Wednesday, May 30, 2007
I've been watching the progress at Flip Thy House where that investor is doing what I am and has about the same goals.
I'm not sure if the foreclosure crisis has passed, but I have noticed that banks seem to be unwilling to take the large discounts in short sale packages that I have submitted in the last 2 months. The number of foreclosures in our area also seems to have decreased. I'd like to get a house under contract before I purchase another one so I am not overanxious to buy at the moment.
The lack of liquidity is probably the most difficult part of owning real estate. If the market is in a real downturn it can turn sure profits into losses if the property is not occupied. If I don't get some action, I may have to think of alternative exit strategies in the upcoming months.
I found an interesting post at this Carnival that I want to check out - A new Way to Access Home Equity.
The Carnival of Personal Finance has my post on Rent Vs Buy - My thoughts.
A related piece is the post on Buying an Expensive House.
Since I will have 4 teenagers in High School this fall I was interested in the post on 4 secrets you should know about paying for college - I didn't know!
Finally - a pet topic of mine Investors Vs Speculators is covered. Most so called real estate investors are just speculators (I have a family full of them)
Tuesday, May 29, 2007
I made several veiled threats to hire an accountant if she would not enter the data - that really made her mad and it had become a big source of conflict in our marriage. Finally this weekend I just decided to do it myself, even though I am clueless about accounting. Fortunately, my wife could not bear to see me screwing up the accounts and she decided to sit in front of the computer and start entering the data. Even though she had taken a QuickBooks course, she struggled trying to understand the software. I was able to help her in this respect and over the course of the weekend we were able to make substantial progress. She gained some confidence in her ability to use the software which was really the hangup in not entering the data.
Sometimes when working with a spouse it is not immediately obvious why the other is not doing something or doing it differently than you desire. The solution might not be obvious but fortunately, if you are committed to each other and the business, you can find a way to resolve the issue.
As a Chemical Engineer, I think forcing ethanol on the market is one dumb idea (this despite the fact that the company that employs me is pushing this and cellulosic ethanol). One of the key causes of high gas prices is the fact that environmentalists have restricted drilling for oil here and prevented oil companies from building new refineries for the past 20+ years. Last year industry executives were going to spend money to expand refinery capacity but the turn to build ethanol capacity makes that a poor business decision, so we will get little or no investment now and a continuation of high gas prices. Politicians don't belong in the market. Nixon's' price freezes in the 70's did tremendous harm to supply and price.
The federal ethanol mandate adds substantially to gasoline prices. Ethanol costs more per gallon than gasoline; it contains less energy per volume so a blend of 90 percent gas and 10 percent ethanol delivers 3 percent fewer miles per gallon; and ethanol has a higher vapor pressure which makes it even more expensive for refiners to meet EPA summertime vapor pressure maximums. The ethanol mandate also adds to costs for blending gasoline because companies now have to manage different two fuel supply chains.
Friday, May 25, 2007
I wonder where in the world journalists get their data. I've lived in 10 houses over the past 30 years - all of them over 90 years old. The kind of homes that you think would need major renovations (and many have). I've kept pretty good records of what I have spent and I find this data really flawed. The most expensive rehab we did was a total gut (only the original walls remained) and it cost us $60k. Over the past 30 years I have spent less than $100k on maintenance as well as major improvements. In every case that I have made improvements, the homes' value has increased by more than 100% of my cost.
Most people that own a home do most of the repair work themselves and often take on large projects as well. Is this journalist assuming that people are spending $300k to remodel their 1990's home? I suppose a few people are foolish enough to over improve a home, but I suspect that is a minority. Is he a total incompetent that he can't change a light bulb without calling an electrician or so lazy that he hires out maid service and lawn mowing. Part of home ownership is having a do-it-yourself attitude.
When journalist present flawed data, their whole story line is questionable. And today journalism has extremely low credibility with any story that deals with data (especially science).
