Inheriting Tenants: To Boot or Not to Boot

I am working on a transaction right now for a family member who is purchasing a rental property.  I have agreed to manage the rental of the property while the owner continues to live out of state.

One of the caveats of property management is know what to do with tenants that you inherit from the previous owners of a property.  Unlike utilities, you cannot just stop service on a tenant that has a lease on the property.  The new owner is obligated to honor the existing lease, whatever that is, with the existing tenant.

In this particular case, the tenant is a relative of the seller.  There is also no written lease agreement.   We call this kind of circustance a Tenant At Will situation.  The law stipulates that the tenant is, in the absence of paperwork to demonstrate the contrary, on a month-to-month lease.  That is good because when we initiated the contract on the property, the listing agent gave notice to the tenant that they would need to vacate.  However, the tenant asked if we would be interested in renting to him moving forward.

There are a couple benefits to keeping an existing tenant:

1.  Any existing deferred maintenance (i.e. fresh paint, upgrades, ect.) and cleaning can be deferred to the end of the tenants desire/ability to rent the property.

2.  Rent revenues begin immediately.

This would seem on the surface like a win-win situation.  The tenant wants to stay and the owner would like to defer any cash expenses he might incur working to get the place rented.   

However, when the tenant called to discuss the situation our conversation went something like this:

Tenant:  Hi, I would like to stay.  It would be a real problem for me to move right now.

Me:  Ok, are you working?  How much do you make?

Tenant: Yes, I make $1600 a month.

Me: Ok, what do you pay in rent now?

Tenant: Well I havn't paid in a while...

Me:  Hmm...our rents would be around $550-$600...

Tenant: Oh we can do that, that will work for us.

Me: Ok, do you have any felonies on your record?

Tenant: Well, I do but it was in 2001.

Me: Ok, that is fine.  I believe in redemption so as long as you have a plan and are making your life better we should be just fine.

We then discussed the plan for me to get an application to him.  About an hour later I get a phone call again.

Tenant: So I just got off the phone with my attorney and I want to be totally honest with you.

Me: Uh, Ok

Tenant: Last month, I was really hungry and my girlfriend and kid were hungry so I put a sandwich in my pocket and walked out of the store.  They caught me so now we are trying to plead down to a misdemeanor.

Me: Hmmm.....

After discussing the situation with the buyer we determined that this tenant was much too high of a risk to rent to.  If he was truly employed like he said he was, stealing from local stores would not be necessary.  Also, paying rent to the current owners would not be a problem either.  We notified the tenant and the listing agent that we would not be continuing the lease and the tenant was to vacate prior to closing.

This story is not always the norm but property owners need to be prepared for these kinds of situations as they acquire new property.  

Rental Repair: Concrete Stair Makeover

One of the rental properties that I manage for a client needed some new concrete stairs.  The stairs were probably poured sometime in the 1940's by our estimate.  You can see that the lower stair was actually rotting out from the bottom.

I called our concrete contractor and he installed some new stairs for us.  The job cost about $500.

If we estimate a 72 year lifespan like the previous steps, these new stairs cost about $0.02 per day...highly affordable and an attractive addition to the home. 

Making meaningful improvements to your rental property increases your tenant quality, reduces vacancy rates, and improves your bottom line.  Don't be afraid to invest in your property.  If done within reason, it makes good things happen for you, your tenants, and your community.

JUST SOLD! Frankenstein Five-Plex

I just sold this investment property for a client:

This was an 1890's Victorian era home that was subdivided back in the 1940's into multiple units.  Perhaps the idea was to provide housing for boys returning home from the war.  Whatever the original intent was, the legacy of decision to subdivide has been very interesting.

I have managed the property for the past year after my seller's decided that they were not interested earning the PhD in property management that was required for this building.  To understand why, you can read this first-hand ghoulish tale of the macabre that I experienced on Christmas.  I now have the PhD. 

Despite the challenges associated with this building, my clients fared well.  They purchased it for $70,000 a year ago back when the market was troughing and nobody wanted to touch real estate.  We sold the property this week for $92,000.  Congratulations to my sellers on making a wise investment. 

If you are thinking of selling your income property, contact me and let's see what your property is worth in today's market.   

Rental Repair: Skewer My Sewer

As with all rental properties, they need repair from time to time.  As a landlord, you hope that the big ticket items are in good shape.  Roof, plumbing, and electrical are systems which need to work in order for you to be in business.

