Hi all… long time, no chat.
I will be presenting at a seminar for real estate investors. I am hopeful that you all might lend some insights and experiences for me.
I know as a former contractor, I bring a different perspective to the table than a finance specialist. I certainly have quite a few stories about saving a client big money, on what seemed like common-sense knowledge on a project. I am hoping that some of you have similar experiences.
So here is the question. If you could include a particular subject(s) in a seminar geared to investors (mostly semi-experienced, with a few novices included), what would it be? Any experiences that might be helpful for this kind of audience?
We are covering the major stuff… buy right, sell right, work to your skill-set, finance, etc. This is “Investor 101”. But what are the more common mistakes you see investors make and/or what is the skills/education you wish that investors had? Anything in particular you have seen an investor do that impressed you?
Thanks much in advance,
Rich from Columbus
Replies
I Wish Real Estate Investors....<<<
Would pay over asking price for my house when I sell it : )~
You know, not to generalize, but the 29% of people who still support President Bush are the ones who love to pronounce themselves more patriotic than the rest of us. But just saying you're patriotic is like saying you have a big one. If you have to say it, chances are it's not true.
http://WWW.CLIFFORDRENOVATIONS.COM
Thats easy. just lower your asking price way below market value.
I wish that the real estate industry would set higher ethical standards for broker-client relationships with loss of licenses for those who violate their client's trust.
If you want to teach investors something valuable, teach them how to spot a crooked RE agent. With all the games that they play, you could offer a degree in scam detection.
FWIW Hudson, in Ohio, the agent can most definitely lose their license if they act unethically.
I certainly won't say that there are not unethical agents in Ohio (just as there are unethical contractors); but when one steps over the line here... they come down on him/her with 2 tons of bricks.
It has gotten so rough in some cases, many agents will not assist the investor community. Too much risk. Personally, I think there should be a secondary license required for agents who work with investors (TOTALLY different and enhanced skills required).
Are you going to tell them about FHA 203K rehab loans? Great financial tool.Remodeling contractor who once visited the Glass City.
We do have a financial specialist (actually three of them; each in different specialties) that will be there to educate about financing.
And yes, 203(k)s are sometimes good for an owner occupied investment property. Especially since the new streamline program has come down the pipe.
Unfortunately, the streamline program is a little too short on dollars for financed repairs, IMHO. The best deals are not necessarily found within the limits. And the competition for properties that would be great for 203(k) streamline is huge (even in a down market).
A "normal 203(k)" can, if used in the proper context, help a person really get a firm footing on their long-term financial future. Keywords in the prior sentence being "if used in the proper context".
Thanks for the suggestion.
Edited 4/12/2007 10:37 pm ET by RichColumbus
<<FWIW Hudson, in Ohio, the agent can most definitely lose their license if they act unethically.>>
Here's a typical deal in California. Widow decides to sell house. Signs listing agreement with agent, friend of trusted friend. Listing agent doesn't mention that she has ready buyer (investor) if price is 10% below market. Listing agent talks widow (her client) into putting low price on house then, next day, presents offer from investor. The house sells without ever being listed, is never on the market. The listing agent gets both ends of the commission, 5.0% and God only knows how much of a kickback from the investor/buyer. That's minimum $30,000 off the top of a $600,000 sale. A couple of hours and some odorless BS.
This happened to two different widows who were friends/neighbors of my parents. Both sold at about 15% below market, believing that they were getting a fair price. Apparently it's not illegal to do business this way.
This is just one example of the many kinds of deceptive tactics which are used by RE agents, at least those I encountered in California.
I don't see that as unethical.
You are criticizing the agent for having a network off buyers. It's kinda like criticizing a carpenter for charging so much becuase he has skill, tools and a crew.
The sellers of that property were forewarned that they'll sell it quickly if it's 10% under market and that happened. I see that as win, win.
I think there are better examples of unethical agents. Remember....that agent made 30k, that day, but might have went months or days without any income. Also, that commission is split in a couple of ways to maintain an office and infrastructure.
I'm not a real esate agent but I refuse to feel sorry for sellers that don't talk to several agents and explore the services and get several market studies. These are free services offered everyday by almost every agent. Sellers: don't be lazy!
blue"...
keep looking for customers who want to hire YOU.. all the rest are looking for commodities.. are you a commodity ?... if you get sucked into "free estimates" and "soliciting bids"... then you are a commodity... if your operation is set up to compete as a commodity, then have at it..... but be prepared to keep your margins low and your overhead high...."
From the best of TauntonU.
Blue - the agent didn't mention that the house was being priced 10% low to the owner. Check out the original Post.
<<
I don't see that as unethical>>
Perhaps you don't get the way this is supposed to work. The listing agent represents the seller, period. The buyer's agent represents the buyer. The commission, paid by the seller, is meant to be split between the two agents.
The whole point of being the listing agent is to put the house on the market and get maximum exposure, thereby creating as much demand for it as possible so that all interested buyers will make offers.
If the house is withheld from the market, the homeowner never knows what it's real value is. If the house is sold to a buyer who has a previous relationship with the seller's agent, thereby allowing that agent to collect both halves of the commission, it is surely a conflict of interest, at the very least. Wouldn't you agree?
