Saturday, September 19, 2020

Lessons From The Lockdown

There is an old English saying that goes: it's an ill wind that blows nobody any good. If we look for the good, even in a bad situation we can usually find some. We can look for some lessons we learned in our recent foray into house arrest and isolation – and there are some things we have learned and are learning as we move forward. Some of them are changing the face and needs of society and the places where we live.

Keeping In Touch

We have learned that there are ways to keep in touch with people all over the country and over the world without leaving the comfort of our home or office. We can see and hear each other without fighting crowds, traffic, paying tolls and parking.

While some of this technology has been with us for years, recent events have brought it to the forefront with some nice refinements. Many years ago I worked for a utility company in Richmond VA and we would periodically have visits from a facility in Connecticut... among other places. This would involve one or two people spending a day or two, accumulating travel expenses and being away from their regular duties.

When we began using teleconferencing, we could get whole teams from Virginia and Connecticut together to discuss common situations – and it only took an hour or two out of our day, with no travel time or expense. Zoom, and similar products, have given us this capability on steroids. The transportation and hospitalilty industry losses have become software and hardware suppliers gains.

This is not just a corporate gain, but many real estate investor groups have taken to meeting online when face to face gatherings were forbidden. What may have been intended to be a roadblock just became a minor annoyance.

Abandoning the Cube Farm

With the ability to communicate came the ability to actually work from home with no need to head on into the office to get much of the work done. For some this has been a blessing and for some, it has been a curse. For commercial real estate, it has shown a decrease in the need for high priced office space – and this is a lesson that will be carried into the future.

It has also reduced the need to live near the urban business centers and resulted in higher residential vacancy rates in these areas. I once knew several people who, because of real estate prices and quality of life issues lived in eastern Pennsylvania and car pooled on Rt 80 all the way across New Jersey to their jobs in New York City. To me, this was madness, but it was their choice. Today, that sort of thing is no longer necessary.

Becoming More Self Reliant

Since many of the places that made our lives more pleasant, or bearable, were deemed by our betters as being non-essential, we have found other ways to meet our needs. For instance, we used to eat out frequently, but for a time, dining in was forbidden. This provided the opportunity for meal delivery services that was not there before and will continue to some degree into the future.

Fortunately, for those of us who live in a free state, this activity has been restored months ago... and, in some ways is more pleasant as the restaurants are not as crowded, both by decree and because many people are still hiding out in fear of the plague.

I have read that many people have forsaken their gym memberships – in places where they are available. I see gym owners in many of the highly controlled states are fighting for the ability just to resume their business. We will see how many are left when the dust clears.

For myself, prior to the lockdown, I would be there three days a week. When they closed down, I, like many found ways to exercise at home. When, at last, they were given the green light to proceed, I went out there once and did the temperature check and wiped down the equipment before and after each use. But the second time when I pulled into the parking lot, all I saw were two ServPro trucks and workers unloading their equipment. Someone had snuck, or is it sneaked, the virus into the building and it had to be eradicated.

I went home and back to my own routine and haven't been back since. It looks like I am not alone and I have to wonder about the viability of so many similar businesses – and the implications for the use of some commercial space.

Pictures and Videos

Realtors and investors have been getting more creative in ways to buy and sell properties. Some still do door knocking, but many people are not happy about letting others into their homes. This also applies to showing the houses. I see some open houses, but not many, even though we are living in a free state. Reliance on photographs and videos has increased along with the sophistication of these items. However there is still no substitute for an in-person visit.

Lessons of Limitations

How many times has a house looked simply wonderful on the internet but turned out simply awful in reality? As an old photographer, I can say it is not difficult to make most anything look good by selecting your shots and post production editing. Pictures are great for initial screening, but not for final decisions. They don't show the twenty-five year old car up on blocks in the neighbors yard or the spongy floors in the bathroom.

While we can see and hear each other over our laptops, it does not give us as good a feel for the conversations we are having. If we know the person well on the other end, it is not so bad. However it is not a perfect substitute for meeting face to face and the impression of the grip on a handshake. For the time being it is what we have and we need to make the best of it, but accepting it as a “new normal” will only let is become used to the isolation it breeds.

The cloud meetings work relatively well in the corporate and organizational world, but in the real estate world we are working with individual home owners and buyers who may not have this communication capability. One solution is to adopt some kind of technology like my doctors office uses. He sends me a link on my cell phone and I give it permission to access my camera and microphone and we can see and hear each other. This works fairly well, but he can't take my temperature and check by blood pressure. Again, it is better than nothing but far from ideal.

Human Factor – Rejecting the New Normal

We as human beings are not meant to live in isolation, we are social beings. While some in the medical community are crowing about reduced infection rates, they ignore the increase in depression and, its ultimate expression, suicide. Some of this is simply from being alone with our negative thoughts, which are stoked by daily servings of television news, or by economic ruin brought about by the closure of “non-essential” businesses. Our GDP took a tremendous hit by closing down the economy, but the human toll goes on, unmeasured and generally unreported

Saturday, September 12, 2020

Making the Kitchen Pop... on a Budget

Whether you are getting your home ready for sale or doing a complete gut job, kitchens (and bathrooms) sell the property – but you already knew that. On the other hand, you may just be looking to fix the place up for your own enjoyment, possibly with an eye to the future.

You can do a great job with $50,000, $75,000 or $100,000. What happens if your budget isn't up to those numbers. You can still make the kitchen a cut above the others in your price range. A hundred fifty thousand dollar rehab project doesn't work well with a kitchen taking up one third the budget. So how do you make your project stand out?


Appliances are one of the first things potential buyers see when they walk in the room. If appliances aren't new, they need to be cleaned up to look new – as possible. If you are starting from scratch you can get some pretty inexpensive units at the blue and orange stores. If it is a low end rental, you can even find them at used appliances stores. They are working units that come from kitchen remodels.

But that's not the way to get the best price for your property. Cheap appliances are easy for your buyers to see. But you don't have to spend thousands of dollars for a range or refrigerator. Stainless steel has become pretty much expected in today's new units. Individually, they are only a hundred or two more than similar white or black models. Even with laminate counters, stainless steel makes a nice appearance. Although I have seen some pretty striking installations with white or black appliances. Don't let price scare you away.