Thursday, May 24, 2007
I shut down the nightly news broadcasts 20 years ago and rarely look at a newspaper except for the sports section. I lived through the eighties when Japan was going to dominate the world and buy the country up. China is a much weaker country than Japan in my opinion and I don't foresee them surpassing us (except as the worlds leading polluter). I still believe that our economy is going to continue to lead the world for many decades to come due to our underlying entrepreneurial culture. The students in China may study harder but they can't seem to think outside the box like Americans and after graduating from school Americans work harder and longer (my wife is shocked by how hard I work compared to her experiences in China and I think I am a slacker). We are living in the Greatest Economy Ever and though we may have ups and downs, I expect this will continue.
As far as I can see, our environment is cleaner now than it ever has been in my lifetime and getting better, our cars are safer, houses bigger and filled with nicer products. We can watch 100's of TV channels, blog on computers more powerful than the one that went to the moon, we live longer and healthier lives (my parents were never in shape to go mountain biking at my age). We travel freely and even though the price of gas is high, we drive Hummers and won't be scaling back our travel this Memorial Day weekend.
No - the sky is not falling, just getting bluer
Wednesday, May 23, 2007
Today we live in an "I want it now" generation. Young people buy houses that are larger than their parents homes while still in their twenties. Most people will buy what they want on credit long before they can pay for it. The abundance of blogs on solving debt is an indicator of how well entrenched this mindset is. The current crisis in the sub prime loan market is also an indicator. People blame the banks, but in reality, it is the borrowers who are trying to finance properties that they cannot afford that are at the root of the problem.
Many studies have shown that the ability to delay rewarding ourselves until we have earned something is a key predictor of success. I have had this quality to a large degree since I was quite young. I am addicted to chocolate, but can keep a stock for weeks by doling out small amounts every day. I remember my first exposure to people without self control in college. This group of women would bake some sweets and binge on them, stuffing themselves until every crumb was gone and they were sick. If I were addicted to gambling or alcohol, I am sure I would drink half a beer a day or gamble away a dollar a day.
I'm not sure if delayed gratification is an inherent quality that some people have or something that can be learned. I remember when I had an Amway business that the successful people preached to their audience about the requirement for long term financial success had to do with delaying rewards until you had the money. None of my kids seems to have this trait despite my talking about it. Of course, none have my genes and their biological parents certainly did not have that trait.
I've often thought that people with weight problems also lack the ability to delay gratification - rewarding themselves with food without putting in the necessary exercise. The solution to many people is to blame the restaurants for their health problems or financial problems. Few seem to want to exercise the self-control needed to control their lives.
The title of this post is a rhetorical question obviously. But how do those who won't or can't engage in delayed gratification create success? I am of the opinion that this is a learned trait, but it is becoming a minority opinion where once it was a majority opinion.
Can you change?
Tuesday, May 22, 2007
This couple has nearly $1.6MM invested in their home and a beach house. These are not investments, but perks they have given themselves before they had adequate finances to support such perks. This is their major problem , not their rehabs. They could sell the beach house but are letting emotional ties control their finances. Their home is probably too big an asset to own in proportion to their total retirement savings and 401k. This is another emotional issue.
So it seems to me that the main issue with this couples plan is that they are making emotional based decisions, not business decisions with regard to retirement. Now if they want to return to work to keep the beach house that is OK, but it is not rational for the Financial Planner to blame real estate investing Vs Stock market investing as the cause of their problems.
Unless you are planning on flipping your home or beach house, they are not really real estate investments. Many people fall into this trap with regards to how they regard their investments. If you are not willing to sell your real estate, its not an investment. Don't feel sorry for this couple. They are trying to live the high life without paying the price and got caught. Read Stanleys book on The Millionaire Next Door to see how the pseudo-rich spend their money Vs how the really rich build net worth.
Monday, May 21, 2007
My first thought was "holy $%^# I've screwed a couple of people here" (one bank sold me a property for $5k on a $71K loan). But my second thought was "what about the exclusion for homeowners?" There was no mention of that in this article.
