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February 19, 2007

How to Avoid a Rehab Nightmare

by

Real Estate Investor

Author website

With the refinance boom just about over and house sales slowing, now might be a great time for investors to think about doing a few upgrades on their properties. I mention the refinance boom because I know a lot of people used those funds to upgrade properties. Doing upgrades now puts the current investor at a distinct advantage because the upgrades will be newer and with declining demand should be about the same price as six months ago (not including the increased cost of materials). So where do you begin as an investor?

First, read everything you can. Keep the following generic tips in mind…

  • Don’t upgrade an investment property like its your personal residence (even if it is!)
  • Splurge on the little things, scrimp on the big things (see a few exceptions below)
  • Negotiate, Negotiate, and then Negotiate some more (even with National retailers like Home Depot)
  • Go neutral with everything

Second, plan the rehab in the areas that will get the most bangs for your buck. While this many seem simple, it is more complicated than many people think. Most people purchase a generic book or look at a website and see that bathroom upgrades add the most value. The problem with this method is that it does not account for the area or the property. There are many areas where houses are small and people pay significant premiums for finished basements for example.

Additionally, your house may have average bathrooms, but an atrocious kitchen. Here, it may be better to tackle the kitchen instead of making the bathrooms really shine. The most important tool you have in this process is the open house. If you are investing in apartment buildings, this also applies. Make sure you shop your competition. Think like a buyer. If you were looking for a house in this neighborhood, what would make this house better than (or equal to) all the other houses in the market? If every house has a great kitchen, finished basements, and average bathrooms, plan accordingly with your house.

I would recommend a few areas to spend a little bit more. First, the front door/address sign/mailbox should Read more

February 19, 2007

Is Now The Time To Move Up?

by

Mega-Producing Realtor

Author website

Nicole writes:

We have a great, 6 bedroom house in Gilbert. I’ve found a “perfect” (floorplan and upgrade-wise), new-build in Mesa with more square footage and a marginally bigger lot. We figure we could sell our house for perhaps over the price of the new place. My husband is hesitant because he thinks our current house will not sell in this slowed housing market. I say now is the time to move up. What do you think? -Nicole

Based on the facts presented, I think that I am going to agree with your husband.

Are interest rates (historically speaking) quite low? Yes. If one was going to buy a home in the near future in the Phoenix area, would now be better than later? Again, yes. But part of your question includes the concept of selling your present home for a price equal to or greater than what the new home would cost. Unless you planned on paying MORE per month or more out of pocket it does not look like you can make the move at this time. The data you’ve provided is quite limited but you have also included that you like the new home more than you like your present home. So … it looks like the price range you are thinking your present home will actually sell in is not correct. If the new home is somehow “better” than the one you are in then it will sell for more than the house you are in now. The only way this would not be true is if you are making a significant trade down in the quality of the neighborhood. This does not even take into account that your closing costs, buying and selling with commission will be at least 10%. Which would mean that if your current home was worth the same price as the house you were buying you would still need to come up that amount in cash or wind up with a loan that was at least 10% more than the one you have now.

I’m not trying to stop you from getting what you want, just Read more

February 18, 2007

Ask the Broker: What makes property values rise?

by

Suburban Phoenix Real Estate Broker

Author website

This is a Phoenix-local question in its original form, but I intend to answer it from a broader perspective.

What is the forecast for home prices along the light rail route once the route is completed? Boundaries: 7th Ave to 7th St. and Camelback to Thomas.

The most important thing to understand about the forthcoming Trolley in Phoenix is that it’s built on the wrong route. This was deliberate. The greatest concentrations of bus passengers in Phoenix are in Sunnyslope and in South Phoenix, at either end of Central Avenue.

To the right is a Valley Metro map that I have amended. The correct route for the Trolley is shown in bright red, right down Central Avenue. This would move the greatest attainable number of passengers, both from the current Number Zero bus route and from all the transfers from the east/west routes along Central Avenue.

