I have heard some version of this question over and over again, from different people, at different times, and all the questioners expected a definitive answer. I shall attempt to discuss worth and value and will try to simplify the discussion and give you some food for thought. First let's get to the most practical reasons people ask this question in my business. They either want to know:
How much can you sell my house for? ,or
How much do I have to pay for this house?
These questions actually go to price, and the short answer always has a dollar figure.
BPO's
In our office we are doing at least a dozen BPO (Broker Price Opinions) a week. A BPO provides the answer to this question: "based on the sales of similar homes in close proximity to this one over the past three months, what will the subject home sell of within 30 (or 90) days?" (for a blank BPO form click here).
The BPO form will also list three homes that are on the market, but in truth the ask price that some has on a home has little bearing in today's market valuation. A BPO price is generally brutally honest and generally is referred to for a quick cash sale. The BPO's in our office are performed on homes we list that have been foreclosed on by the bank and the bank is asking us to sell the home.
Alternatives
In general real estate sales, we are more likely asked: What can you sell my house for? We may start with a BPO. But we have to ask more questions: "How soon do you want to sell? Will you hold the mortgage? What is included?" In previous uptick markets sellers would "lead the market". They would price a bit higher and wait for the market to catch up. In today's market this might be a bit like trying to catch a falling knife. Most agents will look at what alternatives a potential buyer has to buy a similar house - not what one has sold for. If a buyer wants to live on the river in Lee County,for example, the agent will look at all the alternatives on the river and then price the subject home to be competitive with what is on the market.
Are you going to sell and then buy?
Some sellers today are thinking of downsizing. They want to put their home on the market and buy a smaller one. The wise seller will set his price to sell quickly, foregoing a higher price because they know bargains exist on the buying side. Unfortunately there are many who want to "sell retail and buy wholesale. They realize it's a down market but rather think that the down market does not apply to their home! In their wait for the perfect price for the home they are selling they may miss the bargain on the buy side.
What is in a price?
I have often said that there are three forms of capital: Time, Money and Thought, and I have a limited amount of all three. The money issue is the most up front and center. Let's look what is involved in the dollar cost of a home. The following is a list, in no particular order, of factors that affect the dollar cost of a home:
Purchase price
Insurance Cost
Taxes
Maintenance
Home Owners/Condo Dues
Useful Life expressed in years (Depreciation)
Cost of Borrowing
Utility costs
If a buyer or seller just looks at the first one, price, and ignores the rest, they are not examining the true costs.
Less obvious than the dollar costs are the time and brain power costs. You may think of these as the same thing. I do not.
One deals with the clock - how much actual time it takes to accomplish the search for a home, the maintenance of a home, and what are the alternatives for that time; the other deals with stress and cognitive power. If I am stressed with the burden of my home ownership, this will steal cognitive power I have for accomplishing other things - like my livelihood and my enjoyment of my family.
And what of Intrinsic value?
I am not talking of present value as in an investment, but more the philosophic intinsic value of a home and its contribution to happiness. The expression "You deserve this" comes to mind. The home is a reward - but only as it is related to happiness - not the number of square feet and bedrooms. What is the price for happiness? What is the cost? For this answer you must examine your bigger goals in life. I, like many others, have re-examined these questions and find that worth has more to do with the intrinsic values that the dollar values.
Pets. This is a market that the recession has missed.. Yes we see anecdotal stories about abandoned pets as folks abandon their homes, but look to the steady growth of the pet industry to continue for years to come.
The Kitchen. Nothing says comfort more than a home cooked meal. Grocery prices are rising and restaurants are responding to the lack of customers. But look to home cooking and products related to dining in to increase in popularity.
Small is the new Big. At the economy shrinks, so will home sizes, cars, and furniture. Look for pride in small ownership and capitalize on it.. Small multi use furniture, easy to store playthings, and of course small electronics, small apartments and small cars.
Out Sourcing. This is corporate speak for do not hire an employee, but contract out for the service - from everything from your phone service to your software. Need a marketing department? Outsource it.. Need a call in service center? Outsource it. Here at Market America Realty and Investment Group we have outsourced our phone services, our IT department (Redline Managed Services), and our email system. We, in fact, out source our offices.
Software as a Service. Related to the outsourcing trend. Instead of buying the software buy the service. Need accounting, CRM, or inventory systems? Get it on the web.
Aging and Dying. We don't need to say much here, the baby boomer theme has been beaten to death - and that's where they will end up - think Bucket List and the package of products and services this aging population will demand. from medicine to vacations, parties to funerals.
