I'm telling you... The GARAGE is the "new Media Room"

Take a look...

The Chicago Tribune posted a story today about garages. Here are a couple of excerpts:

Home builders, remodelers and specialized garage-organization companies see that problem as an opportunity to sell you a solution. They have plenty, including more square footage and garage-themed cabinetry. You can even find a fridge specially built for the garage, so you can always have a cold drink at hand when you're working on your wheels.

Around some homes these days, the amount of space devoted to the garage is big, indeed. Three-car garages were included in 20 percent of new homes built in 2005, according to the National Association of Home Builders. Another 64 percent of new homes had two-car garages.

and

The garage on display in a Stanley Martin model home at Coles Run Manor in Manassas, Va., is packed with nearly as many fancy upgrades as the kitchen. Their "tricked out garage" option includes raised-diamond pattern rubber-like floor protectors; a work bench; storage cabinets; tool racks; slatted wall coverings that accommodate a variety of hooks and baskets for storage; ceiling-mounted bicycle hoists; and even a 20-inch, wall-mounted flat-screen TV. Buyers can choose elements a la carte or sign up for the full slate of options for $19,500.

finally

And who knew there even was such a thing as a refrigerator specially designed for the garage? Gladiator makes the Chillerator Garage Refrigerator, which is Energy Star rated for efficiency and is designed to handle the wide variations in temperature and humidity usually found in a garage.

The Freezerator, specially designed for garage use, allows you to turn the temperature in the freezer compartment down to ordinary refrigerator temperatures, to better accommodate your stockpile of beverages. Both come in an oh-so-manly diamond-plate metal finish.

See. I'm not crazy. I'm just ahead of the curve. There are a lot of us out there that appreciate a nice garage. What goes into a great space in the garage is often something that escapes the average real estate agent. Power consumption baffles them (what are those funny looking plugs for?). While a work triangle in the kitchen is pretty normal knowledge, the same type of work patterns in the garage only appear to people that, ta da... work in the garage.

Just like equestrian properties, or golf properties, or waterfront properties are most often best represented by those that understand them, so are garage properties.

Enjoy, and get out there and spin a wrench. It's GREAT therapy to work for a couple of hours and see something accomplished when it's over.

Do you have a Unique Selling Proposition?

I touched on this in another thread, but I think a lot of people thought it was actually about cars, so I am going to go into a little more depth, and be a little less cryptic. But, the main point of the thread was...

They are saying that they specialize in EVERYTHING. If one specializes in everything, they really mean that they specialize in nothing. I mean, really. How can you specialize in everything?

Now, let's tie this back to real estate.

Have you ever seen an ad that said "I specialize in Buyers and Sellers"? I guess that means that they will deal with anyone but lookers... But, isn't that what everyone else does? Are you truly a specialist if you think you do EVERYTHING? The short answer is NO. the long answer is No, you are a generalist.

Why not just say that you generalize in everything?

So, for agents, in order to separate you from the crowd, you have to separate yourself from the crowd. Was that repetitive? Take a look at the little house books (Hobbs/Herder calls them little house/little head books). Look at all of the agent pages. Almost everyone is using the same template. Almost everyone says the same thing. To look at one of those books, you would think that EVERY AGENT IN THE MARKET is #1 for integrity, service, and production. For the vast majority of agents, they put out nothing that makes them any different than any other agent. And, 20% of the agents out there do 80% of the deals. So, if what you offer is no different than what the next person offers, you are a commodity. There is only one way commodities can compete, and that is by being cheap. If you think all gasolines are the same, will you buy the more expensive one, or will you go across the street where it is ten cents cheaper? If you think your car runs better on Brand B, will you still buy it when it costs a little more? If the Kraft Mac & Cheese tastes the same as the Kroger store brand, will you pay 50% more for it? But, if you family says that the Kraft is better, you'll put that in the cart.

But, we tell prospects the same thing that all of our competitors say, and then we wonder why they put the cheaper agent, or the one that happens to be standing next to the Mac & Cheese, in the cart and list their home or buy their home with them.

But, we tell prospects the same thing that all of our competitors say, and then we wonder why they put the cheaper agent, or the one that happens to be standing next to the Mac & Cheese, in the cart and list their home or buy their home with them. Yes, I said it again on purpose.

Now, the next phase of this little game is this.

Why should someone buy the house that you just listed? If it is just like the 6 other houses just listed in the subdivision, the only way to compete is with price. If you do GREAT marketing to drive buyers to finding it, as soon as they visit, they will see that there are 6 other houses that look just the same. I guess you might be able to creatively route them through the neighborhood so that they don't see anything that is cheaper.

Instead, maybe it would be better to make the house different from the others. Proper staging may make it prettier. (yes, there were three different Atlanta stagers linked in the last sentence...) Having a kitchen that is just a little more modern and stylish or usable may set it apart. Or (my favorite) having a garage that is well laid out for a car person, with epoxied floor, and great cabinetry will also separate this house from the others in the subdivision.

BTW, if you are a builder in the Atlanta area, and want to set your small upscale community apart, contact me. I have a GREAT idea for you.

As always, I'd love to see your comments. Thank you so much.

Real Estate Investing 201

Digging a little deeper into Flipping

In Real Estate Investing 101, Part I, we covered buying a house to resell for a short term profit. In this lesson, we’re going to delve a little deeper into flipping, run a scenario, and examine ways to maximize profit, while minimizing risk and making it happen fast.

Finding an appropriate property

Obviously the first ingredient in a profitable flip is the property. Despite what one may see on TV, it takes a little while to find good candidates. The various types of properties that may make good flip candidates are foreclosures or REO (bank owned properties), fixer-uppers, older homes that need updating, and ugly properties that are otherwise in good shape. Cost is obviously important, but condition is also very important. Remember, not only will there be an expense for the repair, but there is also a cost to carry the property while the repairs are being done. For example, if Property A needs $20k in rehab, can be completed in 8 weeks, and will cost $2k/mo. to carry, it may be more attractive at $176k than Property B, which needs $50k in rehab, will require 16 weeks at $1500/mo. and is priced at $150k. This assumes that they would both be able to fetch the same price at the end of their renovation.

Homes may be in almost any price range. Condos may be purchased for as little as $40k, but sometimes there are opportunities with homes prices at $1M or more. In fact, the pricier homes have some advantages in some markets. Let’s cover a few price levels:

Under $100k – Pro- Cheap, easier to carry if it doesn’t sell as fast, possibly a larger market to sell into after completion. Con- Lots of competition bidding up the prices, requires tight control of expenses to be profitable, lots of market competition.

$200k to $400k – Pro- Fewer competitors bidding up prices, often a little larger pool of properties to pick from, usually higher margins. Con- Requires more capital, appropriate level of fixtures and finishes more important.

Over $700k – Pro- Often more generous margins, little competition, fewer buyers that will do work themselves, more fun to make (home theaters, high-end kitchens, etc.). Con- Bring your checkbook, higher level of capital needed, wrong finishes and fixtures will kill chances of a sale, tastes may be fickle.

Over course, you may have noticed that I left generous gaps. These are guidelines, and in different markets, the actual prices will need to be adjusted.

Putting together the numbers

I have an Excel spreadsheet that I will use to examine the transaction. It is available here. While it isn’t fancy, it does cover the information that we need in order to calculate the cost of the flip, and figure out what needs to happen in order to make a profit. There is nothing worse than getting into the flip, and finding out that you forgot something important, and you aren’t going to make money. Unlike a TV show, it is not very often that you can just raise your price in order to get your money back out of the deal.

When filling out the spreadsheet, the light gray areas are for users to input information. The light green areas have calculated values. Remember, the more accurate the input information, the more accurate your profit analysis will be.

The toughest and most important part is getting the right cost estimates for the renovations. The natural inclination is for these to be under-estimated. Many first time flippers plan on doing all or most of the work themselves. This isn’t a great long-term strategy, but there are advantages. The primary advantage is that the flipper increases the profit margin. However, the big danger is that flippers often under-value their own labor. Using painting as an example, painting the interior of a large home may require 20 gallons of paint. A professional painter may bid this job at $4000. The cost of paint would be approximately $600. A job like this might take 60 person/hours. Entering $600 for the cost of repainting the house does not place any value on the time involved in labor. So, even if the person flipping the property is planning on doing the work, they need to break out the labor for these tasks. More than one person flipping a property has spent hundreds of hours only to find that they $/hr were terribly low.