But the purpose of the Trolley is not to move passengers but to move the sympathies of voters, so Valley Metro deliberately picked a route that will serve far fewer passengers but will appease various politically-powerful factions (most especially the millionaires living on Central Avenue between Camelback Road and the Arizona Canal to the north).

But the question before us is: What is the real estate investment value of the Trolley?

The answer? Essentially none.

In the map, the darkest green stripe runs from Camelback south to Washington, from 3rd Avenue to 3rd Street. This region is zoned for high-rise development, subject to Historic Preservation rules and freelance NIMBYism. If any land is likely to be affected by the Trolley, it is this land. But: The people who will make money trading this land will be very experienced land brokers. The people who will lose money trading this land will be punters who think they are getting over on very experienced land brokers.

The middle green band is the land from the Arizona Canal to Washington, from 7th Avenue to 7th Street. This land is ripe, with or without the Trolley. Buy and live, buy and hold, flips, especially tastefully-done historic flips, tear-downs, rezoning for higher-density — there is no limit. People want Read more

February 17, 2007

Hugg a house or hug your Realtor? Discerning motivation in the pursuit of residential bliss . . .

by

Suburban Phoenix Real Estate Broker

Author website

We have a searchBot running in the Arizona Regional Multiple Listings Service to find our next home. We’re not actively searching, with a burning urge to move. But we know what we want, and, should it turn up, we may take the leap.

This is not terribly likely. We are professionals, after all. This means, first, that we have a very tightly refined set of criteria for the next home we will move into. And, second, it means that our next home will have to be a better-fit than our current home for our professional needs — a high hurdle to leap. Still, the bot manages to scare up a house or two a week, and we end up taking a closer look at maybe one out of twenty.

We are not unique as move-up buyers. We work with quite a few people who are pursuing this same strategy indirectly, through us. Sooner or later they will move-up to homes selling from $500,000 to $1,000,000 — when the right home comes on the market.

That’s traditional real estate in the age of the computerized MLS system.

Now let’s do the same thing without professional representation. We can go to Trulia.com and PropSmart.com and Zillow.com and ZipRealty.com and look at what may be four different inventories of homes or may be essentially the same homes — with the degree of overlap unknown. Still worse, some of those home will have been off the market for months, since, with some exceptions, there is no penalty for lax housekeeping in the databases. The contact information is what it is, and, obviously, there is no built-in provision for arranging showings.

The idea that the secret power of Realtors is control of the MLS is funny, but funnier still — for now at least — are these goofy alleged alternatives to the Realtor’s way of identifying candidate homes for buyers.

Enter the folks from Incredible Agent with a solution. What if, every time you ran across some dubious candidate home at some dubious Realty.bot, you were to race over to HomeHugg.com to leave that home a Hugg, which is analogous to a Read more

February 16, 2007

In praise of an insanely great idea: Todd Carpenter’s REMBEX.com becomes the search engine of the RE.net . . .

by

Suburban Phoenix Real Estate Broker

Author website

Sometime very soon I am going to eviscerate another Cheez Whiz Prize winner, but here is a function I would much rather undertake: Delivering praise without limits to an amazingly, outrageously great idea in real estate weblogging.

Todd Carpenter runs REMBEX — Real Estate & Mortgage Blogger’s Exchange. It’s a web ring of RE.net sites, and Todd has run it as a labor of love for much longer than BloodhoundBlog has been howling. Once I realized that weblogging was about linking (Thanks, Dustin!), Todd’s was one of the first places I slinked off to for a link.

Yesterday, Todd announced the creation of REMBEX.com, a Google Co-Op-based search engine that deploys Google’s search technology on a defined set of real estate weblogs:

Basically I collected 250 active, relevant blogs, plus all of the blogs on activerain.com (a network of real estate bloggers), and input them into the engine. Google Co-op searches only these sites.