So I did some research and it seems that my second thought was right. The homeowners exclusion gain will keep the IRS wolves outside. However, if you sell an income property using a short sale, you will probably owe lots of taxes even though you sold at a loss.
So, if you are concerned about tax consequences of selling your home - don't be.
Thursday, May 17, 2007
Today's environmentalist worship Gaia - Mother Earth - just as fanatically as any member of the worlds largest religions. Consider this blurb:
"Environmental activists are building a replica of Noah's Ark on Mount Ararat--where the biblical vessel is said to have landed after the great flood--in an appeal for action on global warming, Greenpeace said Wednesday," the Associated Press reports from Istanbul:Turkish and German volunteer carpenters are making the wooden ship on the mountain in eastern Turkey, bordering Iran. The ark will be revealed in a ceremony on May 31, a day after Greenpeace activists climb the mountain and call on world leaders to take action to tackle climate change, Greenpeace said.
This is pure religious symbolism.
I've written several times about how global warming apologists are obsessed with the Apocalypse of environmental doom. Now they are obsessed with getting indulgences for their sins in the form of carbon credits. Are these really any different than what the rich paid the Church in the Middle Ages for their sins?
Then there is the question of morality. For the New Agers - sex, homosexuality, and abortion are no longer sins but personal choices. So we hear that morality has become relative. Not so. There is a new morality - smoking, driving SUV's, guns, fur, judgementalism are the new sins. Thought crime laws and hate crime laws are more intrusive than prohibition in our personal lives.
No, religion is not disappearing as we become more educated. It is just worshipping a different god.
Wednesday, May 16, 2007
As far as I am concerned profits are what motivates me to work long hours after my regular job. Will my profits be big? I sure hope so, but I have taken lots of personal and financial risk to achieve any profits and I risk all of that if I lose money. Big companies do the same thing. It can cost a billion dollars to build an oil refinery. Drilling for oil is not a sure thing. There is lots of risk involved, so companies deserve to be rewarded when they take a chance and win.
Big loses also happen to companies. There was an article in the WSJ today that talked about all the layoffs and salary cuts that employees have had to take due to excessive losses by the industry. Daimler had to pay to have someone take over Chrysler this week. In a capitalist society there is no guarantee that you will make a profit. Those who scream about obscene profits are, in my opinion, either naive Marxists or too damn lazy to work. Jealousy is one of the seven deadly sins and the critics have it in spades.
The other part of the equation is buying retail Vs buying wholesale. If you are serious about being an investor, then your first big investment should be a home that you buy at wholesale prices. Most people hope to make money by buying a house and hoping it appreciates. Why not shop around for a desperate seller that will sell at a discount. This takes more time and patience and sometimes will take work if the house needs a lot of repairs. But this is ideal for a young single person or couple who spend their time on leisure activities. I've bought several homes now well below market value. Since there is little appreciation of houses here in Buffalo, its not been about buying at the right time.
So should you buy or rent? In my opinion, unless you are opposed to working for your money, buying is always the smart decision.
Tuesday, May 15, 2007
- environmentalists are part of the group of people that want us out of Iraq, yet they are most opposed to energy solutions that would reduce the need for us to be in the Middle East like nuclear plants and drilling in ANWR
- the biggest anti-global warming leaders are the most likely to use the most energy in their mansions and flying around the world in private jets
- The National Organization of Women(NOW) screams about the slightest offense from men here but says nary a word about the way Muslims treat their women (stoning them to death, genital mutilation, etc.). Political correctness trumps real suffering.
- Speaking of political correctness - it seems that it will be the downfall of Western civilization. We allow people to incite hate in the name of freedom of religion and are soon going to be too afraid to speak up about anything
- Lawyers are the root cause of a lot of this fear. There's no defense against a lawsuit except to spend a lot of money no matter how innocent you are.
