Sunday, April 5, 2020

The Value of Trust

I recently had the privilege of hearing a talk about trust that Stephen M R Covey gave to the students at Liberty University. He is ths son of the man who has given us books like 7 Habits of Highly Effective People. The apple did not fall from the tree with this fellow. He spoke of trust as being a business virtue in addition to being a human virtue. He talked about activities and organizations where trust is present operating with more efficiency and speed along with being more satisfying to work with.

I got to thinking about how this applies to the real estate business, whether it is working with agent buying a home or as an investor rehabbing a house. I thought back to some of my experiences with and without the quality of trust. While I didn't see it that way at the time, it turns out life proves his theory.

Hardly anything can be done in this field without a team of people. Trust is the lubricant that smooths the rough edges and fills in the bumps in the road. When I first moved to the Sunshine State I knew no one and had no connections. My first deal here was wholesaling a small house in northern Pinellas County. It so happened that the investor who bought it connected me with a title company that just makes things work.

I didn't know them or the investor, and we worked through several issues. Over time I developed a degree of trust with the investor and I believe he, with me as we have done other deals smoothed out with familiarity and trust. This is even more so with the title company as we have done multiple deals and they have come through every time. I just have to email them the paperwork and I know things will be handled professionally and legally. I don't waste time with worry or excessive follow up.

When working on houses, the same holds true with the tradesmen involved. They can make your profit or kill it. You need to have people you can trust, not just to do the job, but do it on time for the quoted price. When you start out you have to go by recommendations if you can get them. Learning this by experience can be quite expensive, but sometimes it is necessary. For the investor, it involves forming relationships with other investors who may have come across your situation before. For the new home owner getting to know they neighbors is a good place to start.

I had a water leak in a second floor condo that had to be fixed NOW! I did not have a plumber at the time so I relied on one recommended by a lady at the local REIA. It turned out to be a good choice. Even as a new client, the guy showed up within the hour and the situation was resolved... and he didn't take advantage of the situation with the bill. From that one experience he earned my trust and I have used him on multiple jobs satisfactorily.

As time went on and he developed some health issues he recommended another plumber to do the work he was no longer doing. I didn't hesitate to call the new guy because I had confidence in the man who recommended him. He turned out to be just as good. This saved me a lot of time and aggravation looking for replacement.

The reverse of this situation is also true. When you depend on someone who promises to get the job done and they bail on you, you lose time and have to pay more to get another tradesman to finish the job... if you can find one who is willing to pick it up in the middle.

I had this situation on another job where my electrician that I had used for small jobs in the past started the job but was not qualified to finish it. He disappeared without a word. I wasted time trying to find someone to finish the job. Then I got another recommendation. It was a young Vietmanese guy. It seemed he had just gone out on his own. He pulled the permits got the job done and he will be called next time I need an electrician.

So what do we get from all this? What happens when your trust is misplaced? Yes you learn, but you don't stop trusting. If things look good at the beginning you have reason to trust until you see a reason not to... but you don't go looking for reasons not to. If someone is untrustworthy they will reveal it themselves.

Of course it is better to deal with people you know and trust. But how do you find them? Where are they?

The place to start is to be trustworthy yourself. In my case, no investor would risk their relationship with someone important to their business if they thought you were a jerk and going to treat their guy badly. Then you need to, using common sense and wisdom, show some trust in the people you are dealing with. If they sense you don't trust them, it will be hard for them to trust you and become dependably trustworthy. You have to do a cost benefit analysis. Build trust on smaller efforts and let it work it's way up. When it does you will spend far less time and get more done.

I go to meeting with a group of investors. There is a certain trust built into that group. You are expected to treat each other fairly. If someone talks about a rental property they want to sell, it is understood that you will not bother the tenant. If it is a contract to be assigned, it is expected that you will not go around them to the owner and try to cut them out. People that can't work with this way are banned from the group. Her lack of trust not only slows things down, it brings it to a halt. You only cheat someone once.

Most people will live up to your expectations. There are those who will try to take advantage of you, but its kind of like the old adage – if you want a friend, be a friend. It also helps to pick your friends wisely. Don't hang out with shysters.

You can find out more about this concept of trust being a business virtue as well as a personal one in Covey's book Speed of Trust. Living that kind of life will make things work better and you will feel better than if you are trying to hustle everyone.. Better to have people trust you than have them count their fingers after they shake your hand – like I do with most lawyers.

Saturday, March 28, 2020

Interest Rates Have Fallen

The Federal Reserve has been in the news lately as they dropped their interest rate to just above zero. (0.25% more precisely). They tell us they want to avoid a credit crunch. What does this mean for us unwashed masses in flyover country? There could be several different outcomes. It's been said that you could take all the economists in the world and lay them end to end and they still would not reach a conclusion. While it has never been done, it would be an interesting thing to try someday when more than ten of us can get together. In spite of this uncertainty it is worth considering how this rate drop may impact the world of real estate.


Right now, many businesses are experiencing between fewer and no customers. If they are not flush with their own cash, they need working capital to stay afloat. Shortly before writing this, I saw an article that said Cheesecake Factory does not anticipate being able to pay the rent on their facilities. The CEO of Texas Roadhouse said he will forego his salary for this year so the employees can be paid. This guy is showing leadership and appreciation for the people who make his business work. Money is needed to keep business running. The lower interest rate will help ease the pay back burden but the money supply (the amount the Fed creates out of thin air) is what will keep these people in business.
The same is true for some in the real estate business. If there are mortgages to pay, having tenants out of work does not make for a happy landlord... or happy lender. If this thing is over in a few months it may not hurt the rehabbers and builders too much, yet they still have unbudgeted carrying costs. It is not known at this time how the banks will use this availability from the Fed, lending it out will be giving the borrowers a larger nut to crack, and cuts into their profits but they will stay solvent. King Solomon summed it up well in Proverbs 22:7 “The rich rules over the poor, and the borrower is the slave of the lender.” But... it's better than going out of business. Or perhaps, it just delays it.


