Al Susoeff, Jr.

Getting the Best Tenants

I often get into discussions with other landlords both here in town and online in other parts of the country and they ask me how it is that I do not have the same problems that they have with their renters.

I tell them that the short answer is, “I’m a mean and nasty bastard and live by the rules of ‘management by intimidation’ theory”, but the truth is, I really just do not have many problems with tenants.  I think my posture from the very beginning sets the stage for my attracting the renters who will not be a problem. That being said, let’s start at the beginning.

Prescreening

It starts with my ad in the paper. The ad is always a three line with includes the address, the bedrooms, the baths, whether or not it has air conditioning, and whether or not I will except section 8, and of course the phone number.  A bit of a side note here, I always except section 8 and all my houses have air conditioning; living in the south, this is one way I attract a better renter.  Only about 30% of the homes I see in the paper have Central Heat and Air.

Next the number does NOT ring to me. It doesn’t even ring to a human being. It rings to a voicemail service that I pay monthly for and change the messages as house come in and out of inventory. The message gives more detailed information about the house and instructs the listener to go by the home and pick up an application or download it on the web and fax it to our office along with one month’s worth of pay stubs, and a copy of their driver’s license or state id.

They DO NOT get to talk to me until they send an application. They DO NOT get to view the inside of the home until they send me an application.  I think by doing this, I have sent a message that “my time is much more valuable than yours, and you will respect it, or you won’t get the house”.  Maybe not, but it seems to work.

Sometimes people leave me a message. The message is turned into an mp3 and sent to my email. The email includes their number based on caller ID, so I have total control as to whether or not I call them back. Oh, and here’s the beauty part; it costs me something like $8.49 per month. Sometimes I call them, sometimes I don’t.

So, my personal guidelines are like this:

• 1. If they fail to leave a message…no call back; they are a time waster.
• 2. If they say something really stupid like your ad says 3 bedrooms and your recording says 3 bedrooms but I needs me a 2 bedroom…no call back; they are too freakin stupid to rent from me.
• 3. If they fail to leave their name…no call back, if they are that rude and uncultured I don’t want to spend the next year babysitting perfectly useless adults.
• 4. If they say something like “this is MS. Watkins”…no call back; they want to be the “in charge dominant” person in the relationship, and I do not want to have to deal with begging them for the rent every month.

However, if they call and ask for directions, I immediately call them back. This is a “closing statement” scenario. They are not just mildly interested; they are on the way to check out the property. If they call needing help with the website, or have specific questions about filling out the application I call them back immediately as well; again, when a client makes a statement like that, it usually means they are ready to go right now; and it usually means they are going to have at least a modicum of respect.

Screening and Interviews

            My process for screening is very simple.  They have to meet three criteria; money, work and former housing.

They must make a gross weekly salary equal to a month’s rent. Period. If they make less than that, they are not qualified for that house. By the way, that does not necessarily mean I throw out their application. If they are close and the rest of the application looks good, I may call them and try to put them in a different and cheaper house, or ask if I may keep their application for the next 6 months in case another house that they can afford comes up.  By the way, that’s a gold nugget I just gave you guys; I cannot tell you how many tenants I have placed in houses other than the one they applied for, and many times do it months later.

I call their employer. Typically I have to send a fax with the application requesting the reference, but in a litigation crazed society like ours I can hardly blame them. Employers are very limited and very scared when it comes to the information they give out about employees. For this reason I ask only a few questions and with a single exception, all require a “fact” type answer. The questions go something like this:

• 1. “How many times has the employee been late in the last 6 months.” If they are habitually late for work, I am willing to bet they will be habitually late with the rent.
• 2. “How many times have they been disciplined or commended in the past six months”. This will give me and idea of what sort of attitude I will be dealing with.
• 3. Finally, I ask them, “If you had to do a lay off and cut the employee, would they be among those who were eligible for rehire”. This is not a “fact” type answer, but it does give the employer the ability to kill or praise the employee without risking a lawsuit. Most employers laugh when I ask this and I have gotten so really interesting, if not hilarious answers.

If they pass all of that criteria, then I allow them to look at the inside. I call them and give them the code to the lock box, instructing them how to open it, and making sure they understand that they need to lock it. I usually say something like, “listen, ‘prospective tenant’, I am super swamped right now, but you seem to be pretty trustworthy and your application checked out ok…how about if I just give you the code to the lock box and let you go look at it on your own…you just have to PROMISE me you will lock it back up when you are done…call me when you are done and let me know what you think”.

When they call back, I schedule an interview. I have them understand when I talk to them that they are coming to sign the lease, and I make sure they are ready to do so. I tell them they must have a cashier’s check for the deposit which is always equal to one month’s rent, and the first month’s rent, which I typically prorate in 1 week increments and any other fees I charge, (like the pet fee or the waterbed fee). They are not allowed to pay cash, personal check or money order the first time. I want a cashier’s check because I want to know they can put their hands on the money and that they are serious about leasing the property. 

My lease is a monster. If all the addendums are used it is 17 pages and contains more than 8500 words. If you are part of my mentoring group you have already seen it, but suffice to say it is pretty much bullet proof for the state in which I live.  I go over the entire lease pretty quickly, but I spend extra time in two areas; the money and the “crime and drug free addendum”.

I explain to the tenant that I expect the money in my PO box on the first and there is NO GRACE PERIOD. If it is not there on the morning of the first, they are late and accrue a late fee that day. The laws are really slanted toward the landlord in this state so I further explain that after 5 days I will start both civil and criminal eviction proceedings. They will gain a warrant for their arrest and have to appear in court if they fail to pay.

Next I explain my “crime and drug free” addendum to them.  This addendum basically states that if the cops show up for ANY REASON I may kick them out at my option. I will not tolerate drugs, I will not tolerate crime, and I will not tolerate adults acting like babies and I look them square in the eye and tell them that to their face. If I wanted to deal with children I would buy a day care not rental property. Between how I feel about the rent and the “crime and drug free addendum, I usually scare off about half of the prospective tenants that have made it this far; I suspect it is the half that I would have problems with.

Finally, there are fees as well as deposits. I allow animals in almost all my properties, but each animal costs $150.00; and that is a fee not a deposit. They DO NOT get it back. I explain that animals no matter how good, tear up a house, whether they are inside or outside, whether they are dogs or cats.  Why $150 you may ask? Well, I don’t want to appear prejudiced against animals, but by the same token I do not want a tenant who thinks he is “Ace Ventura - Pet Detective”. I have a fee for a waterbed of $75.00. Waterbeds smash carpet, and if one breaks on you, then you have a major problem, particularly in a two story house with the master suite upstairs; how do you think I know that? There is a deposit for a satellite dish. Dish installation puts holes in the roof which must be patched when a tenant leaves. No Patch? No return of deposit.

Once They Are In

            I don’t know what in human nature causes this, but almost every single tenant I have ever had “tries me out”. They push me to see how far they can go. Usually this happens in the third or fourth month. The first comes and no rent check.  I do not call them. I post a notice on their door and I do it in a very particular format. The notice is for all practical purposes a standard “pay or quit” notice; but how I deal with it is not standard.  I do not bang on the door and demand rent. I walk up to the door and tape it top and bottom to the door  so that anybody who comes on the property will get to see that they are late on the rent.  Then I step back and take a picture of the notice with my phone.

            I know from feedback that tenants find this technique embarrassing, rude and mean. I have had one woman call me the Anti-Christ. I simply explain to them that they can avoid such notices by paying on time, and if the rent, (and now the fees as well) are not in the PO Box the next morning the same will happen until the 6^th day when I post the notice that says, “Notice to Vacate” and then file the complaint with the local prosecuting attorney. To date I have only had to ever start the eviction proceedings on one tenant, although many have taken it to the five day limit. I guess this sort of posture from me makes them really stop and think critically, like an adult should, because a few have come up with really creative ways to get me paid. I have had several give me half now and half a week later. Others have suggested other payment plans. One actually offered me security in the form of a wedding ring. I don’t mind working with people who are willing to work with me, but I never tolerate the ones who just want me to “fix it” for them.

