Posted by Robb Terranova under Buying Real Estate | 
If you are buying real estate right now, there’s an argument to be made you are either rich, brave, or foolish.
Every time I evaluate a deal, there is a better chance I will do nothing at all than take action. Good deals are far fewer than bad ones, and I’ve made a lot of money in real estate NOT buying something.
With all of the low prices, distressed properties and desperate sellers out there right now, it is really tempting to start snapping up bargains.
But the wise move may still be to wait. If you are buying real estate right now, there’s an argument to be made you are either rich, brave, or foolish.
You’re rich: You’ve watched as real estate prices plummeted. Now signs of recovery mean it’s time to invest. If you have the spare capital, you stand to make a lot of money in this market of incredible opportunity. You can afford to gobble up the discounts and hold them for three years. It’s great to be you, and you are part of a fortunate and elite crowd.
You’re brave: You have both ends of the financing worked out, and you buy bargains to sell, for the most part, at small margins. Most likely you are forced to run a volume business. Do enough deals and you can still cash in on the current market conditions. But you are probably working yourself sick to make the same money that will take half the effort as the market improves.
You’re foolish: You know you can get bargains, so you buy them any way possible. But did you plan how you are going to get rid of them? If you’re trying to make a killing and price your resale high, your short-term financing may come due before you can resell. Quick sell it at a discount, and you may have so little margin by the time you unload you could wind up breaking even. If you get stuck holding, you still have to pay off your short-term lender. The unhappy possibilities are endless.
You could be wise. Even though there are juicy discounts out there, as the siren song of equity beckons, you could remind yourself about the resale profile of your deal in this market. It’s simple, really: don’t buy, and you don’t have to sell. You’ve waited all this time, maybe there’s wisdom in waiting just a little while longer.
Posted by Robb Terranova under Real Estate Investing |
The first Monday of the new month, at 6:00 PM, I got a phone call from my accountant. He had had a few drinks, and I had a little trouble understanding what he was saying.
How I Got the Deal:
My accountant knew I was a real estate investor and called me with a deal. He was trying to sell his personal residence. He had already tried to sell the house for a while, unsuccessfully.
He had title trouble. His partner had died with the house in her name, and they weren’t married. The house was in probate and there was an executor, and my accountant was going to inherit it, but that process wasn’t completed.
He had the right to sell the house, but he wanted to move out of state, and more than anything he wanted to put all of this behind him, hoping I could take care of everything.
He had run out of money, and couldn’t afford the payments on the first mortgage. I would need to make two back payments to keep the house out of default. He also mentioned at the time there was a small second mortgage.
After a walk-through, I told him the house needed minor cosmetic repairs and that meant I would need to front fix-up costs.
Once I did the comps, I felt there was reasonable equity in the house. I could put out a couple thousand, split the profits on the sale, maybe make $10-$15K each very little effort.
It was a small margin, but because the numbers worked, and also as a favor to him, we agreed that I would step in, complete the fix-up, find a buyer, and we would split any profit 50/50 at closing. We created a trust with each of us as partial beneficiaries, both for my protection and so I could manage the marketing and sale as the owner.
I then caught up the first figuring that bought us some time to get the house cleaned up. My accountant moved out of state.
The Fix-Up:
The house was relatively well kept because it was his personal residence, but it needed updating of kitchen fixtures and so forth, carpeting and paint.
I began repairing the house to get it ready for market.
The Snag:
About two weeks later, the first Monday of the new month, at 6:00 PM, I got a phone call from my accountant. He had had a few drinks, and I had a little trouble understanding what he was saying. He was asking me for advice, complaining about some pesky letters he keeps getting from some lawyer. Since they were jumbled in with all of the pre-foreclosure solicitations from investors, he had been ignoring them, but for some amazing reason he decided to call me that night.
I asked him to fax me the latest letter, and I was able to decipher that these were notices from the attorney for the lender on the second mortgage, and I realize they are talking about foreclosure. And in fact, the house was scheduled to go to the courthouse steps in less than 24 hours.
You would think an accountant who is trying to sell his house would be aware of a second mortgage default. My mistake was in making the assumption that this was business as usual. In the real world, he was a human being, steeped in sorrow, barely able to deal with the sale of his dead partner’s house, and his head was buried firmly in the sand.
