Short Sale Thumbscrews

I am working on a short sale and received the bank's addendum to the contract.  This addendum comes via Wells Fargo (click to enlarge):

I thought the highlighted portions were interesting since they will negatively affect many investor's short sale businesses.  Of course appraisal fraud and straw buyers are a no-brainer bad idea regardless of the situation, but what is "flipping" in Wells Fargo's mind?  They don't clarify.  Fannie Mae has been putting 90 day resale restrictions on its bank-owned sales in order to curb "flippers".   However, I don't see any wording or indication that this is the case on this addendum.  Perhaps we are just supposed to guess at its meaning and its implications?   

Photos of the Day: Revenge of the Angry Owner

I toured a bank owned listing in North Ogden we will soon be marketing.  I thought I would post a couple interesting photos.  I will have a video up once we have it listed.  Look for this REO to be listed LOW.  Heads up to you investors out there.

So apparently, if you don't pay your mortgage, the bank "steals" the property from you.  Interesting logic.

It looks like it might have been tough to keep the pool water looking clear and clean. 

Anyway, look for a video of the interior once we get it listed.  If you want to be updated when bargains are available and are interested in being added to my investors email distribution list, send me an email and I will add you.

Tips For Landlords

 Lately, I have had a very fun time interviewing perspective tenants. The most important part of the interview is finding out the truth behind people's stories to determine the risk associated with renting to them. 

If you are trying to fill a vacancy in a rental unit, here are some points of advise that I find useful:

1.  PRE-PAID RENT: Although this sounds great to a landlords ears, it may come with more than you asked for.  I recently had a perspective tenant ask me if he could discount the rent if he paid 6 months at a time.  Since I had three other showings scheduled, I told him no.  The question you need to ask yourself is: Why would someone part with a large chunk of their cash when it is not necessary to do so?  What is motivating them to do that?  Later, he asked if he could sublease a room to a tenant.  I told him no and he could only get a roommate if they applied with me and passed our rental guidelines.  Finally, it came out that he was a recently convicted felon which of course was just "a big misunderstanding".  Beware of tenants that don't own their mistakes.  They will make you the owner of them. 

2.  SUBLETTING: In my opinion this is a big no-no.  If you want to loose control of your building, this is a very fast way to do it.  It's best to include anyone who wants to move into the building on the lease, or at least add them to the lease.

3.  PETS: I hate pets...sorry pet lovers.  If you are going to allow pets the rule of thumb is the bigger the pet, the bigger the potential damage to your property.  Labradors have big bladders.  Great Danes have big claws.  Big dogs leave big poop.  Cats mark their environment. Keep in mind that every tenants' pet is "a very well behaved" pet.  Unfortunately, the good ones look just like the bad ones.  So, my rule of thumb is no pets.  The less money your tenant spends on pet food and pet trinkets, the more money they have to pay the rent on time.  It also saves your rental from significant damage.

4.  SMOKE:  See The Case for Smoke Free Rentals.

5.  INCOME:  There is an almost universal rule of human existence that shows that people will spend 1/3rd of their income to provide a house for themselves to live in.  Given the other costs of living like a car, insurance, food, ect. this rule has been consistent for at least the last century.  For this reason, I make it a rental criteria rule to only rent to folks who make three times my monthly rent.  For instance, if my rent is $650, the tenant would need to earn $1950 per month to qualify.  The problems that arise when you go below this three-times threshold is that people start having difficulty paying the rent when the car breaks down or work is missed due to illness.  There is basically no buffer room for them.  For this reason, for folks with income deficiency, I will often ask for a co-signer to make up the difference.  That has been a winning scenario. 

These are just a few pointers that should help you lease your property.  More stories to come for sure...

Tenant Tribulations: Warm Cup of Whoa!?

I am trying to fill a rental property for a client and had a very interesting experience.  I received two voice mails from this perspective tenant.  On the first message she was irritated that there wasn't an address advertised.  On the second message, hours later, she was perturbed that I had not called her back already.

I called her the following morning and set up an appointment.  Apparently it was her, her dying husband, her sister, her mother and her sickly father that were all hoping to consolidate their housing situation into this particular property.  

So they show up to look at the home.  The first thing I notice is a bumper sticker on the car that says "Why don't you have a warm cup of shut the (insert the worst expletive that comes to mind here) up!"  How nice to see an elderly woman and her middle age daughters emerging from a vehicle broadcasting that warm fuzzy message.

