Sunday, February 26, 2006

Today's Kansas City Star

If you haven't read today's Kansas City star, you should. On the front page there is an article titled Bogus Appraisals Stress Housing Market. It is an excellent introduction on what can happen when you choose to not use a professional REALTOR or you use a real estate agent with less than professional ethics.

But more than anything you should make sure you choose a reputable loan company.

Appraisals have been a problem for me in the past. And quite often I have raised an eyebrow when people have told me about their refinances. Let me give you an example.

For a while in Oklahoma I owned a property in a neighborhood where the highest a home had ever sold for was $119,000. The average price of homes in the neighborhood was about $102,000. Almost all the homes were 1400-1600 square foot ranches. The $119,000 home had been extensively updated and added on to. Anyway, a gentleman I knew and like in that neighborhood was telling me that he had refinanced his house and "pulled out some cash". Curious, I asked him what his house had appraised for and he told me $144,000! Are you kidding me? His house was almost identical to the property I owned that I valued at about (and in fact sold for about six months later) $103,500. Yes, he had an inground pool. But not a $40,000 pool! This was an obvious case of a guy being taken advantage of. He is now locked into that home for the next 15 years while it appreciates to that level.

Another experience I had, and continue to have, is when appraiser's use non-comparable homes to come up with value. These appraisers and their mortgage officers want to use homes from different neighborhoods and social circles. In other words they will use houses that have nothing to do with each other.

Read the article. Choose your lenders and real estate agents with care. A responsible real estate agent will look out for your interests and warn you when he sees a red flag. Yes, the house may cost you a few dollars more than getting the "deal" without representation. But are you sure it is such a deal?

Tuesday, February 21, 2006

Owner Financing

Owner Financing can be a profitable enterprise that will help you to sell properties at a higher price, if done correctly. You need to do your homework and make sure that the person taking the owner financing can pay the loan back. And if they are asking you to be a bank you should have the right to delve into their personal finances.

Generally, I recommend to my clients that if they are going to do owner carrybacks that they do it for only a partial amount of the home, like 5% or 10% or 15% down. That way you still get most of your money up front and on the carryback portion, which you will secure with a mortgage (second in line), you can earn an additional 6%-9%, depending on the situation.

If you would like to find out more about this particular way of maximizing you sales proceeds, just give me a call or drop me an email. I'ld love to discuss how this can be beneficial to you and your buyer.

Sunday, February 19, 2006

I love Kansas City

I love this burg.

I grew up in Overland Park. Went to Shawnee Mission West High School. Then on to the University of Kansas. After that it was on to the Washington, DC metropolitan area for 15 years. It's a great town. Then I spent 3 years in Tulsa. Another real nice city.

But Kansas City is my favorite of the three. Just because I grew up here? Well, maybe. But this morning I was up in Gladstone showing a home. This afternoon I was in Olathe. In the DC area if I were to drive the 30 miles between the two I would most likely have to leave at least an hour, maybe an hour and a half. (It used to take me 1.5 hours to drive the 13 miles to my office during rush hour. 2 hours to make the drive home.) As I show homes around Kansas City I see that the planners have left plenty of room for parks and wide streets. Neighborhood schools abound.

Kansas City has enough urban to keep me satisfied and enough suburbs to keep the family man in me happy. Our economy is never as good as San Francisco or Washington, DC or even Boston. But we also do not have the crashes they have, the traffic congestion they have or crime they have. Tulsa was great but didn't have the size to offer the sports and entertainment that people enjoy like Wizards soccer, Royals baseball and, need I say it, Chiefs football.

Housing is plentiful here. Because land is cheap. If I could change one thing about the Kansas City area it would be better land usage planning. Because land is so plentiful and inexpensive (comparably speaking) it is easier and cheaper to build new than to refurbish and revitalize the inner core. I'm afraid we may be cheating our future generations out of our natural habitat. They may have to drive many hours to see a rural scene. A real one, at least. Not a neighborhood of 5-10 acre estates.

I realize a lot goes into this. So many city governments here. It is hard to get one city to do something for the good let alone a whole metro area's worth. And I'm not trying to sound like Al Gore and say we should count trees and put that towards the GNP. I'm just saying I would like to see better use of our region's assets. Before it's too late.

Thursday, February 16, 2006

Kansas City Lofts

I'm spending the night down here at Children's Mercy Hospital in Kansas City because my daughter has had major surgery. (She is okay and it will really improve her quality of life.) And as I drive around the Crossroads area I see building after building converting to Loft Condominiums. Let me just say that I am a huge fan of lofts and if I wasn't raising four children and in need of first class schools I would love to be in the urban environment that Lofts are located in. There is just nothing like it.

My wife and I lived in a high rise in Bethesda, Maryland for a while back outside of DC and we loved it. Of course, it was before kids. We would both come home from work, change clothes and go eat at any one of the dozens and dozens of restaurants within walking distance in an area known as the "Triangle". Boy! do I miss that. But time moves on and responsibilities change. Maybe when we are older and our children have kids of their own we'll be able to return to that environment.

Having said all of that I'm a little worried that there might be too much converting to lofts downtown. I would be a little leary investing in these particular condos for fear of an overbuild. If you are planning to hold eight or more years I'm sure you would do well. Anything less than that and I'ld be a bit worried. At least until more jobs start moving in downtown.

