Real Estate Investing Coaching - Brian Gibbons

Jack Miller - How to Stay Out Of Trouble In Your Real Estate Business

How to Stay Out Of Trouble In Your Real Estate Business : Jack Miller Online

February 22, 2008

Your weekly real estate lesson is below, but first I want to share an important message  with you…

Not a week goes by that I don’t get a call or email from someone
wanting to know how to get out of a real estate problem.  Here are some
examples:

 Investor got a short sale and could not
find a buyer but he did not want to lose the deal and the $15,000 in
equity so he got a loan in his name to buy the house.  By the time all
the loan fees were added to the loan, and the market took a down turn,
he now owes more than it is worth. To make matters worse, he can’t even
rent it for what his monthly payments are.

 A new California investor went to a seminar teaching lease
options.  For some reason, he did not think they would work in his own
backyard, so he is doing them in Texas.  What he didn’t learn at the
seminar is that there are a lot of new restrictions for doing lease
options in Texas – and violators get a $250 PER DAY fine PLUS you can
be forced to give all the buyer’s money back.

 A lady who’s been going to the late night infomercial guru
seminars for years has been advertising that she can rescue people from
foreclosure in Florida.  What she didn’t learn at the seminars is that
there is a lot of new legislation in many states that has stiff fines
for buying from anyone in pre-foreclosures.  $15,000 in Florida and as
much as $50,000 in other states PLUS jail time.

The list goes on and on of people who get in to trouble with real
estate deals because they don’t have RELIABLE and CREATIVE real estate
training.

Some people spend $3,000 - $5000 on seminars and still don’t get a
quality education.  I learned the hard way myself that a big price tag
does not equal quality.  What about those expensive coaching or
mentoring deals – most are a total rip off – and they expect you to
give them HALF of your deal on TOP of all the money you pay them for
advice.

The freebie online real estate forums are just as bad.  I just
CRINGE when I read some of the insane advice that is being given by
people who have never done a deal in their life.   Most of those
freebie forums are only there for one reason — to build a big list so
they can try to sell you expensive products and even more expensive
seminars.   I saw one creative real estate forum with a $1200 course
about lease options.  $1200!!!  That’s crazy!   And I’ll bet you a $1
that there are no warnings that you can’t use it in all states.

So, what’s a person to do?

You want to make money with real estate!

You want to do things the RIGHT way!

You want to stay out of trouble!

The solution is to find a place where you can get RELIABLE real estate
training from people who are REALLY doing real estate deals!  But
that’s not all.  You really need to ONLY learn from investors who have
been buying, selling, leasing, and financing real estate for a LONG
TIME!

And I’m not talking about people in the seminar promotion business.
I’m talking about someone who is “in the trenches” ever week really
doing deals.

It scares the heck out of me to see 30something kids claim to be
real estate experts!  Give me a BREAK!  They don’t even know what to do
when a recession or a down turn hits!   Most of the people teaching
seminars and offering coaching are what I call ONE TRICK PONIES.  They
knew how to make money with real estate with one technique in one kind
of real estate market.  But they are totally CLUELESS about what to do
now.

Is that really who you want to learn from?

There’s only one place to get ACCURATE real estate training from
someone who’s been in real estate for more than 40 years!   He’s been
through down turns before.  He’s learned to adjust and prosper in ANY
kind of market ( even this one).  And he makes his living doing real
estate deals, not teaching expensive seminars.

I’m talking about Jack Miller and the Center for Real Estate Wealth, www.CREWealth.com

The is the ONLY place online where you can really learn creative
real estate strategies from someone who’s been in business more years
than most self-proclaimed real estate “experts” have been ALIVE!!!!!!

At www.CREWealth.com you can
learn from the comfort of your home so there’s no need for those
expensive seminars.  You can watch videos of Jack Miller teaching his
strategies.  You can listen to audios while Jack and other trusted
experts reveal exactly how they are finding deals and making money with
real estate – the RISK FREE way.

At www.CREWealth.com, you’ll
find real estate lessons and articles and a community of Jack’s
students who will be right there to answer your questions with RELIABLE
advice and without asking for part of your deal to give you the answer.

At www.CREWealth.com you can
finally learn the skills you need to be successful with real estate so
you can achieve the financial freedom you deserve.

