Thursday, April 28, 2005

I'm Getting Fed Up With This

I called the cabinet guy on Wednesday to verify everything was still set for installation on Thursday. He told me it was. I get a call today from him saying they didn't install the cabinets yesterday because they did not have the lockbox code and couldn't get in. So he tells me he is going to the house today to make sure they can get in. Why didn't they call yesterday?

On the plus side, on Wednesday, I met with the handyman and went over his work. All was done and I paid him, so at least that part of the rehab is done.

Wednesday, April 27, 2005

Arizona Real Estate News

Yet more more proof of the upcoming investment opportunites: The Phonenix Business Journal reports that Maricopa County foreclosure filings for March are up 10% from February.

Also, the Arizona Republic is reporting that First American Title Insurance, Co. will refund $4.6 million dollars to around 15,000 Arizona homebuyers who bought title insurance policies during the past four years. The refunds range from $24 to over $400 and they will be mailed out within 10 days. There is no claim process and checks will be automatically mailed to you if you qualify. The refunds are part of a legal settlement.

Tuesday, April 26, 2005


This isn't strictly real-estate related, but it does touch on real estate. I am in the process of reading a fascinating book called Freakonomics by Steven D. Levitt and Stephen J. Dubner. Levitt is an award-winning economist who looks at things slightly differently than most. The book is basically a collection of illustrations showing that what really drives people's behavior, and hence our society, laws, jobs, and almost every aspect of our lives, are financial incentives. His conclusions go against common beliefs, are not politically-correct, and are sure to offend some people (like his conclusion that the drop in the crime rate in the 1980s was due to the legalization of abortion decades earlier). However, he presents solid evidence for his positions and I find it hard to dismiss his conclusions.

Anyway, one bit of this book talks about real estate agents and whether or not they really work to get you the most money when you sell your house. His conclusion is they do not. The agent's interests lie in getting you to sell your home quickly, so they can collect their commission. For example, you get an offer of $300,000 for your house, but you want to sell it for $310,000. Commissions on this sale are 6%, but only half that goes to the selling agent - the other half goes to the buyer's agent. And of the 3% your agent gets, about half of it goes to his or her agency. So your agent is only getting 1.5%, or $4,500 of the $300,000 offer. If you hold out for that extra $10,000, the agent's commission only rises by $150. So your agent has a choice of getting $4,500 now or maybe getting $4,650 sometime in the future after some negotiations that may or may not be successful. The extra $150 is too small of an incentive for him and he will recommend accepting the $300,000 offer.*

Levitt and Dubner also look at how agents behave when they are selling their own houses. Now in these cases, they are directly motivated to get a higher sales price, as all the extra money goes into their pocket. Sure enough, they found that agent's houses are on the market an average of 10 days longer than non-agent houses, which allows time for better offers to come in.

They also discovered large disparities in the language used in the listings of agent versus non-agent homes. The agent's listings used words that evoke specific, luxurious images, while listings for non-agent houses used vague, nebulous language. The more evocative language resulted in an average of 3+% higher sales prices.

Correlated To Higher Sales Price

Correlated To Lower Sales Price










Great neighborhood

Words also correlated to a higher sales price are new and move-in condition.

Use this information for your next listing and hopefully, you'll get a higher sales price!

* I directly experienced this. When I made my offer for House 11, it was $25,000 below the listing price (and fair market value). Nevertheless, the buyer's agent recommended they accept my offer. Now, this was partly because my offer was all cash, no contingencies and the sellers were facing foreclosure in a month, but, had this agent really known his market, he would have known that the Phoenix area is on fire right now and a better offer would be sure to come along, within days, if not hours. Luckily for the seller (and unluckily for me), a higher offer did come in before mine was officially accepted and I had to pay an additional $8,000 to get the place. But still, this agent went for the sure money and only got more money for his clients out of sheer luck.

