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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Gunga7, LLC is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com


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.


PeopleFinders

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.