You would think that it would cost thousands of dollars to get access
to this QUALITY of real estate training.  Not from Jack!  You see, Jack
has been dedicated to offering affordable real estate training so as
many people as possible can realize their dreams of financial security.

At www.CREWealth.com, you
can get hundreds of hours of real estate training for less than $1 a
day.  Plus, there are more videos, audios and  lessons added every
month.

When you join www.CREwealth.com now, you also get these BONUSES:

Free Bonus #1.  Jack’s 24- week video series, Twelve Step Road to
Riches, which takes you from not knowing anything about real estate
investing to being more successful than you can possibly imagine.  ( I
know it works because I’m living proof!  You can also watch a video at
the bottom of the page at www.CREWealth.com to hear what some of Jack’s other students have to say about his strategies)

Free Bonus #2.  Jack’s new AUDIO book, Face the Fear Factor – We all
have fears about real estate and Jack shows you super simple solutions
for BLASTING through all your fears so you can move forward quickly to
get to the pots of gold waiting for you.

Free Bonus #3.  Jackie Lange’s E-Report, Selling Houses in Lightning
Speed.  This report reveals how to sell houses to wholesale buyers and
retail buyers in lightning speed – usually in less than 7 days!

But that’s not all….

At www.CREWealth.com, we
offer a FULL 100% 30 Day Money Back Guarantee!  Join now for just
$29.95.  ( less than $1 a day).  If you’re not thrilled with the
training, just let us know within 30 days and we will give you a full
refund.

So, you have nothing to lose!

Get your real estate business on the RIGHT TRACK today – join www.CREWealth.com

You will continue to get these weekly real estate lessons for free.
But if you want to start making some SERIOUS money in your real estate
business – if you want to learn how to buy, sell and control real
estate RISK FREE — then  you’re going to have to invest just a little
money and time to learn MORE.

If you’ve been wondering why you are not as successful as you’d like
or feeling like something is missing in your real estate business –
then you really need Jack Miller’s information at www.CREWealth.com

Join www.CREWealth.com NOW!

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Your Weekly Real Estate Lesson

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Creative Financing + Hard Work = Profit - by Jack Miller

I just got back from a seminar in a high priced area.  What I
discovered was that people seem a lot more interested in proving to
themselves that they can’t make a profit in an area full of
over-leveraged speculators than in finding ways to overcome the
obstacles that a slow housing market presents.  They don’t seem to
understand that when it become much harder to make money, that only
those who persevere will come out on top.  They constantly seem to be
looking for some gimmick that will enable them to avoid loss and
capture easy profits as they were able to do for the ten years
preceding 2008.

When you get right down to the bottom of their dilemma, it boils
down to the lack of easy financing to use when buying, and when
re-selling to marginal buyers.  For some reason or other, they seem to
think that the people they buy from are justified in standing by their
prices even when they won’t be able to sell the houses they buy from
unmotivated sellers.  My conclusions are  . . . . read the rest of the lesson.

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Subprime Meltdown Survival Guide – Only $97  ORDER NOW

Learn how to find Opportunities and THRIVE in a Distressed Market

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Finding a Way to Sell a Big House

February 6, 2008

Carolyn and Ted  worked hard over the past 10 year to get ahead in real estate.  Now they want to sell their free and clear $500,000 home and move to another State to be near Carolyn’s elderly mother.  The trouble is that the market is stone dead where they live.  Despite running many ads and offering many incentives to Brokers, nobody even wants to look at their beautiful home on 4 acres.

A long time ago in another age, I had a free and clear house that I wanted to sell in a slow market so that I could re-leverage myself into more real estate.   My motives were different, but my problem was the same as Carolyn’s and Ted’s:  No buyers.

Here’s what I did, and here’s what they can do.  (I’ll adjust the figures so that they approximate current market values.)  Let’ss say my house was worth $480,000.

I looked around and found Charley who had bought a boat load of highly leveraged houses.  Let’s say that they were worth about $200,000 each, with an equity over the loan of about $16,000.   He was looking for a way to raise money, but he didn’t have enough equity in any single house to merit refinancing it.   So, in a nut shell, he wanted cash and I wanted leverage.

I traded him my house with an equity of $480,000, for 15 of his houses worth $3,000,000 with loans of $2,520,000 and an equity of $480,000.   It wasn’t really this tidy, but you get the idea.    Charley refinanced  my house and realized about $450,000 when the smoke cleared.