They decide they want to rent the house but then refuse to pay an application fee. They left but later that day they showed up at my office with the applications filled out, the application fee in hand, and some "extra" money ($28) thrown in.  Was this a bribe attempt?  Hmmmm....  I asked the applicant if she was in good standing with her landlord she explained that she was the former property manager there, had been fired, and there had been an "accidental" discharge of a firearm and so they were being "asked to leave". Double Hmmmmm.....
  
Needless to say the application was rejected by the owner based on the huge exceptions we would have to make to the rental criteria. When I informed her of that she was angry and asked me why else they were being denied.  I explained the firearm discharge didn't help either.  She says: "Why did you tell the owner that then?!"   

Sometimes life just makes you chuckle.

Things to Do Near Ogden: Hiking Willard Peak

My brother flew in from Houston this week and wanted to enjoy some of our great outdoors here in Utah.  After deliberating on several possible hikes, we decided to explore the Willard Peak area.

Our journey took us from Ogden north on I-15 to Brigham City.  We turned right on HWY 91 and followed it to Mantua (pronounced locally as MANT-OO-AA although I often prefer the fancy MAN-TWAH or MAN-CHOO-UH alternatives).  We exited in Mantua and followed the road to Willard Peak Rd.

Here is a view looking south on Willard Peak Road.  The road turns to a dirt road once you get into the canyon.  I would highly recommend a Jeep or SUV for this trip.  We saw some guy at the top of road driving his Hyundai sudan.  Not recommended!

The road ascends for several miles.

The road was bumpy enough to break the rusted weld on our luggage carrier.

Finally, we reached the Willard Basin area which is a beautiful basin full of pine and alpine vegetation.

The road goes all the way to the top of what is called Inspiration Point.  We stopped our Jeep early and decided to hike from the trail head that appears just after a spring and campground area before the road ends at Inspiration Point. 

Here is the view of Willard Peak just as the trail starts.

Here is a view of the trail that heads up in the direction of Inspiration Point.

We confused the trails at first and headed up to Inspiration Point before we figured out we were at the wrong summit.  Here is a view of Willard Peak looking south.  Of the two trails that head up the mountain, the left trail is the one to the top.  The right one meanders around the front of Willard Peak and on to Ben Lommond Peak. 

Here I am headed toward the summit.

Toward the top there is a huge fissure that runs for about 150 feet long and I would say it is at least 50 feet deep.  I dropped a rock down to time the fall and it fell about twice as far as I expected it to.  Don't loose your keys in this crevasse. 

At the top you will find this geographic marker.  You will also find a black PVC pipe with notepad registers of who has been to the top of the mountain.  We saw dates going back to 1988.  Treat the register kindly and leave your name and date.  I left a business card too.

 
Our trip from Ogden started at 10am and we arrived back home at 4:30pm.  It makes a great day trip.

Happy Hiking!

Lead Balloon Silver Lining?

The sales figures and the seismic shift downward had me digging deeper today into the market figures.  Here are some remarkable statistics I just pulled from the MLS:

Looking at the normal Listings-to-Sales ratio puts our inventory up in the stratosphere.  However, I did a check on homes that are under contract.  Amazingly, the number of homes under contract in most cities are nearly TWICE what sales were over the last 30 days!  That is quite remarkable.  Also to add some twist to this large number is that only 3 out of 5 of the homes currently under contract were put so in the last 30 days.  That tells me that contracts are taking longer than the normal 30 day time frame to close.  Perhaps lender delays are slowing things down?  Or seller delays?  I would believe both. 

Are we going to have a surge of sales in the near future?  Or, are these slow contracts just going to drag on and slowly trickle into closed sales?  Regardless, these figures provide encouragement.

Lead Balloons: Sales Plunge 37%

It's winter in August:

July turned out to be the third worst sales month (even including winter months) in the last five years.  Only January and February of this calendar year were worse.  Lets take a look at our sales growth graph:

Keep in mind that this is a monthly chart that compares same month sales year-over-year.  Anything above zero represents sales growth above the same time the previous year and anything below zero represents market contraction for the same period.  Our Y-o-Y sales are down 37% from July 2009.  Yikes!