Water - blue is the new green. Technology and marketing opportunities will increase as our demand for this precious commodity does not decrease but the supply dwindles. Thin water treatment and conservation.
Urban living. The Aging population will no longer want to live an hour's drive from essential services. Small efficient apartments in urban locations near libraries, hospitals and shopping - not to mention transportation. This trend runs perhaps contrary to the extended household trend -multi generational households. But the sprawling suburbs are expensive and impractical to support. Urban living gives us other markets to explore - smaller furniture designs, urban gardening, indoor pet potties, multi use appliances and compact EVERYTHING.
Home businesses. As the population loses corporate jobs look for more cottage industries and the products to support them.
Communications. Think social networking, computers in pocket (iphones) connect anywhere technology and the demise of the newspaper and printed media.
Virtual everything. Tour a home or a country, take a hike or fly a plane.
Shopping. Look for personalized manufacturing - order a car and they will make you a car. Order a pair of jeans, and then it will be made for you: Low inventory, the resurgence of catalogue stores - tied to the internet. A place to touch the product before you go on line to order it, not a place for inventory.
Medicine. The coming socialized medicine trends will boost the concierge medical industry, holistic medicine, and preventative care.
Aging infrastructure. The crumbling bridges, sewer lines and utility networks will favor the urbanization trend and the infrastructure per capital is lower in the cities.
Do it Yourself resurgence or everything - from home improvements and cooking to wills and clothes making. The population will produce more and consume less.
Who IS the developer? Florida has a very strict successive developer law. The developer that is responsible for warranties and liable for other major issues just may be a bank or some other investor and not the large developer that built the project. Investigate this thoroughly and get a good agent working on your behalf that can intelligently get these answers and advise you of the ramifications.
Who is carrying the warranties and what is the policy on warranties for things like appliances, punch out items for the condo and major structural items such as concreteand doors? Many of the subcontractors for things like the pool, the concrete work, and the tile may now be out of business. If the condo you are buying is three years old yet has never been lived in, is there still a warranty? Who do you call if when you move in you find that the hot and cold water lines were mistakenly crossed or your doors don't work?
How many condos in the community are paying their assessments? If you buy a condo for $179,000 and the condo fees are $900 per month it is a safe bet that only a small portion of the condos are actually paying the condo fees. How does this affect you? What will the fees be in two years? In five?
Who built the condominium? This is different from who developed it. Are they still in business? What is THEIR policy on latent defects? Do they have the money and resources to back up their warranties? A good agent will contact the builder for you and get these answers.
Who is managing the condo association and has the project been turned over to the owners from the developer? The condo association is likely very busy with issues like un collected fees, estoppel letters for foreclosed properties, and other problems associated with today's recession; so to get answers from them you may have to make a personal visit. I would do so or insist that your agent do so on your behalf. You can learn a great deal about issues like insurance, warranties, the percentage of owner occupieds and other problems or challenges the community will face in the future. Most associations are run by a management company that is paid so much money per month, per door. They hire the common area maintenance contractors and deal with all items not associated with the individual homes.
Two weeks ago I received and email from one of my readers telling me that he was glad I was a salesman and not an economist. My writings and indeed my attitude were much too optimistic for me to be an economist. I wrote him and thanked him for his email and comment. I agreed with him, I would rather be thought of as an optimist than anything else.
I was reading an article in the Wall Street Journal last week and read something to the effect that all of the United States recessions have been followed by much happier times, and the deeper the valley the higher the following hill. I cut out the article, carried it around with me for a while so I could refer to it when I write on Sunday morning. But I lost it. I probably scribbled a phone number on it in the car, carried it to the office, and lost it before I called the number back.
No matter. I really don't need the validation of the Wall Street Journal to confirm what I am seeing with my own eyes. But I suspect there may be a bit of a perspective issue with the higher the bounce from the longer the drop theory.
My father used to tell me the story about Herbert, the philosopher. He came upon Herbert one day in his garden. Herbert was beating his head against the stone wall beneath the oak tree in the corner.
"Herbert!" exclaimed my father, "Why are you beating your head against that wall?"
Herbert stopped, looked up at my father and said, "Because it feels so good when I stop."
Today, belts have been tightened, literally, and spending is at an all time low, we have all cut back, economized, and retrenched. The clouds of excessive consumption have cleared and our minds have adjusted more clearly so that we can perhaps more wisely choose between needs and wants. I know my priorities have been altered, and I believe permanently, by this recession.