            That being said there is a big difference between a tenant seeing what they can get away with and one who has a legitimate problem. The first thing to remember here is that their problem is NOT your problem. Sorry to sound cold, but if you decide to be a philanthropist; you probably will become a door mat for many of your tenants. This has to be taken on a case by case basis, and I cannot tell you exactly how to do it.

            I have a tenant who has been with me for many years. She is never late. Ever. I get a call from her on November 28^th or 29^th. She has a problem. Apparently she has been in the hospital for nearly two weeks and as a result had no rent money or any other money for that matter. She tells me this, but also says she has a plan if I would be willing to work with her. She will pay me all the late fees as well as the rent, but wants to pay in two installments, one about a week late and the other about two weeks late. Not only did I let her slide and do the payment plan she suggested, but I waived the fees and wished her a Merry Christmas as well. Why? Her history and her posture. Like I said in more than three years she was never late. She called me before the rent was due to work it out; she didn’t hide from me and make me come looking for her. She had a plan to present to me as a way to make it right quickly. Somebody like that deserves the benefit of doubt. Would I take that chance on most of my tenants? No way; but like I said, on a case by case basis it is doable.

The other thing I do is get any repairs done immediately. Immediately that is, if they do not owe me money. I once had a tenant who called me because his heater would not kick on, when he turned it on for the first time that fall.  He had failed to pay the late fees to the tune of $75.00, and argued with me that they were unfair. I explained to him (on the phone…NOT in writing) that when he was ready to bring his account up to date, I would be happy to schedule the heating and air guys. He paid me later that day. Apparently, after talking with his wife, he decided that working heat and a happy wife was better than winning an argument with me.

            Situations like that notwithstanding, I schedule repairs immediately. Much of the time, I do not do repairs, but I have found if I “show up” either before a repair is done or while it is being done, I get appreciative tenants. Appreciative tenants are more likely to pay on time. This gives me an opportunity to go look at the house and see if they are taking care of it. If they aren’t I let them know; nicely, but firmly, what I expect done.  Usually it is something simple like not mowing the grass, and usually it takes just a friendly reminder which is followed by a sheepish apology. Sometimes though I have to remind them that if they do not get a little carpet stain remover on the spots before they become permanent they could lost their deposit. Nobody wants to lose their deposit; especially with the rates I charge.

The Three Big C’s

            I guess to sum it all up it, what it amounts to is how you as a landlord are going to handle the three “Big C’s”; communication, consistency and control. You need to communicate from the very beginning that you are “in charge”, your time is valuable, and you will always be the one in control.  When they try to take control; which they will, you maintain control through firm but nice communication. This is consistency. Regardless of what they do or say you are consistent in the way you deal with them. You stay consistent in what you expect. You do not waffle or waver or buy into their stories. If they are willing to accept that you are in control and will communicate back to you as they have need, you can even be creative in how you get things done with them.

            Think of it like raising kids. I think we would all agree that many parents have lost control or never had control of their children. Why? Because they never communicated what they expected; or if they did communicate it, the proved they were not serious when the kids pushed the limits of the box. They were inconsistent.

Think of tenants as big kids. Most of them really are after all. When they become adults, they will not need you anymore and they will move out into a house of their own instead of living in your house.

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Should You Use a Realtor?

Are there houses to buy that realtors don’t deal with?

Holy Smoke! Once again I am AMAZED by the morons out there!  I came across this question at http://answers.yahoo.com while doing a search for something else. Although the question is a good honest question the answers are such a blatant billboard to stupidity  that I feel I MUST copy the whole thread and put my own two cents worth in.  This is exactly what worries me sometimes about information online; so much of it is in no way, shape or form rooted in reality. A person posted the following question:

“I live in Washington, and am getting ready to buy a house. Someone told me some information that I don’t know if it is true or not, I couldn’t find any details on my own. He told me that realtors don’t necessarily know about all the houses out there, and that it’s possible to get a better deal on the houses that they don’t deal with. 2 examples are:

1. He said there are sometimes mass built housing communities  that sell their houses direct at cheaper prices, without allowing realtors access to sell them or get commission on them.

2. Bank foreclosures, and similar. Do realtors have all access to these and try to sell them?

So is there any truth to either of these things? Or are they untrue?”

I will deal with this guys question at the end, but right now I want to post the answers and then look at each one in turn.

Answer #1

“I recently bought a house and from that experience I believe a good realtor is worth every penny of their commission. First of all you can do some looking without a realtor and yes there are houses that are for sale by owner and you may save some money. However you have to do a lot of work to find those houses and coordinate with the owner for a showing. In the end you may find that your time is worth more than you saved in a purchase price. Generally a good realtor (one that does it full-time and has been doing it for several years) is going to know more about the market then you possibly could. It is there job and if they are good at it, it will show. Good realtors will know of houses that are about to list, were listed but delisted for some reason, and just the general trend of the market in which you live. There may be some big companies that are building whole developments who have an open show house that you can go and look at, ultimately though if these houses don’t pre-sale they will get MLS listed. Realtors work pretty hard making appointments for you and showing you around and with the state of the market right now my guess is you could save just as much by using a realtor to find a “motivated seller” who is willing to knock 5-10% of the price instead of going around the realtor.”

Well I agree with this guy …sort of. A good realtor may or may not be worth every penny of their commission. This person suggests that the realtor is some sort of expert on the market.  That sort of thinking is what has us in this economic mess we are in today! You and only YOU are responsible for your due diligence.  I suggest you talk to not just one realtor but SEVERAL realtors. Also you should talk to the neighbors in the area where you want to live. Visit with people who own businesses in the area, especially the “mom and pops’ businesses. They can tell you more about what stuff is worth and the quality of the neighborhood than anybody else because they live and work in it.  Get online and pull demographic data.

 If you depend on a realtor for your info, you may or may not get what you are paying for. Remember, in most states it takes about $250.00 and 40 hours of class time to become a real estate agent.  Don’t think for a minute your agent is a real estate guru or YOU will be having a class of your own… in the school of hard knocks! That being said, I am totally not opposed to  a realtor doing some of your leg work for you.  Why not call half a dozen realtors? I know they are each going to want you to sign a contract granting them “exclusive right” to work with you, but simply tell them “NO”.   Hey, if they can bird dog a property for you, great, like this guy says…it will save you time, but in the end you are going to pay the realtor 5%-7% of the sale. Yes, I know…the seller pays that part. Right. So, Who gives the seller the money to pay it? The buyer…DUH!

That was the part that made me chuckle about this guys answer. The realtor will find a “motivated seller” who will knock 5%-50% off the cost of the house.  Cool. That will cover the realtor’s commission. You just paid within three percent of what you would have paid without a realtor.

Oh, yeah….read this guys’ answer again.  He apparently does not know the difference between “there” and “their”, and it is pre-SELL not pre-SALE.

Answer #2

“No one is REQUIRED to use an agent and if the home is not in the MLS they have no way to know about it except through eyeball contact.  However, NEVER purchase real estate without a professional at your side making sure your butt is covered.”

Again, I agree with parts of what he said.  While it is true that there is no law requiring the use of an agent, the whole bit about the MLS and eyeball contact is totally crazy.  Get online and do a Google search on the term “FSBO”.  This stands for “For Sale by Owner”.  You will find about a gazillion sites dedicated to folks trying to market and sell their own home.  I know because I list houses on many of them. Go to craigslist.org, plenty of listings there too.  Check the paper. You DO NOT have to waste time and gas driving all over town praying to see a FSBO lawn sign.

Of course, I totally recommend that you drive the neighborhood where you want to buy, but that is not necessarily for finding a house as much as it is for approving the neighborhood. As for having a professional at your side I would ask any prospective realtor how many deals they did last year and how much money they made. If they did not make more than me, then they probably would have a hard time convincing me that they were very “professional”. Oh, and one more thing; how is the agent going to “cover your butt”? If you believe that ANY agent is going to stick their neck out for you, and/or stand up for you in court you have another thing coming.  More on that in my reply to answer #4.