The thrifty, work hard and save your money types, will continue to take a beating at the hands of the banks offering their sub one percent CDs. Better to buy a Willie Nelson CD at least the online store won't insult your intelligence.

It's not that many people these days can count on interest accumulation to fatten their home buying fund, but this certainly will not make it easier to accumulate substantial down payment money. In a way it is good for new buyers that the FHA will finance them with almost no money down, But it does leave them vulnerable to downturns in the housing prices as we saw when the bubble burst years back.


When it comes to selling houses, if the money supply holds up, it may make it easier. With cheaper money more people can afford the houses on the market. So until they decide the market is expanding too fast and raise the rates it may be a good time to make hay while the sun shines and sell what is ready, IF the chicken littles in the media have not destroyed the confidence of the buying public.


I understand that most investors don't trot on down the the local financial institution to be laughed and misunderstood by some banker with the employee mentality when they want to fund their deals. However, some do and they may benefit from this lower rate IF the bank passes on the reduced interest and does not make them grovel too much. For the others, cheaper money may have an impact on hard money lenders as well... but maybe not as they are paying for availability apart from the banking system. However, if more money is available overall, it may just result in more competition (and higher prices) for deals.
These are a few of the factors we may be facing in the coming days. Others, including wild cards of how long people will be cowering in their homes, and the attempted destruction of public confidence as well as any regulations our helpful betters may see fit to impose can move any of these suppositions in either direction. Experts, or those we look to for answers don't agree so we just need to stay calm and flexible since this will help us respond to many of these situations we can neither predict nor control.
Having said all that, we need to go back to the beginning and look at something that is common knowledge among those who have been following the actions of the central bank (the Fed) for some time. We need to get rid of the idea that the Federal Reserve is a government agency acting altruistically for the benefit of the American people. Despite the name, they are no more a government agency than Federal-Mogul Corporation or Federal Express. They allow the President to appoint the chairman, but it is still an organization assembled by the major banks in the US. The whole sordid tale is told in the classic book The Creature From Jekyll Island. It's a good read that will scare the daylights out of you... even Willie Nelson said so after reading the book. There have been several other books written on the topic, but this one appears to be the definitive work that pulls back the curtain and shows what is really going on.

Right now there are just too many variables to be certain of the future... but as always we just need to be paying attention to everything going on around us and make the best decisions based on the best information we can get. There are no guaranteed of anything, except change.

Saturday, March 21, 2020

Tough Times Don't Last...

Robert Schuller was fond of saying “Tough times don't last, tough people do.” Thomas Paine told us, “These are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman.” We aren't fighting an enemy trying to kill us with muskets and swords, but we are fighting an enemy that can destroy lives and our economy – our way of life.

Many have chosen to complain and obstruct honest efforts to get us through this time. They are the nay sayers who would rather point out their perceived problems than do what is necessary to fix the situation. For the forseeable we will be inconvenienced by efforts to stop the spread of this Chinese virus. This is much like we are inconvenienced here in Pinellas County as every where we go as streets are torn up and traffic rerouted in an attempt, they tell us, to provide a higher capacity storm sewer system to handle the massive rainfall we see during the frequent tropic storms and occasional hurricane. I hope the local efforts are worth the annoyance.

Fortunately, for the first time in many years, it looks like the direction coming from DC is taking us to the solutions we need. However we still see far too many people hurt by our disinclination to travel, congregate in larger groups and got restaurants. These choices are either our own or by decree. They are the right things to do and sometimes those who can least afford it pay the price. The government is trying to ease the burden with some cash, but by their very nature cannot take care of everybody.

Personal Cost

There are hospitality workers who are simply not needed for sparsely populated hotels. There are waitresses and waiters dependent on tips employed by empty restaurants. Clerks in shuttered stores. The list goes on. There are people hurting financially, emotionally and spiritually now. Like the government, we can't help everyone, but perhaps we can help a few... like those of us who we have the privilege of providing housing.

Among the suggestions is that people should be forgiven rent on their homes. This is a fine suggestion by someone with no skin in the game and nothing to lose or mortgages to pay. Like pretty much all give away schemes, they are proposed by those who think someone else should pay the bill. There may be some large corporate property owners with free and clear properties that could do this but many have mortgages to pay and simply cannot forego the monthly revenue.

Staying Afloat

That said, within the bounds of economic realities, it will not hurt work with tenants who have been with us all along but have run into some tough times. In doing so we have to remember that taking care of tenants includes keeping lenders fed who have financed the rental properties. This is not the kind of thing that Paine's sunshine patriot would do. The summer soldiers would throw up their hands and tell everyone there is nothing they can do. Taking care of people is the right thing to do and, long term, is good business. However, it can not be done to the point where your business can no longer function and you cannot take care of your other tenants.

Many small businesses cannot afford to be shut down or work without sufficient revenue for long periods. The real estate business is no different, some allowances won't be too damaging long term. I am suggesting that rather than cursing the darkness around us in the form of the Chinese virus, we can light a candle and pitch in and help where we can.

