Over the years, I have learned a lot about my character. During this journey, I had to overcome a lot of self-doubt, fear and insecurity. I never thought, real estate could resuscitate my life. I thought my past would always haunt or prevent me from making decisions about a future which I had no clue. Until the fear of repeating the cycle of homelessness and helplessness gave me the courage to try.
I remember someone shared with me a statement that took me a while to understand. He said, “If you do what’s right; the right thing will happen”. I got that thought! Then he proceeded to say, “If you do what’s wrong the right thing would happen”.
Days would go by until I had the courage to ask him’ what he meant. His answer was simple yet made a huge impact on my life. He continued by saying, “If I continued to think beyond myself and help someone the right things will happen in my life.”
I thought, “What did I have”? I had nothing to bring value to another’s life! However, as he continued with his thought, “If I stayed selfishly in my head, thinking there’s nothing to share with others. You will, “continue to Struggle with self-doubt and fears, and would remain in the same place; Hopeless, Helpless, Fearful and ashamed to ask for assistance”.
I chose to do the right thing and help someone with the little I had. As it turned out, the more I shared the more I received, I did not know vulnerability produced positive outcomes. Lesson learned!! My support system helped me get out of my head which was filled with doubt and fears. I took a risk in real estate and the village showed up to assist me with my risk.
Give yourself a hand for taking this journey. It will be stressful, fearful and will test your character. Create a village to assist you with your insecurities. Stays focused on your “WHY” and always help someone get to where they’re going.
At some point during your journey, the both of you will celebrate the accomplishment.
You may have determined at this point, for whatever reason, that taking on another task may not fit your schedule or lifestyle. You may have also realized that rehab is not what you thought. One size does not fit all. This industry is tough. It changes daily. The market may shift while you are in the middle of your project. I am not and will never discourage you from taking the leap.
For the record, we need more rehabbers and developers to build and rehab housing and vacant properties within marginalized neighborhoods and communities. There are millions of vacant properties across the country and several distressed neighborhoods, where the work of rehab and community development is the only saving thread for better schools, food options and safer communities.
Before you say this is not for you. Please consider the following:
- Risk tolerance.
- Purchase power
- Your “WHY”
- Key players
- Neighborhood
- Setbacks & conflicts
- Exit Strategies
Again,
Below is a list of words mentioned throughout the course. Use this list as the formula to combat your fears, hesitance, and haters. Finally, visit www.vacantcafe.com. Join the hundreds of those who have taken the leap to develop a brighter, better, and stronger neighborhood for their city and state.
You completed you 1st project. What’s next? Start Over! Enjoy the journey, meet a stranger.
GLOSSARY
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
APPLICATION – The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.
APPRAISAL – A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
APPRAISED VALUE – An opinion of a property’s fair market value based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
ASSET – Items of value owned by an individual. Assets that can be quickly converted into cash are considered “liquid assets.” These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.
BALLOON MORTGAGE – A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
BALLOON PAYMENT – The final lump sum payment that is due at the termination of a balloon mortgage.
BROKER – Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
CHAIN OF TITLE – An analysis of the transfers of title to a piece of property over the years.
CLEAR TITLE – A title that is free of liens or legal questions as to ownership of the property.
CLOSING – This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local housing office. In others, the “closing” is a meeting where all the documents are signed and money changes hands.
CLOSING COSTS – Closing costs are separated into what are called “non-recurring closing costs” and “pre- paid items.” Non-recurring closing costs are any items which are paid just once because of buying the property or obtaining a loan. “Pre-paid” are items which recur over time, such as property taxes and homeowner’s insurance. A lender tries to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
COMMISSION – Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
CREDIT – An agreement in which a borrower receives something of value in exchange for a promise to repay the lender later.
CREDIT HISTORY – A record of an individual’s repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.
CREDITOR – A person to whom money is owed.
CREDIT REPORT – A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
DEPOSIT – A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”
DOWN PAYMENT – The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
EARNEST MONEY DEPOSIT – A deposit made by the potential home buyer to show that he or she is serious about buying the house.
