Tag Archives: Arizona

Staging a House the Martha Stewart Way

“Martha Stewart is now under house arrest. So she’ll go to her $40 million 153-acre estate. So she’s going from the big house to an even bigger house.” –  Jay Leno

T.J. Maxx.  Target.  Burlington Coat Factory.  Walmart.  Kirkland’s.  Goodwill.  Did you notice I didn’t mention Kmart?  That’s not because we don’t buy our staging items at Kmart.  It’s just because we don’t have many Kmarts around here.  If we did, I’m certain some of our stuff would come from the Martha Stewart Living line.

And for what it’s worth, I forgive Martha for the whole insider trader thing.  She’s paid her debt to society.  But I still don’t tune into her show – mostly because listening to her talk is about as exciting as watching a car rust.

So why stage a vacant house?  Here are my top three reasons:

  1. A high percentage of buyer’s start their search for a home to buy online – a home that is staged looks more, well, homey.
  2. Staging items like furniture, pictures and plants give the buyer an idea of how much space they will have in the house for their own stuff.
  3. Lived in homes, or homes that looked lived in because they are staged, usually sell faster.

We like to stage the kitchen, master and hall bathroom and master bedroom.  The family room isn’t a bad idea either.  Our budget is around $500.  I’m sure we’d make Martha proud.

For more tips check out this video:

 

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But what about the Shadow Inventory?

Tale as old as time, song as old as rhyme, Beauty and the Beast.  That’s a catchy tune.  And my little girls love the movie.   Honestly, I enjoy it too.  Lumiere, the suave French candelabra, cracks me up.  His big solo number, Be Our Guest, is very entertaining.

So imagine my frustration when I found out I couldn’t buy this film after my youngest daughter was born in 2004.  I looked everywhere.  Best Buy.  Walmart.  Amazon.  Barnes and Noble.  Nada.  Zilch.  Nothing.

Fortunately, we had a trip planned to Disneyland.  Problem solved.  I would go directly to the source – Main Street U.S.A., Disneyland, California.  The souvenir shop there had the movie selection prominently displayed behind the cash register.  I could see all of Disney’s big hits:  Aladdin, Cars, The Incredibles, Sleeping Beauty and Cinderella. 

But wait a minute.  Where was Beauty and the Beast?

It’s in the vault she said.  What?  The Disney cast member repeated it again – it’s in the vault.  So I said well go back there and get it!   No sir, you don’t understand.  Disney puts movies in the vault for extended periods of time.  You will have to wait until it’s re-released.  That was 2005.

Disney finally pulled Beauty and the Beast out of the vault – last October.  I gave it to my daughter for her 6th birthday.  I also paid $24.95, about twice what a normal kid movie would cost.

You see, the folks at Walt Disney are master marketers.  They don’t just make whimsical princess movies and cool adventure attractions like The Pirates of the Caribbean.  They’ve figured out how to create artificial demand.

Disney got a rational guy like me to pay double, and wait five years, for one of their products.  People who don’t even have children or grandchildren yet bought this movie out of fear it would get locked up in the vault for another decade.  Pretty smart.

That’s why I find it a little amusing when I’m in real estate circles and someone asks me about the shadow inventory.  Aren’t you worried about it?  If the banks unleash this shadow inventory on the retail market don’t you think prices will plunge even further?

The answer is no, I’m not worried about it because the banks will not unleash this shadow inventory (if there really is a shadow inventory) on the retail market.

First of all, let me clear up one myth – banks don’t foreclose on a  mass of houses, board them up and then wait to sell them off for months or years on end  (at least not in Arizona).  Many experts define this as shadow inventory.   I’m on the ground here in Phoenix and that does not happen.  Once a bank forecloses they promptly secure it and sell it as an REO. 

The home directly behind mine was foreclosed on last week and it was on the multiple listing service 6 days later.  The banks do this because there is too much liability in home ownership.  If they foreclose on a house and then let it sit they are responsible for property taxes, homeowner association dues, utilities and general maintenance. Even worse, bad things tend to happen in or around abandoned houses.  When bad things happen people sue – not good.

