Tag Archives: phoenix

If it’s 99% True, Then it’s a Lie

She sat across the desk from a master.  This real estate broker was about to be grilled by one of the best question askers I have ever met.  Mark Saenz sized her up quickly.  With a twinkle in his eye he fired the first shot.  “How’s business?” he asked.

She told us that business was great.  How couldn’t it be?  “I’m finding houses on the multiple listing service for .50 cents on the dollar” she claimed.  “Really,” Mark said.  This unsuspecting Realtor just stepped into his trap.  She shook her head confidently, “Yes, I am.”

Mark told her he would buy every house she could find for .50 cents on the dollar.  This, of course, made the agent very happy.   She was grinning from ear to ear.  “Okay, I found a condo in Phoenix you can buy for $140,000.  It’s worth about $210,000.”  A puzzled look came across Mark’s face.  “I’m no math expert, but that doesn’t sound like .50 cents on the dollar to me” he answered.  The Realtor said, “You’re right, but it’s in turnkey condition, no repairs needed.”

“But you just told me you were finding properties for .50 cents on the dollar” Mark insisted.  He told her if she found any to call him.  Then we wrapped up.

This meeting took place in September.  2008.  Here we are, more than two years later, and poor Mark is still waiting for the Realtor to call.

Mark Saenz taught me a lot about the art of asking questions.  Before I met him I would accept what most people had to say at face value.  I would give them the benefit of the doubt.  Why would they lie to me I thought.  Besides, they said what they said with such authority.  They must be telling the truth.  If there were a few holes in their story I would fill in the blanks myself.  That was the polite thing to do right?

Like me, many people just fill in the blanks – especially when desperate.  Back in 2007, l was a struggling real estate professional.  My net worth went from $8 million to negative $2 million practically overnight.  I would listen to any sales pitch and consider any investing strategy imaginable if it meant I could improve my financial situation.  I wanted to believe these opportunities would work so I didn’t ask too many questions.  It was like I didn’t really want to know the truth.

Fortunately, I learned from Mark that questions are like a shield.  They protect us from the smelly stuff that my daughters always complain about whenever we drive by the dairy farm near our house.

If you’re thinking about paying someone to teach you how to invest in real estate then I advise you ask a lot of questions.  Here are my top three suggestions:

  1. How many deals did you do last year?
  2. Can you show me HUD settlement statements for those deals?
  3. How many properties do you own right now?

If the sales person fidgets, fusses, stutters, stammers, sweats, delays or tries to change the subject then your shield worked.

My business partner Manny Romero likes to say that “if it’s 99% true, then it’s a lie.”  The problem with the real estate business is that many of the investors and educators you hear about or see on TV leave 1% of the story out.  Why?  Because that 1% will make you, and your checkbook, run for the hills.  The truth hurts doesn’t it?

 

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Do You Suffer from Analysis Paralysis?

“The sense of paralysis proceeds not so much out of the mammoth size of the problem but out of the puniness of the purpose.”

–          Norman Cousins

Dateline:  Rocky Point, Mexico – March, 2010.  My business partner Manny Romero and I, along with a couple of buddies, headed four hours south of Phoenix for some sun, sand, golf and cervezas.  This would be our first annual guy-only trip – we called it a Mancation.

No detail was overlooked.  Manny set us up in an awesome resort condo right on the beach.  He booked our tee times.  I checked the weather – perfect conditions – and packed the cooler full of Pacifico beer.  The iPod was loaded up – Zac Brown Band’s Toes the first song on the playlist…

I got my toes in the water, ass in the sand,

Not a worry in the world, a cold beer in my hand,

Life is good today, life is good today.


It was a memorable trip.  We ate shrimp tacos and listened to mariachis.  I lost 17 golf balls in two rounds and nearly broke my 7 iron in half.  On Saturday night we jammed out to a cool Mexican rock band with a lead singer that looked like Jesus and had a voice like Chris Cornell.  All the while we barely noticed the college kids – it was spring break.  When Sunday morning came we wearily packed up the car with our golf clubs and empty cooler for the ride back home.

There was a wait –a very LONG wait – at the border checkpoint to reenter the United States.  It took more than three hours to get out of Mexico.  When I rolled down my window to greet the Customs agent he took one look at me, Manny and our two friends in the backseat and asked “what are you guys celebrating spring break 10 years later?”  I told him I considered that a compliment – we were actually celebrating spring break 20 years later!

Here’s the thing – we knew that our Mancation was the same week as spring break.   We realized it two weeks before we left.  Most middle aged men would have cancelled the trip, paralyzed by this new information.  Not us.  Our purpose was a good time, line at the border or not.