I picked up about two and a half million dollars in depreciation which I could use to shelter a lot of rental income.   I was trading my personal residence, so, $500,000 plus my basis, plus the additional debt would have been the tax basis of the houses I got.   I could allocate this basis among them and sell off those with the highest basis for tax-free cash if I had wanted to.   So far, not a bad deal.

Where I differed from Carolyn and Ted was that I really didn’t want to abandon my home, so I leased it back from Charley at market rents for five years.    I wound up not having to move, and having converted a lot of dead equity into a break even rental portfolio that I could hold for appreciation.   If appreciation averaged 5% per year on $3,000,000, that boils down to $150,000 per year increase in my net worth for which I invested my $480,000 equity.   Even without a calculator, that comes to more than 30% per year.

My question to those who read this Blog is this:   Are you living in a house with dead equity that you should be converting to a growing inventory of  houses during this lull in the market; or do you know anyone else who is?   Do you know anyone who has a large inventory of houses he’d like to convert to cash using this mechanism?  If you could put these people together, could you make any money in the way of a middleman’s fee or commission?   Think about it.

Staging a House for Rent or Sale - or Appraisal

                                       

Posted by: admin, in General                                

Now that we’ve gone from the booming sellers’ market to a competitive buyers’ market, it’s time to revisit the marketing techniques that builders have been using for decades; staging a house to make buyers want to buy it.

I just left a home show in which a prefabricated house had been erected and landscaped in 72 hours. It drew a lot of favorable comments because of the floor plan versus the cost, and the speed with which it could be ordered, delivered, and placed on the site ready for occupancy.  But the factor that made it most acceptable was the furnishings and décor.  Each room had been carefully presented to make it seem larger and more attractive.  Certainly this required a lot of extra cost and effort, but it was generating a lot of interest and orders.

Think of the unoccupied houses you are offering for sale; assuming that they have been freshly painted and are pristine, if they’re like most houses for sale, all a buyer sees are large rooms and expanses of floor covering.  What about them other than their particular lot site or neighborhood makes a buyer choose them over comparable houses with which they must compete?

By staging a house, it suddenly stops being a mere painted and plastered space and begins to evoke in the mind of the potential buyer a vision of what it would be like to live in it.  Never mind the fact that the buyer’s furniture would never look so good, she still begins to identify with the house being offered and to select it as a possibility over other houses that don’t appeal to her imagination.

Staging doesn’t have to be as elaborate as a builder’s model might be with its designer furnishings, but there are a few things that help.  A long time ago in a land far away when I was running a Brokerage office, I cooperated with three or four other Brokers to begin filling up a small warehouse with attractive home furnishings we had been able to buy at liquidation sales, auctions, and from departing home owners.  We tagged them to show who owned them, but we all used various items of furniture and decorations to stage houses that we wanted to sell. Staging the house gave us an edge that produced sales in a slow market.

In many areas, furniture rental companies will fill an apartment or house with furnishings and remove them at the end of the rental period. In the meantime, these can be moved from house to house to enhance and speed up sales.  Sure, it costs more, but selling a house 30 days earlier can save a thousand dollars, so it pays to see if staging will work in your area.

One of the things many people overlook is the value of effect of staging on appraisals, but there are still many variations between houses that can make one appraisal higher than another of a similar house.  Although comparable sales is the foundation of single family house valuation, appraisers are still susceptible to valuing an attractive house a little higher than an unattractive house.  It doesn’t require much justification to add a couple of thousand dollars to an appraisal simply because the appraiser likes what he sees.

Today, some of the simple things we do is to buy appliances when they’re on sale from various appliance outlets.  Lowes has been a particularly good source.  We store them in my garage and put them into houses we’re fixing up and selling.  If the buyers don’t want them, we’re happy to buy them back at our original cost and let the buyers use the money to buy their own furnishings, or to help with their move in expenses.

We also buy all sorts of silk flowers, pictures, ornaments, mirrors, fireplace hardware, and decorative items at garage sales that we use to make a house more attractive.  Sometimes we just leave them in the house, but usually remove them right after closing.

