The Dallas Real Estate Rant by Steve Holcomb

Fact or Fluff?

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Wed, 13 Jun 2007 12:55:28 -0500

To begin, I want to apologize to my regular readership for the long delay in between blog posts. Thankfully my regular readership only consists of my wife and other close family member that I force to read my blog. Thankfully one of the reasons for my lack of posts is the continued growth of our business, which is never a bad thing in real estate.

Apology done, I now want to turn to a bit of a pet peeve of mine in the residential real estate industry. Before I moved into real estate several years ago, I spent about five years as a litigator for a mid-sized law firm specializing in commercial and corporate defense. I have joked in the past that my job did not change much. Instead of crafting motions and arguments which frame my clients' actions in the best possible light, I now craft flyers, listing sheets and similar marketing materials which frame my clients' house in the best possible light.

Though I also do quite a bit of commercial work in addition to my residential transactions, which may influence my thoughts in this area, I am constantly annoyed at the "fluff" that many agents put in the listings and marketing materials for their listings. In my mind, when creating marketing materials and advertising a listing, my main job is to share the best aspects of my clients' home while at the same time providing necessary information to potential buyers. Yet many agents waste valuable advertising and marketing space with phrases such as "The best house in the city" or "I'm beautiful inside" or similar phrases. Rather than market the home effectively, I fear that the use of such terminology may actually hinder the efforts to sell the home.

I have heard that several studies have indicated that buyers react more favorably to neutral factual information when viewing homes online or from a listing sheet or flyer. If a potential buyer feels that the listing agent is taking liberties with generic phrases of "fluff" they will actually be more inclined to move on to the next potential home. In my experience, the best agents market and advertise their listings with:

Stellar photos of a properly staged home - a picture really does mean a thousand words and you can use pictures to subtly market the great features of a listing while also subtly downplaying potential concerns
Great factual information in flyers and the list sheet with what I consider neutral to slightly positive framing of the wording - in other words provide factual information in such a way that the reader (buyer) will consider such information to be both useful and a selling point in a home
No phrases or words which are "impossible to prove" - words or phrases such as best, great, your next home, look no further, etc cause potential buyers to actual feel slightly offended because in a way they are being talked down to and told that their likes or dislikes are not important

When I think about it further, this approach is not really that different from the approach that top trial lawyers take when "marketing" their clients' case to a jury. Attorneys always try to subtly pull a jury to their side without making the jury feel as if they are being manipulated. In fact one of the greatest mistakes many attorneys make at trial is losing a jury because they felt the lawyer "thought they were dumb" or "talked down to the jury." Similarly real estate agents should consider this approach with the wording they use in advertising listings. Assume that a potential buyer is a smart person with their own unique views of what they want in a home. Then simply provided them with the information they need to see if this home might meet their interest. Not only will your marketing materials work better, you will also notice that when you do get calls about that home they are more likely to be seriously interested in the home. Also keep in mind that "fluffy" things, like cotton candy, usually are just filled with a bunch of air.

Can I Give You the Shirt Off My Back...PLEASE?

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Sat, 31 Mar 2007 14:34:54 -0500

I had to finally sit down and address one of my pet peeves in the real estate industry, but a little background first. I spent 5+ years in a mid-sized law firm litigating cases and negotiating various settlements in lawsuits. I quickly learned that negotiation is an art form and not a science, but also that many different styles of negotiation can be effective. That said, I am constantly amazed when I read the listings of some real estate agents. They are stealing their client's money, and they don't even seem to realize it.

Some agents believe that their job is to sell their clients' home, but that is only half true. Their job is to sell their clients' home, protect them from mistakes in the sale AND GET THEM THE MOST MONEY FOR THEIR HOME THAT THEY CAN. So why do so many agents use phrases like the following in a listing that has been sitting too long:

"Bring All Offers", "Motivated Seller", "All Offers Considered", and my personal favorite "All Reasonable Offers Will Be Considered."

To me these lines all say the same thing, and they could have just written in the listing, "My seller is distressed, please ignore the list price and bring me a low offer!" Think about it, why even use a list price if you are going to undercut your seller's bargaining position in such a manner. As for the "All Reasonable Offers" statement, is that not the most redundant phrase ever invented. Of course only reasonable offers will be considered, but by putting that in the listing you have just told me that your seller is getting distressed (or you are).

Case in point, I got a call from a couple asking me for help selling their home because their current agent was not working hard for them. I talked to them briefly, explaining that I would review their listing and provide a few pieces of legal advice until their current listing expired or was cancelled. The first thing I told them when I saw a copy of their agent's marketing and listing materials was that the only offer they would get would be a low-ball offer because of their agent's use of one of the above phrases, and I explained why this would occur.

Two days later they called back and told me that they got an offer, and it was remarkably close to what I told them I would offer if I had clients looking to buy the house. And my offer was low, very low. They were quite shocked to hear that such phrases were used by a lot of agents when marketing a home.

In my opinion, when you have a distressed seller or a home that is not moving there is only one proper way to communicate to potential buyers...BY REDUCING THE PRICE. Pricing itself is a form of negotiation, but does not give away vital information that can be used once an offer is made. If you have a seller that needs to move a poperty fast, then structure an arranged price reduction of a certain percentage every week or two. Eventually you will find the price point where the property will sell quickly, and it will almost always be a higher figure than if you tell agents to submit a low offer using one of the phrases above. At the very least you will have more control of the negotiation and will not have given away your most important negotiating points. Thus instead of undercutting your own list price and in effect telling buyers to ignore it, you use the list price to communicate that a sale will be advantageous to a buyer because the price has been reduced compared to the typical market value of the home.

Here is an example of price communication in negotiations. I currently have a listing for 18 acres of land priced at $990,000. When I received an offer of $700,000 on the land I talked to the owner and determined that if we countered at $850,000 we would likely arrive at a figure of $800,000 for the contract price. Sure enough, when we countered at $850,000 we received a second counter at the $800,000 figure. My client asked how I knew that we would end up at $800,000. I admitted that not all negotiations are that predictable, but explained how pricing and price negotiations are a form of communication and that experienced agents or attorneys learn to pick up a feel for where a negotiation will end up.

Hopefully many of the agents that use these types of phrases in a listing are simply inexperienced or poorly trained. Just keep in mind that unless your client is a charity, giving away money will be severely frowned upon. Further, some people just should not give a buyer the shirt off the seller's back. It just isn't pretty.

A Real Estate Investment Plan for Beginners

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Mon, 19 Mar 2007 15:53:12 -0500

The number of real estate investors that decide to purchase their first investment property without a plan of action in place is staggering. It seems that every week or so you hear a story about an investment property that has been foreclosed upon or placed under short-sale status. Real estate investing, however, is no different than any other type of investing. It requires forethought, proper planning, and discipline to achieve the desired goals. This article provides a simple yet proven effective plan for a beginning real estate investor wishing to invest for the long term to grow their initial investment into a sizable investment portfolio.

The real estate market can be compared in many ways to the stock market. Like in the stock market, your initial goal should be to buy low without exposing yourself to too much risk. Unlike the stock market, real estate is more stable as the value of the land underlying the property does not fluctuate as much or as quickly as stocks or similar investments available through Wall Street. As a beginning investor, it should be a goal to find one initial property that can be purchased for at least 20% below typical market value. This is often where people make their first mistake. Instead of researching the market to find a good deal they either buy the first property that they like, or they fail to buy any property because they set unreasonable goals such as a property with a 40% discount.

The first step in any real estate investment plan has absolutely nothing to do with real estate, but rather solid financial planning and risk avoidance. To be sure that a property will cash-flow immediately and to avoid risk in your first investment purchase, I always suggest a minimum of 15% cash, with a preference of 20% to 25% cash down to purchase the first property. Though many investment vehicles can be used to purchase property at 5% or 10% down, this drastically increases the risk of being unable to achieve income on the property because rents are fairly stable and do not account for highly leveraged properties. Also, don't get sucked in by the latest 0% down investment craze. Many of these so-called investor gurus are just selling you a fantasy. Very few people have the credit to get a true 0% down investment property, and even fewer can find one that will cash flow with this much leverage. This is a huge mistake that many first time investors make. They purchase a property with high leverage (which can be a good thing as your portfolio grows), but are unable to get high enough rents to cover the mortgage and expenses of owning the property. Thus I believe a safe bet is to set a goal of paying 20% down on your first property and then adjusting the price range of homes or multi-family units you investigate based upon your available cash, and also leaving an additional $2,000 to $5,000 or so set aside for cleaning and improvements necessary to get the property ready for lease. If you wish to invest in real estate, but do not yet have the ability to put 20% down then you should simply look for a partner and have each put down 10%. You will have to share the profits, but will not have to save as much money at the outset. Once you have determined the amount of cash you can invest in your first property, the next step is to find an appropriate investment property.