Putting together a team

A good flipper needs a good team. This is even more important if one plans to have more than one or two properties active at any given time. But, these are the people one needs to have available:

Real Estate Agent- A good agent will know what is on the market, and should be able to quickly determine what a good ARV (After Repair Value) for a given property will be. This agent will also know how to price the property to maximize return. That doesn’t always mean maximum price, those closing costs can add up, and if one’s capital is tied up, one can’t move to the next project.

Inspector- Spending a few hundred dollars for a good inspection is money well spent. Missing a failing HVAC system or a roof issue could cost thousands. Knowing that a particular siding or electrical has shown itself to be unreliable can also be very valuable. If one can find an inspector that will give good cost estimates of repairs and upgrades that need to be performed, one may be able to cut down on the number of contractors that need to be consulted prior to buying a property.

Contractors- These contacts can make or break a flip. If the work is good, fast, and appropriately priced it is well worth paying to have it done. Saving a few hundred dollars and spending a few thousand in carrying costs while you wait for a contractor that is behind schedule is not a good trade. Saving a few thousand, and then having to spend money to fix what wasn’t done well is also not a good trade… especially when you have to carry the property that much longer to get everything done.

Project Coordinator- If more than a couple of projects are running, having a person to help keep everything on track is vital. Even the best contractors will have people that need someone to make sure they are there on time, and doing the right work. Even the best flipper needs a second opinion, and someone to run errands or get the right materials.

Mortgage or Commercial Loan Broker- Carrying costs are another make or break expense. Having the capital to complete the project is a requirement. Being able to continually finance projects is also required. Most mortgage lenders (not brokers) don’t want to loan money to flippers without front loading. They make money by either carrying the loan, or charging up front fees. Since the goal is to NOT carry the property, they need to front load the fees. A good loan source can DRAMATICALLY lower your costs.

Selling strategies

In order to lower carrying costs, as well recapture capital for the next project, selling the property quickly is important. However, giving it away reduces the profit margin. There are a few things that can be done to help accomplish these conflicting goals.

Hire a good agent. They are part of the team. A good agent will help get the right exposure for the property, as well as make recommendations that will make the house more marketable. They will also have access to people that are in their team that will make the sale go more smoothly.

Stage the property. A vacant house makes it harder for buyers to mentally move in. A few rooms that are well staged will really increase the value in the minds of buyers, so it is generally well worth the cost. This is especially true for higher end homes, but may be the thing that tips the balance for ANY property.

Price it appropriately. Many experienced flippers will price a property 3%-5% below market in order to make it sell faster. This reduces “opportunity costs” and also lowers risk. Opportunity costs are the deals that one can’t pursue because their capital is tied up elsewhere. There is no risk after the property is sold.

Research. Plan. Prepare. Remember the old adage that it takes money to make money. This holds true in flipping real estate as well. But, it is vital that the money be appropriately targeted, well managed, and strictly controlled. This doesn’t mean that it shouldn’t be spent, but that it should be spent on the right things, and taking shortcuts may not be the best idea.

HEY MEDIA... Are you listening? ALL Real Estate is LOCAL!!!

How many times do we have to hear that the housing market is doing one thing... and that must mean that the whole market is doing the same thing?

When the price of a barrel of oil goes up, it is a singular commodity moving. While there are different grades of oil (sweet light crude, heavy crude, rough crude, etc.) they are interconnected. If one moves, they all move because their value is interconnected.

When prices move up or down in GA, there is little correlation to prices in Maine. They aren't interconnected. There may be a few instances when they can be driven by the same forces (the Sub-Prime Meltdown.. SPM, is an example). If there is MASS unemployment nationwide, that would affect multiple markets, but even unemployment is largely regional. Even the SPM has an uneven effect. It will affect markets that have had more "heat" more than stable markets. In fact, we are seeing that it is mostly those markets that are leading the foreclosures... although Atlanta didn't have the big price run-ups, it snuck in there too.

The point is that if there is a shortage of $250k homes in Atlanta, an over supply in Charlotte can't be used to offset it. If there are too many $1m homes in Lansing, MI they can't be shipped to Ann Arbor to ease the problem. Even when the job market causes some local imbalance in the supply and demand for homes, that doesn't mean Birmingham can ship their unemployed to Marietta (GA or CA).

It would simply be responsible when mentioning that real estate is moving up or down to say that some sectors are doing the opposite. Many of the same business programs that go in depth with stock reports, and go out of the way to mention that "there is a flight from tech to blue chips" or that "transports are taking a beating while oil is going through the roof" fail to mention that some areas and some price ranges are healthier or unhealthier than others.

Remember, real estate being off 3% on a national average is VERY DIFFERENT than gasoline being off 3% on a national average. The gasoline might vary a little from market to market, but up is up, and down is down. In real estate, that same 3% average might encompass one market being up 10% and another being down 18%.

Just remember that when dealing with real estate, as the FTC required many years ago, "Your Mileage May Vary." YMMV.

Does this mean I'm actually Green?!?

I have been reading a bit about green construction, and green living, and green (yada, yada, yada fading away...)

Let's see. I changed my lifestyle in part so that I wouldn't have to drive an hour to work every day. In doing so, I cut the number of miles I drive by quite a bit. I also cut dramatically the amount of time I spend sitting around with the engine running.

I've always felt that 78* in the summer for the A/C, and 68* for the heat in the winter was appropriate. But, is because I'm cheap, and it just seems that when I am out in the 100*/100% humidity Atlanta summers, coming in to 78* feels just as good... and it doesn't slap quite as hard when I have to go back out.

I turn off lights when they aren't being used.

I keep my tires properly inflated.

I insulate. I caulk. I don't water... ok, I rarely water the lawn. My truck is usually not THAT clean. I don't over-mow my grass.

Of course, on the flip side... I Jeep.

But, then one could argue that it is the ultimate recycling project.

But, back to the good side, I've always recycled. In fact, I practice what s called pre-cycling. When buying things, we look for items that will be easily recyclable, or can have a second life in some other way. As my son would say (quoting Builder Bob), "Reduce, Reuse, Recycle."

Maybe it's time to bury Dual Agency

First, let me say that I work for a brokerage that does NOT allow dual agency, but does allow designated agency. Dual agency is when an agent have contracts for representation with both the buyer and seller. In other words, the agent is bound by fiduciary responsibility to represent the needs of both the buyer and seller above all other.

Second, let me say that I work in a state which does allow dual agency, if it is disclosed on the contract to all parties.

But, as I look at the landscape, I see something I don't like. I don't like the idea of dual agency. And, further, I think it is time that the NAR step up and stop the practice among its members. I don't want to see the government take the lead, and I don't want to see any law passed. I want OUR trade organization to voluntarily stop this practice, and then tell the world that they have done it, and why.

As a person with of the libertarian persuasion, I don't like to see the government constantly stepping in to the relationship between service providers and the clients/customers. In fact, I think that licensing requirements for real estate agents should be relaxed or eliminated... but that is for another blog post (please save the comments on licensing for the post I'm sure will follow soon).

But, as a REALTOR, which promotes the ethics of its members, I can't see a way to reconcile dual agency with fiduciary responsibility. How can we represent two opposing parties and keep both of their best interests at the forefront? Obviously, we can work towards a win/win situation, and personally I try to do that anyway. But, when push comes to shove, and when a problem arises, what is good for one party will often be bad for the other. If there is a financing problem, and the buyer needs more time, but the seller may be better served to move on, or there is an inspection problem, and the buyer should move on, but the seller needs THIS buyer, the agent WILL be in a position that requires them to pick which party they are going to truly represent.

Obviously, we go through many transactions that don't have these issues. In fact, the majority don't have issues. But, the point is that I seldom get a memo at the beginning of a deal saying that I am entering a troublesome situation. Usually we only know we have a problem when we are in the midst of stepping in it. At that point, if we are "representing" both parties, we already have a problem. What does one do then? Pick a side and call another agent in to help? But, the original agent already knows more than they should about the other party. Not a good solution.

