the only thing the “comps” had in common with the subject was that they were in the same ZIP code.

When evaluating another house in Belton, we were given comps that were on the other side of the Interstate from our subject property. Even though the “comps” had sold for more than $200k, our subject would have been overpriced at half that. Given that we were looking at a renovation budget of at least $60k, the $50k asking price was way beyond what we could reasonably pay.

The condition of the properties makes a big difference, too. When buying, if you only look at houses in similar condition to your subject’s current state, you can under value the ARV. But if the houses you use to price your purchase have already been renovated, you could end up paying way too much. The tricky part of buying a house to renovate is keeping both of these numbers in mind when you decide how much to pay.

Suggestions

Here are some basic tactics that will help you ensure you pay the right price for the houses you buy:

• Ensure your comps are as close to the subject property in size, age, and desirability as possible.
• Keep your comps close in proximity to the subject as you can.
• Don’t cross major roads, but remember to deduct value if your subject or comp is on a big road.
• Try not to use properties more than a half mile away from the subject.
• Mark sure the kids who live in the comps attend the same schools and ZIP code as your subject. I’ve seen the house across the street or next door go to a different school. Certain schools can be a tremendous motivation—in either direction—for parents.
• Always at least drive the neighborhood yourself before you decide to buy. If you can’t, make sure someone whose livelihood depends on your team’s profitability does.
• Keep both the current value and the ARV in mind. Make sure there is enough room between the price you’re paying and the ARV to pay for the rehab, your holding costs, and your profit.

Figures Don’t Lie

Selfie by Suna Last year, Paul Esajian invited Sue Ann and me (and some other investors) to watch the San Diego Chargers from the Fortunebuilders skybox. Paul has given us some great advice in the time we’ve known him.

This post originally appeared on the Hermit Haus blog on 2016-09-24.

Hanging on every word

Believing the things I heard

Being a fool

—Russ Ballard

One of my mentors, Paul Esajian, says, “Always trust the numbers.” By that he means your numbers. Phill Grove, another mentor, emphasizes this concept. He says, “Always do your own due diligence. Run your own CMA. Do your own repair estimate.” In other words, buying real estate is a perfect opportunity to follow the advice of the old Russian adage, “Doveryai no proveryai”—trust but verify.

Trust but verify. Especially when dealing with wholesalers.

We expect homeowners to lie through acts of commission, omission, and ignorance. They, after all, are in dire straits. They really need to get out of a problem house, and they often know what they need to accomplish that goal down to the penny. We expect them to over-emphasize their house’s strong points and ignore or hide its deficits. Further, they may not even know about a termite infestation, a leak in a wall pipe, or countless other problems that can drive a renovation over budget and into red ink. And, to be fair, homeowners expect investors to lie to them, too.

But wholesalers are a different animal. They speak Investor, so it’s easy for investors to let their guard down too much. For example, wholesalers know how to get our attention with numbers. They know the secret formula we use to make sure we have some cushion for the unforeseen issues that arise in every project: .7ARV – R = O. Our Offer should be in the neighborhood of 70% of the After Repair Value of the property less the cost of Repairs.

The Perfect Deal

Asking Price	$100,000
Repairs	$40,000
ARV	$200,000

So when we see an opportunity like the one shown to the right, our immediate tendency is to short-circuit our processes and jump to the conclusion, “That’s a good deal!” Why? Because .7 of $200,000 is $140,000. Subtract $40,000 in repairs and we should be comfortable paying $100,000 for the house. I mean, what could go wrong? Well, there are only three possible reasons why the numbers match our formula so well:

• The deal is a perfect fit to our expectation, and we stand to make about $25,000 after holding and marketing costs. 
• The ARV has been overstated, intentionally or not, which could reduce or eliminate our potential profit. 
• The repairs have been understated, intentionally or not, which (again) could reduce or eliminate our profit margin.

We don’t need to talk much about what happens in the first outcome, where the numbers are correct. Everybody is happy. Everybody wins. But I reckon each of the other two outcomes deserves its own post. As I write them, you can find them gathered here.

Most wholesalers are hard-working, honest people. But especially with the growth of HGTV, DIY, and similar networks, vast numbers of newbies are coming into this profession, and wholesaling is the logical starting point. (We can discuss why in another post some other time.) People in our profession follow the distribution of the general population with roughly 2% falling somewhere along the psychopathy scale.

It’s like one of my favorite bosses (she hired me three times in the corporate world) once said, “Figures don’t lie, but liars figure.”

Other People’s Money

Photo by UfaBizPhoto / Shutterstock The first time you loan a substantial portion of your wealth to a rehabber, you may worry about this being your new home—no matter what your relationship with your borrower. When you stop worrying, it’s probably time to stop lending.

Photo by Ardfern / CC BY-SA If you’re putting your money in Any bank, you might as well be putting it in The Bank, an Irish pub. You’d get more pleasure out of it, anyway.

Being a PML can earn you a Lot More Money than a bank CD. I think the rewards are worth the risk.

This post originally appeared on the Hermit Haus blog on 2016-09-08.