If you can afford new cabinets, they make the place look great and are a nice selling point with features like soft close drawers and unique configurations. However, if the cabinets you have are solid, replacing the hardware can give it a fresh look. If the finish has seen better days, a good coat of paint can bring them up to todays look. It can also turn a dark kitchen into a bright and airy room. For a little more, you can replace the door and drawer fronts, This costs more than painting, but is a lot less than new units.

Counters and Backsplash

For entry level homes laminate counters can do nicely, but be careful of getting those nice custom made units... those prices are approaching low to moderate granite and quartz tops. You may want to go up a little for a big jump in the wow factor. However, if the project won't support that, the pre-formed units at the big box stores and look much better than than old worn and stained tops. If you have the skills and equipment to make your own custom tops, go for it, but you may still want to check out granite and quartz. Either makes a long lasting low maintance counter for nicer rentals as well.

I tend to use subway tiles for backsplashes. The are inexpensive and easy to work with. They are easy to clean and look a lot better than spaghetti stained walls. Don't let my preference be yours without checking out the range of materials, The subway tiles run a couple of dollars a square foot, and you can go from there up to fifteen or twenty dollars a foot on up and up, If your budget is on the lower end, the subway tiles, make a really nice look and they do it for a long time and are good even for mid range rentals on up.


Here is where a few hundred dollars can make your place stand out from the competition. A high end faucet package, a unique range hood, or light fixture that is not usually found at your price point can seal the deal for people whose taste runs toward a nicer home than their budget will allow, You are giving them at least part of their dream home at a price they can afford.


Tile is always a good choice, but can be pricy. There is a temptation to put laminate down. It looks good and is relatively inexpensive. Don't do it! Most laminate does not deal well in areas where it can get wet. The layers separate and your buyers or renters will be most unhappy.

There is a new product I have not used but looks like it has potential. It is a thinner tile that is made to be laid on top of existing tile flooring that is solid, but looking like it has seen getter days. It is not cheap, but it saves the demo work of removing the old flooring.

A less expensive approach is luxury vinyl. It is just slightly more than laminate AND it is waterproof, It does fine on kitchen floors and looks great. There are even groutable versions that I have had realtors get down on their hands and knees to confirm it wasn't ceramic tile. It is a nice touch and works just as well in bathrooms.

Catch Their Eye

The point of all this is that replacing or fixing up an old kitchen works better if you aren't just removing the tired materials and replacing it with the same thing, only newer. It is an opportunity to make improvements that make the place sparkle – and easier to sell or rent, if that is your inclination,

Sunday, September 6, 2020

Extended Eviction Moratorium – All Is Not Lost For The Landlord

There is an ancient Chinese curse that says “may you live in interesting times”. Interesting is a good term for the days we live in, made moreso by the fact that the cause of hyperventilation these days comes from China.

Numbers don't look like we are approaching a dip in the real estate market, however some people are experiencing financial distress, putting them in a position similar to the last major real estate crash, During that time, many people found themselves owing much more than their property was worth. The banks weren't in a bargaining mood, or people didn't try, so more than a few homeowners simply walked away from their property after living there many months while pocketing the mortgage payment.

This may happen this time around for those who bought with no, or almost no, money down and they have no equity to speak of and not much income. Fortunately, much of the economy is coming back and, barring a catastrophic event in November, may well continue and iron out many of these issues.

Commercial Owners Have Learned

Owners of some commercial properties that have been particularly hard hit by the Chinese flu inspired personal isolationism have adopted a similar strategy. Not to mention any names, they are available to those who seek them, some large hotel and mall organizations have stopped making payments on the troublesome locations... while they are gathering funds for investments better suited for today's world.

The economic slowdown is hitting the banksters as well. It will also be hitting local governments unless these same banksters will kick in the property tax payments. Some of these same commercial property owners, and others, have found a way to make lemonade out of these lemons. The ones with decent cash positions that help them weather this financial storm have bought back the notes at significant discounts.

Their actions, if nothing else, show us that when bad things are happening, don't hide under the bed in a fetal position, but look around. There ARE opportunities. You may have to understand leverage to make them work. I mean, what is a bankster going to do with and empty mall or hotel?

Bringing It Down To The Individual Investor

Will this strategy work for the individual investor with his rental properties? The banksters really don't want to take back massive numbers of properties. With banking regulations what they are, they cannot have too large a percentage of non-performing loans on their books.

Many investors buy properties with private loans from individuals – sometimes friends, sometimes sellers taking back paper on their properties. In these cases, it is not a faceless, heartless institution that gives money to causes you don't like, it is personal – real people getting hurt.

In either case it can be damaging to the property owner. With the banks, unless you had a good relationship that they did not require a personal guarantee on the loan, personal credit is trashed. Even if there was no guarantee, there will probably not be another similar loan in the near future. With inidividual lenders, your personal integrity, and possibly friendship, is gone, along with the potential for future profitable deals.

Considering Eviction

Whether you want to do it or not, sometimes evicting the tenant is a matter of your own survival. How many rent payments on how many units can you miss before the financial crisis sets in? I know of some landlords who start the process if the rent check is five or ten days late. I try not to rent to that type of tenant and don't like being put into that position. However, it is a fact of life when you provide housing.

Particularly if you have few units and know the tenants personally, you might even consider them to be friends. However if you have expenses and are running it as a business instead of a charity, sometimes you will find that their problems become your problems.

Years ago, I was offered a property that was rented to an older gentleman and his daughter. They were having trouble making the rent that was way below market, and the owner felt he would rather sell the place and let someone else deal with it. I looked at the place and talked with the man and came to the conclusion I was not the one to get the owner off the hook. For some of us this is not just a dollars and cents business... even though it IS a business.

Along Comes the Eviction Moratorium

Recently there has been heard in the back room of real estate investors offices a weeping and wailing about the CDC ban on evictions. That is nice for the renter but what about the property owner who still has mortgage payments and property taxes, and is still expected to maintain the property in livable condition. This ruling only takes care of half the problem.