I hope the building proceeds at a measured pace. The renaissance downtown is good for all the Kansas City area. Olathe, Grain Valley, St. Joseph. It helps all of us to have a place to go, a place to brag about and a place to show our relatives and friends when they come for a visit.

Finding a Diamond

I have written several times before and will write many more times in the future about criteria. It is vitally important you know what you are looking for so that when you see it you can act quickly.

In the past week I have had the opportunity to help two people sell or purchase a home. In both cases there was a lot of activity around the house in question. In both cases the buyers would probably have lost the house had they not acted quickly enough to get it tied up in a purchase contract. (I'm not advocating a speedy purchase just to purchase...understand what I am saying here.)

The buyers were able to act quickly because they knew what they were looking for before they even saw it. In the case of the buyer I was working with we had seen 8-10 properties that all did not measure up either condition wise or numbers wise. But when we found a property that matched his predetermined criteria he acted quickly and got the house. If you know what you are looking for it's not hard to recognize it when you see it.

There are a lot of questionable properties out there. Be patient and hold out for the one that matches what you have written down on paper. When you do it will feel like you've found the diamond in that pile of coal.

Friday, February 10, 2006


Make sure you and your REALTOR understand your financing before you go out and look at investment properties. If you are buying a 4plex your financing and down payment requirements will be different than if you are purchasing a small single family home. Or, if you are getting an 8 unit apartment you will probably be looking at a commercial loan. Is the commercial loan a balloon? I'm sure it does not have a 30 year amortization. But is it a 20 year or 25 year amortization?

Also, most lenders will not allow more than a 2% contribution by the Seller for the Buyer's closings costs. Is an inspection required?

Get your ducks in a row before you waste your time, or mine, going out and looking at properties that won't work for your financial situation at this time. You'll be glad you did!

****Again, some of this has been learned through experience. Some from the wisdom of others. I hope you are finding it to be useful to you and your situation.****

Tuesday, February 07, 2006

Limit Your Hassle

Time after time I pick up the phone to hear someone tell me their real estate troubles. Some I can help. Many I cannot. Why? Because they are still under contract with another real estate agent/broker and I cannot interfere.

My best advice to you is to be VERY careful when choosing your next real estate professional. Industry talk is that some 78% of all sellers speak to only one or two agents before deciding who to place their most valuable asset with. Now, that may be okay if you have confidence in your agent and know his or her background and have checked around. But if not, you better start asking some questions.

  • How many transactions have you personally dealt with in the last twelve months? (I could not care less how long someone has had a license. That has nothing to do with relevant experience.)
  • How many listings are you currently servicing?
  • How many listings can you competently service at this time?
  • Do you have any administrative help? (Not necessary. But very helpful. If you are interviewing a sole practitioner just make sure they are not overloaded.)
  • What is your fee? (Be careful here. An agent willing to slash their fee, especially too quickly, may also be willing to sell your house at a lower price the first chance they get!)
  • Are there any additional costs to this fee?
  • What do you think the market looks like at this time?
  • If I have problems with your service, how will we get them resolved?
  • What is your process of communication to keep me updated on my house?

I can give you a dozen more questions you could be or should be asking. The point is..Do Your Homework before signing the contract. It can make a big difference in how much "hassle" you will have to go through. Or how smoothly a transaction will go.

Good Time of Year

I am not trying to be a high pressure salesman here...but now is a great time to be purchasing property. Inventories are higher than they have been in a while. Going into Spring with a house that still hasn't sold has some sellers nervous. When Spring gets here you are likely to see inventories increase at a negative pace as buyers come out to buy. So if you are looking for property, especially investment property, now might be the time to jump in!

Monday, February 06, 2006

What Kind of Landlord Do You Want To Be?

Here are a few thoughts while still enjoying the KU comeback over OU...

Many, if not most, of the rental homes I view have been taken care of in a less than pristine manner. There really can only be two reasons for this. The first is that the landlord purchased the property at too high of a price to be able to make the property profitable so that he has to cut corners wherever possible to not get into the red ink. This is a problem that can be avoided by purchasing the property correctly from the beginning. Or moving on to another property.

The second reason is negligence on the part of the landlord. I suppose the reasoning is that since he and his family does not live there it doesn't have to be perfect. Another one I hear is that the tenants will just tear it up so it doesn't pay to fix it up. Either way, the landlord is letting the property fall into a state of disrepair that will make it difficult to sell for top dollar when the time comes. Not to mention the quality of tenants a property in disrepair will attract.

Look, most tenants are people looking for quality housing at a fair price. Some are abusive to their properties and/or landlords and should be weeded out during the qualification process. But if they get through your screening and still tear up the property you should have provisions in your lease to get them out.

Attractive homes make it easier to demand a higher quality tenant. And I feel better about myself knowing that the children of my tenants are walking on clean carpet and are not embarrassed to invite their friends over. Yes, I've been burned. But by in large tenants show the same respect back that they are given.

Wednesday, February 01, 2006

The Intangibles

I love the mathematics of real estate. Numbers never lie. Or do they?

Here are some intangibles that you will want to look for when dealing with investment properties;

Does the house have a big back yard? Is it fenced? Is it too big? Where is the elementary school? What school district? Does that school offer any special services that you need to be aware of? Are there any major draws that a prospective tenant might want to be close to like a place of worship, or a shopping mall or a business center? Is the house loaded with low maintenance items like brick or a steel roof?

There are, of course, many more items to think about and weigh. But I just wanted to make the point that there are more than just numbers to deal with when dealing with real estate!