Friday, September 28, 2007

Back to flat fee listing

Well, I've gone back to flat fee listing services on both my houses for sale after wasting 2 months with a full service Realtor. The first Realtor was totally unprofessional while the second just wasn't interested in selling the property. At least that is the impression he gave me.

For my wholesale house I am using a new service called IggysHouse which has no charge at all (most flat fee listing services charge $300-$700 for their service). The flat fee listing service that I had for my more expensive rehab is going to give me the balance of my listing time at no charge, but I expect there will be a renewal fee.

I'm also considering a rent to own option for the rehab house. The main problem is that it will give me a big negative cash flow and leave me with a house still unsold next fall if they renters don't buy. I feel I am in lose-lose situation with this house at this point. There are no good options.
  • refinance and rent - drops payment $300 per month but lose another $4k upfront and still lose money if I rent it
  • drop price under $200k per Realtor recommendation- lose money (already spent over $201k and rising $2300 per month). Unknown how long it will take to sell at this price.
  • rent to own - lose probably $800 per month for next year and hope buyer gets financing. Only 30-50% chance of that, so I most likely will have the house vacant again next fall

I had convinced my wife to invest in real estate this year so that she did not have to get a job. I was sure we could make $20k. Looks like I will lose at least $20k this year with no end in sight.

Tuesday, September 25, 2007

Realtors aren't so great

I've kicked myself for not putting my houses with a professional Realtor, but now realize a Realtor is not a panacea.

I've had my rehab house with a Realtor for 50 days now and here are the results:
  • 2 showings
  • no flyer box despite repeated requests
  • one open house last Sunday without my agent - no advertisements were made at all for the open house, no signs were put up in advance, no mention in the MLS and it was only open 1 hour. Not surprisingly only 4 people showed up
  • no magazine advertisements.

I chose the top agency in this area and asked for a top agent. I got garbage. Last night I fired the agent and demanded the #1 seller or else I was going to change agencies.

I was getting 10-15 showings a week when I was doing FSBO using just street signs. I read all this great hype about what agents can do but don't see it.

Maybe I should kick myself instead for using an agent

Wednesday, September 19, 2007

Rent to Own (Lease-Purchase) Real Estate

I've been struggling lately to sell 2 of the properties that I purchased this year. One a fixer-upper wholesale flip hasn't had a bite for 6 months, the other is a nice rehab that I am trying to sell at the upper end of it's neighborhood price range. The first property is in Buffalo, the second within a mile of Buffalo.

The first house that I purchased for investment in this area was a 1.5 story brick cape in the town of Lancaster. Lancaster is the fastest growing suburb of Buffalo. We purchased the house for $80k. The basement was full of water and it had sat on the market for nearly a year. We spent about $19k rehabbing it with about $8k going to drain tile. Since our cash flow was very tight I couldn't let it sit on the market for long, I decided to try to sell it as a lease-purchase.

I had learned about lease purchase primarily from a course I purchased through Ken Preuss. For this property I put up one sign in front that said "Rent to Own". This sign generated over 500 calls last year and we quickly leased the property to a family. Rental rates are quite low here and a typical home rents for ~$900 per month. We were able to get $1050 and a $2500 non-refundable option payment. The lease agreement specified that the tenants pay the first $200 of repairs, so my maintenance for last year was $0 and the property generated a positive cash flow of $300 per month.

The tenants took care of the property and actually made improvements (installed a new bath room floor and a nice ceiling fan in the kitchen) at their own cost. In the end they decided to buy another house and have moved out leaving me with their option money. We put our "Rent to Own" sign out again 2 weeks ago and were again flooded with calls. This year we have a $3000 option payment and raised the rent to $1075. The option amount is for a sales price of $139k and we give the tenants $500 rent credit towards a down payment if they pay by the first. We quickly found another tenant.

For a rental property this method really seems to work well. The advantages:
  • the rent we get is about 20% above current market rates
  • the rent credits really motivate the tenants to pay on time (I used to have to chase tenants down in my previous days as a land lord)
  • the upfront money we get seems to motivate the tenants to take care of the property
  • we don't have to worry about the nitpicking small maintenance items that used to get me out of bed at 2 am
  • the selling price is higher than what I think I would get by putting the property on the market

The one disadvantage has been that I cannot get my equity out of the property, although I was able to recover all of my down payment and rehab costs by getting a HELOC type loan on the property.

The concept does have it's limitations. For starters,we are at the upper end of the rental market here and I don't think I could do this for my Cheektowaga home. I would need to rent that one for $2000 per month just to break even and I have never seen any houses advertised for that rate here (although there must be some available through re-lo offices of local Realtors). Preuss also talks about getting $5k to $10k as option money, but that is too high for our area. $3000 seems about right. The rent and option money really drops the number of qualified people significantly (95% self-eliminate when they find out the terms) at the price range I am charging.