Well, it was after business hours on Monday night, and this thing was toast. There was $38K and change owed on the second, and that was the opening bid. It had mushroomed from the “small second” we originally factored into the payoff to now include interest, penalties and attorney’s fees. Suddenly, this took a lot of margin out of the deal.
I told him the only way we could protect ourselves and get anything out of it was for one of us to go bid on the courthouse steps next day. Since he was cash poor and out of state, he was not an option. I told him that I would do it.
The Retrieval:
I felt that there was a very good chance that I would be the only person bidding on this house. Because of the small margin, it was not attractive to investors. There was always a chance some idiot may miscalculate things and start bidding the house up, but it was remote.
At the open of business the next day, I was at the lawyer’s office trying to cure the default before it ever went up for bid. They said too late.
I went to the bank and drew out a cashier’s check for $40K.
At the courthouse, I waited for the property to come up in queue. There are always a couple of people gathered around just listening, but you never know if they are there to bid against you or just curious onlookers. The foreclosure attorney came out, and opened the bid. I met the opening bid, and nobody else bid against me, but I remember a couple of bystanders looking puzzled as they watched me bid on what they saw as a lousy deal.
Sold. I now had control of the property.
The Outcome:
All at once this deal took an unexpected turn for the better. By winning the bid on the house, the title had transferred solely to me. I was now in control of the first, and the second.
Before foreclosure, my accountant was in the driver’s seat. I was not in a position of leverage, relying on our trust agreement and longstanding friendship to make sure I got my share of the deal.
This change of events rendered our trust document void. The trust no longer owned the property, my accountant no longer owned the property, I did.
It was an interesting position. Now that the title was fully in my name and my accountant had no legal interest in the property whatsoever, our longstanding friendship was the only thing supporting whatever equity share he could collect.
Was I going to stiff him? Absolutely no way. But I did feel, and I knew he would agree, the sheer act of fronting the $40K on short notice meant strong justification for full share on my part, and that any added costs of foreclosure would be on his side.
I also had a couple of other new advantages. I no longer had to work with him on pricing the property or accepting an offer. I was free to market the property the way I wanted to. I could execute all the paperwork, never having to involve my accountant at all. From the nightmare it seemed like the day before, it had turned into a happy accident. I was now where I always prefer to be in a deal, in control with no partner.
Now confident that I would realize what I expected out of the deal, I went back and finished repairing the house.
I advertised the house for sale, and shortly after that, I had it under contract with a good buyer who was pre-qualified for $5K less than I was asking. After closing, I collected all that I was expecting out of the deal, and sent the remainder to my accountant.
The Conclusion:
You can never make an assumption, even if you’re dealing with the President of the United States or your brother. This deal seemed pretty straightforward, and I was comfortable with the risk, especially since the person I was working with was not only a friend of mine who wouldn’t intentionally rip me off, but also an accountant whose very business relies on management of financial details. I never dreamed he would let the ball drop on his own house with which he was presumably most familiar. I admit I underestimated his emotional state.
At one point there was a chance I would never see any profit, and even get hung out to dry for what I had in it. It didn’t turn out that way thanks to some fancy footwork, in fact quite the reverse. Nevertheless, lesson learned on the people side of real estate investing.
Posted by Robb Terranova under Renovation/Building |
You would think that hungry contractors would always charge less. Sometimes it doesn’t work that way.
You would think that hungry contractors would always charge less. But lately I have been getting sticker shock on invoices from contractors I have known for years who always give me builder’s rates.
Your logic keeps saying that in the market slowdown your contractor would charge you your same old rates, or maybe better, to keep you calling him first. He obviously doesn’t want to drive you away, especially if you’re one of the few builders offering him work during the slump. Sometimes it doesn’t work that way for some reason.
It seems like exactly the opposite of what should be happening. If they have fewer jobs, they obviously need money more. Exactly. Maybe the longer they sit around thinking about that truck payment they need to make, the more they try and maximize cash flow every time the phone rings.
What you can’t see is how the dead air is affecting them between your phone calls. With less coming in, your contractor may be in kind of a panic, and when he gets your call, he might have a lot of ground to make up. Bingo, you get the platinum plated price.
This will only work in the contractor’s favor for the first job. Then he will start to get the reverse of what he’s looking for. You will have a tendency to look for new contractors who are also hungry, but who are in a position of courting you as a new customer. In contrast, the old contractor will be spending his longstanding goodwill by breaching your trust, charging you that price you didn’t expect.