In a previous post, I talked about the advantages to Hermit Haus of using other people’s money (OPM). I mentioned that I prefer using private money to every other source. I prefer private money because I really do believe in the big Win-Win and spreading the wealth around a bit. This post deals with why becoming a private money lender (PML) is good for you as the lender.

Let me start out by saying I am a PML. I have helped fund several other people’s projects. I don’t like lazy money. I want my money working all the time—even when I don’t have a deal in progress. (Yes, that does happen sometimes. It seems like this business is always going from one extreme to another. Either you don't have any deals at all or someone accuses you of being a "house hoarder.")

What’s the Worst That Can Happen?

A few years ago, I was at one of those massive networking events with vendor booths all along one wall. I got to chatting with a hard money lender who was willing to fund 70% of the after repair value (ARV). At that time, I had been doing one deal at a time, mostly with my own money. I asked him about the risk of lending money on an undone house. "What's the worst that can happen?" he asked.

“I don't know. I guess I default on the note,” I said, somewhat naively.

“No,” he said. “that’s my best case scenario. Then I get a $200,000 house for $140,000, and somebody else has done the renovation, or most of it." He let that sink in. "The worst that can happen is you pay off the contract as written. Then don'tI only make 14% on my money.”

That was an eye-opening conversation for me. The worst that could happen was for the borrower to honor the contract. Wow!

Why Lazy Money Is Bad

Even though my hard money friend said the worst that could happen was that I paid back his loan, he was wrong. The worst that could happen was that I left my money in the bank. I want my money to work for me, not laze around in a bank. Here’s why:

Banks are pay ridiculously low interest rates. They can get away with these low rates because your money is “safe,” protected by government insurance. Even if the bank fails, you get your original deposits paid back. But that’s not really safe, is it? If you only get back what you put in you have really lost money. In fact, even at the interest rates banks pay today, you are losing money every day you let your lazy money vacation in a bank. Assuming the federal government’s core inflation rate of about 2.2% (January 2016), your money is worth 0.183% less every month. If you put $100,000 in a CD in January, it would be April before the interest rate you earned would overcome inflation. Think about that. It would be three full months before your money—including interest would buy as much as it would if you spent it all in January! And that’s with the highest paying CD I could find on the market today!

At the end of the year, your $100,000 would have grown to $101,124, but it would only be worth $100,939 compared to January. that’s still $939 more than you had to begin with, and compounding would continue to make it grow faster each year. But if you needed to have a million dollars to retire and maintain your current lifestyle, how long would it take you to get there? Would you even still be alive?

Why You Should Be a Private Money Lender

The only way to beat the bank is to BE the bank. Become a PML.

Let’s say you invested that same $100,000 with a reputable rehabber at 10% with one point paid at funding. You would earn $1,000 just for making the loan.

Think about that. You’d make almost as much money just for making a loan that could possibly be repaid the next day as you would for leaving your money in a CD for a full year. Then you would earn $833 in interest every month until the loan was repaid when the house was sold. that’s a lot more than the $183 the highest paying CD would give you.

Now as a PML, you could let your money compound, just as you would with a CD. But you could also take that interest payment every month and do with it what ever you want. Put it back for taxes. Make a car payment. Anything. What would it be like to drive a $100,000 car and have someone else make the payment for you every month? At the end of the day, you have the car and the $100,000.

The graphic at the right compares the money you'd earn as a PML to the money you’d earn in a CD. Even if one project finished and it took two months to find another project to fund, you’d still make $9,552 during the year. that’s $8,428 more than a CD. You’d make an additional $360 by letting the interest compound. Or you could drive an essentially free car.

The Bottom Line

The bottom line is simple. Find a local rehabber to work with. Fund their projects and let them do the work. Just make sure you have a good contract and a first position lien on the house. I would also recommend that you not loan more than 75% of ARV and stay involved with your rehabber. That way, if the loan goes south, you still have a $133,000 house for $100,000.

For more information about being a PML, sign up for our free booklet.

How To Finance Your Projects

Photo source: Amazon “Other People’s Money” didn’t originally have the connotation we think it does today. Based on what happened in 2008, Brandeis’s thesis is a lesson lost. I highly recommend this book to anyone who has money or wants to have money some day.

This post originally appeared on the Hermit Haus blog on 2016-08-30.

If you watch HGTV’s Flip Or Flop—and who hasn’t?—you’ve heard Tarek El Moussa say, “We buy houses for cash.” If you watch regularly you may have also heard him say that they don’t always use their own cash. Not using your own cash is a consistent bit of advice from everyone from Than Merrill to Phill Grove.

But if you have enough money, why not use your own? Honestly, if you have enough money to complete a purchase and remodel on your own, you probably should do your first one or two deals with your own money. But you really don’t want to continue that practice for several reasons:

• It limits the number of deals you can do at one time.
• It lowers your return on the money you invest.
• It ties up resources you might be able to use for bigger deals or personal emergencies.

But, to me the most important reason to use other people’s money (OPM) is that doing so enables you to spread the rewards of this business as well as the risk.