On a recent cruise, one pro manager and his wife who manage hundreds of rentals including their own houses told me how he staged rentals to fill them up fast with the best tenants.  Today, many people are being priced out of their homes by taxes, insurance, and escalating interest rates; so they are selling out and becoming tenants.  Even though they cannot afford an upscale house, they want to maintain their upscale lifestyle.  When one of these prospective tenants looks at one of their upscale rentals, it’s almost a slam dunk that they’ll be able to get a long term lease with a well qualified tenant.

He and his wife tour the world (and thrift shops) looking for attractive oriental rugs, paintings, and furnishings with which to stage rentals.  Not only does this make many of his trips deductible, but also increases his income by reducing vacancies. 

Staging works for him; have you ever tried it?

Why couldn’t you begin doing it?

Sub-Prime Mortgage Loan Collapse

Sub-Prime loans are going into default all over America, but surprisingly, problems are concentrated in what are normally considered to be affluent areas.  An average of about 17% of sub-prime loans in California, Nevada, Florida and New England are more than 60 days delinquent.  This is going to offer challenges and opportunities in these areas, as well as many other areas of the country; particularly with those who buy, fix, and sell houses for a living.  What’s happening as a result of all the problems in the sub-prime market?  What are the causes?  Who’s most affected?  What challenges and opportunities does this situation present. 

What should we be doing?

About one fifth of all mortgage loans made from 2004 through 2006 were sub-prime loans.  Sub-prime loans were loans made to marginal borrowers with FICO scores ranging downward from about 620.  Often they required no or low down payments and offered “teaser” interest rates of just a few percentage points that escalated rapidly after a few months.  Escalation of interest drove payments up so high that borrowers couldn’t afford to pay, so they defaulted in large numbers which continue to accelerate.  According to the Mortgage Bankers Assn. nationally, 5.4% of all prime loans borrowers face foreclosure and 13% are behind in their payments.

When the foregoing percentages are converted into numbers of loans, a huge overburden of potential foreclosures threaten the entire institutional lending community and the values of their shares in the market.  New Century Financial shares are reported to have dropped by half, Accredited Home Lenders by 65%, and Fidelity Select Brokerage by 3.6%.  Bonds and bond funds are also being negatively affected.  The effects of all this has caused mortgage bankers and funds that provide a secondary market to become very cautious about further investments in this sector.  This has had a direct affect on the activities of builders, developers, re-habbers, flippers, and just about everyone in the business of dealing in real estate.  Sooner or later it’s going to affect all lenders, landlords, tenants, and businesses that sell to consumers who rely upon credit to make their purchases.

Credit and real estate cycles create both winners and losers.  The trick is to be able to switch positions so as to be able to remain on the winning side no matter what happens to the big picture. It seems to me that there will be lots of opportunities in the house business for those who either have access to the deep pockets of money lenders, or who were able to liquidate inventory for cash and who can now re-enter the market as buyers or lenders.

When mortgage credit is plentiful, any number of players can enter the single family house marketplace.  This increased demand drives up prices.  As speculators reap ever larger profits, more people jump into the game and the process repeats itself.  Somewhere along the line, buyers and lenders become too aggressive and they find they have entered into unprofitable transactions.  Some of them lose their investments and others simply fold their tents and fade away.  The remaining buyers and sellers in the market are those who are buying or selling their personal residence, or experienced pros who have the skills to be able to switch from buying, fixing, and selling to financing dealers, wholesalers, retailers, and speculators who buy at foreclosure sales.

Because there is a lot of interplay between those who buy and sell and those who provide financing, and because there is very little competition in this market, there is plenty of opportunity to go around. 

Indeed, because houses can chew up such large sums of money, cash becomes a rare commodity.  At this point, yet another group of entrepreneurs enter the market. They provide cash by buying up the Notes taken back by sellers at a discount, then repackaging them and selling them to other passive investors. Discounts vary with the credit cycle.

The more cash is in demand, the high the discounts and vice versa.

The lower the FICO score of the original borrower, the greater the discount.

And the more the Notes stray away from conventional financing terms, the lower the discount and the fewer buyer there are for them. 

Thus those who would avail themselves of this source of funds need to structure their Notes to make them as attractive as possible to the market place.

Who are these investors who ultimately put up the cash to buy Notes? 