Other ways we can help ease the burden of our separated lives is to do such things a buying gift cards from our favorite restaurants to help them with some cash flow while people stay home. This isn't charity as these cards are fine to be cashed in when the virus is defeated and we start going out again.

Overcoming Adversity

One thing I have learned over time is that we aren't bothered nearly as much by all our inconveniences and annoyances when we are helping someone else. Americans came together after the War Between the States to become one country again. Americans defeated the Axis powers in World War II. Americans put a man on the moon. Americans developed much of the technology we use everyday. And we will defeat this virus in spite of the bellyaching and carrying on by the whiners among us. Each of us has a choice we can join the whiners or we can be overcomers.

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Sunday, March 15, 2020

Condo or Co-op: What's the Difference?

When my most recent excursion into real estate as an investment I came across what I thought were some fairly inexpensive condos that I could rehab and rent or sell. But a before we had a look at some of them, a realtor friend said to me, “You know, those are co-ops, not condominiums.” That started me down the path of learning the differences.

When you drive by, unless it is stated in the signage, you can't really tell one from the other. However purchasing each is where you find that they are two different animals. With a condo, you are actually purchasing real property. You have a recorded deed that specifies exactly what you own... and that you actually own the property. With a co-op, you put your money down and get a stock certificate and the right to lease a particular unit. This, in itself should be an immediate cost savings as real estate closings carry a substantial price tag. 

That is first major difference and all the others flow out of that. For example, as real property that can be foreclosed, banksters believe their money is safer and are more willing to lend on better terms, With the co-op the collateral is not as readily available to the lender should things begin to go badly... and you will probably have to present a much larger down payment. In either case, a property constructed on leased land may be more of a hindrance to desirable financing.

Since co-op shares represent ownership in the entire building, controlling boards, which can be elected or a board of the whole, take a more active and energetic role in the approval of new residents. Of course they do the normal credit check and background report that you would find in either building, but there is an interview process where fairness and legality are not so highly regarded as compatibility with the existing social culture. This can be good if you are a good match, but woe to the poor soul who wears a MAGA hat in the presence of Clinton supporters... or possibly the reverse. While all share holders are equal, often the owners of the larger units are more equal in that they have more voting power.

This leads to a closer, more uniform community if you are a good fit. The fit is less of an issue with condos as if you meet the published criteria you are generally accepted to purchase a unit. From that point on, it is up to the buyer to live peacefully with their neighbors... and they can't throw you out simply because they don't like you.

If you are looking at the property as a part year resident, either is particularly well suited despite the ongoing monthly fee as there are always people around more or less watching your property while you are gone.

If you are looking at the purchase as a rental property you are more likely to be able to do so with a condominium. However read the bylaws carefully, don't just take the smiling salesman's word. Some associations do not permit rentals. Some permit them after you have owned the unit for a year or more. Others have no restrictions. While not quite as possessive as co-ops, there are often attempts to retain a desired culture.

Either type of building has some sort of governing board and either type can be led by an a chairman, president, Fuhrer or whatever title they have chosen. Some look out for the good of the residents and others look at the position as being in charge of their own private domain. This is just one more thing to check out as you talk to your prospective neighbors.

There are conflicting reports about which one has higher monthly fees. However there are general guide lines for a well run association. No matter which one you decide on you should be given an information packet including the bylaws and detailing the financial status, including reserves for such things as roof replacement, elevator maintenance, etc. Keep in mind that you are looking into them as much as they are looking into you.

Like the man says: you pay your money and make your choice. Either one can be good. While finishing work on a condo we had one of those things that comes around Florida occasionally called a hurricane. I went over to check out the situation the next day and found the residents pitching in, working together, gathering the downed branches and other debris, getting the place back to normal. Either choice will most likely give you more a sense of community than a single family house. But then, that is one of the choices you get to make.

Saturday, March 7, 2020

Are You Depending On Banksters?

Investing in real estate involves a lot of money. Most people, at least when they get started, don't have a lot of money. Many times the first thought is to go to the local financial institution and fill out reams of paperwork after gathering tax papers for the last fifty years and any other documents the whimsy of the underwriter may require.

This may work for one to several deals if your credit and income give the broke guy sitting on the other side of the desk looking good and smelling good likes you. However eventually you will run out of favor as there are only so many mortgage notes they will let you have open at one time. So is going through a financial colonoscopy with your hat in your hands the best way to acquire real estate?

It depends on your financial situation, your ambition and your tolerance for pain. There are better ways to get the job done. They revolve around your ability, which can be acquired, to deal with people. It will help if your life reflects honesty and integrity. If you have acquired a reputation as a shyster you will probably have a harder time. Although there are sharks in this business that will be only too happy to loan you funds in the expectation that you will default and they will take over your project.

So where do you find financing outside the amazing edifices of the stead banking community? It may surprise you to know that there are people, probably in your own neighborhood, with hundreds of thousands of dollars sitting in underperforming IRAs, 401Ks and other retirement plans. Every time you go into your local bank you see their promotions for their CDs. But you look into them, you come away with the conclusion that a Willie Nelson CD is a better investment.

As I write this Bank of America is offering a “Featured account” yielding up to .95% with a minimum deposit of $10,000. For the poor shlub who can't put out that much into their vault, they offer a “Standard account” with a yield up to .5%. Terms and conditions such as early withdrawal penalties not only may, but do apply. Neither one is even 1 per cent – and they have the gall to call some of them high yield.

