Welcome To My Loo

For the last five years my wife and I have gone without a formal toilet paper dispenser in our bathroom.  Part of our problem has been that we are very picky about style.  In the meantime, my wife has done a good job buying decorative baskets and such to make the toilet paper look cute sitting on a shelf.  But our world is about to change.  Recently, I found a great item for sale on Ebay.

This vintage-style reproduction of a toilet paper dispenser dates back to ones used at the turn of the century.  The original dispenser in our home went right where you see this one.  Life just got a lot better for all of us.

If you are in need of a vintage style toilet paper dispenser and don't mind a reproduction, go to The Charleston Hardware Co. website and check out thier inventory.  They have some nice wire soap baskets for claw foot tubs as well.  I asked them to antique the brass finish and they did it for just an extra $5.  Not a bad deal at all.  Now pardon me as I am off to use my new fancy dispenser....

Project Victorian Tour: 321 27th Street

For those of you who love restoration projects and old homes, please consider this property:

Part 1



Part 2

Ogden Valley: The Tale of Two Visions

The Weber County Commission met recently to vote on issues related to Ogden Valley and its growth and development. There was quite a showing by local residents who rebuffed many of the proposals on the table and were able to alter the results of the intitial proposals.  Here are the issues discussed:

• Zoning - Providing an amendment to allow commercial storage buidlings on lots where that use is currently not allowed.  Result:  After critisism from the public, the commission tabled the decision for later consideration.
• Commercial Amenities - Provide an amendment to allow for larger commercial signs and those that are interior lit.  Result:  After critisism from the public, the commission passed the larger sign ordinance but declined to do so for the interior lit portion of the proposal.
• Master Plan - the commission provided an update to its 20 year master plan.  Debate arose about a proposed road that passes through sensitive historic farmland.  Result: The commission changed the name of the map to the Ogden Valley Elements Map.

The fight to make Ogden a quality resort location is the same fight going on in Downtown Ogden in the effort to rejuvenate and restore it.  The specific issues at hand in each area are very different from one another, yet the spirit of the causes are the same: Crafting Quality of Life.

In each community you have two visions of the future.  In Ogden Valley, there is a natural trend toward easy development to meet immediate demand.  The problem with this approach is that easy development makes for poor quality, which in turn affects everybody with the externalities of poor asthetics, and therefore reduced demand and property values.  Zoning and building plans should be carefully considered because once something goes up, it takes a generation or two to correct if it's bad.  Just take a look at all the residual atrocities frleft om zoning mistakes in Ogden in the 1960's.  If Ogden Valley wants to preserve its future as a resort destination, it would be best for it, and the County Commission, to adopt policies in line with that vision.  If Ogden Valley wants to be just another mountain town, then easy unthoughtful development will meet its needs cheaply.  Fortunately, the choice is in the publics hands.

Merry Christmas!

Seasons greetings to everyone from the Peterson home!  

May our spirits be lifted as we reflect on this holiday of remembrance. 

Price and Appreciation Update

Its been a while since we updated our price index and appreciation charts.  Here is the latest data as of Q3 2009 from FHFA.

This first chart is a little scary.  Especially for Salt Lake and Utah Counties.  We have broken the barriers for depreciation year over year at least for as far as our chart goes back in history to 1986.  If you look at the Ogden curve, it seems to be flattening out while the other two counties are still accelerating in their depreciation.

The next chart shows was what is happening to the price points in index form.  The flattening out is evident in the Ogden curve while Salt Lake and Utah County look like a ride from Lagoon.

My take on things, judging from the current market, is that prices have stabilized where they are going to be for a little while...at least in the Ogden market.  Look for the appreciation curve to return to Zero over the next few quarters and stay there for a few years.

However, there could be another shift downward if unemployment takes a significant hike upwards.  Lets hope that is not the case.

REO Market: Dysfunction Junction

I have lots of interesting stories from the REO market this week.  Besides buyers being totally irrational, we have the added melee of banks running around with their heads cut off.  Lets review some examples:

1.  2676 Jackson Ave.