Recently I had the plumbing on one of my rental properties go bad. The home was constructed in 1911.   The main sewer line leading out of the home had backed up several times in a year.  I called a technician and we scoped the line.  Here is what we found:

 
Those white concentric rings you see in the top photo are joints in the clay pipe used for the sewer line.  The reason we can see them is that they have been infilled with roots.  Lots of them.  The bottom photo shows just how much they can grow.

Given how many problems were were having with the line, I was not surprised but I was still disappointed.  It meant we needed to replace the line.

One of the problems for us putting in a new line the traditional was that it would require taking out some huge 100 year old trees in our park strip.  It also would require cutting all the way to the opposite side of the street where the city sewer main sits.

Fortunately, I called Jay at Utah Pipebursting and he had the perfect solution.

The pipebursting method breaks apart the existing pipe where it sits in the ground via an auger.  At the same time the pipe is being broken apart, a new solid piece plastic pipe is pulled through the opening.  Instead of trenching scores of feet through the yard and street, the pipebursting method just requires holes to be dug at the end points.

In our case, the sewer line zig zagged back and forth beneath the home.  It required that a hole also be dug in the basement as well.

The entire replacement took about 12 hours to complete.  We patched the hole in the basement and the property now has a functional sewer line.  Whew!

If  you are contemplating replacing an old sewer line, contact Jay at Utah Pipebursting.  He can be reached at 801-920-3178.  I highly recommend them and it is highly affordable.

JUST SOLD! Historic Arts and Crafts Style Duplex

I just sold this listing at 2370 Madison Ave.

We listed this property at the end of April for $109,900.  There was immediate interest in the market but it took about four weeks to receive an offer.  In June, we received an offer for $105,000 with the buyer asking for 2% of the purchase price in closing cost concessions. 

We counter offered the buyer at a price point of $107,000 and they quickly accepted.  We placed the property under contract.  Then began our long odyssey to closing.  The appraisal went well, and the inspections went well.  However, the underwriting for the buyer was severe.  Apparently, the lenders were doing blood typing, genealogical research, and cavity searches on the buyer.

Our contract extended an additional 24 days in order to close.  That was quite surprising but we were ultimately satisfied in the end when the transaction concluded.  The best part was that were able to keep the tenants satisfied during the process so my client did not experience any vacancy or loss of rent due to the sale.  

If you are considering selling your rental property, contact me, and lets discuss some options that will help you liquidate your investment with the least disruption to your tenants and cashflow. 

Condo Rental Conundrum

I recently visited with a perspective client who wanted to rent their condominium.  They had purchased it several years ago during the housing bubble and owed more than it was worth.  Life circumstances compelled them to relocate and hence they opted to rent their condo out rather than damage their credit in a short sale or by strategically defaulting.

At the end of our interview we determined that the owner would net about $60 less than their mortgage payment.  They were fine with that.  However, as we were concluding an interesting question came up:

Would the HOA permit the owners to rent their condo?

Why would this even be a question?  Well, as it turns out many HOAs have rules limiting the number of rental units allowed in a complex.  In this particular case, this owner's complex limits rentals to only 10% of total units.  I have seen some HOAs do 20% but this 10% number was quite a surprise.

So what happens if you rent a unit that is unapproved by the HOA?  Well, a couple things could happen.  First, the HOA could use its delegated powers to take action against the owner.  This would create an uncomfortable and often untenable situation for the tenant.  Or, the HOA may do nothing.  This usually indicates management inefficiency at the HOA and would often be evidenced by a complex that significanly degrades in quality over time.

Regardless, it is a gamble for the property owner to rent their condo outside of HOA rules.  This could put the tenants at risk of forced departure and is unsound business in my opinion.  For this reason, I recommend that condo owners always follow HOA guidelines when renting their property.  It may not be the most desirable option but it avoids opening a can of worms that can put the owner, tenant, and property manager at risk.  

If you are thinking about renting your property, contact me, and we can put a plan together for you.

JUST SOLD! North Ogden Condo Investment Package - Owner Financing

I recently sold four listings in North Ogden.

The Sunbrook Condos in North Ogden were built in 1998.  My client had purchased and been renting them out since their construction.  Due to changes in life circumstances, my client felt that it was time to liquidate them.  We listed these 2 Bed 2 Bath units for sale originally in July 2010 for $89,900.

After several summer listings passed, we put them on the market again in February of this year to give it another go.  My client had hoped that another investor would come along and snap up the bundle in one transaction.  Unfortunately, the investment financing climate for condos has been adverse.  When someone accounted for the multiple loans that were required, the transaction costs added up and reduced the return on investment.  The large down payments required by lenders also reduced the overall return on investment.  

