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January 26, 2012
Trading paper for a house
Your savings pay off from inflation and deflation
Imagine that your great grandfather had received a wonderful old musket from his great grandfather; and he thought that his great grandchild would appreciate a gift from him as well. So he opened his Sears catalogue #110 and decided to leave you money for a .38 caliber double-action revolver. In a box he placed two one-dollar bills, which would cover the price of the gun at $1.75, 20 cents postage for delivery to your door, and 5 cents for the five cartridges to load it.
You open the old box and find a kind note from your great grandfather attached to the two one-dollar bills; at the bottom of the box he had placed the page from the 1900 Sears catalogue with the gun and its description circled. You realize, of course, that the cost of a gun has gone into the hundreds of dollars due to inflation.
But wait! Inflation? No. The gun did not go up in cost; the money went down in value. The truth is that the government stole the value of your great grandfather’s money by debasing the currency through excessive use of the printing press. If you printed money it would be called counterfeiting. When the government prints money the masses call it inflation.
Stay with me here, because I’d like you to think about your 401(k) or other retirement plan, and savings that are filled with all kinds of paper of highly suspect value: Currency (cash), fake currency (blips on a bank’s computer), and certain types of bonds, to name a few.
As of this writing, the total U.S. Public Debt Outstanding is exactly $15,236,245,309,869.69; that’s over 15 trillion dollars; and it’s growing daily; by millions. That debt will be hacked away in one of two ways:
- Default (don’t bet on it)
- Currency debasement (money printing)
I’ll bet on the latter. We will have rising inflation; lots of it. For a taste of what can happen with runaway inflation, read Adam Fergusson’s excellent book, When Money Dies, about the early 1920s hyperinflation in Germany — with less severe inflation in Austria and Hungary. He explains, “The inflation of 1923 was so preposterous, and its end so sudden, that the story has tended to be passed off more as a historical curiosity...than as the culmination of a chain of economic, social and political circumstances.”
Mark Twain has been quoted as saying that "History does not repeat itself, but it does rhyme." We do have a chain of economic, social and political circumstances that rhyme with those of early 1920s Weimar Germany; they will bring us to some form of extreme government money printing; that will cause the value of your savings to drop significantly, if not severely.
How can you avoid financial pain — perhaps financial disaster — when the government printing presses go on overdrive? Real money is your first form of defense: Gold and silver; physical metal in your possession — not in a metals ETF or a bank deposit box. Your best bet is American Gold Eagles and Silver Eagles. You could do well with putting 25% of your cash in these beautiful coins; half in gold and half in silver (which will give you a lot more Silver Eagles than Gold Eagles).
Unfortunately, gold and silver don’t pay income in dividends, interest, or rent — they are economic life insurance. No income is probably mostly true of your savings, 401(k) or other type of retirement account. The next line of defense is debt-free rental real estate, which at this time allows you to take advantage of deflation.
So how do we go from inflation to deflation? It’s there when you look around. While we’ve had inflation in some parts of the economy, other sections have experienced hefty deflation; real estate is a good example. The DFW area has done better than other parts of the country, but we’ve had more deflation than many people imagine.
Here’s an example. In 2006 I listed a government-acquired property for just under $170,000; a very nice four-year-old house with over 3,000 s.f. of living area that had sold new for close to $200,000. My listing sold for just under $144,000. At that price it probably didn’t cover construction and lot cost. A few days ago that same house came back on the market as a foreclosure by a secondary mortgage market lender; it’s priced a few dollars over $100,000. It probably needs some TLC, as in paint and carpet to the tune of $5,000; I would not be surprised if it sells in the $90,000-$95,000 range, which will put it considerably below reproduction cost. That is deflation.
This deflated property could provide you a rental return of $1,200-$1,400 per month for a net return on investment, after expenses, of 8%-10%. The best part is that the value of your money will remain constant — as with gold and silver — with the added benefit of a monthly income. In a real estate rebound you would also be the beneficiary of what could be nice capital gains.
By now you’re thinking about having to pay the government a penalty for pulling money out of your 401(k). Maybe you can avoid the penalty; maybe you can’t; check with your tax advisor. But will you lose 50% in a penalty? You’d technically get the house at 50% of original value; a break even deal even if your penalty was 50%. Will leaving your money in the 401(k) give you monthly, in your pocket income? I don’t think so. What about the safety of your money? What if — when — the government cranks up the money printing where currency debasement (inflation) gets into the 25% range? How about the 50% range? What will you buy when all that paper goes to zero?