- People that think that global warming is the greatest threat to mankind are in the "denial" stage of life. There is nothing that could undermine our society more than having a nuclear device in the hands of suicidal terrorists
- those who are always attacking the salaries of corporate CEO's say nary a word about the exorbitant incomes of athletes or movie stars. Who really adds more value to the country? How many protest the inherited income of Ted Kennedy?
- young people who are idealistic are often Marxists in philosophy usually grow up and become successful capitalists, except for the 60's generation, which became rich Marxists bent on keeping the power & wealth to themselves
- people that think we can deal with evil regimes by being nice and having talks are more naive than 2 year olds
- people that think abortion is legal should look into the eyes of my 3 adopted children and tell them to their face. One was conceived as a result of a rape - did she deserve to die? I thank God for the young girls that chose life
Monday, May 14, 2007
I was close to a deal on one short sale - about $2k difference when a sleazy appraiser/ realtor talked the woman into putting her house back on the market. He had appraised it for the bank at $70K and its now listed at $84k. The house had been on the market for 6 months previously with nary an offer. The house has no chance of selling before the auction and the woman will have a foreclosure on her record. As I referenced in a previous post the NY Home Equity Theft Act makes selling this type of property difficult plus the price is way too high for the location. The bank maybe thinks that I was trying to steal the property but the loser will be the homeowner here. The banks operate in remote areas of the country and have no clue as to the actual market and so give lots of credence to local appraisers. I have lost a lot of respect for appraisers during my time doing this business. They seem to suit the needs of their client rather than any reality based estimates.
I also got a call today from Litton loan on a SS offer. This company has to be the most disorganized loss mitigation company out there. I had faxed the offer 4 times over a 6 week period before they actually got the information to the right person. They gave me 3 different fax numbers and an equal number of account managers before it got to the right person. When I get back from my business trip I will have to see if they are flexible. This is a single loan so chances are not great.
I also found a great house in my town that my wife wants to move into. This will solve my problem of buying a house that I talked about since I feel I can get it far below market value and we can buy subject to the existing financing of the first loan. This one has the dual loan scenario. It's the first time I have gotten a response from someone in my town but I didn't get it from my mailings. I went to the house and put a post-it note on the door telling the owner I was interested in buying his house. This worked great and I may try it more often. I won't need to get much of a discount to make this work since it is in one of the best neighborhoods in town and the price per sq ft will be under $90 when other homes are selling at $120.
Saturday, May 12, 2007
Finally, after 85 days of non-stop work we have finished the rehab of our Cheektowaga house! It's the largest rehab I have ever done. Open house is advertised for next Sunday. There's still some cleaning to do inside which my dear wife will have to handle since I will be traveling on business all week. You can read details at www.JinnaProperties.com of all the features.
The house came out really nice and we are hoping to sell it for over $200K. We are going to start at $225K which is only $80/sq ft. Hope to get some feedback at the open house and then will take a stab at listing it at a flat fee listing service if the FSBO doesn't work quickly.
Friday, May 11, 2007
What I have found is that Realtors are not generally aware of this law and properties for sale where the homeowner is going through foreclosure are difficult to sell. There are specific requirements for contracts that the NY Realtors contract does not have incorporated yet. Things like font size, Notices about the law and Right to Cancel are missing. Consequently, any buyer purchasing a property in foreclosure is setting themselves up for $25K fines and potential for jail time. So who is going to buy such a property? Only a sophisticated buyer with a good lawyer.
In the end this law has stopped the homeowners ability to sell once they receive the lis pendens notice and given investors the upper hand. It hurts those it intended to help. Our politicians seem to have an uncanny ability to do more harm than good.
Wednesday, May 9, 2007
We are increasingly seeing stories like this one discussing how having children is contributing to global warming and intimating that we should limit the number of children that we produce. Then there are the increasingly common views of people like Paul Watson,:
"Humans are presently acting upon this body [the "biosphere"] in the same manner as an invasive virus with the result that we are eroding the ecological
A virus kills its host and that is exactly what we are doing with our planet's life support system. We are killing our host the planet Earth.
