Speculation: Jobs or Real Estate?

to me real estate is safer than having a job. the stories that make it to this blog tend to be on the extreme side, but generally speaking, it's pretty easy work.

case in point:

my tenants just moved out. scary parts: they neglected to give me a 30 day notice, and hadn't paid their full rent for the month. great parts that outweighed the scary parts: they had the house professionally cleaned and left it in better shape than they got it (hard to do with a brand new house!), my realtor (who happens to live in the same development) took care of the walk through and key collection since i live an hour away.

i never even met those tenants! did all the dealings over the phone and email. and then called in some favors for everything else.

further, got the house filled two days after they moved out. a friend had called me asking if i had anything open for an employee he was moving to town. at the time, i didn't. and then, it all fell into place. haven't met the new tenants yet, either, but they're in a house that's beyond their biggest dreams.

let's compare that to:

got a call today from a local wedding chapel. they're one of my web design clients now, but i used to film weddings and do reception work for them. UGH. talking to the owner was a big reminder of why jobs are NOT WORTH IT, to me. i had to wake up early, put on uncomfortable dress clothes, drive all the way downtown, struggle to find a parking place, and then do a million and one things for 8+ hours. went home with sore feet, and a feeling of anxiety that the boss would discover something i forgot to do. all for a whopping 10 bucks an hour!

i make more from my real estate. the regular tasks there include: paying the mortgage, paying the sewer bill, paying the garbage bill.

irregular tasks: dealing with anything that you'd normally deal with around your home (winterizing, broken heater, etc.). mishaps like that happen less than once a month on my and norris' real estate, combined. and then, if we're unable to fix it ourselves, we call someone to take care of it. total time spent on fixing a rental: 1-2 hours, once a month.

vacancies? they don't happen much these days. the more real estate you have, the easier it is to move good tenants around from house to house (when they need something bigger, smaller); and you don't waste time showing houses to people, because if they're a good tenant, chances are you have at least ONE house that will work for them.

i get to do most of my real estate work in my pajamas, from home!

as far as speculation goes: anyone who has a job, in my opinion, is speculating. you're speculating that your place of employment will always need you, and that they'll continue to give you raises as inflation rises. you're speculating that your pension will be there (when hundreds of court cases are showing otherwise), you're speculating that you will always be fit to work (arthritis, pregnancy, sick kids). you're speculating that when the work day is over, you're going to feel satisfied with those measly four hours you get to spend with your family.

i guess i'm thankful so many people think real estate investing is an overwhelming task. that ensures i'll always have an abundance of tenants to choose from!

but, on the other hand, i wish more people were real estate investors. then i'd have more people to hang out with during the day!

Contribution from Gertie, who controls real estate in Reno, Nevada and small town Minnesota.

Property Management, Indeed

Had to let my property management company go. I won't mention names, as I don't think it was their fault; it's just the nature of the beast. I hired them a month ago, when I had 3 vacancies and was over 1500 miles away from them. I NEEDED a PM to make it happen.

Well... a month later.... nothing. And no tenants in sight, either. I've been posting my own ads, screening tenants, and referring them to the PM. I realized yesterday why NOTHING has been happening.

This is how they (and many PMs) work things:
A potential tenant calls. The PM tells them to come to the office to pick up a key. The tenant gives a deposit and a copy of their driver's license in exchange for the key.

THEN.... the potential tenant (aka Your Money, Your Bread and Butter, Your Life Line) goes into your house.................... ALONE!

Ok, we'll get to the liability issues on that in a moment.

But the real issue is that it's NOT going to get rented under these circumstances.

A good tenant will have questions about the property. A good tenant will need someone to help them close the deal! Excited about your new home? Sorry! You'll have to wait for the excitement to wear off before you do anything about it. And, OH! I am SOOO sorry. We're closed for the day. Come back and sign tomorrow!

As far as "good business" goes, if I was a property manager (whose money source depends on filling vacancies) I would want to be RIGHT there in the action, hearing comments like, "If only the bathroom was a different color I would rent it...." or "I really need something bigger than this."

Comments that can be referred to the Owner in order to make necessary repairs and upgrades; AND comments that the PM can use to move a tenant into the RIGHT house!!

Amazing.

