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.

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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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.