There are real deals out there now. Note that these houses are for purchase with cash; green paper; funny money that you turn into value assets at below cost of reproduction. Call me for more information: (972) 814-7391. - ☺md
December 3, 2011
Prepaid musicians don’t play well
Poorly funded contractors
I had a call last week from a past client. He hired a contractor to work on his house. He advanced him $900 to begin work. The contractor worked on the house less than half a day and disappeared. One of my grandmother’s favorite sayings was, “Prepaid musicians don’t play well.”
Often a small contractor will beat the competition in price because he has little overhead — generally a truck and associated fuel and repair expenses. There’s nothing wrong with saving money, or with small contractors; however, home owners should be careful when using underfunded contractors. The underfunded contractor will generally not have enough money to pay for materials unless the job involves mainly labor, so he’ll often ask for an advance.
Over the years I’ve used many small — often highly underfunded — contractors. Of course, there’s a difference between a contractor with limited funds and one with limited ability; I always made sure they were up to the task I required; that meant I got references or I personally knew about their ability. My solution to the threat of paying for work left unfinished was to always provide the materials to complete the job.
Last year we needed a long fence installed on land we manage. I hired a small contractor to install it. I supplied all the posts, fencing wire and ties. The job took a little over a week. He and a helper started on a Monday and by Thursday afternoon all the posts were installed as well as half of the barbed wire. My contractor asked if he could have a draw of half of the labor cost so he could pay his helper. I was glad to give it to him.
Over the years this particular contractor has performed many different types of jobs for our company; he’s honest and hard working. But whether it’s a new or well-known contractor, it’s always my policy to provide the materials and pay for labor at the end of the job, or provide draws as the labor progresses. It’s just good business.
Always remember that you are not a charity, and that prepaid musicians don’t play well — if they play at all. - ☺md
September 28, 2011
Where is the real estate market now?
Where is it going and how will it affect you?
If you’re a buyer now, caution is the key word. If you’re a seller, the Fed is your friend; sell now. This is not a “normal” market; it’s a manipulated market; it’s rigged to hold prices up, and in the end it will only cause more foreclosures and pain for sellers. Here’s the story.
Real inflation rates are not what the Bureau of Labor (Liars’) Statistics gives us. Their data are manipulated; extremely important items are not included; some items are massaged to give we, the Sheeple, a feeling of normality in prices. John Williams (ShadowStats.com) gives us the real rate of inflation. As of the end of August, the folks at BLS were telling us inflation was running at a comfortable (there is no comfort in inflation) 4%; ShadowStats peels away the lies and gives us the figures as they were published when BLS hadn’t acquired its phony ways, so we have a real inflation rate of somewhere around 12%.
In a nutshell, here’s what that means. If you have $100,000 in the bank, in order to hold the buying power of your money, you must receive 12% interest on your money; good luck if you’ll even get 4% nowadays. So if you were going to loan somebody those $100,000 to buy a home, you would have to get 12% interest just to keep from losing money; to be able to buy next year what you could buy this year with your one hundred grand.
But you might want a little profit for making the loan and taking the risk as a lender. In order to loan your money to a home buyer, you would not be greedy in charging 15% interest; that would give you 3% profit. So let’s say you loan the $100,000 at 15% interest on a 30 year loan; the payments would be $1,264.44 per month for principal and interest.
The question is, how much house can you buy at the current manipulated rate of 4% (I’ve seen lower than that for fixed rate loans)? The answer is $264,852.01. That’s right! Over twice as much. What do you suppose that does to the market? It completely skewes it; prices are forced up because people can afford the payments a very low interest rate offers. That’s what the government wants, because the government wants to get reelected next year, and that won’t happen if the voters realize that the economy is not growing; and it’s not in a recession; that it’s in a depression.
Since it’s a mathematical certainty that the dollar will crash and burn (maybe not so fast, or perhaps quickly at some point) it is mathematically impossible for rates to stay this low, no matter what the Fed or the government want. When rates come up, those who bought with these artificially low rates will be in a world of hurt if they need to sell their homes. As you can see above, the buyers who purchased the house with a loan for $264,852.01 won’t be able to sell it for that price if rates are at 15%; they’ll only be able to get $100,000.
If they’re desperate to sell, what can these desperate sellers do? You guessed it, they walk away and let the lender have the house; that’s what they’re doing right now, and have been doing in droves since about 2007. They’ll be so upside down that buyers and Realtors won’t want to talk to them; even a short sale will be too hard to manage.
Let’s take this one step further. Assume the $264,000 house is in a very homogeneous neighborhood; all the houses are worth somewhere in the $264,000 range. A lender ends up with the $264,852.01 house. Will it be able to sell it for the neighborhood’s value of $264,000? Not unless it’s willing to provide a 4% loan, and at that point it probably won’t be able to do so. The lender will take what it can get, and it could be $100,000. What do you suppose will happen to the neighborhood’s value? Down it goes. And since most people borrow money to buy their houses, and most put down very little in the form of a cash down payment, there’s a good chance many of the home owners will be upside down; they’ll also walk away from their homes and their loans when they need to sell.