I seldom fund a project completely with my own money. Why tie up $100k on one project that returns $30k when you can tie up $40k on two projects that return $25k each in the same amount of time and still have a reserve? (All numbers in this post are provided to illustrate points and do not necessarily reflect any given project.)

So where do you get OPM?

Here are some sources:

Hard money

Hard money lenders are bricks and mortar businesses, like banks. But they play by different rules than banks. They generally charge the most points and highest interest rates of any source.

Private money

Private money lenders are people like you and me. They loan you their money to complete your projects in return for the guarantee you’ll pay them back.

Banks

You’ve probably heard the myth that banks won’t loan money on distressed houses. What that means is you can’t get a traditional mortgage on a house that isn’t up to code. But you can get a one or two year construction loan. In many cases, these loans are interest-only until due, and they are at a much lower interest rate than hard or private money. The catch is that you must already have a proven track record and assets to get a bank to finance your project.

Owner financing

Owners are the least likely source of capital. If they had the money to fix up their house and sell it on the open market, they probably would. But you can offer to fix up their house for them and split the proceeds.

My favorite source is private money. Even when a bank finances the purchase, private money often finances the renovation. Why? That’s the topic of my next post.

What Is Reverse Wholesaling?

Reciprocity is the psychological word for fair play. When we do something for someone, they usually feel obligated to do something for us. It works both ways.

You can find blank assignment contracts on the Web. I recommend paying the money to have a good lawyer in your area draw one up.

This post originally appeared on the Hermit Haus blog on 2016-08-27.

I’ve talked about the benefits of wholesaling real estate on a couple of posts. In short, wholesaling is the process of getting a property under contract and selling that contract to another investor. (For a more in depth explanation, see “What Is Real Estate Wholesaling?” In “Marketing Pays Off!” Sue Ann discusses a double-close wholesale deal that brought us a needed cash infusion.

Today, I want to talk about a specific variety of wholesaling called “Reverse Wholesaling.” Now Reverse Wholesaling technically isn’t a different type of wholesaling. It’s really more of a wholesaling strategy. Simply put, it’s all about knowing who is going to want to purchase the rights to your contract before you make the offer.

Here’s how it works:

Let’s say you’re out Driving for Dollars (driving around looking for off-market properties you might want to buy). You find someone loading a U-Haul trailer, moving out of a house. So you stop to chat. You find out that they are going to walk away from the house for personal reasons (that matter a lot to them but not to this discussion). You walk through the house with them and realize that you can help salvage their credit score by buying the house. You make the offer and they accept. You now have a marketable interest in the contract to purchase the house.

So far, this scenario fits the wholesaling model perfectly. But what about Reverse Wholesaling?

You know this house is a good investment at the price you now have it under contract—just not for you. But your friend Samantha is looking for exactly this type of deal. You call Samantha and she’s thrilled you found the house for her. You assign the contract to her and collect your assignment fee.

How is that any different from traditional wholesaling?

It’s different because you never had to market the contract. You had a list of buyers, and you knew what they were looking for. You simply called one of the investors you already knew wanted to buy a house like this one.

I was involved in a transaction very similar to this one just last month. Eugene, a wholesaler, blasted a property to an investor group’s email list. I went to see the property and knew immediately that the deal was too thin for the Hermit Haus model, but I knew someone whose model it fit perfectly. I put my friend Larry in touch with the wholesaler, and Larry bought the house. I did not collect a fee because I had no equitable interest; I never owned the contract. But I earned goodwill points from both Larry and Eugene, who has since given me first dibs on several of his wholesale deals.

There are numerous tactics for building your buyers list, but that is the topic of a future post.

If It Were Easy….

Even when you have an established relationship, just getting contractors to show up in a hot market can be a challenge.

Weather has a way of overcoming your systems. It has been one of our biggest uncontrollable expenses this year.

When squatters, vandals, or thieves break into a project, the best you can hope for is to replace a broken window or two. When you’re working to turn a neighborhood around, break-ins will happen.

The discovery of knob and tube wiring at St. John’s cost us more than 100% of our contingency to rewire the house and bring it up to code.

Brody reminds us that the first rule of investing is vigilance. Keep an eye on everything.

This post originally appeared on the Hermit Haus blog on 2016-08-20.

If it was easy everyone would do it

If it was easy everyone would be in Clover

If it was easy I'd be the first to do it

If it was easy I'd gladly go back through it

—Lynn Anderson, Ed Bruce

This year, most of our redevelopment projects have run way over schedule. Running long is a bad thing because it always involves extra costs that eat into your schedule—if nothing else, your holding costs mount up. So I wanted to take a look at the reasons why we’re taking longer to complete projects than we thought we would. I also wanted to figure out what, if anything we could do about them. Here’s some of what I found:

Contractor Work Load

The projects that have run longest have all been in hot markets. When a market is hot, it can afford more redevelopment/remodeling work than softer, cooler markets. Contractors, even those with whom you have established long-term relationships, have more work than they can handle, and they often prioritize higher paying retail jobs over maintaining a close relationship with investors, who typically negotiate lower prices than retail customers. Even if you enforce schedule penalties in your contracts, your contractors may decide paying them—or walking off a project—is better for their short-term financial picture than meeting your deadlines.

