Friday, April 28, 2006

A Thousand Good Ideas

Have you read anything by Bob Bruss? I enjoy reading his articles in the paper and on the web. One of the reasons I think I'm a good REALTOR is because I learn from not only my own good/bad experiences but I'm smart enough to learn from others, as well.

I do not agree with every single thing Mr. Bruss says. However, I believe that he is one of the handful of people who keeps real estate "real". No fly by night financing ideas. No quick fixes to damaged credit. No "turn and burn" schemes that will get you in the poor house.

This is not a paid advertisement and I've never even met Mr. Bruss. However, you should take some time and occasionally visit this site;

Monday, April 24, 2006

Next Investor's Workshop

My next workshop will be held on May 13th at 9:30 am. It will be held at my office and will end by 11:00 am. No charge. But it is my hope you'll see what a great REALTOR I am and that you will want me to help you!

Friday, April 14, 2006

What Not To Do

I've said it a thousand times and here we go again! Here is a real life example of not doing your numbers before you buy;

A house came up for sale in a neighborhood I am very familiar with. It was being sold "under market" as a bank repo. The bank was initially asking $159,900 (close to fair market value IF it was in salable/updated condition) but after three months of no offers dropped the price to $149,900. At that offering price the place sold in another 45 days or so at $142,000. Wow, what a great deal you say!

Let's do some numbers...

At the $142,000 price he would have closing costs of, let's be conservative and say the seller paid for part of the costs, about $3,000. And let's figure he took a mortgage out (most people don't pay cash) and that mortgage was 6.5% on 80% of the purchase price for thirty years. That would figure to $718 P&I holding costs per month (after the first month) and roughly $60 per month for insurance and $175 per month for taxes. (We aren't even going to get in to utilities.)

I saw the place before the "rehab" and I'm not that impressed with the change. The home still looks a little dated. Having said that, they did do some painting and installed some new faucets, cleaned the carpets, etc. So let's say they spent, conservatively again, another $5,000 in rehab costs.

Also, figure at least a three month holding time, probably four in today's market if you are going to ask top dollar.

This would be rehabber then put the home on the market after FOUR AND A HALF MONTHS! (To do what little work I recognized should have taken two weeks.) The asking price was $165,000 paying a 6% commission to the REALTORS. Again, this is probably fair market value if in top shape for this particular neighborhood. And, again, I state that the home still was not in "top shape" and is looking at a lot of competition at that price point.

Naturally, the home did not sell right away and at the end of 32 days reduced the price to $155,000 and reduced the REALTOR commissions to 5%.

Now, most houses don't sell at full asking. So let's be generous and say that he gets an offer next week at 98% of the asking price, as is, with no repairs to be made by seller. (Doubtful, but let's be optimistic for the guy.) Also, the home will close at the end of May.

Now the hard numbers;

151,900 sales price minus
7,595 sales commissions
542 title work
96 release of lien fee
145,000 purchase cost (sales price + closing costs)
5,000 rehab costs
5,718 holding costs
- $12,051 net to seller.

Yes, folks, I said NEGATIVE $12,051. This guy, for his risk and trouble, gets to bring, out of his pocket and his family's needs, $12,000 of his hard earned dollars to the closing table. (Yes, I know it will just come out of his 20% he has in the home to get the lower mortgage payment.)

And this is the reason it's hard to find a good Buy & Sell on the market right now. Too many people willing to lose money because of a lack of preparedness before acting!

Wednesday, April 05, 2006

Planning for The Future

My 41st birthday is this Saturday. I'm not telling you so that you can rush out and purchase me a present. (Though if you do I really like Wizards tickets.) I bring that up because New Year's Eve and birthdays always remind me to stop and think about my future both personal goal wise and financial wise.

I own my own home. (And most of you do, as well.) And I am counting on that home to help fund my retirement plans either through home-equity loans or a reverse mortgage. So the plan is to have it, or whatever personal residence I may have at the time, completely paid off by the time I "hang it up". I also own a duplex and have shares in other properties. These and the others I will acquire over the next ten years will also help to fund my retirement by going beyond the necessities of life. With these properties I am hopeful that I will be able to help my kids get a good start, that I will be able to leave to charity enough to make a difference, that I will finally get to take my Bride to the islands she has dreamed of.

It's not always easy dealing with properties in the here-and-now. Sometimes with vacancies you can wonder if you have enough cash flow to pay the bills. Or would the money be better invested in a sporty new convertible? (Not likely.) I've chosen to live a comfortable life and to invest in my future. I also get to have a large payoff in the end and in the mean time provide good, safe, clean housing to people who want or need to rent.

What are you planning for your future? Of course, we all know how fragile life can be and that the future may end this afternoon. But just in case you might want to take some time, sit down, and do some math.