In neither case was the seller in a hurry. They just got manipulated by someone with much greater knowledge of the game.
Hudson,
I can only address how "I" would handle such a situation hypothetically, and what the regs say in Ohio. I am not familiar with California agency law... so I would not be able to specifically address anything having to do with California. In addition, I was not in the meetings with the agent and seller... so I could not comment directly to the specific situation anyway.
Given the scenario that you laid out, I would be required to disclose any prior relationship with any potential buyer. I could become a "dual agent" (term that describes an agent's position when he/she represents both the seller and the buyer). I would not be able to disclose certain confidential information to either party.
In my particular case, I would probably choose to inform the seller that if he/she listed their property, that I MAY have a potential investor that would move on the property quickly. HOWEVER, I would be required to explain to him/her what the projected value of the property is... and I would be required to inform him/her if an offer came in lower than that projected value. I have a fiduciary duty to look out for the best interest of my client.
Also, in my particular case, I would choose to release my buyer from his/her relationship with me... and offer to pay for a real estate attorney (of his or her choosing) to negotiate the deal on the buyer's behalf (with disclosure of that fact in the contract). While I CAN be a dual agent, I CHOOSE to avoid such a scenario as much as I possibly can. The reason I choose to avoid that particular position is because I, by my nature, am an advocate. In a dual agent scenario, I am required to become a neutral party... unable to advise either client of listing or offer price. I can provide factual data. But I cannot provide advise that could benefit either party. And that is a difficult position to be in for me AND it is benefiting NEITHER party in the transaction.
As an agent, I AM required to follow any lawful direction of my client. If an offer comes in well below market value, I am still required to accept that contract if my client tells me to do so. Even IF it is against my advice. I am also required to submit any offer that a client tells me to submit on a property, no matter how low it is.
If the seller wanted the property sold very quickly... one of my suggestions would be to list the property at a price that was below market value. Homes are chosen based on location, location, location. Value is mostly determined by the same three factors. BUT, speed of sale is highly dependent upon price (change that to MOSTLY dependent on price).
I have been in many listing appointments where the seller tells me they want the house sold as fast as possible. I give them my opinion of list price based on the "fast sell" scenario (which MAY be 10% below market, depending how fast homes are selling in that particular area). I also give them a price range and strategy for a full marketing cycle. I provide my sellers with ALL of the data that I have at my disposal (not just 3 comps of my choosing). I do tell them which comps I would value the highest, AND why they are of higher consideration. But the ultimate decision is theirs (the sellers), and theirs alone.
I have walked away from more listings than I have taken, because once I have provided the seller with the comp data... they choose to pick a listing price that is WAY too high in my opinion. Marketing a house is VERY expensive. I choose to take listings I think will actually sell. I refuse to "just give it a try" at a price that is so far out of whack that it would take a cash buyer to get a deal, because the house will never appraise at the asking price... no matter how much the seller would LIKE it to.
I have even gone so far as to recommend an appraisal be done on the house prior to listing if there is a disparity between what I think the house will sell for, and what the seller thinks the house will sell for. And yes, I have been persuaded by an appraisal to adjust my thinking on what a house's value is. #1, it gives the seller a very clear view of the value of the property, and #2, the appraisal can be included in the marketing materials for the house, thus assisting in the marketing of the property.
I certainly do not know the exact circumstances were with regard to the two transactions you described. I can , however, explain that selling a home is one of the most stressful things that most people do in their lives. Keeping the home in selling condition day after day is not fun. Going weeks without a showing creates self-doubt. It becomes very tempting for sellers to jump at any offer that is thrown at them. Especially when you turn on the TV and hear about the "housing bust" during every newscast. I can take you to areas of the Columbus market that homes sell very quckly... and 1/4 mile away, you can't sell a house to save your soul. BUT, when sellers hear about the "overall downturn in the market", and do not take into consideration the specific circumstance of THEIR sale... they can be scared into accepting the first offer that comes along.
I can clearly imagine a conversation with the agent in these transactions that went something like this (because I have very similar conversations on a very regular basis):
Seller: I want the most money in the shortest amount of time
Agent: Those two factors do not always go hand in hand. Fast sales are driven by price; Higher value-to-offer ratios are many times achieved through time.
Seller: Well, I want the house sold in 60 days because "pick the reason" (most common statement I hear in a listing presentation).
Agent: Then we will have to list the house at an aggressive, discounted price. Here is the price range that I believe will create the most interest in the shortest amount of time.
Seller: I could probably live with that.
Agent: I do have an investor that might be interested in the property if it is aggressively priced.
Seller: If that means I can sell it fast, tell your investor to bring me an offer.
Agent: I will have him/her come and see the property tomorrow. If he wants to place an offer, I will let you know immediately.
Seller: That is great. Let me know. I am not looking forward to having this house on the market for 6 months.
In the above scenario, the agent did EXACTLY what his/her client TOLD him/her to do. "Sell the house fast" It's a lawful direction from the seller. The agent would be REQUIRED to do everything within his/her power to follow that direction, by law.