When I get a high bill from one of my old guard, the first thing I do is call him on it. “Wow, Joe – that much for that job? OK.” Then I pay it. Then I start calling around.
If Joe doesn’t hear me call for a while after that, he’ll start to get the message. Meanwhile, on the next job I try to get a good rate from somebody new.
Hungry new contractors don’t always give good rates either. They have nothing invested in you, and not every one is looking for repeat business. Some treat you as a one shot deal.
But I’m always looking for that second and third contractor so I can get multiple bids on jobs that come up, and to call in case my regular guy isn’t available. It never hurts to have a few more contractors on your call list.
At some point, I’ll call my regular contractor back and ask for a bid on a job. By then, the price is usually back to normal, and he’s got my business again.
Posted by Robb Terranova under Property Management |
Often, your tenant is a good guy who actually feels bad about not paying you. You might try putting the tenant into "rehab."
Your tenant is late with the rent. Call him on the phone and you’re suddenly immersed in a soap opera script.
His sister is critically ill and he’s somehow responsible for her medical bills, he just got in a car accident and missed a lot of work, but he’ll get caught up as soon as he gets better.
The economy is bad and unemployment is through the roof, so your tenant lost his job again, but it was really because he didn’t like his boss who made him do ugly things, like…uh… work, and besides he just plain got sick of it so he quit.
He’s going to pay you though – the end of next week.
Don’t worry you’re in good company – the tenant owes the electric company, the gas company, the water department, he hasn’t made his car payment, and owes on his cell phone bill.
The tenant is at the bottom of his financial cycle, the part where he’s losing ground. He hates his life lately, life should be more fun, so those bills are not his priorities. More important than those, he needs beer and cigarettes, and ultimately he has to buy that new TV, then go to Vegas so he can solve all his problems by winning a bunch of cash.
You can kick him out, or maybe he can be salvaged. Remember, turnover is expensive too. You might try putting the tenant into “rehab.”
Once a tenant gets behind in the rent, you can become his “rehab doctor” helping him through this period of bad “habit.” He’s “using” (his creditors), actually working harder at dodging his bills than just getting a new job and paying them. You need to do him and yourself a favor and help him kick the “stuff.”
Most often, beneath it all your tenant is a good guy who actually feels bad about not paying you, especially if you’ve been really fair with him throughout your relationship.
He knows he’s being a jerk, and he doesn’t like that feeling. That’s the real reason why he doesn’t want to talk to you, and won’t return your calls. Believe it or not, this is your point of leverage.
To get him “on the wagon” you have to first get communication restarted. Make sure he knows you just want to talk to him and find out what’s going on. Be sure not to sound angry or threatening. Call him, e-mail him, and finally go to his house. Once you’ve contacted him, you have some smooth talking to do.
Assure your tenant you can develop a payment plan for him to get caught up on past rent. When a tenant is behind, he’ll start to worry he’ll never get caught up and begin to feel hopeless. Make sure he knows it’s OK with you if, for example, he adds a small amount to monthly rent until it is repaid, propose it and get agreement.
Now he feels a little better – this is the start of getting “clean.”
Next, it’s critical that he get no further behind because then he’ll feel so bad he has to run away from home entirely (i.e. go get another apartment). Get him to acknowledge that he has to make his next regular payment, and make him promise to do it on the due date.
You should then give him a chance to follow through on his promise so he feels empowered and in control of his life again, on the good path. A word of caution – if you get tempted to call him beforehand, you’ll run the risk of developing a pattern of becoming his “mother,” nagging him into paying his rent each month.
If he does NOT make his payment on time as promised, call him within the next business day or two and ask him if he DID (you know he didn’t, but you don’t want to corner him). You need to hear something like, “I’m doing it today.”
If necessary, call daily until he does, and with all this daily contact he usually will. He doesn’t want personal attention from you, believe me.
Congratulations, your tenant is “sober.” Now he just has to stay that way.
Next month, if he doesn’t make his payment on time, repeat the follow-up procedure above. If you manage all of this with patience and finesse, at some point he’ll get back in the habit of paying you rather than in the habit of not paying you.
Posted by Robb Terranova under Real Estate Investing, Selling Real Estate |
Deals in seller's and buyer's markets merely have different profiles, which makes this is a good time for a pro’s and con’s refresher.
The real estate recovery will soon be on the way, but it’s been so long you may have forgotten the down side of a seller’s market. The best time to remember is before it gets here again so you can capitalize on the sweet spot in the cycle.
