Tuesday, August 28, 2007

Ebay Real Estate Auctions

I've been thinking about auctioning off my Buffalo property on Ebay Real Estate. It's been for sale for 7 months now. I had one offer for $17k from some woman in NYC but she failed to follow through. Otherwise I have not had many calls on the property for nearly 3 months now. I've been using a flat fee listing service but have found that it is not working. Advertising in the paper brings no calls (true for every property I've tried to sell). Using a full service Realtor will cost a minimum of $3000 commission and my margin is so small that I feel that is a poor choice. So what is there left to do to sell this property? I bought it for $5k but legal fees and closing costs as well as ongoing taxes and utilities have my total cost over $11k now.

I'm not sure Ebay is the right venue to sell, but feel my options are pretty limited at the moment. Do homes sell at a huge discount on Ebay? Don't know at the moment, so I think I will monitor the sales for a week or 2 before I decide. If any one that has used Ebay, I would like to hear comments.

Monday, August 27, 2007

Acadia National Park

I just came back from a week of camping at Acadia National Park in Maine. This is a park located on Mt Desert Island off the coast of Maine. My wife and I are ready to retire and move there we thought it so beautiful. But the necessities of putting 4 teenagers through college will delay that quite a while.

The park is awe-strikingly beautiful in every way. There are oceans, mountains and fresh water lakes as well as the quaint town of Bar Harbor. The park is loaded with great hiking trails which range from easy walks to steep cliff climbs, carriage roads (funded by John D Rockefeller) which are great for biking (even our dog ran nearly 20 miles along side us), the fresh water lakes provide a warm swim though the ocean was a brisk 55 degrees. The views from the tops of the mountains are some of the best I have ever seen.

We road biked quite a bit as well and saw some beautiful homes. There was also the first opportunity for all of us to go kayaking. Saw some seals and osprey during the trip. The weather was perfect all week. Best of all we survived with 4 teenagers.

I've been to few places that I would relocate too. Seattle being the other place with similar geography. The opportunity for outdoor activity really appeals to my wife and I. The hikes and bike trips we took were pretty strenuous for our daughters but my 2 sons enjoyed them. Now we just need to make enough money to afford to buy a home there.

Monday, August 13, 2007

Reflections on real estate ventures

I watched a show called "Property Ladder" this weekend. It was about a young man who was an IT professional. One day he decided to quit his job and become a full time property flipper. His only experience was that he had read some books and course material. He didn't seem to have any experience actually doing "hands-on" work. Needless to say it was a shock to his wife who became the sole wage earner.

He purchased a house and got some advice from a real estate expert (part of the show), which he proceeded to ignore. He was acting as a general contractor but failed to stay at the job site and the subs didn't show up and didn't do the work per code. (Since he wasn't employed, I wonder what the heck he did all day?) He had a time table of 4 weeks that stretched to 12 and he doubled his budget. Finally, he overpriced his home compared to nicer homes on the market.

This was the first of these shows (Like Flip this or that House) which showed how to screw up a job. It was refreshing to say the least and at least allowed me to feel that I wasn't as bad a screw up in the flipping business. But I have made some mistakes this year.

I purchased one house in Buffalo that I thought I could flip wholesale easily. The seller owed $71k and the bank gave it to me for $5k. What a great deal- right? Well, I had taken Don DeRosa's advice and agreed to pay all seller costs - like Title search, back fees, etc. In addition, my attorney way over charged me ($2500) for what services he did. So I ended up spending $10k to acquire the house. I overestimated what houses in the market would sell for and probably got a little too greedy, pricing the house at $25k. We've had one verbal offer of $17 which I accepted but otherwise the house has not been shown for 3 months now and been on the market for 6 months.

Lessons learned: Don't offer to pay seller costs and start off at a lower price.

A second house I purchased was in a nice neighborhood. I had estimated the cost to rehab was only going to be about $10k but I doubled that. After the snow melted, I could see the roof was no good and once the curtains removed saw that the windows needed to be replaced. My wife and I did all of the work (I even learned how to install replacement windows), so we didn't need to bear the expense of contractors. On the downside, all of the work doubled our timeline from 2 to 4 months. The main killer for this house has been the carrying costs. We bought the house subject to the existing mortgage rather than use hard money (otherwise, we'd have gone broke already). Still, at $2k per month, that's $12k of carrying costs eating into any profit we had hoped to make.

