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I’m working on an educational program that suggests you find emerging markets elsewhere (assuming that your local market is in the slump that’s generally considered to be nationwide, if not global). This involves a lot of research, like finding demographic information from the local Chamber of Commerce, planning commission, Board of Realtors, and numerous other sources. We need to find out whether there is job growth or shrinkage, people moving in or moving out, moving into what neighborhoods, city improvement projects, and on and on. This is not a new idea. Marc Stephan Garrison and Paula Tripp-Garrison write, “Ever since 1986, [we] have [identified] real estate target markets.”
I had been working on an area that’s not too far away – the Bridgeport-Stamford area of Connecticut. After days of scratching my way through reports about new initiatives, population projections, and projects developed to attract new businesses, I realized that most of the webpages I was using hadn’t been updated since 2007. It appears (to me, and please remember I am an utter novice at this task) that Bridgeport was an emerging market, but that the general recession seems to have dampened it considerably.
On a list of cities that were good places to start a new business, I found Seattle, Charlotte, Raleigh, Orlando, and others. The idea of looking for a place so far away (I’m in Massachusetts) in which to hunt for large commercial (multifamily) real estate is absolutely daunting. And haven’t Charlotte and Raleigh been considered the favorite spots for real estate investors and developers for months or years now? I suppose my uneasy intuition ought to take a back seat to green-space development, incentives for job creation, and the lot, but this isn’t going to be an easy leap to take.
“You miss 100% of the shots you don’t take.” A quote from Wayne Gretzky, hockey hero. The Great One.
I’ve decided to take the advice of many real estate investors: start taking shots, no matter how ridiculous. I’ve heard many times, “If you’re not embarrassed by the offer, you’re offering too much.” In my town, it’s hard to tell there’s a huge drop in housing prices nationwide. Real estate here holds its price really well. The embarrassing offer I made today was in this town, and it was turned down promptly. But who knows? The asking price would be a high price in many communities near here, and sales are slow, so anything’s possible.
I saw a house the day before yesterday that the realtor had called “a gem” in the listing. Well . . . it had been an old and raggedy 4-family, much of it sitting empty. The present owner had filled it up and assigned one of the tenants the work of fixing everything up. The tenant was doing a fair job; the apartments looked habitable. The common space had not been touched. It was ragged, filthy, rusty, had oil spills, cold air whistling through cracks and holes. A “gem?”
In its favor, she said that the neighborhood was on its way up. She pointed out several neighboring single-family houses that had been rehabbed quite nicely. One even had these little skinny shutters beside its windows – windows placed in such a way that if you put regular shutters on them, they’d overlap generously between the two windows. Those have to be custom shutters, and that had to cost some money!
The most interesting part of this 4-family’s story, though, was about its owners. They owned a number of properties, and lived out of state. This 4-family was listed for sale for less money than is actually owed on it. They are planning and hoping for a short sale. They hadn’t made payments on it for 5 months, she said. Weren’t the tenants paying rent? “Oh yes, all of these tenants are paying rent.” (Probably not the guy fixing everything up.) One of their properties was in yet another state. It had burned to the ground. This realtor had listed several of their properties herself. One, in [some other place] burned to the ground. The other one sold for . . .
My agent and I exchanged glances and tried not to laugh. Wow, what a coincidence these unfortunate landlords have experienced! Upside down in their properties and can’t get them sold? Took out a second mortgage to pull out some cash? And then two burned? What a shame!
Amazing. I suppose coincidence is one possibility.
While it is still standing, I might make another low offer on it. My agent thinks it’s a possibility, given that it’s going to be a short sale anyway. And it needs work. It may never be a gem, but it needs work now to bring it up to tolerable standards.
Join the local Real Estate Investors Association. Check. Join the Chamber of Commerce. Check. Talk about what you do. Check. Volunteer for committees, be visible at your association, club, church, and chamber meetings. When? Have you got that kind of time? I would have to be out every evening. Well, almost.
Networking. It’s incredibly effective. I have a huge pile of business cards gleaned from networking meetings at the REIA. I’ve had offers of partnership, suggestions for financing, ideas for hunting down deals, and just plain nice new acquaintances. I’ve already called some of these people with questions, ideas, or proposals.