Analysis paralysis is an ugly disease.  It can kill a vacation or keep you from getting started in real estate investing.  Studying stuff like employment figures, vacancy rates, median incomes, economic diversity, contract ratios, median prices and absorption rates in your town is a wise thing to do.  Just don’t forget about your purpose – to make money.

Tom Ruff of Information Market and Mike Orr of Cromford Report know the Phoenix housing market better than anyone.  They have a way of analyzing complex data and drawing simple conclusions, without the doom and gloom.

In his January 2011 Housing Opinion Tom wrote, “We are living in the time after the crash, not the time before; Phoenix is now offering the same opportunities we saw in the early 90s. I haven’t heard anyone say, boy, I wish I’d have bought that home down the street in 2006 when I had the chance, but I’ll bet you, ten years from now when they look back at this unique time in history…”

In his January 16 mid month pricing update and forecast Mike Orr concluded, “So we see a generally gloomy picture for sales pricing and no sign of any improvement in the next four to six weeks. In fact we see continued deterioration. We do not get too concerned about this however, since sales pricing is a TRAILING INDICATOR of the market and is the last thing to show any turnaround. When we look at other measurements things are not so gloomy. This is because lower pricing results in increased demand which is certainly making its presence known at the moment.”

Remember your purpose.  Don’t over analyze.  Keep it simple.  If you can buy a home in this market and rent it for more than it cost to pay the debt service and expenses then you’ve made a smart investment.  If you can buy a home, fix it up and sell it for what you paid, plus another 12-25K in profit, then go for it.  Let the numbers guide you, not paralyze you.

Next week Manny and I will embark on Mancation II to Rocky Point – only this time we’re doing it Super Bowl weekend and are returning on Monday morning.  We’re expecting the line at the border to be much shorter this year.  What can I say?  Analyzing the numbers from last year’s trip I learned that we should go a different weekend.  I also concluded that I need to bring more golf balls and a spare 7 iron.

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Buying Investment Property in Arizona – Part I: Fixing and Flipping

I was in the presence of real estate royalty.  My brother-in-law, Rich Siegmund, had set up the meeting.  It was 2005 – Austin, Texas.  I had flown there from Phoenix to help him get his real estate investment business off the ground.  Rich arranged the lunch meeting at a Macaroni Grill in northwest Austin.  We would be dining with ‘Joe’ the real estate guy.  That’s all I was told.

When we all sat down Joe handed me his business card.  It had a Keller Williams Realty logo on it and beneath that was his name – Joe Williams – Co-founder.  Needless to say, I was impressed.

I took a page of notes during our visit.  The most memorable thing Joe said that day was “there is no such thing as a national housing market; real estate is a local business.”

When my partner Manny Romero and I started our current fix and flip business model last summer Joe’s words kept running through my mind.  We had to stay local and be strategic.  Our buying criteria would be simple, straightforward and easy to implement:

  • Single family homes – no condos or townhouses.
  • Acquisition price under 200K.
  • Minimum 3 bedroom – 2 bathroom – 2 car garage.
  • Tile roof – wood frame construction – stucco exterior.
  • Cosmetic repairs only – paint, carpet, landscaping, appliances, window blinds, light fixtures only – no plumbing, electrical or roof repairs.

Why be that specific?  Because as of today, there are over 47,000 homes for sale on the Arizona Regional Multiple Listing Service (ARMLS).  As many as 1,000 homes or more are auctioned off on the courthouse steps every day.  There’s a lot of inventory in the Phoenix market.  In order to efficiently sift through the opportunities it’s essential to filter your buying criteria. 

You also need a team, including a wholesaler, Realtor, contractor, Title Company and private money lender

The wholesaler will find you bargains at the auction and a Realtor with experience working with investors will help you locate short sale and REO deals listed on the MLS.  The Realtor will also assist you with market analysis, as well as the listing and sale of the home. 

When interviewing Realtors I highly recommend you ask if they have worked with other real estate investors.  A lot of real estate gurus will tell you that you should never work with a Realtor unless they invest in real estate too.  I don’t agree with that.  Do you want your Realtor focused on their deals or yours?    

The contractor will be your eyes and ears on the project.  A good contractor will put money in your pocket, not take it out.  How?  Speed.  Time is money right?  Our contractor can remodel a house in 4 days or less.

It’s also smart to work with a title company that is comfortable working with investors.  I’ve worked with title companies in the past that have killed my deals because of delays and miscommunication.  That is unacceptable.

Finally, having a reliable private money lender on your team is essential.  What is an unreliable private money lender?  A lender with no money.  We work with a private money lender that has been in business for more than 20 years and has over $60 million in funds available.