Lessons learned: I need to increase my budget for unexpected problems. In the Buffalo market I also need to budget for much longer holding periods. This is not LA.

We have also tried to market these houses either FSBO or through flat fee listing. Neither has worked and now I am listing with full service agents. I'm hoping that will make a difference..

On the plus side, I didn't quit my day job, so I can make the payments and we are not facing foreclosure. Since we know a lot and learned a lot we also have not been ripped off by contractors. I had a boiler replaced in one house and 3 contractors gave me $5k estimates. The fourth finally understood want I wanted done and did the job for $2500. I was also able to get a really good price on the roof by finding a roofing wholesale company that sold me materials as a contractor.

I will probably have to write this year off as a learning experience. I'm not sure I will turn a profit yet. But it could happen.

Friday, August 10, 2007

How Mortgages are funded

Wall Street has been roiling in turmoil due to the "crisis" in the sub-prime market. I ran across this article that describes how mortgage loans are funded and what the underlying problem is.

Seems there are 3 ways for a mortgage to get funded:

  1. GSE's - these are government secured enterprises like Fannie Mae and Freddie Mac and Ginnie Mae. These loans are secured by the Federal government and are limited to $417k. Duplexes, tri-plexes and four-plexes have higher limits as does Alaska and Hawaii.
  2. Portfolio lending- this is where banks lend money out of their deposits. These are typically ARMs' and have very specific underwriting criteria (i.e. they screen their borrowers very carefully)
  3. Securitized mortgage pools - these are made up of a wide variety of loans and sold to Wall Street investors. These loans run the gamut from sub-prime to fixed to ARMs and are assessed for risk. This is where all of the problem area is at the moment. Investors are uncertain about the underlying equity of the real estate in these loan pools at the moment and so are not bidding on the loans. In the end it is what the Wall Street investors bid that determine interest rates of these loans.

So if you qualify under methods 1 or 2 above there is no crisis to speak of. It's when you need to get a loan from category 3 that there is a crisis. For people in expensive real estate markets this is the issue. For us in lower priced markets with good credit there is no problem getting loans. In fact, CountryWide (the largest lender with loads of problems trying to sell their category 3 loans) just approved me for a $200k, 5% down payment no doc loan. It took about 3 hours to approve.'

For many, this might be the best time to buy.

Thursday, August 9, 2007

1998 not the hottest year

Global warming proponents have been preaching about how 1998 was the hottest year on record and the past 10 years include 5 of the hottest. Well...it turns out that is not true. 1934 was the hottest year and most of the years during the dust bowl round out the top 5 hottest years.

According to the new data published by NASA, 1998 is no longer the
hottest year ever. 1934 is.

Four of the top 10 years of US CONUS high temperature deviations are now from the 1930s: 1934, 1931, 1938 and 1939, while only 3 of the top 10 are from the last 10 years (1998, 2006, 1999). Several years (2000, 2002, 2003, 2004) fell well down the leaderboard, behind even 1900.
(World rankings of temperature are calculated separately.)

Of course, you won't be hearing about this during the leftest newscasts or in the NY Times any time soon. As a scientist I have been suspicious of the basic data collection that was used to gather the data. Turns out much of the measurement stations are not quite up to standards. Good measurements are the basis of good science and there are lots of examples where we have not started gathering good data to determine if global warming is real or not.
Much of the world is relying on urban temperature measurement points that have substantial biases from urban heat.

More here. I didn't realize Mann was not a statistician, though I am not at all surprised based on my analysis of his work.

Wednesday, August 8, 2007

Real Estate Taxes in NY

I just read this post at pfblog regarding whether he can afford a $1M house in Seattle. He thinks that the Taxes and insurance for his million dollar home will be add $600 a month to his PITI payment.

Meanwhile I sit with a property in Cheektowaga NY with a property assessed at $163k and am paying $8k a year in taxes. Small wonder that it is difficult to sell.

Whatever dumb move you make financially, don't move to NY.