Will the banksters forego payments? Maybe. Will the tax collector be sympathetic? Here you may have a little leeway if you aren't far behind already. How about the electric company if you have been handling the utilities?

No Need To Panic

Things are not as dire as you might think from listening to the talking heads on TV. Tenants can't just use this as an excuse to stiff the landlord. They have to apply for this protection and show that they have lost their income and that they have paid as much as they could toward their rent. If run properly, it will not be a haven for deadbeats.

As is usually the case, if there are tenants who have been hurt financially by thie panic-induced shutdown, and you are generally happy with them, working out some kind of deal is usually better than kicking them out. If you have a bank loan, now may be the time to revisit the terms of the loan. The same may apply to private lenders, but keep in mind most banksters do have the resources to carry you (and your tenants) as BoA, if they chose to do so. Just keep in mind they can only carry so many non-performing loans.

All we can do is what we have been doing. Taking things one day at a time, looking for opportunities that may be lying just below the surface, and not being overcome by the gloom and doom served up to us on most news channels.

Saturday, August 29, 2020

The Value of Video

Even with the fear of the Chinese flu, homes are still being listed, bought and sold. Videos have been around for quite a while but they have become especially useful these days as many people are attempting to avoid as much personal contact as possible. This is good news as realtors still need to sell homes and some owners need to, or at least want to, sell their property.

We Have Photographs, Why Do We Need Video?
A company as tech-savvy as Microsoft did an experiment with ads comparing still images and those with motion. They found that the motion pulled 110% better than still images alone. You can read about the results here.

Many years ago when was in college, I did an experiment where I had ten items. I presented them in two sets with five showing movement and five static. The movement status was reversed from one set to the other. These were the real old days as I was using Super8 film at the time. The results were that after the showing, the subjects recalled 20% more of the images with motion than those without.

Other studies, similar, but much more extensive than mine, showed the same results. My project was simply a replication of prior academic efforts and further proved the concept that motion captures the attention and is retained longer than static images - all else being equal. Through zooming, panning and camera movement the video can ensure that special features are not missed.

Of course, there are iconic still photographs that stick with the viewer forever, like the burning Hindenberg or the sailor kissing the girl on a New York street at the end of World War II. However, unless there is something amazingly unique about the property, it's doubtful that this sort of memory will come into play.

The Time for Video is Now!


One of the things people hate most about selling their property is the bands of visitors traipsing through their home, gawking at all their possessions. A good video will not eliminate this completely but can keep the number from being too annoying.

Even a marginal video helps filter out the serious buyers who would have no interest in the property after seeing it and it eliminates all but the most ambitious lookie lous. It saves the realtor time and you don't have to run around the house cleaning up every time you go out in case a realtor wants to use the lockbox to show your place. These things still happen but not nearly as often because of the filtering process.

On the other hand, your house can be shown to many more people with much less effort than if everyone had to come through personally. This is especially helpful for buyers moving into the area if they have a limited time to spend looking. They can see if your house has potential for them before setting foot on your porch.

How Much Does It Cost?


At the low end, there are free services where you can take some pictures yourself and upload them to a web-based system that will link them together in a video. If you are good with a camera, this may work out well. If not, you get what you pay for.

You can spend several hundred dollars or more and have a professional take some really nice pictures and put them together in a video. You can even get a videographer to create a smooth walkthrough with an artistic presentation.

Between the two, is a service we provide where you can take some pictures and have them straightened, cropped and massaged into some pretty nice stills that can then, be edited into an effective presentation. If you're not sure you can take pictures that are good enough, check out our blog post Pictures Sell the Property for some tips.

Where To Get This Done


If you have an agent and they have been around for a while, they will most likely get some form of video done as a matter of course. It is worth the money.

If you are selling it yourself, you can look in the yellow pages – oh okay, online - and find someone to do the job. We provide the massaging and editing service if you want to give it a try. You can learn more here.

No matter how you get it done, a video will get your property in front of more people and create more interest among the pool of serious buyers.

Sunday, August 23, 2020

Tough Times... We are Tougher!

I've pointed this out before but it's good to consider one more time. 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.

Obstacles In Our Path

We looked at this a while back, and the situation has improved for some of us in the more free states that have opened up and people have been allowed to return to many of the “non-essential” jobs. We can see an end if we are not regulated back into economic suicide mode.

Daily we see reports of riots in many big cities. Police are forbidden to stop the destruction by mayors more concerned about the rioters than the safety of the innocent citizens. Downtown areas become boarded-up ghost towns.

On top of this we are still dealing with the Chinese flu. We hear conflicting reports and it's difficult to know who to believe anymore. So much of what we hear comes from those with a political agenda. We are told restrictions on us are for our protection. The story has shifted from wearing masks to care for ourselves to following our betters directions to protect others. This motivates some to become self-appointed enforcers, and added to the conflict we are facing.

Personal Cost

Even though many of us are seeing better days and those who can set their fears aside are returning to a level of normalcy, we still see far too many people hurt by our disinclination to travel, congregate in larger groups and go to restaurants. This is especially true in the coastal regions of Florida where vacationers have not been lured back in large numbers.

These choices are either their own or by decree. Sometimes they are the right things to do but often those who can least afford it pay the greatest price. The government is trying to ease the burden with some cash, but in spite of the benevolent claims, by their very nature they cannot take care of everybody damaged by the imposed economic shutdown,

Hospitality workers who are simply not needed for sparsely populated hotels. Waitresses and waiters are dependent on tips are working in mostly empty restaurants. Clerks aren't needed in shuttered mom and pop 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. Particularly those of us who we have the privilege of providing housing.

Inadequate Solutions

Among the suggestions is that people should be forgiven rent on their homes. This is a fine suggestion by some of the elites 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 if someone has a need. 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.

There is talk of more “stimulus” money, but even though it is a major expense to the taxpayers, it will hardly make a dent in the financial problems of those in need. The real stimulus will come when people return to work and the economy gets back on track. It is a fool's errand to try and do otherwise..