The easiest way to quickly find a property at a discount is to find a competent Realtor® in your investment area that can scour the market for distressed properties, foreclosures, short sales, etc. and knows which areas in the investment area tend to have a good outlook for future growth and property appreciation. In the Dallas area market I tend to focus on foreclosures and short sales in the northern suburbs of Dallas where the homes are only a few years old (see blog http://activerain.com/blogsview/39816/-Almost-New-Homes). New homes undergo an interesting phenomenon after purchase where they actually go down in value temporarily because of the competition of the home builder, until gradually appreciating over a 3 to 5 year period as the subdivision is finished out. Thus if I can find an almost new home sold in foreclosure I can find a double discount for both the builder competition and the fact that it is a foreclosure and may need cleaning up and some updating. Multi-family units can also have good potential (duplex, triplex, fourplex or even apartments), but they tend to be more expensive and attract the more savvy investors who already have a larger portfolio and available cash. For this reason, I would suggest starting with a simple single family home with at least 3 beds and 2 baths.

Now that you have found one or two distressed properties that can be purchased at at least a 20% discount over what they would typically be worth, it is time to run the numbers. Have your mortgage or financial advisor give you an estimate of costs associated with the note on the property. The figure should include the monthly principal and interest payment, the monthly escrow for taxes (always use an escrow for taxes with investments), and the monthly escrow for insurance on the property (there should not be any mortgage insurance because you are putting 20% down). Then add in typical expenses in the area for non-tenant paid utilities and other recurring expenses. I always suggest that the owner plan on paying for the lawn maintenance and increasing the rent accordingly as tenants are notoriously poor at keeping the landscaping of a home in good shape. Perhaps the most important number is the potential rental rate of the property. Have your Realtor® run the lease rates and give you a range of price per square foot in the area (for example $0.58 to $0.67 per square foot). Then assume that you will lease it at the lower end of the price range in order to get a conservative estimate (in the above example about $0.60 per square foot is a conservative figure).

Once you have all the numbers you need it is time to investigate the income potential on the property. Let's assume that you have found a 2,000 square foot home worth $130,000 that can be purchased for $100,000. The discount (30/130 = 23%) is more than 20% and the home is only two years old and in good repair. You have $30,000 in cash that you have set aside to invest. Costs to clean the home and repair minor items will be about $500. You learn that the principal and interest and escrow payment will be right at $800 a month (an easy number for this example but may not be a real figure). In addition to the mortgage you expect to pay $50 per month for lawn maintenance, and have set aside an additional $50 per month for other maintenance. Thus total costs are budgeted at $900 per month. The rents are assumed to be $1,200 per month at $0.60 per square foot. Thus you have estimated income of about $300 per month, which is good. Keep in mind that you also need to run the figures yearly because of the fact that tenants will move every year or two and you will miss out on at least one month's rent. I typically suggest that clients assume two months rent every year will not be achieved because of a previous tenant moving out not renting for one month, added the costs to repair and clean for the next tenant. Thus you have rents of 1,200 x 10 which is $12,000 per year less expenses of 900 x 12 = 10,800. You then have a very conservative yearly estimate of $1,200 in income over expenses. This is actually a good figure because you will likely not lose two months rent every year and overall you are receiving a return of at least $1,200 per year on a $20,500 investment (not too mention property appreciation fees which are discussed next).

The main reason that investing in real estate can be so effective is that you can receive regular income from a property while that same property gradually appreciates. In the Dallas area we typically see a steady 3 to 4% appreciation rate over a four or five year period. Because you have purchased a newer home in a growing area at a discount, however, you can potentially achieve an even higher rate of return. This brings us to the next step of our investment plan, the sale (or exchange) of the initial property. Assuming that your initial investment of $30,000 is all you ever intend to dedicate to real estate investing you can still grow it into a large portfolio over time.

You generally should assume that any investment property should be held at least four or five years before sale or exchange in order to achieve the desired property appreciation. In my suggestion, let's assume that the builder finishes the subdivision after three years and that at that time the property could be sold for about $135,000. You counsel with your Realtor® and decide to hold it for two more years to take advantage of the property appreciation experienced in this nice recently completed subdivision. At the end of two more years the property is worth $160,000 (not outside the realm of possibility considering that it was really worth $130,000 five years before if not for the fact that it was distressed. Thus you can sell the home for $60,000 more than you paid for it, and have equity of $75,000 because you have paid on the note for five years or more. So we should sell it, take the $75,000 and invest in another property, right? Wrong!!!. Instead you want to transfer this property with $75,000 in untapped equity and turn it into a property or properties worth $320,000 in a qualified 1031 Exchange (see my blog on 1031 Exchanges at http://activerain.com/blogsview/31532/How-to-Turn-Apples).

Federal tax law allows an investor to take our property worth $160,000 and exchange it for one or more properties worth up to 200% of the market value (or $320,000) without having to pay any capital gains tax. Thus we can use the $75,000 in equity to purchase two properties worth a total of $320,000 without having to pay any taxes. Basically you put the original property on the market, sell it for $160,000 and give the proceeds of sale less related fees and expenses to a qualified 1031 Trustee. You then have a set time period to identify and purchase your next investment properties without have to pay any capital gains tax. In this next step, my suggestion is that you purchase two properties with the equity you have available. After fees and expenses associated with sale lets assume you have $65,000 left to invest into our two homes. Again we will put down 20% on each home (or $32,500 for each). Thus our $32,500 per home can purchase two homes for $162,500 each or $325,000 total. You now know the price ranges you are looking in and can follow the above steps to purchase two homes up to $320,000 without having to pay any taxes.

Over time you can see the brilliance of this type of investment strategy. We have taken an initial investment of about $25,000 to $30,000 and turned it into two properties worth about $300,000 without paying capital gains tax in only five years (and with about $60,000 or more in equity). Assume that four years later you decide to sell both properties after a period of high property appreciation. At that point you can sell both for $450,000 because you purchased them at a good discount and you have a whopping $200,000 or more in equity accumulated in only 9 years. You can then take this equity and use it to purchase a portfolio of properties worth 200% of $450,000 or $900,000 (and still put 15% to 20% down on each to allow for good cash flow). Thus over a longer period of time you can take your initial $30,000 investment into a portfolio of investment properties that include single and multi-family units without ever having to pay capital gains tax. In a little over ten years if you are conservative in your budgeting and smart about which properties to purchase and sell you can turn your $30,000 initial investment into properties worth over $1,000,000 and equity of $200,000 or more, and over a longer period of time you can set aside a sizeable retirement package of high cash yield properties.

Umm...Could I Get an Umbrella Over Here?

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Wed, 28 Feb 2007 11:45:41 -0600

I wanted to take a moment and let the rest of the Rainers know a success story brought about because of this wonderful network on ActiveRain. I posted a blog a while back about the basic rules of a 1031 Exchange. I tend to work with a lot of investors, and with my background in finance and law I have a little knowledge of the inner workings of the tax code and like-kind exchanges and simply decided to post a brief article that I and others could use as a quick reference in a 1031 Exchange.

Little did I know, however, the importance of this relatively minor article. Several weeks later I received an e-mail from my ActiveRain profile from an investor. The investor had simply done a search on 1031 Exchanges, found my article and profile, and wanted me to assist him on the identification and purchase end of a 1031 Exchange on his investment property. Ultimately once he sells his current properties and then we use the equity to purchase up to 200% of the value in exchanged properties in the North Dallas corridor, it will end up with between $1M and $2M in purchases of investments in multi-family and single family residences, including distressed properties like foreclosures and short sales.

I am sure that my story is one of many successes brought about by the ingenuity and tireless efforts of the people that created this wonderful network. Do not forget to do your part by participating and you will be well rewarded for the help and insights that you provide others. Who knows, maybe the Rain will hit your area next and you will be the one needing the umbrella...

The Shelf Life of a Letter of Introduction

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Mon, 12 Feb 2007 21:42:20 -0600

Last spring I put together a database of out-of-state owners of property in the Plano, Frisco and McKinney areas of North Dallas. I got a good response from the letter with several new investor clients, and a future listing from a client that decided it was best to wait a couple of more years before selling based upon his tax situation and the potential for a later deferment through a qualified 1031 Like-Kind Exchange. I had no idea, however, that a simple introductory letter would be so long-lived.

Last week I received a call from an out-of-state owner of a home in Plano asking if I could evaluate his property for sale or lease. I asked him a few questions about the property and his plans, and then got around to asking him how he got my name and number. He told me that he received a letter from me and so I pulled up my spreadsheet that I use to send out and monitor expired letters. I couldn't find his name and asked him if I had the address correct. He then astonished me by saying that he had received my letter last spring and decided that he liked my information and credentials and saved it until a later date. Then when his current tenants abandoned the lease, he called me to assist him in evaluating and either selling or leasing the home.

I had no idea that a simple introductory letter would have a shelf life of several days, let alone nearly an entire year. This particular house is worth nearly $375,000. Keep this in mind whenever you introduce yourself in a letter, postcard or similar vehicle. You never know how long it will last.

The Cost of a Phone Call

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Fri, 02 Feb 2007 11:27:19 -0600

I got a call the other night from my daughter's teacher and her husband. They are selling their house and having some problems with their current agent. At the outset everything was going okay, though their agent delayed a bit in getting the listing on MLS initially. Since that point, however, things have been sliding downhill. Apparently they have not seen their agent since signing the listing. Further, it is now two months later and they are still asking for a copy of the listing contract with no response.