[Liability issue that I promised I would get back to: Potential tenant enters house, turns on all the lights, and the heat, and the water... Oh, that explains THAT bill!... forgets to lock the door... someone else comes in and walks off with the appliances.... and that's the end of getting that place rented.]

So, I posted some ads on Craigslist yesterday; got a bunch of phone calls. Showed two of three vacancies. Got one application faxed in. And have one family ready to go as soon as the references check out. A tenant a day? Not bad!

Further--we found out why it's taken so long to get one of the houses rented. Rent price is $1200. Anything above $1200 right now is NEW construction, big, etc. Anything below $1200 is slummy, scary, small, smelly, etc.

This particular house doesn't fit into either category. It's old with all new upgrades. It's small, but well planned. A+ in character and "cool." So, we may have gotten more views if we put the price at $1250, and then offered utility incentives to put it at a more realistic price.

Would not have learned this important tip about the rental market if we had not SHOWN the house ourselves. Yes, it took 30 minutes to show the house; but I don't mind getting paid $1200 for 30 minutes of work. Do you!?

Buying smart in a buyer's market

Everybody knows it's a real estate buyer's market. That doesn't mean, however, every house on the market is a good buy nor does it mean that buyers should be buying everything on the market. There is a fundamental question that every would-be buyer needs to ask: "What is my purpose in buying real estate?" Buyer A may want long term capital growth. Buyer B is looking for a way to shelter some income from tax consequences. Buyer C is attempting to generate a nice chunk of change on a flip and Buyer D is just looking for a way to generate monthly cash flow. No matter how good a buy a property might be, unless it meets the buyer's goal, it won't be a happy experience. For example, my comfort level in investment property is limited to whether or not anticipated rental income is sufficient to service the mortgage, property taxes, insurance and upkeep. That means I resist buying a vacant lot or acreage no matter how underpriced it may be, because it won't generate the monthly income needed to pay the cost of holding on to the property. Others with deeper pockets and a penchant for a greater risk to greater reward ratio might jump at the chance to tie up that lot. For those with nerves of steel and a desire for fast returns, the market is ripe with opportunity. This is a time when list prices must be ignored and fear of insulting a seller set aside. A buyer that fits this category should be having the time of his/her life while driving a realtor insane with crazy low-ball offers and creative strategies that only a few sellers would even consider. Keep in mind two very important factors: 1. We don't know if the market has bottomed out yet. 2. You make money in real estate on the purchase, not the sale. Whether you are an investor or just looking for a new place to call home, now is the time to buy.

Special contribution from Larry Refsland, who makes a practice of shocking realtors and sellers.

Bad Decisions in Real Estate

I remember hearing the story of a wealthy man of few words. He was miserly with his resources and that included the number of words he would dispense for advice or explanation. When asked how he made his money he replied, “Good decisions.” The interviewer pressed on with a follow-up. “How did you make good decisions?” The man of means answered, “Experience.” Which of course forced the next question: “How did you gain the experience?” To which he grunted, “Bad decisions.” In real estate, there are unlimited opportunities to gain experience. Unfortunately, as the wealthy man implied, experience is often gained as a result of bad decisions. A lot of folks wish they could turn back time and reverse a decision to buy a property or at least choose a different loan product. While experience can often be painful, it isn’t the end of the world. The trends of real estate values and all the forces that influence those values are easier to track than the forces of nature that drive global warming/cooling. One thing is certain: Values are sure to rise over time. Even a bad decision today can make you look like a genius given enough time. Talk to anyone that bought property in the 1960’s. Most people that bought their first home in those days were stretching their financial limits to buy a $12,000 3 level split entry house on a cul-de-sac. Even if their neighbor bought the same house for 20% less, in the end they all came out smelling like roses as long as they held the property long enough. One must keep in mind the amount of actual investment and not the purchase price to accurately reflect on whether or not the experience gained was from a good or bad decision. The best way to correct a purchase at the top of the market is to buy another property at the bottom of the market. So, what are you doing reading this when you should be out looking for a bargain?

Contribution by Larry Refsland, who has seen many properties go from good to better, with a little patience. He has real estate in Minnesota and Texas.

What’s a nice home like you doing with a Realtor like that?