This is the free marketing, or at least, not very expensive. My local REIA cost under $100 a year’s membership. So did the Chamber. . . until I got the second bill, and realized that $80 was per quarter! I guess I had known that; I probably forgot. I was about to join the Better Business Bureau (not so much for networking as for credibility), but since it cost about what the Chamber did, I have to wait. Funny about the Better Business Bureau; it carries a lot of weight with most consumers but doesn’t really have the kind of stringent entrance requirements one might think. There is a code of conduct you have to sign.
Business cards. Essential for networking. I need to order more soon. They are so cheap online it will astonish you!
I suppose I could be printing up “We Buy Houses” bandit signs and car decals and flyers and newspaper ads. Those bandit signs are sprouting like daffodils in certain neighborhoods and on some corners. It’s not for me, though. You have to go out and set them in the dark of early morning, and try to snatch them back before the authorities take them away. Many investors hire someone to do that – making someone else do the bandit work! Then you’re supposed to have a toll-free number on the sign, with an answering service who are trained not to give your identity to the police. (In case it wasn’t clear, these bandit signs are against city/town/county ordinances almost everyplace.)
Marketing is considered essential in real estate, as in any endeavor that involves selling something. Web 2.0 marketing, such as growing your presence and networking on Facebook, LinkedIn, and the like, has its ups and downs. This poor blogger has had his Facebook identity “borrowed” by someone attempting to swindle others out of money!
In general, though, I think that networking, whether in person or virtually, is a powerful force in marketing. And I discovered I like it! Virtual networking can take up hours; for me, talking with people at various events seems much easier.
I don’t know much about marketing. But I have an idea! I’m going to study the methods of those real estate “gurus” whose marketing materials are so effective on me! More on this later.
There’s so much hype in the community of real estate investment education. You find it in the books about investing: you don’t even have to look inside, it’s right on the cover! We all know that the web gives us ample examples of hype in the courses, ebooks, seminars, and “boot camps” that you can spend any money you might have been saving for a down payment. “No problem! No money down! Hard money lenders! Private investors!”
I thought perhaps that real estate investor associations would be rational, no-nonsense places where the everyday realities of real estate investment would be discussed. Not really. Some of these same gurus make the rounds of the REIAs, financial multi-level marketing schemes are touted, and the hype goes on.
I yearn to believe in these programs, these teachers, these methods. I want to believe that there is “no competition” in probate property. And that this “unique approach” will distinguish me from the dozens or hundreds of would-be investors sending postcards to homeowners in pre-foreclosure. That buying this course with 400-page manual, 8 CDs, and 6 DVDs will teach me the way to reach bank-owned homes before they are listed on the MLS.
The promises of wealth and ease are astonishing, but very well-crafted. Well, many of them are well-crafted. I am not personally left drooling at the photos of mansions, boats, and expensive cars that are temptingly inserted in the ads for these educational programs. But I am drawn in when they offer enough information to sound credible, even when they minimize the work and greatly exaggerate the rewards.
While I don’t have enough sense to resist some of these temptations, I do know enough to save the boxes and the bubble wrap, and some of these courses have gone back to their publishers.
Sometimes bloggers wonder if anyone is reading. (Probably not in such a new blog!) One can spend hours trying to make the blog more visible (time not spent blogging, I note), listing it in blog directories, chatting on others’ blogs and leaving your url, and generally being “out” in the world tossing your url about.
I listed with 4 or 5 blog directories (there are links to all of them on the About page), and one especially interesting “blogroll,” condron. Lots of blogs, many of them really interesting. And a lively discussion forum with other bloggers who would like readers and feedback.
Buying “free and clear” means buying from someone who doesn’t owe anything on his or her property. The idea is that, you can buy at their price, if you give a down payment (sometimes borrowed from a private lender) and convince the seller to take their price in installments, with no interest. According to the gurus, the sellers accept this, and are grateful. I wonder if I’ll meet sellers like them.
I bought a list of free-and-clear properties in my area; they are almost all commercial properties. Lots and lots of auto repair places, and office buildings, retail buildings, medical buildings, and a very few houses. I was startled! I thought there would be more houses! I wonder if I made a mistake in laying out the requirements for the list. Can I buy an office building? An auto repair place? I wonder what I would do with that. Perhaps I have to expand the geographic area in order to find more houses. What will become of this technique? Maybe it’s something unique about my area, or maybe I just didn’t use a large enough population area.