Several times they have called their current agent to request information about their listing or to make a suggestion, but each time they would get her voice mail and then wait for days to get a response. They tried e-mail, but would often have to wait days to just get a response to their message. Finally, in frustration, they began searching for another Realtor® to assist them in the sale of their property. In the end they called me after researching other agents and reviewing web sites, listings, etc.

The sad thing is that their current agent was a friend, and also helped them purchase a house. But in two short months, she managed to destroy their professional relationship, and to some extent perhaps even their friendship. Why? Because she simply failed to pick up a phone. Maybe the phone was too heavy. Perhaps she had chronic laryngitis for 8 weeks. She couldn't type a e-mail message because of carpal tunnel problems in both wrists. I know, her head must have been stuck in a space helmet with no way to remove it for two months without life-threatening surgery! There has to be some logical explanation, right?

In the end this might just be the most expensive phone call never made. The sellers are not difficult clients. They were willing to drop the price based upon the competition. They have spent time fixing up various parts of the house, and are more than willing to help with flyers and other minor parts of the listing process. Not only does this agent stand to lose a listing, she may have already lost their respect.

Time after time, disgruntled clients share the same problem when asked why they were dissatisfied with the service provided by their agent...FAILURE TO COMMUNICATE. Think about this with all your clients. A simple phone call or message every week or two to update them is worth much more than the charge to your cell phone. It might mean your entire business.

'Almost New' Homes Better Than 'New' When Investing in Real Estate

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Tue, 30 Jan 2007 09:53:09 -0600

One investing trend that has really picked up speed lately involves investing in "Almost New" homes rather than new homes. Many out of state investors have learned that maintenance and property management can be very difficult when you are not near the property, even with a great property manager. In addition, it is much more difficult to estimate costs and expenses on older homes because huge maintenance issues occasionally occur.

For this reason, many investors turned toward investing in new homes in the size and price range for young families. Lately, however, savvy out of state investors in the Dallas/Fort Worth area have instead turned their sites on homes that are 1 - 3 years from construction for several reasons.

One reason almost new homes have become popular is because of the amount of foreclosures occurring under the recent trend towards 100% financing and the people who purchase more home than they can really afford. Though every foreclosure will have maintenance costs associated with it, foreclosures of homes only a few years old have usually have relatively minor repair costs associated with them.

Another reason is the pricing phenomenon that occurs in subdivisions where new homes are being built. When a developer sells lots to a builder and begins the basic road work in a subdivision, the land values in almost every case begin to rise. The first home built is usually the cheapest because over time construction costs rise and builders also offer incentives to overcome the headaches of living in an area where construction is occurring. Then as more homes are built and the parks, pools, or other highlights of the subdivision are built, builders start jumping up the price. Unfortunately, however, few people will want to purchase a home in a subdivision that is pre-owned, when they can either build a house the way they want it or can pick out a spec home that meets their approval.

For this reason, a homeowner in a subdivision that is still being built in is in constant and unfair competition with a builder in that subdivision. The moment a contract is signed, the home becomes worth less than they paid for it. To further complicate matters, if the owner of an almost new home is forced to sell in the off season they will also have to compete against builder specials to sell off spec homes before year end for tax purposes.

This does have a good side for buyers of new homes, if they understand that they need to wait several years before they can sell their home. Let's use a fictitious example to show how this can work. Take the first buyer of a home in a new subdivision that takes seven years to build out. They buy their home for $200,000 and after the finish moving in, their home goes down in value to $180,000 because other buyers will prefer the new homes at $200,000. In year two, the builder is still offering discounts to encourage people to live with construction in the neighborhood and they raise the price to $210,000 on new homes, but the first buyer's home is still worth only about $180,000 because it is a year old now. In year three, the first buyer now has a two year old home competing with brand new homes in a halfway completed subdivision and other pre-owned homes as well. It is still only worth about $185,000 for this reason. In year four, a catastrophic hurricane hits the entire south-east coast (sound familiar?) which forces construction costs to rise in year five, but which also drives people into the area from other states. New homes are at $225,000 while the first buyer has a home worth about $190,000 because it is now three years old competing with new homes. The next year the costs of the hurricane really hit home and the builder raises prices to $250,000. This forced jump because of costs benefits all the home owners and the first buyer now has a home worth about $220,000 because of the competition with the new homes. Time progresses and by the end of year seven, the subdivision is completely built out. The last home sold (with same plan as first built), sells for $290,000 and the first buyer now has a home six or seven years older but worth $265,000. As the years go by the gap will close between the last home built and the first home built, and over time the first homeowner will get substantial increases in property value because of the rising costs that the builder faces and the fact that a completed subdivision is nicer than a brand new one with empty lots.

Though these numbers are simply made up to demonstrate the process, you can see that if a seller is forced to sell a new home in the first few years, the competition with other pre-owned homes and the builder can cause them to sell their property at a loss in most markets. For investors, however, this can be a golden opportunity. An investor can swoop in and purchase these discounted properties and then cover their costs and even produce income through rents while waiting for the finish out of a subdivision. During the holding process, it may not even matter if they have to take some losses for a few years while waiting for the property to appreciate, depending upon the amount of equity initially invested. Then when a subdivision is complete and new home building is not as big a competitive factor, they can sell and take advantage of all the price increases incurred by the builder raising prices and the subdivision adding amenities and landscaping.

Please keep in mind that if you are new to real estate investing there are numerous other variables that need to be considered, and that this is only one of a number of successful strategies for investing. In Dallas/Fort Worth and North Texas market this is a common recurring them because of the state of the market, but not all real estate markets will work in the same manner. Should you be interested in investing in a different are please be sure and talk to a local Realtor® who will better understand that particular market. And remember, when investing, the goal is to make money, not to necessarily have the nicest or 'newest' property on the block.

Let's Get Personal...Real Personal!!

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Sat, 27 Jan 2007 21:06:01 -0600

When I first got into real estate I really struggled with an advertising campaign that would focus on my strengths but also address perceived weaknesses. As an attorney I assumed most people would assume my strengths in negotiation, legal knowledge, ability to handle complex closings, and the like.

I really wanted to accentuate these perceived strengths while countering the negative assumptions of an attorney and real estate agent: namely that I might not be creative, am also male and thus not knowledge of interior design, might not be able to be trusted (though I was surprised that many actually trust me more when they learn I am an attorney), etc. For these reasons I would to highlight my softer side, and I found that exposing my heart and making my marketing materials very personal had great effect.

The best way I found to show my strengths and also my creativity and guy-next-door appeal was to use my three daughters in funny advertisements about my business, with short statements of strengths and weaknesses included. Below is the first jumbo postcard that I sent out to my sphere of influence, and it was received with rave reviews. So much so that my mother (aka Nana) added a similar picture and balloon script on the back of her business card, and we even use her image like a logo for our business.

Because it was received so well, I took additional photos and created humorous messages for each with a more serious statement about a real estate related topic and our expertise. I then set it up so that it can be sent out with a new post card every 3 weeks, month or whenever desired. Thus whenever farming a new area we just start with the first in the series.

The most important thing I learned was that these images stuck with people and allowed them a topic to talk to me, even if it was not about real estate. Every time I go to church, several people will even ask when the next post card will be, even if they don't need an agent. Thus I was able to brand myself and hopefully create the image of both a real estate expert and also a person that people could trust and enjoy looking at homes with. Below are several other postcards. My hope is that others may be able to take this idea and improve on it in their own personalized ad campaign, it seemed to really work well for us. If you do please let me know as I would love to see what others come up with.

We used this one in the late spring

This one was perfect for Easter

This works well in the fall

We used this in the summer

Home Pricing in a Soft Market

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Sat, 27 Jan 2007 14:22:07 -0600

This past fall in Dallas saw the market slow markedly and inventory rise as homes sat through entire listings without selling. Though I do not believe the slow down is permanent, rather more like it was catching its breath before a big spring, I did notice that a lot of agents neglected a key element when pricing their listings.

Any agent can do a quick CMA on a property to determine a range of values in an area or subdivision with comparable homes. Unfortunately, however, it appears that too many agents stop at the CMA and do not price according to the CMA and the competition currently on the market.

In a strong market, pricing according to the competition is less important as the best homes simply get snatched up quicker, but there are plenty of buyers for the ones that are a little over-priced or are not as nice in terms of location, maintenance and appeal. But when the market is more soft and becomes a buyer's market, it is essential to price according to what you are competing against and I am at a loss to explain the amount of listings I have seen recently that seem to ignore this concept.

The best way I know to both properly price a new listing and to show your client(s) your expertise is to schedule a preview of comparable homes in their area and take your clients with you. This forces them to more objectively view the sale of their home and gives them an understanding of the market in their area and what price their property is likely to command. It also shows them the potential impact of an immaculately maintained property during a listing versus a property that is not clean or properly staged. After this previewing session, you should then sit down with your client(s) and determine where their home fits in the competition. If it is far and away the nicest one available then you can price a bit above the competition as long as it stays within the reasonable range of your CMA. If it is somewhere in the middle of the competition, then you need to encourage them to price it below the competition to encourage a buyer to purchase rather than continue looking. If, however, it is one of the worst properties on the market, you either need to counsel them to update the home before listing or explain that a list price substantially below the competition to attract a buyer who will be willing to invest the time and money to renovate the home to a level similar to other homes in the market.