Once you get a few houses selling at a huge discount to the prevailing loan balance of most of the houses in the neighborhood, there is a snowball effect. A good number of people will walk away simply because they don’t want to continue paying on their $264,000 loan when there’s a good chance they’ll never get near that amount when they try to sell sometime in the future.
The market is headed for a lot more trouble. There will be cities and neighborhoods that hold up better than others, and there will be some that get decimated with foreclosures. So you’re wondering what the story is here for sellers and buyers.
If you’re planning on selling sometime in the near future, this is the time to do it. Yes, you could wait till spring and summer since they are traditionally better times to sell. I suggest you throw tradition out the window. Get the house sold while buyers can afford to pay top dollar for your house. Things could get ugly quick; rates could ratchet up in a matter of months, and your chance to sell at a profit could turn your positive equity to a loss; maybe even a disaster where you’d be forced to walk away from your property and its loan.
If you are a buyer, caution is the keyword. Find the very best neighborhood, with the very best schools and location, and push like crazy for a good deal. There are plenty of sellers with less than perfect houses — especially lenders — who are selling their properties at deep discounts. With a little money and lots of sweat you can turn a pig into a juicy pork chop. If you buy the house at the neighborhood’s going rate, you could be sorry a few years down the road; you could be real sorry.
If you need to sell or buy, anywhere in the DFW area, we can help. I have a small team of very experienced agents. Call me with questions (972) 814-7391. - ☺md
June 20, 2011
Building green is fine
Living green is quick and easy—and you can save a LOT of money
The talk nowadays is building “green.” That’s great if you’re building a new house; of course, it doesn’t matter how green you build, the typical new house still takes lots of energy in the form of gas and electricity to run everything from computers to heaters and cooling systems. It also takes a lot of energy to build a new house, when you consider cutting down the forest for lumber, digging and crushing the earth for cement and aggregate to make concrete, and mining and making all the other stuff that goes into a new home; and then all the energy expended getting the whole thing put together; the house, the streets, the water, sewer and electric lines; you get my drift.
But what if you’re not building a new house? What if you have a nice house built in 1975, and you’ve insulated as much as you can possibly insulate? What if you realize that upgrading and keeping an older house is a lot greener than building a new house? And a lot cheaper. Well, yes, upgrading to make the house more green is great; but there’s an even easier way to go green.
The answer is to live green. It can be quick, easy, though often quite unconventional. Here is an idea that has come from some of our clients—and that we’ve tested—that you might want to consider.
Let’s talk summer comfort, since we’re in summer right now, and much of Texas has been blasted by hot air with summer starting in late May this year.
For over half a century now, the big thing in summer comfort has been central cooling. Here’s how it works. An air handler (which has a heater for use in winter) is placed in the attic; the hottest part of the house, no matter what you do to the underside of the roof, or ventilate and insulate the attic itself. A condensing unit is placed outside; it doesn’t matter that it sits receiving direct sunlight most of the day and is less efficient; some builders never thought that through. The condensing unit takes hot air from inside the house and delivers it outside through the magic of electricity and gases; that cools the house. The air handler delivers the heat to the outside unit and gets cool air to deliver inside the house; however, some of that cool air is immediately lost to the attic through the air handler as well as the ducts going to the registers into the various rooms of the house, no matter how well insulated they are.
There’s lots of energy lost in the central cooling system of many houses. One way to eliminate most of that problem is to place the air handler in a closet inside the house, and to place the ducts on the inside of the house, either exposed or hidden in furrdowns above hallways. Fox and Jacobs homes (later Centex; Pulte as of this writing), the original low priced, high production builder in the Dallas/Fort Worth area, did that quite well in many of their homes in the 1970s and 1980s. Converting an existing home that has the air handler and ducts in the attic would be a major undertaking; and even if you did that, you still have not solved another major waste of energy: Whole house cooling.
Whole house cooling is often a tremendous waste of energy. There are countless thousands of houses occupied by two or three people that have two or three living areas, two dining areas, and multiple bedrooms and bathrooms that are rarely used. With a central heating system you can fiddle with the registers and supply less cooling to some of the rooms, but you cannot completely shut them off as they leak air; and even if you plugged them off there would still be energy lost through the ducts in the attic going to those rarely-used rooms.