Is setting this up a lot of work?  Absolutely.  It takes time, effort and a healthy dose of trial and error.  If you are considering getting into get in the game but don’t want to be this involved I recommend you partner with an investor or investment firm that is familiar with the market and has a system already in place.  You may not make as much money but you certainly won’t lose as much because you didn’t have the right systems in place.  If you decide to go this route I recommend you ask the investor or investment firm for this information BEFORE you get started:

  • Executive Summary
  • Business Plan
  • Pro Forma Financials
  • HUD 1 Settlement Statements
  • Private Placement Memorandum (if dealing with a private equity firm)
  • Website
  • Testimonials

It’s important to note here that even with the right buying criteria, team and systems in place you can still lose money fixing and flipping.  There are external forces at work that can adversely affect any real estate market.

I can think of no better example of this that the federal government’s $8,000 tax credit that expired on April 30th.  Our investment firm was buying heavily in an area of town that consisted predominately of first time home buyers.  We purchased two homes at the auction in May and miscalculated how sharply values would decline in this area after the tax credit went away.  We anticipated a drop of about 10% and it turned out to be more like 30%.

The good news is we earned record profits on the other side town, offsetting our losses and increasing our bottom line.  When this happened I couldn’t help but think of my lunch meeting five years ago with Joe Williams.  Real estate truly is a local business.

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Buying an Investment Property in Arizona

There are 13 different species of rattlesnakes in Arizona, more than any other state.  You may be surprised to learn that the rattlesnake is the only kind of snake that doesn’t lay eggs.  The mother actually gives live birth.  What may surprise you even more is that I, an almost-Arizona native, didn’t know this until about two weeks ago.  I had to attend reading appreciation day at my daughters’ elementary school to learn this interesting fact.

Children’s author Conrad Storad was there and he read his book, Rattlesnake Rules, to the kids.  In this rhythmic, non-fiction tale he explains how all rattlesnakes have rules to live by – just like people.  It was fascinating information.

I moved to Arizona in 1977 at the age of 5.  And with the exception of a one-year stint in Denver, have lived here for most of my life.  I’ve been hunting, fishing, water skiing, hiking, camping and just plain screwing around in the desert for as long as I can remember.  And you want to know the funny part?  The only rattlesnake I’ve ever come across was at the Phoenix Zoo.

That’s why I find it amusing when out of state folks visit here and expect to see a dry, harsh desert landscape with tumbleweeds rolling by.  Arizona is actually a very diverse state.  Our elevation ranges from about sea level all the way up to 11,000 feet.  I once water skied and snow skied in the same weekend.

So when I quit my corporate job 10 years ago and decided to get into real estate investing it made sense to set up shop right here in my own backyard.  Who wouldn’t want to live in a state that has sunshine 300 days a year? 

Okay, I’ll admit the summers are a little intense.  If you’ve never been here just trying sticking your head in an oven set at 180 degrees.  That’s what it feels like.   Luckily, it doesn’t last long.  And it’s a short two-hour drive from my home in Gilbert up to Flagstaff where the temperatures are about 25 degrees cooler.

Historically speaking, there has never been a better time to buy an investment property in Arizona then right now.  I know, I know – this probably sounds like typical real estate investor propaganda to you right?  The truth is I have nothing to gain by sharing this.  I just hate to see people miss out on all the opportunities in the marketplace.  We fix and flip, buy and hold and offer seller financing to borrowers with shaky credit.  Since last July we’ve sold more than 40 properties.  How can that be with all the bad news about real estate these days?

There is demand for our fix and flip properties because of all the distress in the market.  Most of the homes for sale these days are in poor condition.  Buyers don’t have the imagination or the checkbook to fix them up.

What about buy and hold, or rental properties?  There is enormous demand for single family homes in middle class neighborhoods because so many homeowners have been foreclosed on.  These people need a place to live and renting is their only option because of their damaged credit.

And what about my favorite exit strategy, seller financing?  This is like a hybrid fix and flip – buy and hold business model.  We make money from the buyer’s down payment.  We also cash flow when the buyer makes the interest payment every month.  Best of all, we get a lump sum profit check when the buyer refinances the note, usually within 3-5 years, because we bought the house at such a steep discount from the auction. 

There is tremendous demand for this service because so many people have walked away from their homes.  I have a list with over a dozen buyers right now that are waiting for us to find them a home.  We have several performing notes now and you can bet the investors we partner with are pleased with the returns.

Over the next three weeks I’ll go into detail with each of these exit strategies and how they work in the Phoenix market:

  1. Fix and flipping.
  2. Buy and Holding.
  3. Seller financing.

But, unlike most real estate professionals you’ll meet I’m going to share our successes AND failures with you.  If you plan on buying investment property in Arizona soon, or anywhere else for that matter, my hope is that this information will prevent you from getting snake bit.