Deals in seller’s and buyer’s markets merely have different profiles, and in the midst of either, one looks wistfully over at the green grass of the other.
Which makes this is a good time for a pro’s and con’s refresher.
SELLER’S MARKETS:
In a seller’s market, it’s easy to remember the pro’s. Seller’s markets seem like summer days, easy to take and what investor would mind if they never ended? But few remember the down side of the seller’s market so I’ll re-enlighten everyone.
SELLER’S MARKET PRO’S:
- Property prices are appreciating:
- Ah, the beautiful sound of money growing while you’re just standing around. When buying investments right, I have had property double in value in a couple of years. And I have sold them at those prices. Nothing gets you more addicted to real estate investing than this phenomenal experience.
- Money is plentiful for both fix-up and refi:
- When property is appreciating, banks and alternative lenders are usually more comfortable with collateralized loans. It should be noted that while the financial picture has changed a bit since the sub-prime crisis, lenders still must lend to make money, so terms should ease again at some point, especially if property begins appreciating again.
- Days on market are few, quick turnaround, lower carrying costs:
- Quick turnaround is a critical profit factor in real estate deals. The fact that time is money really becomes personal when holding a flip that you want off the books as fast as possible. In a seller’s market, the climate is good for quick turnaround and you can get your capital out and working on a new deal fast.
- FSBO is viable, saves on real estate commissions:
- I had just bought a house in a northern suburb, and as I was standing on the front lawn taking “before” pictures, a guy pulled up in a pickup truck and said he was interested in buying the house. I never touched the property, never made a mortgage payment, and sold it to him a couple of weeks later for a respectable wholesale profit. I love those falling off a log FSBO days!
- Fix-up is minimal, lower renovation costs:
- Speaking of critical profit factors, fix-up costs can kill deal margins quicker than a New England spring. We all do nice renovations and want buyers to have nice houses, but palaces? Maybe not at the bread and butter deal level. The fewer extras, like Jacuzzi tubs and wet bars, the less deluxe the finishes like imported Italian stone and Koa wood, the more money in your pocket at the end of the deal.
- Demand outstrips supply, fewer closing concessions:
- Will you do me a favor? Will you pay my attorney’s fee? In a seller’s market, buyers wouldn’t dare ask you to pay closing costs. In fact, they might even come out of pocket for some of your expenses.
SELLER’S MARKET CON’S:
- Acquisition costs are higher for fixer-uppers, just like everything else:
- Sellers of unfixed properties next door to three renovations want fully renovated retail for their leaky roofed, termite munched, cockroach riddled wrecks, and the trouble is there are several investors who will pay it.
- Easy to flip, but temptation to hold investment increases because of price jumps:
- The investor base increasingly holds property which tightens the rental market, which lowers rents to the point you can’t cover the first on your fix-up if you bought it too high. You then have to count on appreciation to make up the difference, which is paper wealth if you don’t divest the property. You’re still in a negative cash flow situation on a monthly basis.
- Competition is stiff among investors, deals are harder to find:
- During the seller’s market it’s hard to find deals. Everyone’s odd uncle is a real estate investor. I’ll never forget walking into a convenience store and overhearing a neighborhood transient sitting on a stack of newspapers in a corner exclaiming, “I’m gonna buy me a house and fix it up and flip it!” even though they didn’t have enough money to buy one of the newspapers they were sitting on.
CONCLUSION:
The market is in constant flux, and there are better and worse phases in the market cycle to make money. The end of a buyer’s market and the beginning of a seller’s market are probably the best for investors, so keep your eye on the horizon.
Read the companion to this article, a refresher on buyer’s market pro’s and cons: “Bad Real Estate Market? Whatever. The Deals Are Out There”
Posted by Robb Terranova under Buying Real Estate, Real Estate Investing |
Deals in buyer’s and seller's markets merely have different profiles, which makes this is a good time for a pro’s and con’s refresher.
Are there real estate investment deals out there right now? Surprisingly, no matter how bad market conditions seem, the answer is always, “Yes!”
Deals in buyer’s and seller’s markets merely have different profiles, and in the midst of either, one looks wistfully over at the green grass of the other.
Which makes this a good time for a pro’s and con’s refresher.
BUYER’S MARKETS:
In a buyer’s market it’s easy to remember the con’s. Buyer’s markets seem like winter days, painful and what investor can’t wait for them to end? But, buyer’s markets have an up side, which once again bears repeating.