Overcoming Adversity

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 for those in financial pain 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, socialist temper tantrums, and sometimes overbearing government responses, we can light a candle and pitch in and help where we can.

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 nation 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 every day.

We will come out on the other side of 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 who find answers rather than tell people that there are none. It's easy to get down sometimes, but keep in mind that feelings follow actions, so – get out and DO SOMETHING!

Sunday, August 16, 2020

Where Is Commercial Real Estate Headed?

I don't normally get involved in commercial real estate, but lately I've seen some trends that are sure to have some impact on the residential market as well. However, before I continue, I need to note that as with any type or real estate, there are often local conditions and variations that run counter to prevailing trends.

The concept of commercial real estate can be quite appealing. The idea of long term triple net leases where the tenant pays the taxes, insurance, and at least a portion of the maintenance can seem pretty good. The flip side of this is that when the property goes vacant, it usually is not rented the next month by someone ready to move in. It can be a few months if things go well, it can be many months or more if things aren't going well – and now, in many large cities, things are not going well.

Everyone is aware that some businesses have been damaged by the hideout-at-home thinking brought on by the Chinese flu. That is just one of the influences on the current market, but it may be a primary factor leading to several others.

The Rotten Apple

The problem causing the most angst nationally is the flight of residents from New York City. But it's not just the worker and consumer bees heading out of town. This urban abandonment along with restrictive regulations has caused some businesses to see up to an 85% reduction in revenue. This no way to survive.

Fixed expenses go on, and on. Site rent – something far from insignificant in Manhattan goes on. Many are just giving up and closing down completely. Commercial property owners in New York and other major cities are faced with shrinking demand and fixed payments of their own. Some have the resources to weather the financial storm. Those with insufficient capitalization could be facing a financial crisis of their own.

Multiple Factors

The Chinese flu has caused a couple of things to happen, First, the faint of heart are loathe to go out in public. Second, many with the resources are bailing on many major cities – not just New York – trying to avoid the dreaded flu. Then there are travel/quarantine restrictions killing off the tourist trade. If that doesn't hurt enough, many who used work in the shining skyscrapers are now working from a spare bedroom at home.

As the TV commercials say. “But wait, there's more!” Public safety has taken a hit in many areas as the increasing hostility toward law enforcement has brought about a reduction in their presence and a not-surprising lack of public confidence. That lack of confidence has been justified as the despised and ridiculed police have not been permitted to stop rioters and looters, even petty shoplifters, from doing further damage to many downtown businesses.

Logical Reaction

With all this going on, who can blame enterprises large and small from abandoning downtown and surrounding areas? We've even seen the mayor of Chicago begging companies like Walmart to stay in her out-of-control domain. It's like. what do they have to lose? Merchandise? Buildings? Employees lives?

It comes down to a simple business decision. And these decisions are made over and over again. Big companies with the resources simply close up shop and move to greener pastures. Mom and Pop shops sadly fade away. But the results are the same: empty storefronts, empty offices, reduced property values, and reduced tax base... and fewer places for those left behind to buy clothing and groceries, or eat out – making the area even less desirable. It is reported that there are a record number of rental units available in New York – and it's doubtful that the Big Apple is all alone.

What Happens Now?

Having escaped from New Jersey many years ago, it is astounding to me that denizens of New York are buying some of the few homes available across the Hudson River site unseen for more than the listing price – such is the desire of the of the affluent class to escape from the city. Others are left behind in a city many years away from recovery.

New York is just one of many urban areas to experience this exodus of the business community. Portland, Minneapolis and Chicago to name a few have seen businesses destroyed by angry mobs. Many never to be seen again. And others that are have not been destroyed are getting out while the getting is good.

Long Term Impact

So businesses are leaving urban areas. Those that stay have many remote workers with only occasional visits to the office. This is an unanticipated consequence of the Chinese flu that attacked our nation. With the necessity to disburse and the technology available to do it, we have found a new way of working and companies have found a more economical and efficient way of getting the job done. The cube farm may no longer be the dominant home of the information worker.

There is a long term reduction in the demand for office and retail space all over the urban landscape. This will impact the real estate market, the financial market, and the housing market. The time is not to panic, but to plan – plot and scheme, perhaps - if you are in the commercial real estate business.

The Opportunities

As the old English proverb that says: It's an ill wind that doesn't blow anybody any good. Things are not going well, but opportunities still remain. A great many fortunes were made during the great depression. We have been told by people from Viktor Frankl to John Maxwell that what happens to us is not as critical as how we respond to it.

It is reported that Amazon is looking at putting distribution centers in abandoned mall anchor stores. There may be bargains to be found in the real estate itself – but it is only a bargain if you know what to do with it. This applies to small strip shopping centers as well as downtown skyscrapers.

We can't spend too much time listening to the media mavens of malaise. Remember, this is the country that played a large role in defeating the Nazi empire and the collapse of the Soviet Union. It is also the country that put men on the moon. If that spirit and determination has not been educated out of us, we will figure this situation out as well.

Sunday, August 9, 2020

Evictions On Hold – For the Moment

President Trump has signed an executive order putting a hold on evictions. He is doing this to help ease the burden on working folks who have seen their income evaporate as businesses were shut down in a vain attempt to stop the spread of the Chinese virus. His heart is in the right place but this is a band-aid on only half the problem.

The Deeper Problem

While it is helpful for people not to be thrown out of their homes when their income stops, this does little to help the property owners who still have ongoing expenses like taxes and insurance as well as mortgage payments in many cases. This pushes the burden on other innocent parties hurt by the economic shutdown. The anti-capitalists in our midst may think this is the way it should be, that the wealthy landowning class take care of the so-called working class – as if the landowner sit around all-day drinking scotch and eating bonbons..

But this thinking comes from a lack of understanding of what is involved in providing housing in the community. Unless the property has been held for many years, there is probably a mortgage payment due every month, If rent checks stop coming in, it is difficult to keep payments going out.

This is not an argument for the government to write checks to the landlords. By the way, landlord is not a dirty word, no matter what some people try to make it sound. It is just a recognition of the economic truth: Their ain't no such thing as a free lunch. Somebody has to pay the check. In this case, the people providing the housing are asked to foot the bill. To Bernie Sanders followers this is entirely appropriate, but most property owners do not have an infinite supply of funds to support those that can't, or won't, pay the rent.