Either way, if you are a managing broker, please make sure to explain the pricing process with your new agents as it appears that many are not fully understanding that numbers pulled from the local MLS do not always explain the full story of where a property should be priced. If you are a veteran agent, try to always make time for viewing the competition (even if you can't do it with the client(s)) instead of taking the shortcut and hoping that the average price per square foot in the area will work for this particular listing.

The Personality of a Real Estate Professional

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Wed, 24 Jan 2007 12:33:03 -0600

There is a standard assumption about any salesperson, especially in real estate, that they are outgoing, extroverted and able to talk to anybody about anything at any given time. I never really thought about that image much until I jumped into real estate full time, but when writing my last post to my blog about the secret to a successful career in real estate (http://activerain.com/blogsview/37619/The-Secret-to-Success), I started thinking about this characterization more.

I am a third generation Realtor® and much of my family does fit the common image of an extroverted and outgoing people-person. Take for example, my mom (who also just happens to be an interior designer and Realtor®). She can talk to anybody about anything and loves doing so. She is one of those personality types that nobody dislikes and with numerous friends and acquaintances.

I on the other hand tend to be a bit more introverted. Though I enjoy people, I tend to be a bit of a thinker and sometimes like privacy and quiet when facing a difficult problem. The more I thought about my personality, the more I realized that I did not really fit the mold of a "typical real estate agent."

I now realize that it really does not matter the type of personality you have or how you interact with others as much as your genuine understanding of other people, and a simple desire to help others. As I investigated this discovery more I realized the numerous personality types in my own office. Sure there tend to be more extroverted, outgoing types...it can be difficult to get started without a lot of close interpersonal relationships. I have also noticed other extremely successful agents with different personality traits.

When I look more closely at why I got into real estate I was surprised at the answer. Though I keep my law license and still occasionally practice law on the side, I left the full-time practice of law because I was unable to do what I wanted to do most...help others. I turned to real estate in part because of my family background (and perhaps some prodding from God), but found another avenue where I could use my knowledge, background and experience to help people. Thus I discovered that the true discerning trait that most real estate agents have is not an extroverted, outgoing personality, but instead the ability to relate to others with genuine (definitely not false) understanding and compassion (with a bit of an entrepreneurial spirit thrown in).

The Secret to Success in Real Estate

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Tue, 23 Jan 2007 12:00:18 -0600

Like me you probably hear lots of advertisements and infomercials where some man or woman in fancy clothes claims to have the "Secret to Success" in real estate or real estate investing. Most of them seem to be about as phony as a Picasso dated in the early 18th Century, but for those who are interested there is a secret formula to success in real estate. It can be summed up in the following stories that were passed on to me from a friend:

THE CLEANING LADY

During my second month of college, our professor gave us a pop quiz. I was a conscientious student and had breezed through the questions until I read the last one: "What is the first name of the woman who cleans the school?" Surely this was some kind of joke. I had seen the cleaning woman several times. She was tall, dark-haired and in her 50s, but how would I know her name?

I handed in my paper, leaving the last question blank. Just before class ended, one student asked if the last question would count toward our quiz grade. "Absolutely," said the professor. "In your careers, you will meet many people. All are significant. They deserve your attention and care, even if all you do is smile and say 'hello.'"

I've never forgotten that lesson. I also learned her name was Dorothy.

PUTTING YOUR MONEY TO ITS BEST USE

In the days when an ice cream sundae cost much less, a 10-year old boy entered a hotel coffee shop and sat at a table. A waitress put a glass of water in front of him. "How much is an ice cream sundae?" he asked. "Fifty cents," replied the waitress.

The little boy pulled his hand out of his pocket and studied the coins in it. He had been saving up for this treat for some time. After studying the coins carefully he then inquired, "Well how much is a plain dish of ice cream?" By now more people were waiting for a table and the waitress was growing impatient.

"Thirty-five cents," she brusquely replied. The little boy again counted his coins. "I'll have the plain ice cream," he said.

The waitress brought the ice cream, put the bill on the table and walked away. The boy finished the ice cream, paid the cashier and left. When the waitress came back, she began to cry as she wiped down the table. There, placed neatly beside the empty dish, were two nickels and five pennies.

You see, he couldn't have the sundae, because he had to have enough left to leave her a tip.

By now you likely can see the true secret to a successful career in real estate. It does not involve knowledge or experience, nor do you need some gimmick or a great marketing plan. Admittedly, these are not bad things to have, but they do not guarantee success. The true secret is simply people, and knowing how to serve them appropriately. If you make sure to treat people right and show a genuine interest in their lives, struggles and concerns then they will be much more willing to trust you with their dreams and fears. And lets be honest, when a client gives us the keys to their home to sell (or even to buy their home) they are often trusting us with their biggest asset and a portion of their dreams.

A Day in the Life of a Realtor®

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Mon, 22 Jan 2007 11:04:49 -0600

A TYPICAL MONDAY, IN AN AVERAGE MONTH, SOMETIME LAST YEAR...

4:24 am Whhaaattt????, oh just my 3 yr old daugter Ashley crawling into bed.

5:07 am Wow, Ashley sure has cold feet...

6:30 am There goes the alarm. I should have gotten up at 5:07, didn't get much more sleep anyway.

7:30 am Take Allie to kindergarten.

7:54 am Roll into office, head straight for coffee, begin chewing on coffee grounds for immediate impact!!!

8:01 am Spend a little time reading the Bible and in prayer while it is still quiet.

8:30 am Spend one hour or so pulling expired listings off of MLS and putting into letters to mail.

9:36 am Print expired letters, sign them and prepare for mailing.

9:48 am Run to post office mail expired letters, call client about weekend showings while on the way.

10:01 am Back to work, grab another cup of coffee, review files.

10:36 am Log on ActiveRain, review several posts, write new blog post for the day on investing.

11:09 am Phone call from new potential client, review property address in Plano and schedule CMA tomorrow.

11:24 am Phone call from interested buyer on Irving multi-family unit, give details of rents, etc.

11:35 am Uh-oh, man that coffee really runs through me...

11:39 am Put together listing contract and other needed paperwork for new McKinney listing.

11:43 am Phone call from listing agent asking about my buyer client's ability to close on time.

11:53 am Finish listing packet for McKinney listing: grab supra box, briefcase, sign, camera, etc.

12:00 pm Meet mom for lunch, discuss McKinney listing and potential marketing plan.

1:00 pm Meet with new clients on McKinney listing, explain process, execute listing contract with list price.

2:05 pm Assist mom in staging new listing in McKinney, take exterior and interior shots, schedule virtual tour.

2:56 pm Phone call with minor legal problem, discuss and schedule appointment.

4:40 pm Finish staging of new McKinney listing, put keybox on door, put sign in front.

4:57 pm Phone call from potential buyer client, get details for home search, schedule for Saturday.

5:18 pm Back to office, grab commercial files for entry into LoopNet, grab Plano listing file with offer.

5:35 pm Arrive home, walk in to hugs and kisses, kiss my wife take girls outside to swing before dinner.

6:00 pm Dinner, homemade lasagna...yum!

6:42 pm Call buyers agent on Plano offer, discuss with clients, prepare counter-offer and send via e-mail.

7:22 pm Receive signed contract from Plano counter-offer, make note to give file to transaction coordinator.

8:15 pm Put girls to bed, fall asleep rocking baby to sleep...wake-up and put her in her crib.

8:30 pm Exercise on treadmill while watching Dallas Mavericks beat up on another team, heh-heh-heh!

9:30 pm Pull out lap-top, finish watching Mavs game while entering commercial listings on LoopNet profile.

10:23 pm Get ready for bed, grab real estate magazine to read.

10:42 pm Finish article by non-Realtor® about how real estate agents get paid too much for too little work!

10:50 pm Nod off to sleep thinking how I could work harder tomorrow...wonder when Ashley will wake me up...

Realtor® Rainman

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Fri, 12 Jan 2007 16:10:08 -0600

In today's age of computers and technology, it seems we are losing touch with some common helpful calculations that are important even if you do have a laptop, smart phone and all the other gadgets and gizmos. One simple valuation tool that all Realtors® who regularly deal with investors and investment properties should remember is a simple calculation that can be used to assess value absent any comps, though it still requires a certain amount of knowledge of the market and the area the property is located within.

All areas have their own range of market capitalization rates, but absent access to a computer to do a full CMA you can still assess value of investment properties by using the 1% rule with several simple adjustments. The 1% Rule is easy to use when evaluating investment property or other streams of cash flows and states that in general property should command rents equal to about 1% of its value. Determine the level of rental income the property commands or should command. If you know the rents a property receives, all you need to do is reverse the equation. Rents of $1,500 per month divided by 1% is $150,000. The beauty of this simple equation is that most people can do a the 1% calculation in their head to come to these figures. There is a catch, however, there always is.