Usually I give the list to a virtual personal assistant to send letters, but I’m not sure where to send letters! Maybe it’s worth the change. The sellers of a free-and-clear property can hold a mortgage, secondary to your private money mortgage, and receive payments on their asking price (no interest) for years. You can take some cash out of the private money you borrow for the down payment. Or so they say. It still seems like a bit of a scheme to me.
The business is changing fast!
Looks ok from here!
The real estate agent was a fix-and-flipper himself with many years of experience. He was distinctly negative about the house. “It’s worse than it looks from the outside,” he said. “Hold your breath!”
He was right, it was really bad. Not just the things the needed repairs (such as, heating system, new kitchen, new roof, demolition of the shed and carport, demolition of the moldy water-damaged areas (many), new floors, etc. It also needed not to be that house! The layout was all crazy, the bedrooms upstairs had almost no spare headroom, there was no basement so the hot water heater was in the dining room!
Did I forget to mention that, when you opened the bulkhead to look into the crawl space, you couldn’t see the crawl space because the water was up to the top step?
At that price, I didn’t think it was worth it. Besides, with mold you are buying potential liability. It’s a problem that you always hunt for if there has been water damage, and it’s a problem you might want to avoid, unless you get stuck with it. (More info about mold here.) I agreed with the agent that it would be best to tear it down, but at that price we didn’t want to own vacant land (plus the cost of demolition and hauling away).
However: I got over the idea that nobody else was interested, that my judgment was poor and I wouldn’t be able to recognize if something was terribly wrong. I knew I would have offered the asking price if the house was right and it would have been a great flip. Even though there was no deal, I learned a lot about me!
I went to see one of the vacant houses that one of the bird-dogs found for me. It’s not just in need of a little TLC, as the real estate ads like to put it. It’s marked at $45K even though the bank is owed $112K. But oh dear. There’s a carport on the back, attached to the house and falling down, pulling the mudroom of the house down with it. A leak or hole in the roof of the mudroom has rotted the ceiling, which has fallen on the floor of the mudroom in moldy chunks.
The driveway pavement goes all the way up to the edge of the house, leaving no room for any work that might need to be done. It also traps moisture, creating rot or, even worse, a magnet for termites.
Peeking into windows other than the mudroom, I saw a house that had never been quite right. The stairway was too narrow; it looked treacherous. The floors were worn carpet, sub-flooring peeking through. I couldn’t see a bathroom or kitchen, but I have a pretty good imagination. Heat is provided by a couple of large space heaters, one in the living room, and another in a room I couldn’t see too well, but is probably the kitchen. I don’t know if the pipes have frozen; if so, we have to add $5,000 – $10,000 to the repair estimate.
What a question! If it takes $20 or $30K to fix it, it’s still an incredible bargain. Added to the asking price, it comes up to $75,000 repaired. Definitely cheap for that neighborhood! On the internet I found estimates for its price at $165,000-170,000, the neighboring houses hovering around $200,000. The neighboring houses are bigger and better houses, with slightly bigger pieces of land. Our little flip sits very close to the road, but the road is not horribly busy. I wonder if a wholesaler would buy this property for $50,000? With $30,000 in repairs, it brings their investment to $80,000, and they would be able to sell easily at $125,000 or even higher, and still be well below market.
I’ll bet that basement is wet. The backyard slopes down toward the house. How does one decide about these things? And if it’s already listed with a Realtor, why wouldn’t some rehabber buy it now at this price? And how do we make these decisions? The formula is to buy it at 65% of the After Repaired Value (ARV), minus the repair costs. Assuming it’ll be worth $140,000 in our shaky market, then 65% of that is $91,000. Subtract an invented repair cost of $30,000, then our price for a wholesaler would be $60,000. Nice profit. But why hasn’t some rehabber bought it already at its current price of $44,900? Here’s a compact blog post explaining the pricing question.
Maybe that price is so low because there is something fatal in the repair list (crumbling foundation, mold, kitchen and bathroom are worse than I imagined, lead and asbestos everywhere). The bank took it for a $112,000 mortgage, so obviously they have resigned themselves to a steep loss. Hmm, warrants further investigation. I’ll have to get inside of it. I’ll call the Realtor.
