Wednesday, December 31, 2014

Things To Do In Idaho: The Blue Heron Inn

Our family recently escaped to Idaho for a much needed vacation over the Christmas holiday.  While we were with family, my wife and I decided to leave the kids with the grandparents and escape for the evening to a bed and breakfast.  Our search ended when we found the Blue Heron Inn.

The Inn is located just north of Rigby, ID on the banks of the Snake River.  Room rates are reasonable between $130-$180 per night and they include a delicious home made breakfast cooked by the owners.    

We happened to choose a less busy time of the year and a room was readily available.  Despite that, it didn't mean the setting was any less stunning.

Our room had an uninterrupted view of the Snake River.

The following morning we were rewarded with a beautiful sunrise and an outdoor temperature of -10ºF.  The river waters were choked with ice but their relatively warmer temperature put off steam in the ultra-cool air.

If you are looking for a great getaway in southeast Idaho, I strongly recommend the Blue Heron Inn. Booking reservations online is simple and the location won't disappoint.

Friday, December 19, 2014

INCOME PROPERTY: When Cash Cows Become Vicious Alligators

In 2008, I began attending regular lunches with a group of real estate investors in Weber County.  It was a great place to meet people with similar interests and share opportunities and best practices among each other.  I met many of my best and most loyal clients at these gatherings.

One client in particular moved here from California and began to aggressively acquire properties as the market turned downward.  I arranged for many transactions, most of them seller financed, as this particular client built a growing portfolio of properties.  This client indicated their plan was to cash flow the properties and invest in capital improvements to build equity.  That seemed to make sense.

However, by 2010, I distanced myself from this client as I learned more about their business practices and how they were operating.  They were obtaining funding from private investors based on the promise of what I considered unrealistic returns.  One particularly interesting 'trick' they used to facilitate their operations was to offer no-deposit lease terms to tenants.  The idea was that by reducing the deposit, they could increase rents proportionally or even more.  Since income property value is based on rent rolls, theoretically, this trick should increase the value of the property they owned.  If the value of the property was worth more, they could show this as an increase in equity and thus present it as evidence of their wise use of their investor-partner's funds.

The problem, of course, is that deposits are a natural and necessary part of responsibly managing property.  Also, according to the Rule of Three, there are natural limits to the price a tenant can pay in rent.  So, this client attempted to defy gravity, so to speak, by raising rents, dumping deposits, and hoping that everything would go well.

As you can imagine, they didn't go well.  When I spoke to the client's property manager in 2012, he indicated they were experiencing a 20% vacancy rate.  That was remarkable when the ambient market vacancy rate is just 4% for tenable property.  Whatever gains they were making on higher rents were being lost through punishing vacancy rates.

The other problem was that tenants had no incentive whatsoever to keep up the condition of the property.  When these tenants left, the client spent much more than was necessary to repair the units because the tenants abused the places without restraint.  And of course, since the tenants were typically low income, collecting from them for the damage was nearly impossible.

Thus, over a period of time, the business model began to unravel as investor-partners began to question their return on investment. Major cracks in the edifice began to show themselves in 2013.  At that time, this former client mailed keys back to the seller of a property they had bought via seller financing in 2008. Since that time, the former client's name has appeared on the Notice of Default list frequently as they have stopped making payments on their mortgage obligations.

Yet, in all the chaos that has descended on the portfolio of this former client, we made an interesting discovery.  Some of these properties in foreclosure have ended up with 2nd and 3rd mortgages on them.  Even more shocking, the loans came from private retirement accounts.  Finally, to ad insult to injury, many of these loans were made within weeks of the borrower defaulting on their first mortgage obligations.  It appears that while the Titanic was sinking, someone was been running up the tab at the bar.  In such situations, the private IRAs have no hope of recovering their investment as their collateral is wiped out at the foreclosure auction.  It is a sad sight.

Investors like cash cows that that produce profit each month after all expenses are considered.  The opposite of a cash cow is an alligator which is a property that needs to be fed money each month to keep operating.  It appears that this former client purchased what he thought were cash cows and through unwise decisions mutated them into vicious alligators.  These alligators have eaten their owner alive and it appears it was a feeding frenzy.  


Monday, December 8, 2014

INFERNO: Ginormous 1.3 Million SQFT Apartment Fire

I don't typically post about real estate events in other states.  But, after seeing photos of this event, I thought it was worth sharing.

Downtown Los Angels is experiencing a residential construction boom at the moment.  A particular developer has been building giant structures in interior urban neighborhoods.  One such project was called the Da Vinci.  It is/was a 1.3 million square foot giant.  Here are several photos.  The first is a rendering of what the finished project would look like.  The next couple are of it of it under construction.

Unfortunately, that much wood makes for excellent kindling.  Somehow, nearly the entire structure caught fire at same time.  Here is how that looked on the Los Angeles skyline.  More shocking photos can be found HERE.

Needless to say, authorities are investigating.

Wednesday, December 3, 2014

FOR SALE: Super State Street Commercial Building

I recently listed this perfectly located commercial building on State Street in Sandy, Utah.

Located at 10763 S. State Street, this property sits on .52 acres.  The structure is block construction and has over 3600 SQFT inside including an additional 400 SQFT of mezzanine storage.  The building currently houses an outdoor recreation and sporting goods business.  The front area outside the store is currently used as a display but it is permitted to be converted to additional parking if needed.

If you are interested in this property, CONTACT ME for more details and current pricing.