The courses I have taken talk about focusing on "bread and butter" homes. It seems that this house is such a house for our area. The other 2 are either too highly priced for their location or the location is so bad no one wants them. Modifying my house buying criteria might help me turn a very negative year around next year.

Thursday, September 13, 2007

Selling My Fixer Upper - Real estate turns sour

I purchased a fixer upper using a short sale in February thinking I could make several thousand dollars. I initially priced the house at $25k FSBO and was probably too greedy. I had an interested buyer the first month but would not reduce my price sufficiently for him to bite.

After a couple of months I put the property on the MLS using a flat fee listing service. I got one bite from a NYC investor and thought we had an agreement to sell at $17k. But she backed out.

Last week I tried listing the house on EBay with a starting bid of $12,700. But I had no bids. Tomorrow I will list with a full service Realtor. The main problem is that local Realtors charge a minimum of $3000 commission. I bought the house for $5k but with closing cost, attorney fees, back taxes and ongoing tax and clean out I have $11k into this property. My dream of making several thousand dollars profit has been eliminated and I am just hoping to break even now.

Unfortunately, this past weekend a drive-by shooting occurred one block away with 2 people dying and several more injured, so I am not too optimistic about selling.

I got into real estate last year so that my wife could stay home, but with neither of the houses selling after 7 months, she has been forced to find work. Our other 2 properties are vacant which drains $3500 per month from us. A few more months of this situation and we will start facing the fate of the people that we have been buying from.

Tuesday, September 11, 2007

9/11 - Not a Tragedy

Much is being written today about the "tragedy" that occurred 6 years ago on 9/11. I can remember clearly the morning of that day while visiting my parents in Massachusetts. A friend had just rang the door bell and told us an airplane had accidentally hit the World Trade Center. We turned on the TV in time to see the second plane dive into the other tower. At that moment I knew this was no accident and hence not a tragedy, but an act of War.

Today some 40% of the population is in total denial about the threat of Islamo-fascism. And an equal number thinks that the attacks were an inside job. These people are so demented that they overlook basic science (how is steel made?, what is modulus?) and cling to hatred of President Bush over all reason.

But, like Hitler, the threats from Bin Laden and Ahmadinejad are real and to be taken seriously at our own peril. Some point to the fact that we have not been attacked since 9/11 as "proof" that this is not real. The facts are that Al Qaeda has not attacked us because they can't. Our offensive and defensive campaigns have neutralized much of their capability. However, if they see an opening, they will attack again.

And there-in lies the problem. The left is so intent on bringing down opposing views that they are willing to do whatever it takes to bring another attack on the US. The ad in the NY Times (General Betray US) is one of the most despicable, treasonous things I have seen in my lifetime.

During the McCarthy hearings, the Senator was asked "Do you no sense of decency?". This ended McCarthys credibility. and DailyKos have gone way beyond decency and literally make me ill.

The one fact that those who oppose this fight fail to realize is that we are dealing with evil. Evil cannot be ignored, only defeated.

Friday, September 7, 2007

Foreclosure auctions

I attended my first foreclosure auction this morning. I had bought some houses before foreclosure earlier this year but have never been to an actual auction. After I saw a real estate transaction for the first house I tried to do a short sale on (which sold for $26k after I had tried to buy for $47k by negotiating with 2 banks that did not bid at the sale), I decided to attend an auction.

This was for the nicest property yet that I have tried to buy using short sale techniques. The home is in my area where houses typically sell for $110/sq for (this was a 2500 sq ft home). I had negotiated a deal with the second mortgagee to take $12k for their $30k note, but decided not to follow through when the payoff of the first changed from my estimate of $203k to $212k. The home needs a little work and the owner is intransigent (so it will take some doing to get him out). I figured the home is worth ~$215k.

There were 2 auctions this morning. The first was a property in the next town that was owed $112k. Bidding was furious and ended at $191k. I figured that the property I was interested on would have an equal interest.

However, there were only 3 of us interested and I did not even bid. The second lien holder had sent a young scruffy man to bid on the house and he had announced that he was going to bid $240k. So no one bid on the house. Obviously, no one believes that it is worth $250k at this point. I was the only one who had been inside the house and knew the condition.

I've sent a note to the second lien holder and offered to buy it at $217k. They are a West Coast investment group that bought the note from a major bank. Obviously, they have a distorted view of real estate and especially are unfamiliar with this market. This will be an interesting one to watch. I think that they will lose their lunch on this house. I have yet to work on a foreclosure where the bank did not lose more money by going through with the foreclosure rather than accepting my offer.