So what’s the answer? Individual cooling units is the most practical answer. Some people call them ninety-eight dollar Walmart window air conditioners. Okay, before you laugh, or say that your HOA will fine you for installing them and making your house look ugly, think about it; those little units cool only areas that are in use. Any cool air that leaks to other rooms makes those areas comfortable to walk through going between very cool areas. Rooms you don’t want to cool you shut off if possible; areas you want to keep very cool you can also shut off.
We did an experiment last year on a house in east Texas (hot and much more humid than the DFW area). It has 3 bedrooms, 2 baths and about 1450 square feet; it’s a well-constructed brick home, built in the early 1960s, on a lot with a good number of trees, though it’s not shaded all day long. The 2-1/2 ton condensing unit was on its last leg. To see what would happen if the central unit gave up the ghost, we installed a Walmart 98-dollar-special in the kitchen window; those little units put out 5,500 btu’s of cooling (less than a half ton); we turned it on and left it running all the time. The kitchen, dining room and living room are all open; a short hall leads to the 3 bedrooms and 2 baths. We closed the doors to the two bedrooms that were not in use, as well as the large utility room. We set up an upright fan to blow air down the bedroom hall, and had the living room ceiling fan going all the time.
To our complete surprise, the house was very cool at night, and in the high 70s during the middle of the afternoon; with the fans running it was completely comfortable. The outside temperature was hitting the high 90s. Amazing! A cool house with one fifth the cooling capacity of the central unit.
Several factors helped. The house was constructed by a builder as his personal residence; it’s well insulated, but only for 1960s standards. There are several huge trees in the back yard, and one in the front yard; they shade the house in the morning, and in the afternoon; however, it does get a lot of sun during the late morning and early afternoon. The little unit was left running on high all the time; it made up for its size by dropping the temperature at night and most importantly, removing humidity from the house. It also helped that there were only two people in the house.
There are other advantages to small window units. One is that you’ll never be left boiling when one goes out. The way to do it right is to place a unit in each large living area. The east Texas house could get a unit in each bedroom, one in the kitchen, and one in the combination living/dining room. That’s five units. If one goes out during a heat wave it’s not a problem; the others can handle the cooling. No more waiting for a serviceman to come during the weekend or at night—at twice the cost per hour—just to tell you that you need a new condensing unit for twenty-five hundred bucks. You can wait till the morning to get a new unit at your local Walmart; or you can even do it at midnight to beat the crowds during the day.
Permanently installing them is the best way to go; they’re really ugly in windows. A nicely cut and trimmed opening in the wall, one with enough room to allow any unit to fit in, makes for a permanent installation; there’s no chance a thief will want to steal it, or remove it to gain entry to the house; and a good fit won’t leak air the way a window installation will.
What if your house is 5,000 square feet of living area, and worth half a million dollars? And what if you don’t want those little units sticking out of every wall in your house? In that case, you can probably afford the thousand dollar electric bill in the summer; enjoy your house.
On the other hand, there are a lot of older houses, large and small, owned by folks needing to stretch their dollars, where window units can make a huge difference not only in severely reducing ongoing utility costs, but in cutting maintenance costs down to the bone.
Then there’s a swimming pool; what a way to cool off. But you don’t want to spend fifty thousand bucks I hear you think. How about under a hundred bucks? Stay tuned. - ☺md
April 17, 2011
Selling a house
Getting top dollar
Here are ideas you might hear from friends, relatives and real estate agents about selling your house for top dollar.
Idea 1: Sell your house without a real estate agent; simply advertise it on Craigs List and other online sites that charge a nominal fee.
Answer: In this market, leaving the house off the regional Multiple Listing Service almost guarantees failure. Serious buyers will be working with an agent that's loyal only to them, who will guide them through the confusion and booby traps found everywhere in the current market; good luck in getting an agent to bring you his/her buyer as a for sale by owner.
Idea 2: List your house with the top listing agent in your area.
Answer: Top listing agents are often excellent at selling themselves; they're not necessarily good at selling your house; as a matter of fact, rarely do listing agents sell their own listings because buyers want to work with their own agent, and not the seller's agent. You want a listing agent who will guide you through the selling process; from pricing, to property condition, to contract negotiation, to determining if buyers' agents are bringing you bonafide buyers and not unqualified tire kickers. As with a doctor or a lawyer, the best agents are the ones with the most experience.
Idea 3: List with one of the highly-advertised firms with a big name.
Answer: Lots of advertising means high overhead; a nice, big office in a prestigious location means high overhead; none of that means you'll get better service or a more experienced agent. A big name simply means the broker paid a hefty franchise fee for the name, and pays a certain part of commissions earned to the franchisor; additional fees are paid for national advertising; none of those expenses gets the seller any better service or more experienced agents. Ask the agent how long he/she has been in this game; ask if they know the difference between a warranty deed and a deed of trust; or if they know the difference between a contract for deed and a warparound; or if they know the difference between a joist and a rafter.