Some people will say they do it because their money is secure as they watch it lose value year after year because the growth is nowhere near the rate of inflation. You can do something better for them... if they trust you AND you can provide security.

The security you provide is the property itself. Other than a reputation as a square shooter, there is usually no personal financial evaluation, the security is the equity in the property. The idea that if things go badly the loan is secured. If you are unknown to the lender or have had issues in the past, they may require additional security like a lien (if you are in a lien state) on another piece of property. The flip side of this is that if things go badly which rarely happens if you do your homework, it's bad form to make them foreclose on the property, just sign the place over to them. This will help your reputation as one who has the integrity to admit a mistake and not pass the cost on to someone else unnecessarily. But try not to let this happen.

Where do you find these angel investors? These are people who have at least a mild understanding of the potential of real estate and would rather have their money do the work instead of them donning a pair of coveralls and swinging the hammer themselves. Some may be people you already know, friends, neighbors, club members, church members. Some you connect with at investor meetings. A Google search should let you know what, if anything, is going on in your area. Some investors I know have a line on the back of their business cards that says: Ask me how to get higher than bank rate return on your savings.

When you find people that want to invest with you, having the proper paperwork is important to protect both you and your investor. Since having an attorney on your team – in general this is good because you don't know what you don't know – it will cost a few hundred dollars for them to prepare the mortgage and note... if you are in a mortgage state. I am not a lawyer and I have never played one on TV which is why I strongly suggest getting the things done cleanly as they are required in your area. It is cheaper in the long run and shows you are a professional to your lender. Your attorney will also fill you in on the filling requirements and anything else you may need to know.

For more information than we can put in this brief post, I highly recommend checking out Jay Conner, the Private Money Authority. He has refined this process to a science and will give you information your friendly neighborhood bankster would rather not have you know.

One last thought – You may already be sitting on sufficient cash to get you rolling in real estate. You can't do much with regular IRAs and 401Ks you left at past jobs, but by putting them into a self directed IRA you can use it to begin building your real estate portfolio and have the profits accumulate tax free or tax deferred. Just something to think about. The good folks at Advanta IRA can fill you in on the details.

Sunday, March 1, 2020

Coming to Florida

For good or otherwise, we have seen a greater than usual influx of people coming from the frozen north. Not only are they lured here by the year round summer, but they have been driven out of many northern and western states by the propensity of the governing bodies to take more and more than their fair share of their citizens hard earned dollars to expand services to citizens and non-citizens alike. While this could turn into a rant about the right and wrong of these decisions, the real purpose is to look at the choices people have when the come to the Sunshine State and the possible implications for investors.

For many, selling a home in the God forsaken lands of New York and New Jersey, maybe even Pennsylvania lets the newcomers can plunk down cash for their purchase and still bank a nice chuck of money. I have known some who put a major addition onto their new home to keep from giving an undeserved windfall to the tax man. Now the price differential may not be quite so great if there is a hankering to live by the beach. Before the reader believes I unfairly look down on the northern states I must add that I grew up in Pennsylvania, lived in New Jersey eight years before I escaped and spent part of my summers on a family farm in New York. I come by my opinions honestly.
beach house

So for those flush with cash, the choice of where is live is pretty much open. Although there may be some wisdom in not putting all the cash into bricks and mortar. Those with the resources can purchase a wide range of properties and join the many home owners using the copius supply of lawn service providers, along with pool and cleaning services. It can be kind of like living in a condo, but you have control of the whole property. And there are many service providers making a pretty good living doing this kind of work for those capable of writing the checks.

For those with not quite so much cash or those who don't feel the desire to invest it all into bricks and mortar, condos are a good choice. The come in all age and 55 plus flavors and in apartment, townhouse and villa configurations as well as single family home configurations.

They each have their own definite characteristics, just like larger towns and cities. This is probably more important to the buyers comfort level than the facility itself. You can change the carpet easier than you can change your neighbors. Talk to some of the residents and not just the property manager, although sometimes they represent several communities and can direct you to just the place you are looking for.

There are several things to be aware of if you are looking to finance a condominium. Lower price units may be best handled as cash purchases unless you look for a personal loan. Often times mortgage companies are not interested in small loans as there is just as much work to create a $40,000 loan as a $400,000 loan, Another consideration is that many condos are built on leased land. Most are hundred year leases issued several decades ago. The bankstes definitely won't go for a unit where than land lease expires before the term of the loan. I have had one with 52 years remaining on a 30 year loan give the underwriter too much ajita to issue the loan.

HOA fees are another factor to keep in mind when looking at the overall costs. You will often pay less for older units, but because these usually require more maintenance, HOA fees are higher and in an emergency are more likely to require special assessments from the property owners. You will pay more for newer units, but they generally require less and less costly repairs. The point here is that no class of condos is generally bad or good, but some are more suited to the budget and needs of various people, Due diligence is critical as I came across a lady who thought she bought an ideal unit. She had a number of friends that rode motor cycles, It was only after she moved in that she found that these bikes were not permitted in the complex.

If you don't necessarily care to live above or below someone, a nice mobile home may be just the thing. Of course you can find the type of trailer park James Carville visits, but most are pretty nice places to live... and since 1978 they are actually manufactured homes. Many are framed in 2x6s rather than the 2x4s in most single family homes. Like condos they come in all age and over 55 flavors,
walking on the beach

They can be had for a few thousand dollars up to $100K or more for the nicer, newer units. As with condos, talking to the residents as well as park managers is a good way to be sure the community is the type of place you want to live in. Lot rent is another consideration and can run over $700 a month. This is not necessarily bad if you check out what is included for the money. Another way of manufactured home living is selecting a resident owned park where you buy a share along with your home. The monthly fees are considerably less but the price of admission is higher. The added benefit is that you have input into park management.