First, most people leverage into a property, in other words, they only pay a small percentage of the value of a property and borrow the rest. Second, there are expenses associated with all property management that reduce the income. Third, interest rates and investment rates of return are constantly in flux. For these reasons, very few properties command rents equal to 1% of the value of the property. In my experience,however, most properties tend to command between 80% and 95% of that number. So once you determine rents and divide by 1%, you usually have to adjust upward to approximate value. But the beauty of the calculation to Realtors® and investors can be shown in the following example.

I was on a listing presentation for a large 18 acre developmental commercial property with premium road frontage. It is listed at $3.9 million, so you can imagine my desire to impress the owner of the property. I determined while talking with the owner that she also owned several other rental properties and she was curious about my knowledge of investment properties (as she had tried to sell a property but then taken it off the market). To demonstrate my knowledge I asked her what the rents of one property commanded. She replied that it received about $3,000 or so in monthly income. Knowing the general area that it was in I jumped in and told her that she had probably had it listed around $330,000 (a bit higher than $300,000 because of the above listed exceptions). She looked at me in shock and told me it was listed at around $340,000. Simple calculation, exceptional results. She thought I was a whiz with numbers (like Dustin Hoffman in the movie "Rainman", hence the title of this post). Needless to say, I got the listing. Now, are you perhaps interested in 18+ acres of land just north of Dallas with great road frontage, quite a steal at only $3.9 million...

Creativity Makes the World More Beautiful!

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Tue, 09 Jan 2007 16:20:51 -0600

As professionals in real estate we often look at property through different eyes than the general public. Training and experience gives us a unique perspective that can allow us to see beauty in the most mundane and decrepit areas or properties. A client recently sent me pictures from a unique artist. This artist uses his creativity to transform a simple sidewalk into a visual masterpiece with just his artistic ability and some chalk.

His name is Julian Beever and he is famous for his art on the pavement of England, France, Germany, America, Australia and Belgium. The images almost look real, though at times you can see squares of pavement if you look closely. Scroll down to see his unique talent, and remember that we all, regardless of what we do for a living, can help make the world a little more beautiful around us each day.

Residential Development Opportunity just East of Dallas

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Tue, 09 Jan 2007 14:51:09 -0600

1800 E. Quail Run Rd. in Rockwall, TX

$2,500,000

Developers and investors, we just listed 30 acres for potential residential development in the growing Dallas suburb of Rockwall. The property is only five to ten minutes north from I-30 which runs directly to downtown Dallas, and is also near to the proposed Highway 205 Bypass which is in the process of funding through initial bond sales.

Also located near the proposed new high school, and with access to the property through the existing subdivision of Saddlebrook, this property is just waiting for the right builder or developer. The land includes a small creek area, easy access through Saddlebrook or Quail Run Rd., and even better, also has another 70 acre parcel for sale across Quail Run Rd. that is directly in the path of the proposed Highway 205 Bypass. If bought together, a developer would have a full 100 acres for both residential, retail and commercial development in a great location.

This property was nearly sold once but fell through because of buyer financing problems. Thus it will likely not last long now that it is back on the market in full active status. Please call or e-mail Steve Holcomb for further information at 214-334-6454 or steve@HolcombRealty.com.

Investment Opportunity in North Texas

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Tue, 09 Jan 2007 13:44:08 -0600

US HWY 380 and near LOOP 288 in Denton, TX Listed at $3,900,000

This property is prime real estate for investors and developers. With 18+ acres and plenty of road frontage off of Hwy 380 it is just waiting for the right buyer wanting to develop in one of the fastest growing areas in Texas, just north of the Dallas/Fort Worth metroplex area.

The property is situated right on the outskirts of Denton, TX and located on a six-lane highway with a center lane for turning. It could be developed into strip shopping, a gas station/restaurant area, distribution or warehouse center for a large retailer or similar uses.

As a bonus, the land has access on 380 in the front, but also has access in the back on Fishtrap Road. There is pleny of traffic on 380 in both directions between Denton and McKinney and there are several huge subdivisions just east of the property including Providence, Savannah, and Paloma Creek (and that is not even including the new subdivision just across the street and pictured here).

Though properly priced according to demographic studies, historical sales comparisons and the current market, it is still a bargain compared to other listings in the area. No other listings have as much acreage, have dual access through 380 and a back street, and are located in such a prime location on 380 and close to Loop 288 around Denton. As an example when I last checked, the property listed just to the west of this one has only 7-8 acres and is listed for $2,500,000.

Just two and three parcels over and at the intersection of 380 and Geesling there is a United Copper Industries office distribution center and a Bobcat Machinery industrial and commercial rental center. This indicates the flexibility available in the area for both zoning and potential use. Don't pass on this opportunity!

Victorian Masterpiece in Historic Fort Worth, TX

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Tue, 09 Jan 2007 12:18:04 -0600

PRICED TO SELL AT $399,000 5128 Birchman Ave., Fort Worth, TX

Though the tax records state that this home was built in 1938, the grandchildren of the original owners stopped by and indicated that the home was probably built in the 1920s and possible even earlier. Set in the prestigious Arlington Heights subdivision of Fort Worth and right by the popular Camp Bowie shopping areas, this 3-story home is 2,700+ sq. ft. and is already zoned for commercial use, making it perfect for a Bed & Breakfast, small Law Office, Real Estate Office or similar use.

Previously used as a law office the home currently features hardwood floors throughout the first floor with a reception area with fireplace, kitchen, two conference room areas, utility room/storage room and a back office. The second floor was converted into an apartment with a separate staircase and door for privacy, a huge master bedroom with the original pedestal sink and claw-foot bathtub. The second floor also has a living area, full kitchen with bar, and a place for a breakfast table. The third floor is designed as a loft, has running water, air and heat, but is only partially remodeled and could be finished out as storage space, living area, bedroom, or even a full small apartment.

The best part about this home is its location. Just one lot over from the corner of Merrick and Birchman, one block from I-30, and backs up to Camp Bowie and all of its popular shopping areas. The home is on the western side of Arlington Heights and is likely one of the last remaining lots zoned for commercial use. In addition to the historic home, a small former servant's quarters with 2 bedrooms and 1 bathroom (also zoned for commercial use) is listed just next door. This home has been conveyed with the larger historic home next door and is currently inside the same fence line as the larger home. It has been used for additional storage, an apartment for management of a business, or could be rented out or torn down for additional parking as desired. The home has approximately 1,050 sq. ft. and is listed at $134,900. If, however, a buyer were interested in purchasing both properties together, the owner would discount the total price of both to $500,000 for a savings of almost $35,000.

Because of the location, the commercial zoning, and its historic flair this home would be a perfect Bed & Breakfast. The small home next door could be used for a manager or owner as either home or office, and the property has plenty of space for parking, consisting of nearly four typical sized lots instead of just two. It has plenty of visibility and could even be remodeled into a full residence with three floors of space and lots of original architecture and ambience for entertaining. Don't miss out on owning a piece of beautiful and historic Fort Worth, Texas!

To Deed or not to Deed, That is the Question!

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Mon, 08 Jan 2007 17:45:34 -0600

I sometimes get questions at closing from both REALTORS and clients about deeds when they learn my background, so I decided to devote a brief post to it. Though it is doubtful that you will ever use any type of deed other than a general warranty deed, knowledge is always useful..and reading this is a lot less tedious than sitting through a law school class on Real Estate Transactions (trust me, bbooorrrriiinnngg).

To begin with, a deed is the actual legal written document that conveys an interest in, or legal title to, property, when properly executed and delivered. Do not confuse the contract for sale with the actual deed, as the contract for sale is just an agreement to transfer a property for a sum certain, while the deed actually does transfer the property.

The most common type of deed in residential transactions is the general warranty deed. But there are times when a different type of deed is either appropriate or required, and you can really serve as a top-notch agent to your clients if you recognize an area where a different type of deed may be called for. The following is a list and brief definition of the most common types of deeds, though be sure and call your real estate attorney or title attorney for further information on the types of deeds used in your state or for further information.

GENERAL WARRANTY DEED - grantor warrants the title against defects arising before and during the time the grantor owned the land. Most common type of deed.
SPECIAL WARRANTY DEED - grantor warrants the title against defects arising during the time the grantor owned the land. Sometimes used by builders or developers who commonly issue deeds to large numbers of buyers and wish to protect themselves against title problems.
QUIT CLAIM DEED - grantor does not warrant either title to the property or even possession, instead the grantor simply conveys whatever interest they do have. Sounds worthless but is actually a fairly common form of deed which is used to release a claim whenever there is a cloud on title and proper ownership may be in doubt. One party will issue a quit claim deed (sometimes with settlement payment) to release any potential claim they might have had.
CONTRACT FOR DEED - agreement for installment purchase of real property directly from the seller. Rarely used today as it can be dangerous to create an installment purchase in the deed itself. There are many other safer and more common ways to purchase a property in installments without using the deed itself.
CERTIFICATE OF TITLE - conveyance of property through a foreclosure in many states. Different states will handle foreclosure sales in different ways, however.
JUDICIAL DECREE OR FINAL JUDGMENT - a judicial decision, depending upon the issues involved, can act as a deed in many circumstances and cases, usually resulting in a sheriff's deed for the property involved.
ORDER OF TAKING - used to convey property taken by eminent domain in a judicial or administrative proceeding.
SHERRIF'S DEED - a judge orders the sale of property to satisfy a judgment rendered by the court in a lawsuit.
TAX DEED - transfers ownership for non-payment of property taxes, depending upon the state the property is located in.
TRUSTEE DEED - deed used to transfer property into or out of a trust, which is a separate legal entity for most purposes which requires a conveyance from the original owner into the trust itself.