Answer #3

“Realtors can only sell homes they are contracted to sell. If a house is for sale by owner you will save a lot of money.”

This answer is False and False. Realtors can sell a home, buy a home, or do anything else with a home they want to. They are people just like the rest of us. Now, in my experience, realtors typically only sell homes that are on the MLS, but even then, the chances are, that they do not have the contract to list on the house they sell; that after all is the whole purpose of the MLS. It gets all the houses out there listed by different agency’s available to ALL the agents. If this person’s statement were true, you would have to go to a different realtor for every house you looked at, because they would all be listed by different realtors and none of them could sell the others house…absolutely ridiculous.

The second part is false as well. Many times, I have found that a private owner wants more for his house than what the realtor would list it for, and in some cases they think their house is plated with solid gold. Just because it is a FSBO does not automatically mean you are getting a deal, and thinking like that will get you screwed. Do your “due diligence”.

Answer#4

“As a buyer, you don’t pay a Realtor, the seller does. You MAY be able to get a cheaper price if the seller doesn’t have to pay the Realtor. The seller sings a contract with a Realtor agreeing to pay them if their house sells within a certain amount of time. Mass built housing often sell houses from within so that they don’t have to pay a Realtor.

Banks often sell properties that are foreclosed on. Houses can be dangerous buys, though, because they aren’t always in great condition. Look on the websites of banks in your area for foreclosed properties if you are still interested. You can get a good deal, but it is a gamble as you don’t know how much money will be needed to fix potential problems.”

I think he meant that the seller signs a contract, although I HAVE been known to sing after really making a great deal.

As for the silliness about the buyer paying the realtor, well we covered that in answer #1. Then this answer gets really stupid. Though it may not be true for all states, most that I know of require that the sales people in large developments like the one this person is talking about be licensed realtors.  Just because a person makes salary or salary and a bonus instead of straight commission does NOT mean that  you the buyer are not one way or the other paying for it.  Again BIG …..DUH!

I have yet to see a bank that will sell a home they own to a private party without  the use of a realtor. I’m not saying it isn’t possible, I have just never seen it; and I have been a real estate investor since 1990. Banks DO unload properties to investors in what we call “Bulk REO” packages, but that is a different scenario altogether from the one that the guy with the original question has asked.

My Answer:

Ok, now that I got all my ranting out of the way let me answer this guys question.  First off, I have to say that realtors don’t know about MOST deals that are out there, but that is NOT a valid reason to not use them.  I buy maybe 20% of my homes from realtors. The rest of the sellers are generated through various marketing techniques that I have learned over the years.  If you are interested in learning those techniques, then I can train you  or you can go to some other guru’s courses or seminars, but if you just want to buy a home to live in like this guy, then that is probably more time and money than you want to spend.

 Where the mass built subdivisions are concerned, you will just have to look.  In this market, deals are great just about everywhere you look, but always remember that you and you alone are responsible for getting the best deal. Your realtor isn’t interested in the best deal for you; hell, the more you pay for the house,  the higher their commission.  The banker is not looking out for you, they have a hard enough time looking out for themselves; all the banks with “going out of business” signs lately should tell you that. The title companies will help you get clear and marketable title, but even that has its limitations.   The appraisers want you to be happy so the appraisal will probably “just squeak by” regardless of the price. I have seen the same home appraise for 175k and 150k the same week. So which appraisal is true? The home inspectors need to justify their existence so they will find something wrong with the house,  I promise. And the list goes on. Let me say it again: YOU ARE RESPONSIBLE FOR YOU OWN DUE DILIGENCE.  

With regards to the bank owned, foreclosed and other properties of that type, I have to say I totally agree with the person who answered that part in answer #4, even though he didn’t have a clue in the first part of his answer.  If you have no idea how to do an inspection, if you have no idea what it costs to do a rehab in your area, if you do not know how to hire contractors and how to get a construction job completed, then you have no business buying a house that needs work.  Just go get yourself a home you like, at a retail price and live in it 20 years. Along those lines, I wrote a book about that very subject called, “Stop Contractor Rip Offs Now” that may be helpful. You can get a digital copy at www.reinetusa.com/store  if you want to pay a bit more for a paperback you can go to lulu.com or Amazon.com.

By the way, why are you so worried about getting a deal anyways if you are going to live in the house yourself?  It’s not like it is an asset. Assets are things that put money INTO your pocket every month. Your house, your car, your boat….these are things that SUCK money from your pocket every month.  It is not an investment folks, it’s a liability.  The house that is an investment is the one you buy and flip for a 40k profit 3 months later, or the one you collect 950 a month rent on, but the debt service and maintenance only cost you 500 per month. These are investments, not the home you live in.

So my final advice is this…If you are buying the house to live in, just buy what you like and can reasonably afford the payment on, realtor or no realtor. If you are buying with the expectation of making money, then you better enroll in one of my courses or one of the other courses of countless others out there who know how to do this business. If not, no realtor (or anybody else for that matter) will be able to help you. How do you think I know that?

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Taking Back a Second Mortgage

“Taking back” a second mortgage when you buy a home and the seller “loans” you some of the money they need in order to buy the property  This can be both an effective selling tool and a good “investment”, however, if the transaction is not handled properly, it could be an expensive and major financial blunder. Always remember to cover your assets, and also remember that you had better cover the assets of the seller as well. If you try to pull a fast one, I guarantee that eventually you will get caught, and the courts well almost always side with the “poor defenseless owner” instead of the “slick expert real estate investor”.

Before we get to the contract, let’s look at what leads up to it. The idea behind taking back a mortgage is fairly simple. Let’s say you’re buying a home for $100,000 and you have $5,000 to put down and can get an $85,000 mortgage. That means you are still $10,000 short. If they really want, or need, to sell the home “right now,” they could “loan” you the $10,000 in the form of a second mortgage.

Usually I make the pay-off period between two & five years, but it can be whatever you want; it is all part of the negotiation process.  I always shoot for “No Payments and No Interest until I cash out when I resell the home to an end user. My justification for this is simple: If I am going to help the seller out by removing the problem of two mortgage payments, one at his old house and one at his new house, it is certainly fair that he not stick me with two payments, a first and a second. Besides, although he is in second position, it still gives him a secured interest in the home until I get it sold.

If you DO set up a second with payments now, you need to let them know that once they start receiving mortgage checks, the payments become part of their income, which translates into additional IRS paperwork and, very likely, taxes. Many times, this is a good reason for them to take the no payments no interest scenario I suggest in that long term capital gains ( more than 12 months) of $10,000 will be taxed at only 15%, whereas if the payments are considered income and they are in the right tax bracket, they could be taxes as high as 30% or more.

To cover yourself, it would be good to go over the terms of the mortgage with your seller. First, they must be aware that the first mortgage is ahead of them when it comes to getting paid. If you default, they might not get paid..  If the property is foreclosed by the first lender, the primary lender has first claim on any proceeds from its sale to recover the unpaid debt, plus any penalties and unpaid interest that accrued as part of the foreclosure, as well as court costs and legal fees. Of course you need to assure them that you will not default

 If you use this sort of vehicle, make sure your real estate attorney prepares the document for you, and as I mentioned earlier, in the spirit of transparency in business make sure you fairly cover both yourself and your seller. There are enough deals out there for everybody who wants to do the work to become a millionaire. I have walked away from many deals, but still I prosper and I believe it is because I think in these terms, “everybody wins or we don’t do the deal”.

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Wholesaling from the MLS?