The bottom line is that if we, as REALTORS, are to truly serve our clients needs above our own, we need to begin by not allowing dual agency among our ranks. Then we need to spread the word that REALTORS are leading the charge for ethics in real estate transactions.

Walk the talk.

I look forward to your ratings and comments.

We specialize in American, Asian and European Cars and Trucks

I've seen several shops with that very "slogan." But, what does it mean?

Nothing.

It doesn't mean a thing. Aside from cars and trucks made in Asia, Europe and America, what are there. I suppose there could be some cars made in Africa (ok, I just checked, and aside from cars that are also manufactured in other countries {Toyotas for example} there are VERY few made there... but Superformance is a VERY cool company) but not in a high enough quantity to be of issue here in Atlanta. There isn't anything happening in Antarctica... or Greenland... and not many Australian cars come here.

Back to the point.

They are saying that they specialize in EVERYTHING. If one specializes in everything, they really mean that they specialize in nothing. I mean, really. How can you specialize in everything?

Now, let's tie this back to real estate.

Have you ever seen an ad that said "I specialize in Buyers and Sellers"? I guess that means that they will deal with anyone but lookers... But, isn't that what everyone else does? Are you truly a specialist if you think you do EVERYTHING? The short answer is NO. the long answer is No, you are a generalist.

Why not just say that you generalize in everything?

Maybe we should try a little truth in advertising. Sam's Club here in GA had to change their name. They had called it Sam's Wholesale Club, but they sold to the public (that would be the definition of retail, BTW). Even though they argued that they only sold to members, it was determined that since they were selling primarily and by a wide margin to non-resellers, they were a retail outlet, and not a wholesaler.

I think that people who "specialize in everything" should be held to the same standard.

The "Dirty Little Secret" that FSBO companies won't tell you!

I keep seeing and hearing about "dirty little secrets" that real estate agents won't tell their clients. Most of them turn out to be pretty stupid points. However, today while going through my morning routine (dead-heading, so my brain needed something to do) I thought of the dirty little secret that FSBO companies don't tell their customers. We all know what it is, but many of us just might have never thought of it this way.

They don't care if you sell your house using their service.

That's it. It doesn't affect their business plan if you sell or don't sell your house through them. They only care if you list your house through them. Their business model is only dependent on you paying $499 (or whatever amount) upfront, and then going on your merry little way. They need as many people as possible to pay the $499 and go on their merry little way as possible.

Sure, they need somebody to actually find a buyer through their service occasionally, but as long as they have enough sales for a few testimonials, they'll be OK. And, they don't care if you sell in 6 days, 6 weeks or 6 months. In fact, some of the companies would prefer that you not sell right away, as they'd love to get another $499 out of you to list again.

Let's compare that to a traditional full-service, commission based real estate agent. No sale = no money. That's right, I don't get paid if you don't sell your house. Let me say it again, I don't get paid if you don't sell your house. I talk with you about pricing, we prepare a marketing plan, and we market your house. After we find a buyer, we help you negotiate the sale, and then we make sure that the buyer follows through. We also make sure that you (the seller) don't run afoul of any rules, or mistakenly breach the contract as we move from contract to closing. We are there to protect you, and help you. We are there to make sure that everything runs smoothly.

Where is the FSBO marketing company? They cashed your check, and they are hoping that you don't call, because it takes time away from getting $499 from someone else.

Please don't forget to rate this post. Thanks.

What is going to happen with Interest Rates?

OK, the water is chest deep now. I started wading in here, and I just don't know when to stop.

So, what do I see happening with interest rates? Overall, I see them going down. But, I think they'll go up first. Was that vague enough that I can claim victory no matter what?

First, the case for rate rising. In the short term, I see rates going up a bit. Not a lot, but somewhat. We won't even get close to the credit card looking rates that Jimmy Carter left the mortgage market with, but rather people will think that 7%, or maybe even 8% was a deal. With the meltdown of the sub-prime market, and the looming foreclosure crisis, the expenses that lenders have are going to go up. In order to recapture those expenses, I see the rates going up a between 1.5 and 2 points. But then, the rest of the market is going to catch up.

Now, the case for rates falling. After that short term bump, rates will need to drop. Oddly, the SPM (Sub-Prime Meltdown) will be responsible for that as well. The result of this SPM will be that fewer people will qualify for mortgages. The ones that will qualify will be more stable. Therefore, there is less risk. However, and more importantly, since the pool of mortgage buyers will be smaller, there will be increased competition to get them. Face it, money is the ultimate commodity, so the best way to compete is to make it cheaper. Expect to see savings interest rates suffer as well. Supply and demand will require that mortgage rates go down. If there is more money available, and a smaller market for that money, the price has to go down. So {brace yourself for a bold prediction}, I think that by 2009 or 2010, unless there has been a fundamental change in the market, we'll be looking at mortgage rates back in the 5.5% range.

As always, I look forward to your ratings and comments. I'd love to know what you think.

Are we on the edge of a Calamitous Housing Bubble?

Boy, am I going to wade into it this time...

I was wandering through the FOXNews Real Estate section, and came across this feature story. Reading this, one would think we were seriously in trouble. "... from San Francisco to San Diego — is predicted to decline 50% in the next five years." The story goes on to say "... that America's top 40 cities are facing a average 47.2% decline: Boston is 49.4%. Miami 44.8%. New York 44.6%. And Chicago is 27.3% overpriced."

I'm wondering about here in Atlanta. I'll be going out to get a look at the book, Sell Now! The End Of The Housing Bubble. There is a list of the top 130 metro areas, and the likely declines. But, back to Atlanta, what is it like here?

The National median home price was $217,000 in March. Here in Atlanta, specifically Gwinnett County, the average home price in June was just shy of $257,000, but I think will calm down to around $250,000 for July. According to Wikipedia, the median income was $60,357. I'm sure that has grown a bit in the last 7 years, too.

Looking at the numbers, there are a couple of things that pop out. Running a few quick calculations we see that 28% of the income is about $1400/month for PITI. If one puts down an average of 10%, we see that the $257,000 home will need about a $232,000 loan. Using 6.5% (the rate on CompareLenders.com today for a 30 year fixed), I come up with $1466.39 for P & I. That leaves us a little short, since we still need taxes and insurance. When we add in those ($500 for insurance, and $3257 for taxes) we see the PITI come up to almost $1780.

Looks like we need to see a decrease of about 22%, no? Actually, no. Here is why. {Warning, entering an opinion zone}. These are a mix of average and median figures. But, there are a lot more figures that need to go into this. I took 10% down as an average. I know that it is really MUCH higher than that. Move-up buyers moving their equity into a more expensive home, retirees and empty-nesters moving their equity down into a less expensive home, and cash buyers will all have an effect on that "down payment" number. That effect will lower the financed amount. Also, those families at the lower end of the median income scale will likely rent, increasing the median income of actual home buyers. There are also other factors that come into play. Other forms of financing may carry lower rates, as well as the future of rates.

I'll cover what I think will happen to rates in another post.

I'd love to hear what you think. Don't forget to rate the post as well. Thanks, and I look forward to your replies.

Pictures are the first (and maybe Last) impression you will give a Buyer

So, don't screw it up.

Do you feel like you should rush out and buy this house?

This particular house isn't listed with an agent (to my knowledge), but is FSBO. But, this is the foot they are putting forward to try to get a buyer. Unfortunately, I have run across NUMEROUS examples that were as bad, or worse, that WERE listed with agents.

In some other cases, there are problems when moving away from native resolution.

Normally, when one clicks on the picture, a full sized image pops up. In this case, it doesn't.

Make sure that when you present your listings, you do so well. The NAR tells us that 84% of buyers begin their search on the web (If I recall correctly). When they see pictures that don't inspire them, they don't look at the house.

Stone Mountain Park, Animal Planet Summer Adventure

If you haven't made it over to Stone Mountain Park lately, I would recommend a trip. This summer, through August 5th, they are hosting the Animal Planet Summer Adventure. It's pretty cool if you are into animals. My family is definitely an animal family. We packed up and made the seven minute trip (are we there yet?... yes) last Saturday.