This engine bridges the gap between searching each blog individually, and using a more global search engine like Technorati or Google Blog Search. Those bigger engines can be useful, but I’ve found that they don’t differentiate between dedicated realty bloggers and anyone with a blog, that happens to mention real estate. The big search engines also tend to bring up results from sploggers or almost any site that uses RSS feeds.

I think this is an insanely great idea, so much so that I’ve deployed it along with our regular sidebar search function. Suppose you’re reading BloodhoundBlog on (ahem!) Dual Agency. Want to hear what other RE.net blogs have to say on the subject? Type “Dual Agency” into the REMBEX search box and see who salutes.

I can’t sing the praises of this tool enough. It’s even easy to deploy in your own weblog. For me, this is the leverage of genius that the internet brings to us all: Todd gave up some sleep to bring forth a tool that will save all of us time every time we use it — and time is our sole capital. We enrich ourselves by tiny little accretions of time — time we can Read more

February 16, 2007

‘Fizzbos’ fizzle because of 3 key marketing issues

by

Suburban Phoenix Real Estate Broker

Author website

This is me in today’s Arizona Republic (permanent link):

 
‘Fizzbos’ fizzle because of 3 key marketing issues

I have a friend in another state who is selling his home “by owner,” which Realtors affectionately refer to as a “fizzbo.” It’s interesting for me to watch, because he’s done a very professional job.

We should note at the outset that most “for sale by owner” (hence, fizzbo) efforts fail. Of the three P’s of real estate marketing — price, preparation and presentation — many fizzbos will fail on two or even all three.

First, if a home isn’t priced to the market, the home will not sell. This is why so much inventory, even Realtor-represented inventory, has lingered on the market so long over the past 15 months.

Second, the home has to be in turnkey condition: in excellent repair and staged to perfection. If it isn’t, it should be priced accordingly. Even then, most buyers in this market won’t give it a second glance.

And finally, the home must be appropriately marketed.

A fizzbo is at a huge disadvantage over a represented sale. At an absolute minimum, a Realtor-represented home is advertised through the MLS system to every other Realtor in the market.

By contrast, the by-owner home is promoted only to people who happen to drive by and see the sign or who happen upon a newspaper or online ad.

An aggressive Realtor will do even more to market your home, targeting promotions to the people most likely to buy.

And that’s what’s interesting about my friend’s efforts. He is a marketing professional, so he had presentation more than covered. He has excellent taste, and he keeps his home in pristine condition, so his preparation was perfect. And he consulted with Realtors and, ultimately, an appraiser to make sure his home was priced right.

You could call this a semi-professional for-sale-by-owner sale, and my advice would still be: “Don’t try this at home.”

But note this: He “launched” his home to the marketplace on Dec. 23, which no professional would have done. The result? Showings all through Christmas weekend, when people had time available to look at houses.

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February 14, 2007

SPAC Disease Reaches Pandemic Proportions

by

Realtor, Audio Engineer

Author website
Seller’s Price Perceptions Cause National Uproar

In today’s real estate market, the refrain from Realtors is the same: “These sellers are living in La La Land (or Neverland). Everyone is thinking their home is worth much more than it is. We can’t get them to see the truth!” Alas, the “truth” is that this is an age-old problem that is not necessarily intrinsic to any particular market, but may be a little worse than normal in 2006-07. The history books are replete with examples dating as far back as the paleolithic period of neanderthal men and women chasing Realtors from their caves with raised clubs over a price dispute. This euphoric optimism of the common home seller has been studied by the American Medical Dissociation, and it has coined a neologism: Schitzo Prospectus Actualis Capitalis. (Editor’s Note: a break with reality concerning the expectation of material gain.)

The acronym, SPAC (pronounced “Space”), has entered modern parlance to speak of sellers with the disease. “Spacers,” as these unfortunates have become known, appear to be causing Realtors apoplectic frustration. But what is this disease, and how has it reached epic proportions?