Is it in the best interest of the seller? Maybe... maybe not. Is the seller facing foreclosure if the property isn't sold fast. Does he/she have a new home under construction, and the burden of two house payments would be worse than taking a lesser offer on the old house? based on the financial position of the seller, would the difference in selling price be eaten up in taxes? Is a fast sale necessary to settle an estate? I could go on and on about scenarios that a higher sales price over a longer period might not be in the best interest of the client. Sure... the highest sales price in the shortest time frame is the perfect scenario... however that is not always reality. The agent should explain the options and scenarios. But if the seller wants to sell the home quickly, no matter what... the obligation of the agent is to facilitate that.
Again, I certainly don't know the circumstances of the transactions you described. I only know what you have written. But I can assure you that there is much more than price involved in most real estate transactions. I am only pointing out the fact that the "beast deal" does not always mean "best price" in every situation... just as when hiring a contractor, "best deal" does not always mean "lowest price".
Edited 4/15/2007 2:16 am ET by RichColumbus
I do environmental consulting out of Columbus. I would like to add that those investing in commercial real estate should always get Phase I environmental site assessments. Yes, my firm makes some of our money performing these, but they are by no stretch our primary income and I really believe they offer a lot of protection and value. I've been involved with some transactions in the last several months where investors bought property for a great price without an assessment, and then got stuck paying a lot of money to investigate it or clean it up when they went to sell. Old gas stations and dry cleaners are common traps for small investors. It is still possible to get commercial loans from some lenders in this area on properties without having a Phase I, but it's not wise. As more and more investors come from the coasts and the loan industry has more and more foreclosures, it will be hard to sell without a Phase I. You don't want to learn of your problems when you are selling. Even if you didn't cause contamination, ignorance offers no protection to a property owner without documentation that you looked for environmental problems before buying.
That said, there is a lot of money to be made from potentially contaminated properties ("Brownfields") for investors willing to take the risk. Generally, higher risk leads to higher profits - knowing the risk is key. This arena has been a strong source of income for both us and the investors we work with. We'll evaluate the potential contamination, assess it, provide cost estimates to clean it up with and perform the work and oversight. In the end, properties can be sold without risk and promises that Ohio EPA will not sue. Companies in bankruptcy or looking to unload closed facilities often sell at a bargain simply because they don't want to to take the time to deal with it. There are many government programs at the local, state and federal level to encourage redevelopment of these properties, as well (grants, loans, etc.). Mayor Coleman announced a couple months ago that he intends to start a multi-million dollar program to revitalize abandoned industrial properties. We are already working with investors and the City and State on several properties here in Columbus, as well as others elsewhere.
A similar thing has happened with financing doublewides. Ten years ago you could get a conventional mortgage if it was on a permanent foundation. Now that the lenders are more nervous, you can only get a standard bank loan (not a mortgage) or FHA. Bank loans have much higher fees and rates, FHA brings a lot of additional costly foundation, wind, etc. requirements. A lot of people like doublewides because they are cheap to buy and profitable to rent, but it has gotten much more difficult and costly to unload them.
I guess my point for investors is not to shop for financing approval. Shopping for rates makes sense, but if a bank doesn't want to loan on a property, or wants a particular type of assessment first, be sure you understand why before you buy. There's a good chance other banks will join them by the time you go to sell and that assessment could save you a bundle of money. They take a little time to perform, but like most things that can be negotiated. Typical turnaround time on a Phase I is up to a month, but we almost always complete them early, and can do them much quicker if when needed.
A pot has been stirring of late in this small northeast Ohio community.
In the early 70s a gravel pit turned town dump for a short while had a large number of metal drums filled with toxic liquids buried on it's premises.
A number of years back some hunters stumbled upon some of the drums which had been exposed from erosion which ended up in the newspaper with the EPA drilling test wells along the brook which exited the pit to monitor the contaminant spread. That was the extent of their involvement at the time.
Nothing further was every said about the incident till of late as a lumbering outfit cleared the land around it and suddenly the land was offered free to the city from the owners, which was turned down.
I'm thinking things are readying to hit the fan here shortly.
Hope so, wouldn't mind seeing some of the wildlife return to that brook I grew up around.
be also hoping to see someone hung up by their gonads for this debacle.
Parolee # 53804
Sounds like another job I did elsewhere in Ohio. Guy wanted to sell a large parcel - couple hundred acres if I recall correctly. Would have been worth some money. Buyer or their bank required Phase I, so I went out and did some research. Ended up finding an old municipal landfill from the early 1900s filling a small ravine. A lot of interesting bottles, etc., and who knows what else underneath. The farmer of the time was charging a few dollars per pickup load from anyone who wanted to collect in a nearby small city. He was none too happy that I couldn't give him a clean bill of health without further work. We proposed some routes we could take, but he didn't wasn't interested. Didn't hear anything until a few years later I heard that the nearby city had a new park. I hope they didn't pay much for it.