BUYER’S MARKET CON’S:
- Property prices are falling:
- Wow. Nothing highlights paper wealth like depreciating property. It will make you feel like the holder of a mattress full of Confederate currency when you go to sell your assets in a buyer’s market. The best thing to do is hang in there until the seller’s market returns, but what does “hanging in there” actually entail? Translated, it means finding the money required for holding power. This grim waiting game can be a real test of nerves and can exercise your ingenuity. Will the bottom ever arrive? It doesn’t seem like it!
- Money is tight for both fix-up and refi:
- What lender wants to back a loan with collateral that’s losing value? No such entity exists. Its harder to borrow money in a normal down cycle, to say nothing of the impact of sub-prime complications in today’s market. In a buyer’s market it’s also harder to divest assets to raise your own capital. Unless you have a rainy day fund (or a partner with one) to continue doing business, you have to hold tight. Pinochle anyone?
- Days on market are long, slow turnaround, higher carrying costs:
- One of our properties was on the market for a year, but nobody balked at our DOM because it was becoming the norm. OK, hooray, my property’s not stigmatized, but it’s also not selling! In this case the property was free and clear (except for property taxes and insurance), but it was still lost income from the capital I could be using for other deals. In most cases, properties have financing that needs to be serviced, which makes you feel like you’re sitting in a traffic jam in the world’s most expensive taxi cab with the meter running.
- FSBO becomes less viable, which means real estate commissions:
- A good real estate agent can pay for their commission if they are highly skilled. A real professional agent can provide advertising far and wide, word of mouth promotion, open houses and other sales techniques that you may not be as practiced in as an investor. Nevertheless, if you can cut out the middleman and sell your property direct to the consumer, that’s another critical profit factor in your favor. Real estate agents almost become a necessity in a buyer’s market because competition is so stiff you need all the traffic you can get.
- Properties must be fixed to the max, higher renovation costs and longer renovation times:
- Nothing can be wrong with the property. Nothing. We had a house for sale, immaculate on the inside, but the yard was average and not professionally landscaped. We discovered that this curb appeal issue had become a major stumbling block in the buyer’s market, and buyers wouldn’t even go inside to see our granite countertops, all new stainless steel appliances, master bath with vaulted ceilings, etc. You know what? It’s really expensive to fix everything to perfection.
- Supply outstrips demand, more concessions to get a sales contract and close:
- There are lots of horror stories out there about seller concessions in a buyer’s market. At the worst point in the market, we had a buyer ask us to come down 5% on our already reduced asking price, pay not only his closing costs but his down payment, and then allow for inspection and repairs on the property. We decided to rent the property instead.
BUYER’S MARKET PRO’S:
- Acquisition costs are lower for fixer-uppers, just like everything else:
- Desperate sellers mean lower prices. This is obviously good for acquiring bargains, discounts, and steals.
- Hard to flip, but easy to justify holding for much higher prices later on:
- Even if property is hard to sell, if you can buy it low enough and hold onto it, this is exactly where real estate wealth really comes from. Flipping fast is fine, but holding longer usually means greater profits from appreciation. You just have to remember to sell in order to get those profits, which turns it into a really long, slow flip. You can even save on taxes with long term capital gains.
- Competition is low among investors, deals are plentiful:
- The harder it is to do business, the more the investor field is winnowed out. This means, if you’re still doing business you’re in elite company, and you can take advantage of the open field. Buyers are few and property availability is high, which means you can get your hands on some nice stuff for cheap.
CONCLUSION:
The market is in constant flux, and there are better and worse phases in the market cycle to make money. The end of a buyer’s market and the beginning of a seller’s market are probably the best for investors, so keep your eye on the horizon.
Read the companion to this article, a refresher on seller’s market pro’s and cons: “Here Comes the Real Estate Recovery…and a Seller’s Market”
Posted by Robb Terranova under Buying Real Estate, Real Estate Investing, Selling Real Estate |
Taking a minute to understand the people side of real estate investing may help you to quickly become more profitable.
Ask yourself a question: why am I in real estate investing? Answer, to make money. But how is money really made? Can you force your way into deals just because you want to do them?
Taking a minute to understand the people side of real estate investing may help you to quickly become more profitable.
Start by taking a look at yourself. It is possible you have a tendency to think real estate investing is a business, that everyone involved should act logically, and you should be able diagram your profits like a scientist calculating the geologic age of a rock.