Though the legal process to transfer possession from one entity to another can be a bit complex, hopefully this sheds a little light on the types of conveyances that can be used in most situations. Title companies are extremely organized and now have extensive electronic media of all deeds filed in their locations, though you can still go to your local county records office, pull out a huge volume and search through the deed history of your home if you desire.

Real Estate Investing 101

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Sat, 06 Jan 2007 13:54:11 -0600

I have noticed over the years, especially now that investing in real estate is such a hot topic, that many beginners to real estate investing can quickly get in over their head fast. And though I am not a real estate investment guru by any means I have picked up a few tips along the way, first as an investor myself, second as the son of a homebuilder and builder of numerous duplexes and multi-family dwellings, and now as a REALTOR and agent for other investors. If you want to get into investing or are a newer agent wanting to work with investors here are a few key concepts when getting started.

HIDDEN EQUITY: The first and most important thing that all investors are looking for when investing in any real estate is Hidden Equity, though different terms of art are often used to describe it. There are several ways to find hidden equity, however, and it does not really matter which is used:

Distressed owners that have to sell below market value because of outside reasons
Older property that is devalued because of condition and age but that is in a good area
Foreclosures and REO properties (real estate owned) where the lenders are the owners (though all too often there is not as much hidden equity as people believe in foreclosed property)
Short-sales (where the owner is near foreclosure status but has gotten the bank to agree to sell for less than the mortgage balance and wait to foreclose)
Developmental property - property that rises in value sharply because of expansion and development in the area
Poorly managed or maintained commercial property where rents are below market
Poorly managed or maintained multi-family property where rents are below market

Though not an exhaustive list, it provides key areas in real estate where an investor can locate hidden equity in property and with a little time and effort turn the hidden equity into profit. For the rest, I will focus on "Flipping," a popular and potentially risky but rewarding form of real estate investing.

THE 30% RULE: Of late, a popular rule of thumb that many investors use when evaluating property to "flip" or rehabilitate and sell within a short time frame is the 30% Rule. Basically the rule requires that an investor purchase a property at a minimum of 30% below the actual potential worth of the property. There are several reasons for this. First the time value of money becomes key when flipping property. Lenders charge higher rates to investors that are speculating in property and often require larger down payments. Unless an investor has a large amount of cash on hand, they need to turn properties quickly and also account for the expense of borrowing when determining potential profits. The second reason investors need this 30% equity is because of the cost and fixing up, rehabilitating, etc. Finally, this equity provides some leeway in case a property does not sell as quickly as planned or does not sell for the price planned.

This is one area where new and even experienced investors make a mistake. They assume that the 30% Rule requires that they purchase a property at 70% of the listing price. Though it does make for a simple calculation, this ignores the true concept of hidden equity. Some properties are listed above market and even if they sold at 70% of the listing price, it would not provide the amount of cushion desired. Another reason to avoid over-simplifying is the fact that some properties are listed below market value or are listed for less than the potential value if remodeled. Too often investors will pass on good investments because they cannot get the owner to sell the property for 30% under market value but forget that remodeling a property with a lot of hidden equity can often create value.

HOW TO EVALUATE THE AMOUNT OF HIDDEN EQUITY: Once an investor has identified a property that they believe has hidden equity that can be tapped into, the first thing they need to do is have a trusted and competent REALTOR run a comprehensive CMA (comparative market analysis) on the property. There needs to be two CMAs: a basic CMA on the current market value of the property, and a prospective CMA on the value of the property after the investor has remodeled, fixed up the property, etc. Once a range for these two figures are established, the goal is to purchase the property at about 25 to 35% of the prospective CMA low end-value. The reason for the fluctuation is that even the best REALTOR cannot be exact when doing a prospective CMA for an investor. Notice that we do not care at all what the list price is, nor do we really focus on the current market value of the property. In fact the reason to run the current market value CMA is not to help us in the offer, but rather to give us insight into the state of the owner. If the owner has their property listed over the current market value, he may be difficult to come to terms with regardless of the amount of hidden equity. If, however, the owner has it listed under current market value this can indicate a distressed seller who may be easier to purchase from because of their eagerness to sell.

BUDGET YOUR EXPENSES: One final thing that must be addressed before making an actual offer on a property that meets the above requirements, a comprehensive budget of potential expenses. If you are flipping a property you need to write down what you intend to do to remodel the property. For example, list all the required repairs and expenses, and include financing costs (painting, carpet, new appliances, contractor fees, proposed time on the market after listing for sale, interest costs, etc.) Take this comprehensive budget (and this is the area that often separates top investors from the rest) and determine the difference between potential gain on sale using the prospective CMA. If your total expenses exceed or are too close to the potential gain on sale, then there is not enough hidden equity in the property or you need to reduce the potential expenses. Determine what profit you desire and make sure that your budgeted expenses provide this figure and a little extra for cushion as there are always a few cost overruns.

Hopefully, this provides a little insight into the potentially profitable venture of real estate investing. One other key thing to remember is timing the market properly, just like you would the stock market. As an investor you want to buy low and sell high. Thus, most investors should generally look to purchase their investment property in the fall or early winter, then plan to sell the property in the spring or early summer. This will particularly help new investors because it makes it a little easier to identify distressed owners whose listings have been on the market through the summer. It also provides time in the winter to do the work and makes sure the remodeled property hits the market at the beginning of the peak of the residential selling season. Good luck and remember that even the savviest investors make some mistakes. Expect to make a few mistakes yourself, provide a little extra cushion to guard against these mistakes in your budgeting and market analysis, and don't get discouraged if one or two deals don't work out. And, perhaps most importantly, establish a good relationship with a local REALTOR, whose advice and expertise will be essential.

Is it Time to Cull the Herd?

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Fri, 05 Jan 2007 12:50:45 -0600

Born and raised in the great state of Texas, I thought this analogy fitting for this particular topic. Though I am definitely not a true cowboy, I have several family members and friends who have owned cattle and I have even worked on a ranch a few times helping them with their livestock. Culling the herd involves separating the sickly or weaker animals from the rest of the stronger and healthier animals so as to increase the overall quality of the herd. Several recent events and conversations have led me to believe that this same concept is necessary among REALTORS (normally I would insert the correct circle R here, but I have not yet learned how to do so on my blog, please help if you know how and for this article I'll use all caps).

I recently met a potential buyer from out of state that wanted to view a listing I had in McKinney. I went and met him and his two friends, learned that the house I had listed would not really fit his family and then helped show them another house down the street that might have worked better. It did not really meet his requirements either and he had to leave to return home, so I simply gave him my card, told him that it was nice meeting him, and let him know that if he needed any help to simply give me a call. Several weeks later he did give me a call, and asked me to help he and his wife find a house. As we talked he told me that one reason he did not have an agent assisting him in the first place was because that REALTORS were perceived in his home state as being more concerned with their own interests and not very helpful to their clients. He was shocked that after trying to explain the good points in my listing that I was willing to listen to him and show him other houses that fit his family's needs better. I inquired further and learned that this was not just an isolated incident but a widespread problem. He was genuinely thrilled that I was so helpful and that I made a big deal of putting his needs and concerns first.

Don't get me wrong, this problem is also prevalent among Texas REALTORS and likely in your state as well. If you read my blog "Why AGENCY is a Big Deal in Real Estate," you will understand how a local REALTOR destroyed the trust of her clients and sullied the image of REALTORS throughout the area. To summarize, a current client had a ten year relationship with their agent and wished to get into investing. They were looking at multi-family properties and found one they liked. On inspection, they learned of numerous problems and decided to back out of the deal durinig the option period. They turned to other properties and found another one that fit their needs. This time their REALTOR of ten years told them that an inspection was not necessary and that they could simply purchase a standard home warranty to cover any problems. My clients were concerned because of a large crack in the brick, but their previous agent assured them that the home warranty would cover even foundation problems. You probably know the rest of the story. My clients later learned that the building had a problem with termites in one unit ($10,000) and foundation problems ($15,000 - $20,000) along with several other minor problems. When they contacted me for assistance in listing their property they were extremely hesitant in trusting another agent and actually chose me primarily because I was also a licensed attorney with highly enforced standards of conduct (insert your favorite lawyer joke here).