Saturday, April 23, 2005

It's All Behind Schedule

So here it is, Saturday. The handyman was supposed to be done yesterday (actually, he was supposed to be done 2 weeks ago, but the latest deadline was yesterday) and the new cabinets and countertops were supposed to be in Tuesday. I got a call from the handyman today and he said he's still out there and should be done today. He said he got the paint off the tile in the bathrooms, so that's good. However, he also said the cabinets were not in. The old ones have been removed, but the new ones aren't there yet.

I called the cabinet guy and he tells me the cabinet makers are 10 days behind. Supposedly, they called me to let me know, but I never got a message. He said they will be done on Wednesday and he would personally call me to give me an update. (His office help is horrible and he has acknowledged this to be in the past.) He also said they couldn't salvage the new kitchen sink the handyman put in because it was glued in. Well, the quote for the counter tops and cabinets included a new sink anyway, so he was prepared to put a new one in. I'm just out the $35 or so for the sink the handyman put in. My contract with this guy does specify it will be completed in 10 days, so he's over that. I may be able to get a discount because of the delay. Actually, the guy is pretty nice and I wouldn't be surprised if he offered me a discount without my asking.

It would seem the house will go on the market by next weekend. The kitchen sink thing is a learning experience. I hadn't planned on replacing the cabinets until the handyman had already started his work, which included replacing the sink. In the future, I'll know the correct order to do things.

Friday, April 22, 2005

Feds Probes RE Agents For Anticompetitive Practices

Wow. This is interesting.

Feds probe real estate agents
Money magazine investigation shows Justice Dept. looking into anticompetitive practices.

I've wondered why agents are still getting away with charging 6% commission with all the discount brokerages out there. I think there are going to be serious reverberations throughout the industry from this.

Yesterday Was Cashflow Day!

Yesterday, I received another check from one of the foreclosure investing LLCs I am a member of. This time, the check was for $950 and it was the fifth of 6 semi-annual payments before this particular LLC closes, per the terms of its Articles Of Incorporation. My total return from the investment so far has been 43%, with an annualized return of 17.5%. Unfortunately, this money was already spent on a new ottoman we got a couple weeks ago, so I can't reinvest it, but it's still a welcome sight!

Does the following count as cashflow: There is an Indian casino I pass each day on the way to and from work. I went there once and joined their players club. Now, I get a newsletter from them each month. On the last page of the newsletter, there are always three coupons, each valid for a different one-third of the month. The coupons say "$5 free slot coin when you purchase $10 in slot coin." Well, I went to redeem one and what they actually do is give you a voucher at the player's club desk that you then take to the cashier's cage. The voucher says "free $5 offer. No purchase necessary." When you give it to the cashier, they give you a $5 bill. So lately, I've been taking the coupon in, getting my $5, and leaving. I pick up an extra $15 a month for free. So, technically, it's another source of cashflow for me :-)

House 11 Moving S-L-O-W-L-Y

I spoke with my handyman yesterday. He was supposed to be done on Tuesday, but I hadn't heard from him. Since I haven't paid him yet, that was a pretty good indication he wasn't done. Turns out he wasn't done. He said he was going to the house last night or today and all he has left is to put in some water shutoff valves and clean up the paint on the tile in the bathrooms (or put in new tile if he can't get it clean). He claims he will be done today and I will definitely hear from him today. He also asked if the new cabinets were being installed yesterday. I told him they were supposed to be in on Tuesday and asked if he had seen them. He quickly said he was there early Tuesday and probably left before the installers showed up. Yeah, right. He probably hasn't been there at all this week. I knew when I hired this guy that his track record showed he usually ran late with his work, but this is the worst I've seen. I think I'll try someone new for my next house.

I haven't heard from the cabinet installers, so I am hoping that means there were no problems and everything went smoothly. That's always a dangerous assumption...

Anyway, this means the house probably won't make it into the MLS this weekend, since I don't want to list it before I go there and check it out and that probably won't happen until tomorrow, at least. But some good news is that I ran comps on the property again and, using the same site as I did when I bought the house, the comps have gone from $145,000 to $152,000. Not too shabby! I think I'll list it for $160,000 and see if I have any takers.