List price $44,900.  This home was a real doozey.  The picture looks nice right?  Well what you don't see is that all that rock has been put on the house by a five year old.  They also put the rock on the front porch...not around it but on the walking surface.  A major ankle-rolling hazard.  Inside you have two layers of tile that need removal, floors that are sagging from failed posts in the cellar, no kitchen, no furnace, and foundation issues.  Plus all the windows need replacement because they were scabbed into place. No casings...ect ect ect.  This home should have sold for around $32,000 with all the work required.  Just shy of a teardown.  What did this atrocity sell for?  $45,000!

2. 865 Binford St.

This is an example of asset manager buffoonery at the banks.  This property started out at a listing price of $48,105 back in September.  The price reduced to $43,105 in November.  My clients placed a full price offer on the property Friday of last week.  When I called to confirm the receipt of the offer, they told me the asset manager "accidentally" signed a contract with an online auction company to market the property the day we submitted our offer.  So, they said, we would have to wait  seven days to see how the auction turned out.  Wierdly, on Wednesday, the list price was reduced to $38,105.  Then on Friday they placed it under contract!  What!?  I petitioned the listing agent for answers to this wacky situation and why our offer, which was $5,000 higher than his new list price, was overlooked.  I still have not heard back from the agent. 

3. 2174 Jefferson Ave.

Ok, this was also a case of buyer's gone crazy.  The bank listed this 6,200 SQFT giant fourplex very competitively at $149,900.  It was definitely a cash cow if you could finance the repairs which I estimated at around $30,000-$40,000.  I had six of my clients inquire about the property and I represented two of them in submitting offers.  So what happens?  Well, the listing agent recieves six offers from various parties and one took the cake.  The listing agent never disclosed the amount of the winning offer but my understanding from anonymous sources is that there is concern that the offer accepted by the bank "may not appraise".  What kind of buyers are out there bidding on an INVESTMENT that won't appraise for what they are wanting to pay for it?  For heaven's sake have they gone mad? 

The REO market and wholesale market in general has entered an irrational exuberance phase that I can't get my head around entirely.  With tighter FHA guidelines around the corner, higher interest rates knocking at our door, and an expiring Home Buyer Tax credit just months away, I think the folks buying wholesale properties at a premium are in for a rude awakening.  Retail prices will not go up when these events occur and paying too much for a home on the wholesale side simply doesn't make sense.  Perhaps buyers (and their agents) haven't priced these events in yet.  If so, WHOOPS!   

REO Market Hot! Hot! Hot!

The REO market in Utah is heating up.  I have placed several offers in the last few days with multiple clients.  I keep hearing the same thing from the listing agents: "You are in a multiple offer situation.  Give us your highest and best offer."

Since the REO game is mostly for cash players, where is this cash coming from?  Frankly, I have no idea.  What I do know is that the number of players in the market is increasing and shifting the dynamic on how to bid on these properties.  Que today's chart please....

 
To get a feel for what buyers can expect to purchase a wholesale (sub $70K) property for, I took all the sales for the last year and figured out the difference between the list price and the closing price.  I wanted to see if there was a trend in the numbers.  I slapped a 7-sale moving average in and presto!  Its not perfect science but it helps us get our head around whats happening out there.  This chart is in chronological order according to sale date.

My gut told me in July that there was something wierd going on in the market.  I placed two offers on bank owned propety then and felt like I was fighting for table scraps with the other dogs. As we can see in this chart, July was a highly competitive month.  Then in August there is a big lull with buyers getting some significant discounts.  Since then there has been a steady run up to November which was also highly contested. 

I have been bidding on properties with my clients but we have been very particular about the area in which we are bidding.  We are also sensitive to property condition.  This chart includes all areas of Weber County so some of the heavier discounts have been for properties in rough neighborhoods.  Also represented here are properties that were "too rough" to bid on but were bought by somebody anyway.  I keep telling my clients "the joke is on that guy" for paying too much for a lemon. 


Another thing to consider is that some of these properties are being purchased by owner occupants.  No investor can compete with an owner occupant.  They will be outbid everytime.

Perhaps January will bring another lull and another window of opportunity.  In the meantime, we need to sharpen our senses and prepare to compete.