Banks are far more likely to postpone foreclosure proceedings on the current homeowner for months or years at a time.  I bid on house at the auction earlier this week.  Its sale had been postponed 38 times – 1148 days.  This property has been in foreclosure for more than three years.  I bid on two other houses scheduled to go to sale this week – their sales had been postponed 12 and 18 times.  And guess what?  All three of these sales were postponed again.

There is another camp of so-called experts who refer to these homes as our shadow inventory.  But how do we know the owners of these homes won’t eventually bring their loans current, get a loan modification or execute a short sale?  My guess is only a small percentage will actually get foreclosed on and end up on the market as an REO.

Here’s why I’m really not worried about shadow inventory (if there really is such a thing) – artificial demand.  The banks are actually copying the Disney marketing model.  They’re being fairly strategic about what they release and when.  This creates scarcity, which increases demand (albeit artificially).

There is nothing wrong with this.  I’m actually a proponent of it.  It’s good business and probably the smartest thing the banks have done since this crisis began.  It serves us all and makes me want to break out in song – Be Our Guest, Be Our Guest, Be Our Guest…

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Using AZ Bidder to Buy Homes at Trustee’s Sales: Winning a Bid

“I wish you were born knowing everything so you could just stay home all day.”

–          My 6 year-old daughter’s reaction when she found out she has to go back to school after spring break ends.

Out of the mouth of babes.  If only us humans could be like Neo, Keanu Reeves’ character in the Matrix.  Imagine how cool it would be if our brains were like a computer and could download a program for piloting a helicopter.  Or how about transferring a jujitsu file into your cranium?  Certainly with this kind of technology we’d all have a little more time to hang out around the house watching TV.

That would make my little kindergartner very happy.  She could watch a marathon of Sponge Bob and the Wild Kratts.

Alas, we’ll never see that happen in our lifetime.

The good news is if you decide to buy a house at a trustee’s sale (auction) in Arizona, specifically Maricopa County, you can know everything AND stay home all day.  That is, of course, if you use the online bidding service AZ Bidder.

Keep in mind that I don’t get paid by AZ Bidder.  I’m just a client and a big fan of their service.  To see why check out the 7-part video series I did last month.  The only flaw in it was I didn’t win the bid on the property I chose to profile.

So without any further delay please click on the video below to see how well the system works when you win a bid on a property.

*For the best resolution I recommend you view this in full screen mode with the 720p HD option selected at the bottom right corner of the video box.

Winning a Bid

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Using AZ Bidder to Buy Homes at Trustee’s Sales: Videos 5-7

“The one thing I learned in jail is that money is not the prime asset in our lives.  Time is.”

–       Gordon Gekko, Wall Street:  Money Never Sleeps, 2010

A sequel is rarely as good as the original film.  Wall Street:  Money Never Sleeps probably won’t have the shelf life the original movie had.  Shia LaBeouf?  Please.  He’s no Charlie Sheen.

I hope you will find my sequel, Using AZ Bidder to Buy Homes at Trustee’s Sales:  Videos 5-7 as good as the original post, Using AZ Bidder to Buy Homes at Trustee’s Sales:  Videos 1-4 .  I guess my collection of videos are less like a sequel and more like a full season of Sopranos episodes – by themselves they don’t make much sense but when viewed together the message is clear.

One disclaimer before you watch this next set – I’m not paid by AZ Bidder to endorse their company.  I put these videos together on my own as a service to my readers.  Buying homes at trustee’s sales (courthouse steps) is very risky.  But armed with the right information you can minimize this risk, save time and capitalize on some incredible opportunities in the market.

*For the best resolution I recommend you view these videos in full screen mode with the 720p HD option selected at the bottom right corner of the video box.

Video 5 – Placing a Bid

Video 6 – Watching the Bid Cast

Video 7 – Final Results

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Using AZ Bidder to Buy Homes at Trustee’s Sales: Videos 1-4

“The most valuable commodity I know of is information.”