In either case, it's good if you like pan cakes since many have Saturday morning pan cake breakfasts in the clubhouse for the residents. Many have pools and club houses, bingo and shuffle board,

So what does this mean for the investor? Among other things, there is a steady flow buyers for all sorts of housing, not mention long term and seasonal rentals. Then there is the an increasing supply of potential financial partners as the folks coming into the Sunshine State after selling their home up north may well be looking for a better return than their banksters are willing to give. Whatever the guy or girl behind the fancy desk will tell them, or you, .9 % is NOT a high interest account. It may be the best they can do but it still is NOT high interest. We may cover this in another article, but you can pay them a whole lot more so everybody wins... except the bankster.

Treat people fairly and honestly and you may well find yourself a new funding source as well as a friend.

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Sunday, February 23, 2020

Are Investor Groups or REITs the Answer?

Have you been looking at real estate and you like the potential for making some money, but you aren't sure you want to go it by yourself? Well that is a very real concern. Along with big profits there some comes the possiblity of suffering some losses if you aren't careful. Starting out you don't know what you don't know.

Even experienced real estate wizards aren't one man bands. Some may seem to be that way, but everyone needs connections to a title company that understand investors, possibly an attorney, real estate agents – even though most rarely buy through the MLS, contractors, a source of financing (unless you are independently wealthy) and, often, a good property manager along with other supporting characters you will meet along the way. Where do you round up a team that will help you build your business? This is a subject for another day but a good place to start is the local REIA group. Many people there can help you make the contacts you need. Just keep your eyes open as there are occasionally some sharks who will be only too happy to help you shed your invesment capital.

One answer for those who aren't quite ready to jump in with both feet there are several alternatives to consider. You can look at investor groups and REITs. Each one appeals to different investors depending on their financial capability, time availability, and risk aversion – to name a few factors.

With investor groups, members pool their capital and, as a group, buy, rehab and manage investment properties. There are various structures and goals. Some buy and hold properties. Some rehab and flip them. Some concentrate on commerical deals. In any case, the newcomer can get an idea of how things are done. The down side is it would take a chunk of money to join the group and memberships are not particularly liquid – but then neither is actual real estate ownership. However you may get a taste of what is involved and make contacts useful in the future.

REITs or Real Estate Investment Trusts are corporate entities that allow you to participate in major projects like shopping centers, large appartment complexes and other developments. These are exchange traded securities like stocks. This means that, while investment capital is needed, it's not necessarily as much as actually purchasing rental property but you don't have the leverage usually associated with real estate. It also means the investment is fairly liquid. The down side is that you watch it from a distance and don't have any educational participation.

Before you decide on either of these it is important to do your due diligence. For investor groups ask around the investor community. You may get a variety of answers – some people don't like competing against groups. However you may still get some valuable information to guide your choice. Check public records for lawsuits and that sort of thing. Ask a lot of questions and don't just go by their answers, but pay close attention to the way they answer the questions. For REITs – they are pulicly traided and there is plenty of information available there as well... it's required by law.

Of course neither of these is that helpful without some funds to invest. If you have little or none, try looking into some of the “buy real estate with no money down” gurus as a possible place to start. Be forewarned that it's not quite as easy as it is explained, but it can be done – you just have to look a little harder for the deals. 

We will look at some of these concepts some time in the future. For the time being. if either of the two opportunities there is plenty of information available. Be sure you look into them thoroughly before you write the check.

Saturday, February 15, 2020

Tools To Keep Up Your Home Happy

We've written about some tools in the past but have not addressed the needs of the average home owner or apartment dweller who just wants to be able to take care of a few things around their home, perhaps hanging blinds or fixing broken furniture. This is not aimed at the professional contractor or even the serious amateur who enjoys his tools as much as the results of their work.

If you are just starting out or if you only have a few odd tools lying about you probably would be better off looking at a small packaged tool set. There are several reasons for this.

These packages are generally less expensive than buying the pieces individually. They reflect the experience of the professionals who put them together. By that I mean that they include things you may not pick up if you just bought bits and pieces. You may think that they are just throwing in some extra items to increase the count, but over time you will probably uses most everything that is included – and you will have saved yourself a trip or two to the hardware store to get the tools you didn't know you needed. Then there is the added benefit of having the container to keep them all together so they don't become lost in the distant reaches of the proverbial kitchen tool drawer.

What should a basic set include? Items like a hammer, pliers, tape measure, screw drivers. These should include a flat blade and phillips head. A utility knife and an adjustable wrench should complete the basic set. This type of set should handle most chores around the house.

Many come with molded plastic cases. These are great for protecting the tools and making it obvious if any are missing before putting them away until the next job. The only drawback is that there is no provision for adding pieces as you move on to more ambitious tasks. Pieces you may want to add are things like a set of allen wrenches, specialty screw or nut drivers, tools for minor plumbing fixes and the like.

This tool kit comes with all the household essential tools you would need for almost all minor maintenances. Multi-function and perfect for home improvements and DIY projects including furniture assemblying,lighting, woodwork, plumbing repair,car repairs and many more.

If you are more ambitious, some of the larger tool sets that include ratchets and sockets, more specialized pliers and open and/or box end wrenches. This is what you need if you are going to work on your car or truck. Keep in mind that these sets should include SAE and metric sizes as even domestic manufacturers have succumbed to the metric movement. They tend to forget that there are two kinds of countries in this world: those that use the metric system and those who put a man on the moon. However this is is something to keep in mind when looking at some of the larger tools sets.