I may be interested in learning more about the gravel pit/dump. Sounds like it could be a worthy project. It sounds an awful lot like a US EPA project down in southeastern Ohio (near Logan I think) where they were doing a pilot study trying to use trees to "soak up" the contaminants. Never heard how it turned out. Trees should be grown by now.
BTW, in the example you described... exactly as described... the seller may not have ever become a "client" of the agent.
If the house was never listed for sale, no contracts signed between the agent and the seller... the agent actually was an agent for the buyer. Therefore the actual fiduciary duty for the agent was to the buyer. IF the agent received confidential information from the seller, it could be argued that an implied agency arrangement existed. But in many states, the way to create an agency relationship is to sign a written document.
Given that scenario, the agent cannot lie to or mislead the seller... however the agent is under no obligation to work on behalf of the seller.
I would never ever recommend that a seller do a transaction in this fashion. But in many circumstances, it would be totally legal.
If you were to contract with me as a buyer's agent, and ask me to obtain property for you at lowest possible prices... it is my obligation to follow that lawful direction. If I were to act in a fashion that did not look out for your interest, I could be breaching my duty to you.
Example. An agent is working with a buyer to aquire land for development puposes or for speculation. The agent contacts owners of tracts of land that might be ripe for these scenarios. A potential seller sits down with the agent and says "I will part with 3 2-acre tracts for $5,000 each". The buyer may be willing to pay $10,000 for each lot. IF the agent were to tell the seller that the buyer would pay $10,000 each... he/she would make a larger commision. HOWEVER, the fiduciary duty is to the buyer in this scenario. The agent would be forbidden from telling the seller about the higher price potential.
Again, I would be very clear with the seller who i represent (the buyer), as required by law. However, if the seller chose to be unrepresented... I cannot force them to obtain representation. FWIW, although I offer to pay for a buyer's real estate attorney in situations where I could become qualified as a dual agent, I have had people initially refuse the offer. So far, after I explain again that the attorney will be one of their choosing, and that i will pick up the tab, each has chosen to accept the offer (disclosed, of course). I just think it is unique that I have had people turn me down on the offer in the past.
Edited 4/15/2007 3:01 am ET by RichColumbus
Rich,
I'm glad to know that you understand your responsibilities and take them seriously. What I find peculiar is that you don't seem to know or are unwilling to acknowledge that other "real estate professionals" are less highly motivated. It's one thing to know the ethical standards of a job and another to uphold them to the letter of the law, in every transaction.
Perhaps California is a particularly bad example of behavior by RE agents. I certainly hope that's the case because, of the ten or twelve agents I interviewed there as potential listing agents, only one of them proved to be open, honest and concerned about representing my interests. That number included several old friends of our family too. Amazing to me how a little indoctrination in sales meetings can void a lifetime of ethical beliefs. I guess the potential big bucks and easy sales make that kind of rationalization easy for some. That's what the evidence would suggest anyway. Or that said beliefs were not strongly held.
"to thine own bottom line, be true" Shake spear
Edited 4/15/2007 6:54 am ET by Hudson Valley Carpenter
Hudson,
I certainly acknowledge that there are agents in my profession that do not uphold high standards of behavior. I referred to them as "wannabees" is my post on number 88440.13.
It seems every profession has a group of persons that either a)are out to make a quick buck at the expense of the consumer or b)do not understand their obligations under prevailing laws or c) do not operate in an ethical manner. Do I like that fact? Oh heck no! Do I realize it? Yes.
Another issue is the mis-perception that people have when deciding to get into the real estate field. They are under the false assumption that being a real estate agent is "easy money". They then conduct their business in that fashion. They work the business part-time (there are a few part-time agents that are very good, but if I was hiring a real estate professional, I would choose someone who works the business full-time), do not study the market as carefully as they should, do not attend ethics training or practice what they are taught, do not conduct peer-reviews of transactions, etc.
But here is what I do not understand about your post. You seem to want to lump all real estate professionals in one pot and label them as "bad". You also seem to be attempting to transfer to me, the bad experiences that you may have had in the past.
Would it be fair for me to transfer to you all of the bad experiences I have had, or heard about, regarding contractors? I do not think that would be right. As a matter of fact, I would rather enjoy a conversation that discussed how you are NOT like those that would take advantage of others for a quick buck, and how you balance your needs to operate a profitable business without taking advantage of others. Maybe I am just too idealistic.
Sure, I can talk all day about things I would do differently when presented with a particular hypothetical scenario (as I am sure you could do also if we were talking about your profession). However, I learned a long time ago that there are always two sides to every story. Sometimes three, four or five sides. So if you are disappointed that I would not hammer the agent because of hearing one limited side of the story... and perhaps my even attempting to explain how the transaction MAY not be as it seems... I am sorry to provide disappointment. I wasn't there for the discussions (and I believe you weren't either). I may actually be acting unethically if I DID try to pass judgment on the transaction without having all of the facts (and besides, I wouldn't even attempt to dissect the transaction... even if I wanted to, or could... because I am not familiar with California).