Unfortunately, the only alternative I see is simply to plan for longer projects up front. If you plan for a six month project that completes in five, you are in much better shape than if you plan for a three month project that completes in five. The net result of your projections being tighter is that you will probably do fewer projects because you have to buy them at lower prices.

Weather

I’m not going to complain about all the rain delays we’ve had this year—not after the drought and wildfires of previous years. But we’ve had plumbing inspections on the Villa Park project delayed by months and leveling St. John’s house put delayed by weeks because of standing water. So far this year, I estimate the rain delays have cost us more than $10,000.

As Charles Dudley Warner famously said, “Everybody talks about the weather, but nobody does anything about it.” All you can hope is that you have large enough reserves to survive the short term so you can reap the long term benefit. You also need to insure your projects with builders’ risk policies that cover any storm damage that may occur, especially if your project is in a flood zone.

Vandalism and Theft

When a redevelopment site sits vacant, unsavory people eventually notice, especially if you’re working on a property that has been vacant for a while before you start your project. We’ve encountered vandalism on the St. John’s house where people broke into the house to party and sleep it off over a holiday weekend. I also mentioned the dumpster full of engine oil there. And finally, one of our contractors had all of their tools and 30 gallons of paint stolen from the Villa Park project back in February. All of these events took time and money to repair.

The good news is that our insurance covered at least part of the costs we incurred here. Our contractor’s insurance replaced most of their tools. The jury is still out on whether the insurance will cover any of the oil disposal costs. When you encounter vandalism and theft (and you will if you’re in this business long enough), insurance can be the difference between making an losing money.

Unplanned Repairs

“You never know what you’ll find when you open a wall” is a truism in this business. Here are some of the things we’ve found in walls, in ceilings, and under floors this year:

• Knob and tube electrical wiring 
• Illegal electrical splices 
• Undisclosed WDI damage 
• Broken pipes 
• Inadequate sewer ventilation 
• Inadequate engineering

Luckily, with all of that we haven’t found mold or asbestos.

But these things are why we always have a contingency built into every reconstruction budget. Our contingency is usually about 10-15% of the overall reconstruction budget. On houses built before 1970, we can include as much as 10% of the purchase price. So far, we have never failed to use at least 100% of our contingency on any project.

The Bottom Line

The bottom line for all of this is that redeveloping, renovating, or whatever the scope of your project is a risky business. Like farming, many of the factors that affect your economic survival are far beyond your control. You can’t even know about a lot of them when you commit to a project, but we have a duty to provide a safe home for our buyers. We place people first (above profits), and so should you. If all you want is the money, you’ll develop a reputation that will make it unattainable.

Austin’s “Affordability Crisis”

High prices mean more people, especially young people, are renting again. Pricedoutforever.com argues that this is a good thing. I’m not certain if its good for them, but it is a good thing for investors. Photo by Pricedoutforever.com

This post originally appeared on the Hermit Haus Redevelopment website on 2016-07-23.

The median price of a single family home in the City of Austin rose 3% to $350,000 in June. When you take the surrounding cities into account, the median price was up 8% to $295,000. This sounds like great news to investors, but it actually makes our game riskier. Just as the higher prices are denying many first-time home buyers and lower income families the opportunity to buy a home in Greater Austin, they make it harder for investors to find the margins we need to sustainably run our businesses. Not impossible, just harder.

If you talk to a real estate agent, they’ll say, “Buy high, sell higher.“ But remember agents are motivated by commissions, and they get paid no matter which way the market trends. They get paid more if it goes up, but they still get paid if it goes down, assuming it doesn’t collapse and they can still sell something.

The more people get priced out of the market, the fewer people there are to buy any given home. That doesn’t seem to be a problem yet—along with the "affordability crisis" the ABOR article mentions, we have a supply crisis. Our inventory levels remain at historical lows, less than two months. I’ve even heard speculation we may see a one month inventory in the near future. That means, despite the price, someone is buying all the houses that are for sale, and it’s not just investors.

Remember, a stable market has around six months of inventory. So we are still in a really hot market.

While the trend in median home price continues upward, it is not a straight line. You can’t count on appreciation to save your donkey. Data source: Austin Board of Realtors^®

But consider this: this business is cyclical, and it can turn on a dime. Add to that what our mentor Shenoah Grove says: "We’re currently eight years into a five year cycle," and you can begin to see why some investors are starting to talk about bubbles. And finally, I’ve seen a market correction in the first year of every new administration since I can remember, regardless of which party was involved. So you have to ask yourself if we are approaching the crest of the wave.

Over time, real estate has always appreciated. But that appreciation isn’t a straight line, unless your talking about the very long run. It’s downright bumpy. And as I’ve always said, to reap the long term benefits, you have to survive the short term. Or as I once heard Alan Greenspan quote John Maynard Keynes when asked why investors don’t plan for the long term, "In the long run, we’re all dead."

So how do we continue to help people and make money in times like these? We have to stick to basics.