This package contains a full socket and ratchet set, several pliers, magnetic tip screw drivers in a molded carrying case to keep everything neat and in place.

Once these basic hand tools are in place, a good cordless drill is helpful for many jobs around the house. You don't need a super powerful unit for drilling into concrete and stone, but you want one that last longer than the immediate job as, once you have one, you will be amazed at the uses you will find for it. These can be bought individually or with a few accessories. You can even get some that will include some of the basic tools we discussed at the beginning.

This variable speed drill features a 20 volt Lithium Ion battery, drill bits, various pliers, magnetic tip screw drivers, hole cutters and a few other goodies in the package. The drill is also available by itself if that is all you need.

While puttering around the house does not require professional grade tools, good quality is never a bad investment. Most of my hand tools have served me well ever since I got out of high school and spent my Sunday afternoons at Vargo Dragway back in southeast Pennsylvania. Oh yes, they were Craftsman tools from good old Sears Roebuck. Power tools don't last forever, but if you don't do something stupid with them, a decent wrench should last almost forever. Take a look at some of these items, they may be just the thing to get your next job done.


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Sunday, February 9, 2020

Is a Short Sale Right for You?

This week I looked at a house that was being marketed as a short sale. I'm not sure why but I do this occasionally. It's probably for the same reason I take a hammer and smack my thumb from time to time just to remember why I shouldn't do it. For those familiar with the stock market usage of the term, it's not the same thing. Unlike stocks, people do not sell borrowed real estate in the hope that they can buy it for a lower price at a later date. I guess if anyone has tried it, they would be sitting in a cell next to Bernie Madoff. You remember him, he's the guy who made off with the retirement funds of a lot of unhappy people.

In real estate, a short sale occurs when the banksters holding the note on the property agree to take less than the amount owed, generally because payments have either stopped or are not coming in at regular intervals. They agree to accept a selling price that is short of the amount the buyer contracted to pay.

I have been to auctions where we were told the bank would accept pretty much whatever price brought the hammer down and the cry of “Sold!” from the auctioneer. When the property is a pretty house in need of little repair and a number of people are looking for a nice place to live, chances of finding the sought after bargain are about the same as finding a Super Bowl half time show suitable for the children to watch. Even on less than perfect houses, far less than perfect, I have been to auctions where investors quickly dropped out and watched in amazement as a couple of owner occupant bargain hunters bid the price up beyond even the most optimistic after repaired value (ARV).

Banksters love that kind of stuff, but it is expensive and time consuming to go through the foreclosure process so they often turn to the short sale. They want to get the non-performing loan off their books to keep the bank examiners semi-content, but rarely are they in such a hurry as to give an investor a fair shot at a reasonable profit. In fairness to the banksters, rarely does the guy consigned to the basement of the home office even see the property, so the price they accept is more related to minimizing their losses rather than based on the actual value of the property. They get input from realtors, but, in the end, they think know the market better from hundreds or even thousands of miles away.

Getting back to the short sale I looked at last week: the bank approved price was $129K and the Zestimate was $176K. Now I won't go into the reliability of such numbers but comps in the same neighborhood showed the house could have been worth somewhere in the mid 180s. So with a $50K plus spread it was something to check out. One of the sad facts of life is that when homeowners find themselves in this position, mainenance falls by the wayside along with the mortgage payments.

So when we walked in the front door, I saw the popcorn on the ceiling was separating because the air handler above leaked water from the tray beneath it... but that was no longer a problem because the AC was no longer working. There were wires strung around the rooms, sometimes from the ceiling, as apparently some of the outlets were no longer functioning because rats in the attic had been having a merry time chewing on most anything exposed. It was listed as three bedroom home because the fourth was an unpermitted carport conversion. With one bath, four bedrooms was a bit excessive to put on the market so turning it into a garage would have been on the agenda for a flip.

The kitchen and bath were not bad for a house built in the mid fifties and might suffice for an economy rental, but they both would have to go to come anywhere near the mid 180s. Laminate floors were relatively new in the living and dining area, but the rest was vinyl tiles on a concrete slab.

Outside it was apparent the roof was on its last few tropical storms and siding on the back of the house was pieced together in a unique fashion. Most likely the best thing to do would be to replace it with vinyl siding that was common in the neighborhood. There were several other “features” that brought the repair estimate to something just shy of $50K.

This, according to the guru taught formula of 70% of ARV minus repair costs yielded a maximum allowable offer (MAO) of $82K... pretty close to my off the cuff comment of about $80K.

Since the place had only been listed for about two weeks and the banksters were still in their fantasy price period, I just decided to tuck this information away and check back in a month and a half to two months... maybe longer.

If someone wanted this place as a home of their own and wanted to act as their own general contractor, hiring all the tradesmen themselves, they would probably come out with a decent house the way they want it...along with a few well earned gray hairs.

When I lived up in New Jersey (something I don't admit to very often) there was a saying “nobody's gonna good deal ya”. This is especially true with banksters, but it doesn't hurt to check them out from time to time. You may just find one to make a buck or two.

Sunday, January 26, 2020

Details for a Quicker Sale

They say kitchens and bathrooms are what women look for in a house or apartment. Now I know some will be offended by that statement, but most anyone in the real estate business will tell you the same thing. What they don't tell you is that guys like toys... women like the convenience too. So whether you are a rehabber, a landlord or if you are just trying make your house more attractive to potential buyers you may want to add a few gadgets that they won't usually find at the price point you are looking at. If it is a high end project, you really need several of these gadgets.