I will wrap up by attempting (probably with no luck) to point out one other item that you may want to take into consideration. If you interviewed me as a listing agent... and said something to the effect of "all agents are bad" during that interview... most likely you would not get the level of satisfaction in our conversation you were looking for in an agent. You would get a conversation that centered strictly around what is required of me by law... nothing more, nothing less. To do otherwise would be futile on my part, as you (in my interpretation) have already disclosed to me that the relationship, if contracted, is going to be an adversarial one. Why would I punish myself by assuming that I could become that one agent that could change your mind about all agents being bad? Would I walk away from the transaction? Maybe, maybe not. It would depend on the overall course of the conversation. BUT, I WOULD be careful to not get overly wrapped up in the deal initially, as chances are pretty good you are looking for someone to tell you what you WANT to hear, not what you NEED to hear.
In another thread, it is being discussed how a contractor was caught off guard that he wasn't getting paid, even after hearing the client bad-mouth other contractors. He thought he could "be better than the other guys" that the client was talking about. As it turns out (at least by what has been posted), the particular client was the type of individual that bad mouths every-thing about every-one, apparently to include his company. The warning signs of a potential problem were there, just ignored. I also have learned that lesson the hard way, both in the contracting business and in the real estate business. I was just too dense to learn the first time... it took the second time for me to adjust accordingly.
If you are judging the efficacy of an agent by his/her willingness to bash other agents, I would venture to say that you are evaluating the wrong "quality". Just as someone would be doing themselves an injustice by evaluating a contractor by his/her willingness to point out how every other contractor does shoddy work.
Rich- Thanks for your explanation of the some of the ethics of your profession.
My wife is a part-time RE agent who brings these ethical discussions home with her periodically and I am always impressed with the level of concern that she and her associates bring to these problems. I am sure that this is because there is a built in conflict of interest in all sales. The only real deterrent to this is the same deterrent that contractors have, your reputation for honesty and fair play. I am sure that the most successful RE people have this as their main selling point, just like contractors.
As far as putting together buyers and sellers, knowing the needs of both parties and finding a mutually beneficial common ground; this seems to me to be the essence of a good deal. I understand that it raises the possibility of a conflict of interest but this might well be outweighed by a timely transaction at a fair price. This result might never happen without the contacts and knowledge of the RE pro.
<< If you interviewed me as a listing agent... and said something to the effect of "all agents are bad" during that interview... most likely you would not get the level of satisfaction in our conversation you were looking for in an agent>>
I began each interview thinking that this next person or these two people must be different than the previous bunch of sleazy salespeople. What continued to surprise me were the number of tactics being used to get control of the property and the price. Their aims always seemed include attempts at devaluing the property to below it's real value so as to sell it quickly. To accomplish this they would only bring reports on comps (recently sold homes in the same neighborhood) which were in the lower half of sale prices. With only one exception, the agent/owner of a small independent RE firm, they would each lie when asked if the comps they provided were all the recently sold homes in our neighborhood. I would take their word for it initially, then later call an appraiser who I'd become acquainted with, to get the complete list of comps. As both the appraiser and the agents were working from the same data base, there could be no doubt that the agents were attempting to deceive me in order to list the home at a price which guarantee a quick sale.
That's one simple example of many tactics I ran into while attempting to find a listing agent who had some integrity.
So much for honesty and serving the client's interests.
If you want to keep defending the RE industry, I'll be happy to keep offering evidence of shady deals of which I'm aware.
And BTW, your several suggestions that the two deals I mentioned might've been conducted more honestly and openly than I've reported them to be, that I might be assuming malicious intent, is insulting and suggests that you're trying to discredit me and my reports to make yourself look lily white.
In any event, your suggestions are serving to reaffirm my resolve to publicly discredit those RE agents who hide the truth from potential clients.
Edited 4/15/2007 12:35 pm ET by Hudson Valley Carpenter
They need to be realistic in learning to crunch the numbers. For every one of them like Tim Mooney here who can analyse how much it will cost to get max improvment for efficient dollars, there are twenty of them who think that a kitchen can be replaced and updated for only seven grand, or that ten grand worth of paint and roof should get them another fifty grand on the market.
If they want to know what an improvement will cost, they need to ask a contrator, not the RE agent selling them the property.
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Excellence is its own reward!
I agree with Piffin's comments. Also stop guessing what you need. Tell me what you want to accomplish and for what dollar range. When I talk with them they want to come off as the expert on what to put in a bath remodel and know nothing about it.
Yes a plastic tub from Lowes seems like less money but when the tennants child stuffs a broom handle through the bottom it now is expensive. Find a competent contractor, take his advice, find one that can make your time line and get the work done.
I also am an investor and always paid a little extra to get better work done on the areas I don't do. Roofs for example. It has always been a selling point to say the job was done by a competent roofer. And if it is a rental it is easier to sleep during a rain storm lol. DanT
OUt of curiosity, when where & for whom are you presenting to? I tend to agree with what Piffin said as well. a Realistic view of what things cost would help tremendously.
I think the previous posts have already pinpointed the main issue. I'd just like to add that perhaps you could advise your investors to develop a relationship with a contractor before buying a property. They then could do a walk-thru with the contractor to come up with realistic costs before they purchase. This information would be invaluable when making the decision whether or not the property is even financially viable.