• They vary. 
• Some are investors who look more at the long term perspective and who are perfectly willing to wait years for the return of their capital so long as it is earning a good rate of return. 
• Then there are those who want to recycle their cash as often each year as possible.  They tend to buy Notes from dealers who will sell houses to loan-qualified occupants who will get new financing and pay off the investors’ Notes within a few months. 
• Still others are those who are willing to defer their profits.  They use shared appreciation financing to divide their return on investment between relatively low monthly interest payments and high appreciation.  They tend to lend to fixers who build large profit margins into houses by remodeling and upgrading them, and who can afford to divide their substantial profits with the investor.

At one time or another, I’ve been the person selling a house by carrying back the financing; and the person who sold Notes at a discount; and the person who bought Notes at a discount; and the person who invested in long term mortgages; and the person who financed fixers for a share of the profits plus income.  All of these roles can be lucrative.

Put yourself into the shoes of a person who has bought a house at a low price with borrowed funds obtained from a home equity loan on his own personal residence; and then who borrowed more against the target property to pay for remodeling it; then who discovered that he couldn’t sell it because of the lack of credit available to his targeted buyer market. 

One such investor has a house that he bought at a foreclosure sale for only $25,000 in really poor condition.  He paid another $25,000 to bring it up to tip top condition.  He used conventional financing to pay for his work, but added $75,000 in market value to the house.  Now, he can’t sell it.  His only recourse is to rent it to generate enough income to make his mortgage payments.

His $125,000 house in his area will generate about $7000 per year in net rents after all operating expenses.  Out of this, he must pay $5,000 in mortgage, tax, and insurance payments.  Still, he nets $2000 per year with no investment other than his effort to find, buy, and fix up the house.  From a practical standpoint, he need never sell this house, and one day the loans will be paid off and he’ll own it free and clear.

Whether he likes it or not, if he can repeat this process 10 times, the houses he has been forced to hang onto will provide lifetime income for him, and for his heirs.

Look at the numbers. 

• We’ll be very conservative and allow only 3% appreciation over the length of the 30 year loan period.  By the time his loan has paid off, his appreciation on each house will have compounded to over $300,000.
• It will be free and clear of debt and he should be netting about $15,000 per year on each of ten houses in addition to having $3mm in net worth.
• That boils down to $150,000 per year in income plus all the profits he might have accrued over the years buying, fixing, and selling; all because he was trapped into becoming a landlord by the lack of available cash buyers. 
• That little story has been repeated many times over in the house business.  Oddly enough, all those high profits gleaned in the good years somehow never seem to be there when a person wants to quit and live off residual profits; but the houses and their rents do.  I know.

The bottom line is that the sub-prime problem can be turned to great advantage for those who will open their minds a little and look for all those financial opportunities in foreclosures, financing, and investing that lack of credit presents. 

• I went through this little exercise over 30 years ago with a lot more houses, and I’m living off that residual today without the need to buy, fix, finance, or sell.
• http://www.jackmillersblog.com/archives/sub-prime-loan-collapse

 

Location Location Location

                                       

Posted by: admin, in Management,  Buying Houses,  Selling Houses,  General                                

Everybody has heard how much location affects real estate potential and value, but many of the people I talk to don’t seem to know exactly what that means.  To that end, allow me to elucidate.

When discussing single family houses, a good location would be one that attracted people to rent or to buy. 

• An A+ neighborhood would reflect a strong sense of pride. 
• Lawns and houses would be well maintained. 
• Trash would not be allowed to accumulate in either private or public areas. 
• This would be a low/no crime area. 
• There would be no derelict vehicles nor RVs parked in the streets. 
• There would be no apartments, mobile homes, duplexes, or other forms of housing other than single family houses in the neighborhood. 
• Nearby schools would have a good reputation for the quality of the education offered.
• Amenities such as churches, libraries, jobs, shopping, and access to arterial roads would be convenient, but not intrusive. 
• All the houses would be about the same size, configuration, and value.

Can you imagine how hard it is to find such a neighborhood today, and how easily you’d be able to sell a house at a premium price and to finance it; or to find a highly qualified tenant who was willing to pay above market rents to lease one from you? 

Best of all, a nice house in a neighborhood like this would appreciate faster than the same house in a less desirable neighborhood.

If this location were rated as a 10, how would you rate the neighborhoods where your rentals are?  If you’re having trouble attracting qualified buyers or tenants, that’s a pretty strong clue that your house isn’t in the best location.