One of the contributing factors of the disease appears to be neighborhood gossip. It is not uncommon for homeowners in a given community to keep each other apprised of the going rate for homes through the neighborhood grapevine. Our reporter asked a local homeowner to give her opinion of her home’s value:

WUSA Reporter: “What do you think your home is worth today, Mrs. Bon-Mot?

Mrs. Bon-Mot: “Well, the Pastiche’s place down on Maple Drive is very similar to ours, and his sold about a month ago for $525,000. It took him a couple of months to sell, the market being what it is, but it did sell. Now, our home has Teflon wallpaper, which his didn’t. Also, we have an above-ground pool that the kids just love. Oh, we also got a new air conditioner about, oh. . .ten years ago? Yeah. All these things add up! So, I would expect that we could get about $550,000, maybe $560,000.

Our intrepid reporter, Read more

February 14, 2007

Dual Agency Smack-Down: Buyer’s and Seller’s Informed Consent to Limited Dual Representation

by

Suburban Phoenix Real Estate Broker

Author website

I really don’t like Dual Agency. I think that’s pretty well established. Even so, Russell Shaw convinced me — in person, not on BloodhoundBlog — that BloodhoundRealty.com would have to offer Dual Agency if it is to list effectively in the historic districts of Downtown Phoenix.

Right about the same time, we undertook the Dual Agency Smack-Down, an attempt to explore the issue in detail. At a certain point in that debate, I hit what I thought was an insuperable wall. The problem was the complexities of a represented real estate transaction:

The only workable way even to achieve Disclosed Dual Agency is by repeated, overt agency violations against either the buyer or the seller, or each in their turn. In other words, you would have to hint at them what to “order” you to do, and each one of those hints would be a betrayal of the interests of the other party.

The problem, as I came to see it, was the word “detriment” in the Arizona Association of Realtors Consent to Limited Dual Representation form. If a broker could not act in any way detrimental to either party, then he could not offer any meaningful or useful advice to either party.

As it turns out, that word “detriment” turns up in Dual Agency disclosures from all over the country. I had a Realtor in Florida send me a disclosure for Transactional Brokerage (that is, no agency for either party) and the word “detriment” even appears there.

Interestingly, the statute law of Dual Agency in Arizona is not nearly so restrictive. The law requires disclosure and informed consent, but it does not insist that the Dual Agent cannot act in ways that might be perceived as being detrimental to one party or the other. Obviously the common law dictates of agency come into play, but the point of a Dual Agency Disclosure form is to modify agency for both parties in such a way as to permit the transaction to take place.

The problem — in Arizona, take careful note — was not Disclosed Dual Agency but, rather, the impossible restrictions that were being imposed by Read more

February 14, 2007

Book Review: Realty Blogging a comprehensive introduction to real estate weblogging . . .

by

Suburban Phoenix Real Estate Broker

Author website

Back when I used to have a job, I was a complete Insufferable Bastard of a boss. I wouldn’t let people take notes about jobs to be done or how to resolve hardware or software problems. “If you don’t know it in your brain, you don’t know it.” Nobody bought me cupcakes on my birthday, but the people I didn’t fire learned their jobs inside out.

Richard Nacht and Paul Chaney at Realty Blogging sent me a copy of their book, also called Realty Blogging. I’m of two minds on the book. It is a very comprehensive introduction to real estate weblogging, but, at the same time, I just want to yell at you to sit down at your desk and work it out.

Well, that’s not very nice, is it? Plus which, you don’t work for me, so you don’t have to take grief from me. Here’s my bottom line: If you’re new to real estate weblogging or if you’re thinking about starting a real estate weblog, this book will teach you a lot, and it will help you avoid a lot of nasty pitfalls.