Normally we try to avoid going there on the weekend, but because of the show schedules, to see what we wanted we needed to go on the weekend. There are some cool shows, so it was worth it. We saw the Hog Wild Revue (... yep, it's pigs... doing tricks), Animal Encounters (you get to ?pet? a few different types of animals, like an armadillo, snake, hedgehog, etc.), Extreme Parrots (talk about flying low over the seats... keep your mouth shut), and Wonders of Nature (the flying squirrel only performs at the 2:00 and 6:00 shows). We didn't see All the King's Horses, but we had been to Medieval Times a few weeks earlier, and they have a similar demonstration. We also took a lap around the mountain on the train, and took the Skyride to the top of the mountain.

We live pretty close, and manage to go to SMP every week or two, but normally it is to play on the playground, or walk around the mountain. My son also likes watching the DUKWs (pronounced ducks). He's three, but I like to watch them, too. Oddly, I'm a car guy and in 18 years living in the area I've never managed to get to the car museum at the park.

As a little extra info, you can buy the "All Attractions Pass" at Kroger for $20 + tax instead of $24 + tax at the park. Kids are $16 instead of $19 (+ tax on both). The Animal Planet Summer Adventure is included with the AAP.

Have fun!

Customer Dis-Service, Part I

There are a few things that have my shorts in a bunch... so, here they are. Careful. They've been brewing for a little while.

There is a house in my subdivision that has been under contract since February... that's right, February. It will six months if it closes on time. This house is listed with a flat-fee company. The listed price was reasonable (I'll be curious what it actually sold for). When it went up for sale, it was a well kept house. Of course, now it looks pretty run down. The grass was cut once or twice, and is LOADED with weeds. It is actually a fight to get to the front door.

I didn't really know the seller. His family was transferred out of town, and they had to sell the house. Of course, they didn't want to "pay the commission" to have a full service brokerage. The seller called me and asked if I would show his house if he had a call from an unrepresented seller. I told him that I would, and he could either pay me ($50) to show it, or I could take them as a client and he could pay me 3% if one of them bought it. He told me his friend that lived and worked about 30 minutes away was doing it for less ($20). Ummm... no. Then, he actually told a prospect to drop in on me if I was home and ask me to show the house. Because I am a nice guy, I showed them the house. They had a lot of questions, and took almost two hours. (Think I got paid for that?)

Anyway, he emailed me after I showed the house and asked if I could give him any feedback. I told him that the grass needed to be cut, the bushes made it difficult to get to the front door, and that the house really needed staging. Boy was that a mistake. I got torn into for the grass and the bushes. He didn't want to spend the money to stage.

Remember, this isn't my listing. I'm not making any money here. And, he asked.

Anyway, the folks that looked at the house were somewhat interested, but couldn't write an offer yet. Then, I find out that the house is actually pending. The flat-fee company didn't actually add the kick-out portion on the sale contingency to the contract when he did the contract for the folks that tied it up for the last 5 1/2 months. Someone forgot. Ooops.

Do you think that four or five months of mortgage payments are more than the other 3% commission (he's paying a 3% fee to the buyer's broker)? I might have been able to get the house sold for him and closed a few months ago, but no chance. I wonder if it'll close on time, too.

Buying a Brand New Home... Still Need an Agent?

(This is a re-post of something I put in my forum last year.)

I've spent a large part of the day today working on behalf of a client that purchased a custom built home. While my official duties ended at closing a little over six months ago, I have continued to work with this buyer since that time to try to help ensure that the house we contracted to have built is as it should be.

This brings me to the point of today's blog. Many times buyers that are looking at new homes don't feel the need to have their own agent. "The nice people at the community's office are so helpful," etc. And, yes, they are. However, they work for the builder or the community. They are hired to represent that builder... not the buyer. Unless the buyer brings their own agent, the buyer doesn't have a representative in the process.

Much of the time, it will be fine. However, one may discover that the contract (other than perhaps a standard Realtor Association contract) may have a lot of one sided language in it. A few examples of this might be cancellation clauses, or worthless warranty provisions. One contract that I recently dealt with had a provision that allowed the builder to cancel the contract for any reason or without reason and refund the earnest money and a small amount for damages... right up to closing. Imagine that a buyer sold their current residence, and then the day before they are to close on both properties, the builder decides they can get a better price for the house this buyer has been waiting over the last eight months for. Now they don't have a house to move into, and they may not have a house to stay in. Another phrase that I dealt with allowed the builder to change the specs of the house being built with no notice. They could substitute materials and finishes for others that the builder deemed as "at least equal to" what was ordered by the buyer. Can you imagine a buyer ordering new furniture, and then finding out days before closing that some of the finishes in the house aren't going to be what they ordered, and if they refuse to close they may lose their earnest money, or even more.

Most of the time, the writers of the special stipulations in the contracts are not envisioning these situations. They are trying to protect their clients, the builder, from other issues. But, if the language is there it may be exploited.

In other cases, having a buyer's agent might clue one in to other aspects of the purchase. Perhaps there are other communities that might work as well or better for the buyer. One shouldn't expect that the community agent will point out those other new homes. Or knowing what inducements are being offered in other areas. Also, a buyer's agent will likely recommend an inspection, and possibly other services that the community agent won't recommend. And don't forget financing. Many times the community has special arrangements with particular finance companies. These might not offer the best deal for the buyer, so having an agent that is tuned in to some other sources may reveal other options.

The bottom line is that being unrepresented isn't a great idea, and probably won't save you any money.

Repairs, Improvements, Upgrades and Resale

After posting up about What buyers are looking for yesterday, I got to thinking about an article I wrote on my website a couple of months ago. I thought it might go well here also. It is a little more specific about what I am looking for when I am looking at a home from a buyer's perspective.

Many people make improvements or modifications to their homes. Some are made to increase the livability of the house, other are made to increase its value. Still others are made to put the house back into working order.

First, I think that improvement needs to be defined. There are a lot of things one can do that "improve" one's home, however many of these items are not really improvements. A good example is replacing the HVAC system. Even when it is replaced with a newer, better, more efficient system, that isn't really considered an improvement. The same would be said of a new roof, windows, or even appliances. I know that appliances are throwing a lot of folks. Those would be considered repairs, or possibly upgrades. However, they are required systems, and their functionality isn't changing. The line between repair and upgrade may be a fine (and fuzzy) line, but generally upgrading would be putting something in that is a little "better" than the neighborhood average. An example would be putting on a "50 Year" roof shingle when most of the other homes in the area are using a 30 year material. The same would be true of a higher quality window or HVAC system. Generally, this type of work maintains the value of the property. It won't really increase it, but if the systems aren't up to at least area norms, the value will be negatively affected. The upgrades may give a little value bump, but their main value will be that they often speed the sale of the property.

The next fuzzy line would be updating. Taking an old kitchen or bath, and putting in new fixtures would be a great example of updating. Keep in mind that updating usually wouldn't involve tearing out the cabinetry or dropping walls and reconfiguring the house. Updating is usually considered improvement, and will increase the value, and possibly decrease the time on the market.

Finally, the real meat of improvement is renovation. This should be reserved to properties that are getting extensive work. I see "renovated" properties all of the time that are minimally updated, but retain outmoded cabinets and other items. These really aren't renovated, and the money that was spent to do something halfway may have been largely wasted. A great example would be throwing some entry level stainless steel appliances in to the kitchen, and then painting the 30 year old cabinets with wall paint, and maybe dropping a new laminate countertop in as well. That might be OK in a lower priced neighborhood where that is the norm, but doing that in an area where the other homes sport granite counters and high end cabinets around expensive appliances is a bad recipe. In this example, the seller might have spent $8,000 on the "mini-renovation," but to bring it up to the neighborhood norms would cost a buyer $20,000. The buyer will be looking to buy the house at a price low enough to allow them to spend that $20k... that means that the seller may not even be able to recoup the $8k they spent.

The flip side of this would be spending $20,000 to redo the master bath in a $200,000 home. Unless the room was trashed, and it needed major infrastructure, the seller is not going to see that money again. Even if it was, the seller can kiss most of that money good-bye.