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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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Not that Smart? Try Real Estate Investing.

A few weeks ago I walked into Starbucks and ordered a tall caramel macchiato.  The barista said “it’s Marty right?”  I told her that I was impressed she remembered me from my last visit.  She gave me a strange look and then started preparing my coffee.  As I walked out to my car I realized I had a name tag on.  I had come from a conference and had forgotten to take it off my shirt.

Then there’s the time I went to the grocery store looking for ham hocks.  My Mom has a delicious pinto bean recipe she was preparing that day so I got sent shopping.  I combed the meat department looking for ham hocks with no luck.  Finally, the butcher came out and asked if I needed help.  Yes, I said, “I’m looking for ham hocks.”  He pointed down and said “they are right here.”  I looked at the package and said “those aren’t ham hocks, those are pork hocks.”  Another strange look followed, this time from the butcher.

Encounters like these have me convinced that I’m not that smart. 

I’m typing this post from 30,000 feet.   My family and I are on our way to Austin to visit my brother-in-law.  I flipped open the in flight magazine and came across a book review for Warren Buffett and the Art of Stock Arbitrage.  Arbi-what?  I’m sure glad I’m not a stock investor.

So how does a guy who is not that smart become successful at real estate investing?  If can sum it up in one word it’s SYSTEM.  Have you ever eaten a cheeseburger at McDonald’s?  Was it the best cheeseburger you ever had?  Probably not.  So why does McDonald’s sell more cheeseburgers than anyone else?  You guessed it…their SYSTEM.

I have a system for investing in real estate.  I didn’t create it nor did I pay for it.  However, I was taught how to implement it.  I’ve been using the system for about 18 months and I’ve tweaked it a little, but for the most part it has remained the same.  A Phoenix real estate investor shared this system with me for free because I invested in my real estate education and was willing to help him with his business.

If you are considering real estate investing I recommend following the same path.  Get educated and then seek out an experienced real estate investor in your area that needs help.   Just beware that there are lots of gurus peddling their real estate investing systems.  Most of them are ineffective because real estate is a local business.  What works in one market may not work in another.

So you see you don’t have to be smart to invest in real estate if you have a proven system.  After I finished reading the Warren Buffett and the Art of Stock Arbitrage book review it occurred to me that real estate investing is a form of arbitrage.  I think I’ll start telling people I’m a real estate arbitrageur.  Maybe then I won’t sound so silly when I talk to the barista or the butcher.

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Follow the Numbers, Not the News

It started out innocently enough.  An email popped up in my inbox from a real estate investor I’m connected with on LinkedIn.  This investor, who shall remain nameless, was responding to an article titled ‘Mortgage Picture Brightens, for Now’ I sent out via Twitter.  He brought another article to my attention that stated 1 in 10 with a mortgage faces foreclosure.  This discussion quickly evolved.  Here are a few excerpts: 

Me:  I’m in Phoenix and these reports don’t accurately depict what is going on in our market. Real estate is a local business. I’ve flipped 5 homes here since the expiration of the tax credit – all of them sat on the market less than a week. Demand here remains strong and in many areas there is less than a two month supply of homes. While median prices may dip another 5-10% that doesn’t bother seasoned investors because they will adjust their buy price accordingly.

Investor:  The current inventory in the Phoenix market has never been higher with for sale signs literally everywhere. I do a significant amount of business in Phoenix. I have a client in Phoenix who buys over 20 properties per month at sheriff sale at dramatically reduced prices. The listing time on residential properties continues to longer than we have ever seen. Obviously, no two investors see the market the same way. That’s what makes apples and oranges.

Me:  Actually inventory levels have been higher. At this moment there are 43,566 homes for sale on the MLS. Two years ago there were 53,511. Days on market today – 172. Days on market two years ago – 383. I agree with you that things have slowed down here but to say that inventory levels and listing times “have never been higher” and are “longer than we have ever seen” is not accurate. Check out Mike Orr’s Cromford Report.  I buy about 4-5 houses a month at the courthouse steps. I have a few that aren’t selling in dead areas, but in other parts of town inventory is moving.

Clearly this investor and I have different views of the Phoenix housing market.  He has based his investing decisions on what someone else has told him (news articles, clients) and on the amount of for sale signs he sees when he visits Phoenix.  I choose to buy when the actual numbers make sense.

Since this exchange took place last week I’ve put two more homes into escrow, one of which I didn’t even have to list on the MLS and it’s all because I follow the numbers, not the news.  What Warren Buffett once said about stock investing can also be applied to real estate, “be fearful when others are greedy and greedy when others are fearful.”

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