The other day I had a “so called” wholesaler email me regarding doing a wholesale flip through a realtor. He is starting to feel some economic pressure lately as his regular day gig went away, and he is trying to make it doing wholesale deals full time. I applaud his tenacity, and I am a firm believer in necessity being the mother of invention, but there is a problem. He is a nice guy and I like him allot but unfortunately he is only about “Half Trained”.  He bought a $100 online course that has no mentoring, no coaching and no real support after the sale and then wonders why he is forever calling me to fix his deals for him. Sadly, I have been unsuccessful in getting him to sign up and pay for my ongoing coaching. A word to the wise guys, if you are not coachable, you will fail; it doesn’t matter what business you are in, you are screwed before you start and you have done it to yourself.   I do this full time and STILL to this day have coaches that I bounce deals, ideas and hair brained schemes off of.  It is a simple rule of life and it works.

That being said, here is his question and my answer:

“I just made my first offer on an REO.  Any thoughts on how to get a “proof of funds” letter or something like that for the offer?  I don’t actually have the funds and if I did I wouldn’t necessarily want to show that to the bank.  The offer is for $100,000 on a $177,000 house. Please advise …”

Problem #1:

I called him and got a little more info: He wants to flip it, he does not have the funds needed to give the realtor for “proof of funds” and it needs 15k in repairs. So first off, according to my formula it isn’t even a deal.  For those of you who don’t know my formula, I never offer more than 60% of the After Repaired Value, (ARV) not including repairs. 60% of 177,000 is 106,200. If you subtract  15k from that your maximum offer can be no more than 91,200.

Problem #2

Okay, let’s say that he offers 90k instead of 100k. This is great, he is within the Maximum Allowable Offer, (MAO) right? Wrong. Remember, he wants to wholesale it. He has no intentions of keeping it for a rental nor does he want to rehab it and retail it to an end user.  This means he has to have a deal that is lower than MAO in order for him to attract another investor. If he doesn’t have this,  he is using what I call the “greater fool theory” of real estate, which means he is trying to find an investor who knows less than him. Not hard to do, but it will ultimately get you a bad reputation around town and you may find yourself relocating your business because nobody will deal with you.

Problem #3

So let’s say he makes an offer of 85k. This will make him 5k, not bad for a wholesale deal, considering he will never own the house, he doesn’t have to work on it, and he will not have to hold it and wait to sell in a slow market.  But wait; he is dealing with a realtor. He WILL own the house! See, the realtor is not going to let him sell his interest in the contract to another investor. That’s what  the realtor’s purchase and sale agreement is all about, protecting the REALTOR’S interests. Don’t think for a minute it helps you as the buyer or as the seller.  Read one all the way through sometime, you will see what I mean; the language is all about limiting the realtor’s and his broker’s  liability. 

Problem #4

Hey, if he has a buyer, why not just do a simultaneous close? Yes, I guess he could do that; however, here is the problem I see with a simultaneous close of that nature: First, when his realtor finds out what he did, this guy will get black balled from the realtors entire brokerage. Yes, I know most realtors are morons, but that is no reason to have everyone of them in town pissed off at you. Second, and more importantly, let’s look at his buyer. If the buyer has a brain cell one in his head, he will see the realty sign in the front yard. He will realize the wholesaler is making a few bucks off of him, and he will get pissed and walk from the deal or call the realtor to try and negotiate a better deal. Yes, technically no laws are getting broke here, but do you really want all those people mad at you? By the way, depending on the state an argument could be made that you are breaking the law by engaging in “Tortious Interference” and/or “Restraint of Trade” and you may find yourself going to court. Yes you might win, but do you really want to spend $2000-$3000 for an attorney and waste all that time? It might just be easier to just find another deal …or ten.

Problem #5

If you are going to play with REO’s you are going to have to deal with the bank’s rules. Period. End of story. If you do not have proof of funds, all you are doing is wasting the realtor’s time, the banks’ time, and the most important time of all…your own. Actually that’s not true, if you email ME about it, you are wasting MY time which is far more important….ok, just kidding; but you see my point right? That being said, let’s look at a couple of ways to get proof of funds:

• 1. Go to a bank and get proof of funds. If your numbers are right, (i.e. you used MY numbers not the ones we started with), and you don’t have crappy credit, you can by the house and flip it via a wholesale or a retail deal.
• 2. Find a hard money lender and get proof of funds from him. You will pay more than with a bank, but again, if you used my numbers, you will still make a good chunk of cash and these sorts of lenders could generally care less about your credit score.
• 3. Get a partner. Hey, a partner is great when you are getting started. They put up the money, you put up the work, everybody makes money. You might want to think about having two or three potential partners sitting backstage all the time.

The Bottom Line:

I think you guys can all see, that as this deal sits it is a “no deal”.  It is not feasible from not just one, but several angles.  For myself, if I could get it at $90,000 I might consider it for a retail flip.  177k is just over the median around here, and that means I would be able to find a buyer who could get a loan, or perhaps a lease option tenant with plenty of cash, who could  qualify and therefore cash out soon. Of course that is a completely different exit strategy than the one proposed by this wholesaler; and therein lies the point of this whole conversation. He only knows one way to do a deal.  Like I said at the start, I admire his tenacity, but right now he is having all the effectiveness of a car stuck in the mud; lots’ of noise and crap flying everywhere…not allot of forward movement.  You need to know EVERY exit strategy. You need to know ALL the ways to do a deal. Get trained guys. Once you are trained KEEP getting trained.  Education in this or any business is a lifelong endeavor, it is the key to success, and it will pay you high dividends.

More training and articles at:

www.reinetusa.com

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Making Money in Real Estate: Part 1

For the start of a new year, I figured I would go back to basics and post some bits and pieces of the training I have written in the past.  Sometimes we get into bad habits, myself included, and need to go back to the basic fundamentals of our business and revisit them.  This post and the next one following it will detail the main ways to make money in the Real Estate Business. If you have any questions or comments, drop me a line!

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There are ten major ways to make money in real estate, four of which are available in ALL properties. The other six will vary from property to property. Making money in this business is limited only by one’s imagination, and the prevailing laws in your country, state or province, county or parish, and city; however, there are different schools of thought when it comes to which vehicles you should use when you try to invest for a living.

The First Four - Count on Only One

Appreciation. Making money in real estate can be as simple as holding on and waiting. To really get the most appreciation in value, however, you should buy in an area where demand is growing faster than the supply. This is not always the easy thing to do. In theory you just get yourself ahead of the rest of the investors in the growth corridor and bingo, instant appreciation.  Here are the inherent flaws in this way of thinking.

First off, unless you are clairvoyant or one of the “founding fathers” of an area, you will never know for sure which direction everything is going to go. Once the sprawl is headed a particular direction you can certainly get on the train, but by that time prices are going to be heading up which of course means profits will be heading down.

In the current economy, many people who were counting on appreciation are now seeing the values drop below what they paid. Not a major issue if you are in it for the long haul, but what if you are in a negative amortization loan like so many folks in California and areas of Arizona like phoenix? In many cases, they may be better off walking away from the house and dealing with a foreclosure than waiting around for the value to turn around.

Equity. Provided you do not do the type of loan described in part 1, you gain equity with every payment you make. Get the lowest interest rate you can and more of each payment will go towards the principal. If you can in any way afford to do it, pay a bit more each month to the principal; even if it is only $50 or $100 bucks. This works especially well in the very beginning of the loan when the amortization schedule has you paying 99% of the payment to the interest and 1% to the principal.

A 250,000 loan on a 30 year fixed at 5% costs 1342.05 per month. Over the course of those thirty years you will pay $233,141.28 in interest; This means nearly 50% of the money you give the bank over the next 30 years will be interest and you will pay almost double what you negotiated for the use of their money.

Now, add a mere $100 bucks a month to the payment. With a little discipline you can do that, just go out to dinner one less time per month with your family. You just knocked nearly 5 years off the note, and saved more than 38,000 bucks in interest. If you bumped it up to $200, you save more than 65K in interest and pay off the loan in 22.5 years instead of 30. Go get yourself a sportscar with the 65K you saved.

Depreciation. The federal government has decided that eventually all things are worth nothing. What this means to you is that after all the tax law changes, you still get to declare a loss for depreciation that doesn’t really exist. If you are an investor, this can save you a lot at tax time, meaning more after-tax profit. To maximize this you need to buy property that has its value primarily in the buildings, because you can’t depreciate the value of land.