Starting with some simple and relatively inexpensive upgrades, you may want to look at lighted GFIs. During the day you don't see anything unique, but at night they can save whacked knees or banged toes. I put one in each bathroom and one in the kitchen. It's only a few dollars more for each one and they make late night trips to the bathroom or sneaking into the kitchen a bit easier with the built in night lights that come on when the sun goes down. They are LEDs so there is very little power drawn.

While we are on the subject of bathrooms, I like to use dimmer switches on the lights. They aren't just for romantic candlelit dinners in the dining room. They are great for those who arise before the sun and want to avoid the jolt from the bright lights when they get ready to greet the day. With the dimmer they can just ease into the visible world. With the new LED bulbs you need to get the dimmable bulbs otherwise the thing won't work. Another nice touch is a few judiciously placed outlets with built in USB ports for charging the multiple devices found in many homes.

Another inexpensive upgrade is a porch light that comes on automatically at dusk and turns itself off again in the morning. Some have the added security feature of turning on brighter when motion is sensed. These help you when you are coming home at night as well as giving anyone skulking about your property in the dark the idea they may be watched.

One of the more recent additions to home security and convenience is the Ring doorbell, and many others who have come along since,. Alerts and video let you know what is going on around your property. They are available at variousl price points depending on the bells and whistles you want to include. However even the low end adds a nice feature to point out to buyers or tenants. Along the same line are things like WiFi controlled entrance locks and the like.

There is the whole home automation area that can included, but they can add considerably to the cost and include a wide variety of equipment and features. These things are often unique to the owners preferences but on higher end properties it may be worth looking into.

These days people are more security conscious than ever. Along with this trend, video surveillance systems have become more economical ubiquitous. Wireless systems are simple to install. Depending on your market such systems may be just the feature to tip the sale in your direction. Even in sellers markets there is some competition, and getting a full price or higher offer means having a product that catches the attention of potential buyers.

There are many other gadgets that can add to the desirability and salability of you property. As you may be spending thousands on stainless steel appliances, granite counter tops, and tiled tub s, you may want to look at putting a few hundred into some gadgets that your buyers have heard about, but don't have yet. Make them happy and they will write the checks to make you happy.


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Sunday, January 19, 2020

Options are Optional

You may think you know real estate options but until you've heard their nuances explained by Pete Fortunato you probably are not aware of the full range of their usefulness. Yesterday I and the pleasure of attending a lunch time seminar hosted by the good folks at self directed IRA servicer Advanta IRA. Pete is one of the real estate wizards residing in the Tampa Bay area. While he has spoken to groups of various sizes around the country he is not one of the gurus that spends his time on self promotion and course sales. He just quietly buys up more of St Petersburg every year.

First of all, neither Pete nor myself are lawyers. To my knowledge neither one of us has ever played one on TV. He regards them as soul stealers and I have found very little reason to argue with the exception of Ken Cuccinelli who once was my counsel and has gone on to bigger and better things. But before you go too far down the road of using options it would be a good to check with a real estate attorney who understands investors – especially if you are not working in the Sunshine State.

Let's start by defining a real estate option. It is the right to purchase a property at some time in the future for an agreed upon price. It an be a specific dollar amount or some other figure such as a percentage of appraised value or some other readily determined price. Being a legal agreement, the one who receives the option (the optionee) must give some sort of consideration to the property owner (the optionor). This can be dollars, personal property such as a car, or something else of value.

In the stock market you would buy an option on a stock if you anticipated that the price would increase and the seller would sell the option if they anticipate the stock holding is price or decreasing. While this is a perspective, real estate options are not quite so simple and the reasons people use them are far more diverse.

Some of the uses can best be understood through examples.

There may be a property you wish to purchase and the owner may wish to sell, just not yet. They may be induced to give you an option that can be executed anytime after a certain number of years have passed or after a particular event has taken place such as a resident no longer lives in the property. The purpose of this would be to give the optionee the right of first refusal when the property is no longer needed for its current purpose.

Options can be used to finance the repair or rehab of an income producing property. For example you own a rental property worth $120,000 and it needs a roof because the tenant is getting cranky about the raindrops that keep falling on his head. The problem is you don't have the $10,000 to pay the roofer. You could offer an investor an option to buy the property for $125,000 sometime in the next 10 years – perhaps after 5 years so you retain a suitable benefit.

What would this do. Your roof gets fixed. You keep the income and amortization, the tenant has a dry home and the optionee participates in the appreciation of the property value. What happens if the values don't increase as anticipated? That is the risk one takes when one buys an option, but the time period can be extended – for a fee – to help protect his investment.

The same can be done for someone in the neighborhood who has a roof, septic or other high dollar repair. In this case they would receive the fix and continue to enjoy the use of the home for the period agreed upon, such as while the kids are still in school.

In either case it would not be a greedy investor taking advantage of someone in a bind as some of our socialist politicians would want us to believe. It would be an investor solving someone's problem that they could not solve themselves.

Options can be used tactically as well. Pete told a story of this first real estate deal after he got his license. The house was sold for $20,000. Yes that's right. It's been a long time. The buyers came to the closing several hundred dollars short. This could have put the kabosh on the whole deal. They looked to the sellers who needed every penny to take to the next closing where they were buying their next home. They looked around the room and asked if anyone could lend them the money.