Monday, April 18, 2005

House 11 Should Be Listed This By Weekend!

I heard from the handyman this morning and he says he should be done with everything tomorrow. He apologized for the paint on the floors of the bathrooms and said he'd clean it up or replace the flooring. He's also going to try again with painting the doors and see if he can stop the varnish from bleeding through. He said he's got some primer product he wants to try.

I did not hear anything over the weekend from the cabinet installers, so I am assuming that went well and they are still on track for a Tuesday finish.

If everything stays on track, I'll head out there Wednesday and check everything out, possibly do some light clean up, then give my agent a call to list the place in time for the weekend!

Thursday, April 14, 2005

Cabinet Update

Just got a call from the cabinet installer. The old cabinets and counter tops will start being removed on Saturday. Monday will be the remainder of the removal and then some prep work. Tuesday, the new cabinets and countertops will be installed. That's one day behind schedule, but not too bad.

Tuesday, April 12, 2005

Another House 11 Update

I stopped by the house during my lunch hour today to check out how it was coming along. The new carpet looks nice and it really gives the house a better feel. The death star chandelier has been replaced, as has the front door. The new screening on the patio and the screen door look nice. The whole inside has been painted. I see what the handyman was talking about with the old varnish on the doors seeping through. A couple of the doors look white with spots of yellow. I am a bit concerned about the bathrooms though. I did not plan on replacing the linoleum in them, but there is paint overspray all over them. I hope that can be cleaned. If not, I'm going to have the handyman replace it at no charge. The black soot streaks on the ceiling from the A/C ducts were painted over successfully. There is still some work to be done - the bathroom tub faucet was taken apart in the process of stopping it from leaking and the fan in the master bath needs to be replaced. Then just some general cleanup work remains. I think the handyman said he was out of town this week, but I need to call and verify that. I haven't paid him anything yet, so I would think he's got some strong incentive to get finished.

The new cabinets and countertops are scheduled to go in this Thursday or Friday.

I must say, with the new carpet and paint, the house looks much nicer. I'm getting eager for everything to be done so I can sell the place.

Friday, April 08, 2005

Creating Money From Nothing

Hard money lending is an area of investing I have wanted to get into for some time now. The general rule of thumb to determine if you can do it is that you need an amount of cash equal to the purchase price of two average houses in your area. I'm not close to that yet, but I did have an opportunity arise recently that was more in my financial range.

I was contacted by someone who was looking for a hard money loan of $1,200 and they wanted to know if I was interested. The money was needed to purchase some vacant land that a family member was selling to this person, but the offer was for a limited time because the family member needed some money in a hurry and if this person didn't buy it, the family member would sell the land to the general public. The borrower offered me their primary residence as collateral.

Now, this was intriguing because it was a relatively small amount and, if what the person told me was true, there was over $100,000 in equity in their primary residence. Why couldn't this person draw on that equity? I was told they recently refinanced and couldn't do it again so soon. Why couldn't a credit card cash advance be used? Don't know. What I did know was that this person was willing to pay up to $500 to borrow this amount provided I could offer an interest-only loan for 3 months. This person claimed to be a real estate agent, but was having difficult selling right now because snowy weather had slowed things down and, therefore, commissions were slow in coming.

Hmm. Time to do some research. Real estate agents are licensed, so I looked up the licensing authority in this person's state and confirmed they were in fact a licensed agent in good standing. I also verified the home address given had this person's name on the title and that the estimated value given appeared to be in line with what I could check (of course, I have no idea of the condition of the property). The amount requested was relatively small (to me, anyway) and the loan period was short, so I figured I'd go ahead and give it a try. I doubt I'd get another chance to break into hard money lending on such a small scale.

So I made an offer: $1,200 loan at 18% interest for 3 months with a $200 loan origination fee and 10 points. Payments are interest only, paid monthly in advance and the entire amount is due in full in 3 months. The points ($120) and origination fee are rolled into the loan and can be paid after 3 months. This means the monthly payments are $22.80 and after 3 months, I will be repaid $1,520. The terms were accepted and I drew up a short one and a half page promissory note and faxed it over. My borrower got it signed and notarized and mailed it back to me, along with the first month's interest payment. Once I got that, I got a cashier's check for $1,200 made out to the person's name and sent it.

