Ahh, exit strategies... The lingua franca of real estate investing programs.... Retail, wholesale, rentals, hmmm, are these DVDs or properties? Seems nowadays the only thing being taught is wholesaling, more accurately, (contract) assignments. No wonder since many people trying to make their first million in two weeks have little or no money and poor credit. Never fear, that's the formula to success in real estate, right? No? That's what I keep hearing on the radio!
Well, in the good old days, you know, like 2006, buying to hold was considered a mainstay strategy for investing with positive cashflows promising eternal bliss as properties are paid off by friendly tenants as they appreciate and you retire to your ranch in Arizona fat and happy after selling your profitable portfolio to some johnny-come-lately in fifteen years. But something happened on the road to 2008. Properties, particularly in the inner cities (where most rentals are), stopped appreciating, and well, we all know that the refi well has gone virtually dry (more on that stupidity in a near future post). But I'm not convinced that those two things are what has conspired to cool the quest for a portfolio of passive-income producing rental properties. No, I think the quest for the gold rush, just like with everything else that comes down the pike, has derailed the real estate investing crowd to go for the gusto, the immediate gratification, not of flips even, but of wholesaling. Hmm, you mean all I have to do is find a property, borrow (inside joke) someone's proof of funds, find some other schmuck, er, investor, to dump, I mean, sell the contract to and I collect a fee? Wow, what could be easier?
More Tuesday....
Sunday, March 30, 2008
Saturday, March 29, 2008
Valuating the Resale of Your Flip
Everyone wants the most they can get from the sale of any property, but when selling a renovation, rehab or other investment, consideration has to be given to the fact that there are carrying costs almost in every case, regardless of how you got into the property. The mantra of flippers is "get in and get out" (as quickly as possible). In consideration of this goal you should look not to maximize the price to the highest relevent comparable you or your Realtor can find, but to price it realistically for current market conditions, and probably one or two points below that point. Make your property stand out (in more ways than one) and it will have a much better chance of selling faster, and perhaps, under the right conditions, it will draw enough interest to get a mini bidding war going.
Realistic expectations.... Not always a natural but they should be your friend as a real estate investor!
Realistic expectations.... Not always a natural but they should be your friend as a real estate investor!
Friday, March 28, 2008
Not EVERYONE Thinks The World is Coming to an End
According to the National Association of Realtors (NAR), home sales were up nationally 2.9% in February compared to January, while still down more than 25% from a year earlier. BUT, what most fail to point out is that 2007 was the fourth best year ever. Everything is relative.
In our area sales also rebounded in February in the three suburban counties and prices have held steady for the last 12 months, bucking national trends (those national trends largely influenced by what is going on in Florida, California, Las Vegas, and Michigan).
And this brings me to my point. There's an age old adage in real estate that goes, "all real estate is local" yet hardly anyone takes a minute to really point our, or actually figure out, that when they talk about the foreclosures and price declines and all the other bad economic news attributed to real estate, much of it is isolated to those four areas of the country, yet as it is repeated over and over and over again in the press, on TV and anywhere else that this kind of bad news can be sensationalized, it becomes a sort of self-fulfilling prophecy of sorts. Over the last 5-8 years what has kept the economy going has largely been consumer spending. As this negative news, not properly digested, has been regurgitated ad nauseum, it has done a LOT of damage to consumer confidence which is now at a very low level and is being reflected in many economic indicators.
The fact is that our area will see very little impact from the sub-prime fiasco and its fallout, yet consumers are being put into a state of frenzy, really for no good reason. Construction, even flips, are slowing down because investors are becoming fearful that they won't be able to sell them. For some strange reason there are less renters available for investors I'm also being told by property managers.
We live in a very artificial society. When the likes of Lenny Dykstra can go on financial TV and talk about a stock and have it triple in the matter of weeks, there's something really wrong with the way our markets work. With the world having shrunken so over the last 50 years and news being available in every conceivable medium as it happens, I've gotten to the point where I don't want to know all the bad things going on. What's the point? It is what it is. It doesn't affect my life unless I let it. People are letting it and without some overriding positive influence to help get us out of this spiral, well, maybe my mother was right....
In our area sales also rebounded in February in the three suburban counties and prices have held steady for the last 12 months, bucking national trends (those national trends largely influenced by what is going on in Florida, California, Las Vegas, and Michigan).