The attorney said that would not be possible since in their agreement with the banksters they said they would not be borrowing any down payment money. The speaker asked if they could sell something to raise the money. The attorney nodded. He offered to buy an option to purchase their house for $21,000 for the amount they needed to close. That was pretty much all of his commission, but the deal was completed. A few weeks later the buyers paid him they amount he offered and bought out the option.

The point here was that there was never an intention of taking over the property. The option was primarily security should things not go well. It was a tactic to accomplish a goal.

So what do options do? The things mentioned and so much more. It takes a little thinking and imagination. They give control and/or benefits of owning a property without the responsibility and expenses of ownership. They can be used to provide security in joint ventures. They can be used to solve problems. They can be used to provide financing when institutions don't see the benefit or understand the dynamics of an investment.

The thing is don't get so creative you go beyond what the law sanctions or protects. Speaking of protection, you may be wondering what keeps the optionor from ignoring the agreement and selling the property without your knowledge, consent or payment? Recording the option with the county clerk along with a mortgage will cause it to show up in title search. Title companies should do the job of keeping you covered. Be sure to record it again if they owners should refinance as they will most likely stop searching when they find the new loan in the first position.

Just a quick note if that last two sentences don't quite make sense. When you buy a house, you sign a note with the lender AND a mortgage agreement. Unlike popular terminology, the bank does not give you a mortgage. They give you a loan and you give them a mortgage which is the lien that is recorded in the public record along with the note. It's just a detail but recording the option and the mortgage puts a lien on the property. For non-lien states the terminology will be different but the principle is the same. That is why I suggested consulting a real estate attorney... a competent real estate attorney.


Sunday, January 12, 2020

Using a Web Site to Promote Your Business

As a real estate investor, it sometimes makes a difference whether you look to buy and hold, fix and flip, wholesale or do some sort of a combination of these activities. If you are accumulating rental properties over a period of time you may not need much in the way of promotion – just good relations with a realtor or two who will feed you deals that come along.. However if you are actively buying and selling property you efforts to reach potential buyers and sellers may need to be a little more punch in their program.

If you are looking to buy property, you may be using direct mail, out going phone calls, or recently added text messaging along with various other forms of communication to find off market deals. Selling, you may use Craigslist, realtors, REIA meetings, and that sort of thing.

All these are valid ways of reaching potential clients. This is not meant to evaluate, recommend or disparage any of the methods taught by investment gurus. However this is meant to open your thinking to a complementary method of getting your story in front of the people who need to see it.

The personal touch is always the best way of dealing with people. However, if you are like most of us, you are working with a 24 hour day... no more, no less. That is the same number of hours that Ron LeGrand, Dean Graziosi or whoever your favorite guru has. The last I checked, even Warren Buffet and Bill Gates are unable to buy more hours in their days. Because of this,we have found having a web site useful for expanding the number of people we can reach every day with our consistent message.

The other forms of communication can direct the recipient to the details of your properties, collect the information from sellers, tell lenders why they should invest with you or any number of other offers you would like to make.

A web site tells your story 24 yours a day, 7 days a week – while you are doing other things, like sleeping, working on other projects, or vacationing, even in Tanzania – wherever that is. It doesn't have to be elaborate or extensive. It can fairly simple and still get the job done.

If you are internet savvy, you can probably put something together yourself, There are various hosts that make this relatively easy, if you are so inclined. If they last few lines didn't make sense to you, it might be best to find someone to do the job for you. There are shops that can do it for the price of one of the new mid engine Corvettes, but you don't have to pay that much unless spending unreasonably large amounts is a symbol of status in your circle.

You may find someone at fiverr. The kid next door might be a possible choice but make sure you have copies of everything so you are covered when he or she goes off gto school, the army, Canada or any where else they may choose to wander. We might even be able to help. Watch the video and give it some thought.If you are looking to buy property, you may be using direct mail, out going phone calls, or recently added text messaging along with various other forms of communication to find off market deals. Selling, you may use Craigslist, realtors, REIA meetings, and that sort of thing.

All these are valid ways of reaching potential clients. This is not meant to evaluate, recommend or disparage any of the methods taught by investment gurus. However this is meant to open your thinking to a complementary method of getting your story in front of the people who need to see it.

The personal touch is always the best way of dealing with people. However, if you are like most of us, you are working with a 24 hour day... no more, no less. That is the same number of hours that Ron LeGrand, Dean Graziosi or whoever your favorite guru has. The last I checked, even Warren Buffet and Bill Gates are unable to buy more hours in their days. Because of this,we have found having a web site useful for expanding the number of people we can reach every day with our consistent message.

The other forms of communication can direct the recipient to the details of your properties, collect the information from sellers, tell lenders why they should invest with you or any number of other offers you would like to make.

A web site tells your story 24 yours a day, 7 days a week – while you are doing other things, like sleeping, working on other projects, or vacationing, even in Tanzania – wherever that is. It doesn't have to be elaborate or extensive. It can fairly simple and still get the job done.

If you are internet savvy, you can probably put something together yourself, There are various hosts that make this relatively easy, if you are so inclined. If they last few lines didn't make sense to you, it might be best to find someone to do the job for you. There are shops that can do it for the price of one of the new mid engine Corvettes, but you don't have to pay that much unless spending unreasonably large amounts is a symbol of status in your circle.

You may find someone at fiverr (see below). The kid next door might be a possible choice but make sure you have copies of everything so you are covered when he or she goes off gto school, the army, Canada or any where else they may choose to wander. We might even be able to help. Watch the video and give it some thought.