I could continue with other examples of REALTORS that have devalued the image that we all want projected. Admittedly, I may hear a higher percentage of problems because of clients contacting me for legal counsel after a deal goes south, but I was dismayed throughout the year at the number of complaints where REALTORS were extremely negligent, poor fiduciaries, or downright fraudulent in their dealings with their clients. This must stop! One reason I left the full-time practice of law was because I was too frustrated with our civil justice system and could not help my clients like I wanted. I also saw first-hand why so many people distrust attorneys, and in some cases I was flat astonished at the conduct of my fellow attorneys. Because of that, I do not want similar things to occur among REALTORS. We must do a better job of raising the standards and helping police other REALTORS if we wish to maintain our status as highly paid professionials.

As it stands now, most people do not recognize any difference between REALTORS and real estate agents. It is time for that to change, but not just because of better advertising by the NAR. It should mean something to be a REALTOR. We should not just preach our code of ethics, but live it. And demand every other REALTOR live it as well. We also need to consider raising the requirements to become a REALTOR. Perhaps we need to require an associate's or college degree beyond what is required to pass the local state exams. People value things that are more difficult to obtain, and frankly it should be harder to become a REALTOR than a real estate agent. Rather than just relying on the states to police real estate agents and REALTORS alike, we need to police ourselves better and do a better job of allowing a forum for complaints of clients with REALTORS that have not lived up to the Code of Ethics or proper standards of fiduciary care.

For this reason I chose the analogy of culling a herd. We need to remove the agents that are sullying our credibility as an industry of true professionals. This will help increase the overall strength of all REALTORS and our perception in the marketplace. By raising the requirements to achieve REALTOR status, we also will hopefully lessen the number of agents who do not know how to properly do their job, and may help obtain greater status similar to other professions. It is also time for us to each hop on our cutting horses, grab our lassos and start pulling out all the sick little dogies in our herd (sorry I fell off my horse riding to work and had to continue the analogy). For the rest of America, that means that individually we all need to be willing to report ethical violations and misconduct among other REALTORS, even those carried out by friends and coworkers. This is our career and our professional reputation at stake (and I don't want to have to listen to lawyer jokes and REALTOR jokes at the same time, I just might go crazy...or at least prove my wife right that I really am crazy)!

The Sweet Scent of Success

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Thu, 04 Jan 2007 10:43:50 -0600

I have found that one of the most important parts of preparing a home for sale is the aroma that buyers smell when first entering a home. The scent of a home when on the market is the very first impression that is made on a buyer, but it is often overlooked by both real estate agents and sellers alike.

Psychological studies have shown that scent can have a powerful subconscious effect on individuals, either positively or negatively. When exposed to scents unobtrusively, people will even change their behavior or actions slightly, while also affecting mood or emotion. This is not a new science, with numerous articles and studies on the subject.

If scents can have such a powerful effect on the subconscious, then it must be considered key when preparing a home for sale. Placing candles, potpourri or scented oils in a home during a listing causes an immediate impact when a person first enters a home. Similar to landscaping and drive-up appeal, it can make sure a potential buyer has a positive feeling about a home before ever really seeing the inside. But while good aromas can have a positive effect, the opposite is also true.

We currently have one listing where the owner has a beautiful, gentle and large dog that is often inside the house. Because the owner is so used to the dog and having him inside, he is not even aware of the smell of the dog throughout the house. We noticed the smell when first entering the home and knew that we would have to mention it to the seller, and we did so before we even got the listing because of the potential problem. The seller reacted well to the delicate topic, but unfortunately has not really addressed the problem and we have had several comments in feedback about the smell. Realistically, a home can be aired out and the smell gotten rid of by a new owner, but a potential buyer reacts emotionally to scent and may not consider that it will be easy to eliminate. For agents who have ever sold the house of a smoker, I imagine that you also understand the problem of scent in a home.

There are several solutions to preparing a home's scent. The best, but also the most expensive, solution to good aroma in a home is scented oils with some type of burner or dispersing machine. True essential oils or similar aromatherapy products not only provide a good scent, but many will actually help clean the air and also may have minor healthful or emotional side-effects. Also helpful are potpourri mixtures because of the way that it can be placed in a home within a decorative bowl or setting. Candles are often used as well, but they can be dangerous to leave lit when the homeowner leaves the home, and the scent dissipates after a time without the candles burning. Last, you can always use the scented plug-ins that you buy in a store. I only suggest these as a last option because most actually use chemicals which some people are allergic or sensitive to, so only use these as a cheaper or less effective alternative to the above.

One other possible solution in extreme circumstances (such as a smoker's home or the home with pets inside) is the use of an air-cleaning machine. We have a friend that sells an ozone producing machine that actually can be left in a home for about 24 hours (when no one is there), that emits a powerful ozone type effect that can actually eliminate molds, powerful odors and similar problems by actually cleaning the air. We may try this in our listing to see if it can eliminate the odor, and then use a potpourri mixture to try and keep the odor from returning.

If you are a homeowner considering selling your home, keep this in mind when preparing your home for sale. It should be an everyday concern to ready the home by not only cleaning and tidying, but also providing a pleasing aroma throughout the home if possible. For real estate agents, this is an area that must be addressed, particularly when the homeowner is a smoker, has pets inside, or has an older home. Do not be afraid to bring up the topic for fear of offending the homeowner. Some may not even be aware of the smell inside their home as they have gotten used to it and no longer notice it. Your mentioning and addressing the issue is a key part of the fiduciary duty an agent owes his client. My personal preference is a vanilla scent because it is pretty widely enjoyed and helps convey thoughts of home cooking, please feel free to share your favorite scents or candles as well.

How to Turn Apples Into Oranges

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Wed, 03 Jan 2007 14:44:59 -0600

We've all heard the saying "Apples to Apples" and "Oranges to Oranges", indicating that when comparing two things they need to be similar in order to be able to properly evaluate them. This is a very common principal in real estate used when evaluating a property's market value in a CMA. When dealing with investors or business property, however, we have the ability to exchange our apples for a group of oranges, and yet many agents fail to properly inform their clients of this wonderful opportunity...the 1031 Like-Kind Exchange.

A 1031 Exchange is a tax deferral rule that allows an investor to exchange one type of business or investment property for another type of business or investment property. This is great for investors that want to sell a property, but do not need the cash from sale and simply want to change investments. If done properly, the investor can sell one property and buy another without having to pay capital gains taxes on the sale of the first property. Hopefully this brief article will help investors and real estate professionals understand the basic rules of a 1031 Exchange.

There are three basic requirements in any qualified 1031 Exchange of two properties:

Both properties must qualify and be of "like-kind";
There must be an actual exchange of property, real property for real property (no cash);
The time requirements for identification of replacement properties and actual exchange of properties must be strictly complied with.

QUALIFIED PROPERTIES: There are four classifications of real estate for income tax purpose, but only two classifications are are qualified for 1031 Exchange purposes. The four classifications are:

Real property held for business use under Section 1231;
Real property held for investment purposes under Section 1221;
Real property held for personal use;
Real property held primarily for purposes of sale.

In general only real property held for business use and real property held for investments purposes qualify for 1031 Exchanges (though as with every tax rule there are of course exceptions and contingencies. The great thing about the rules is that you can exchange real property for business use with real property for investment and vice versa. Further, the rules allow vastly different properties to be considered "like-kind" as long as they fit into the first two classifications. You could potentially exchange one hundred acres of undeveloped land outside San Antonio held for investment purposes with an apartment complex in Dallas and still qualify for 1031 tax deferral. Thus you can exchange your one apple for three completely different oranges.

TIME REQUIREMENTS: In order to properly complete a qualified 1031 Exchange applicable for tax deferral, you must meet the time requirements for both Identification of Replacement Property and the Exchange Period. You have 45 days after sale of the relinquished property to identify potential replacement property. You can either identify up to three replacement properties without regard to the fair market value of the properties, or you can identify an unlimited number of replacement properties as long as the aggregate fair market value of the properties does not exceed 200% of the aggregate fair market value of the relinquished property or properties.

Again there are some exceptions to these basic rules. If you receive replacement property prior to the end of the 45 day identification period then it will automatically be treated as properly identified regardless of the above rules or its fair market value. Thus a quick sale and then purchase can be helpful at times. Also if the fair market value of all replacement property received is 95% of the fair market value of all relinquished property sold, then the property can be deemed properly identified during the identification period.

ACTUAL EXCHANGE WITH NO CASH RECEIVED: The final requirement is that you actually exchange properties without receiving any cash within 180 days (the Exchange Period). Typically a 1031 Exchange company is used to facilitate the transaction. Upon sale of the relinquished property or properties, the proceeds of sale are given directly to the 1031 Exchange company who holds the funds in trust until replacement property is identified and purchased. This satisifies the requirement that no cash be received.

If you are a real estate professional be sure to always ask your investor clients if they are aware of 1031 Exchange rules and determine if it might be an option which could save them money on their taxes. If you are an investor (or want to start investing in real estate) be sure and talk to a trusted CPA or attorney about the 1031 rules so that you can better understand the potential benefits and avoid the potential pitfalls. If done right you can take an old apple, exchange it for three new oranges, and laugh all the way to the bank!