Now, there are a few quid pro quo’s you need to know about. After twenty seven and one half years, you cannot depreciate the property anymore. That is the point at which the feds say that it is now worth nothing. So, the problem comes if you sell something worth nothing for $500,000 you have a very large capital gain that the IRS is going to want 15% of. Don’t fret; our boys on the hill have got this one figured out too. Just buy another property for more than what you sold the half million dollar property for and do what is called a 1031 Exchange, you get to start the depreciation process all over and if you bought the other property for say $500,000 then there in no capital gain.

Cash flow. When you buy income property the right way, you not only have your tenants paying all the costs and paying down the mortgage loan, but you also have positive cash flow. Hear this guys, THIS IS THE WAY TO BUY PROPERTY. As far as I am concerned this is the ONLY way to buy property that you plan to hold. The other three ways to make money in this business are all what I like to call “phantom money”; in other words it may or may not be there and a bunch of it has to do with things completely out of your control.

An investor I know was in hot water with several commercial properties a couple of years ago when the market went south. Through a series of events, some of which were due to her own stubbornness and others which we completely out of her control, she became severely behind with the building payments. She found herself with no cash flow and millions of dollars in mortgages. I could give you all the long gory details, but the short version is that she had an opportunity early on to essentially walk away from the properties and no financial harm would come to her. She argued that she would lose a million in equity, to which my answer was, “if you have a million in equity, auction it and get the money out and retire and move to your second home in Costa Rica and walk away from all the headaches. Her replay was, “well I can’t get a million in this market…especially with an auction”.

She got very irritated with me when I told her the truth, but guys here is the truth. The “equity” you have in a property is only based on what somebody will ACTAUALLY PAY for it. If nobody will buy your property then it pretty much isn’t worth a penny. You can get three different appraisals from three different companies and a can guarantee they will be three different prices and NONE of them will be what the property sells for, particularly when you are in a hurry to sell it.

Said another way, Cash flow will buy your groceries and put gas in your tank; Equity, Depreciation and Appreciation will not!

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Making Money with Real Estate: Part 2

Here is part two of the post from yesterday. These methods are among the ways that Real Estate Investors such as myself make a living.  We don’t count on things like Equity or apprciation, but make our money upfront.

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The Other Six - For Investors Only

These are among the subjects that I teach in my courses and coaching programs. These are advanced techniques that should not be attempted by the untrained. To use the words of Adam and Jamie from my favorite show “Myth Busters”, ” NEVER ATTEMPT ANYTHING ON THE SHOW, WE ARE TRAINED PROFESSIONALS AND DO THIS FOR A LIVING”. If you do these wrong you may only lose a few bucks, but if you really screw up, you may find out that you broke some law and are liable for damages to a seller or a buyer or both.

Buy Low. We call this Wholesaling a house or a Wholesale Flip. When you buy below market you get instant equity that will be converted into a profit when you sell. There is too much involved to go into the details here, but basically it works like this: Find ugly house, get seller to put ugly house under purchase and sales agreement, sell purchase and sales agreement to another investor via “assignment of contract” for a reasonable profit, cash check.  Offer a reason for the seller to sell low: fast closing, cash, assume some debts or liabilities, etc. Or just make a low offer. The seller may have his own reasons to sell it cheap, so you never know. This technique is an awesome way to get your feet wet in the world of investing because it takes no money for all practical purposes and only depends on your willingness to do some work and do some talking to people.

I started doing real estate part time in 1990, but I really did not get serious about it, until I became burned out with Civil Engineering around 2001.  I attended a free weekend seminar on the subject of investing where among other people I heard a man by the name of Ron LeGrand speak. He talked all about a number of tactics including wholesaling and like all the rest of the speakers tried to sell me his courses. Well, I bought his course for a number of reasons. One was the fact that he said that I had 30 days to look through the stuff he gave me for signing up and if I thought I made a mistake I got my money back no questions asked.

Being an engineer I was SURE his techniques would not work even on a good day so I determined to prove him wrong. I followed the directions and within 10 days I had my first wholesale flip under contract and it closed about two weeks after that. The course cost $4995.00 and it just so happened that I made $5000 on the flip. Needless to say I did not get my money back, and it has been an adventure ever since.

Sell High. Clean it up nice, make it easy to buy, and find the right buyer to get top dollar. This is a Rehab and Retail or “Retail to End User” deal. You still start with an ugly house, but you make it a pretty house and then you flip it to an owner occupant.  There is a ton of money in this method if you do it right, and to be honest it is my favorite way to do houses.  There are easier ways to make money in this business but there is just something that tweaks my ego when I see some young newlywed couple move into their first home, a home that I have had remodeled, a home that used to be the nastiest piece of crap on the block. I take that which is old and junky and make it new and pretty. I build monuments. Okay, maybe that’s taking it a bit far, but hey everybody has to do what they like and even though this is not the fastest, most stress free, uncomplicated buck in this business, I like rehabs.

There are many potential problems with rehabs not the least of which is hiring the contractors that are worth a rip.  In my book titled, “Stop Contractor Rip Offs Now” I go into great detail on that subject alone and even give the reader sample forms in MS Word that they can use to plan their rehabs and hire the guys that will do the work right as well as sample specifications to give them an idea of what needs to go into a contract to cover them and their assets. If you are interested in a digital copy go to http://www.reinetusa.com/store or you can get a paper copy at ammazon.com or lulu.com. (ISBN #978-0-557-03087-3).

Also, a word to the wise on doing a rehab: keep the work at about 1/3 or less of the total cost of what you have in the house according to my MAO formula.

MAO = (60%)*(ARV) - repairs

Your Maximum Allowable Offer can be no more than 60% of the After Repaired Value based on a strong CMA and other evidence minus any repairs that are needed.

In other words if you have a home worth 100k of it was the prettiest thing on the block, do not buy it if it needs more than 20k in work unless you REALLY know how to estimate repairs and you are highly experienced in running remodeling construction jobs. How do you think I know THAT?

Subject To. If you hang out with me very long you will learn that this is what I call getting a FREE HOUSE. This technique works best with pretty houses in pretty neighborhoods that can be flipped for a quick profit, but will even work with the homes in the poorer areas, provided they are rentable and don’t need any substantial work. The neatest thing about doing these deals is they are way less about the home and way more about all the paper attached to the home.

I think the best way to explain this type of deal is to give an example.  I got a call one day from a couple who had a major problem and needed a quick fix. He was a forklift operator for Wal-Mart and she worked as a waitress. They had an average home, in an average neighborhood. He had the opportunity to get a promotion from Wal-Mart but he would have to move nearer to their home offices which was a little more than a three hour drive from Little Rock. There was no way for them to afford two mortgages on their salary, and the realtor they talked to said to expect their home to stay on the market for 90-120 days based on their location and the market conditions at the time.

They called me and let me know what was going on. I got a deed for their house “subject to” their existing mortgage, and based on the equity they had offered them 10K in the form of a second mortgage on the property with no payments and no interest until I sold the house. What all this means is, the first mortgage stayed in their name, and I did not owe anything on the second until I got rid of the house.

The total of the first was 42k and the house was worth around 85k. The payment was about 400 per month. I rented it on a lease with the option to buy for $700 per month for nearly two years. That person did not buy, in fact she broke the lease a month before the two year term was up. The next couple were able to buy after about 6 months and I cashed out after paying the original owners their 10K. Here are the results of that sale:

Sales price:                                                                                 85K

First mortgage (paid down by tenants) :                       -40K

Second Mortgage paid off at closing:                                -10K

Subtotal , Profit on sale:                                                           35k

“option fee” collected and forfeited from first tenant     2k

Profit from rent for 2.5 years @300/month                     9k

Total Profit                                                                                     46k

Ok, it took me 2 and ½ years to get all that, but what did I have at risk? In the worst case scenario, I would not have been able to find  tenant owner and would have given the property back to the original owners, who would then have to list it with a realtor and make payments for 4 months, while they waited to get it sold.