• Don’t buy assuming appreciation will fix our mistakes. I think it will...in the long run—if we survive the short run.
• Know your end buyers well enough to improve the house to the right level, neither over improving nor under improving.
• Remember your time lines and try to eliminate slack from your schedules. This one is really hard right now when contractors and subs still have more work than they can handle. Why do should they care about your schedule?
• Manage your holding costs. Use private money rather than hard money. Use bank money rather than private money.
• Partner up to spread the risk. You only shoulder half the risk with a seasoned partner, but you only get half the profit.

That said, don’t forget the motto I learned from my mentor Than Merrill: “People first, profits second.“ This business revolves around solving other people’s problems. Even in these high-priced times, even when the market turns down, if you can help people solve their problems, this business will continue to be rewarding and profitable.

For the full report on the June market from the Austin Board of Realtors, see Austin-Round Rock home sales on pace to surpass 2015 record levels amidst affordability crisis

The Pros and Cons of Real Estate Wholesaling

When you have a property under contract, you have a marketable interest in that property: the contract. You can sell that contract in most states, but you can't sell the property until you own it. Talk to your lawyer.

I designed this infographic of the wholesale cycle way in the future. Too bad I don’t have it now.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-07-21.

Many "experts" recommend real estate wholesaling as a quick, inexpensive, and easy way into the business. While it may be the lease expensive way to start out, wholesaling isn't all that easy. For a complete explanation of what wholesaling is, see "What Is Real Estate Wholesaling?"

Pros

You can raise money fairly quickly.

Because you use very little of your own money and you collect on your investment quickly, it is possible to raise money very quickly. The amount of money you can raise depends primarily on your skill as a negotiator. How cheaply can you put the property under contract? How little of your money can you tie up in the process?

Risk is lower than renovating or buy and hold.

Again, because you use very little of your own money, you risk very little of your own money. But there are other risks.

Cons

It is not without risk.

Wholesaling can be very close to practicing real estate agency. You have to be very careful of your practices and wording to avoid this risk. Further, you will probably have at least a little of your own money at risk. And you risk your credibility with your peers if you don't perform a fair amount of due diligence before marketing your contract.

It takes a significant amount of effort.

Wholesaling requires more effort than just about any other kind of real estate investing and sales. It is a full-time marketing gig with very little repeat business. No seller will ever sell you more than one house. How would that sound? "Hey, Lee. You bought my house when it was being foreclosed on a few years ago. Guess what?"

You have to be willing to invest in marketing.

Because wholesaling is lead-driven, you have to generate a lot of leads for every deal that comes along. This part really isn't any different than other parts of the investing game, but it is something you have to be aware of. That means you have to be prepared to spend money and effort to generate those leads.

You can't do it on the MLS.

I see a lot of novice wholesalers trying to re-market a house they found on the Multiple Listing Service (MLS)—or from one of the big real estate sales websites like Realtor.com. The honest truth is, if it's on MLS, it's probably a very thin deal—usually too thin—for any investor already. By the time you add in a wholesaling fee, it probably isn't a deal any longer—if it ever was.

The point of this post isn't to try to scare you away from wholesaling. I want you to wholesale. We buy a good chunk of our deals from wholesalers. My business would be much smaller without reputable, reliable wholesalers.

The point is for you to understand what wholesaling is, what you're getting yourself into. You can make good money wholesaling, if you work at it and maintain good relationships with your buyers. But you will get much more out of it if you understand the needs of the people you buy from and figure out how to satisfy those needs.

Eight Exit Strategies

Sorry. There isn’t an Exit 8 in Texas. Or, at least, I can’t find a picture of it. Photo by TBD

This post originally appeared in substantially altered form on the Hermit Haus Redevelopment website on 2016-06-17.
 

Seems to me

You don't want to talk about it

Seems to me

You just turn your pretty head and walk away

—Joe Walsh

I’ve mentioned “exit strategies” in a few posts. I thought it might be worthwhile to discuss the exit strategies we use at Hermit Haus Redevelopment, LLC (HHR). But first, let me define the term “exit strategy” as we use it in the redevelopment industry and more specifically at HHR. Simply put, an exit strategy is a way to get out of a deal once you’re involved in it. Each of the exit strategies I discuss here can be applied in various parts of the deal cycle.

Okay. Let’s get down to it. Here are the eight exit strategies we use:

Before Going under Contract

If you exit the deal before going under contract, you essentially have no risk, not even opportunity costs. You don’t tie up any of your funds. The worst that can happen is you find out a better negotiator got the house and made a killing. This has never happened to me. Yeah, right!

Walk Away from the deal.

Speaking of “walking away,” it seems like whenever we go hiking I spend a lot of time looking at receding butts. Am I just slow?

Believe it or not, walking away is the most important exit strategy you can acquire. Most of the deals you see won’t make you any money. You have to recognize these bad deals quickly and not just walk, but run away. And you can walk away at any point of the deal cycle. You just have to be aware of the consequences, especially if you have already taken title to the property.

Refer the seller to a Realtor®.

Many of the deals that come your way are really retail sales. There is little value you can add to the property, and the owners need more money than you can pay. Period. These deals can help you maintain a good relationship with your Realtor by referring the seller to your listing broker, who can help the seller get the seller get the most for their house. Since this is another form of walking away, you’ll only refer out a deal if you can’t do anything else with it.