EQUITY – A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
FHA MORTGAGE – A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
401(K)/403(B) – An employer-sponsored investment plan that allows individuals to set aside tax- deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.
401(K)/403(B) LOAN – Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.
HOME EQUITY LINE OF CREDIT – A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.
HOME INSPECTION – A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
HUD-1 SETTLEMENT STATEMENT – A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the “closing statement” or “settlement sheet.”
LENDER – A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”
LINE OF CREDIT – An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.
MORTGAGE INSURANCE PREMIUM (MIP) – The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.
NOTE – A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period.
PRE-APPROVAL – A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will be at the time the loan is made, as well as estimates for the amount that will be paid for property taxes, insurance, and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre- qualification.
PRE-QUALIFICATION – This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
QUALIFYING RATIOS – Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The “top” or “front” ratio is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The “back” or “bottom” ratio includes housing costs as will as all other monthly debt.
REAL PROPERTY – Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
REALTOR _ A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
SECURED LOAN – A loan that is backed by collateral.
APPENDIX A – SAMPLE RESIDENTIAL CONSTRUCTION AGREEMENT
THIS AGREEMENT is made this 5th day of May, 20______, by and between _______________________ (Contractor), and _______________________ (Owner) for the construction of a TYPE OF PROJECT for the owners of property located in __________________ (City), State of _______________________, also known and numbered as _______________________ ADDRESS _______________________.
The Builder and Owners agree as set follows:
1) Contract Documents
The terms of this contract include the conditions of this contract and by reference the provisions in the other documents specifically listed. The terms of this agreement shall prevail over any conflicting provisions in the documents incorporated by reference. If a conflict exists between the plans and the specifications, the specifications shall govern.
2) The Work
Unless otherwise specifically noted, Builder shall provide and pay for all labor, materials, equipment, tools, construction equipment and machinery, transportation, and other facilities and services necessary for the proper execution and completion of the residence. The work shall be done substantially in conformance with the plans and
specifications that have been initialed or signed by each party. These plans and specifications are attached to this contract and incorporated.
Builder shall not be responsible for the following work: hauling excavation and existing debris from the property, off-site utility connections; installation or construction of walks, pavements, or curbing; installation of cable television wiring; interior painting of garage; and any other work not described in the Plans and Specifications.
3) Financing This contract is contingent upon Owners obtaining a construction loan in the amount of_________ US Dollars($). All fees and expenses of obtaining a loan including all commissions, title charges, and credit reports shall be borne by Owners. Builder is not required to begin construction until Owners provide Builder with written notice from the lender that Owners have closed on said loan. If Owners cannot obtain financing within thirty (30)-days from the date Builder approves this contract, either party has ten (10) days thereafter to elect to terminate this contract by giving written notice to the other party. Builder shall refund to Owners all money paid less costs and obligations incurred by Builder at Owners’ request.
- 4) Contract Price
Owners agree to pay the total contract price for all labor and materials furnished and work performed by Builder, of; COST subject to additions and deletions by change order as provided in paragraph 11. Change orders protect the contractor and owner from unknown or unforeseen changes to the improvement of the property (not to exceed 5% of the total construction budget). The contract price includes the allowances listed in the Allowance Schedule (see online task, milestones and scope of work) to this contract and incorporated. The allowance includes both materials and installation unless expressly noted otherwise. The parties agree that the allowances are not to be construed as bids by Builder and that the allowances may vary from the actual cost based on Owners’ selections. If the cost of Owner-selected materials or their installation exceeds the material or installation allowance, the amount of that excess will be added to the next progress payment or the final payment. If the amount is less than the allowance amount, that amount will be subtracted from the final amount of the contract.