People (investors) often don't know when to cut their losses. It's probably the hardest thing to do is sell when you are going to lose money. I have faced the same dilemma with stocks. Bought $50k of my company stock at $66 per share, watched it go to $84 per share and then drop to $38 per share. It took me 5 years to sell it at $48 per share and still today it sits at $46. I missed a great stock run-up holding on to a loser due to an unwillingness to take a loss. It's hard to admit a mistake.

Wednesday, September 5, 2007

Saving over $456k on cars

Consumer Reports wrote how y0u can save $31K by buying a car and driving it for at least 200k miles. Many people are looking at ways to save nickles and dimes while ignoring a potential windfall by buying and maintaining their cars correctly. Most people look at cars as too costly or feel a need to get rid of them when they reach 100k miles.

This is really an outdated view of the quality of today's cars and reflects thinking from the 60's. Some say "they don't build them like they used to". Well thank God for that. Today's cars are vastly superior to what was built in the 60's and 70's. Most cars today can easily go 200k miles and many probably 300k. Most cars today need only minimal maintenance before 100k miles (like oil changes). I think all cars can go over 100k without a tune-up which is a big switch from the days I bought my first car. I have written here and here about how I save money on cars.

Of the dozen cars I have owned I have only had 2 that I sold before they had 200k miles - a 92 Ford Club wagon and a 98 Dodge Intrepid. I would have kept the Intrepid. It was in great shape, I loved the design and when it was running, it ran very well. Unfortunately, it had 3 sudden electronic failures while I was travelling several hundred miles from home and it cost me ~$3k each time to have it fixed since I had to rent a car, travel home and then drive back to pick it up. So I unloaded it mostly out of frustration. The Ford was just a poorly built vehicle.

So how do I save more than $31K on a car? I only buy cars with at least 90k miles on them. So I avoid the following costs:
  • I pay cash (I buy on Ebay), so I have no interest charges (saves $10k per Consumer Reports)
  • I buy after the car is nearly completely depreciated. So I pay $4k Vs $30k. If I only keep my used vehicle 7 years, I pay $8k to compare with the CR example - a savings of $22k over 15 years
  • I don't carry fire, theft or collision ( I pay less than $500 a year for liability coverage on my 2 vehicles - this saves $1000 a year (that's $15k in CR's example)
  • By maintaining my vehicles I avoid costly breakdowns (e.g. changing the timing belt)

I also use synthetic motor oil, which I believe substantially reduces engine wear (and improves gas mileage). The biggest obstacle to keeping a car here is rust (they use a lot of salt on the roads in Buffalo!)

The best (and cheapest to maintain) cars I have had were Honda's, Toyota's and Cadillac's. My 2 Chevy Ventures have also done well. I think the Honda could have gone 500k miles.

Based on the CR example of saving$31k, I save an additional $45k over the 15 year example period for a total of $76k. So if you are the average family that has 2 cars for 45 years that is a savings of $456k that you can bank for retirement. This is big money. Maybe you can afford to splurge on a couple of Latte's to reward yourself and stop clipping coupons.

Is my math right? Some question it.

First, I am assuming Consumer Reports math is right. If so, that's $93,000 of savings per car over the 45 year period that is my base case (your working years). The average American family has 2 cars simultaneously during that time so that's $186,000 in savings based on CR.

Second, Consumer Reports states that you pay $10,000 in interest per car, so if you pay cash for a used car you will save another $20,000 every 15 years. As cars get more expensive and people finance them for longer periods this will go up. For the 45 year period that's $60,000 in savings. So we are up to $246,000 in savings.

Third is purchase price. I assumed that you bought a new car for $30,000. I own a mini-van and a 4 door Toyota Camry. The van retails for $35,000 plus sales tax, while the Camry retails for $24,000 plus taxes (Sales taxes would add another $5k here in NY, but I''ll ignore that for now). On average, ~$30,000 in 2007. I purchased my van on EBay for $3500 and the Toyota for $4000 - no sales taxes. Now to get the same mileage, I'll probably have to buy 2 used cars rather than the one car CR uses in their 15 year example. So my savings over 15 years is ~$44,000. During the 45 year period the price of a new car will inflate much faster than the prices of used cars. But to be conservative I'll keep the differential the same. For the two cars I will own simultaneously, that's another savings of $132,000. Now my total savings is $378,000.

Fourth is savings on auto insurance. I never buy collision or theft insurance. But if you have a loan you must carry it. How much you pay for collision insurance depends on the type of vehicle you drive, where you live, your age, gender, driving record and even credit score. So, I am only guessing about the extra cost here. But for most people, I would guess the surcharge may be $1000 per year. This will also increase as cars get more expensive. But for my example, this is $45,000 in savings.

Total savings is now $423,000 over the typical way people buy cars. Will I pay more in maintenance. Maybe, but except for 2 cars that has not been the case. The only non-routine maintenance I did on my Honda Prelude was to replace a water pump which I drove over 250,000 miles!