Eviction is not the Best Answer

In normal times, when people stop paying the rent (or mortgage payments) sooner or later the sheriff comes knocking on their door and out they go. When this happens the property owner is looking at several months (at least) of lost rent, along with legal expenses, and a rental unit in need of some work. This is even if the people being tossed out don't trash the place. Even if it is just paint and, possibly some carpet, it still costs money and another month of lost rent.

The Ticking Time Bomb

Unless the rent payments (and mortgage payments) are forgiven – that is written off, never to be paid – debt is piling up month after month. For the tenant who had been paying $700 to $1000 a month, if they haven't paid rent in six months, how will they pay back the $4,200 to $6,000 back rent when this madness ends? They may still be out on the street and the property owner will still be out the back rent, etc., etc.

A Sliver of Light

Fortunately, not everyone was put out of work or business. Many people kept on working and paying their rent and/or mortgage. As with every economic problem, some people thrived while others headed toward the bottom. Many online retailers saw their profits soar while small brick and mortar shop shut their doors – sometimes forever. While those deemed non-essential by the powers that be sat at home watching their bank accounts drain, those deemed to be “essential” kept chugging along, sometimes even enjoying a financial windfall.

Property owners with a variety of rental units many have a had a couple of tenants with issues even while most of the revenue continued. Smaller owners with few units saw their income remain or fall based on the fortunes of their renters. Even for those with sufficient cash flow to cover the missed revenue, we still have the moral issue that begs the question: should someone be forced to support another person who is not part of their family who cannot pay their bills?

Helping another person in trouble should be voluntary, not imposed from above by those with nothing at risk. This is a question many seek to avoid, and I will not go into all the ramifications of the various answers, but it is one that deserves consideration when we look at people deprived of the ability to earn their way in life.

Working Together

If the property owners and the renters work together in good faith, there may be some sort of reduced rent and partial payment deal to be had that benefits all concerned. Sometimes banksters work with property owners, but whichever side of the table one finds him or her self, talking about what is possible can help ease the burden on both. In fact, it is the only way to come out of this without either side being too badly damaged.

Neither side is the enemy. The property owner is simply supplying a place to live and the renter is paying for the value he is receiving. However, until we get back to the point where we recognize that all jobs are essential, except possibly that of some bureaucrats, and people can bet back to work without hearing the “OMG, we're all gonna get killed” mantra from the media, we will have to figure things out to get by.

Sunday, August 2, 2020

Homestarts Are Up, Not Everyone Is Happy

I read recently where home starts in June were up 17.3%. This was after the terrible months of March and April with a small improvement in May. Existing home sales were down, but pending contracts were way up.

This seems like good news, but not everyone was happy about it. Aside from the political implications, there are some who see this as a problem. An appeals court recently dismissed a suit by the Edison Board of Education (NJ) against the Edison Zoning Board of Adjustment and a developer. This was over just an eight-unit project.

Why Would a School Board Sue the Zoning Board?

For those who haven't been involved in county-level politics, there are always various forces at work when growth is involved. Building new homes helps the area grow, however building new homes also puts more burden on local facilities such as schools, hospitals, and emergency services. Hence the actions of the school board who was put in a position of providing education for the children living in the new homes. There may have been other issues unique to Thomas Edison's home town.

Some will argue that the incremental costs of adding several students to the system are covered by the additional taxes (along with federal and state money). Up to a point this is correct – until they add up to the need for new schools, buses and teachers.

A Brief Explanation

I was involved in this for a number of years in the suburban Richmond VA area. It was an era when some in the county government felt it was their job to help the developers bring their plans to fruition, sometimes over the objections and welfare of residents negatively impacted by a hundred and twenty unit subdivision next to their rural home.

Emergency services could not guarantee expected response times if the development was beyond the planned growth zones. Schools hauled in classroom trailers to handle overflow, and a host of other situations came about by the influx of people. There was always this sense of conflict between the desire for expansion and those tasked with providing services.

One Solution

Because real estate development has an impact on the local government operations, the solution that was applied at this time was to implement something logically called an Impact Fee. The purpose of this was to help fund some of the additional services required by the increased population. This contributed to school and emergency service construction as well as road improvements.

This was somewhat helpful to the county but did not help the new home buyers. Between impact fees of something in the neighborhood of $20,000 to $25,000 per unit and various regulations, the builder had about $100,000 into a lot with nothing more than a hole in the ground. This wasn't the way to build affordable housing. The result was either townhouse construction to keep prices down or high-end homes near and over the million-dollar price tag.

The latter found several developments put on hold when the housing market tanked. Very nice homes were left by themselves with partially completed roads and partially completed neighbors. Builders took a financial beating.

The Other Solution

Others without the resources and connections, or opposed by powerful neighbors approaching the planning commission were simply turned down. Perhaps they were the fortunate ones. Occasionally one would slip through and the taxpayers funded the additional services.

The Big Question

What is the right thing to do with regard to development? There are two conflicting rights that need to be considered.

The first is the rights of the property owner to use their property as they see fit. This is a basic right in America. For some in this situation, their farmland was to be their retirement fund. The plans were to sell it to a developer and live happily ever after. For the county to prevent them from converting their property from farmland to residential was a financial hit that put them in an unexpected bind.

Counter to that right was the necessity of the county government to create viable comprehensive plans for growth and provision of service. What this means is that there are growth zones where services like police and EMT are within acceptable response times. Schools are available within a reasonable distance and growth in these areas is not a problem.

However, placing major developments beyond these areas meant excessive response times for emergency personnel and inadequate educational facilities. Thus the desire for impact fees that had such a negative effect on the whole process.

So the question: does the individual property owner's rights outweigh the cost and inconvenience of everyone else around them? I am loath to put the welfare of the government over the individual rights, but it doesn't seem that the individual, whether the farmer or developer can expect everyone else to contribute to their welfare and receive a negative benefit.