If one is doing a kitchen gutting remodel, they should expect to spend around 10% of the value of the house on the kitchen, or a little more. This would be the cabinetry, appliances and countertop, including labor. Bathrooms are tougher to gauge, but I would say that one should expect to spend a similar amount to a bit more for all of the bathrooms combined. However, seeing the master suites and the more extravagant bathrooms that many newer and higher end homes may have, that could be off.

Other rooms in the house are just up in the air. They are easier for the buyer to change to suit their needs, and usually only need to be painted or have the floor refinished or re-carpeted at most, if the basic size is there. Small rooms are difficult to fix.

Don't forget the landscaping. From the curb, the house needs to be inviting and neat. It also shouldn't look like it needs a full-time gardener to keep up. Most buyers want the look of a finely designed yard... and to only have to spend 30 minutes a week keeping it up.

The bottom line is that to properly improve a home for resale, one needs to have an overall plan. Appropriate levels of trim need to be used, as pinching the wrong pennies can be very damaging to resale. Finally, I always tell people that they should not wait until sale time to repair/renovate/upgrade/update their home. That way, they will have the opportunity to enjoy the newer, more pleasant environment.

I stand corrected

I have been preaching about how a home's value is never related to the needs of the seller or buyer, but rather it is wholly dependent on what the market will bear (a price that a buyer and seller are willing to both agree upon, without extenuating circumstances). Well, I just had one of my clients call me a few minutes ago and present a situation where that isn't true.

My client and his wife purchased a home from me around 15 months ago. Without being too specific, a developer approached them this weekend and wants to buy their home. He bought several properties around them and is planning on putting in a small subdivision. He made an offer to them that is pretty much exactly what they paid for the house 15 months ago. However, they have put another 10% in improvements and repairs into the home. They don't really want to move.

After speaking with them, we determined what their price would be. It isn't based on the value of the house, but rather it is based on their needs. Because they replaced the HVAC system, and did other improvements to the property that were needed, they are a little upside-down in equity. The improvements they made increase the long-term usability and functionality of the home, but don't pay back in the short term.

And, since they don't need to sell the home, they aren't subject to the same market constraints. Cool for them.

New Polls added

I just added a couple of new polls. I'd love to get your feedback, and help tune the information to better serve my readers (all three of you)...

Please take a moment to mark your preference, and leave a comment.

Thank you.

What are Buyers Looking For?

The NAR is getting ready to release their 2007 Profile of Buyer's Home Feature Preferences in about a month. For the REALTORS that don't subscribe to the NAR weekly newsletter, or those that are looking, here is the blurb:

Central air conditioning, walk-in closets, hardwood floors, high-end kitchen appliances, oversized garages and patios were among the features buyers said they would pay more for in a home, according to NAR's soon-to-be-released 2007 Profile of Buyer's Home Feature Preferences. Due out in early August, the report looks what buyers want, what they pay more for and what they end up with when the transaction is all said and done.

I just thought I would take a moment and toss out my thoughts on these things. That should be fun. Everyone wants MY opinion, right?

Central Air - OK, here in Georgia, I think it is pretty rare to find a house without central air. I know there are some out there, but they aren't very plentiful.

Walk-in Closets - I think we should be talking about walk-in closets in every bedroom. Most houses built in the last few years have at least a walk-in for the master bedroom. I'm starting to see more homes, even mid-priced with walk in closets for several bedrooms.

Hardwood Floors - Always a favorite of mine. There are a lot of older homes with great hardwoods, some even under carpet. Newer homes are also featuring more and more hardwood floors. As the homes move toward the higher end, I'm seeing more and more area covered with hardwood. Luckily, this is also something that a seller can do to their house to help it sell more easily in the current market.

High-end Kitchen Appliances - Another favorite of mine. I am seeing a movement away from stainless steel, and towards slightly softer finishes like pewter and graphite and stone gray. I am also starting to see a lot more built-in refrigerators at the high end of the market. Also at the high end are under counter wine cabinets, dual dishwashers, and warming drawers. Stainless steel, while still in the higher end homes, they are also showing up in more entry level homes. This is another thing that sellers can do if they are going to renovate their kitchen or if appliances need to be replaced.

Oversized Garages - My specialty. But seriously, most buyers are couples and have at least two cars, they also have lawn equipment and hobby stuff like bikes and so forth that need to be stored somewhere. The traditional two car garage is getting pretty cramped. Add in the number of minivans and SUVs out there, and the fact that most people would prefer to park inside, and it isn't hard to see why bigger garages are moving into the mainstream. For auto enthusiasts, especially at the high end of the market, I'm seeing more 5+ car garages than ever.

Patio Space - This is another thing that I really like to see. Not only does the outside space need to be there, but it needs to be livable. Regardless of the price point, I am seeing the outdoor areas treated more like a living space. Most people like to grill out at least a couple times per year. If they have kids, they want to be able to enjoy family time outside, and many people like to entertain. Since the outdoor space is usually considerably larger than most of the spaces indoors, it only makes sense to have an entertainment and family space outside. At the entry level, a simple table and chairs on a patio may be enough to help a buyer "see themselves" outside. At the higher end, I'm seeing more outdoor kitchens and more structured designs including spas, pools, waterfalls and generous covered space.

What do you think? If you are a buyer, what are you looking to find? If you are an agent, what are you seeing? If you are a seller, do you have any questions?

Lessons from Driving School

I ran across something earlier today that reminded me of driving school and the life lessons that I picked up there.

When I was much younger, I went to a few high performance driving schools. They were great learning experiences, and the people that taught were amazing coaches and motivators. I think that one of the most amazing things about the assistant instructors was that they were providing this motivation and coaching from the passenger seat of a car they weren't in control of... and often the driver wasn't in control of it either.

The first thing that I picked up was "Eyes on the prize." The concept is very simple. The execution can be a little tricky sometimes, though. The idea is that if you can keep your eyes on the goal, your hands will find a way to steer you there. The application in racing or high performance driving is that you need to focus on where you want the car to go. Don't get sidetracked looking at places you don't want to be. The problem is that when there is a lot going on around you, focusing on where you need to go can be VERY difficult. If the car is sliding sideways, looking where you want to go, rather than where you think you are going to go is not easy.

The same holds true in real estate. Making a plan, and then executing it, while it seems that your career is sliding out of control, is not easy. Focusing on the plan, and concentrating on moving in that direction is "Eyes on the prize."

The other major concept I learned in driving school had to do with the level of performance. This is less directly applicable to the outside world, but actually more of an all encompassing concept.

There are four levels of competence/performance. Let's start from the bottom.

Imperfect/Unconscious (I/U). Basically, I'm doing it wrong, and I don't even know it. My performance is bad, but I don't have enough knowledge to know it.

Imperfect/Conscious (I/C). I know that I'm not doing it right, but I know what I am supposed to do. My performance is bad, and I can recognize it.

Perfect/Conscious (P/C). I can do it right, but I have to think about it. My performance is good, and recognize what I need to do to keep it that way. I have to work at keeping my performance there.

Perfect/Unconscious (P/U). It's just right, and seemingly effortless. I know and have internalized what I need to do, so I do it without thought.

Interestingly, coaches are usually P/C. They recognize the proper techniques or learned skills. Superstars are usually P/U, and often don't make good coaches because they may lose touch with how they do what they are superstars at. There are some interesting exceptions. Tiger Woods comes to mind. But, I think that is because he has elements of both P/C and P/U. A few years ago, he went into an in-depth examination of his game. He had already won EVERYTHING that one could win in golf, but he felt that his game wasn't where it could be. So, he started examining his game. He determined with his coaches (imagine being able to tell Tiger how to play golf!!!) that his swing was not as he wanted it. So, he began a process of change. He didn't tell everyone. He just began to work at improving his swing. It wasn't a tweak, it was a wholesale change. As he worked over his swing, something did change. He began to lose. He could do it, but it wasn't effortless. It wasn't smooth. It wasn't effective.

But, it became smooth. Obviously, it became effective. And, as we have seen his domination of the game increase, he perfected a better swing. He doesn't stand in front of the ball wondering how he will swing. He has trained himself to swing perfectly, and he concentrates on his result.