I 've thought of fixing up properties to make money for years, unfortunately, the market I live in dosen't offer enough spread between buy and sell to make it feasable. I'm sure if I spent the time, I could find an opportunity, but they do seem to be few and far between. Maybe another point you could bring up.
These two points, plus, advise them NOT to make their fortunes off the backs of small working stiffs like me. :)
one thing i see all the time from RE people is most of the time they hire the very cheapest contractors or the worst ones based on price, I wish they could understand if they hired time and material its a better deal to hire a tradesman with tools and skills then the layed off mill worker or moonlighter, Also working tradesman are not impressed when a RE agent drives a fancy car.
You need to tell them to quit watching "Flip This House". To many people think they can buy a home; slap on some paint; install cheap new carpet and get $100,000 profit when the area only supports $100,000 for the house.
Just my 2 cents ....
A couple of things. I have found buying a new house turns out to be a better investment, in general, than buying a used one. Used ones have benefits but as an investment they(new) are pretty good.
Remember real estate peope are SALEPEOPLE first and foremost. They are not in the business to connect wanting people together. They are in it for the money. There is nothing wrong with that priniciple, just never forget it. Of course they are really friendly. Miserable salespeople don't make much MONEY.
We have always got 20-30% more for our houses than what real estate suggested. Quote:" Wow Roger, this place is fantastic, the garden is like Better Homes and Gardens and the renovations look stunning and everything is in move in condition like a new home BUT it doesn't have garage" There is always a but. The but is either before listing or if it hasn't sold in the "suggested" 2 days. They want to move houses not have them sit there.
Know the market. A 3 bedroom bungalow might not be worth the same a few blocks away. So don't fall for " 3 bedroom bungalows are selling for..........."
Buy filthy dirty houses(and there are scores of them) cheap and sell immaculate clean houses(not too many of them) for more. That's profit. People want to move into what looks like a new home. It's called "eye candy".
roger
in addition to the other good advice . . .
poop or get off the pot
be realistic
do homework
plan on the worst thing happening at any given moment
and learn quality by recognizing what you would value if you didn't own the property.
Rich ,
I am curious here. What are you bringing to the table at this seminar?
From your postt is seems the seminar is just another money making deal for the people putting it on. You say you were once a contractor, what do you do now?
Thanks for the responses so far folks.
I am presenting this seminar to a group of people who are 1) limited experience investors or 2) just starting out in the field of investing. There will be a few experienced investors looking to pick up a tidbit of info... but very few.
Most will be small investors; some looking for rental property that needs a bit of fixing up. A few will be people looking to fix up a home and sell it. A smaller few will be speculative investors.
Many will have good business backgrounds (hopefully). They are generally looking to build their net-worth over long-term investment.
We give them a VERY realistic view of the landscape of real estate investing. Tough love, if you will. We actually go above and beyond to make sure they have the dedication, will, and perseverance required. No sugar coating from this seminar.
To those who asked what I bring to the table and what my position is in the mix. I am a real estate agent. A good ethical one, though (and yes, I agree that my profession has many wannabees). I have a lot of people approach me about investing in property, but they have no idea where to begin. Thus, the seminar for investors.
I have seen WAYYYY too many people go to a "get rich quick seminar" (BOTH as a contractor and as a real estate professional)... buy thousands of dollars worth of worthless books and tapes... and end up getting taken for bumpy rides. If I have a client that is an investor, I want him/her to be VERY successful. After all, if he/she is successful over the long haul, so am I (and yes, I am in it for the money. But I make more money when my clients are successful, than I do if they are "one and out". Not to mention that I have a great love for sleeping well at night... and I definitely could not sleep well if I did something that wasn't in the best interest of my clients).
To address the issue of hiring the "cheapest" contractor... I am a strong advocate of hiring the "best value" contractor. That means the cheapest price is not necessarily the best bid. Timeliness, quality of work, transferable warranties (if applicable), appropriate licensing, correct insurances, etc. are major factors to be considered beyond price.
I did a lot of work, when I was a contractor, for investors. Some of them were exceptional to work for. Some were real pains in the tuckus. Not surprisingly, it seemed the ones who were great to work for, were the ones who made the most money.
Thanks again for your responses so far. I am really trying to impress upon these new investors the importance of working with good contractors and subcontractors. I am hoping to show this wisdom to the investors that have ventured out into the field and not necessarily been successful (especially if it was because of bad client/contractor relationships). I personally think this is a major factor in their profitability over the long term.
PS. The seminar is at no cost to the participants, and we have no books or tapes for sale. Yes, I am looking to pick up clients as a result of the seminar. But I hope to do so by giving them straight and honest answers to their questions.
Edited 4/12/2007 10:16 pm ET by RichColumbus
Edited 4/12/2007 10:17 pm ET by RichColumbus
You've probably already seen these, but just in case
Is Anyone Interrrested In Flips ? flipping in a down real estate market SamT
There are three kinds of people: Predaters, Prey, and Paladins. The really strange thing is that Prey feels safer from Predators by disarming and emasculating Paladins.