And: The Amazon price on this book is low enough that you could buy a copy for your broker — for his birthday…

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February 14, 2007

Be a Visionary Investor: Think Big

by

Real Estate Investor

Author website

As I sit here in Ithaca, NY snowed in, I can only look out of the window and think about real estate. While that might be sad to some, to me real estate is truly a passion. As I eat my bagel I have been pondering what makes people like Bob Toll and Donald Trump different from Joe Everyday Investor or even from me. The answer is simple, vision (and about a million of today’s dollars in seed money, but you see where I am going). I really think they simply dream bigger than most.

Case in point, I am considering joining a long term partnership of investors. During my trip to Greensboro, my wife’s friend approached me about joining a group of local investors. All of these guys have been investing locally for about three to five years and have good market knowledge. At our first meeting two days ago we began to talk generally about our vision for the group and some of our financial goals. Right away, I felt a bit out of place. Most of the people in the group seemed to be thinking very short-sighted, more concerned with how quickly they could get money out than how quickly the group’s investment could grow.

This initial meeting really made me reassess my personal vision. The question I continually ask myself is, am I stretching myself far enough? As an investor, I have set specific life goals for myself. These tend to serve me personally better than setting goals in dollar value ($1 million before I am 30 for example). However, like most investors, at times I get so bogged down in the investments that I forget the goals. Before I know it, I am off track (sometimes ahead, sometimes behind). Luckily, my goals are certainly a stretch. Right now, the only difference between me and Donald Trump is 30 years of investing (and about three bankruptcies). I do not feel at all like that level of investing success is unattainable (even with less risk).

So why do I write this piece today. I write this to challenge you to rethink Read more

February 13, 2007

Is the Subprime Mortgage Market the next Enron?

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

An excerpt from one of my recent posts on The Active Rain Real Estate Network:

The sub-prime mortgage market is falling apart. Wall Street firms are being stung by the bad sub-prime loans they bought and have demanded that the sub-prime lenders buy those loans back. The sub-prime lenders didn’t have the money to do so. Those Wall Street firms simply swapped the debt for ownership in the firms. Once the camel got his nose underneath the tent, he didn’t like what he saw.

The sub-prime mortgage market is completely tightening its lending standards. The wholesale account executives, once compensated like a proven reliever for the Padres, are applying for night gigs as bartenders to supplement their income. The words “stated income” are becoming more politically incorrect than a racial slur. The NEW AND IMPROVED sub-prime lender will emerge as the prostitute who found God.

Here were some excerpts from some of the comments:

From Mikey:

Right now the lending standards are just taking out 100% subprime financing. Watching the rate sheets, low LTV stated deals are still plentiful. I think hard money can be a profitable niche, but it will remain a niche. The other thing limiting its growth potential is just the slowdown in real estate market in general.

From my buddy, Jeff Belonger in New Jersey:

Brian… some good points. But sub prime will always be there, in my opinion. I remember when it started hitting the streets hard back in 1994-’95. The strong will survive…
… But there will still be those few sub prime lenders that have been positioning themselves the last 2 years, not taking every piece of crap. Names like Equi First and Decision One will be around and they still have good products that Wall Street will invest in. Why? Because of their performance records and lack of loans that go into default

More importantly. Some of the e-mails I received today:

From a colleague in the Midwest:

Hey, do you know of something going on at New Century? Rumors are flying right now…

Unsolicited e-mail from my post:

i’m an account executive for a major subprime lender. i am seeing fear and panic in Read more

February 13, 2007

Is Your Broker Profitable? – “Rent-A-Broker” Shops

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

The 100%, desk fee model was made popular some 25 years ago by one HUGE national franchisor. There have been several companies that have adopted that model and had equal success. Essentially, the business model is along the lines of “rent-a-broker” for a flat fee per month. The term “rent-a-broker”, really isn’t fair because it implies that the designated broker isn’t supervising the transactions but I’ll use it for the sake of illustration.

The compensation proposition to the agent is that you get to keep 100% of your commissions and pay a monthly fee to the brokerage. There is an mutation of that model that charges a flat-fee per transaction but I think I’ll focus on the “rent-a-broker” model for this post. The best analogy for this model is one of a landlord and tenant. Like a property lease, there is a contract outlining the rights, responsibilities, and financial consideration expected from each party. In most markets with a median sales price of $250,000, the monthly “desk fee” would be approximately $1,000.