But Wal-Mart Does!

I promised a continuation of my last blog, and here it is. In the last entry, I talked a bit about limited service and discount brokerage. This time, it will be more about eliminating agents from the picture.

OK, here is the shocking statement to start off with. Buyers and sellers don't need us in order to complete the transaction. That's right, we are not a necessary ingredient. Obviously, the buyers and sellers need each other. They need a real estate attorney to complete the transaction. Usually, they need a mortgage broker. That's pretty much it. They don't need a real estate agent, they don't need an inspection, and they don't need the MLS or other tools that we bring to the table.

But, did you notice the "need" theme that ran through that? Would you ever tell your buyer not to get an inspection? Of course not. But is an inspection a required part of the transaction? Of course not. Need and advantageous are very different things. We need to not lose sight of that. It is advantageous to deal with an agent, for both buyer and seller. It is advantageous to get an inspection. It is advantageous to use the MLS, for both buyer and seller. It is advantageous to the buyer and seller to have access to our tools, our contacts, our knowledge and our counsel.

That is the crux of it. We (industry groups like the NAR, and our broker parent companies e. g. C21, Re/MAX, etc.) are telling our prospective clients that they need us. Meanwhile, the limited service and FBSO organizations are telling our prospective clients that they don't need us. And they're right. What we should be telling them is that it is to their advantage to hire us. We will make the transaction smoother, easier, and less stressful. We will keep the time wasters at bay, and keep the transaction on track. That is what we do, and that should be our focus.

Since I'm a car guy, I have to sum it up like this.

A Ford Crown Victoria and a Lincoln Continental are built on the same platform. They both come with power seats, power winders, A/C, and a V-8 engine. They both hold the same number of people, and about the same amount of stuff. But the Lincoln costs way more. Why should someone pay the difference? Because it is smoother, easier and less stressful. It is quieter and a little more comforting.

We are all of that, as well as knowledgeable. We can save our clients money, maximize their sales price, smooth out the bumps, and hold their hand when they need it.

What do YOU think? I'd love your feedback. Thanks.

Mercedes Doesn't Discount...

The world has changed. The question is, "What are we going to do about it?"

Wal-Mart, Target, Harbor Freight Tools, and scores of other discounters are thriving. But, is that the model that we should pursue? Is that what our customers really want? Are we headed for extinction? With all of the various avenues for information available from valuation websites to transaction advice, are buyers and sellers going to cut us out of the picture? Should they?

Obviously, the real estate agents among us have opinions about most of these questions. And they probably line up pretty well. There are a lot of cliche statements I see whenever a few of these questions are asked. I'm going to try to steer away from those, and look objectively at these questions. It will take a few blog entries to get it all sorted out, but while I have my opinions, I'm going to try to present supportable and reasoned positions.

Let's start with the most controversial of the questions. "Are discount brokerages really serving the needs of their clients?" While my first inclination, and I would guess the popular answer among real estate agents, would be to sat "Of course not," I am not so sure that is true. There are a lot of sellers that are very experienced. They have been through the experience before, and they might not feel that they need as much help, advice and direction as a full service broker (should) provide. We all know that a home that is well staged, in top condition, and priced appropriately and competitively for the market WILL generally sell in a reasonable amount of time without other extreme measures. Now, be honest, we've all been out on those appointments where we know that the house is going to sell without too much fuss. The price that the sellers were willing to accept, and the condition of the house were good indicators that we weren't going to have a lot of work getting it offers.

Did you notice that I didn't say "sold"? I did that on purpose. Now we need to import a different set of rules. There are sellers that are capable of handling the next major step as well. Negotiations. Face it, regardless of the type of market, there will usually be a negotiation over the price and other considerations for the purchase of the home. Whether it is a buyers market, and they are looking to beat up the seller on the price, or a sellers market, and the sellers might be able to juggle multiple offer situations, there will be work getting the property from offer to contract. I would say that most sellers are not well prepared to handle this themselves. It's difficult to step back from the emotional investment in one's own home and objectively handle the negotiation. But, there are certainly some folks out there that are well able to do just that.

But it isn't "sold" yet... And the real estate agents reading this will identify with this. Inspections, financing, contingencies, re-negotiation and closing don't just happen. How many times have we had to re-enter negotiations after the inspections? Or how many times have we had to ride a mortgage broker to get to the closing on time? Or how many times have we had to deal with contingencies in the contract, and keep things on track? The point is that while all of these don't happen in every transaction, they can, and they happen enough that it doesn't take us long to learn how to work through these mini-dramas.

The point of all of this is to say, and bear with me... Many sellers are very well served, and have their needs met perfectly with discounted limited service brokerages. However, many more aren't well served except in a more full-service environment. And, oddly, in my experience, I've found that the clients that are most able to handle all of these aspects themselves are often the ones that would rather hire a professional to do it on their behalf. They feel that it is more efficient for them to pay an expert than it is for them to do it themselves. Just like it is working smarter for us to pay someone to run our mailings, or handle our accounting, or repair our roof, it is a more efficient use of their resources to tell one of us to "Just deal with it."

I'd love feedback from agents and non-agents. Leave a comment. Thanks.

Agent as Buyer

Today's blog will be looking at things from a little different perspective.

My wife and I are thinking of buying a new house. So, we've been out looking at houses. It's tough. We like our house (like, not love) and we really like where we live. As we look around, we wonder if we really want to move. We definitely want more space. We have a three bedroom house and would like to have a four bedroom house. We have a two car garage, and really need more space there (I could fill a six car garage). The yard is a good size, and fenced, like we need it. Enough about that.

What it comes down to is that we are thinking about and talking about renovating vs. buying a new home. We have pretty much ruled out adding a new master suite, which would be perfect but expensive. The neighborhood will only support about $30k in improvements... max. If we didn't want to update the kitchen and baths, we might be able to squeak by on $30k, but I really don't think we would see much of that back out of the house in resale. The kitchen will eat up about $13k and the baths will probably chew up about $5k between them. I think that is about all that we should really try to do. Those costs will be largely supported in resale. In fact, I think they might pay back enough that they would be worth doing even if we decided to sell in the short term.

In the mean time, we will keep looking to see if anything grabs us. I know how many buyers feel as they look to buy a house when they aren't relocating. It's tough.

Moab, UT. My Happy Place

I want to write about my happy place. Moab, Utah.

I first went out to Moab with a friend back in 1997. We delivered a Jeep to Salt Lake City, and stopped in Moab for a couple days of 4wheeling before giving it over to the owner. We had permission... really.

Aside from having a great time driving across the country, we both decided that we loved 4wheeling in Moab. The scenery is awesome. The obstacles are incredible, and the traction is amazing. And there is good food, too. Don't forget that Moab is on the edge of Arches National Park, and Canyonlands National Park.

I've made the trek again... and again... and again. I went back in 1997 again with my own Jeep. I drove it on the 4000 mile round trip, and 4 wheeled for a week while out there. In 2000 and 2003, I towed my Jeep out there along with another Jeep. Each ride has attracted a little bigger group than the last. I think we had around 14 trail rigs on the 2003 trip.

Aside from the 4wheeling, we have rafted part of the Colorado River, took purely scenic drives, visited other areas nearby, and enjoyed some great food.

BTW, I recommend the Moab Brewery for casual dining, and the Sunset Grill for a little more formal atmosphere.

Is It Time To Buy Yet?

Time to Buy?

It's a buyer's market. No denying it. Now, Atlanta is not like southern California, or DC, or Boston but it is a buyer's market here. Values aren't crashing. Interest rates aren't skyrocketing. Unemployment is at historic lows. Inflation is under control... for the most part. Of course, to listen to some of the media, all of those statements look suspect.

So, it's still a buyer's market. What does that mean in the real world?

To start with, if you are trying to sell a home, it needs to look its best. It needs to be priced competitively, and be well marketed. Don't expect to be able to set new records for your subdivision in the price arena. Don't expect your house to draw multiple bids and 6 days on the market. In fact, don't expect 60 days on the market. Think about 90 to 120. Really. If your agent is saying that nothing is different than 2005... think about another agent. This isn't to say that you can't or even shouldn't sell your house. Just be realistic in your expectations.