5) Payments
The contract price will be paid as follows: (see selection)
a) $_________ as a deposit upon signing the contract (to complete demo)
- $_________ to complete framing of 1st, 2nd and 3rd floors (per plan)
- $__________ framing stairs (rails installed by owner), roofing & exterior brick removal
- $__________ rough- in electrical, HVAC and plumbing
- $ _________ drywall (GC), painting, trim and cabinets (labor by owner)
- $ __________upon substantial completion of flooring (installation by owner), granite and mechanical trim
- $ ___________ Final payment @ time of walk through
- Based on applications for payment submitted by Builder, Owners shall make progress payments toward the contract price in accordance with the Construction Draw Schedule as work is completed and certified by Owners’ construction lender. Owners will pay the cost of each inspection for each draw request.
I. Owners agree to make the progress payments within five (5) days of certification by Owners’ construction lender. Payments due and unpaid shall bear interest at the rate of 10 % per month payable to Builder from the date the payment is due. If Owners fail to pay Builder within seven (7) days of the date the payment is due through no fault of Builder, upon three (3) additional days written notice to Owners, Builder may stop the work. Builder may keep the job idle until payments that are due to Builder are paid.
6) Acceptance, Final Payment, and Occupancy
Upon receipt of written notice that the work is ready for final inspection and acceptance, Owners will promptly inspect the work. When the Work receives a certificate of occupancy, Owners will promptly pay (or cause to be paid) the balance due under the contract less an amount equal to the cost to complete any missing or unfinished punch- list items.
Builder agrees to provide Owners with a Contractor Final Affidavit stating that all subcontractors and suppliers have been paid or showing those unpaid and the amounts thereof. The amounts withheld for punch-list items will be paid to Builder immediately upon completion of each of the punch-list items. Occupancy will be granted to Owners when construction is substantially completed, the certificate of occupancy is issued, and Builder receives payment of the final draw (including payment for all change orders and overages of allowances), less any money held for incomplete items.
7) Commencement and Completion
The work will begin promptly after Owners have obtained the financing referred to above, any other contingencies are cleared, all permits have been issued and Owners provide Builder with a title report containing a correct statement of (a) the recorded legal title to the property on which the residence is to be built and (b) Owners’ interest therein at the time of the signing of this contract. The work will be substantially completed within _______________________ from the date all the contingencies are met (see online schedule).
Any time lost by reason of change in plans or specifications requested by Owners, other acts of Owners, strikes, weather conditions not reasonably anticipated, or any other conditions that are not within Builder’s control shall be added to the specified time of completion and Builder shall not be liable for such delay. For any delays not the responsibility of Builder, the contract price shall increase by the difference, if any, in Builder’s costs occasioned by such delay.
8) Selections Builder will provide Owners with information to help them select allowance items, materials, and colors required during the construction process all selections must be made within 5 days of request by Builder.
9) Permits, Fees, and Tests Builder shall secure and pay for only any building permits which; is required. Owners shall be responsible for all other fees and permits including any impact fees and connection fees. If necessary, Owners agree to assist Builder in obtaining any such permits and licenses by completing all necessary applications and forms. If a covenant or an architectural review committee requires the approval of plans and specifications, Owners shall be responsible for obtaining these approvals and paying for any fees connected with them. If no soil report is currently available, Owners shall provide one at their expense.
10) Taxes
Owners shall pay all real property taxes and taxes imposed upon the improvements on the residence when they are due. Builder shall pay all necessary sales, use, and similar taxes on materials used in construction that are legally enacted at the time this contract is signed.
11) Change Orders.
(Both owner and contractor will delete C/O). However, in the event it should occur:
- a) Owners may, from time to time, order changes in the work, which will be authorized by a written Change Order. Owners shall pay the reasonable cost of any such changes including overhead of 10% and profit of 10%. (See #4)
- b) In the event the Builder is required by the Owners to perform additional work for which the amount of compensation is not previously agreed upon, the Builder shall prepare and submit to the Owners a proposal describing the estimated quantities and cost involved. The Builder shall keep accurate, detailed and itemized records of the costs of any such change and shall report such costs to the Owners. The Builder shall furnish to the Owners all documents required by the Owners, to evidence the expenditures of the Builder as a result of such change.
