Tough Times Don't Last...

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

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

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

Personal Cost

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

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

Staying Afloat

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

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

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

Overcoming Adversity

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

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

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

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

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

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

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

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

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

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

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

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

Are You Depending On Banksters?

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

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

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

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

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

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

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

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

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

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

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

Coming to Florida

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

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

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

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

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

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

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

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

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

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

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

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

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.