Tag Archives: real estate

You Can’t Snow the Snowman

John and Jim

John Page could make my Dad laugh.  I mean really laugh.  You know the type of laugh that comes from deep inside your belly?  That’s the kind of laughter I’m talking about.  When the two of them got together the beer would flow.  Stories were told and new memories created.

That’s the two of them pictured – John to the left, my Dad to the right – smiles bright and faces flush from a night full of laughter and wine.

They met in the first grade and grew up together in Belvidere, Illinois – friends for almost 60 years.  John served in the Air Force during Vietnam, my Dad in the Army.  Although they were separated at times they never lost touch.  After my Dad moved our family to Arizona in 1977 John would bring his family here from Illinois to visit us.  Likewise, my Dad would take me, my Mom and brother back to Illinois every summer to visit our relatives – and of course, the Page family.

John’s oldest son, Brian and I are the same age.  And like our Dads we have also been lifetime friends.  Growing up not a summer went by that Brian and I didn’t see each other.  I remember one year in particular.  We had been up all night screwing around like teenagers do.  John wondered why we had slept in so late.  Brian and I gave him a less than honest answer and John quickly replied “you can’t snow the snowman!”

John was the life of the party and he had the funniest lines – so many in fact that his daughter, Jennifer, began compiling a list of them a few years ago.  If he was a guest at my home and I didn’t offer him a cocktail promptly I could be sure to hear “it’s dryer than a Baptist picnic around here!”

That’s why it breaks my heart to be writing about John in the past tense. On January 22nd, 2011 he died after an eight month battle with esophageal cancer.  Not a day has gone by since that I don’t think about, and pray, for him and his family.

John was a loving husband to his wife Mary.  He was a proud father of Brian, Andy, and Jennifer.  He was a doting grandfather to Wyatt.  And he was one of my Dad’s closest friends.  I’m blessed to have known John and his family all these years.

Me, John, Mary, Renee (Brian's wife), Brian, Ally (my daughter), Jim, my Mom (Brenda)

John’s passing has helped me focus on what’s important; creating memories with family and friends.  He’s even helped me out with my real estate business.  These days when someone presents me with a less than honest evaluation of a property I like to say “you can’t snow the snowman!”

At his memorial service a few weeks ago I spoke with one of John’s neighbors.  She told me that she was in the happy hour club with John.  She then paused for a moment and said, “Actually John WAS the happy hour club!”

I can’t help thinking that things must have been getting a little dull in Heaven.  John was needed to get the ultimate happy hour started.  I bet he even used one of his famous lines when he got there, “let’s party like rock stars!”

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High Speed Chases and Before and After Pictures

O.J. Simpson and a white Ford Bronco.  It was June 17th, 1994.  The world seemed to stand still as the former NFL running back dodged cars, not linebackers, through the streets of Los Angeles.  Luckily, no one was hurt during the high speed chase.  Broadcast live on every major news network, the chase lasted more than 2 ½ hours.  By the time it ended most of the country was tuned in.  It was riveting television.

Coverage of the chase changed television history.  Afterwards news helicopters in every major media market were dispatched whenever police pursued a fleeing suspect.  Why?  Because it was easy to capture – but more importantly the high speed chase made for incredibly compelling drama.  The audience could almost always count on a crash at the end.

I’ve discovered that before and after pictures offer a similar experience.  How else can you explain the wildly successful American Idol and The Biggest Loser?  Over a period of 2-3 months the viewing public gets to watch a rapid transformation.  On American Idol, the common man or woman goes from an unknown karaoke regular to polished superstar.  On The Biggest Loser the severely overweight shed hundreds of pounds.  The change is breathtaking.

That’s why whenever possible we take before and after pictures of the properties we fix and flip.  Our investors are captivated by the process and it demonstrates our ability to create value. We remodeled this house last month.  Check out the slide show below.  In one of the photographs our contractor, Errol Spence, is standing inside a flooded bathroom.

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A few tips when shooting before and after pictures:

  1. Take your pictures during the daytime – and when shooting the after pictures try to take them at the same time of day.
  2. Shoot your pictures from the same angle.
  3. Concentrate on areas that have the most dramatic improvement.
  4. Use a camera with a wide angle lens.

If a picture really is worth a 1000 words imagine what 30-40 before and after photos could be worth to your real estate investing business.