Of course, if you are a Realtor yourself, you could always list the property as an alternate way of monetizing your time.

Under Contract but before Closing

Simply by going under contract you are incurring some risk. If you can’t sell the contract, you could lose your option money and your earnest money. Then there is always a chance the seller could sue for specific performance, however unlikely.

The contract is what makes a deal real. This is the beginning of a contract where we bought a house from a wholesaler. In Texas, anyone acting as an agent (except, I believe, a lawyer) for another person is required to use a standard contract.

Wholesale the contract to another investor.

You have to have an equitable interest in a property to sell it without a real estate license. In most states, the contract to buy the house is an equitable interest that you can sell for a few thousand dollars. At this point, all you have invested is your option and earnest money. So if you have $100 down and assign the contract for $10,000, you can make a tremendous return on your investment without ever owning the property. A couple of caveats:

• Wholesaling is not legal in all states.
• It works best when you already have a list of buyers who might be interested in the property.
• In the states where wholesaling is legal, you must have a valid contract to sell.
• I recommend you always use an attorney when wholesaling.

You’ve closed on it. Now you own it. What are you going to do with it? This question is what exit strategies are all about.

After Taking Title to the Property

After closing on the purchase, there is no doubt that you have embraced risk. You own the property. Now you have to pay for it and the needed renovations. Unless you use the double-close method of wholesaling.

Double close on the property.

Although this is technically a type of wholesaling, you actually take title to the property. Because of the cost of closing twice, you would only want to double-close in a few situations:

• Traditional wholesaling is illegal in your state.
• You’re making enough money on the deal that you can afford the double close.
• You don’t want one or both parties to the wholesale transaction to know how much you’re making on the deal.

"Prehab" the property.

Prehabbing is doing the extreme minimal amount of improvements to a property needed to sell it to another investor. (Yes, you could call this another type of wholesaling.) We haven’t had the opportunity to prehab a property yet, but the most common example I’ve encountered of other people prehabbing is with hoarder houses. A friend of mine bought a hoarder house for $45,000. He then spent $500 to have the garbage hauled off and sold the house to another investor for $70,000, making almost $30,000. The investor who bought it put another $30,000 into the house and sold it for $150,000. In my books, that a win-win-win.

Rehab or redevelop the property.

This is our bread and butter. At this point, all of the properties you see described on this site is a rehab or a redevelopment project.

Buy-and-hold (and rent) the property.

Holding rental properties are a great way to build wealth. You use someone else’s money (mostly) to buy the property, and your tenant makes the payment for you. HHR doesn’t hold rental properties. We do, however, sell redeveloped properties to our sister companies to hold.

Owner finance the sale.

To owner finance the sale, you must have sufficient capital to absorb the risk. I have to say this is one of the riskiest exit strategies you have, and it is fraught with drawbacks. First, you have to pay taxes on the capital gains without having the income from the property to do so. Then you have to assume the buyer will continue making the payments you rely on either for income or to make wrap payments yourself. And finally, it eats the capital you would need to continue your investment business.

So that’s it: Eight different exit strategies to keep in mind on any deal. We use one of these strategies every time we look at a property. By far, the one we use most often is to walk away.

What Is Real Estate Wholesaling?

This is a very large sad house offered to us by a wholesaler. We will see…. Photo by: Suna

This post originally appeared on the Hermit Haus Redevelopment website on 2016-05-23.

Yesterday, Carol, Russell, Sue Ann, and I went to look at a prospective wholesale deal we’re calling either the Antelope House or the Home on the Range because of the toy deer in the front yard. This was a frustrating trip. The wholesaler didn’t have the three things you expect a good wholesaler to have when asking you to meet at the property:

• The keys
• A firm idea about what he wants to sell the house for
• An understanding of the redevelopment business model

But there are newbies in everything, and I’m going to put down his performance to a lack of experience rather than to a lack of respect for the business or us.

In real estate investing, wholesaling is a process whereby the wholesaler:

1. Finds a (hopefully good) deal on a sad house
2. Negotiates with the current owner to establish the purchase price of the house
3. Signs a contract to purchase the sad house
4. Markets the contract to other investors at a premium
5. (Hopefully) finds another investor who is willing to pay the price the wholesaler needs for the property
6. Assigns the contract to the new investor who actually closes on the deal

Some people will tell you this process is illegal if the wholesaler is not a licensed real estate agent, It is, in fact, illegal in some states unless the wholesaler actual takes title to the property. This strategy is called a double-close because the title changes hands twice: once when the wholesaler buys it from the original owner and once when the final investor buys it from the wholesaler. In Texas, sale and assignment of the contract is legal because the wholesaler is marketing an equitable interest in contract itself, not the real estate.

You can find blank assignment contracts on the Web. I recommend paying the money to have a good lawyer in your area draw one up.