I was once severely criticized for describing human beings as being the "AIDS of the Earth." I make no apologies for that statement. Our viral like behaviour can be terminal both to the present biosphere and ourselves. We are both the pathogen and the vector. . . .
Curing a body of cancer requires radical and invasive therapy, and therefore, curing the biosphere of the human virus will also require a radical and invasive approach."
This is a continuation of the Paul Ehrlich Population Bomb nonsense. The population since Ehrlich wrote his book has tripled yet there has been no widespread famines. In fact, the standard of living of the world has increased, especially the third world. Anybody that has travelled to China can verify this with their own eyes. My wife stood in line as a little girl waiting for her weekly ration of meat but left China as an upper middle class citizen.
So ,despite the constant apocryphal predictions of the environmentalists, the planet has gotten cleaner (our air and water quality are all greatly improved since the sixties), richer and safer as the population has increased.
No, humans are not a virus that has to be wiped out, but the hope for the future. It used to be the religious fanatics that stood on the street corner with "The End is Near" signs, now it is the environmentalists - the new religious nuts.
Tuesday, May 8, 2007
I would like to set the initial price at a level that is slightly below what I think market value is in order to move the house quickly. After 3 months on the market we have not sold our "wholesale flip" because I believe it is priced too high to be a wholesale flip. Since we bought it for $5k cash the holding costs are not an issue so I am not willing to argue the point on that house. On the other hand there are lots of holding costs associated with our Cheektowaga house - $1780/month in payments. Six months on the market can eat away profits pretty quickly if we price it wrong. That's OK if you are living in the house and need to make a mortgage payment anyway but difficult for a vacant house.
So what's the best way to set the price? If there is lots of market data it is pretty straightforward, but getting comparables is more difficult than you might think. Only 2 houses have sold in the Cheektowaga house neighborhood during the past 2 years that are similar in size to ours. If you choose wrong the bargain hunters will be out after 6 months trying to low ball you, after you've already dropped the price. We initially set the price of our wholesale Buffalo house at $25k and dropped it to $22.9k. We've had a verbal offer of $17k which we agreed to, but have not gotten a written contract yet. We may end up going lower before we sell.
The Cheektowaga house would sell for $115/ sq ft in the town I live in but probably less than $80/ sq ft where it is located. The 2 comparables I have are less than $65/ sq ft but some smaller houses have sold for $75/sq ft. The most difficult cost for home buyers to swallow will be the $8k per year property taxes. We need to get $73/ sq ft to make our $20K profit goal.
Before we list the house we are planning an open house "for sale by owner". I hope to get feedback on the price from that to help us price the house when we list on the MLS.
Here's a lengthy article debunking the famous Mann Hockey Stick data which was first used by the IPCC and set off much of this hysteria. Just like the fraudulent data about the harm caused by power lines and Alar, these "scientists" give us a bad name.
I think all of these ideas are incorrect because they lack long term perspective. As I wrote in the Greatest Economy Ever, and here the real reason for our current economy have to do with macro trends. The stock market boom in the 1920's was due to fundamental changes in our economy caused by the Industrial Revolution. Great companies like Ford, GM and DuPont were creating wealth by developing new technologies that increased productivity. Likewise, today technology is driving improvements in productivity that are increasing our prosperity.
The triumph of capitalism is the greatest unreported story of the last 100 years and it amazes me how the socialists still want to cling to the dream of Marx.
Pete Youngs had recommended that you get 3 quotes and then take the lowest quote and get more quotes using the lowest as the starting point. I usually give up after getting only one or two quotes but finally decided to keep trying since I could not fathom why it cost so much to get a boiler installed.
I finally found a contractor that was willing to go through step by step all the work that needed to be done with me and his quote ended up $1500 cheaper than any other. Between getting contractor discounts and using multiple quotes Pete has probably saved me $7k on this job alone. I guess his course was worth the price!