Tuesday, August 7, 2007

What I've learned after buying houses for 28 years

After graduating from college I rented for a year and since then have been buying single family homes with a spattering of duplexes, triplexes and one 6 unit building. My success rate has not been spectacular, more mediocre at best. In my mind my real estate ventures are heavily linked to my career choice. I majored in chemical engineering and was so enamored with working with one particular chemical company that I have intrinsically linked my real estate purchases to locations where my company provides work. And nearly all of those locations are away from growing metropolitan areas. I've also had the ability to watch my brothers (I have 6) locate to growing areas and prosper tremendously in their real estate purchases. So here is what I have learned:

  1. Location is everything. If you are not living in a growing metropolitan area the chances of making a lot of money in real estate diminish exponentially. I lived in Parkersburg WV for 20 years and population declined by 25%. What happened to real estate demand? Certainly not the same as my brothers who live - near Boston, near DC, near Philly, near NYC and Charlotte. Values of properties in WV tanked for years and then was flat. I could buy property for $0.50 on the dollar but then couldn't sell it for half of what I'd paid. I'm living outside of Buffalo now and although some suburbs are growing slowly the population of this area is and has been in a steady decline. Admittedly, some suburbs have seen some 4-6% appreciation during my 9 years here as whites have fled the city, but Buffalo and it's closest suburbs are shrinking. I've never lived in one of America's fastest growing Suburbs.
  2. Timing is crucial. There have been 2 major real estate booms during my life. In the early 80's interest rates dropped from 16% to ~7% and for most of the country real estate took off. But like the past 6 years, the boom was uneven throughout the country because location is everything. I watched my brother living near NYC rehab houses and make $100k in profit. I tried the same thing in WV and lost $100k. The key to timing in my mind is watching interest rates. During the past 6 years they trended downward towards the lowest on record and real estate boomed. When interest rates are rising real estate will not do well, when there is a long term downward trend, there are large opportunities for even the dumbest investor to make piles of cash.
  3. Buying from desperate people is one way to off-set the above 2 trends. Many people make money in poor markets and against the trends. The main skill that they possess is the ability and patience to only buy from people who are facing foreclosure (this doesn't mean they are behind in payments, just that some circumstance in their lives will push them there eventually). This could be people going through divorce, job loss or transfer, heirs of property, medical problems, etc. Locating these people requires lots of patience and a willingness to alienate lots of Realtors and sellers by making low ball offers. Most people buy houses based on emotion and don't have the self-discipline to wait for the right deal. I have purchased 17 properties in my life and I can say that the majority (12) were purchased based on an emotional decision rather than the numbers.

A lot of home owners have made a lot of money buying in the right location and during the right time. I watch Flip This House and Flip That House and notice that they don't do shows in Buffalo, but only in growing areas. See this Forbes article on Best Places to Flip a Home. There is a reason for this - that's where people can make money and don't have to be too smart about how much their budget or timing.

I still am a strong advocate of using real estate as a strong component of building wealth. I just need to buy smarter to offset the location and timing factors. I won't be one of these people on TV flipping a house for $100k profit after going over budget by twice, but I believe I can make small profits that will get me closer to my goals of financial security.

Sunday, August 5, 2007

Change in Real Estate Selling Strategy

Well, I've given up on FSBO and flat fee listing services. I'm switching both my properties to full service agents this week I haven't gotten a single call in 3 months for my Buffalo property and not a single agent has brought a client to my Cheektowaga property. I've found a young ambitious agent to sell the later property. I'm hoping that she will have contacts with relocating people as well as get some agents into the house. I'm not sure why the Cheektowaga property hasn't sold yet (except for the $8k tax burden). As one woman said today during the open house "it's to die for".

Maybe in a hot market these other services will work, but in the two areas I have properties population is declining and real estate is not hot.

Thursday, August 2, 2007

Credit Card Number Stolen Again

Got a call from my Master Card debit card company yesterday asking about charges I might have made. Seems like my number was pilfered somehow though I still have the card in my possession. This is the second time a number has been stolen from me.

A few years back I was driving through PA and bought gas. While waiting for the attendant to process the card (before the days of DIY at the pump, he motioned for me to come inside the station. The Discover Card agent was on the line and asked about purchased I had made. Seems someone was buying lots of high priced stuff in Chicago for me! Fortunately, Discover cancelled the card immediately and nothing ever showed up on my bill.

This time MC called me and asked if I had purchased anything from a Tent and Awning company for $1.39. (interestingly, I had ordered some camping equipment from another company). However, Tent and Awning was not someone I had dealt with. It turns out that this outfit puts through small, innocuous charges to see if the account is valid and once they confirm that, they make big charges. I might have looked at that $1.39 and never paid attention to it if it showed up on my statement. So, kudos to MC for picking this up.

This must be one heck of an ongoing battle between those creative types trying to steal others money and the CC companies trying to detect new schemes. Unfortunately, its costs us all money.