Offer financing. You can often get substantially more for a property if you offer financing. This is especially true if you let someone buy it with little money down. You can also get good interest on the loan. Financing can work both ways; with the sellers in the form of taking back a second mortgage or with the buyers in the form of anything from “down payment assistance” to a “lease option” to straight out owner financing through either a land contract or “contract for deed” or if you are in Texas a vehicle called an AITD, “all Inclusive Trust Deed”.

There is no way I can go over all of these types of financing in a small space such as this, however here is a quick overview of each.

Taking back a second mortgage refers to a seller “loaning” the buyer some of the money they need in order to buy the home. It can be both an effective selling tool for the buyer  with little cash and a good investment for the seller if he needs out quickly. I always shoot for “No Payments and No Interest until I cash out when I resell the home to an end user. My justification for this is simple: If I am going to help the seller out by removing the problem of two mortgage payments, one at his old house and one at his new house, It is certainly fair that he not stick me with two payments, a first and a second. Besides, although he is in second position, it still gives him a secured interest in the home until I get it sold. It is fair for everybody. Everybody wins. Everybody makes money.

I use down payment assistance when somebody has no money and bad credit but still wants the chance to buy. It works like this. I install them as a renter with a one or two year lease, we agree on a future price, and we put it in writing. Let’s say the lease is two years, $700 per month and they gave me a $700 security deposit. Anything they pay beyond the $700 bucks  per month becomes part of their down payment should they decide to buy the house and be able to qualify for a loan.

A Lease option is the logical next step for folks in the financial boat I just described. These folks may have a few thousand to put down, but based on credit challenges, they just can’t qualify to buy right now. We settle on a price and I take a NON_REFUNDABLE OPTION FEE from them. If you use this method make sure it is very plain and written on paper that they sign in the presence of a notary or you will end up giving them back their fee in court when they say the big bad real estate investor took advantage of the poor defenseless little wannabe homeowner/renter.

If they have between 5 and 10 percent down I will owner finance to them but usually only on a 10 year balloon. I don’t want to be “married” to a homeowner for longer than that, and in this state, even if the buyer defaults on a land contract, the courts will treat the contract as a mortgage and you will have to drag the buyer through a bankruptcy and foreclosure and they may still get to keep the house. Remind me to tell you sometime about the home where I was forced to give away 100k in equity over that very thing. Hey, I still made 70k but when you compare that to losing a lake front house that you had intended on moving into, making 70k feels like a loss. How do you think I know that?

Change use. If there is a higher use for the property, you can convert it to make it worth more to the next owner. Sometimes this means making condos into apartments, or apartments into condos. Maybe converting a home into office space will get the biggest return. Most gurus will tell you that homes on busy streets are not a very good investment, and to some extent I agree with that statement; however, once you get a bit of experience, these homes that nobody else wants can be a freakin gold mine if you are savvy and can play the political game with the city.

I know you have seen this occur all over your town, but maybe were unaware of what actually happened.  As a city grows they need to convey more and more traffic from one area to the next. Many times that means putting a four lane where there was previously only a 2 lane residential road. These house become fairly undesirable for people because of the traffic noise and the inherent danger to children as the play near the busy streets.

Sometimes, an investor can buy a home cheap in these areas and turn it into a commercial office space. Many times, when the city changes the road they will also change the zoning so that you CAN change the use of a home. Sometimes you will have to have it changed.

Sometimes, just changing the zoning of an area makes it worth substantially more money. If you get in the growth path and are able to buy raw forest or agricultural lands and have them rezoned t residential or commercial property you can turn around and sell the engineering plans alone for big bucks, but be careful. This is NOT real estate 101, this is for proven operators whole know what they are doing. I want all of you to think big, but if you think that your first deal is going to be a 25 million dollar land development, you are probably going to be rudely disappointed. Go flip a house or two and get your feet wet.

Sell in parts. In real estate, the parts are often worth more than the whole. There are many examples of this from splitting off an extra lot or two from a larger parcel to selling timeshares and fractionals. Just as in the “Change Use” section, this is pretty advanced real estate investing, but it is a creative way for many investors to get extremely rich with just a single parcel of land. I am not going to go into these types at all, but I did wan tto give you a few definitions.

A timeshare is a form of ownership or right to the use of a property. It has also come to mean the properties of this type themselves. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each sharer is allotted a period of time in which they may use the property. Units may be on a part-ownership or leased “right to use” basis, in which the sharer holds no claim to ownership of the property.

A fractional purchaser typically receives an undivided percentage interest in fee simple in an

individual residential accommodation and the related common areas of the applicable resort or other property, affording the purchaser the right to occupy such accommodation or one of similar size and type and use the property’s amenities for a certain number of days or weeks each year. A fractional accommodation is most often a condominium unit but can also be a townhome, detached single family home, or hotel suite. Some fractional projects participate in an exchange program, whereby purchasers have access to other properties of comparable quality located throughout the United States and abroad.

Finally:

Some of my friends have been asking me lately why I am starting to teach. “After al Al, You don’t have to work, and you make plenty of money sitting on your butt”, they say.  I have made my living and continue to make my living in real estate; it is by fair my first love. To be honest, whether I teach a single person what I do or not, I will still do deals. Some time ago I got to feeling like “is this all there is”. I read allot and have noted that this is a common problem among people who have achieved their goals, particularly at an early age. Many of them go on to teach others what they know. They do it for two reasons and these are the same reasons I am doing it: Its fun and it makes money.

The day it isn’t fun I will stop, trust me. I have worked many jobs that aren’t fun, and they suck. It is a chore to even get up in the morning and take a shower and go to them. I swore two things when I walked from my last engineering job; first, that I would never let another human being ever treat me again the way the sorry excuse for a waste of air main supervising engineer of that office treated me, and second that I would never again do any job that wasn’t fun.  One of my favorite quotes is “Do what you love and you will never work a day in your life”. I think Mark Twain said that, but I’m not sure.

I have a few courses and books available for those of you who would like to learn more about how to become what I call “gainfully unemployed” using real estate investing as the vehicle to do so. I also offer a coaching and mentoring program and a private “for students only” real estate forum where I and other experts do ongoing trainings, webinars and even some one on one counseling  and consulting for a monthly fee. If you have any questions drop me a line at Al@S4inv.com or visit me on the web at www.AskAlHow.com .

Whether you ever attend one of my courses or not, whether you and I ever meet or not, whether you make it in the real estate business or some other business, the best advice I can give is another quote by Mark Twain, “Keep away from small people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great”; and one by me, “I have never met anybody who sucks at everything, everybody is great at something”. Find your something.

For more articles like this one go to:

http://www.reinetusa.com

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Our Street Engineers at Work

This set of signs is near the Krogers in the Heights, here in Little Rock.

Is it just me or does this seem a wee bit confusing?

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Stop Contractor Rip Offs Now! Released

Stop Contractor Rip Offs Now!

Check out the official release of Stop Contractor Rip Offs Now! at www.HiringContractorsNow.com . This is the first in a series of books I will be writing and releasing for the purpose of training Real Estate Investors and home owners about the various perils and pitfalls of home ownership.

This book discusses the hiring of contractors, specifically how to hire them at the best prices possible and still get the work you want without getting taken to the cleaners. Its’ more than 300 pages are filled to the brim with information ranging from how to plan your project so that you know exactly what you want, to being able to communicate that “picture in your mind” to the contractor, to keeping him honest while the project is underway. You will get Sample Specifications, all the Contract Documents you will ever need, a Glossary with over 200 Construction Terms and that isn’t even including the text of the book itself! When you order the digital copy from my website, you will automatically get all the Contract Documents in MS Word format, so that you can save them on your computer and use them Over and Over…

By the time you have finished reading this book you will:

• Know what the FTC has to say about hiring contractors.
• Know which states require licensing of contractors.
• Know which states do and do not regulate their contractors.
• Know how to find and prescreen potential contractors.
• Know how to read contracts and handle changes.
• Know what the contractor should be charging you.
• Know why a contractor’s guarantee may be worthless!
• Know the “door to door scam” and how to avoid it!
• Know how to handle the “surprises” when they occur.

