In the seemingly never ending interim time between the beginning and the end of the commitment letter process, the owner of the building and I finally agreed that it was time for me to do my physical inspection. It would be swinging without a net a bit for me, since I had neither the financing lined up nor the due diligence finished, but based on both the seller’s motivation and what I had seen already in the documentation I was confident that we would ultimately put something together.

So we booked the inspection. The Friday before Memorial Day, so I could take the whole day off and focus. We were set.

Before I tell you about the actual inspection, I need to give you some background on my inspector. First – he’s the best and does all of my single family home inspections.

Second – the inspections take forever because he’s so detailed. That’s why he’s the best. To put it in perspective, an inspection on a typical 1000 square foot, 3 bedroom rental usually takes between 3 – 4 hours. Sometimes longer. The great thing is, though, that he does my single family inspections without me being there, then gives me a detailed written report and a CD filled with pictures. VERY cool.

And third – he’s reasonable bordering on cheap. (This inspection was under $1,000)

And no, I won’t tell you his name. At least not yet.

To refresh your memory about the building, it’s an all brick, 2 story garden apartment building with 24 units (see the video in a prior post below). Structurally it was built as six buildings attached together, each of which has four apartment units. Each building also has two separate basements, with each basement shared by two apartments. It has separate utilities for each unit, which means that each of the 12 basements has two furnaces, two electrical panels, and two water heaters.

So – for the inspection we needed to look at the exterior walls, the roof, the inside of each unit, and the 24 sets of mechanicals in 12 different basements.

Suffice it to say that I had planned for it to be a very long day. Especially since this was my first inspection on my first building. But I was way off on my estimate of 6-7 hours.

So we meet at the building at 9am on Friday. Me, my inspector, the selling broker, and the seller. I was surprised that the seller was there, because he had complained that he wanted to get going on his long weekend. But he was there nonetheless, and he gave me the impression that he was going to escort us through each of the units. And indeed he started to.

In terms of the interiors I would say that probably 19 or 20 of the 24 units were completely uneventful. Some minor plumbing leaks, some sticking windows, some faucets with the hot and cold reversed, and a couple of non-disclosed cats. Nothing material.

The rest were interesting. One had a bathroom with a very leaky toilet, to the extent that if we had walked to the middle of the bathroom floor I’m convinced that it would have collapsed from rot and we would have fallen through to the basement. It was THAT bad. This was a 1 bedroom that had a mom, dad, a toddler, and infant all squeezed into it.

The second interesting one was that of a smoker. It was odd because it had medium brown walls and all the rest of the units were painted off-white. It was odd until I looked behind a picture on the wall. The walls once WERE white – the brown was from all the smoking with the windows closed. I had never seen it that bad before. Oh and by the way, the seller says, the tenant died two weeks ago from emphysema (big surprise there) in the hospital (thank goodness not in the apartment) – BUT the relatives are still paying rent. At least he has his priorities straight!

In another apartment, the only furniture that was in the entire 1 bedroom apartment was a bed, a sofa, and a 60 inch top of the line HDTV. Out of curiosity I asked the seller if the folks were just moving in, and he said no – they had lived there for at least six months.

And there was one apartment  that we couldn’t even get into because the tenant changed the lock. Devilishly clever.

I give the seller credit – he hung with us for almost two hours then gave the keys to us and told the selling broker to supervise. Still, it took almost 7 hours to get through the 23 units that we could get into.

And that was just the inside.

We took a break for a late lunch/dinner, then my inspector hit the roof. Normally a fairly quick inspection, it turns out that the guys that did the roof, which was only three years old, would have made great lumberjacks. Lots and lots of mistakes, including every one of the 54 pot vents installed incorrectly.

We finished the roof then it was straight into the basements. Testing every furnace (8 out of 24 were bad), all the water heaters (1 bad unit) and all of the electrical panels (four bad ones).

All in all we finished at 10pm – it took 13 hours to get through this inspection. The selling broker said it was the longest inspection that he had ever seen on a building of this size.

But for $1.1. million dollars? I think it was just right.

And do you know what? I had a blast and can’t wait for the next one. This is a great business.

Stay tuned for the next installment of my Apartment Quest Series: Rates are Rising – We Either Renegotiate or Kill the Deal.

What is it with these people? Do they not have any core values at all? First they spend years telling everyone that home ownership is the only way to go. Then when the housing market hits the skids they’re now singing the praises of renting??

I guess that anyone can justify anything. Now renting of all things is part of the American Dream.