" the importance of working with good contractors and subcontractors. "Storey of two sistersSamll Colorado town - two sisters had married two brothers back about end of WW2. Over the years the brothers buikt quite a bit of the business in town and invested well. They owned the grocery store, the farm equipment, the hardware store, etc, as well as a lot of rentals, maybe 40-50 of those.The brothers died close to the same time and they wisely had set up the wills to place the assests into two trusts for their children to be managed respectively by the sisters. Each had control over their own trust which had about half the properties.Wehn I moved there, I started doing maint work for both of them. One was a sweet old gal who treated her renters very well and always paid promptly what I asked of her on my billings. a con could have taken her for a long ride. Her renters were happy and respected her and rarely moved so her turnover was low.The other sister was freindly on the surface with what appeared to be a touch of class.
But inside she was a shrew. On every job she tried to whittle me down with "Oh my, but I'mjust a poor old widow lady, woe is me, I don't know if I can afford this...."
She postponed needed maintainance and ccharged higher rates to her renters resulting in higher turnovers on the rent and more damage to houses when they did move, anticipating that they would be foregoing their deposit anyway.
So her properties were always closer to slum conditions and by time she passed on, the assets were worth less on the market for her hildren to inherit.I finally quit working for her, as other contractors before me had done, so she was left with only lower skilled, less ethiccal work being performed on her properties. In the long run, she hurt herself by trying to be cheap.I have also worked for some seminar investors.One guy was worth about seven million on paper - this back in the late seventies when a million was worth something. His answer to everything was to paint it.
He was from Denver and came to town buying up a few places. He got me involved and I was breezing along spiffing things up. New paint, sometimes replace carpet or floor tile. One day I told him he needed to rebuild the steps leading down under a house from outside bulkhead entry. He argued about what it woud cost, and suggested that it would be cheaper to use his standard repair product - more paint...
I reached down and grabbed a tread in my hand and pulled a fistfull of rotted wood up to hand him. I told him that HE was welcome to walk those steps if he wanted, but that no tradesman was going down there to work on the utioites for him while they were so dangerous, and that he would be liable for injury cases if he refused to fix.He acted like a sixth grade girl, exclaiming "Well! Fix it as cheap as you can then", and whirled on his heel and took off.
That was my signal that I was not interested in any more work for him.I guess my point here overall is that investors who send signals that they are not interested in spending the needed dinero to get good work and who are unable to make good decisions will automaticly limit themselves to the cheaper breed of lower skilled workers by default, and will then have to rent to or sell to the lower breed of renters and buyers.
So they need to determione at outset what segement of the market they want to work with, bottom feeders or high flyers
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
make sure they base their mortgage on the least amount they've made, not the most. too many times i've seen people jump into a real estate venture because things were going well at the time and they figured they could afford it. all of a sudden things slow down, and that $2500 a month looks like a lot more than it did. the mortgage should not exceed what can be paid, when making the least, not the most.
Hi Rich -
I'm in Columbus and I think I fit your profile (professional with limited experience in real estate). I'd be interested in attending your semniar. Is it still open? It sounds like what I've been looking for.
Thanks in advance.
Trying carefully not to step on the original posters toes, read this thread and the flipping thread very carefully, and you already have a very good staart. More information is always helpful though, you can't possibly know too much! Well, you might, but I sure never will. Good luck
Dan
Be bold. I hear more complaints about the one that someone didn't move on than I do about what was actually bought.
Be sure to check floodplain info, look for drainage problems around the house. Seems that a lot of folks, even builders of new homes, miss problems with drainage.
"Doubt is not a pleasant condition, but certainty is absurd."
~ Voltaire
property like anything else... you need to know about it before you "invest"
which i think means... to the small investor... you need to know how to do just about everything yourself... the extra 3k spent somewhere can sometimes be equal to 2-3yrs worth of profits... I'm not say'n you have to do every repair yourself but you damn sure need to know enough about it so that you don't have to trust anyone elses word on what needs to be done & how...
rule #1 any money you don't spend is money you don't have to make...
if you plan on someone else managing your property you might as well skip the property and just hand a stranger your checkbook
it's not easy... having rental property takes time and it's work what you are doing is purchasing a job...
you better have tools... and the skill sets to use them
I don't feel comfortable unless i have a min 2 to 1 ratio income vs expenses
anyone can own property that costs you $100 a month to own... just real hard to own alot like that
I do what the people you'll be talking to want to do... but i have the skill set, tools & equipment to do anything... I have at any given time aprox 100 tenants (all but 2 commerical) and my cell phone rings non stop... it's not for most people and i pretty much suck at it... but we all have to do something.... think i'd prefer 800k a yr and an expense account.... but since the phone ain't ring'n with job offers... I'm here
p
Are the investors going to be making the decisions on what needs to be done vs what they want to do. ex: new boiler vs granite counter. They gota know where their strengths and weaknesses are on those subjects.
Also what ever decisions are going to be made should be done as soon as possible and not change their mind. ex:what kind of kitchen cabs and where are they going. Change orders are gona eat their profits.