We all seem better able to gauge others by our own experience and I am certainly no exception. My experiences lately tell me that spending is on the increase. In my business we are expanding. I now have 14 agents and two staff locally and twenty or so more agents nationally. I am interviewing for an outside contractor for marketing. I bought additional capital equipment. I am spending money on my website and some money on advertising. Yes, just a trickle, but it is a start. But I am spending the money differently.
We added affiliates and now have Market America Realty and Investment Group - with offices in Punta Gorda, Sarasota, Michigan, and New York and soon in Germany.
But instead of adding employees I am in many cases outsourcing. Instead of long term commitments I am more conservative in my approach, cautiously optimistic, if you will. My PR person will be an independent contractor; so too my content manager on the web.
My affiliate program is another example of a fiscally conservative approach. I have identified technologies that make my business run smoothly, but for growth in my business I am taking an approach my brother I used "expanding" our boats.
Bill and I used to buy a boat with partners. Every time we need to spend money on the boat it would cost each of us just one fraction of what it would cost us if we owned the boat by ourselves, with three partners in the boat, that new prop was, in essence, 2/3 off.
The approach I am taking for Market America Realty and Investment Group is similar. It is a marketing Co-op, so to speak, I am adding offices, but not expense. I am adding technology, and the expense of that technology will be shared among affiliates. Now each office can afford the best support, advertising, and back office systems at a fraction of the cost for a single office. (The beautiful thing about today's technology is the low cost of scaling it for large growth. If you have a real estate office and want to talk about being an affiliate, call me).
The point here is that we are spending money again, but in a fashion that has been adjusted by our experiences in the recession. I think there will be a bounce, but it will only seem higher because of our adjusted expectations and our new found appreciation for any upside at all.
Folks, I am amazed at the prices, not just a Riva, but all over. We are now at that time that is just at the end of the long off season for sales and the beginning of the new selling season down here - and prices are remarkable. In some cases as low as 40% of that they once were. Riva is in an unusually location - only unusual because they uniquely own the high rise market in South Fort Myers. Views are spectacular both day and night, the amenities are high class.
The individual condos do not have the layout and finish that Parkside does (Parkside is all granite and wood trim) nor the marina, of course, but the amenities are done well.
I'm sitting here this morning looking at, what in today's computer dominated world, is a blank sheet of paper: a white screen with a blinking curser standing at the ready, waiting for the words to come out slowly and with deliberation, originating from a brain that is anything but slow and deliberate; a brain that is sending signals faster than my poor typing skills can keep up. It seems that it would be so much easier if my brain had a USB port I could plug into and it would transport my ideas into some user interface with Microsoft Word. Before you tell me about speech recognition: I know, I know - I tried it. It simply does not work well enough. By the way, thanks for still reading my column. I try to keep the typos to a minimum - please accept my apologies for last weeks typo right in the subject line.
I have three topics I want to cover: How to buy an REO - a bank owned property that has gone through the foreclosure process and as now marketed by an asset management company though a local real estate agent; How to do a Short Sale - in effect sell your property for less than you owe the bank; and thirdly, I want to talk about One of my Greggisms that my kids have heard all their life.
First to the Greggism. This morning while I was reading the morning paper I had the TV on. The Fountainhead, by Ayn Rand was playing on Turner Classic Movies. The antagonist to Howard Rourk, Ellsworth Touhy, meets Rourk by chance at a construction site. For most of the book Touhy has been out to destroy Rourk, the protagonist of the novel and the representation of Rand's philosophy. Touhy is anxious to hear what Rourk has to say:
"So tell me Rourk. Tell me what you think of me." Asks Touhy.
"But I don't think of you." Rourk offers as he walks away.
Whenever I hear one of my kids or friends say: "I hate such and such, I always respond with, "Don't hate, just refuse to like, it takes much less energy."
I had never made the connection with my sentiment to Ayn Rand until this morning.
Not sure what this has to do with Real estate, but I needed to get it out my brain and onto paper so the rest of this stuff can come out. Enjoy.
How to Buy an REO
The topic is not how to find an REO to buy, nor is it how to determine what REO to buy. If you need help with these topics call me and let's sit down. What I want to talk about is how to get the one you have identified.
Buying REO's is not like buying a home from an individual. You are buying from an institution. There are no grey colors; only back and white. It also is not a race. First does not count. Highest and best counts.