Idea 4: Offer a painting and carpet allowance to the buyer because the house condition is similar to a bank foreclosure or a HUD home; price the house like one in good condition because you're providing the repair allowance.
Answer: Try getting high dollar for a luxury car with the trunk shoved in from a nasty rear-end collision and offer a body shop allowance; see how quickly it sells; it won't. In this market, houses in prime condition, priced correctly according to today's property values are selling briskly. Banks and government agencies (HUD, VA) are selling their distressed properties at huge discounts to buyers who are patient and are working with experienced buyers' agents; or they're selling at modest discounts to inexperienced, impatient buyers who are working with novice buyers' agents. Get your house in top shape and you'll get top dollar; however, don't expect to get a 2007 price.
Idea 5: Reject the first offer that's not close to full price; a better one will come along later.
Answer: Unless the first offer is completely out of line with the current market, the first offer is usually the best offer you'll get. Make sure your listing agent checks the buyers' qualifications; that she talks to the buyers' loan officer; that the contract submitted was professionally and thoroughly completed, and that it came with a mortgage letter and a copy of the buyers' earnest money and option fee checks. I had a call today from a listing agent who rejected my buyers' $153,000 offer; she said the sellers had just reduced their asking price to $149,900; a bit late for my buyers who went to greener pastures.
Idea 6: Your house has a mortgage balance of $240,000; you are way upside down; you cannot afford the payments; allow your agent to list your house for $150,000 on a short sale.
Answer: Your first offer will come in at $140,000, with the buyers salivating at the great deal they're going to get. The bank will counter at $230,00 and blow everyone's hopes into the garbage bag. If you're way upside down on your mortgage, and you're way behind on your payments with no hope of catching up, skip the hopes of a short sale; stay in the house as long as you can without making any more payments; save your money. A hit on your credit rating is not the end of the world; with the late payments you've already absorbed the hit. Save as much money as you can and go find homeowners who can't afford their house but you can, and take over their house and loan...want to know how?
Call me; I'll show you how; several hundred people have given me their houses, loan and all; it's fun and productive. Want to get the best selling advice? Call me; no obligation...that’s right...totally free advice. I've been in housing since 1965: 972-814-7391. - ☺md
March 15, 2011
Take my house, because...
I'm not saving enough money
I've had a few hundred people give me their houses in the past three decades; well, they didn't just give them to me, there was a loan attached; and they didn't exactly give them to ME, they gave them to one of our companies. For the most part one could say they were FREE, since we didn't have to assume a loan, and generally acquiring the property took little or no cash.
Some houses were modest, others were nice custom homes. I had a call from a couple in Duncanville a dozen years ago; they wanted to get rid of their house; they realized they had no equity and would not be able to sell it on the regular real estate market without a loss.
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A Free House
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It’s in a nice neighborhood, and as you can see from the picture, it has trees all around it; in fact, there’s a creek and a small forest to the back. The interesting thing about this house is that the owners didn’t need to sell. When I asked why they wanted to get rid of the house, they said, “We’ve had a cut in pay and are not saving enough money.”
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An interesting answer, but I was not surprised; they seemed practical, level-headed and very conservative. One of our companies took title to that house and we kept it in inventory for a number of years. Because of the increasing price condition of the market at the time, when we finally sold it our company made a tidy $53,000 profit; not bad for a free house.
By the end of the 1990s I had perfected a system for acquiring houses that bypassed the conventional real estate buying process. For an investor, it was a marvelous and lucrative situation.
Then by the mid 2000s I knew the game was ending: The housing market was going crazy; people no longer needed rental houses or owner financing when they could get a new loan with lousy credit scores and no proof of income; in other words, all they had to do was be able to fog a mirror which would answer yes to the question, “Are you alive?” While it’s easy to make money taking over properties from desperate sellers in a rising-price market, it is nearly impossible to do so in a declining-price market; however, the fact that it won’t work for an investor doesn’t mean it is not a good thing for folks wanting to own their own home. That’s because they don’t plan on buying the house to flip at a higher price, or to rent it for more than the amount of the payment. All they want is their own home, and it’s okay at the current owners’ equity position.
I'm not suggesting that this is THE BEST way to buy a house; for folks with good credit, a verifiable job, and cash enough to buy, there are some excellent deals out there. But for people who have credit issues and/or don't have the ability to prove their income, I have absolutely the best solution. Please note that this is not for investors, and buyers still need to have some money — generally $5,000 to $10,000 — and the ability to make payments on a home.