The broker/owner, really doesn’t have to provide much to the agent in terns of advertising or office space. Essentially, the only expenses associated with the brokerage would be the three administrative salaries and a small office space (with conference room and copier). I’ll pull the administrative costs from my post about the traditional model:

Let’s analyze the annual expenses. Receptionist, operations assistant, and sales manager salaries will total $130,000. We gross that number up 115% to include payroll taxes and benefits for a total of $149,500. This is a traditional model so you should figure on $12,000 for advertising. Throw in the rent and facilities charges of $75,000 for a 2000 sq. ft. office, $12,000 for supplies and $12,000 for phone/internet, equipments lease and we are approaching $260,500.

Some of the costs will be recouped by “a la carte” services. Five individual offices could be rented to agents for $1,000 per month and the supplies and equipment costs could be passed through to the agents. The real Read more

February 13, 2007

Hillary Clinton and Rotarian Socialism: What’s wrong with the NAR?

by

Suburban Phoenix Real Estate Broker

Author website

Business Week’s Hot Property wrote yesterday about the NAR’s having gotten into bed with Hillary Clinton — who is “sponsoring a bill that bars commercial banks from hiring real estate brokers/agents” — but that’s just the tip of the iceberg. The National Association of Realtor is routinely, habitually, congenitally anti-free market.

I’m doing the prep work to defend the traditional practice of real estate, but this is my radical yelp: The original and on-going purpose of the NAR is anti-capitalist. The organization was formed to limit entry into the residential real estate business — to push Chester the Barber and others out of the business. The NAR wrote the original state real estate laws to achieve this goal — however poorly. This on-going legislative campaign against banks competing for real estate transactions is just more of the same: “Protecting” mediocrities from fair competition.

It seems never to end. If you’re a member of the NAR, you get hit with spam about once a month about some vitally important piece of anti-free market legislation: Coerced health insurance for real estate brokerages, keep WalMart out of banking, keep banks out of real estate. The NAR is hardly alone in making appeals for legislation, so it is perhaps easy to forget that legislation is imposed by force of arms. What the NAR is doing is taking control of the massive firepower of the Federal government and deploying it to hijack potential competitors.

It’s a protection racket — vicious, awful, evil crime — dressed up in Brooks Brothers suits.

We are apt to think of Communism as being Capitalism’s natural enemy, but there is another, perhaps more insidious foe to unfettered laissez faire. I call it Rotarian Socialism, just to give it a name. Rotarian Socialism is legislation written by and for the membership of a politically-powerful elite. Most of the criticisms you hear about Capitalism are in fact criticisms of Rotarian Socialism.

Truly free markets require freedom, not laws. I have argued before for getting rid of the real estate licensing laws — or, at a minimum, eliminating the broker level of licensing — and for eliminating the real Read more

February 12, 2007

Podcast: Dustin Luther’s Real Estate Weblogging Seminar Part III

by

Suburban Phoenix Real Estate Broker

Author website

This is the third of three podcasts of Dustin Luther’s Real Estate Weblogging Seminar.

The recordings for these podcasts were made by Rudy Bachraty of the Sellsius Real Estate Weblog.

Dustin is best known as the founder of Rain City Guide. Dustin works as a technology evangelist for Move, Inc. As evidence to his commitment to weblogging, he has a weblog devoted to internet real estate marketing, and this particular series of seminars are sponsored by Top Producer.

Rudy’s initial recordings suffered from some quality issues, most notably his distance from Dustin and some random electronic interference. BloodhoundBlog’s intrepid audio engineer Allen Butler (himself a top-producing Realtor) was able to scrub the audio to bring Dustin’s voice forward. The recordings still suffer from some defects, but 99%+ of the intellectual content has been preserved.

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