Go Check it out and Buy your Copy TODAY!

www.HiringContractorsNow.com

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Check Out the New Revision of Black Mold: Its’ Effects and How to Rid Your Home of it

After careful consideration, I decided to do a re-write on “Black Mold: It’s Effects and How to Rid Your Home of It(ISBN# 978-0-557-03119-1). It seems that not only were there a few typos, but as I studied my own book, I found that there was even more information I wanted to add. Originally about 100 pages in print, this book has swelled to over 170 pages and includes sections on:

• What Exactly IS Back Mold
• Why It is hazardous, and how hazardous it really is
• Humidity, water damage and flooding
• The common places to find/look for Black Mold
• A review of the most common Mold Test Kits
• How to rid your home of it
• A Guide for purchasing an Air Purifier
• A Guide for purchasing a Relative Humidity Sensor
• A Guide for purchasing a Dehumidifier
• A section devoted entirely to Allergies

If you go to http://blackmold.HiringContractorsNow.com you can even get a 5 day ECourse designed to teach you the basics absolutely free. Although not a substitution for the book itself, this freebie will at least give you an overview if you think Black Mold is a concern in your home, or one of your investment properties.

Since this is a revision, the old copy that was available through Amazon, Lulu, and several other distributors is now out of print; however, this new version will be on book sellers’ shelves very soon!

You don’t have to wait for it though; you can get your digital copy now because you know me.  When you sign up for the free Ecourse at http://blackmold.HiringContractorsNow.com you will be set to a page detailing a special offer just for my friends, family and business associates.  This digital copy will be sold with several bonuses mostly because I want all of you guys to give me your feedback on the new addition.  The bonuses will include a digital version of my well known book, “Stop Contractor Rip Offs Now”, and another book I have just finished and not even released to the general public yet called, “Radon: Nuclear fallout in Your Home”. Of course there are a few other goodies that I’m not gonna tell you about so you will go check out the Webpages for yourself!…lol

Please remember to post some comments as you read these books; it’s through you guys’ feedback that I am constantly able to improve my products!

CYA

J

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Hunting Season

As the leaves begin to show signs of turning their brilliant shades of amber, orange and red, I begin to see more and more trucks heading down the freeway with trailers attached. Trailers carrying campers, and 4 wheelers, and deer stands and 55 gallon drums of corn feed. It is fast approaching “Hunting Season”.

I came to Arkansas from the San Francisco Bay Area in 1986. I have noted many differences some which are nearly invisible others though, are so shockingly in one’s face as to cause what some people here refer to as “Culture Shock”. The attitude toward hunting is one of those issues in this state which I truly believe contributes to if not drives the basic financial and political climate. The University of Arkansas Razorbacks is another, but that is a different story.

Now, don’t think me a complete novice, I have done a bit of hunting. Years ago my brother-in-law took me deer hunting, and I have also been duck hunting; which for those not it the know is the number one sport in this state. I understand that Arkansas is the duck hunting capital of the world and people come from all over the United States to kill ducks and geese in the swamps and rice fields of this great third world nation….er…ah…state.

I would like to take a minute to give all you hunter types out there a “city boy’s” perspective on hunting.

Let’s start with deer hunting, since that is the first season to open here in Arkansas. So, if I understand deer hunting correctly, you want me to get up several hours before dawn, and trek out into the middle of nowhere in the dark. Then, I am supposed to take a high caliber weapon, carry it over my shoulder and climb twenty feet up into a tree. Next I need to pour deer urine all over myself so I won’t smell human. Then I have to sit up there, and be absolutely still while the temperatures is a balmy 30 degrees and pray that there is a buck out there stupid enough to pop his head out of the brush just after first light so I can put a bullet in his skull. Can’t drink coffee, the deer will smell it. Can’t talk to a buddy the deer will hear it. Can’t play video games on my blackberry, the deer will see the light from my phone; all this while hanging out with a bunch of people also out in the woods doing the same thing, half of which are drinking excessively.

Now if that is not stupid enough for you let’s look at duck hunting. Well, hey at least with duck hunting you can hang out with your buddy and talk and have a cup of coffee to stay warm.  I went duck hunting once. I stood in water which had bits of ice floating around in it and was just above my groin.  I’m surprised I can still father children I was so freakin cold! My buddy, Mike said I would get used to it. Okay, so, the waders had a small leak, after about 15 minutes, it wasn’t a big deal I could not even feel my left leg, guess that’s what he meant by used to it. So we put out the decoys and we are both leaned up against this huge hickory, and the wind is blowing and I’m freezing my freakin ass off, when I here ducks and of course shots to the south both approaching at a rapid rate. Next thing I hear is all this crackling in the trees, almost like it is hailing but the sky was clear. I ask Mike what it is and he tells me it’s the other hunters shot. It is WHAT?! I am being pelted by the bb’s coming from somebody else’s gun.  Sure, I guess you guys who do this all the time are used to all that, but guess what….even in the GHETTO we don’t willingly go out in the street to get hit by other peoples shot!

Which brings me to Turkey Hunting. I will be honest I have not tried this particular sport; however, if I understand it correctly what we do is get into camouflage  so serious as to make ourselves absolutely invisible to the turkey. No orange here like in duck hunting, we want to ‘”blend” Next we all get on opposite sides of the woods with shotguns and these really strange looking whistles that make a turkey sound.  Then we “call in” turkeys and hopefully fill our pot for Christmas dinner. Now, let’s think about this logically for just a moment shall we?. You can’t see me and I can’t see you and we both sound like turkeys and we both are carrying loaded shotguns, and we are essentially shooting toward each other. Does anybody else see a problem here or is it just me?

So while the rest of Arkansas heads for the deer woods and the state for all practical purposes closes down for the next two months, I will stay in town and concentrate on making a little money. Actually that has always been the best think about hunting season for me. So many folks in this state are out in the woods getting back to nature that I have always had my busiest months in October and November.

Well boys, have at it! You fellas go hunt for Bambi, I’m gonna hunt for another house to buy. And while you are gutting your beast and carrying it out of the woods, I am going fill my gut with a good glass of wine after I carry a t-bone out of the local Kroger’s. I’m not too worried about getting pelted with shot there…Kroger’s is in the good section of town.

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Nothing Like a FREE HOUSE!

Who said being a landlord doesn’t pay!  All you gurus and students out there  who only concentrate on just the blow and go flips are missing out on MANY other kinds of income streams.  Let me tell you a short story…

 So I get a renter about two weeks ago for a little 1300 Square foot Ranch Style that I have in central Little Rock.  They look great on paper.  They look great in person. They get the house. But something doesn’t feel right. After all the years in this business I can just smell it, know what I mean? (If you don’t know what I mean, then you need to be in one of my coaching sessions.) So I do a little checking at the county database.  Just as I suspected; there’s a problem. It seems that my new tenant is on the run….sort of.  He is on the run from his mortgage company.  It appears that he is behind in his payments and just decided to bolt and abandon the property rather than work it out with Chase Mortgage. It’s a sad state of our present economy, one more poor schmuck who got it in the derrière with a 5-1 ARM.  Well, I confront him with it and he admits that yes, he is three or four months behind, but not because he can’t pay mostly because he is pissed off.  See the guy who got him into the mortgage never bothered to tell him about the variable interest rate…at least he doesn’t remember talking about it. Heard this one before guys? I point out to him that I can probably fix it, no promises of course, but I will definitely try…oh and by the way, the price for me to do so would be the house.  In other words, I take the house subject to his current financing, loan stays in his name, and I (as his new property management and debt counseling advisor) renegotiate the terms of the note with the bank.

He gets a HUGE smile on his face.  I can save him and he is all for it. His wife thinks I walk on water. I check out the house and it is perfect. It is worth about 55k (remember, I am in that third world nation called Arkansas),and he owes 36k and it needs no repairs to speak of.  It will rent for $575 to $600, and is an AWESOME candidate for a lease option for a working class family just starting out; or perhaps over as the case may be.