What a crock of BS. This reminds me of the 70’s. Jimmy Carter induced malaise. High unemployment, high oil prices. High inflation. Job losses in the midwest and a ton of foreclosures as well (yes there were actually foreclosures back then). Not to beat you over the head, but are you seeing ANY similarities with today?

And so what was Carter’s solution. The man with absolutely no vision whatsoever?

His solution – unbelievably – was that Americans should LOWER their expectations. That’s right. Americans, members of the greatest country in the greatest society ever to exist on the face of the planet – should start to think SMALLER and not bigger. Children should STOP thinking that they would have it better than their parents. We should stop striving for bigger and better opportunities. We should start having a scarcity mentality like Europeans have instead of our usual abundance mentality.

Something that Americans had never, ever done.

Well thankfully the small thinker carter was bounced out of office on the heels of one of the largest electoral landslides to date by Ronald Reagan. And that ushered in the greatest peacetime expansion in the economy ever seen.

Fast forward to today. Read all the doom and gloom in the media. Hear it around the water cooler at work. If you listen closely, it’s pretty much the same doom and gloom as we heard 40 years ago. And again we hear the calls that America is heading into the sunset and that our best days are behind us.

Bullcrap.

That’s the fodder for small thinkers. It always has been.

This is the greatest country on earth. It always has been and it always will be. We have more opportunity and potential than any other society on earth.

There has never been a better time to start a new business. To think big and follow your dreams. It’s easy to get caught up in all the hysteria – because everyone’s doing it.

It’s harder to separate yourself fromt the crowd and think rationally and realize that things are never as bad as the naysayers shout from the rooftops.

But if you do the rewards are endless. The saying is true – there’s a lot of room at the top.

Anyway – here’s the article. Try not to laugh out loud at the backwards thinking. This guy definitley drank too much of the carter kool-aid.

From Parade Magazine . . . . 

Who says you have to own a home to live the American dream? Renting can actually be better for your pocketbook and lifestyle.

By Mike Hammer, Parade

Before the housing boom went bust this year, homeownership was considered a good investment. But now, with the rash of mortgage foreclosures, renting may be a more attractive option. Here’s why.

1. Renting can save money
According to popular myth, renters are just throwing their money away. But the reality is that when you buy a home, you’re paying for closing fees, mortgage interest, property taxes, private homeowners’ insurance and maintenance — costs that return nothing on your investment. You’d be better off banking that money or putting it into the stock market. In fact, a recent study by Fidelity Investments indicates that stocks provided investors with nearly 4.6% higher average returns in the past 45 years than real estate.

2. Homeowners’ tax deductions are overstated
Conventional wisdom says that buying a home saves you money because the mortgage interest is tax-deductible. But a study by the National Multi Housing Council – a national advocacy group representing the interests of large apartment firms in the U.S. — points out that half of homeowners don’t get a break, because even with mortgage interest and property taxes, their total deductions do not exceed the standard federal tax deduction ($10,900 for couples and $5,450 for singles).

3. More options are available to renters
With fewer houses and condos selling, more owners are converting their properties into rentals or providing incentives to lure prospective tenants. In condo-heavy cities such as Palm Beach, Fla., for example — where the vacancy rate has jumped 2.5% — investors are undercutting apartment rates to generate interest. “A lot of people are offering three free months to attract renters,” says Robert Smith, a real-estate adviser in Orlando, Fla. “And modern apartments offer amenities that may be unaffordable in a new home.”

4. Renting gives you flexibility
Buying a home is a big commitment. If you have to move for any reason — say, for work — your property would need to appreciate by at least 10% for you to recover your sales costs, which typically takes about five years. Renting allows you the freedom and mobility you need to find the right job before you tie yourself to a massive home investment.

The answer is absolutely YES.

How? Start by taking a look at the short, 1 minute video below. It shows the next home that I’m looking to add to my portfolio of long-term rental properties. It’s an all brick, 3 bedroom, 1.5 bath bath home in Harper Woods, Michigan that needs absolutely no rehab whatsoever. It also happens to be in the best school district in the entire state – Grosse Pointe.

Homes on this street normally sell for $125,000 -$130,000.

I  have an offer accepted with the seller for $70,000. And I already have a renter lined up.

How is this relevant?

I need financing for this home.

That’s how you can lock in an 8% fixed and secured return.

This is an incredible property – and this is an incredible opportunity for you to lock in a great return, whether it’s in your retirement account (IRA. 401k, or SEP) or regular brokerage account.

Visit the Great Lakes Investment Fund to learn more.

1 Pittsburgh Penguins jersey size XXL:     $  200
1 set of custom goaltending equipment:  $2,500
1 pair of custom fit goaltender skates:     $  500

Knocking in the Stanley Cup winning goal for the other team with your butt:  Priceless!