- c) Builder is not responsible for unknown conditions that cannot be observed in a non-destructive inspection of the premises or conditions that differ materially from those (a) indicated or referred to in the contract documents or (b) ordinarily encountered and generally recognized as inherent in the work of the character provided for in this contract.
12) Insurance
Builder shall purchase and maintain at Builder’s own expense, all necessary workers’ compensation and employer’s liability insurance, commercial general liability insurance, and comprehensive automobile liability insurance to protect Builder from
claims for damages because of bodily injury, including death, and for damages to property that may arise both out of and during operations under this contract.
Owners shall purchase and maintain their own liability insurance, including fire and casualty insurance upon the residence, to the full insurable value and shall name Builder as an additional insured. Each party shall issue a certificate of insurance to the other prior to construction.
13) Owners’ Obligations
Owners shall (a) furnish all surveys describing the physical characteristics, and utility locations for the residence and (b) secure and pay for easements necessary for the completion of the work. Owners shall furnish information and services under their control to Builder promptly to avoid delay.
Owners warrant that the property upon which the residence is to be built conforms to all zoning, planning, environmental, and other building requirements. Owners warrant that all utilities necessary for the completion of construction are to the property line.
14) Supervision
Owners agree that the supervision of the work performed under this Agreement is under the exclusive direction of the Builder, and Builder shall have control over construction means, methods, techniques, sequences and procedures and for coordinating all portions of the work. Owners shall not interfere with the work, nor cause additional work to be carried on without the written consent of the Builder. The Builder or subcontractors in direct contract shall do all of the work with the Builder.
15) Disputes
Should any dispute arise relative to the performance of this contract that the parties cannot satisfactorily resolve, then the parties agree that the dispute shall be resolved by
binding arbitration conducted by the American Arbitration Association. The party demanding arbitration shall give written notice to the opposite party and the American Arbitration Association promptly after the matter in dispute arises. In no event, however, shall a written notice of demand for arbitration be given after the date on which a legal action concerning the matter in dispute would be barred by the appropriate statute of limitations.
16) Termination
If Builder fails to supply proper materials and skilled workers; make payments for materials, labor, and subcontractors in accordance with their respective agreements; disregards ordinances, regulations, or orders of a public authority; or fails to materially comply with the provisions of the contract, Owners may give Builder written notice to terminate. After seven (7) days if Builder has failed to remedy the breach of contract, Owners can give a second notice to terminate. If Builder still fails to cure the breach within three (3) days after the second notice, Owners may terminate the contract.
17) Warranties
- a) Builder agrees to promptly make good, without cost to Owners, any and all defects due to faulty workmanship and/or materials which may appear within one (1) year from the date of completion and acceptance of the work by Owners.
- b) THIS LIMITED WARRANTY IS THE ONLY EXPRESS WARRANTY PROVIDED BY Builder. IMPLIED WARRANTIES, INCLUDING (BUT NOT LIMITED TO) WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, HABITABILITY, AND GOOD WORKMANSHIP ARE DISCLAIMED AND LIMITED TO THIS WARRANTY.