In today’s more challenging market, it’s more important than ever to have a strategy on selling your home. Even with all the technology available to market your own home, most folks can use the assistance of a good real estate agent. Alas, that is the dilemma. How can you tell if the agent you sign a six month listing with is the right one for the job? My suggestion is to conduct a job interview with a variety of agents. If you don’t know a realtor, stick a FSBO sign in your yard and start setting up interviews with the agents that have the courage to call. The interview is pretty simple. It should go like this: “Tell me what you are going to do everyday for the next 30 days to sell this house.” If all you get for an answer is, “Put a sign in your yard, a lockbox on the door, put it on MLS and an ad in the paper,” keep looking. I would challenge anyone that wants the listing to come back with a 30 day marketing plan. If they can’t come up with 30 ideas to expose your home to prospective buyers, they are what is known as “order takers.” In this market, an order taker will make more money taking orders at McDonald’s. I’m not saying coming up with 30 ways to sell a home is as easy as the 50 ways to leave your lover that Paul Simon set to music. You might try it yourself and find yourself drawing a blank slate after the 7th or 8th day. But you’re not the one that claims to be worth anywhere from 5 to 7% of the sale price of your home.

Contribution by Larry Refsland. He was that realtor who had the courage to call FSBOs, and he took a lot of sales away from long-time realtors by presenting a 30 day marketing plan, when all they had was a "plant and pray" plan.

St. Joseph, A new way to sell real estate

Always looking for the most innovated way to market ahome is what most good real estate agents do. Some, however, are turning to a tactic that has been around for quite some time. Homesellers and real estate agents alike are buying statues of St. Joseph and burying his likeness in the yards of their homes for sale. St. Joseph, apparently, is a patron saint of homesellers due to the fact that he was a carpenter long before he was the step-father of Jesus. While not being opposed to prayer to sell a house, I object to any short-cut to hard work that homesellers and agents are known to take. I wonder what the buyer's are doing in this market named after them. Do you see them burying statues hoping a house will magically appear to them? No. My educated guess is that most buyers are waiting for some hard working real estate agent to get off their lazy butts and market the opportunities that exist in today's real estate field. Alas, they will have to wait because those agents are too busy burying statues or ordering them online so they can have a ready supply when homesellers come calling for their assistance. I can just hear the marketing plan: "So, what I'll do to sell your home is to 1. Put a sign in your yard, 2. Put a lockbox on your door, 3. Put it in the MLS and most importantly, 4. Loan you this wonderful statue of St. Joseph with instructions on where and how deep to bury him." Good luck with that.

Contribution from Larry Refsland, real estate agent for 13 years in the Twin Cities of Minnesota. Larry is currently working at a bank in Federal Way, Washington, where he is seeing just how much of a buyer's market we are in. Please feel free to comment!

My House Caught on Fire: Aftermath, Insurance, Contractors

My house caught on fire March 17, 2007. Happy St. Patrick's Day, right? I was in Mexico when it happened. This is the story of a house catching on fire, how to deal with the ashes, the insurance company, and the contractors. And your sanity. As I'm posting this, many Californians are dealing with their own houses and fires; hopefully, this information will be helpful to the fire victims of San Diego and beyond.

Aftermath
Ok, so the damage wasn't that bad at my house in Reno, Nevada. There were 13 houses hit in the fire. Apparently it was started by some kid (firecrackers, cigarettes, or some other illegal flame-inducing object). I'm not sure who was more to blame though: the kid or the out-of-control brush. And I'm not sure who is to blame for the brush. Although I have some ideas...

The roof, the shed, the fence, the yard was destroyed. The house was still live-able.

I was in Mexico. I got an email from my housesitter. Yikes.

I thought I would be able to handle the matter from afar.

Think again.

First, I had to rack my brain about who my insurance agent was. I didn't know any agents when I bought the house so I went with the realtor's recommendation. Found out that the agent had quit months before my claim, and passed her files onto some poor unsuspecting fool.

Poor girl.

The house was insured through Safeco, who proved to be a hassle. No one likes to hand out money, but seriously--my house caught on fire! And it's insured!!

Hassle #1: My name wasn't showing up as an "insured." My ex-husband's name was, though. You know how they always list the guy's name first? Apparently they just listed one name and then said, "Good enough."