Let's talk about highest first. You need to be working with an experienced and thorough agent that can make you just as knowledgeable as the asset manager for the bank that is handling the decisions. The asset manager had at least two real estate agents prepare a BPO (Broker Price Opinion) for the subject property. You need to do the same. Do not hesitate to pay for these BPO's . You should be able to get them for $50 to $100 each. If you are a loyal client and willing to sign a buyers rep agreement with your agent, I am sure they will do one for you free of charge.
Let me take a moment and talk about buyer rep agreements. You might be hesitant to sign one; and you should be. I can understand how you feel, and I felt the same way when before I was an agent and I was using agents to do work for me as a buyer. But then over time I realized that good agents work hard and diligently and have many demands on their time. But I need his full attention and I need to let the agent know that his efforts will ultimately be rewarded. Do not hesitate to sign a buyers rep agreement - ESPECIALLY when dealing with REO purchases or looking for bargains in a very competitive market like today's.
Back to the BPO. The BPO will give you a good idea what the home is worth and what the bank will accept. Just like in any negotiation it is helpful to know the other sides' motivation. The bank's motivation is simple - Highest price quickly. They want simplicity and no contingences. They want to move onto the next property. Which is where we come to BEST:
Once you see the BPO for the property you want, ask for all associated documentation. A good REO agent will have things like condo docs, tax records, sales history of the property, and perhaps old surveys or inspections. Go talk to neighbors. Visit the areas a few different times of the day. Go on the weekend. Get to know more about this property than anyone else. Look at the short sales in the area.
Whenever possible make your inspection prior to the offer. Do not make the offer contingent on ANYTHING. Your competition may be a higher priced offer but may come with a seven day right to inspect. You may win the bid at a lower price if you have already done your inspection.
Many years ago I bought a house in Cincinnati from a bank. I looked at the property and decided what it was worth. I then found out that there were three bids higher than mine. I wound up not making the bid. Ninety days later, almost to the day, my agent came back to me and told me the bank called her and asked if I was still interested. It seems that all three of the other contacts fell though during the due diligence period. I told her I was interested but I needed to go through the house one more time. I took a clip board and assumed everything that might need to be fixed HAD to be fixed. I submitted my bid based on cost estimates for it all, but with NO contingencies for inspection or financing. The bank called me directly a few days later and said they would like to save some time and counter my offer over the phone. I replied that I could save them a whole lot of time as they already had my final bid in their hands. I got the deal. (By the way the only thing I did not have to replace that I thought I would have to, was the slate roof. It cost only $135.00 to repair.)
Ask your agent if there are any addendums that the bank needs signed and you can get ahead of time. Normally banks ask for proof of funds or your ability to borrow. Give them that information and make it easy for them to verify balances by including your banker's phones number and name.
Ok, you have your nice tight package that is now in the hands of the bank. Don't stop there. Follow up. Talk to the banker's agent. Are their other offers? What are they? How many? The seller's agent has a job to do - and that is to get the highest and best offer that he can get for his client. If it is in the banks interest to tell you that you are two thousand below the next offer, he may tell you that - hoping to get you up a few thousand. Many banks set a deadline for offers, after the deadline they come back again and ask for "highest and best" again. You may be able to pre-empt that process by having such a solid first offer that they take the path of least effort and accept your offer.
Do not be discouraged. The process is not as much art as it is science; but there are still personalities involved. Good agents know how to get to the personalities and make the deals happen, but excellent agents go beyond that and make certain that there are no other reasons for the contact to be thrown out by the bank. They will help you make a tight offer that is highest AND best. Good luck and good buying.
I'm sure it started out way before I noticed it as a kid. I'm talking about the battle of the better-thans. There was a Dairy Queen in Emerson New Jersey when I was a kid. As a treat my parents used to take us there for ice cream. When ever we came off of the Garden State Parkway from long trips and got onto Kinderkamack Road; there were two mansions up the hill to the left. When I saw those mansions I knew the Dairy Queen was not too much further ahead on the right. This was my signal to start my pleading for my Dad to stop the car. Little did I know he always wanted a DQ as well and his resistance was just a show for Mom.
One year we took the Country Squire station wagon, a pop up tent trailer, and headed all the way to Disneyland in California. But after four weeks and thousands of miles, I still spied those landmarks on Kinderkamack road as we got close to home.
Of course we stopped and Dad sent me in to get small four cones.
When I came back to the car I soberly announced that they didn't have small cones anymore. In fact the smallest was a large.
"Huh?"
"Yup: large, extra large and jumbo."