I'll be running some concise yet powerful seminars to a select few in the coming weeks; it's for people who want to own their homes while bypassing the hassles of the conventional real estate transaction. The seminars will be modest in cost, designed for single buyers or couples. Prospective buyers will come away with a complete understanding of how to acquire a home, coupled with an existing loan. Please note that this will not involve owner financing or lease purchase, a lease with an option (also known as a lease purchase), a contract for deed, or a sale on contract, or even a wraparound sale. I'm talking about acquiring a home with an excellent existing loan for minimal cash cost and without the hassles of begging a lender for a loan.
Interested? I'll have more information here soon. Meanwhile, you can call me at (972)814-7391 if you want to get started sooner. - ☺md
January 8, 2011
Having trouble making your house payments?
Take in a house mate
I sold a house to a lady and her mother about three years ago, when the housing bubble was inflating to the maximum; it was a brand new house, very nice, with about 4,000 square feet of living space, five bedrooms and three and a half baths. I asked her why they were buying such a large home for just the two of them. She explained that they wanted plenty of space, that her mother would have the downstairs and she would have the upstairs.
Alas, two years later they lost the house in foreclosure. It wasn't that the payments were completely out of line for a house that size; the neighborhood had not, and still has not had a huge number of foreclosures, and all the houses still look very nice. The problem was that the house was too much for their budget. The sad part is that they didn't need to lose the house; there was a simple solution.
I've been in business for myself during the past forty years; I've been a home builder, land developer, remodeling contractor, have bought and sold or rented hundreds of properties for companies we owned or managed, and I've been a real estate broker since the mid 70s; I have had a few failures and many successes. I've learned two very important lessons during that time:
- There's always more than one way to skin a cat.
- Stay out of the box.
The simple solution for the two ladies to keep the property was to convert it from a homestead to a business. The first order of business was a mindset change: “We have a big problem, it's time to jump out of the box.” They had a large, lovely home. Before they got more than one or two payments behind, they could have taken in one or more house mates; they could have rented one, two, or all three of the extra bedrooms to very well-selected single females. Approximately thirty-seven percent of all the renters in the country are single with no children; that's a lot of people. One would guess that half of those folks are female; and a huge number would be honest, hard working women with jobs who would truly enjoy living in a nice home rather than in an apartment, or a house too large for one person.
The owners' house payments were around $1,800 per month, including taxes; yes, they were not bad for such a nice home. It would have been relatively easy to rent the three extra rooms for $600 per month each; that's only $138.46 per week if they wanted to make it easier on the “mates.”
Okay, some of you will say, “Who wants to live with strangers in their home?” Valid question. But what about these other questions: Who wants a foreclosure? And, if that's the case, why not rent out rooms four and five and buy a smaller, more affordable house to live in?
Wouldn't it be nice to live payment free? Here's how: They could rent the three bedrooms, buy and move into a smaller house with payments of only $1,200 per month; they would then rent the other two bedrooms in the large house and receive an additional $1,200 per month. Notice that now the big five bedroom house is taking care of the payments for both houses. All the owners would have to pay for would be utilities and maintenance; I hardly think that would run much more than just the payments on the smaller house.
Of course, thinking ahead, they could have seen what a sweet deal this could be if expanded. They would have bought the smaller house with four bedrooms; they could then rent two of the bedrooms for $600 each and that would take care of the utilities and maintenance on both houses. Now they could live completely payments, utilities and maintenance free.
But wait a minute! What if they rented the other two bedrooms in the smaller house? They would then have enough money to buy a third house like the second one, and the other two houses would not only pay for themselves, but also make the payments on the third house. Is this not making lemonade out of lemons? Is jumping out of the box just another way to skin the cat?
Let me add one more thought. After the ladies had one hundred houses, is it possible that they could live off their properties and not have to work; not need a social security check ever? Is it possible that after they had enough houses, they could start paying some of them off rather quickly and then the cash would flow a lot faster to pay more of them off even faster? We don't need to do a fancy spread sheet to realize that after they had all one hundred houses paid off, and they received just $600 free and clear from each house every month, they would make $60,000 per month; yes, per month. All of that because they couldn't afford their house payments and were about to be foreclosed on.
Aren't those big banks wonderful? They want to foreclose. They can push you to think outside the box. Come back here often for more ideas. I'll post a lot more this year. Next time I'll tell you about the folks who gave me their house because they weren't saving enough money. - ☺md
Sep 13, 2010
Buying a short sale house
Good deal or media hype?