The Answer

This is where we see school boards and others creating obstacles to growth and development and it's not all about politics. Sometimes there are reasonable factors to keep in mind when bringing growth and progress to an area. Then again, sometimes the NIMBY people just don't want to see changes. There is no universal answer. Sometimes participation in local government can be a profitable pastime.

Sunday, July 26, 2020

Can't Qualify for a Mortgage? Now What?

There are many reasons more than half of Americans can't qualify for a mortgage. It could be insufficient credit history, low credit score, self-employment where income is difficult to document, or it could be that you had good credit and used it and now have too many outstanding accounts. It could be that all these things are fine but you just don't have a down payment.

Over time, most of these things can be cleared up. However, today we are not looking at credit repair and saving plans. These are fine and I'm not going to discourage anyone from working through these situations or following the Dave Ramsey plan to pay off debt.

What Are Your Options Today?

Instead of looking at what you can't do, we are going to look at some of the things you can do. I like to consider what Winston Churchill told us, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.“ Right now, if you are reading this the difficulty may be the low credit score, or down payment cash. Whatever it is, it is an opportunity to go down a path other than the one that runs through your friendly local bankster and the financial colonoscopy the underwriter will put you through. You may be reading this because have been down that road already.

Most people in this situation fall into one of two categories. Either you have no down payment or no proof of financial responsibility. If you have neither, it could be a little more difficult.

Got No Money

If the down payment is an issue there a few choices. If you are someone who has helped defend our country, the VA has a zero-down option that can get you into a home of your own. If your tastes aren't too extravagant, an FHA insured loan will let you come in with 3% down.

If you qualify as a low-income buyer, particularly with children, your state, county or municipality may be able to help. These programs vary with locality and terms change from time to time. Among the features of some of these programs is after you stay in the property a certain length of time, five years, for instance, the amount you owe begins to go away. Some programs have a certain amount of funds allocated and when they are used up, the funding stops until more is available. Your real estate agent should be able to point you in the direction to apply for these programs. If they give you a blank stare when you ask about these things, find another agent.

Have Some Cash But Can't Get Past the Credit Check

Loans are approved by the bank's underwriters. These are the trolls that work in the basement of the palatial edifice called the home office. They may not really be trolls, but I can't say for sure as I have never met one face to face, but have seen the result of their work. Underwriters are usually not very imaginative people. They have their lending criteria and are loathe to deviate from it. They are looking to protect the lenders' interest and if you can't prove that there is a good chance they will get their money back, they will scream, “Nyet!” (if they are Russian).

Large Down Payment Plan

You may find the underwriter more agreeable if you can put down a larger than average amount of money – like 30, 40, or even 50 percent. By giving a larger down payment, the loan-to-value (LTV) drops significantly and there is a greater chance of the bank recovering their investment should you fail to pay and they have to give you the boot.

Not So Large Down Payment Plan

Here is where we usually get off the beaten path that runs through you friendly local bankster. So you can't put 50% down? Most people can't. If you have some down payment, you may still be able to work out a deal for your own home.

Many investors are willing to let you in their houses with a lease option agreement. Some investors are actively seeking out people looking for this kind of buyer. With this arrangement, you usually give a non-refundable down payment. Keywords are non-refundable, so don't be surprised when you see that in the agreement and don't be surprised if you don't get your money back if you bail on the agreement. There may or may not be a portion of each month's rent applied to the final purchase. The term is usually a couple of years to give you time to get your credit score high enough to satisfy a persnickety underwriter.

Some homeowners who don't need the funds from selling their property to buy the new home may be open to this type of arrangement, particularly if they are going to put the money in an underperforming CD or savings account. Most only want to see cash, but sometimes the smart ones will entertain such an offer. You generally won't see this done through an agent as there usually isn't room for a commission and it just doesn't align with their thought processes. You will probably have better luck working with For Sale By Owners (FSBO). You just have to keep asking..

Some owners will actually take back the mortgage so you don't have to make your plea to the friendly neighborhood bankster. They may not go for a full thirty years, One thing to be careful of is sometimes you will be offered a short term with a balloon payment at the end of something like five years. This has been made illegal for owner-occupied housing some years ago by Messrs. Dodd & Frank.

For the Investor

A balloon mortgage is perfectly legitimate for an investment property. You may use it if you don't intend to hold the place long term, or if you are fixing it up and can refinance when you increase the value. This will put you in the world of the private lender.

Private lenders are much easier to deal with than banks. They don't look at every detail of your last three years' tax returns. They look at your track record and the security for the loan. Often you can get the money in a week. Just show that you can get the job done.

There are average people who have money in their IRA and are happy with six to eight percent. Twelve is not unreasonable in a pinch. Money is usually loaned for twelve months, often with short extensions available, so this is primarily a construction loan for a rehab. There are also sharks in the business as well. At an investor's breakfast I sat across the table from a guy who offered money at fifteen percent with five points. I said I would keep that in mind – and promptly forgot about that offer.

Many Options

If you thought you could only get money from a bank to buy a house, there are several alternatives if you put forth the effort to pursue them. We've shown there are various ways to buy real estate. Sometimes you just have to look around a little, be flexible, and persistent. The money and deals are out there.

Sunday, July 19, 2020

When is a Bargain Not Such a Good Deal?

I recently read an article touting several large cities as great places for housing bargain hunters. While fewer homes are on the market in each of these areas, the ones that are left are going at reduced prices below pre-pandemic levels. The reasoning was that those who didn't really need to sell at the moment had pulled their properties from the market to wait for the economy to open up more and yield a higher price. Those houses left on the market had prices lowered and owners willing to bargain – up to a point.

Still another article claimed now was a great time for millennials to get a place in pretty much the same cities for much the same reasons. I guess the reasoning was many millennials like city life with everything within a few blocks walking distance. They may be right and millennials may be the ones to bail out current city dwellers looking to leave the urban environment.