This morning I was sitting reading the paper over looking JayCee Park in Cape Coral from our new Parkside Condo. It was (and still is) a gorgeous morning. It rained pretty much all night and a cool soothing breeze was coming off the river through a cloudless sky. As I made my way through the news sections of the paper there were joggers, dog walkers, and some sort of workout club distracting me, in a pleasant way, from the news. When I got to the real estate section I scanned the ads. The first half page ad as is for Concordia Brand New Luxury Condos. This is a project that is near and dear to my heart. Before we developed the Island Pines project we looked at this design, which is a modification of the "BigHouse" concept but went instead with a more traditional design from Mike Sheeley Architects. These homes being offered by Concordia are at a price that is at least half of their replacement cost and very much a bargain. In fact at as low as $77,000 it would be a mistake not to take a look at them if you are thinking of buying a condo in Florida.
For Concordia, luxury is defined by granite counter tops and stainless steel appliances and screened lanais. Certainly a step up from laminated counter tops - but who builds laminated countertops anymore anyway? My point is not to disparage Concordia, for I think it is a fantastic project, but to point out that our benchmark, our starting block, if you will, is luxury. We go up from there.
To those who have been coming up from luxury; luxury is a bathroom with a cocktail bar, or a kitchen with under counter refrigerators and beer on tap, built in wine coolers and six burner gas stoves; inlayed marble mosaic floors, gold plated faucets, and walk in closets with windows.
Opulent, sumptuous, lavish; but where do we go from here?
I say to intelligent design. Not bigger, but better; not more luxurious, but smarter.
The trend will be to the small, understated luxury, No extra rooms, but those that are built are built with use and design in the forefront. Large closets yes, third bedroom suites no. I expect not to lose high ceilings and large windows but I expect higher quality storm and sound proof windows; practical use of the space with things like built in safes, smart storage design, efficient kitchen and bath design, and little or no wasted floor space, multi use rooms with built ins: Energy efficient and "Green". Proper ventilation for the baths and kitchens, "smart" electrical design with remote controls, sleep modes and temperature stable homes.
In any case that's what I want. And I want to develop this too. But first we have to sell all the luxury homes that are on the market at bargain prices. We need to finish this "clearance sale". Which raises another interesting point: today the "few steps up" from luxury in now available at affordable home prices. Money available at 5% and incentives from sellers and banks alike.
I am expecting a very busy season in real estate in South West Florida. Come on down for yourself.
Figure out what the real estate wholesaler's "Value Add" is and you too can make money in Real Estate.
I'm not sure where I first heard the expression "Value Add" - I think it was when I was a consultant for the Corporate New Ventures Team at Proctor and Gamble. We were big on buzz words back then like; "ideation", " key take-aways"; "peel back the onion" and "30,000 foot view";- all sorts of insider expressions that let others know we really knew what we were talking about and we were, well, consultants. I have to admit I still use these expressions in planning meetings today, although my planning meetings are much more informal these days and are more likely than not to be held with a few small confidants like my wife and close business friends. But I still love to use a white board and dry erase markers. When I can write ideas down they become more concrete - and approachable.
The concept of "value- add" requires us to define not just our right to succeed in a project, but just what we are bringing to the table to justify a margin contribution. At P and G, I was taught that the conglomerates vast size and marketing muscle was not a right to succeed, nor was being first to market a right to succeed. A "value add" had to be present and sustainable, scalable and offer a benefit to each customer - not just to the market or to the companies bottom line. The soap, for example, had to actually clean better or last longer. This over riding concept has served the company well.
A few months ago I was approached by an old friend in the real estate business. He was suddenly gung-ho on a multilevel market concept. He invited me to a presentation at a local hotel. I went because of our past friendship. At the meeting he talked about leveraging people, not money, and selling to friends various products that they were already buying anyway: like satellite TV service, cell phone service, and vitamins.
I asked him simple questions; "What's your value ad?"
"What are you contributing to this process?"
He did not quite understand that not having a value add would ensure that his business was not sustainable. He stressed I did not really have to DO anything. Sales people down my stream would sell. I did not need a value add.
But I understand that in order for my customers to use me, the must need me for the added value I bring to the proposition.
Ok. Let's talk real estate,
Market America Realty and Investments Inc. is selling homes to wholesalers, end users, and landlords. The expression wholesalers is perhaps not the proper term, but if you wish you can call these folks flippers, dealers, or money men. The foreclosure deals we now handle bring in multiple offers in wide price ranges. (To the lower left there are links to our newest offerings - some before they are listed on the MLS - because we do not have final pricing). I can usually tell when the buyer will be an occupant by where the price of the offer is in relationship to other offers- but not always. The investors that are going to resell the property know they need to add value to the property, and they know well where their margins and therefore offering prices, need to be.