18) Right to Cure
MARYLAND LAW CONTAINS IMPORTANT REQUIREMENTS YOU MUST FOLLOW BEFORE YOU MAY FILE A LAWSUIT FOR DEFECTIVE CONSTRUCTION AGAINST A CONTRACTOR, SUBCONTRACTOR, SUPPLIER, OR DESIGN PROFESSIONAL FOR AN ALLEGED CONSTRUCTION DEFECT IN YOUR HOME. SIXTY DAYS BEFORE YOU FILE YOUR LAWSUIT, YOU MUST DELIVER TO THE CONTRACTOR, SUBCONTRACTOR, SUPPLIER, OR DESIGN PROFESSIONAL A WRITTEN NOTICE OF ANY CONSTRUCTION CONDITIONS YOU ALLEGE ARE DEFECTIVE AND PROVIDE YOUR CONTRACTOR AND ANY SUBCONTRACTORS, SUPPLIERS, OR DESIGN PROFESSIONALS THE OPPORTUNITY TO INSPECT THE ALLEGED CONSTRUCTION DEFECTS AND MAKE AN OFFER TO REPAIR OR PAY FOR THE ALLEGED CONSTRUCTION DEFECTS. YOU ARE NOT OBLIGATED TO ACCEPT ANY OFFER MADE BY THE CONTRACTOR OR ANY SUBCONTRACTORS, SUPPLIERS, OR DESIGN PROFESSIONALS. THERE ARE STRICT DEADLINES AND PROCEDURES UNDER FLORIDA LAW.
19) Representations
This Agreement constitutes the entire agreement between Owners and Builder, and supersedes all prior negotiations, representations, understandings and agreements, either written or oral. This Agreement may be amended only by written instrument signed by both Owners and Builder. Owners acknowledge that Builder has made no guarantees, warranties, understandings, nor representations (nor have any been made by any representatives of Builder) that are not included in the contract documents.
20) Miscellaneous
Until Owners make the final payment and take possession, Owners agree that Builder shall have the right to place signs on or about the property and to show the residence to other prospective clients and customers.
21) Governing Law and Assignment
This contract will be construed, interpreted, and applied according to the law of MD. This contact shall not be assigned without the written consent of all parties.
22) Effective Date and Signature
This contract shall become effective on the day it is signed by both parties.
We the undersigned, have read, understand and agree to each of the provisions of this contract and hereby acknowledge receipt of a copy of this contract.
APPENDIX B – Sample Lien Release form
TO:
CONTRACTORS, SUBCONTRACTORS AND SUPPLIERS RELEASE OF LIENS
[ ] PARTIAL RELEASE ACCOMPANYING INTERIM PROGRESS INVOICE [ ] FINAL RELEASE ACCOMPANYING FINAL INVOICE
Original Contract Amount: $ Approved Change Orders: $ Adjusted Contract Amount: $ Completed to Date: Retention: $0 Total Earned (Completed Less Retention Unless Final Release): (FINAL RELEASE) Previous Payments: $ Current Payment: $ Contract Balance: $
The UNDERSIGNED being duly sworn states that he is the CEO of ____________________; who has a contract with _______________________________- for furnishing in accordance with: General Contracting & task not limited to: Framing, insulation, siding, windows, painting, concrete & masonry, railings, trim and doors, cabinet installation, granite, flooring, drywall, ceramics, electrical, plumbing, HVAC and finishes for the rehabilitation of the improvements known and identified as PROPERTY ADDRESS CITY & STATE, (the “Property”) and owned ____________________
The UNDERSIGNED, effective upon the receipt of the sum of N/A ($0) in payment of invoice or application dated (General Contractor has been paid in full), does hereby waive and release any and all liens or claims or right of lien on the aforementioned Property and improvements thereon, and on monies or other consideration due or to become due on account of labor or services, materials, fixtures, or apparatus heretofore furnished, or which may be furnished prior to 2/1/2019, except retention in the amount of None ($0). [IF FINAL RELEASE STATE “NONE”]
The UNDERSIGNED, respectfully warrants that the contract status set forth above is an accurate statement, and no other sums are claimed, that all laborers, subcontractors, and suppliers employed by him have been paid all sums previously due and will be paid all current sums due out of this payment and that none of such laborers, subcontractors or suppliers is or will be entitled to claim or assert any claim against the above described real estate or the improvements thereon for labor or materials furnished to or for the account of the undersigned.
Signed this ___________________.
Signed and sworn to before me this ____ day of ________________, 20__. ________________________
Notary Public
My Commission Expires: ____________________.
Contractor/Supplier/Sub-Contractor
BY: __________________________________ Name and Title
APPENDIX C – for every tradesmen