Now for the beauty part, his mortgage payment is currently 450per month. Not impressive you say? Well, I would be inclined to agree except for one thing, the payment is absolutely “laced” with extras that the mortgage broker set him up with.  Things like a “home warranty” for $50 per month”, credit life is another 10 bucks,and then there are a few others so that the total is just over $75 per month. By the time I have all those cancelled by Chase, the payment will be about $375. Now the spread is looking pretty good huh?, Cancel his homeowners and put the house on my commercial umbrella policy and you lose another $25 per month off the payment, and I haven’t even STARTED to renegotiate with Chase.

So, tomorrow afternoon he will deed the house to me and give me Power of Attorney so that I can negotiate the note with Chase. He wins because I will be able to stop the foreclosure, Chase wins because they don’t have to foreclose, The tenant owner I install next week or the week after wins, because he will get into a house with the possibility of owning when he really doesn’t have the credit to go get a loan, and of course I WIN CAUSE I GOT IT ALL DONE FOR NOTHIING! Damn I love this business!

Oh, by the way…..WHAT FREAKIN RECESSION!…..lol

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Some Days I Just have to Brag.

There are days you just have to BRAG!  My 15 year old daughter, Madison made her singing debut yesterday with the Little Rock All City Choir at Robinson Center Music Hall. The show was called “Celebration of the Arts” and was produced by Lawrence Hamilton, Director of Choral Activities at Philander Smith College.  Mr. Hamilton picked teenagers and young adults from several of the high schools and colleges in Little Rock. Madison was one of the 25 or so that were picked. They performed several numbers with the Arkansas Symphony Orchestra, and sounded incredible. I knew she could sing but WOW! There were several stars there, including Ted Danson, and his wife, Arkansas native Mary Steenburgen. Madison got the opportunity to visit a bit with Ms. Steenburgen after to show.

Madison, (right) with her friend Bethanie, Backstage with Mary Steenburgen

Robinson has seen 100s of big  names from Elvis to Baryshnikov in its 70 years as a Little Rock Landmark. It is the primary performance space for the Arkansas Symphony Orchestra and many traveling productions of popular Broadway plays and musicals, and various concerts throughout the year. It seats 2,609. Not a bad sized room for a first gig!

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CMA: Defined

I think it is safe to say that no investor or potential buyer should EVER go into a sale without having performed their due diligence.  One part of this process is the Comparative Marketing Analysis, CMA. This is NOT something to haphazardly do by ones self  online with Zillow or some other “free” site. I personally would not even pay for this service online. You want a professional to do your CMA, and you want a professional who is local to the area you are working in and one who is personally knowledgeable about the actual neighboorhood if possible.

Typically a CMA is performed by a real estate agent or an appraiser.

Although reports can vary, from a two-page list of comparable home sales to a 50-page comprehensive guide, the length and complexity of the report depends on the agent’s or appraiser’s business practice. However, standard comparative market analysis reports contain the following data:

• Active Listings

Active listings are homes currently for sale. These listings matter only to the extent that they are your competition for buyers. They are not indicative of market value because sellers can ask whatever they want for their home. It doesn’t mean any of the prices are realistic. The offered sales prices do not reflect market value until they sell, and in buyer’s markets, like we have today, most sell for a lot less.

• Pending Listings

Pending sale homes are formerly active listings that are under contract. They have not yet closed, so they are not yet a comparable sale. Unless the listing agent is willing to share information about the pending sale — and probably won’t — you will not know the actual sold price until the transaction closes. However, pending sales do indicate the general direction the market is moving. If your home is priced above the list price of these pending sales, you could face longer DOM (days on the Market). Remember that this only matter if you are trying got sell your home through a realtor.  The way I teach you, you will only be using realtors for a very small percentage of your business.

• Sold Listings

Homes that have closed within the past six months are your comparable sales. These are the sales an appraiser will use when appraising your home for the buyer, along with the pending sales (which will likely have closed by the time your home is sold). Look long and hard at the comparable sales because those are your market value.

• Off-Market / Withdrawn / Canceled

These are properties that were taken off the market for a variety of reasons. Usually the reason homes are removed from the market is because the prices were too high. The median prices of this group will almost always be higher than the median prices of comparable sales. These are absolutely useless to your buying or selling of a home and for your purposes as an investor should not even be on the CMA, but don’t stop your agent from putting them there, they are a source of leads for you to go and try to negotiate with the owner without the extra fees of a realtor.  More on that later.

• Expired Listings

This group will reflect the highest median sales price because they did not sell and were probably unreasonably priced. Some of the expired listings could also show up as an active listing, listed by a new agent at a new price. Listings also expire because they were not aggressively marketed or because the home was in need of repairs. This too as an awesome way to get leads, so don’t have your realtor remove it from the list, just don’t count it in your calculations for the worth of the subject house

Examining Comparable Sales

Comparable sales are those that most closely resemble your home. It is impossible to compare a tri-level home to a single-story home. A 2 bedroom 1 bath house is in no way comparable to a three bedroom two bath house and I don’t care if they are on the same block and built by the same builder. Select the homes from this list that are mostly identical to your home in size, shape and condition, such as:

• Similar square footage

Appraisers compare homes based on square footage. Larger square-foot homes are worth less per square foot than smaller square-foot homes. The variance among a group of median-priced homes ideally should not exceed more than 200 to 400 square feet, plus or minus. This is perhaps the biggest area where people get into trouble. It isn’t just about square footage price, it is about square footage in THAT neighborhood. This calls for a story.

I have an investor friend who was having a problem with comps (another word we use for the “comparable houses”) for a given area where he was planning to buy a home to do a rehab and then sell to an end user. A retail sell. The problem was, that this house was built on a hill and at some earlier point the owner had finished out the basement. This made a 2500 square foot house into a 3500 square foot house.  The problem was, there were no 3500 square foot homes in the area; the house was unique t the neighborhood. He mistakenly used the average square footage price for the neighborhood based on his CMA and calculated the worth of the home he was buying.  Here is where he learned his first big lesson in real estate. A home That is nearly 50% larger than every house in the area is NOT going to sell for 50% more money!  By the time it was over, he took about an 18,000 waxing and was happy to only lose that much.

• Similar age of construction

Ideally, the age of the home — the year it was built — should be within a few years of other comparable sold homes. Mixed-age subdivisions are common. For example, in one area of Sacramento, a subdivision consists of homes built in the 1950s, and then they jump a couple decades to the 1970s. Although the homes are located next door to each other, the homes loaded with character from the 1950s sell for more than their newer Brady Bunch counterparts. If your home was built in 1980, say, and brand new homes up the street are selling for more, you cannot command the same price as a new home. By the same token, the houses “with personality” as mentioned earlier, might be smaller, but will almost always sell for more money than the larger “cookie cutter” types

• Similar amenities, upgrades and condition

Appraisers will deduct value from your home if other homes have upgrades and yours does not. A home with a swimming pool will have a different value than a home without a pool. But pay attention! In your more well to do neighborhoods a pool is an asset, in a poorer neighborhood they become a liability.  In California or Nevada wher it is warm most of the year a pool may help sell a house; whereas in New York or Michigan, it may make it very hard to sell; unless of course you can get it to double as a skating rink…(okay just joking).  A completely remodeled home is worth more than a fixer. Homes with one bath are almost always worth less than homes with two or more baths. Deferred maintenance will count against you. Every time and in every area of the country.

• Location

Everybody knows that real estate is valued on “location, location, location,” but have you considered what that means? A home with a view of the city, for example, is worth more than a home facing a cement wall. Homes located on busy thoroughfares are worth considerably less than homes on quiet streets, particularly cul-de-sacs. Compare your home to those in similar locations. If your home sits across the street from a power plant, look for other homes with power plant exposure or those located along railroad tracks, among other undesirable locations.

You can view this and other articles at:

www.REINetUSA.com

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