And this brings me to my point. There's an age old adage in real estate that goes, "all real estate is local" yet hardly anyone takes a minute to really point our, or actually figure out, that when they talk about the foreclosures and price declines and all the other bad economic news attributed to real estate, much of it is isolated to those four areas of the country, yet as it is repeated over and over and over again in the press, on TV and anywhere else that this kind of bad news can be sensationalized, it becomes a sort of self-fulfilling prophecy of sorts. Over the last 5-8 years what has kept the economy going has largely been consumer spending. As this negative news, not properly digested, has been regurgitated ad nauseum, it has done a LOT of damage to consumer confidence which is now at a very low level and is being reflected in many economic indicators.
The fact is that our area will see very little impact from the sub-prime fiasco and its fallout, yet consumers are being put into a state of frenzy, really for no good reason. Construction, even flips, are slowing down because investors are becoming fearful that they won't be able to sell them. For some strange reason there are less renters available for investors I'm also being told by property managers.
We live in a very artificial society. When the likes of Lenny Dykstra can go on financial TV and talk about a stock and have it triple in the matter of weeks, there's something really wrong with the way our markets work. With the world having shrunken so over the last 50 years and news being available in every conceivable medium as it happens, I've gotten to the point where I don't want to know all the bad things going on. What's the point? It is what it is. It doesn't affect my life unless I let it. People are letting it and without some overriding positive influence to help get us out of this spiral, well, maybe my mother was right....
Wednesday, March 26, 2008
Down the Road We Go - Wilmington DE
First reality lesson... If you're gonna rip it up, it doesn't need to be nice to start with.
We're in the middle of a flip in the city of Wilmington, actually N. Wilmington if there's actually such a place. It was a really nice twin then owned by the estate of an older woman who had recently died. We got a pretty good deal paying $87,500 for it after it had twice been under contract for $120,000 only to have both deals fall through because of financing issues. The house comp'd to around $120,000 in the condition we bought it in and to around $175,000 in rehabbed condition. Well, not really rehabbed as the house really didn't need rehabbing. Let's say in renovated condition.
The big anticipated problem with the house wasn't it's condition but the layout of the kitchen. Actually, of the kitchens! See, the original kitchen was about 8x12 and at this point contained a huge side-by-side refrigerator and the very original cabinets which were mounted AT the ceiling, which is 9'. Mind you these cabinets were probably 24" tall so you can only imagine how anyone actually used them! There was an addition onto the back of the house that was the "new" kitchen. This new kitchen was also about 8x15 and was layed out in a galley configuration. Between these two kitchens was a 16" thick wall, the original rear of the house.
What were our options? Tear out this structural wall and make one big kitchen? Work with what we had? We decided to remove a wall that separated the original kitchen and the dining area and extend the kitchen a couple of feet out also closing off another entry to the kitchen from the foyer allowing for a full complement of base and wall cabinets and a decent expanse of countertop. The "new" kitchen would be reconfigured as a powder room and laundry.
We decided we would gut the main bathroom, correct some minor ductwork shortcomings, replace all lighting fixtures and windows and replace the siding on the rear addition. The initial budget was around $35,000.
Soon we discovered that the ductwork needed to be almost completely replaced, the furnace had a hole in the heat exchanger and so needed to be replaced, the water heater was much older than it had appeared and, because we had decided that extending the kitchen and tiling the floor wouldn't look quite right, we decided to replace the hardwood on the first floor to unify the look and not accentuate the differences in the work spaces. Soon the budget had ballooned to over $50,000 with the assistance of the local L&I boys who seemed to make sport of throwing red flags in our contractor's faces.
Our GC has been fantastic. We can't say enough about the quality of their work, about their attention to detail and about how they have been stand up. Fact is that the electrician's invoice came in DOUBLE the combined estimate of the plumbing and electric! And yet there have been no requests for additional money from the GC, as there shouldn't. But I can tell you in many cases they'd have bitched and moaned or walked away. Not these guys. And this was the least of their problems.
Two days ago we completed the 9th rough inspection, many of them for bogus items, and finally got approval to close the walls. We're now more than six weeks over schedule almost entirely due to delays and flags from our pals at Wilmington's trusty L&I group. But hey, that's what they get paid to do right?