In this case, Sue Ann and I drove 40 miles each way (Russell and Carol drove farther!) only to waste our time with a wholesaler who was at best unprepared. He offered us the contract at nearly full retail prices without giving us the opportunity to look at the inside of the house. He said it would take about $15-thousand to repair the house, which would place the total cost of acquisition just north of what we could expect to sell it for—if his numbers were right. He said he would fix every flaw we found on the exterior of the house.

Now, there are ways to make an offer on a house sight-unseen. To do so, you must know your market extremely well. You can make the offer based on average cost per square foot of a sad house and your average cost to repair. Then you add in an allowance for worst case.

Also, never trust the wholesaler to make the repairs for you. There are two reasons for this:

• You are responsible for the quality of the repairs that the wholesaler makes without having any control over costs, materials,contractors, or corners cut. What’s the old adage? “If you want something done right, do it yourself.”
• The profit of a redevelopment company comes from the difference in value before and after redevelopment. Needless to say, allowing the wholesaler to reap these profits makes the deal too thin to think about.

The wholesaler wants us to meet back at the house on Thursday, at which time he promises to have the keys. If he still wants to sell us the house and act as a contractor, he will have read our contractor materials by then and understand the way we do business. If not, we will have other things to do on Thursday.

The bottom line is never be afraid to walk away from a “deal.” As my friend Larry says, “Some of the best deals I’ve done are the ones I walked away from.” It’s always better to walk away than to lose money.

A Joint Venture in San Antonio?

Yes, there are two dumpsters in front of the house. The GC for this project actually filled and hauled off three dumpsters before she could safely start work.

A successful joint venture is a win-win.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-05-17.

Yes, we work anywhere we can find the right deal. Even as far away as San Antonio—where the newest deal brought to us by our friend and joint venturer Larry is located.

St. John’s house isn’t really a hoarder house. It’s just been very neglected for a very long time. It may be the dirtiest house we’ve attempted to redevelop to date. I’m glad Larry is taking the lead on this one.

I should have more pictures later this week when I go to see it first hand for the first time.

This house is in an area that is undergoing substantial gentrification. Several houses with a few blocks and on the same street have been bulldozed to make room for McMansions. We won’t go that far with this house, but the house won’t be recognizably the same when we’re done.

So What Is a Joint Venture Any Way?

Simply put, a joint venture is a contractual arrangement between two or more entities (people, corporations, or some combination) to undertake a specific project through a Joint Venture Agreement (JVA). The JVA specifies how much each entity is responsible for the project in terms of money, time, or effort. In real estate redevelopment or construction, joint ventures often enable the venturers to pursue more or different deals than they could on their own.

In this case, the joint venture is between Hermit Haus Redevelopment, LLC and Andress & Three, LLC.

When Hermit Haus enters into a joint venture with another company, we always spell out who is responsible for managing the project and who is responsible for managing the money. Since there is considerable overlap between these two responsibilities, we end up with some level of checks and balances.

We split the costs and rewards evenly between the venturers. The JVA states that the money manager has to publish state of the venture reports at least once a month. That way the venturers all have an opportunity to see where the money is going and with more eyes, the project, hopefully, has a better chance of success.

Is joint venturing with other investors the way to go for you? Maybe. There are a lot of considerations, and only you can decide for you. And as with any legally binding contract, have your own lawyer look over the contracts before signing.

Builder's Risk Insurance

The backyard of the Ash House was grown wild for a number of years. I don’t think we can save the dog house, maybe the greenhouse.

The amount your builder’s risk policy will pay out in the event of a total loss varies with time (shown as weeks above), even if you insure (as I do) up to the full after repair value (ARV). Keep excellent records of what you have invested (blue line, shown in thousands of dollars) and how that investment affects the property value (orange line) to help get the most out of your insurance if you have to make a claim.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-04-08.

We closed today on our joint venture project in Temple, TX. As you might guess from the last few blog posts, there were a number of last minute details to work out with the private money lender and title company. But we got them all done.

And I learned something about Builder’s Risk insurance in the process.

What Is Insurance?

Let’s start with an overview of what insurance is and isn’t. Insurance is a financial product where the insurance company agrees to indemnify you in the event of a loss. For insurance to work, three conditions must be met:

• You have to feel there is sufficient risk to justify paying for the policy. (In redevelopment, there always is.)
• There must be a sufficient number of policy holders that need the coverage to interest the insurance company in writing the coverage.
• The insurance company must believe there is a profit to be made by indemnifying you, generally by spreading the risk over the “pool” of insureds.

Like the name implies, with buider’s risk the insurance company agrees to indemnify the builder (you and me) against specific types of loss during the process of building or remodeling a property. The word “indemnify” screws up many people. All it means is that the insurance company will pay you a specific amount of money if you suffer harm or a loss, up to the maximum coverage. That is, the insurance company will make it financially as if the loss never occurred.

What Will It Pay?

The question that makes builder’s risk insurance interesting is, “What is the amount of the loss?” You suffer less damage if a tornado levels your project the day before you start redevelopment than if the same thing happens the day after you complete it. And it is different on any day between those two points. I’m using a tornado in this example because a total loss is much easier to define than a partial loss, such as a minor fire.