If you are a buyer... great timing. But, you also need to be realistic. I had someone say to me that they expected to be able to buy homes that were $500k last year for just $300k now... since values in some places (primarily CA, MA, NY etc.) were plumetting. Guess what. They aren't plumetting like that in those places, and they certainly aren't dropping like that here. That $500k house might go for $450k now, more likely $475k. You might get $475k and a "free" plasma TV.

The bottom line is that things aren't as bad as you might hear. But, they aren't great either. If you are a first time buyer, or don't have a home to sell, this is a great time to buy a house. If you are moving up (selling the $150k home to buy a $250k home) this is a good time to buy a house. If you are down-sizing, or getting out of home ownership, this isn't such a great time.

Last note. In regards to moving up, if you "lose" 5% on the $150k home, that is $7,500. If you get a 5% discount on the $250k home, that is $12,500. That puts you $5k ahead of the game. If you were to do that "move-up" during an up market, you would be on the other side of that equation.

Real Estate Investing 101, Part II

Buy and Hold

Another tool in the bag of the Real Estate Investor is the "buy and hold option. Buying and holding a property is a longer term strategy. In this case, one is using the increase in values over time, generally in conjunction with rental income, to increase their personal wealth. The renter is the key to this being a hugely profitable strategy. An example of this would be:

$200,000- purchase price ($40k cash, $160k mortgage)

$485,000- selling price (after 30 years at a conservative 3%/yr.)

$1,500/mo.- carrying cost (this will go up slightly as taxes and insurance increase)

$1,600/mo.- rent (first year)

* A note about the rent: I would rent to the "right tenant at a discount to keep them longer term. Also, the rent, which will increase around the same as property values over time will go from $1600 in the first year to $3900 in the 30th year. Keep in mind that while the carrying cost will go up, they won’t go up nearly at the same rate as the rent.

While there are a few things to plan for, such as repairs, upgrades and time without renters, if one held the property for 30 years, they would have a property worth almost $500,000 with no mortgage. I would feel confident in saying that the cash flow from the rents (especially as they increase) will cover any expenses in the long term. Compare this to a 6% return on the down payment from a mutual fund, and the $40k down payment would possibly yield $230k.

Shifting classes

Either of these strategies can be used with both commercial and residential properties, as well as undeveloped land. The property may also be shifted from one class to another. Land can be flipped by building a home (residential) or shopping center or warehouse (commercial). A warehouse type of building may be renovated into loft apartments (B&H, and residential) or sold as loft condos (flipped). A home on a busy street may be renovated to offices and be re-zoned commercial and either rented or sold. Obviously there are a lot of variations that can be employed.
But what about for a different budget?

Also, the price and financial commitment can be varied as well. Condos ready to be flipped often come on the market at prices well under $100k, and occasionally as low as $50k. A $15k investment may be able to yield a $25k or $30k return. Also, one can partner with others looking to do the same type of investment and form a partnership. This arrangement adds complexity, but also spreads the risk.

Lastly, remember to talk with your accountant and/or tax preparer about the tax ramifications of these types of investments. One may be able to employ deductions and credits to lower their tax liabilities from their investments. If you have any questions, or would like to get started in real estate investing, please feel free to contact me.

Real Estate Investing 101, Part I

Real Estate Investing, 101

Real Estate investing is one of the best tools to build long term wealth and financial security. About 70% of millionaires in the US built their fortunes in Real Estate, so it is obviously an excellent tool. There are several ways to incorporate Real Estate into one’s overall financial picture.

Flipping

The first method I’ll cover to invest in Real Estate is a shorter term option called "flipping". Basically, flipping a property is buying a property at a below market price and then selling it at a market price. The property may be purchased below market value because it needs repair, or because the sellers have a need to sell the property quickly. The advantage of flipping a property is that it creates a shorter term profit compared to holding a property. The disadvantage of flipping a property is that one needs to sell it to recapture their expenses. A mortgage or Home Equity Line of Credit (HELoC) may also be used to bring cash back out of the property, but may reduce the overall profit from the sale. When flipping a property, one needs to be very aware of not only the purchase price, but also the full cost of acquisition, renovations, selling the property, and cost of carrying the property. Keep in mind that loan costs for this type of venture are generally more that of a primary residence. Taxes and insurance will also be higher. An investment scenario might look like this:

$165,000- purchase price

$ 1,650- acquisition costs (about 1% of purchase price)

$ 10,000- renovation budget

$ 11,700- carrying costs (budgeted as $1950/mo for 6 months)

$ 18,000- selling costs (6% for real estate commissions, and 2% for other costs)

$225,000- projected sale price after renovation

$ 18,650- projected profit

One thing to keep in mind is that the Return on Investment (RoI) is actually higher than it first appears. Initially, it would appear to be a 10% profit (about $186k invested to return about $18,650). Over a six month span, that isn’t bad. However, the return is actually much higher. Generally, the loan requirements for this type of property will only require 20% down (or less, but at a higher loan cost). So, that means the actual cash investment is closer to $55,000 ($33k down + $10k rehab + $12k carrying costs). This makes the RoI almost 34%. Not bad, but remember this isn’t like owning a stock, there is a lot of work that goes into making this happen. One also needs to be in a position to "carry the property if it doesn’t sell as fast as planned. The bottom line is that if one is realistic in their expectations, a lot of money can be made pretty consistently.

In part two, I'll cover Buy & Hold strategies, and shifting property classes.

June 2007 Market Report for Gwinnett County

Here is a look at the residential real estate market for Gwinnett County for the last two years as well as looking at overall trends that will affect investors and “move-up” buyers in the next few months.

Looking at the numbers up through June of 2007, there are a couple of trends that seem to be materializing. New listings are up year to date (YTD) about 15% over last year. May and June are up 11% and 9% respectively over the same period last year. The trend seems to be new listings returning to previous levels. At the same time, sold listings are down 25% YTD. In May and June, the sold listings are down 25% and 62% respectively. This trend is moving down, but I think that the June number is an anomaly. Another number I use is the percentage of “solds” leaving the market vs. new listings coming in to the market for a given month. This number is dropping pretty hard against last year. The YTD comparison puts it down by a third (32% vs. 49%). The last four months are down 36%, 34%, 38% and 22%.

So, we know that sales are down versus last year. However, prices have not yet followed suit. Prices for Gwinnett County are up 4% YTD v. last year. June was even up 7% in price against the same period last year, but I think that is also an anomaly. Time on the market, however, is up about 10 days comparing YTD numbers against last year.

Finally, looking at outside influences, I feel that there is a high likelihood that there will be an increase in foreclosure properties over the next few months. I think this increase will be more pronounced on the middle and higher end of the market. Many of these properties were financed with ARMs that were tied to volatile indexes such as the LIBOR. Owners may be faced with substantial increases in the housing costs leading to foreclosure. There has been a lot of activity in the market over the last couple of years, and so there are a lot of recent properties that could become troubled.

The first thing to keep in mind is that this ISN’T an overheated market like Southern California or Boston. There hasn’t been the huge run up in values in the last several years. In fact, the run up in many areas has barely kept pace with the increase in material costs to build a new house. Land has run up in many parts of the county as developers work to squeeze more homes into desirable areas. I think that infill has picked up as well. “Infill” is when builders tear out older homes and build one or more higher priced homes on the land.

What does this all mean? I think there are two distinct paths that will emerge in the coming months. The first path is in the entry and second step homes. I think that prices have largely stabilized. These homes don’t really have the room to move down, so at this time there are good deals available. The best deals are on “fixer-upper” homes in this range. These homes are stalled and sellers have to use price to make them sell. Foreclosures will start to get more attractive if the lenders start to get realistic about the prices. I see many of these homes priced well above comparable homes plus needed renovation (even with free labor). Until the prices on these properties drop down low enough to allow rehabilitation, these properties won’t sell in any significant number. There are some that are selling, but not to experienced investors or “flippers”. A good example is a home selling at $175k in a subdivision that should net $185k - $200k. The property needed around $20k in renovations to bring it up to area standards, not including most labor. A possible $5k profit is not sufficient for an investor to consider the property. That limits its market to investor/occupants. As the number of foreclosed properties increases, these limited buyers will dry up.