Monday, May 7, 2007
"Destroying the Earth is harder than you may have been led to
You've seen the action movies where the bad guy threatens to destroy the Earth. You've heard people on the news claiming that the next nuclear war or cutting down rain forests or persisting in releasing hideous quantities of pollution into the atmosphere threatens to end the world.
The Earth is built to last. It is a 4,550,000,000-year-old, 5,973,600,000,000,000,000,000-tonne ball of iron. It has taken more devastating asteroid hits in its lifetime than you've had hot dinners, and lo, it still
orbits merrily. So my first piece of advice to you, dear would-be Earth-destroyer, is: do NOT think this will be easy."
The house is about 98% complete and looks really great. We had 3 couples knock on our door over the weekend wanting to see the house and a "We Buy Houses" sign in front has attracted callers as well. I worried whether we could recover our investment because there were few comparable's and it was difficult to imagine getting good price. But now that people are seeing the house I feel quite confident that we can make at least $20k in profit.
Last week I refinished wood floors for the first time and also installed ceramic tiles first time as well. Both jobs came out looking great. I could not figure out how to cut a square notch in a tile without shattering it with the tile nippers, so we ended up making straight cuts and piecing tiles together around the outlets. With the grout in place it looks OK.
I'm still waiting to get a new hot water boiler installed. I'm not sure what costs so much to put one in. The boiler itself only costs $1100 but the quotes I've gotten have been around $4k. I've installed forced air furnaces and there's not much to that job, but I haven't tackled a boiler. Maybe it's about time. I think the problem here is the stranglehold the plumbers union has here in NY. I think I am correct that PVC is still not approved for water lines here.
Our goal is to have the house on the market within 2 weeks. Hope it sells quickly.
Tuesday, May 1, 2007
I rented an orbital sander from Home Depot to do the job. Traditionalists use a drum sander but the HD guy talked me into the orbit and it worked really well. It has 4 - 6" rotating disks which use hook and loop paper. One of the surprising parts of refinishing the floor is that the most expensive part was the cost of the sandpaper. I had a desire to be skimpy with the paper and this cost me about 4 hours of wasted time. The HD guy had urged me to buy more 24 grit paper but I thought I knew better and didn't take his advice. As a result I ended up wasting 2 hours sanding and then had to go back to HD for some 24 grit and 36 grit to finish the job. I had lots of extra 80 and 120 grit to return.
I had a total of 4 rooms to sand 3 bedrooms which had varnish and the family room which had polyurethane and stain on it. The 3 BR's went fast and I thought I was going to write a post about how easy this job went, but alas, the stained family room took 6 hours to finish. I didn't have the correct grit paper as I noted above and the stain took a while to remove. I ended up doing a lot of hand sanding with a small orbital sander to remove dark spots.
The HD guy had recommended that I remove all the quarter-round molding since he thought the sander would get right to the edge and I wouldn't need to edge sand. However, we had painted it and I didn't want to redo it. I suppose a purist would remove the quarter-round and paint it off-line. In this case I'm glad I did not follow the advice of the HD guy. The sander did not get closer than 2" to the edge and I had to edge sand all the rooms anyway. But this wasn't difficult.
I was prepared for lots of dust, but the vacuum on the sander worked really well, as long as I emptied the bag after every 3 sanding pad changes. However, we ended up filling the house with sawdust after running the shop vac without the filter properly installed. So much for keeping dust down :(
All in all the floors came out really nice and the cost for the job was less than $350 for about 1000 sq ft of flooring. I didn't price this job professionally but have heard it cost upwards of $1.50 per sq ft so I think I saved a lot of money.
The vinyl floor installer also was here yesterday and installed a "floating" vinyl floor. The installer had recommended that type of floor as lower overall cost (higher material cost but lower installation). It seems to work really well in large rooms like the kitchen but for a small bathroom it doesn't sit well and seems like it is not installed at all (the floor is like hardwood laminate and no glue is used).
The house looks transformed in two days after looking like trash for 2 months. Still lots of punch list items to do but at least I feel like we are making good progress.