Not Just the Health Scare

On the surface this seems to be a logical assumption. However, when you look more closely at cities like Los Angeles, Chicago, New York, and many others, there has been a steady outflow of residents looking to escape rising taxes, crime rates, and a host of other problems associated with modern high-density urban living. The truth is yes, you can buy for a lower price, but – and it's a big but – it is quite probable that you will not see as much appreciation of your investment as you get with other properties unless these cities can resolve the issues that led to lower prices and urban flight in the first place.

When you buy a house, you buy more than a house. You buy a neighborhood. You buy a local and state government. You buy a culture. Some of this is easily forgotten when you are dazzled by granite countertops and shiny chrome and glass bathrooms. The whole picture needs to be considered.

Not Just the Big Cities

Just because you find a “bargain” in a more hospitable municipality, it doesn't mean you don't have to look at the whole package. Not far from me there is a neighborhood that was built up with small two-bedroom bungalows sometime in the late '40s into the '50s. About fifteen years ago a builder found some vacant lots in the area. I don't know if they had been vacant all along or if he bought some decrepit houses and knocked them down.

They built about half a dozen homes in the then-current style with features no one in the neighborhood even thought of, like garages, more bedrooms, multiple bathrooms, nicer kitchens, and the like. I'm sure they sold for much more than the neighboring properties did at the time and the buyers still thought they were getting a good deal. However, today, if one were to be sold, it's doubtful they could get a price anywhere near the price when the house was new and they are living in a house that is in roughly the same condition of the less-than-perfect neighborhood.

Had the original buyers purchased a similar home something like ten blocks to the east, they would have paid a little more at the time, but today would have a property worth eighty to one hundred thousand dollars more. Did they really get a bargain?

Watch the Other End As Well

Just as you can get burned by just looking at a low price, you can over improve a house beyond what you could even think of selling it for. This doesn't mean you don't make things nice, but you do it for yourself and shouldn't expect a financial reward.

I ran into an example of this when remodeling our current home. We were looking for tile for the master bath shower surround. My wife saw this really nice imported tile that cost around three times as much as the stuff from American Olean. When we sell the place, it is doubtful that we will get one penny more because of the fancy tile – but it was for us and made her happy and kept me from sleeping in the living room..

The same thing happened when we picked out the range for the kitchen. Most double oven stoves have one unit large for things like turkeys and a smaller one for things like cookies and pies. She wanted the one where both units were the same size and you could put a turkey in either one. The thing cost twice as much as the normally configure ranges, but we have used it often and appreciate the capability, even though it is also doubtful any potential buyer would know or care about the difference. So, do we roast two turkeys at a time? No, we don't make two turkeys at once – but it's good to know we can in case the situation arises.

Why Do You Buy a House?

The question comes down to why you buy the house in the first place. If it is an investment, then you have to be particularly careful about the long term valuation. If it is a place you really want to live in, then some of the financial considerations are secondary beyond the question of can you afford the home.

If you are planning to be there for a long time, the short term fluctuations are not a major consideration. If you consider yourself an upwardly mobile young executive with a major corporation you may not have much time in any one place so buying a house where you could lose your Luigi Borrelli shirt may not be a good idea. I have a friend who worked for IBM – and he told me that contrary to common perception, those letters stood for I Been Moved.

The Choice is Yours

What you buy, or the decision to buy rather than rent is not a simple one. You know what you want and can afford, but don't let price be the sole factor. Look at the big picture around the property. Then, you might want to think about what Will Rogers once said, “Don’t wait to buy real estate. Buy real estate and wait.” Just put yourself in the best position to benefit from the choice.

Saturday, July 11, 2020

Seven Magic Words to a Better Price

Many years ago I attended a conference held by one of the masters of the real estate industry, Ron LeGrand. There is very little this guy hasn't done in the business and very little he doesn't know. I picked up quite a few bits of information that week, but one, in particular, has stuck with me over the years, and I've used quite often to my benefit.

High and Low Anchors

When you look to buy a property you will, many times, run into a high anchor. A high anchor is a price a seller knows is more than a property is worth. They do this with the idea of coming down some to give the buyer an impression that they got a good deal and also to discourage all but the most confident from coming in with a low-ball offer. It is a negotiators mental game. They take you from what you think is a reasonable price and often suggest you split the difference... and you lose.

Conversely, often a buyer will come to a seller with a low anchor – a price that is obviously unreasonably low, but helps put the negotiation in a downward direction. Again, they don't necessarily expect to get the low price, but use it as a place to start and adjust the sellers thinking.

Other Factors

Obviously, there are other factors in negotiating a sale or purchase, and understanding these factors can only help you come to a more satisfactory outcome. For instance, when Pete Fortunato, another real estate wizard from Tampa Bay area, looks to buy a property, he will often ask the seller, “Why would you sell a beautiful house like this?” This gets people talking and often reveals the strength of their motivation and other needs that let you, the buyer, make a more informed offer that best meets those needs.

Sometimes you can get this information from an agent, but keep in mind that even the guy showing you the house is working for the seller – the one who pays them. Beyond that, there are some things the agent is not aware of, and they are trained to deflect some of these information gathering questions.

The Magic Words

The magic words work best when you are dealing face to face with the buyer or seller. When you are talking about price, which ever side of the table you are on, listen to the number thrown out. Think about it with no reaction and ask in a non-confrontational tone, “Is that the best you can do?” Then close your mouth.

The other party may try to justify the price as you listen quietly or will say they can take less if they are selling or pay more if they are buying, One of the largest drops, percentage wise, I got right off the bat was a probate condo that needed some work and the heirs were looking to get rid of. I knew what the asking price was because I saw it in their Craigslist ad. However, after looking the place over, I asked the lady about the price.

She told me they were asking $35,000. I paused and looked around the room and asked, “Is that the best you can do?” She thought for a moment and came back with, “we can take $30,000”. That was a 15% price drop just by asking one question... and the negotiations were off and running.

This works best when you are working with individuals, but variations can be used with agents, but with lesser impact. It's always worth a try, except when they try to get you into a bidding war with escalation clauses and other people bidding against you. If it's a place you really want to live in and are willing to pay top dollar – go for it. If it is an investment, you probably want to keep looking.