What we are witnessing is an erosion of confidence in the housing market.  With unemployment remaining high, increased taxes on the horizon, and political angst near a boiling point, buyers have decided to wait things out for some sunshine.

For sellers, this means that market times will increase for quality properties and prices may soften somewhat as the most motivated sellers cut prices to liquidate their homes.  For buyers, this means that the world is your oyster...for the moment.

I anticipate that the pattern we are in will continue through the end of the year with us returning to a normal seasonal pattern with the beginning of the calendar year.  Then we should see some life come back into the marketplace.

Multi-Unit Price Movements

For those of you tracking price movements in the market, I have put together a very interesting chart.  I wanted to know the value of multi-unit properties sold based on the type of financing that was involved in the transaction.  So, I have distilled several years of MLS information into this chart for Weber County:

This chart has some very interesting information in it.  For simplicity sake, I decided to track conventional sales, seller financing, and cash transactions.  The jaggedness of the cash and seller financing lines pre-2008 is indicative of the lack of sales using those types of financing.  There was less data to support a smooth moving average.

Notice that conventional financing has a fairly even trend that has been floating in a range from $60-$70 SQFT from the boom years to today.  However, recently there has been a slight trend downward.  If the trajectory holds we may see prices for conventional sales dip below $60/SQFT.  The reason for the lack of volatility has to do with peoples spending habits as it relates to debt.  When using other peoples money, consumers (and investors) are willing to spend more in order receive the desired benefit.  This is why we saw such a dramatic price run up in single-family home prices during the boom.  Debt was plentiful and people were willing to use it to acquire what they wanted.  Debt is not nearly so available today.

Which brings me to our cash transactions represented by the dark brown line.  During a boom, lenders are very flexible with financing.  Therefore, most investors use cash to purchase a property during a boom are purchasing homes that cannot be financed because of poor condition.  This condition warrants a low price and that is likely what we see demonstrated here.  What is interesting to note is the dovetailing of values from June 2008-June 2009 with the conventional value curve.  I can't account for that for some reason.  However, you can definitely see the value points falling dramatically after that for cash transactions to an average of $45/SQFT today. 

Finally, seller financing transactions occurred during the boom years for the same reasons that cash transactions did...the property was just to beat up to finance.  So,accordingly, we see here that the value points were low for seller financing during the boom years.  Note also that the volume of transactions was very low.  As the market became more stressed, better conditioned properties came available that justified paying a higher price.  Lack of conventional financing created more opportunity for seller finance transactions to occur.  Today, since investors are shunning major fixer-upper multi-units, the value points hug pretty close to the conventional financing value curve.  Notice that within the last 6 months we have started to see a slight decrease in the value points for seller financed transactions...almost mirroring the decline in the conventional category.

In a general sense, the gap between the cash value and conventional/seller finance value curves represents the difference between wholesale and retail pricing.  They give us a general idea of where the market is headed based on which financing tool is being used for multi-unit purchases.

JUST SOLD! End-of-Life Victorian

I just closed with a client on the purchase of this home:

A very cute and large victorian home from 1892.  This happens to be just a few houses from my own home.  In fact, I attempted to buy this a couple of times just as the bubble burst in 2007/2008.  Trying to obtain a construction loan became impossible.  Nevertheless, the owner and I stayed in contact over the last few years.

Unfortunately, for the sanctity of the home, it was converted to multi-unit housing sometime in 1920's.  The home is now a house of horrors with foundation problems and structural issues due to years of neglect.  None of the original woodwork is intact and the home has been scabbed together inside.  Windows have been bricked in, doors have been sheetrocked over and other ridiculous things have happened to the inside.

While in this configuration, its tenants have been a scourge to our neighborhood.  Thus, the buyer of this home has been deliberating between fixing it up and tearing it down.

Here is what the last home I sold to this buyer looks like:

Although it would be beautiful to see the home restored, I have a feeling that whatever replaces it will be of a greater lasting impact to our neighborhood.

Whatever happens, I will keep you updated.

Photo of the Day: Math for Dummies

One of my rental units requires some repair and I was admiring the handiwork of the "craftsman" that constructed the parts I am now needing to rebuild.  Queue today's photo please...