MBA: Refi Boom Ending

The Mortgage Bankers Association came out with their numbers for 2009 along with a forecast of future loan production for 2010 and 2011.  Here is their forecast distilled in a chart:

The MBA tracks refinances and purchase loans.  It does not track real estate transaction associated with cash purchase or other alternative financing.  What this chart is telling us is that purchase loans will build on the volume of 2009 but refinances will be in decline.  What is not included in this chart but in the MBA report is that interest rates are projected to climb steadily to 6.2% by the end of 2011.  Interestingly, the MBA appears to only be allowing for a .3% distortion created by the Fed purchase of Fannie and Freddie debt.  Other studies have shown the distortion may be as much as a full percentage point.  If the rate goes higher than 6.2% then refinance figures will be lower than projected here.  Let's watch and see.   

Ice Land: Sledding Through A Frozen Multi-Unit Market

Earlier in the year I posted The Changing Face of Investment Financing.  The point was to illustrate some seismic shifts in the way multi-unit transactions were being conducted.  The year is almost over and I thought I would revisit that subject with updated charts.  Here is our first illustration:

As we can see, sales of multi units have fallen off a cliff in the last two years.  With 51 sales completed year-to-date (5 of which were mine...smile), we have seen a 78% drop in sales volume since 2006.  The decline seems to be lessening year over year so next year hopefully should be equal or slightly better in sales.  The catch is I don't think the market is going to feel any better next year.  What I think is going to happen is that sellers will simply become more realistic about their options.  Let's explain with the next chart:

 
As you can see in this chart, normal mortgage financing - the preferred means of selling a propety - has taken a nosedive.  Meanwhile, cash, seller financing, and FHA have increased dramatically.  Today there are 134 multi-unit buildings for sale in Weber County.  This year we sold 51.  Doing some quick math shows we have 2.6 years of inventory right now. Yikes!  This very slow absorption rate in the market means that sellers will likely become more motivated as time marches forward...especially the ones that aren't good at management.  Since there is no "saftey-net" of conventional selling out there to rescue troubled investors, I believe several things will happen:

1.  More owners will become troubled as the economy starts to take its toll on employement and therefore rents and debt servicing.
2.  Many owners, especially the over leveraged ones, will simply abandon their properties to The Dead Zone and the cash buyers that loiter there.
3.  Those that are not over leveraged will seek alternative arrangements to rid themselves of the burden of managing rental property (i.e seller financing)

So in 2010 look for conventional financing to take another dip lower and cash and seller financing numbers to increase.  Also, look for FHA numbers to flatten as FHA tightens guidelines in the next several months.

2010 should be a great year for alternative finance.

Indoor Recreation Gets Boost In Ogden

In a report from the Standard Examiner this week, the Ogden City Council approved indoor recreation as a use in manufacturing zones.  The change opens up an additional 20% of Ogden city land for use of indoor recreation businesses.  No big development is currently proposed to take advantage of this change; but, it does create fertile ground when the time is right for those businesses that need it. 

The Dead Zone: Lowest and Worst Use

The bizarro world of real estate finance is producing some very interesting results in the marketplace.  Since government intervention has turned everything up on its head, several undeniable trends have surfaced:

1.  FHA has become the new subprime lender and monopoly player for most home financing
2.  Underwriting guidelines have eliminated financing options for most full-time realtors...people who know real estate best and likely represent the least risky of all self-employed individuals seeking mortgages.
3.  Conventional financing for multi-unit property is too painful to acquire for almost all investors.

Its #3 that I want to talk about today.  In business, when somebody goes bankrupt, the creditors seize the assets of the bankrupt company and then sell them to recover their investment.  In  many cases, the creditors take a "haircut" and end up with 40 to 50 cents on the dollar.  Nevertheless, tts a way for the market to lick its wounds and move on to something productive again. 

With real estate, when an investor purchases a multi-unit property, the process is somewhat similar.  Let's say the investor is a terrible property manager and runs the property, his real estate business, into the ground.  He runs out of money to fix up the property and nobody wants to live there because it's a dump.  He gets behind on his payments.  Eventually, the creditor, the bank, files a notice of default and then siezes the property at a trustee sale.  When reselling the property, the bank will normally take a haircut on the value of the loan it issued.  Thus, sale prices for REO property are much less than what was lent on the property previously. 

The magic of this process is that a resale normally does occur.  The bank presses the reset button on the property price, gives another entrepreneurial  investor the chance at making a profit, and the property gets put back to its highest and best use...a viable livable residence with rent-paying tenants. 