How to Properly Hang...Yourself??!!!

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Tue, 02 Jan 2007 17:15:02 -0600

Oops! I just realized that I left out a word in the title. It should read "How to Properly Hang Pictures...Yourself." But I've heard that the most important part of any article is the title, so hopefully this one will grab a little extra attention. Assuming that I am not placed on some type of federal watch list because of the title, I think I'll keep it.

I noticed over the holidays that I have officially been corrupted and warped by my upbringing. Growing up with an interior designer for a mom and a home builder for a dad tends to do that to a person. I can no longer go into a home without noticing good and bad parts of the interior design. And one thing that always seems to give people difficulty is the proper placement and hanging of their pictures and artwork.

Thus I wanted to provide a few tips on the proper placement and hanging of pictures in a home. Hopefully this will be helpful to those who like to display artwork in their home, or even to other real estate professionals when they are called upon to assist a client in readying a home for sale.

RULE #1 - LOWER YOUR PICTURES: One common mistake that nearly everybody (including myself) makes is hanging their pictures too high, especially when a taller man hangs the picture. People tend to assume that a picture is supposed to be centered on a wall (vertically or horizontally), and that it needs to be hung higher to avoid blank wall space. Professional interior designers, however, will tell you that a painting, picture or other artwork should simply be one part (though oftentimes the centerpiece) of a grouping of furniture and furnishings in a room. If hung too high, a picture stands out by itself and does not bring in the surrounding furnishings, and only extremely large or unique pieces of art are intended to stand alone on a wall. As a general rule, look at the area where you wish to hang a picture and hang it a few inches lower than you might normally think is appropriate so that it is a part of the surrounding furnishings.
RULE #2 - MAKE PICTURES A PART OF A GROUPING OF FURNISHINGS: Many people assume that because pictures or artwork are often the centerpiece of a room that they must stand out or stand alone. Actually the opposite is true. To make an item the centerpiece of any room or grouping of furniture it is necessary that people first see it as a part of the whole. The above photo shows the living room of a home my mother helped redesign. Notice that the picture is only a few inches above the mantle and that the other pieces on the mantle are often higher than the bottom of the picture. Because of this, the picture becomes the centerpiece of the entire fireplace and brings in all the other furnishings in the immediate area. When preparing a grouping color schemes are important. You do not want things all the same color or tone, but generally you do want the colors to blend together and not have one furnishing stand out too much unless it is to be highlighted. Also keep in mind that when designing a room, you are in effect arranging several groupings into key spots in the room. One wall may feature artwork with a sofa or chair, while another may feature a mirror with a chest of drawers, etc.
RULE #3 - WATCH THE PROS: I often provide a simple tip to clients who wish to redesign their home or are readying it for sale. I tell them to visit new home subdivisions in the area and view the furnishings and layout of the model homes of builders to get an idea for their home. It is free, can often be fun to do as a family, and provides great insights into some of the latest designs, furnishings and appliances used by professional interior designers. It also helps to see how they arrange their groupings to create different effects in each room or area of the home. For the real estate agents reading this, it also creates a general idea of how clients may want their bedroom, bathroom or kitchen to look in terms of color design, etc. when staging or updating their home. It also provides them with insight into what the competition's home may look like and why they may need to consider updating or staging.
RULE #4 - LESS IS MORE: Another common misconception about artwork and pictures is that every wall needs at least one (and often more). When this is done, however, it tends to reduce the appeal of each picture or piece of art. If you follow Rule #3 and see a professionally designed room you may be surprised to find that some rooms may have only one picture on a wall. This rule also applies to furnishings. One of the most common things a Realtor must do when readying a home for sale is "thinning" out the current furnishings and objects. Thinning is simply a term of art which means reducing the number of pieces or furnishings in a room and storing them in the garage or some closet.
RULE #5 - LOWER YOUR PICTURES: Believe it or not this is not a typo. Once you have followed Rules 1 - 4 go back and lower your picture another inch or two. I say this because it is often very difficult to make people understand that almost all pictures are hung too high. I have found that by making myself or others lower them twice that it usually ends up in the right area for the grouping.

Hopefully this provides a bit of insight into how to create warm, inviting and even special rooms in your home through the simple technique of hanging artwork properly. When thinking of redesigning your home, pay attention to the pictures in your friends homes and ask yourself if it is a part of the room or seems to stand apart. It may also help to see how high their pictures are and if they seem to draw in the other furnishings around them or not.

Top Ten Things I Am Thankful For This Holiday Season

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Tue, 28 Nov 2006 12:28:36 -0600

It's been nearly a month since I last updated my blog and my fingers are itching to return to the keyboard (further proof according to my wife that I am mentally unstable). Over our vacation and time off I had time to reflect on what I wanted to share when I returned to the world of the blogosphere.

Though I do have several real estate related articles that I want to delve into this month, I decided to start with more of a holiday themed blog. Over Thanksgiving I had time to reflect on the blessings in my life, though I often forget how blessed I am. This has been a difficult year for my family with a devastating illness of one and the death of another, but it merely helps me see the true blessings we have.

So without further ado, and with proper fanfare a-la David Letterman, here is my top ten list of things that I am thankful for:

10. A career in real estate that, even though it often requires a lot of 7-day work weeks and being available on the phone at night, allows me to schedule my work around soccer games and birthday parties and be home with my family without the inordinate travel required when I was in private law practice full time.

9. The resurgence of the Dallas Cowboys. I am a huge sports fan and now the Dallas teams with the Stars, Mavericks and especially the Cowboys, are all hot. Thank you Tony Romo!

8. A beautiful home in Plano (one of the nicest suburbs of Dallas) with no crime, near family and in the wonderful state of Texas.

7. My dream truck - a Chevy Silverado HD with all the features that I always wanted.

6. My Dell laptop computer. I really don't know how the older, no (hmm...how should I say this tactfully) more experienced real estate professionals ever survived without them.

5. Living in America - simply watch the news for a few minutes and you realize how lucky we all are to live in a country where we are free to elect our leaders, worship as we choose, and pursue our dreams.

4. Chocolate chip cookies fresh out of the oven when it is cold outside.

3. Our many wonderful friends that we have been blessed with.

2. God, Jesus and our local church.

And the Number One Thing That I am Thankful For:

1. This is an easy one, and is evident from the pictures throughout this blog: MY BEAUTIFUL WIFE AND THREE WONDERFUL LITTLE GIRLS!

Say NO and Your Clients May Say YES!

Steven Holcomb, Esq. - BBA, JD, GRI (Keller Williams Realty) — Fri, 27 Oct 2006 08:31:50 -0500

We've all stuck our foot in our mouth during initial negotiations with a client. You know the drill. You get a call from a potential seller, go on the listing appointment with your stellar marketing package...only to have them say that they wish you to discount your rate to half of the usual amount. You then paste a sickly smile on your face while considering how badly you want the listing, thinking that the listing will get your sign out, might bring in buyers, etc., so you say yes...and then spend more money selling the property than you make in commission, or close to it.

It happens to us all. And I would bet that at one time or another we all discount our commission when things are slow or we really want a listing. Sometimes, however, if you stick to your guns and negotiate as hard for yourself as you do for your clients, you might be surprised at the result.

Admittedly some agents need to discount their rates for the services they provide. They only provide limited services or below average ability for the commission rate they charge. Their clients should be on notice that they are willing to accept a lesser commission for a reason. On the other hand, those agents that really have a vast array of skills and experience may lessen their clients' beliefs in said skills and experience by accepting a lower rate without at least negotiating with the client and explaining the costs involved and the exceptional service and protection provided. Stick to your guns and you might be surprised at the reaction of your potential client.

Case in point, I received a call several weeks ago from a potential client with 30 acres of undeveloped property listed at $2.5 million in an up and coming area just outside of Dallas. We met over coffee, discussed the property and my qualifications. Then came the discussion of commission structure. He admitted that he was visiting with another commercial brokerage outfit and that they had agreed to a cap on their commission of $1 million, and that if the property sold for any more than that, the only commission dollars paid would go to the buyer's agent, if applicable. He asked if I would be willing to accept the same commission schedule. At that point, though I wanted the listing, I explained to him why I believed I was worth more than the "average agent", focusing on my educational background and experience in the Dallas area. I simply and honestly told him that he might want to go with the other company because I charged x.xx% commission and would not discount my rate, nor agree to a cap. And I was ready to walk away from the listing if needed, and I think he knew that.

From that point on there was a price tag on my head. My price tag said BMW while the competing brokerage firm's price tag said Honda. Eventually, after I showed this client the quality he was purchasing he actually became an advocate for me, telling others "he is a bit more expensive, but worth it." No only did my willingness to say NO win me the deal at my standard commission structure, but because the client saw that I believed I was worth that price and more, he felt he was purchasing quality. To make a long story short, I got the deal at my standard commission rate and will soon show my client that he really did purchase quality by selling his property. By the way...do you happen to know of a buyer interested in a 30 acre tract just east of Dallas (100 acres total available)? If so, do I have a prime piece of property for you to look at................