The house is gonna look fantastic and I'll be sure to post some pictures on the blog when it is completed hopefully in the next 2-3 weeks. Now, I'm hoping to sell it for $189,000- $195,000 because it's really gonna be nice when it's done!
But back to the lesson learned. The big lesson learned from this flip is that we should have bought a total shell. I started out by saying this twin was in great condition. Fact is our GC basically gutted almost the entire house in order to get everything right. And a lot, most of it is at his expense! But all the plumbing, electric, much of the walls and ceilings, the floors, pretty much the entire interior has been replaced! Had we bought a more rundown house, we could have spent almost the same amount but gotten the property for considerably less and ended up with the same product. The key here is the conscientiousness and quality workmanship of the GC, and there aren't a hole lot like these guys.But now we know, and the next projects we give them are likely to be better value deals on properties in worse condition but in good neighborhoods. Let'em tear it apart, they will anyway!
We're in the middle of a flip in the city of Wilmington, actually N. Wilmington if there's actually such a place. It was a really nice twin then owned by the estate of an older woman who had recently died. We got a pretty good deal paying $87,500 for it after it had twice been under contract for $120,000 only to have both deals fall through because of financing issues. The house comp'd to around $120,000 in the condition we bought it in and to around $175,000 in rehabbed condition. Well, not really rehabbed as the house really didn't need rehabbing. Let's say in renovated condition.
The big anticipated problem with the house wasn't it's condition but the layout of the kitchen. Actually, of the kitchens! See, the original kitchen was about 8x12 and at this point contained a huge side-by-side refrigerator and the very original cabinets which were mounted AT the ceiling, which is 9'. Mind you these cabinets were probably 24" tall so you can only imagine how anyone actually used them! There was an addition onto the back of the house that was the "new" kitchen. This new kitchen was also about 8x15 and was layed out in a galley configuration. Between these two kitchens was a 16" thick wall, the original rear of the house.
What were our options? Tear out this structural wall and make one big kitchen? Work with what we had? We decided to remove a wall that separated the original kitchen and the dining area and extend the kitchen a couple of feet out also closing off another entry to the kitchen from the foyer allowing for a full complement of base and wall cabinets and a decent expanse of countertop. The "new" kitchen would be reconfigured as a powder room and laundry.
We decided we would gut the main bathroom, correct some minor ductwork shortcomings, replace all lighting fixtures and windows and replace the siding on the rear addition. The initial budget was around $35,000.
Soon we discovered that the ductwork needed to be almost completely replaced, the furnace had a hole in the heat exchanger and so needed to be replaced, the water heater was much older than it had appeared and, because we had decided that extending the kitchen and tiling the floor wouldn't look quite right, we decided to replace the hardwood on the first floor to unify the look and not accentuate the differences in the work spaces. Soon the budget had ballooned to over $50,000 with the assistance of the local L&I boys who seemed to make sport of throwing red flags in our contractor's faces.
Our GC has been fantastic. We can't say enough about the quality of their work, about their attention to detail and about how they have been stand up. Fact is that the electrician's invoice came in DOUBLE the combined estimate of the plumbing and electric! And yet there have been no requests for additional money from the GC, as there shouldn't. But I can tell you in many cases they'd have bitched and moaned or walked away. Not these guys. And this was the least of their problems.
Two days ago we completed the 9th rough inspection, many of them for bogus items, and finally got approval to close the walls. We're now more than six weeks over schedule almost entirely due to delays and flags from our pals at Wilmington's trusty L&I group. But hey, that's what they get paid to do right?
The house is gonna look fantastic and I'll be sure to post some pictures on the blog when it is completed hopefully in the next 2-3 weeks. Now, I'm hoping to sell it for $189,000- $195,000 because it's really gonna be nice when it's done!
But back to the lesson learned. The big lesson learned from this flip is that we should have bought a total shell. I started out by saying this twin was in great condition. Fact is our GC basically gutted almost the entire house in order to get everything right. And a lot, most of it is at his expense! But all the plumbing, electric, much of the walls and ceilings, the floors, pretty much the entire interior has been replaced! Had we bought a more rundown house, we could have spent almost the same amount but gotten the property for considerably less and ended up with the same product. The key here is the conscientiousness and quality workmanship of the GC, and there aren't a hole lot like these guys.But now we know, and the next projects we give them are likely to be better value deals on properties in worse condition but in good neighborhoods. Let'em tear it apart, they will anyway!