The "value add" the wholesalers offer is this:
Inventory. Just like you would rather go to one store to buy clothes than a few dozen manufacturers, so you would rather go one seller for homes. They know how to buy the home that consumers will occupy.
Renovation. Many of the homes they buy require sprucing up - some just paint and cleaning, some more extensive renovation.
Repackaging. This is a big one. The wholesaler buys for cash and will sell to someone who needs to borrow money. He "repackages" the home to better sell it.
Patience. When the wholesaler buys he has to move very quickly. He inspects in mere days and closes in as little as a week. When he sells his home to the end user, he adds patience - he will wait for the buyer to inspect, insure, probe, and finance.
Knowledge. Just like the store that only buys items for his shelves that he knows his customers want, so goes the real estate wholesaler. He buys the homes that are in demand, he has studied the market and knows what to buy, where the quality is and how to identify these homes. He also knows what his customers needs are regarding financing, closing, insurance, and warranties.
The reputable wholesalers use their knowledge of the market, and strong agencies like Market America Realty and Investments, Inc. to help them find their properties. They pay for this service by making sure the agencies get paid commissions or fees for their work. Smart buyers these days are offering their buyers fees to their agents to locate the best homes over and above commissions paid by the sellers.
Here are some techniques we use to locate homes for our investor buyers:
Statistical analysis. We divide our market into ZIP codes + four. In each plus four zone we review closings over the last three months. We do this on a trailing basis daily then compare this average price per square foot with daily new offerings that we get either on the MLS or from the banks lists we receive in that plus four zone. By 10 AM every morning this gives us the homes we need to look at personally. For example if the average sold price per square foot for that zone over the past three months is $60, and the new home on the market that day is $44 - we need to look closely at that offering.
Up Close and Personal. Once we have our prospective homes we need to figure out if the statistics are swayed by pools, age, or other factors not readily apparent. One of our agents familiar with that territory visits the home. Where ever possible we do an initial inspection for things like Chinese drywall, presence of appliances, and other salient factors like vandalism or mold.
Short Sales. We know the short sale process, do in-house loan modifications and deal directly with the banks to affect the sales and closing process. We make offers for our clients and work the bank, the property, and the seller during the long process. Our client's money is patient; the investor does not need quick answers. When we approach the bank with a short sale offer, we have compiled every document and the answer to every question the bank will have. In the package presented to the bank is a BPO, complete financial statements, a hardship letter, listing agreement and marketing history, and a solid cash offer with no contingencies along with proof of funds. We like the short sale part of the business very much, because often these are homes that have struggled for months to be sold. We can make the sale happen.
BFB. We prepare a one page summary of what the investor is looking to buy. What his exit strategy is, what locations he wants, perhaps what ages, size, or style of houses he is most interested in. This BFB (Basis for a Buy) document becomes our template in our search. But it is also a living document that can be changed as market conditions change. I can't tell you how many people call me up and tell me to just find them a "good deal"; " You know", they will say, "One I can make a lot of money on" This is not good enough for me or anyone on our team. We need to come to a meeting of the minds before a search is conducted and properties offered.
Kiss a lot of Frogs. Early in the process we may have to present many properties and indeed many offers to zero in on the targets. Often is it through "kissing a lot of Frogs' that we are able to make the most accurate BFB sheet.
Know the whole journey. You have heard it before and I will tell you again: You make your money when you buy not when you sell. Smart investors know their exit strategy and every step along the way to the exit. They know their costs of holding, of improving, of taxes, insurance, etc. They give us a margin they are targeting and we will ADVISE them of our opinion of the exit sales prices. Our customers set these parameters, we do not.
Network. One of my clients used the expression, "Target Rich Environment" to describe the real estate opportunities out there. What he meant is that there are many many properties to look at. In order to weed out the gems from the fools gold, we need to use all the tools at our disposal. I have mentioned some of them above. The most important tool in my arsenal, however, is the network of sellers, brokers, agents, and investors that my team and I have developed mutual trust and respect with over the years. For me its about relationships and enjoying the trust that has taken years to develop.
Ok, so you are just one person looking to buy one house at today's bargain prices.. What do you do? Number one; hook up with an experienced broker like us. (Call me and I will suggest one or two!)
Number two, sit down with your advisor and work on the BFB - build on your objectives and your exit strategy.