Building with the right materials is very important.  For exterior portions of a home, pine is NEVER an option.  Treated pine, redwood, cedar, hardiplank or poplar are the best options.  Just to show the superior skills of the person responsible for this monstrosity, I highlighted the math equation he left on the paint.  Superb!

JUST SOLD! Clearfield Investor Rehab

I recently listed his home and we finally closed on it this week with a first-time home buyer.  The story behind this home is worth sharing for those of you looking to rehab and resell properties.

I was brought on as the listing agent for this home after the original listing agent decided not to re-up his listing contract.  That particular agent's business model was focused more on buyers than on marketing.

Once I placed the home on the market, we had it under contract in three weeks.  That's when all the excitement started.  The buyer's agent submitted a repair addendum to me that had 15 bullet points on it.  Included in that was a request for a "new" roof.  The roof had just been replaced three months prior but apparently the wind had caught a roll of shingle and flipped it over.  Ultimately we agreed to repair the roof and most of the other items on their list.

My seller hired a handyman who said he could do the job and they got to work.  Coordinating between the buyer's agent, the inspector, myself, the seller, and the handiman was an absolute circus and we ended up having the inspector go back to the home so many times to review items on the checklist that he eventually quit on us (I don't blame him.)

One of the biggest items that we had to get resolved was how to have a roof properly installed on a low pitch.  Here is a picture of the repaired roof that was unsatisfactory to the inspector:

As you can see the middle shingle there broke into pieces in a wind storm and was repaired in a less than satisfactory way.  We also found out that the entire roof was actually installed incorrectly and we were compelled to have a professional roofer come back and put everything in right.

So how did my seller get such lousy service from his original roofer? Well, the original contract for the job was having personal problems and ended up absconding with the seller's money on another project home just as this project was finished.  Clearly, the contractor was trying to save some money by cutting corners on this roof.  My seller was placed in the very awkward position of having to pay more to have all the cut corners repaired.  The corners never should have been cut in the first place.  

The moral of the story is that when fixing homes, its important to supervise the subs and contractors that do work for us.  If they perceive that we are too busy or don't care how the work is done, unscrupulous ones will take advantage were it is to be taken.  The problem is that the honest ones look just like the unscrupulous ones.  You never know until their work is finished and that's why it's best for us to let them know we are extremely interested in what they do and how they do it.

Perils of Landlording: Tubs of Terror

The bathroom in my vacant rental has become quite the chore to correct.  When I purchase the place years ago, the bathroom looked something like this:

Look at all that nice new tile.  Seems like a winner right?  Well, for starters, clawfoot tubs should never be enclosed like this because there is no reasonable way to contain the water that splashes out of them due to showers usage unless there is a wrap around curtain.  This tub did not contain the hardware to such.  To complicate matters, all the plumbing was tiled over and made inaccessible for repairs or adjustments.  And finally, the tile was not grouted correctly which allowed water to seep behind the tile and drop onto the porous subfloor behind the tub.  Nice!

So, several months ago, after complaints from the downstairs tenants about water leakage, I decided to "desurround" the tub and install a wrap around curtain.  That job took me a full day to accomplish.  Here is how it turned out:

I thought the clawfoot tub was good looking.  However, it was quite evident when the tile was removed that the floor beneath it has been ruined.

Thus, when my tenants vacated I got to work removing the bad flooring.  At first I thought I could just remove what was under the tub.  But, it quickly became apparent that the entire floor would need to go.  I tore through the tile, then the concrete substrate.  The subfloor was totally rotted so I removed that.  Then I discovered linoleum under that.  It's subfloor was rotted too so I tore it out.  Then I got down to the original tongue and groove floors.  Tore them out.  Finally, I revealed the original subfloor...whew!

In all, this took seven hours to accomplish.  I had my plumber come in and inspect the piping.  There is so much galvanized pipe in the building that it would be more cost effective to use it till it quite working rather than patch pex pipe in here and there.  He said that galvanized pipe has about a 100 year life span  So, we won't be replacing it for probably another 10 to 20 years...fingers crossed.     

Finally, take a look at the amount of flooring that I removed.  You can see the layers all there on the wall.   It's interesting to see how they used diagonal planks to strengthen homes and prevent warping and creaking on the floor joists.  Arts and Crafts construction was superior to Victorian for this reason.  It's reassuring to know the bones in the building are solid. 

I will post a photo when we get the bathroom done later this week.