Apartments, rental condominiums, and coops do well when they have the same locational advantages as single family houses.

• Because of limited space, being near a public park, zoo, or other recreational facilities adds to their value, as does waterfront, golf course access, security, covered parking, and limited access.
• The quality of the tenants is one key to their values; and the key to attracting the best of these lies in the apartment building and grounds being attractive, modern, well situated, properly managed and maintained; then setting high standards for those who would occupy them.
• It’s easy to see how an apartment managed by a company like Trammel Crowe filled with young, high salaried professionals would command higher rents and be much more desirable as an investment than an apartment that catered to HUD Section 8 tenants who were given on cursory credit checks prior to moving in. 

When all is said and done, better people who can pay higher rents that reflect in gross revenues are critical to valuation.

• “Gross rent multipliers” are what the vast majority of multi-family buyers look at. At the bottom end, a drab, outdated property might command a price equal to 6 times the rents, while an attractive modern building with steadily increasing rents might be valued at 10 times gross rents. This can represent hundreds of thousands of dollars difference.

What about retail sales locations?  Retail landlords often set rents by means of a formula that stipulates the basic rent, than adds a factor that enables the landlord to get higher rents with higher sales.  Retail sales depend upon traffic to generate high volume sales.

The more sales a location can generate, the more rent the proprietor is willing and able to pay, and the more value a prospective buyer and his mortgage lender will place on a retail property.

The easier it is to see, get into, and park at a retail store or outlet, and the more people who visit it and buy something, the more its location is worth.  When an inner city light rail system is installed such as the Bay Area Rapid Transit System around San Francisco, or the Metropolitan Atlanta Rapid Transit Authority in Atlanta were built, stores and apartments were swift to buy locations near the various stations along the routes.

When it comes to shopping centers and malls, the quality of the other tenants, the products they sell, and the numbers of people they attract can increase the value of the location.  The location can be further enhanced when nearby merchants offer products and services that attract higher volumes of customers to all venues.  Consider this when you notice how many boutique shops and free standing department stores, restaurants, movie theaters, and service stations there are in and around retail areas.  They all build traffic for themselves and others.

Commercial property: In this category we’ll include office space, hospitals, public buildings, post offices, hotels, restaurants, sports arenas, aquariums, spas dar dealers, etc.  Offices need easy access for customers and employees and parking.  They also need to reflect the values of those who use them or lease them.  Obviously, a tattoo parlor and used car lot won’t add much prestige to an executive office park, but a commercial parking garage and upscale restaurant would.  Where there is available space, the trend is for larger office complexes to be built in suburban settings, and for older, inner city offices to be rented to smaller businesses with less stable incomes.  Commercial properties are valued according to the income they produce, so choosing one in a setting that enables you to build income is the key to making money with them.

Industrial property value is enhanced when there is easy access to interstate highways, railroad spurs, air freight, and water transportation by means of which they can ship in parts and materials and ship out finished products at low cost.  For this reason you find factories situated on the banks of rivers, bays, and coastlines.  They are also to be found on the edges of towns where traffic in and out poses less of a challenge.  They are usually situated on large parcels of land where equipment and materials can be stored and moved easily. You’ll also see truck stops not far away along with warehouses. Availability of low cost utilities to the factory floor and high ceiling heights to enable them to store things vertically are a distinct advantage because it increases capacity at low cost.

Can you see why, for the small and inexperienced investor, or speculator, I prefer single family houses or mobile homes to all other forms of real estate?  What other kind of real estate is better?  Write back and we’ll debate it.

When is a Home not a House? The Disadvantage of non-SFRs

                                       

Posted by: admin, in Management,  Buying Houses,  Selling Houses                                

Free standing single family houses may seem similar to townhouses, condominiums, duplexes, tri-plexes, quads and 8-plexes, but they are in a completely different market. 

• The advantages to a family of having sovereignty and total control over the area surrounding its abode strongly outweigh all the conveniences that might be offered by any other form of residential property even though it be more expensive and require more effort on the part of the owner to keep maintained. That’s the down side. 
• The up side is that the owner has a lot of latitude when it comes to doing repairs, or not doing them,that mulit-family owners don’t have.  This is because minimum housing and building codes treat single family houses more leniently than they do multi-family residences.