Other Uses

This magic phrase is not restricted to real estate negotiations. It can be used anytime you deal directly with a seller or even a business with variable prices,

Years ago I used to make several trips a year up and down the east coast on I-95. I would drive for a while until I felt myself getting too tired to go on safely. I would get off at one of the exits surrounded by hotels and motels. I would pick on of the mid-range to nicer places and ask the clerk about the price. Whatever they told me, I would ask, “Is that the best you can do?” and more times than not, they would give me a lower price, just for “wagging my tongue” as Ron would say.

There is nothing wrong with places like Motel 6 or Super 8, but don't expect to get much of a discount there. They just don't have that much room to adjust.

Biggest Takeaway

A lot of people are put off by the idea of negotiating a price – that is why many car dealers advertise a “no haggle” price. There are many skills involved in getting the absolute best price, whether you are buying or selling. This is a good place to start and the worst that will happen is you will be told, like I often told realtors, “That IS my highest and best price.” No one has smacked me upside the head yet.

As they used to say on the old TV commercial, “Try it, you'll like it.”

Saturday, July 4, 2020

Happy Independence Day!

What this weekend is all about.  Enjoy the cookouts, but we can't forget that anyone born here or comes to join us has already won life's lottery.

Sunday, June 28, 2020

Is Now a Good Time to Buy a House?

These are unusual times and many people are wondering if it is a good time to buy a house. Quite a few have dropped out of the market because of the economic uncertainty or the economic certainty of having their job or business shut down by government edict. Some are just too frightened to come out from under their covers. What I have to say here may be a little controversial, but realtors are a lot like economists in this sense: if you took all of them in the country and laid them end to end, they still would not reach a conclusion.

What's Happening to Sellers?

Many of the lookie-loos and mildly motivated have dropped out of the market, either for fear of the kung flu or, perhaps, better screening by real estate agents. People are not exactly breaking down the seller's doors for a chance to look at their properties even with, or perhaps because of, the increasing use of video tours. Sellers looking to cash out their homes are taking a more realistic look at the values after weeks of inactivity.

Here in Pinellas County FL when I get a notice of new listings, it comes along with a list of price reductions. These price cuts amount to about half of the new listings. This morning I received a message with 48 new listings and 27 price reductions. They aren't always big price cuts, but the action is designed to get the house more attention.

Many sellers are ready to bargain and hungry agents are ready to help them get the place sold,

Who Is Buying and What Are They Looking For?

According to a recent report about a quarter (27%) of homeowners would consider a move during the kung flu panic if their circumstances warranted it. While it may seem high, the changes brought about by being stuck at home have caused some to reconsider their ideal configuration.

Perhaps it is a sign that not all is gloom and doom on the economic front that searches for new home construction have increased by almost 75% over last year. Many are looking to move away from the open concept designs that have been popular in recent years. With more people working from home, a trend that doesn't look like it will go away after the panic, a little privacy seems more desirable. Having a way to remove yourself from the noise and commotion of family life is now looked on a good thing,

There are also the usual considerations like changes in family size and financial resources. Some have found the lockdown and increased spending in certain areas to be a windfall and, unfortunately, some have seen their income evaporate along with their freedom.

Cheaper Money

With efforts by the Federal Reserve to keep interest rates low and banksters eager to make loans – in spite of their underwriters - this may be a great time to look for financing before things open up very much and those with the resources come back to the market with a vengeance. We have to keep in mind the Fed's fetish for fighting inflation by raising interest rates when things get going well.

When you are buying a home to live in for an extended time period, usually payments are the primary consideration. To put this into perspective, if you buy a house now with an extremely low-interest rate, you may still be better off than if you can get it a little cheaper after a rate increase. This type of thing happens at times when payments are too high and sellers lower prices to accommodate increased borrowing costs. Or you could pay a higher price with a higher interest rate, The future's not ours to see,

What Will Happen to the Home Prices?

Here is where I polished my crystal ball to get a clearer picture – it still appears cloudy. We have to be careful of any prognosticator that may have an interest in a self-fulfilling prediction. Hence we can't really turn to the political class to tell us what to expect. Some want to see the economy booming with people having money in their pockets to live the American dream and other pols think they will benefit from a crashing economy causing people to turn to them for solutions.

It's hard to say what is going to happen, it may depend on which dog we feed the most. I tend to have confidence that we will see things straighten out, but I have no idea of the time table. There are some things to keep in mind -people will always need a place to live and dips in housing prices are usually temporary pauses in the general upward trend. If you are an investor, there is another trend to consider: if fewer people can qualify for a home loan, they become renters. During these periods rents generally rise because of the increased demand.

That said, there are the local conditions to take into account. If you are in an area with a net loss of population, it may be a little longer before prices stabilize. That is some of the northeast high cost of living and high tax states are seeing an outflow of people who realize that they can live better and cheaper in warmer climates. Then there are the areas where people come to. This will provide better support for housing prices.

So, What Do You Do?

A lot depends on your plans. If you are not looking to stay very long, you may want to make other arrangements, as short-term buying may not be a good decision. However, if your plans are to make the place your home for a longer time, temporary fluctuations shouldn't be too much of an issue.  Like I said, the general trend is upward.

The thing one has to keep in mind, if you believe we will come back, you may well be in better shape buying now. The lower price and lower interest could well leave you in a comfortable position, even if the prices drop a little more. If you wait until the economy rebounds and the Fed decides to put the brakes on by raising interest, the place could end up costing a good bit more,

Sealing the Deal

If you are looking to buy now, you can go with the low down payment FHA loan with about 3%. If you've saved up some more and are looking for a conventional loan, you can get away with 10%. But, for this privilege, the bank will insist on Private Mortgage Insurance (PMI). This extra fee will continue until you pay the note down to the point where you have 20% equity.

Something I did a while back and some lenders will do today is set up a thirty-year note for 80% of the price and a shorter-term second mortgage for 10%. What this gave me was a monthly payment similar to the 90% loan with PMI. The difference is that the extra payment actually reduces your amount owed and eventually goes away rather than paying for the insurance that keeps the banksters happy,

So there is not an easy, one size fits all answer to this question. I hope I've given you a few more things to chew on than you get from the talking heads on TV.