You've more than likely seen the term “short sale” in more than one medium lately; newspapers, magazines, TV, radio and the internet have nearly worn out the phrase, many touting its great benefits to buyer and seller alike. A short sale means the lender, or lenders, will accept less than the amount due on their loan to release their lien and allow the home owner to sell a property; they do this, supposedly, to avoid the costs of foreclosure and related costs and risks of putting the house on the market after they foreclose. Typically, the home owner is far behind on payments, and the house is worth much less than the balance due on the loan.
- Here is the significant question for buyers: Can I expect to get a really good deal?
- And the important question for sellers is: Will it substantially help my credit rating?
We've been listing short sale houses for a number of years, before the term became a household phrase. We have a good handle on the implications for buyers and sellers and can answer these two questions with a good amount of authority.
The answer to the first question is, yes, buyers can expect to get a really good deal; the reality, though, is that they rarely do; and you might agree when you realize what's typically driving a short sale: Disillusioned sellers who are upside down in house value to loan ratio and are generally experiencing severe economic problems. In a situation like that, property maintenance will come to a screeching halt; HVAC filters no longer get changed; watering around the yard stops and foundations are allowed to shift; roofs that leak continue to leak; you get the picture.
Add to that the attitude of most lenders. The process is completely impersonal; the listing agents rarely get to speak with the people handling the sale since they often must deal with a computerized system that makes no sense, was probably designed by programmers designing software for people selling airline tickets, and is handled by lender negotiators who generally don't know the difference between a warranty deed, a deed of trust and a mortgage, and who are following a set of rules set by those above—way above—who are themselves clueless of local market conditions.
Buyers are asked to provide earnest money on a deal that has not been approved by the real seller: The lender. Inexperienced agents will often have their buyers pay for an inspection on a house that has a good chance of not closing. Months can pass while the listing agent and the lender go back and forth; the listing agent providing reams of often useless information and receiving silly counter offers that are way above the real value of the property. If the house is vacant the foundation continues to suffer, vandals can enter and damage it and remove essential items like the HVAC condensing unit.
Here's a good example. Our buyers were in love with a house that was listed for $115,000 in Arlington. The house was dated, it was vacant, and there were signs that there had been foundation leveling performed in the past; it needed work; lots of work. The house was worth about $100,000 tops, but it was in a good location, and exactly where the buyers wanted to live. They offered the asking price. After a reasonable amount of time, the lender came back with a counter offer of $130,000; it made no sense to us, and it made less sense to the listing agent. You see, the listing agent gets to set the price, and the lender gives no idea what it will accept; it will look at offers as they come in; a truly backward way of attempting a house sale.
Our buyers pulled their offer and the listing agent raised the listing price to $130,000. The house sat on the market, I imagine with zero showings, for a number of months. One day we received an email from our buyers saying that the price of the house had been lowered to $115,000. They put in another offer. The lender came back with a counter offer at $130,000. I wanted to laugh; it was stupidity beyond belief. The listing agent was getting weary of the lender's games. She asked the lender for an appraisal and the lender complied. The appraisal came back at $128,000; I figured the appraisal had been what is known as a “drive by” appraisal, and not a full-blown appraisal. Our buyers pulled their offer. The house sat for a few more months on the market at $115,000; eventually the listing agent must have tired of dealing with the house and the lender and took it off the market.
That was the last short sale we worked with a buyer, and we refuse to waste any time with another one. While we’ve sold a number of short sales, they always took too long to close, the negotiations were often foolish, and buyers never really got a steal; a few got what I'd term a “decent” deal. We have sold a good number of “steals” after lenders foreclosed and as owners they were much more motivated to get their non-performing assets out of their books.
The last listing short sale we worked was a nightmare of stupidity on the part of the lender; it involved an incredibly impersonal web-based system run by negotiators who must have flunked fifth grade, quit school and were fired as hamburger flippers because they couldn't quite figure out which was the correct side to flip the burger. We listed the house in July of 2009 and the lender finally foreclosed on it this month. It was nothing but frustration for us, the buyers' agent, the buyers, and the title company. When we closed our file I looked through our notes and couldn't help but laugh at how many times I read “stupid person” when one of us was referring to one of the many negotiators that were assigned to the file by the lender. This month we decided we will no longer list a short sale; the stress level is simply not worth the spotty number of successes.
There are some advantages to sellers. While some are concerned about their credit rating, most have already hacked theirs down to the low five hundreds or below and they won't gain much if the short sale is a success. The big advantage is that savvy sellers can remain in the house for an extended period. We gave up on one listing after working with the lender for about eight months; there was no way we could convince the negotiator that the house was not worth what the lender wanted to receive. When we gave up, the seller had been in the house two and a half years without making one single payment; that was one sweet deal for the seller, but an unfair situation for the buyer.
