Monthly Archives: November 2010

Selling a Home the Easy Way

It smells like money.  That’s what I thought when I first stepped inside 22297 N. Celtic in Maricopa, Arizona.  Okay, it didn’t really smell like money.  It smelled like mold.  And cat poop.  The mold smell came from the flooded basement.  The cat poop was on the carpet in the guest bedroom.

How did I find out about this deal?  Our buyer told me about it.  He was interested in one of our other properties for sale around the corner.  He couldn’t buy that house because it was already under contract.  He started looking on his own and emailed me the info for 22297 N. Celtic when it came on the multiple listing service. 

It was a bank-owned house.  At first glance it seemed like a great deal, even with all of the repairs.  I went through the house with our contractor and the numbers worked.  We closed on this house last Friday.

Here’s the best part – the investor we partnered with on this deal wants cash flow without the hassle of property management.  So, we are financing the purchase of the property for the buyer.  The investor and our management team will make money from the cash flow generated AND the spread (the difference between our purchase price and the selling price.)  The buyer gets a newly remodeled home without dealing with a traditional bank.  It’s a win-win-win.

Check out this video to see what the angry homeowner did to the house before we bought it from the bank:

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It’s Best to Double Dip When No One is Looking

Pringles are the best chips ever made.  That’s what my 7-year old daughter thinks.  And given her vast experience in this area I have no reason to disagree with her.  What chip is best?  We had this discussion recently on our way to pick up her younger sister at pre-school.  She was adamant about Pringles.

What about Ruffles I asked?  Cheetos?  Fritos?  Or my personal favorite, nacho cheese flavored Doritos?  Yes, Pringles are delightful I told her.  But, it seems unfair to compare a snack food that comes in a tube to those that come in a bag.  She didn’t see the difference and remained steadfastly committed to her chip choice.  What can I say?  My daughter does not understand packaging principles.

Do you know what else she doesn’t understand, at least until recently?  Double dipping – whether it’s Dean’s French Onion, Frito’s Bean Dip or your garden variety Ranch dressing – that girl will plunge her chip in over and over again.  She’s improved over the years for sure but it can still be an issue.  I’ve explained to her that double dipping is unhealthy.  No more double dipping I say!  It must stop!

Equally unhealthy and even more disconcerting is all of this talk about a double dip in the real estate market.  Yesterday morning I came across a blurb in the Arizona Republic – Home Prices Expected to Dip

Here we go again.  Another opportunity for the media types to pour fuel on the fire right?  Actually, this time they got it right.  Well, sort of.

For those of you who read my blog on a regular basis you know how much I respect Michael Orr of the Cromford Report.  He’s a housing analyst that, along with his counterpart Tom Ruff of Information Market, studies everything real estate related in the Phoenix metro real estate market.  Together they track Notice of Trustee’s sales, Trustee’s deeds, cancellation of trustee’s sales, normal sales, short sales, REOs, days inventory, contract ratios and more.  I recently took one of Michael’s classes and he predicted there will be no second wave of foreclosures.  But, that’s a topic for another day.

Michael accurately called the bottom of the Phoenix real estate market in April of 2009.  The average price per square foot for a sold home that month was $83.82. The previous low was recorded in 2000.  Since April of 2009, the average price per square foot slowly increased – peaking in May of this year at $91.83.  Last month, the average price per square foot dropped to a new low of $82.49.  It appears as though we have experienced a real estate double dip.  Yuck!

However, if you analyze the data (which I’ll admit can be dreadfully boring) AND factor in the effects the tax credit had on our market, an argument could be made that there was no double dip.  How?  Consider this – since June home prices here have dropped approximately 7%.  The median price in the Phoenix metro area is now hovering around $115,000.  If you do some quick math you’ll find that the median home has dropped in value by about $8,000 since the tax credit expired.  Interesting isn’t it?

So, if you’re not really paying attention it would appear as though we’ve experienced a double dip.  That’s not what really happened.  The home buyer tax credit artificially created a spike this summer and now home prices are going back to where they belong.   My prediction is we’ll see some additional declines because of the holidays but start recovering in the spring.

Now pass the Doritos.  I’ll try to keep my daughter away from the bean dip.

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The Just Plane Smart Real Estate Investing System

The year was 1966.  A pilot named Rollin King and his attorney friend Herb Kelleher sat in a San Antonio bar talking business.   Rollin grabbed a cocktail napkin and drew a triangle.  He wrote Dallas, Houston and San Antonio in each corner then showed it to his friend.  The plan was simple.  Fly people between these three cities as safely and efficiently as possible.  Get them there on time.  How did Herb respond?  “Rollin, you’re crazy.”   Then Herb thought about it a moment more and said, “let’s do it!”  Southwest Airlines was born.

My business partner, Manny Romero, and I had a similar meeting at a seafood restaurant in Tempe last summer.  Our objective was to implement a simple, easy to duplicate real estate investing system.  Since our cocktail napkins had ice cold beers on them I had to sketch out our plan on a yellow note pad.

We weren’t exactly starting from scratch.  Fortunately, I had been working for a real estate investor in town as a project manager.  This investor was doing about 20 fix and flips a month.  Believe it or not he willingly shared this successful system with me.  Why?  Because he recognized it would create other opportunities for himself down the road (more on that in a minute.) 

Practically overnight Manny and I raised $180,000 by partnering with someone that had a self directed IRA.  My investor friend wholesaled us two houses and we flipped them both 45 days later for a net profit of $31,500. 

Does it make sense now why my investor friend shared his system with me?  He just gained a wholesale buyer.

So here Manny and I sat at King’s Fish House with a blank piece of paper and a calamari appetizer – proud of our recent success and motivated to do more.  Like Rollin King and Herb Kelleher we focused on controlling costs and being efficient.  The plan was to be the Southwest Airlines of real estate investing.  This is what we came up with:

  • Acquisition – We buy at trustee’s sales and REOs off the MLS.  NO short sales.
  • Price point, not location – We keep our acquisition price under $150,000.  Location doesn’t matter unless the home is in a war zone.
  • Type – newer homes with tile roofs, wood-frame construction, 3 bedroom – 2 bathroom – 2 car garage minimum.
  • Target buyers – we buy in areas with a high concentration of first and second time homebuyers.
  • Rehab – we buy homes that can be remodeled in 7 days or less.

This approach enables us to control costs.  When we buy a house at the courthouse steps or an REO off the MLS with this criteria there are very few surprises.   We paint every house the same color.  We use the same appliances, tile, carpet, light fixtures, blinds, and door hardware.  Our houses even smell the same.  We buy apple cinnamon air fresheners in bulk. 

Have you ever noticed Southwest Airlines jets look the same?  That’s because they’re all Boeing 737s.  It’s more cost effective to fly the same jet because they don’t have to train mechanics on different aircraft or warehouse a variety parts.  Like Southwest, our homes all look the same.  The buyer’s agents love to show them.

Since that brainstorming session last summer Manny and I have flipped 29 houses with a 48% cash on cash return to our investors.  Not bad.  Our just plane smart real estate investing system is working.  Our balance sheet make not look like Southwest Airlines’ but these days we are flying high.  Break out the cocktail napkins.

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