• Condominiums and Townhouses spring up where land costs are high and where packing as many people into a small area as possible is the only way housing can be built at a feasible cost.  In some areas, this makes them less expensive to buy or rent, but at the cost of privacy, loss of control, and lack of inside and outside storage.
• Many of them have no garages, so vehicles are exposed to vandalism and the weather.
• Because so many people live in such concentrated proximity to each other, there are many vexations that can arise, especially when it comes to pets, children, and residents with alcohol or drug related problems.

My pet peeve is duplexes. 

• They may seem to be two houses joined together on a single piece of land, but they are really just small apartments. 
• As a rule, all the minimum housing and zoning requirements that apply to larger apartments also apply to them. 
• Their lure is that an owner has two tenants to make payments instead of one, and thus spread out his risk. 
• The reality is that one unit seems to always be vacant because of the personal habits and tastes of the tenants. 
• One can be fastidious and the other a slop. 
• One can keep a tidy lawn while the other collects junk. 
• One might like classical music while the other likes rap. 
• One might have a dog that barks all the time while the other has a gold fish. 
• One can stop up the plumbing and cause the other a lot of grief. 
• Consequently, one of them moves out, then the fun begins.
• The remaining occupant suddenly gets the privacy of a single family house, plus an additional driveway on which to park his vehicles. 
• He need not maintain the lawn on the vacant half; the landlord will have to pay for this.
• Anytime that a person seems interested in renting the vacant half, he can always poison the deal by mentioning rats, roaches, snakes, etc.; or simply by being obnoxious.
• Added to this is the fact that the market for duplexes is tiny compared to the market for single family houses, so it’s hard to sell them. 
• I’ve actually had to convert a duplex into a single family house just to get it sold.
• The same disability affects all the other “plexes”. They’re not big enough to support on site supervisors, so require a lot more owner effort to keep all the tenants happy. 
• Ask anyone who has owned both single family rentals and any of the “plexes” and I think he’ll confirm that they are by far better investments.

Who do you know who has made a lot of money in anything except single family houses, and who has cash in and retired out of real estate on the money he has made?  I’d like to hear about it if you personally know of someone.  So far, I haven’t met anybody personally.

Some Builders are Becoming Creative

                                       

Posted by: admin, in Buying Houses                                

Over the past year, home builders have accumulated an enormous backlog of unsold homes.  All their profits are being eaten up with interest payments and their stocks are dropping like a rock.  Now, some of them are beginning to think out of the box to sell their homes.  Why should we care?  Because what they do is going to set the tone for the way people with existing houses may have to adjust their sights in order to sell their houses.

One builder advertised a 3-day sale during which time $100,000 could be deducted off the advertised prices of new homes, and a new Hummer would be thrown into the deal. This moved some sixty houses in a single weekend.  Sure, this cost a bundle, but it also provided badly needed cash to stay afloat.  It also saved hundreds of thousands of dollars in interest charges.

Many speculators caught in a similar trap could do worse doing the same thing. 

• They might not be able to throw in a Hummer, but they might call on every for sale ad in the newspaper and offer to buy a Hummer, or boar, or RV at top dollar from anyone who traded it in on their discounted house and cashed them out.
•  Following this, they could wholesale the trade-in they took in a completely different market to wring the last cash out of the deal.

Another builder has offered to sell a home with zero down payment and no payments for 12 months.  The catch is that the house price is not discounted, and the home owner must use financing supplied by the builder. 

Nothing has been said about what the interest rate might be, but it’s easy to guess that it will be high enough to offset the lack of payments for a year.  Imagine, a builder carrying back the financing; unheard of.  He may have an ace up his sleeve.

If you were the builder, how would carrying back zero payment financing help your carrying costs on your construction loan? 

• In all probability, the builder has made an arrangement with his bank to discount the Notes generated by the sale and to apply them to the construction loan balance so the house can be released to the new owner/occupant. 
• The combination of the discounted price and the stated interest rate would enable the bank to make a profit on the transaction. 
• At the same time, the builder would be off the hook for both principle and interest. 
• Most importantly, he would be moving houses while his competitors continued to sink slowly in the West.

If you’ve been caught with too much inventory to continue to carry, is there any reason why you couldn’t use the foregoing sales technique to relieve your own financial distress?