Then be prepared to compete with the big guys. Short inspection periods, strong offers, completed paperwork, and patience. Examine your worst case scenarios. If you can still sleep with the worst case - your probably are on the right track. Get a handle on and define your expectations and be sure to share those expectations with your advisors.
Making money is real estate was never easy - although it may at one time have seemed that way. Remember, people don't make money without adding value.
The quote "There is a sucker born every minute" is often attributed to that great showman P.T. Barnum; but the famous line was in fact uttered by one of his competitors. (Story here) Fact is; there is probably a suck born more often than every minute. We are all suckers at least once in our life.
The con man understands the human mind and our desire to believe. He understands it so well - he is able to capitalize our inherent gullibility.
Four years ago I was working on my Cyperlin project - an 80,000sf office building I was planning on the corner of Summerlin and Cypress Lake Drive. During our pre-sell period I received a call from a local real estate agent.
"Would you be interested in selling the entire project?" she asked.
Now keep in mind this was a $24 million dollar project and the success of Cyperlin depended in great part on my ability to pre-sell individual floors to end users so I could get financing. I had letters of intent for three of the floors, but as of yet no deposits or contracts.
"Indeed I would" was my simple reply.
Over the course of the next two weeks two conference calls were set up with her buyer. He wanted to move his oil trading company to Fort Myers, in fact he was thinking of buying Al Hoffman's waterfront mansion in Gulf Harbour (This is how the agent was first approached by the buyer). He wanted the entire building. He asked all the right questions. He was very interested in qualifying me and the project.
"Could I meet him at his Palm Beach house next week to discuss the deal?"
He would fly his private plane to pick me up. He called the day before the meeting and postponed it to the following week. Then he never called.
Never.
But I wanted to believe him. I kept giving him the benefit of the doubt; kept calling him long after it should have been obvious this was some kind of fraud.
Sucker.
Cyperlin, by the way, never did come out of the ground, the market turned before we reached our pre-sell goal and I never closed on the land. My gorgeous window walled, eight story building I still hope to build some day - but Northern Trust wound up buying the property and putting another cooker cutter Mediterranean style building on the corner. I get a wave of disappointment every time I drive by.
There is a sucker born every minute and just as there are suckers, there are the perpetrators of the fraud, the suckee to the suckor. The unscrupulous capitalize on the current market. where ever there is a frenzy in the market or a new trend on the horizon, you can bet there will be those that will capitalize on it.
Late night TV "infomercials" seem to be a good barometer, and lately, with TV advertising getting so cheap - we can see these ads on prime time.
Here, without qualification, are some of the areas that just MAY be ripe for the gullible.
Foreclosure Help
Chinese Drywall litigation or testing or repair
Short Sales Courses
Making Money in Foreclosures
Loan Modification consulting
REO sales courses
Buy bank lists (or foreclosure lists or pre-fore-closure lists)
How to profit in the down market books and classes
Improve your credit - NOW
Erase credit card debt
Ok, I know I probably missed some good ones, and some of the above areas have very legitimate providers and opportunities. But be careful, for when you want to believe something is true, it is very easy to be lulled into tuning fantasy into fact - with conviction.
If you need help with your pending foreclosure, you need advice negotiating with your bank, effecting a short sale, or an appraisal on your home; seek a reputable advisor - and a good place to start is by asking your friends an neighbors, or give me a call or drop me an email. Is there profit to make in this down market?
Of course.
Is it easy, quick and risk free?
Of course not.
As always, if it sounds too good to be true, it probably isn't.
But take heart, membership in the "I've been suckered" club is not very exclusive.
I was at a family gathering many years ago and my sister Julie's mother-in-law, Ruth, was trying to use a new instamatic camera and was being "advised" on how to use it by Julie's father-in-law Ed. Ed was an interesting guy, he retired as a professional photographer. Ed spent his entire career taking pictures for Sear's catalogues but could never seem to take a decent home photo with actual people in it. I'm certain he knew his way around sophisticated studio cameras and pictures of crock pots, but the instamatic camera might as well have been a microwave oven as Ruth tried to "point and click".
As the argument escalated between Ruth and Ed on how to utilize the simple features of this new camera, my father chimed in; "Let me help, I don't know what I am doing either."
"I don't know what I am doing either" might as well be the mantra lately for all the "experts" that are chiming in on the defective Chinese drywall issue. The problem with these well meaning "experts" is that they are applying knowledge gained from unrelated experiences to how to fix a problem that has yet to be totally quantified. We all love an easy solution. There isn't one.