The house is worth X, so I should be able to buy it at Y because the seller should agree that a cash sale is worth the discount.
Then I hire several contractors who all, like synchronized swimmers, coordinate the completion of their tasks and finish my house in 3 weeks with no holding costs.
Everyone wants to live in my neighborhood, so I’ll discount the house 1% under market for a quick sale, voila! I’ve made Z dollars, and I’m off to the next deal.
Go ahead and try it this way, everybody does at some point. When nobody listens to you, then you might realize, oops, you forgot to calculate in the people factor.
Every step of the way, the people involved have their own motives, some emotional and NOT financial, and you will make more money figuring out what those are than trying to insist everyone understand yours.
The key to the people side of real estate investing means standing in the other person’s shoes while maintaining a grip on your ultimate objective. Remember, you’re not going to fool anyone, you actually have to understand their perspective, not just pretend like you care.
First, what’s your house worth? It depends not totally on comps, but who is willing to buy it. Who is willing to buy it depends on what people LOVE about the house. They may love the neighborhood, or they may love the schools, or they may love the patio in the back yard.
So it becomes financially important to you what the buyer LOVES about your house. You can research and emphasize these emotional triggers in your advertising, then customize them to the particular buyer in your face to face pitches to sell the house more quickly for a better price.
Second, what’s a seller willing to take? They may think the house is worth twice what they paid for it because they always wanted to sell it for that, or their neighbor’s house for sale is worth that so they should be able to get that too. What the seller will take depends on what they FEEL it is worth.
So it becomes financially important to you how the seller FEELS about the house’s worth. Interviewing a seller with careful listening skills, you can gather a literal wealth of information. You can skillfully address these points in your negotiations to get closer to what you want to pay for the house.
Third, contractors are very independent, not only from each other but from you. They usually have several irons in
the fire at once and cycle in your job based on their priorities, not yours. Coordinating contractors depends on diplomatic handling of their NEEDS interacting with yours.
So it becomes financially important to you what your contractor’s NEEDS are. Sizing up a contractor’s profile in early meetings can help you find those you can work well with and avoid hiring those that you will have trouble with later, which will save during renovation and ultimately make you more money when you sell.
You can find tremendous insight into the people side of real estate investing in my book “The People Side of Real Estate Investing”.
I use deals from my own investing career to demonstrate how to integrate the people side into real world deal making, and provide line-by-line dialogues for successfully handling common real estate investing scenarios.
Even if you think your people skills are terrible, by the time you finish reading this book you will have a significantly better understanding of people’s motives and how to capitalize on them for bigger real estate profits.
Posted by Robb Terranova under Buying Real Estate, Real Estate Investing |
The real estate recovery is inevitable. It's not too soon to start getting prepared.
Remember how easy it was for the fabled townsfolk to dance around the prone and hulking corpse of the giant who once terrorized them? Before the giant was killed by the courageous Jack, however, dancing did not come easy (maybe it was the wobbly knees?).
This pre-kill point is where we are in the real estate cycle, the industry so saturated with hopelessness that dancing days are all but inconceivable. But the giant will fall, and when he does, you need to be ready.
OK, the US economic framework has been shaken to its core. OK, the real estate industry still feels like the lower 9th ward in New Orleans post-Katrina. But will you be ready when, after dragging the bottom for a longer than tolerable period of time, the real estate market actually ticks up?
Real estate is cyclical, real estate is cyclical, real estate is cyclical… Keep repeating this mantra because there is life after the slump, meltdown, crash, insert your grim noun here. This crazy idea has been gaining momentum in the real estate industry lately. More and more it is displacing the suffocating gloom that once occupied the same space.
In its previous incarnation, “extrapolation bias” which is the tendency to think things will continue as they have been, caused the bubble to catch so many investors out on a limb. The newly entrenched version caused by the slump, that real estate will continue to decline, has actually begun to reverse.
Recently, we have started to see brief glimpses that real estate will soon be moving out of survival mode into recovery, and it gets you thinking, or more accurately “feeling.” If this cataclysm is actually going to end, it’s time to start planning. What a delicious task to finally undertake as visions of appreciation and equity once again push themselves into our consciousness.
Five things to do immediately:
- Finalize the optimization of poor performing assets. This means renting houses that won’t sell at any price in this market worth taking, so they can at least cover their financing until the market improves.