The Beginning
There are myriad blogs about real estate and real estate investing. But many if not most of them are designed for the blogger to make money or promote something like investor training, etc. This one is aimed at providing you, the fledgling investor, or the wanna-be investor, or even the semi-seasoned investor real-life articles based on real life experiences, industry trends, problems encountered completing flips or rental property rehabs, financing issues, conversation about home design, heating systems, contractors, hardware stores, you name it, we'll go there. The plan is to invite in other people involved with the investment community from investors, to mortgage brokers/bankers, real estate attorneys, accountants, Realtors, mentors, etc. so that the content is diverse, concise and to the point.
Why now? The impetus for this blog are many. One is the fact that the industry for real estate investor training and marketing services has virtually exploded and many, many people are being sold a bill of goods...and they're buying. Have you heard that you can make a living investing by working one hour a week or one hour a day? Have you heard how "easy" it is to buy short sales or foreclosures or sheriff's sales? Of course it's "easy".... And you need no money, no credit and as they used to say in Philly, if you believe all of that I've got some swampland in Essington you can have cheap too. (Actually that swampland is pretty valuable these days....)
This blog will be about the REAL world of investing. The realities of the credit crunch and how it's affecting small investors. The realities of dealing with municipalities and restrictive policies that can cost you a lot of time and money getting rentals rehabbed or flips renovated. The realities of dealing with Realtors and finding Realtors who "get" investing. The realities of formularized offers. The realities of the foreclosure and short sale markets. The realities of working Sheriff's sales. The realities of the current market, at whatever kind of market we're in at that point! Yes, there are a ton of realities involved in investing in real estate. How many of you have watched Flip That House, Flip This House, Flipped Out, or one of any number of other reality real estate shows that document amateur and professional flippers alike? How many show the reality of the deal? Some do. Flip That House tries to infuse the show with the reality of the local market that the featured property is in by reporting the status of the sale as late as they possibly can. Many times the home has not sold. In some cases the flipper has opted to rent the house or even move in. Those are realities, but there are many they don't have the time to show like the funding, the carrying cost runups due to delays, whether by local L&I bureaucracy or from inexperience or from additional unanticipated issues with the property. The list goes on and on and that's the purpose of this blog. To paint a realistic picture and prepare you for what the reality out there is, not to scare you off. There is money to be made, still, regardless of the market, if you buy right, do things the "right" way and sell with appropriate expectations and guidance.
Why now? The impetus for this blog are many. One is the fact that the industry for real estate investor training and marketing services has virtually exploded and many, many people are being sold a bill of goods...and they're buying. Have you heard that you can make a living investing by working one hour a week or one hour a day? Have you heard how "easy" it is to buy short sales or foreclosures or sheriff's sales? Of course it's "easy".... And you need no money, no credit and as they used to say in Philly, if you believe all of that I've got some swampland in Essington you can have cheap too. (Actually that swampland is pretty valuable these days....)
This blog will be about the REAL world of investing. The realities of the credit crunch and how it's affecting small investors. The realities of dealing with municipalities and restrictive policies that can cost you a lot of time and money getting rentals rehabbed or flips renovated. The realities of dealing with Realtors and finding Realtors who "get" investing. The realities of formularized offers. The realities of the foreclosure and short sale markets. The realities of working Sheriff's sales. The realities of the current market, at whatever kind of market we're in at that point! Yes, there are a ton of realities involved in investing in real estate. How many of you have watched Flip That House, Flip This House, Flipped Out, or one of any number of other reality real estate shows that document amateur and professional flippers alike? How many show the reality of the deal? Some do. Flip That House tries to infuse the show with the reality of the local market that the featured property is in by reporting the status of the sale as late as they possibly can. Many times the home has not sold. In some cases the flipper has opted to rent the house or even move in. Those are realities, but there are many they don't have the time to show like the funding, the carrying cost runups due to delays, whether by local L&I bureaucracy or from inexperience or from additional unanticipated issues with the property. The list goes on and on and that's the purpose of this blog. To paint a realistic picture and prepare you for what the reality out there is, not to scare you off. There is money to be made, still, regardless of the market, if you buy right, do things the "right" way and sell with appropriate expectations and guidance.
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