So let’s say you bought a house for $70,000. You expect to spend another $70K redeveloping it over the next 60 days. When you’re done, you expect the house to be worth $180K. The beginning and end points are fairly clear. If the tornado happens on day one, the insurance company would pay you about $70K. If it happens after completion, you could justifiably expect (but might not receive) $180K.

But the amount of harm you suffer would vary at any point along the way. Let’s say you spent the first week cleaning up a jungle that had grown around the house. You spent $2K. That investment might not be counted a loss because it wasn’t spent on the structure. But if you spent $8K replacing the roof the next week, you have improved the value of the structure by at least $8K. The insurance company would probably pay you at least $78K of the $80K you have invested.

The same holds true for demolition costs. Do they actually increase (or possibly decrease) the value of the property and, therefore, the amount of loss you suffer? You could argue that you’re still out the money for demolition, and you’d probably win, but….

Document everything!Image by Bitmoji

What the insurance company pays in the event of a loss depends on the amount you have invested and the actual loss you suffer. Both of these depend on you keeping squeaky clean records with receipts and all sorts of other documentation. I wouldn’t expect the insurance company to cover anything over your actual costs unless the project is complete or so close to completion that you are actively marketing it. Even then, it depends on how your policy is worded.

The take-aways:

• Always carry builder’s risk insurance on your redevelopment projects.
• Make sure you understand how the insurance company will determine the value of a loss before you sign the contract.
• Document everything.
• Don’t expect the insurance company to pay more than you can prove you’ve spent.

The first three of these take-aways hold true even if you are a regular homeowner instead of an investor. Then the last one that the insurance company probably will not pay more than actual market value, no matter what you think you home is worth. They have not emotional attachment to it.

Caption Photo by: Suna

Private Money Anxiety

Your lenders are people, too. When they have anxiety about lending money to you, understanding what drives that anxiety can help make your business more profitable.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-04-04.

You hear a lot in this business about private money and hard money—often lumped together as if they are the same thing. Both are alternative financing options to banks. There are advantages and disadvantages to using either private or hard money. Let’s start by talking about what distinguishes the two:

Hard money

Hard money is more bank-like. It involves dealing with a lender whose business is lending money to individuals or companies for the purpose of buying, renovating, and possibly selling real estate. Hard money lenders are “bricks and mortar” operations; they have a building, marketing and collections departments, and strict rules they must follow.

Private Money

Private money is money you borrow form individuals. They can be sophisticated lenders or novices. They can be your lawyer, car salesman, or coworker. They may even make their living by lending money to investors. But they aren’t regulated by the government because they aren’t in the business of lending money. That is they don’t have a building and staff to support.

Investors often lump hard and soft money lenders together, because they serve the same purpose: they provide the money you need to do your business without having to go through the qualification process, wasted time, paperwork, and financial nakedity of a bank loan. The price for this convenience is a much higher cost of money and a shorter loan term. Neither private nor hard money lenders are likely to give you a payback period longer than a year, and you’ll probably pay more points for the loan and a much higher interest rate than you would with a bank loan. For example, we have paid two points (two percent of the total loan) and twelve percent interest for private or hard money as opposed to one point and five percent for bank money.

So why use private or hard money? When you find a profitable deal, you often have to close in a week or two. I have yet to find a bank that can make a decision in less than a month, even when you have an ongoing relationship—as if that meant anything to a bank. The added expense is just a cost of doing business. So what if you pay your lender $5,000 more than you would a bank if you’re still going to make $25,000 or more on a deal you would lose if you waited on a bank to act?

The people you borrow from have their own plans for the money they let you use. We always protect their money first. The lender is a named insured and gets paid before we do. Photo by: Suna

Which Is Better?

So which is better, hard or private money? The answer is it depends. Private money can make a decision faster, but it can also be more skittish. I have known private money lenders to back out at the last minute. I haven’t had that experience with hard money lenders. But because hard money is more regulated, they can take longer to make a decision in the first place, which can cost you the deal.

One thing to remember is that whether you’re using hard, private, or bank money, your lender is taking a bigger risk on your project than you are. You are risking their money, and the only assurance they have of getting it back is your word. Banks don't want the property that secures the loan. Hard money or private money lenders often don’t want it either, but they are in a better position to recoup their investment (plus a little) if you default than are banks.

When you use someone else’s money, you play by their rules. Be patient with them if they get skittish at the last minute. They are just trying to cover their assets. Help them overcome their anxiety and get the deal done. You’re going to protect their money better than your own; help them understand that.

Another thing to remember is that your lender is another set of eyes on the deal. They may see problems you missed or glossed over in your initial analysis. Anything that makes your lender anxious is something you should take very seriously once you uncover the root cause. For example, a private money lender we are working with recently got very nervous just before closing. (That’s usually the most stressful time for them.) They started by questioning our analysis, so we walked them through the deal step-by-step.

Then they asked the question that was really bothering them: “What about insurance? Will we be a named insured?” We always name the lender as an insured on our Buidler’s Risk policy. It’s only fair. But when I reviewed my checklist, I hadn’t checked the box beside insurance. Oops! My bad. Luckily, my lender reminded me a few days before closing. Now that box is checked and we’re moving forward.