I feel compelled to add my two cents, seeing as though I been there and done it. I sold for a while, maintained rentals for a while, tried to be a developer builder, and now I am fixing problems for people who cant or won't. I firmly believe the key is in digging up the best opportunities. I personally went to a jail to have a listing signed by somebody getting ready to be foreclosed, I also broke into a vacant bank owned house once and sold it before the bank figured out that it was theirs, that was fun one. Finding the House, Diagnosing the problems, figuring cost to fix, figuring finished value either to sell or rent, these are the issues. Learning when to admit they don't know the answer and how to find who to ask. Good luck
Dan
Probably should have mentioned this earlier, but depending on where your investors are looking they might be able to apply for a $3000 matching grant or low interest loans through the city. It's for NCR (Neighborhood Commercial Revitalization) areas to spur economic development.
The Columbus land bank has some good deals as well.
Sometimes we fail to realize how we look to others. Present the following "shock treatment" to your 'wanna-bes:'
"All Real-estate investors are scum. These belly-crawling low-lifes want everything NOW, make lavish promises of future work .... then expect you to settle for a reduced amount nine months later, after the closing. The promised future work never happens. It seems like everybody thinks that they're Donald Trump. The expect to 'flip' the place right after you finish for an extra $100K, yet piss and moan about the $20K you want to do ALL the work.
"Don't ever expect a straight answer from them. Do you want carpet, or wood flooring? Expect the answer to be 'well, it depends....", followed by 'when will you be done?'
"Finally, they expect everything for free. Free advice. Free quotes. 90% of your reports will NEVER be acted upon ... once used as a bargaining lever, there will be NO desire to have the needed work performed."
renosteinke,
Anytime I see the word "all" when describing people, I have to cringe.
All investors don't act in the fashion you describe. Some do. But I would venture a guess that the majority do not. Certainly the ones I work with do not.
I did have one guy that did act in this fashion, and I terminated the relationship. My reputation is one of my biggest assets in this business. Being associated with someone who acts in this fashion is a quick way to tarnish that reputation.
I am not saying that the investors I work with aren't driven business people and looking to trim costs where possible. They most certainly are, and do. I assist my clients every day with just that. But they realize that there is a fine line between driving a hard bargain, and driving a wedge in between business relationships.
When I was in contracting, I had investors that would use me to do quotes for free, and then never use me for the work. I had some that would drag out payment terms as long as I would let them. I had many that would be indecisive. But, quite frankly, I had more homeowners (non-investment) that would take advantage in that way than investors. I chose to change my business practices to address the situation. They were only taking advantage of something that I allowed them to do. I made those changes with great trepidation at the time.
Surprisingly enough, those same investors would take advantage of my discount for quick payment, paid my charges for quotes (that were credited if I did the work), and would pay me a fee if they asked for multiple quotes in the "wood flooring vs carpet" scenario. I only had myself to blame for being taken advantage of.
Edited 4/15/2007 3:03 am ET by RichColumbus
It seems I erred in assuming my description of the comments as "shock treatment" would make it clear I was deliberately exaggerating things to make a point. You did want to get everyone's attention - right? I am sure that there are reputable "investors" out there. I even continue to do work for the 2 or 3 ... out of nearly 100 ... that made the grade (in my book.) Those numbers alone ought to suggest that 'realtors' as a group have a poor record. (And, lest anyone get upset at my use of the term 'realtor,' almost every one I referred to in those numbers was, in fact, a card-carrying, state-licensed, member of the profession!) With the property bubble of the past decade, things got even worse as greedy amateurs became overnight 'flippers.' Now that the bubble has burst, countless contractors are out on a limb, waiting for payment on properties that aren't likely to turn a profit before Chelsea Clinton is old enough to run for President. This is, largely, a contractors' forum. Another reason for the 'cant in my rant' was to get contractors' attention, as well as that of investors. I see far too many small guys have their dreams torpedoed by sociopathic sharks in 'investors' clothing.
FWIW, the seminar was a great success. LOTS of learnin' went on yesterday.
I greatly appreciate the input of all of the members here. A couple of the topics discussed here came up... and I will be sure to address the other suggestions with the folks who decide to pursue it further.
We had a good mix of people; experienced and new investors. IMHO, one of the true values of these things is the ability of the participants to ask questions (both of the presenters and of each other)... and there was a LOT of questions asked and answered. Great interaction.
Again, thanks a ton to all who made suggestions.
You asked about interesting things relating to real estate investing and about 10 years ago my brother (real estate agent in denver) walked into the real estate office where he works.He walked past a guy with long hair in the reception area and said "hi" and when he got to the back offices he asked someone "who's the guy with long hair?They said "that's Slash the guitar player in guns and roses'He's here to buy investment real estate here in Denver"I thought it was interesting that a guy like slash with a lot of $$ had chosen real estate as his way of investing his money.I didn't hear anything further and have no idea what he bought or what is niche is.Wouldn't it be nice to have a guy like Slash as your client? He could probably write a check for the houses he buys.^^^^^^
a Smith & Wesson beats four Aces