A lot of people would think I am crazy to do this deal. They can't get past the fact that this person couldn't come up with $1,200 through some other means. I made the decision that, although it's not how I would handle it if I were in this position, if the person wants to get a hard money loan for such a small amount, that's ok with me. Of course there is risk in this and I may very well lose this money. If I do, I'll consider it the cost of obtaining lending experience. (And if I have to, I can mitigate the loss somewhat by writing off the bad loan on my income taxes.) In addition, my ROI is more than the 18% interest I am charging. The interest I will receive isn't even really worth the risk and hassle of setting this up - $22.80 a month for 3 months is only $68.40. The real money is made from the points and origination fee. That extra $320 boosts my total return to $388.40, or 32.2% in three months. That's an annualized return of 129.4%. Pretty good! And since it's less than the $500 the borrower was willing to spend, it's a win-win situation.

In looking at the big picture, the points and origination fee allowed me to create money where none existed before. I created $320 from the 45 minutes of my time I spent putting this deal together. In other words, I made money from nothing.

Thursday, April 07, 2005

Here Come The Deals!

Last November, I wrote about the increase in foreclosures that I believed was coming down the line and how this represents an upcoming investment opportunity. Sure enough, on today, this story appeared: Home foreclosure listings surged in March. I happen to think the analyst interviewed at the end of the article is all wet and that this is the start of a trend, especially if the Fed keeps raising rates, which it seems like they will.

On another note, I heard from my handyman this morning. He still has some work left to do and he's having trouble painting some of the doors. One door has 8 coats of paint and the old varnish still is showing through. I originally suggested he replace the doors instead of repainting, but oh well. He apologized for taking longer than he said he would take, but I knew his time estimate was over-optimistic and, based on past experience, I knew he'd run longer. I'm not too concerned though, because I'm still waiting for the cabinets to be replaced and that will be another week or two, so his delay is not keeping me from listing the property. And the carpet actually was completely installed yesterday. Apparently the power came back on while the installers were still there, so they did not need to make a return trip today. And my handyman noted that the house smells much better now :-)

Wednesday, April 06, 2005

One Thing After Another

Last night, my daughter threw up a couple times and stayed up the whole night coughing. She (and I) got about 1 hour of sleep. Tomorrow she goes in for minor surgery to get tubes put in her ears. So today, just to keep things interesting, the Powers That Be decided to make it three straight days of unusual activity by having the power go out in the neighborhood where House 11 is. Ordinarily, this wouldn't be a big deal, since no one is living in it right now, but today happens to be the day the new carpet is being installed.

So I got a call from the carpet company asking if I knew why there was no power at the house. They said they tried the circuit breakers and still no power. My first thought was to call my handyman, who should have finished there yesterday, and see if he had any problems. Then I discovered I did not have his phone number with me and I had no way to contact him. So I next called the power company, thinking there was a mix up in my billing and they stopped service for some reason. (I haven't received a power bill yet.) It turns out they are having an outage in the entire area and they expect service to be restored in an hour. They offered to call me when it comes back on, an offer I accepted. When that happens, I'll have to call the carpet installers back. Thankfully, it looks like it will be a short outage and the installers can keep working for a bit until they need power. Nevertheless, I've got enough going on right now and didn't really need this.

Marketing Postcards

In my post How To Get Started In REI For Under $400, step 10 talks about creating postcards to mail out to preforeclosure leads. Many people were having problems with the links to view my sample postcards, so I have uploaded the pictures here.

Front of postcard

Back of Postcard for Foreclosures

I should point out that preforeclosures are not the only source of motivated sellers. People going through divorces, probates, legal problems, etc. may also have motivation to sell quickly. I use this image to send to those people.

Back of Postcard for All Hardships

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