If you have a problem property, give us a call; there are alternatives to a short sale. If you're wanting a great deal to buy, call us and we'll help you find a real deal. - ☺md
Jul 26, 2010
Experience pays
What makes a great agent
Carol Thimesch got her real estate license in 1991; since then she has helped hundreds of people purchase wonderful deals in HUD, VA, bank foreclosures, and a considerable number of homes for sale by individual sellers. Working on the sellers' end, she's helped a significant number of homeowners sell their properties. She has a tremendous number of satisfied clients; we can be sure of that because a sizable percentage of her business comes from referrals.
The two deals she closed in the past few days are classic examples of an experienced agent providing sound advice to sellers in a listing situation, and buyers looking for an upscale home.
To the sellers she suggested a selling price—after doing a meticulous study of the market—that would provide a good number of showings from the very inception of the listing. She also indicated deficiencies in the property that could be remedied at minimal cost that would enhance the saleability of the property. The house went on contract at a price very close to listed price, and closed quickly.
She worked with the upscale buyers by showing them houses that were in excellent condition, priced correctly and offered by very motivated sellers. Her buyers bought a superb home for 85% of appraised value.
Working with an experienced agent pays handsomely. If you're in the market to buy or sell in the north Dallas area and northern suburbs, give Carol a call at (469) 774-9074. - ☺md
Mar 5, 2010
A fine home and a wreck
Why houses are like nice autos and jalopies
This isn't just for sellers; buyers pay close attention.
A seller called; she explained that she wanted to sell her house quickly, but that she had to have a certain price. She went on to give me a list of all the amenities, bells, whistles, superior design features and wonderful condition as a reason for her insistence on getting her price. I explained to her that the market sets the selling price, and that real estate brokers and professional appraisers could only approximate the ultimate value of a house to a buyer; I didn't mention that sellers can set an asking price, but not the final selling price. You’re right if you guessed that she wanted more than the house was worth.
I have a Property Sheet with a list of questions for sellers. Sometimes I pass over some of the questions; this time I carefully went over each one with the seller. It dawned on me that selling a used house is not much different than selling a used car. While this seller's home was in excellent condition, it turned out that the home had a lot of miles on it. The house was built in the early 1980s. The current owner was the original owner. The carpet was original; the roof had been replaced after a hail storm in the mid 90s at about the same time that the cooling unit had been upgraded. The water heater was about 12 years old. The doors and hardware, the windows, the kitchen and bath cabinets, the counter tops, and the light fixtures were all original. The most recent update was the interior and exterior paint that was less than two years old.
The house has about 2,000 square feet of living area; it has 3 bedrooms, 2 baths and a 2 car rear entry garage; it’s a good home, but the design is dated. There is no way to compare this house to a similar house that's one year old; no way. To do so would be like comparing a 1982 Honda Civic with 300,000 miles to a one-year-old Civic with few miles on the odometer; most 82 Civics are in the junk yard or have been crushed; most people would be appalled at how tiny, tinny, bouncy, primitive and worn out the old Civic would be. Such is the real fate of many older houses.
It's true that some older houses were better built than newer ones. For example, in the old days builders used real, solid boards for roof decking; later one half inch CDX plywood was substituted for the boards; finally Oriented Strand Board (OSB) was created as a “better” alternative to plywood. But it's not better; however, it does the job and I will take a one year old roof over OSB than a 15 year old roof over 60 year old solid board decking because in a short while I'll have to come up with a few thousand dollars to replace the 15 year old roof and the one year old roof should last a couple of decades.
Can you get a good deal buying an older house? Yes, if you keep the upgrading factor in mind. Make a list of all the items that are nearing the end of their useful life expectancy and figure out what it would take to have them replaced by a professional remodeler (remember that paint and carpet that are two years old can be used up if they have not been treated gently). Deduct a small amount of money for the value they might have to you until you replace them, and then deduct the grand total from the value of the house if it were in excellent condition; that's what the true value of the house might be to you. If you're handy, you can take care of most, if not all of the items for a fraction of the cost to have a professional do the work. You'll end up with a good deal. Naturally you'll need help from a knowledgeable real estate professional as to real values in the property's neighborhood.
Can you get top dollar when selling an older house? Yes, if you consider the paragraph above and look at it from the buyer's point of view. Replace everything in the house that's about worn out; that takes money, but it takes money to make money. If you don't have much money, then replace as much as you can that can give you the most bang for the buck. If the roof is 15 years old but still looks good, and the exterior paint is 10 years old and looks faded, buy some paint at your local paint store and paint it yourself; however, don't be upset if shrewd buyers discount for the old roof.
Want help getting the best deal when buying or selling? Call me; I'll be happy to answer your questions: (972) 814-7391. - ☺md
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