–       Gordon Gekko in Wall Street, 1987

I was 15 years old when the film Wall Street was released.  I had no interest in business back then.  I was too busy popping pimples and chasing girls – on my bike.  By the time I got around to caring about business, about 15 years later, the movie was off my radar.  That is, until Wall Street:  Money Never Sleeps came out in 2010.  I finally watched Wall Street and I wasn’t disappointed.

Last December, I was introduced to AZ Bidder by Tom Ruff of the Information Market.  This powerful web-based program allows me to bid on homes sold at trustee’s sales (auction) here in Maricopa County, Arizona, online.  With this service I can search for homes in foreclosure by city, zip code or file number.  It allows me to build in my own assumptions for holding costs and repairs.  I can order and view title and drive reports.  The market analysis information comes directly from the Arizona Regional Multiple Listing Service.  Once I finish my due diligence I can place my bid and watch the auction unfold live on my computer screen.

That’s a lot of stuff and I’m sure I left a few things out.  Whenever I log into the system I think of Gordon Gekko.  With all of this information at my fingertips I can make better buying decisions.  It makes we want to go around quoting him.  This line is one of my favorites –  “I don’t throw darts at a board. I bet on sure things.  Read Sun-tzu, The Art of War. Every battle is won before it is ever fought.”

I posted 4 videos here today.  On Monday I will post the other three.  Here’s the order:

  1. Property search
  2. Identification and research
  3. Market analysis
  4. Marking for bid (title and drive report)
  5. Placing the bid
  6. Watching the bidcast
  7. Final Results

*For the best resolution I recommend you view these videos in full screen mode with the 720p HD option selected at the bottom right corner of the video box.

Video 1 – Property Search

Video 2 – Identification and Research

Video 3 – Market Analysis

Video 4 – Marking for Bid


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Buying Investment Property in Arizona – Part III: Seller Financing

He was standing by the side of Mormon Lake Road – about 20 miles east of Flagstaff, Arizona.  The man was looking through a large spotting scope.  It was pointed towards a tree line to the south of Mormon Lake.  He fidgeted with the focus ring and then walked to the back of his Toyota Highlander SUV to grab some more equipment.

My wife and I were driving by.  And we were curious.  What was he looking at?  I pulled up beside him and Linda hopped out.  It turns out the man was a birdwatcher.  He was keeping tabs on an osprey nest that sat in a tall pine tree at the edge of the lake.  Apparently the winged creature nests there every fall before migrating south to Mexico.

While the osprey is a beautiful bird and all frankly I was more interested in the guy’s Toyota Highlander SUV.  It was a hybrid.

What can I say?  I’m a guy.

As my wife sat there admiring the glorious majesty of the osprey I couldn’t help but wonder – did this man’s SUV get good gas mileage?  How much horse power did it have?  Could it tow a boat?  Was it worth spending an extra $4,000 over the gas model?  The birdwatcher later admitted to me that the numbers didn’t pencil out.  He bought the hybrid because it was the right thing to do.  Over the long haul the extra money he paid for it would exceed his cost at the gas pump.

Most hybrid cars are like that – they don’t make economic sense.

In the real estate investing world there is hybrid exit strategy that does pencil out – seller financing.  I call it a hybrid because seller financing is really like a fix and flip – buy and hold combination.  Let me explain it to you by breaking down a deal my partner Manny and I just closed last month.

We partnered with an investor that had a self-directed IRA and purchased a bank owned home for $120,000. It cost another $25,000 to fix up the house.  We sold the home to a buyer and did what is known as a carry back for $225,000.  The buyer put $10,000 down and is paying us 9.95% interest.  The loan is amortized over 30 years but will balloon in five.  Here’s a breakdown on the numbers:

  • $225,000.00 sales price
  • $145,000.00 purchase price and repairs
  • $  80,000.00 spread
  • $114,000.00 interest paid over 5 years
  • $194,000.00 NET PROFIT = our investor’s share of the profit  equals a 13.4% annualized cash on cash return

We make money up front with the down payment – cash flow for five years – and a large spread at the end when the buyer refinances or pays us off.  There you have it – a hybrid that makes money.