Here’s the video:

This result was not unexpected – there was supposed to be the last huge number or ARMs readjust in March. What’s surprising is that this time last year the pundits and analysts were talking about the real estate market taking a bath in Q1, but then after that the market was supposed to improve.

Regardless of the timing though, there has never been a better time to jump in and start buying. Prices have never been lower, good solid homes needing no rehab can be bought for what trashed out foreclosures sold for last year (see my prior post). And homes rent in a few short days and they cash flow VERY nicely.

Home foreclosures set record in first quarter
Thursday June 5, 10:48 am ET
By Jeannine Aversa, AP Economics Writer

Home foreclosures, late payments set records in first quarter of 2008

WASHINGTON (AP) — Home foreclosures and late payments set records over the first three months of the year and are expected to keep rising, stark signs of the housing crisis’ mounting damage to homeowners and the economy.

The latest snapshot of the mortgage market showed that the proportion of mortgages that fell into foreclosure soared to 0.99 percent in the January-through-March period. That surpassed the previous high of 0.83 percent over the last three months in 2007.

The report by the Mortgage Bankers Association also found that more homeowners slipped behind on their monthly payments.

The delinquency rate jumped to 6.35 percent in the first quarter, compared with 5.82 percent for the three months earlier. Payments are considered delinquent if they are 30 or more days past due.

Both the rate of new foreclosures and late payments were the highest on record going back to 1979.

Jay Brinkmann, the association’s vice president of research and economics, told The Associated Press that the slump in house prices was the biggest factor for rising foreclosures and late payments.

With prices expected to keep dropping, foreclosures and late payments “are going to continue to go up” in the months ahead, he said.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.

The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in fourth quarter, the previous high. Late payments rose to 22.07 percent from 20.02 percent, the previous high.

The association’s survey covers just over 45 million home loans.

More problems also cropped up with loans to more creditworthy borrowers.

The percentage of such loans falling into foreclosure was 0.54 percent, compared with 0.41 percent at the end of last year. Late payment rose to 3.71 percent, compared with 3.24 percent.

The numbers were higher for prime borrowers with adjustable rate mortgages. The proportion of those loans falling into foreclosures jumped to 1.55 percent from 1.06 percent. The delinquency rate rose to 6.78 percent, compared with 5.51 percent.

“The number one problem is the drop in home prices,” Brinkmann said. Declining prices, especially in newer built areas, “are hurting people’s ability to recover when they run into trouble — a divorce or loss of job,” he said. “In other days, you could sell the home. But because home prices have fallen so much, in many of those cases, the homes are going into foreclosure.”

California, Florida, Nevada and Arizona accounted for 89 percent of the total increase in new home foreclosures, he said. Those are places where prices have fallen sharply and there was a lot of home building, creating too much supply, Brinkmann said.

After a five-year boom, the housing market fell into a deep slump two years ago. That dragged down sales, and prices with it. As the value of homes plummeted, many newer homeowners found themselves owing more on their mortgages than their homes were worth.

Homeowners with adjustable-rate mortgages were clobbered when their initially low rates reset to much higher ones. That made it difficult, if not impossible, to keep up with monthly mortgage payments.

As foreclosures and late payments climbed, financial companies took multibillion losses when their investments in mortgage-backed securities soured. A credit crisis erupted and spread, crimping other types of financing. The fallout plunged Wall Street in turmoil, disrupting the normal functioning of markets.

All those troubles have pushed the economy to the brink of a recession, if the country isn’t already in one. Consumers and business have tightened their spending. Employers have cut more than a quarter-million jobs in the first four months of this year.

To bolster the economy, the Federal Reserve made aggressive interest rate cuts. That has helped homeowners facing rate resets on their adjustable-rate mortgages. But with inflation on the rise, Fed Chairman Ben Bernanke this week sent his strongest signal yet that the central bank’s rate-cutting campaign started that started in September is coming to an end.

The Bush administration has taken steps to help distressed homeowners. It has urged lenders to freeze rates for some homeowners and encouraged lenders to rework mortgage terms so troubled borrowers can stay in their homes.

A congressional plan that includes a foreclosure prevention program has stalled as lawmakers figure out how to pay for it.

The government would back as much as $300 billion in new loans to help certain borrowers refinance into cheaper, fixed-rate loans. Mortgage holders would have to agree to take a substantial loss on the existing loans; borrowers would have to show they could afford the new mortgage and share future proceeds with the government.

The House passed its version last month. Senate leaders say they want to vote by July.

Thursday June 5, 10:48 am ET
By Jeannine Aversa, AP Economics Writer