- Begin researching the new conventional financing guidelines and the alternative financing climate:
- While sub-prime loans from conventional lenders will be virtually non-existent, sellers may be disposed to consider owner financing, something you can use yourself in a tight sub-prime market to move your resale inventory early in the recovery.
- Hard money lenders have been hurt severely by defaults on properties where equity dried up with falling prices, and are now saddled with houses they can’t resell. But in order to stay in business they still need to lend money. As home prices rise and they see a steady gain in value, they may soften their terms.
- Accordingly, if you have assets you’re trying to sell to capitalize other projects, you will start to see more favorable conditions – you won’t have to spend quite so much fixing to perfection, you might actually be able to FSBO, and days on market won’t drag into the next millennium.
- Continue to watch for buzz about the bottom, because that’s what consumers are listening to:
- As we know, the media are always at least one tick behind real estate current conditions and tend to play it safe. Remember, we saw this on the down slope when most denied the crash was impending.
- More and more articles are emerging about the recovery, which likely indicates the dawn. We have started seeing headlines about the bottom from credentialed pundits, and statistics that support the “beginning of the end,” so the starting gun is getting ready to go off.
- Be on the lookout for the first markets to firm up. Believe it or not, these are probably extreme collapse areas like Florida, California and Nevada because the markets have overcorrected there. If you aren’t in a position to take advantage of opportunities in these areas, remember that soon other markets will follow and the best profits will be for those who take action at the beginning when prices are still at their lowest.
- Pre-visualize the recovery and develop a concrete investment plan using normal (not abnormally unfavorable) market conditions. What types of property will you be looking for? Map out in detail what purchase price, what condition, what location, and what end result (sell, hold) you will execute.
It’s not that crazy to start thinking aftermath. In fact, it’s critical if you want to be on top of things when the time comes, and it inevitably will.
Posted by Robb Terranova under Real Estate Investing, Retirement Zone, Selling Real Estate |
If you imagine it realistically for a moment, your heirs have immediate financial needs that will likely take precedence over long term investment.
The choir is singing, your beloved family and dear friends are all gathered ‘round, huge cascades of blossoms draping your gleaming, er, final container… Yes, this is how you picture it as you vigilantly prepare your real estate legacy for the next generation to inherit.
Cut to the next scene – the dour executor of your estate, appropriately Dickensian in his starched collar, takes measured pains to manage your assets with the highest professional skill. His centuries old and reputable firm at some point generations from now will ultimately yield top dollar from these long cherished and nurtured fruits of your real estate investing career.
Cue the scratching record sound effect. Hey wake up! You are not living in a financial services commercial! The dourest person in the scene is you because you’re, uh, well not in the best shape.
With few exceptions, everyone else is probably a complex jumble of emotional sorrow at your loss combined with relative apathy toward your life’s work. Try this shocking test – if they didn’t pay much attention to it while you were alive, chances are they’ll be even less interested when you’re dead.
Once everyone is done the worst part of grieving, they will eventually turn their focus to cashing in your bountiful gift to their future, but in most cases not on the timeline or with the dexterity you envision.
Their watchword will in all likelihood be not “care” but “dispatch” because unless you trained a successor carefully, I’m sorry to be the one to inform you that they don’t have the time, the expertise, or the inclination to do it right.
Your heirs are probably a lot younger, crazy busy with their lives, their jobs, their children. They may not yet be preoccupied with financial security and retirement and all other those other wise lessons you learned later in life.
Which means their plans for your goodies probably have more to do with living in the present day than earning for tomorrow. If you imagine it realistically for a moment, your heirs have immediate financial needs that will likely take precedence over long term investment.
Almost nobody wants to manage property they didn’t kill themselves to acquire and cultivate, especially if it involves unplugging, ugh, toilets and collecting rents. Sure they could hire somebody to do all that, but that concept requires a second level of thought about the whole thing that nobody is working on.
They could faintly realize somewhere in the back of their brains that these things may be worth more some day, but right now they have credit card bills, car payments, college tuitions, durable goods to buy, and that bigger house they’ve been wanting (hey – at least it’s a real estate investment!)
Here’s how they’ll do it. (Caution – may be too difficult for some readers!) They need to sell a dead relative’s property, which is unsavory in and of itself, so their haste may even be accelerated.
They will likely hire the first real estate agent they come across, someone with a sign in their neighborhood or someone their co-worker recommended.