• You’d have to get your banker, or another banker, to pay off your loans in return for the discounted Notes, but by working with him to set the loan underwriting minimum buyers’ credit scores and the interest rate, this could be a virtually automatic procedure once you got all your ducks in a row.

Ask yourself, in your market, how many reluctant buyers, confronted with mounting taxes and insurance rates, credit card debt, and the need to stretch salaries to make ends meet, could resist deferring house payments for a year?

What have you got to lose by giving it a try? 

Why won’t it work in your area?

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Article - Dealing with the Downturn    By Jack Miller                                                                                                                             I got a call recently from a young person who met me socially over 15 years ago. He was getting ready to enter college at that time. He graduated with a Degree in business, and bumped around a little, then found himself with a Real Estate license selling houses by sifting on new model homes and taking orders.                          As the real estate boom took flight, he opened up his own brokerage office, then a Mortgage Brokerage, then a Title Company. He made a bundle as business fell into his lap from all directions. He took the fantastic profits he made from his business, and what he didn't use supporting a lavish lifestyle, he used to speculate in upscale houses.                          When the bloom came off the real estate rose, he found himself with 20 heavily mortgaged upscale houses, and three formerly very successful businesses that now couldn't even meet day to day expenses. His negative cash flow from all his houses and his businesses was $900,000 per year. He was trying to borrow his way out of trouble by putting second mortgages on his already highly leveraged properties. It was at this point that he called me.                          Ordinarily, 1 wouldn't spend much time sympathizing with an over-leveraged speculator who had flailed to heed two years of warnings in my newsletters and seminars about selling and sifting out these uncertain times; but he had subscribed to my newsletter and that earned him a chance to tell me his story.                          Thus far, his plight was no different from that of thousands of other speculators who got caught with diminishing cash flow and increasing expenses; but he was a more interesting case for several reasons. First of all, his businesses, which he had built up in the space of 10 short years, had been grossing in excess of two million dollars per year; out of which he had been drawing a $600,000 salary, most of which he had used to speculate in expensive houses. That alone was astounding. What was even more astounding was that he had run all these businesses and earned all this money without even knowing the basics of real estate, mortgages, or title law. In the boom, he had been able to hire people who knew what was needed. Now, unable to pay their salaries, he had let them go.                          When I tried to tell him some of the ways that he might solve his problem, he admitted that he had never spent any time "on the street" buying houses, negotiating deals, using creative financing, etc. He didn't know how to draft a contract, write a Note, structure an Option, or figure out how much to pay for a house.  He'd been too busy making money to spend any of it investing in himself trying to learn the fundamentals. Even now, he didn't know enough to even begin the process of extricating himself from the financial mess he's gotten himself into.                          My recommendation to him was to shut down all his losing businesses and to stop the hemorrhaging cash flow, they were causing, as soon as he could. My next suggestion was to sell the 20 upscale houses he was supporting to anyone who would get him off the loan; either by refinancing them, or by assuming the existing 7% loans and getting him released from liability.                          When he protested that his houses had a paper equity of about $300,000 each, I told him explain to any buyer, that he was giving the buyer a chance to live in a $750,000 home for $450,000 because he was going to retain an Option to buy it back for $500,000 at any time in the next 5 years (when hopefully the market for in this price range will have returned).                          He won't have to wait the full 5 years to cash in his equity, nor will he actually have to come up with $50,000. All he has to do is to find a buyer for the house and either sell him his Option, or have the current occupant paid $50,000 out of the sale proceeds and pocket the remaining sale proceeds after paying off the mortgage.                          If he follows my advice, he'll save the $100,000 per year in negative cash flow that is choking him. He'll have protected any equity he has, to the extent it exceeds the $50,000 he'll have to pay the occupant when he sells the house, or buys it back. If the house still can't be sold during the five year Option period, that's proof positive that he had paid too much in the first place, and was well out of the property.                          I don't know whether or not he'll heed my advice; but maybe we can all learn a little from his plight; to wit: To learn the basics of real estate, mortgages, and title law before going into any of these business. To be prudent about speculating in pre-construction projects and being stuck with new homes in a price range that nobody is buying. And to be willing to let go of paper equity if it means saving real dollars that will be needed to tide one over until the market returns. I hope this helps someone out there who is confronting a similar situation.