The second distinct path is for the higher priced properties. I see more profitable opportunities as prices move past $350k. There are fewer players in this area, and more properties showing up. This means that investors with deeper pockets or partnerships may be able to move up in the market and reap larger profits. An example of this is a property that I know of priced at $420k. It needs about $150k in renovation (including labor) to bring it to a standard that should allow a $700-$750k price. After carrying costs, there will be a profit of $100k-$200k. However, this will take a buyer with more substantial finances to exploit. The biggest danger in this realm is “under-furnishing” the property. The serious buyer of the renovated home will expect appropriate materials and finishes. If the investor tries to skimp on the details in one of these properties, they will not maximize the profit for the house.

Keep in mind that we look at these numbers in the rear view mirror. What that means is that we will know the market has turned when we see that it has already turned. We won’t know WHEN it will turn before it happens.

Feel free to email me for further info. I keep a pretty detailed spreadsheet with the statistics from FMLS that I use for these calculations.

An Unfortunate Stereotype

I had an interesting experience a couple of weekends ago, and I'll get to it in just a moment.

On TV, or in the movies, I often see derogatory stereotypes of real estate agents. I see us portrayed as less than intelligent, greedy, and not very scrupled. We aren't portrayed as dangerous, but rather ineffectual. It has always bothered me, since in most of my dealings I have dealt with agents that were honest and hard-working. Of course there have been a few that weren't the brightest bulb on the tree, but they weren't actively working against their clients or customers. That changed a couple of weeks ago.

I went to an open house to preview a property for a client that had mild interest in it. His time is short, so I try to make sure that when we get a chance to look at property, it is very close to what he is looking for. So, I walk into this open house and start looking around. There were a couple of people looking around, so the agent on duty didn't approach me right away. I picked up one of her cards from the dining room table.

After a few minutes, the agent approached me. She asked if I was working with an agent, and as I was getting ready to tell her that I am an agent, she interrupted to tell me that she'll give me a better deal if I work with her. I reached in my pocket and pulled out one of my cards (they have my picture on them). I said, "this is my agent." She didn't even glance at it. She told me that I could fire my current agent and then she would help me make an offer on the house. She would cut her commission some so that I would save money. Then it went down hill.

She said that the buyer's agent commission was 2% for this property. She would cut that from the price. That would save me $8000 on the property. Of course, she hadn't bothered to look at the card I handed her, so she was a little put back when I told her that the buyer's agent commission was 3.5% on this property. She said that wasn't correct. I pulled out a copy of the agent listing. Then she told me that I really needed to dump my agent. "It is unethical, and against federal law for them to reveal that information to you." Oh, really? Federal Law? And she is talking about unethical? I told her (as politely as I could) that there was no law preventing my agent from sharing the commission information with me, and that she should really think about ethics a little more. Trying to steal a client from another agent is not ethical,

I emailed her broker. I'm checking to see if she is a member of one of the several REALTOR associations here locally.

I was shocked at the brazen lack of ethics, and the blatant lies she was willing to say. I wonder what she might have said to others there.

I Went to New Orleans Recently

The family just got back from a visit to New Orleans. We stayed in a rental condo just outside of the French Quarter, near Decatur and Frenchmen streets. It was a great place to stay.

We spent the majority of our time in the French Quarter. We did have to run over to Slidell for a wedding reception (1/2 of the reason for the trip). We did, however, see some of the left-over damage from Hurricane Katrina. We spotted a few things on the way in along I-10. The Six Flags park is closed... and not coming back. There were areas where all of the trees were dead. We were told that the ones that didn't get taken down by the winds died from the salt water that flooded into the area from the canal/levee breaches. The drive to the Quarter from the interstate also showed us a few damaged houses.

From the perspective of a tourist, New Orleans is back. The "touristy" things have pretty well recovered. The city knows that right now, their most valuable resources are visitors. Not only has the city government embraced visitors, but the businesses that cater to visitors have embraced us as well. I can't count how many times I heard "Just tell everyone you know that we are here... and want them to come, too." So, I am. Bourbon Street was friendly. Drink prices were pretty good. Cover charges didn't exist. The bands were good... and plentiful.

From the perspective of a resident, there is a LOT of work that needs to be done. So many businesses have just stayed out it is amazing. The Home Depot, and daiquiri stands (even far from Bourbon Street) are doing well. But, there are so many holes in the business fabric of New Orleans it is amazing. We were also told that housing is still short.

From a real estate investor standpoint... things look wide open. I think that one could go in and buy entire subdivisions. Mid-priced and entry level homes look to be needed. Commercial property in plentiful, but finished space is at a premium in many areas. One of the biggest opportunities I see is to revamp larger tracts that are nearer the city center, and raise the price level of the area. There also look to be some great opportunities with some of the apartment complexes. I would say that refitting, and converting to condo could have a HUGE profit potential. Even with very affordable pricing, some of the complexes might be turnable for very good margins. The main challenge looks to be getting workers in that aren't already so b usy that they can walk from your work.

Bottom line... Go visit New Orleans. They need you. And it is a great time to see the sights.

Why, oh Why. Three Sides Covered, and Butt Hanging Out.

Every time I see one, it reminds me of one of those hospital gowns that your butt hangs out of. Three sides are fine, but that fourth side just isn't making it. What am I talking about? Three sides brick homes.

I like brick. My house is brick... all four sides. But three sides brick is just something I don't get. One of the great things about brick is that it's low maintenance... but if 25% of your house still needs to be painted every couple of years, it is no longer low maintenance.

I certainly understand it from the perspective of the builder. If you are building 500 houses, and you can save $3,000 per house, that is $1.5M. That's enough to buy a really cool car after taxes... I mean REALLY COOL. But, for a home owner, I don't get it. The $5,000 or so that it would take to cover the last side with brick is minimal. And the house would look SO much better. And, the money will be paid back in a couple of paint jobs.

Now, brick fronts I can deal with. In that case, the cost difference is more significant. I'm not in love with them, but they make more sense to me. They still need the same maintenance as a sided house, but 3/4 of the house just seems to be more logical to me.

Odd I know, but what do you think?

A Garage is a Garage is a Garage... NOT!

Garages are a specialty. Oddly, after deciding that I really wanted to focus on fellow gear heads, I find that there is more of a need than I thought. Personally, the garage has always been one of the first places I went to when looking at a house. I guess I enjoy it in the same way a cook enjoys the kitchen, and a movie buff enjoys the media room.

And then I catch a news story that garages are the new exercise room, kinda like pink is the new black. It seems that there are a lot of people like me that enjoy the time out in the garage. The garage make-over business has become huge. There are tons of products to enhance the storage, clear the clutter and generally beautify the garage. Of course, after getting it cleaned up, there are about 300 different flooring options ranging from industrial coatings worthy of a NASCAR shop, to snap together tiles that allow designs to be put on the floor. In fact, one of the garages I was in recently had the floor faux painted to look like Italian marble. Personally, I like the race shop look, but those coatings aren't fond of weld spatter and plasma slag (that's right kids, plasma is not just for TVs). I'll probably end up with acid washed, polished concrete. It looks cool, and it will stand up to most everything. But I digress.

Back to the topic. Garages aren't just a place to store the car for some of us. It is more of a combination shrine, workshop and trophy room. It's a place to work on the latest project, and hang out tossing BS with a few friends. It's a place to recharge the spiritual batteries... and the battery from the lawnmower, occasionally.

So, as we walk through, we look at how many receptacles there are, and where they are, how many are 220 volt, and what type of lighting there is. We look at the layout of doors and windows, just like many would in a living room. We look for cable or satellite jacks (I told you we like to hang out in the garage). We look at the size of the doors (I drive a truck that is 8 1/2 feet wide, and 6 1/2 feet tall, and my last Jeep was 6' 9"... in a world of 6' 8" doors). Just as my wife would mentally place our furniture in the family room, I place my projects, tools, and parts in the garage. I wonder if the space will work as I need it.

So, if you are a car buff, and looking for new digs in the Gwinnett area, look me up. If you are an agent that has a car-centric client, keep the above in mind.

I look forward to your comments.