Well, today we have this strange scenario where investors are folding up left and right. From my front porch I can see three bank owned multi-units buildings.  These properties are now on the market and priced very attractively.  But they keep sitting there.  Why aren't people buying them?

The answer is credit...or the lack thereof. 

Lets look at an example on my block:  2220 Jefferson Ave. is a 3000 SQFT triplex for sale for $98,000.  Thats right...only $30,000 per unit.  What a steal right?  Well to buy this property the same bank that foreclosed is now going to want 30%, or in this case $29,400, as a downpayment to give you a loan to buy the property it owns.  Add an additional $20,000 in capital improvements into the property for good measure.  Your out of pocket expense is almost $50,000 just to get into this one property.  The property would be worth $165,000 fixed up but if you wanted to flip it, the next guy is going to need to cough up $50,000 as well.

Hence, what we see are most of the bank owned multi-unit properties sitting dormant and vacant while the market marches on.  The only multi-unit transactions that are happening out there are cash (at outrageously low prices), FHA (for owner occupants wanting to live in already fixed up buildings), and seller finance (which is being done with around 10% down instead of 30%).  Traditional financing for these properties is less than a third of the market right now.

So what are the remedies? Bank owned properties are typically beat up and won't qualify for FHA.  Banks don't do seller financing so nothing helps there.  Prices are often good but only good enough for cash purchases about one-third of the time.  What you end up with is the bank hoping for that 1-in-3 chance that a well funded buyer will plop down the 30% downpayment.  Nevermind, the rehab expense heaped on after that...the odds of a sale go way down if that is needed.  Thus, these properties sit in hibernation and in a state of lowest and worse use.

These fixer-upper REO multi-units live in a dark and gloomy niche in the market...The Dead Zone.  A place whose salvation is fire-sale pricing or mortgage credit...credit that will be elusive for some time to come. 

Be My Tenant: 2211 Jefferson FOR RENT

Many of you have wondered what kind of landlord I am.  Here is your chance to see inside one of my rental properties.  If you or anyone you know wants to be my neighbor, renting this unit is your chance.

Please consider:




Just $425/mo plus utilities.  Utilities are extremely low. 
I accept bad credit and deposits are negotiable.  Just no pets or smoke.

FOR SALE: Historic 1922 Craftsman Bungalow

Here is a home that I consulted with the owners to restore.  We now have it listed for sale:

And now for something more amazing, here is the before and after video:

Photo of the Day: Design On A Dime

Looking for redecorating ideas?  Go for the indoor faux-shutter look this season.  I found this novelty while looking at bank owned property this week.

My Deferred Maintenance Timebomb Revisited

A couple weeks ago I shared with you Playing Hot Potoato: My Deferred Maintenance Timebomb. Well here is the second half of the story.

Shortly after demolishing the basement bathroom wall, I went upstairs to see what was happening to cause this mess. Here is a photo of the tub upstairs.

It looks nice right?  A clawfoot tub surrounded in tile.  Well, a closer inspection reveals that grout is missing in the seams and the tiles slope away from the tub.  To fix that, someone before had put silicone on all the grout lines and in the cracks.  I guess it worked for a couple years but now the band-aid has failed.  This was the source of all the problems.  I notified my tenants that I needed to remove the surround.  It wasn't an exciting sounding proposition for them but they agreed to let me do it to prevent further damage downstairs.  It took a full day and a morning but I was able to remove the surround, replace the faucet, and install a true clawfoot show kit.  Here is the tub now:

  
Even though the flooring under the tub is 60 years old (which will be corrected in the near future) I think the freestanding tub looks much better than the surround.  It certainly works much better.  The water stays inside the tub where it belongs.  .

Replacing the plumbing was a chore.  My 320-pound friend showed up to help and he put all his weight and muscle into turning the nuts to remove the faucet.  The corrosion was so bad that instead of releasing, the nuts just ripped in half.  So, when reworking your clawfoot tubs, make sure you have a strong man or a plumber on hand to get the hard work done for you. 

Ogden Architectural Treasures Part 1: Mormon Stake Center

Video presentation and storyline of one of Ogden's great landmark buildings.