But here’s the catch – you have to find these buyers.  They’re not working with Realtors.  Why?  Because most Realtors don’t know what seller financing is and sellers don’t usually advertise on the multiple listing service.

We get our buyer leads from Craig’s List, our website and radio ads.  We’ve had more success finding the buyer FIRST and then locating a house that meets their needs.  This is easy to do right now because of all the bank-owned properties on the market.  As I sit here today we have six buyers waiting for us to find them a home – they are all well qualified with $10,000 or more and solid income.  The only reason they need us to finance them is because their credit is dinged up from a recent short sale and/or foreclosure.

What more could you want?  You get an above average return without the leaky toilet in the middle of the night phone call from your tenant.  With the extra time and money maybe you could take up bird watching.

Check out this video to learn more about our seller financing business model:

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Buying Investment Property in Arizona – Part II: Buying and Holding

“The investor of today does not profit from yesterday’s growth.”  – Warren Buffett

42,249 – Is that a big number?  I guess it depends.  Aren’t numbers supposed to be relative?  If you’re buying a house in Phoenix $42,249 doesn’t sound too bad.  But if you’re purchasing a Honda Civic it sounds a little pricey.  Approximately 42,249 new U.S. jobs were created in October.  That sounds promising.  But what if told you that on this day, December 16th, 2010, 42,249 homeowners are in foreclosure in Maricopa County, Arizona?

566 – Not a huge number right? $566 will buy you a fancy 40” high definition TV.  A pretty good deal considering I paid $2,100 for mine just three years ago.  However, if 566 people were ahead of you at the motor vehicle division wouldn’t you want to cry?  It just so happens that 566 homeowners were foreclosed on today in Maricopa County, Arizona.  To put this in perspective back in 2005 when I was following auction sales about 500-600 homes were sold a month at the courthouse steps.

So where are all of these homeowners going to go?  Where will they live?  Many of them will move back in with their parents or other siblings.  Some will move out of town.  A small number will rent an apartment.  1 out of 5 of them is an overextended investor so they don’t need a place to live.  What about the rest?  They will undoubtedly look for a single family home to rent, preferably in the same neighborhood they live in now.

Consider this hypothetical scenario for a moment – I’m an investor with $100,000 in a traditional IRA account earning me 7% interest annually.  Unhappy with such an average return I roll the $100,000 into a self-directed IRA account and use the money to purchase a single-family home in Peoria, Arizona.  I rent the house for $950 a month and net $775 after paying taxes, insurance and HOA fees.  That’s a 9.3% cash on cash return.  Not bad.

Okay, I know.  You didn’t come here looking for hypothetical scenarios.  You want real world examples.  Well, here you go – I recently represented an investor that purchased a single family home in Maricopa, Arizona.  It was a bank owned home we found on the multiple listing service.  He paid $82,000 and made $5,000 in repairs.  He put $24,000 down and financed the rest.  He rented the home immediately for $850 a month, netting $400 a month in cash flow.  The cash on cash return is 16.5%.

Here’s the best part.  He’s depreciating the home over 27.5 years earning another $2,500 annually in tax deductions.  This asset serves another purpose as well – an inflation hedge.

It’s a rather simple formula but it amazes me how many investors screw this up.  Renters want single-family detached homes – not condos, townhouses or attached dwellings.  Renters, especially those with families, want at least 3 bedrooms with a den, a two car garage and a finished backyard with grass.  Most importantly, they want to be close to schools, shopping and freeways.

Renters don’t want to commute so stay away from the far out areas like Buckeye, Queen Creek and Maricopa (even though my investor client bought in this area I’m still not a fan.)

So do you feel ready now?  Not so fast.  Do your homework.  Connect with real estate professionals and investors that have similar goals.  Ask questions – lots of them.  And remember what Warren Buffett once said, “A simple rule dictates my buying:  Be fearful when others are greedy, and be greedy when others are fearful.”

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