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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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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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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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Seller Financing Strategy an Oldie but Goodie

Last week I tuned into the oldies station here in Phoenix.  Huey Lewis and the News’ 1985 hit, The Power of Love, was playing.  You may recall that this song was the title track from the movie Back to the Future.  It’s memorable for me because the main character was named Marty McFly (I was often called McFly in high school after this movie became popular.)  The other reason I enjoyed this flick was the time machine they used – a 1981 DeLorean.   It was a very cool car made of stainless steel with winged doors.

After my stroll down memory road was complete I came to the stunning realization that a song I love and identify with was playing on an oldies station!  I’m only 38.  How could that be?  Oldies stations play the Beatles, Elvis, and the Beach Boys.  This got me wondering –  when does a song officially become an oldie?  My local station believes 25 years makes a song old enough to play on their airwaves, however I’m told there is no official industry standard.

Last month, I closed the sale of one of our properties using a seller financing exit strategy.  The buyer put 15K down and our spread is 29K.  The term of the loan is three years and the ROI to our group will be 30%.  After I got the first interest payment of $877 in the mail a few days ago it occurred to me that this exit strategy is a real estate oldie but goodie.  The last home I sold with seller financing was in 2001.

With loose lending criteria and stated income loans the norm who needed seller financing from 2001-2006?  Rent-to-own, lease-option, lease-purchase and seller carry back transactions virtually disappeared like 80’s rock bands.  If you could fog a mirror the bank would lend you money during this time. 

With the collapse of the real estate market in 2007 millions of homeowners with stellar credit histories began walking away from their underwater mortgages.  And while industry experts and moralists continue to cry foul, seasoned real estate entrepreneurs smell opportunity.  These former homeowners, many with steady income and cash reserves, got burned by a bad real estate market and deserve another chance.  The banks can’t lend them money to buy a house again because of draconian government and self-imposed regulations.  But private real estate investors can and will.

Since I started offering a handful of our properties for sale with seller financing my phone started ringing off the hook.  In less than two months I have built a list with more than 70 prospective buyers.  Most of them don’t have two nickels to rub together but I’m working with several that have solid incomes and significant cash to put down.

So I’m thinking of a few requests my local oldies station can play.  For the musical equivalent of the real estate market from 2001-2006 how about ‘Easy’ by the Commodores?  From 2007 to the present I dedicate ‘These Boots are Made for Walkin’ by Nancy Sinatra.  And the future…I can’t think of a more appropriate band or song then REO Speedwagon’s ‘Roll with the Changes’.

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Know how to Talk Politics in a Crowded Room

“In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists.” – Eric Hoffer

 They say never talk politics (or religion) in a crowded room.  These days there are rooms offline and online.  Take Facebook, for example.  That is one crowded room – over 500 million users as of last week.  Contrary to what “they” say, if you’re going to be a successful real estate professional you need to understand politics and you better be able to talk politics in public.

Why?  Because what is going on in your state and in D.C. right now will have a major impact on your business – today, tomorrow and 10 years from now.  The people you deal with in your community will have insight, opinions and predictions that may help you build a better business model.  It is in your best interest to know the issues and be able to talk about them intelligently without offending anyone.

In my state not a day goes by without a story in our major newspaper about SB1070 (today’s headline was Arizona’s U.S Attorney Part of Fight vs. SB1070.)  This is a law passed by our legislature that makes it a state crime to be in this country illegally.  Now whether you agree with this law or not is irrelevant.  If you or a customer are purchasing real estate in Arizona how the passage of this law impacts the housing market is the issue.

Frankly, I’m not nearly as concerned about SB1070 as I am about jobs.   Unemployment figures here mirror the national average of 9.6%.  I’m also watching the market to see how the expiration of the tax credit will affect pricing.  The Associated Press reported today that housing prices are likely to go lower.  This, they claim, is because of the expiration of the tax credit, unemployment and tighter lending restrictions.  And guess who has influence over these things? The President, our congressmen and women and the state governors, top the list.

Will the tax credit be brought back?  When will unemployment numbers start to go down?  Are banks ever going to start lending again?  Is Tiger Woods really going to get divorced?  For answers and updates to three out of the four of these questions I recommend reading your local newspaper first, and then branch out to the national publications.  Read them every day. 

And if you’re looking for dirt on Tiger, or any other celebrity, just visit the magazine stand at your local grocery store.  By the way, it doesn’t hurt to stay up on your celebrity gossip.  It will help you break the ice when socializing in a crowded room.

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