Because the agent was chosen randomly, and not qualified as a particularly high performer, odds are the agent will be average. They will list ALL the properties with this one agent, even though the agent may be unfamiliar with the neighborhoods the assets are located in.
The agent probably touted the high end of retail for a sales price when they got the listings to sink the hook, so the properties are probably overpriced.
The minimally attended listings will then sit on the market for 30 days, during which the beneficiaries have been fantasizing about paying their bills, their wide screen TV, cruise vacation, etc.
At the 30 day mark, they will become impatient, and demand action from the agent. The agent will then suggest a slash in price to move the assets quickly. Good idea – they’re sick of thinking about it, sick of waiting, it’s all free money anyway, let’s price to sell!
Voila, contracts materialize one after the other and the spoils are divided. Your lifetime of investing, all your hard work is gone in a flurry of paperwork. A year or so later, your legacy is spent, and in all honesty, probably all but forgotten.
This doesn’t have to happen to you. If you have the ability to envision a real world outcome ahead of time, there are a couple of ways to avoid it.
If you’re lucky enough to have a worthy candidate, teach someone you love to manage your assets to their fullest potential after you’re gone. If not, maybe the best thing to do is to divest the assets yourself on their behalf before you can’t. Don’t let your fantasies of future value cloud your judgment, because it may never be realized.
Consider using your expertise to get the best value out of the assets today, and it will probably be far more than the anemic results of your non-professional heirs. You can then tuck the money into a less hands-on investment vehicle for your heirs that they are more likely to let sit and grow.
Bottom line is, in your mind right now everything will be done the way you dream, but a realistic look at human behavior says it might be closer to your nightmare. An early sober look and smart planning could give your dream the fighting chance it deserves, and everyone will benefit.
Posted by Robb Terranova under Real Estate Investing, Renovation/Building |
Keeping your contractor on track requires tenacity. Here are some tips for getting the best results.
What is the biggest reason a remodel project slows down or stops entirely? Your contractor has other priorities. Here is how you can take control of the problem.
A contractor will always have other priorities and it’s your job to make your project his number one.
The single biggest tool of leverage you have to make your contractor keep you number one on his list is tenacity.
If you don’t keep just one arm’s length away you can breed complacency, and if his phone rings with other pressing issues you may be on the losing end when competing for his time.
You may not even be aware this is happening on your project. If the contractor leaves the job for other work, he likes to make it look innocent enough at first. Usually he will say that he must go, but it will only be for a day then he will be right back.
You can’t avoid this scenario entirely, and there will be times when the contractor is going to go elsewhere. You cannot stop him from going, but it is your job to mitigate the lost time.
Diligently stay in touch with phone calls asking if he is still on track to returning back to work. If he suggests anything that drastically alters the original plan start “crying the blues”.
Start to tell him you understand how sometimes emergencies do come up elsewhere. Then remind him that you depended on him to stay committed to this job until complete.
Always tell him you are very, very happy with the work he has done to this point, but now you’re very concerned about your project and its sensitive deadline may suffer because he has chosen to leave your site for another.
You can say something like, “Please get your work done as quickly as possible so you can return to our project”. Then add, “I only have a couple of days that I can spare you away”.
What you are doing is setting the table for the next level of discipline. If he isn’t back and working within the renegotiated time then you must take the next step.
Call him to tell him that you regrettably must consider replacing him with another contractor. Tell him how much you would hate that. Tell him how happy you were with his work, but he has now put you in a very awkward position that you must rectify. Ask him firmly but nicely to return immediately.
If he doesn’t respond, you need to cut your losses and replace this guy. You gave him numerous decision points and he still continued to choose elsewhere. He can’t say you just woke up one morning and without any warning cut him out of the deal. That’s important.
If you have to replace your contractor, setting the tone with your new guy at the start is crucial to momentum later in the project. Start with preliminary phone calls to give momentum a chance to warm up and don’t relax until a couple of days of work have been done.
Call the contractor a few days before the scheduled start, always the day before the start and usually the morning of the start to confirm he is on his way to meet you. It’s hard to overwork the starting momentum of a job and its importance is under rated. The message you send at this point to the contractor will help you throughout your work with him.
It’s your job to resend the same message throughout the course of the project that you are here, you are paying attention and you have a clear objective of your business together.
For more information, my book “How to Take Control of Your Contractor Nightmare and Finish Your Remodeling Project FAST!” is packed full of valuable insider tips that will give you instant insight into how a contractor operates so you can get the performance and results of a professional builder.
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