The first solution was to fix the first symptom - failing air-conditioner coils. The coils were just replaced. This proved to be a costly solution to the symptom and did nothing for the problem. The coils went bad again. Other attempts were made ranging from repainting the houses inside to gassing the house as if for mold, de-humidifying the house, and finally replacing all the drywall.
The interesting thing is that in some of these homes each of these "fixes" worked. In many they did not. The final solution that many contractors were trying to avoid was gutting the home of all the drywall and starting from bare studs. I have indeed solicited bids from contractors for some houses I was thinking of buying. (Bids range from $10/sf to $20 to replace all drywall and re-install cabinets and fixtures- depending on the house and intricacies of the finishes)
Then the unthinkable happened. A house was gutted AND the copper replaced. The drywall free house was tested for the off-gassing and corrosive air that was turning copper black- and the "problem" still existed without any dry wall present!
Some experts say the problem can be fixed.
Other Experts say the problem can't be fixed.
They can't both be right.
I am reminded of a classic scene from the Broadway musical; Fiddler on the Roof:
Avram: (gestures at Perchik and Mordcha) He's right, and he's right? They can't both be right.
Tevye: You know... you are also right.
This contradiction is easier to understand and perhaps agree on if we could better understand what the "problem" is and what the "fix" is.
Some of the problems have been claimed are:
Sulfur like smell
Copper turning black
Copper Air-conditioning coils clogging and failing
Chromed fixtures pitting and/or turning green
Mirrors delaminating
Do these symptoms have contributing causes like
Humidity
Temperature
Air tightness of the home
Presence of copper
Type of paint
The ultimate fix would be when all the above symptoms no longer happens in the home. Ever again.
There are degrees of the problem. Some homes don't have the smell, but the copper is turning black. Some copper turns dark, not black. Some air-conditioning units have not failed, but the odor is present. Some homes have Chinese drywall (as evidenced by the label) but exhibit none of the symptoms. Some have no Chinese Drywall (Again - the label ) but have all the symptoms. Some homes have no visible copper in the home - all plastic pipe - so if we do not smell it and we see no black copper - do we have a problem?
Some easy fixes may work on homes with a minor problem but not on other homes.
I sell foreclosed homes for Chase and Washington Mutual. One of the homes they asked me to sell we later identified as having the symptoms of having defective Chinese drywall. (Odor and blackened ground wire in the electric switch boxes). They asked me to get a bid to "fix the problem". I got a bid to tear out all the drywall and replace it. Will this be a fix? I don't know. No one does.
What if the solution fixes it for a year and then comes back because the toxin was in the concrete floor and grew back? What then? Is this problem akin to taking out a cancerous tumor after the caner has spread systemically throughout the body?
Some houses just have SOME defective drywall and not in all rooms. Does the toxin then infiltrate the good drywall?
Those of you with experience in statistical sampling know that we cannot determine of all the drywall if infected with out destroying the entire home.. We have to take samples.. How many do we need to take? Some say a hole cut every 48 inches will suffice. Some say if the symptoms are present we have to assume all the drywall is bad.
Let's assume that with thorough testing we have determined that removing drywall from houses with metal studs, replacing all insulation and sealing the concrete permanently fixes the problem. If this homeowner was ever to sell the home again he would have to disclose that it once had defective drywall? Is this house worth the same as one that never had the problem?
Let's further assume that the testing and some hefty insurance premiums to an underwriter convinced an insurance carrier to guarantee that this home was toxin free. Is that the ultimate "fix"? ( I would say YES to this question)
I would compare the problem of disclosure and guarantee to a water intrusion problem that a homeowner has and then fixed. If, for example, the intrusion was caused by the grading around the foundation and the fix required digging around the entire house and putting in a drainage system and then the problem disappeared for five years and the home owner then sold the house - would he be required to disclose this fact to a potential buyer? What if the drainage tiles failed in the sixth year, one year after he sold the home?
Gary Aubuchon of Aubuchon homes has been a reputable builder in Lee County for years. He build excellent homes and has an excellent reputation. There was an article in the Fort Myers News Press today (Article Here) about one of the homes he built having the problem - apparently in a major way. The home owner is quite justified in demanding a fix from Aubuchon, but the builder is hesitant to do anything that would fall short of a total cure - and so far one has not been embraced enough for insurance companies to get behind.
The home owner is right, the builder is right.
They both can't be right.
That's right too!
By the way - we are watching this "fix" very closely (Click Here) Gross Point developers and BBL both have excellent reputations and have teamed up to tackle this issue.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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