Hassle #2: My mortgage company wasn't listed as an "additional insured." The insurance company never got the memo that my mortgage was sold almost immediately after I closed.

Hassle #3: My last name had changed.

I wasn't able to fix any of this stuff from Mexico. I wasn't able to track down a contractor by email, either.

Made it back to The States at the end of April. Got to work on fixing names and mortgage companies.

Hassle #4: I was now in Minnesota, visiting my family. New address.

Somewhere in here I got the Insurance Commission involved. They were able to get my ex's name off the insurance in a day (I had been trying for weeks).

Lesson #1: Get the Insurance Commission involved sooner, rather than later. They are government workers, so don't expect miracles. Ask questions. Is this normal? What happens next? How do I go about this?

Safeco issued a new check sometime in June.

By now I had found a contractor; but he was a young guy who had never worked with an insurance claim before. [And, he probably never will work for one, again!]

Lesson #2: As horrible as this sounds, hire someone who is better at dealing with insurance companies than they are at dealing with construction.

Awful, I know.

My contractor did excellent work, but is still waiting on more money. I've paid him everything I got from the insurance company, plus the deductible and depreciation.

Depreciation
If you do not understand how this works, call your insurance agent TODAY, and get a thorough explanation of depreciation of recoverable and non-recoverable items. I'm not sure I fully understand it still. Ask your agent to give you hypothetical scenarios: If my house catches on fire, and half of my fence burns down, and all of my shed vanishes--how much money will I get? And how much will I have to pay?

Some items get depreciated. Wood fences, for example (through Safeco, anyway). So, they don't give you the replacement cost; they give you what the fence, being so old and worn, is worth today. Try giving THAT to your contractor when he's done with your pickety goodness.

Not a happy contractor.

Lesson #3: I didn't really learn this, but it was confirmed. Make sure you have enough money sitting around somewhere to cover your deductible and all the costs associated with a house catching on fire (increased cell phone bill, increased heat bill from windows missing from firemen antsy to get into the house, veterinarian bill from dog getting attacked by coyote since fence is missing). Don't expect the insurance company to pick up the tab on anything. But do keep receipts just in case!

Just because you have a check, doesn't mean you have any money.

Had to finally make a two hour drive to get to a Countrywide Bank to get my final check endorsed. UGH! Countrywide wanted me to send an endorsed check for 20+ grand in the mail. Then they were going to DEPOSIT it into an account, inspect the property, and upon approval, send a new check. Certifiable.

Lesson #4: This is the best way to get a manager on the phone. Call, ask representative to speak with a manager. When they respond with, "I need more information so that I can send you to the right manager," just respond with silence. They'll finally ask, "Mrs. So and So? Hello?" Reply back excitedly, "Oh, hi! Are you the manager?" You'll be connected immediately.

Limit contact between your contractor and insurance company.

Apparently, insurance field estimators are trained in being vague to the point of deceiving contractors and claimees. Do not allow any contact between the contractor and the insurance company without your presence, either by a conference phone call or at the job site.

Be there!

Just because your contractor says the job will take $50K to do, doesn't mean the insurance company will agree or comply.

Ask for it in writing.

Some members of the Insurance industry are very good about only communicating in written form. With email, you can get a lot discussed (and recorded) with the insurance company.

Field Estimators, however, don't spend much time on the computer. They jot down little notes on their little clipboards, and then make up numbers when the time comes.

Slight exaggeration.

I get sick to my stomach every time I think about Safeco, hear the word Safeco, or type the word Safeco.

I think I'm going to puke.

Long story short, my house looks great. Safeco cancelled my policy upon their final inspection. Of course I'm not living there anymore! As good as the fence, roof, shed and yard look--it's still a reminder of ... I can't say it. But, actually, I was living there when they cancelled it. That was funny. Parked in the driveway with my bus. Using the laundry room, bathroom and kitchen.

I switched ALL of my house policies to a friend at Farmer's. So they lost two properties, three units.

Not that they care.

I want you to feel empowered by this post. Go review your insurance policy with your agent. Make sure the improvements you made last summer are covered. Make sure the correct names and spellings are on the policy. Make sure the mortgage company is correct.

And then go to sleep soundly at night.

Wait--check the batteries in your smoke detectors first.

Ok, now go to sleep!