So, to work around these issues, we put together an owner financed transaction for four condo units in one building.  The closing costs were greatly reduced.  Also, since the condos were owned free-and-clear, that allowed us to do a traditional note and deed of trust without worrying about "wrapping" an existing mortgage.  You can read more details on how owner financing (aka seller financing) works HERE.

In this case, the four units sold for a combined price of $328,000 with 14.6% down and an interest rate of 5%.  The buyer agreed to a balloon payment in 10 years.  Congrats to my client on converting their rental income into passive note income while avoiding capital gains taxes in the process.

If you or anyone you know is having trouble selling a property and is interested in learning more about how owner financing works, CONTACT ME and I can explain all the benefits and advantages and help determine if it is right for you.

Marketing Rentals: The Yard Factor

As the lawn growing season approaches, it is important for landlords to consider their curb appeal.   I always find examples in the real world a valuable teaching tool.

For today's lesson, I will use two properties on my block, one across the street from the other.

Here is our first example:

This yard has missed the first and second mowing opportunities of the year.  Is anyone excited about renting this home?  Across the street we have this example which is also for rent:

Curb appeal makes a big difference in attracting quality tenants and lifting up a neighborhood.  There is something to be said about having dignity in being a landlord.

For my yard care I use Master Maintenance.  Call Jeremiah at 801-814-0183.  He is affordable and provides a good service.

Before and After: Parking As A Landlord Priority

One of the biggest impediments to getting good tenants at a property is providing adequate parking.  I recently took on a rental property for a client that has never had parking.  It shares a common driveway with a duplex and here is what the end of the driveway came to for this property:

After visiting with the owner, we determined that it would be a tremendous benefit to install the parking pad.  Here is the 13' X 18' result:

This rental property should see an increase in performance as an asset.  Tenants that have cars have jobs.  Tenants that have jobs pay the rent. 

If you are looking for a quality concrete contractor who is tremendously affordable, give Gary Cobia a call at 801-663-0321.  He does good work.

Multi-Unit Market Update

It has been a while since I ran the numbers on the multi-unit market.  Here is a look at the numbers through the end of 2011:

First, lets look at sales volume.  Clearly we can see that a volume trough occurred in 2009.  That was the most pessimistic year of the multi-unit market.   In contrast, last year put sales volume nearly with par of sales in 2001.  It appears we are improving in sales.  However, to understand what is driving the market, lets take a look at sales according the the financing style of each transaction:

This chart is intriguing.  A whopping 44% of ALL transactions are done in cash.  That is up from 35% last year.  That speaks of a tremendous amount of distress still in the market in 2011.  Notably, seller finance and FHA/VA transactions were on the decline as a proportion of sales.  Also, conventional transactions seemed to be increasing though not significantly.

Overall, I believe 2012 will be a transition year.  Look for conventional financing to improve and the number of cash transactions to decrease from where they were in 2011.  If those two things occur, it will be the mark of an improving investment property market.  Nevertheless, those that are buying right now are making a killing in return-on-investment. 

If you want to explore purchasing a great bargain on multi-unit property, contact me and we can put a plan together that is right for you.

Loading the Springs: Weber County's Pent-Up Demand

In understanding the housing market, it is important to understand market dynamics in light of the variables that are at play.  Fundamentally, the housing market is driven by the activities of people.  Jobs, family creation, plague, war, natural disaster, and other factors all affect how people demand housing in a particular location.  Thus, it is important to know what people are doing and why.

While thinking on this on a long drive this week, I began to wonder how our sales volume in Weber County stacked up against the population count.  How bad is the housing market?  We know it is less than what it was at the peak of the bubble.  But on a per person basis, what does that look like?

I started digging through the data and put together a chart showing "sales per person" for Weber County.  The idea would be that the sales would be adjusted to reflect the change (or in this case growth) in population.

Since people need a place to live, it is reasonable to assume that an increase in people could correspond to an increase in sales volume.  If all other things held constant, you would expect to see a per capita numbert that is consistent from year to year even as population increases.

So what does Weber County's chart look like?  Queue the chart please:

Data was pulled from the U.S. Census and from the MLS for sales to drive this graph.  As you can see, the normal estimate population growth line (in red) is very seldom followed.  Unfortunately, I didn't have enough data go back further in time.  However, the bubble is clearly apparent in the chart.  Since the bubble has burst, it appears that sales are now about 25% below where they should be based on how our population has grown.

What does this mean?  It means that for the time being, there is pent up demand in the market place. It is represented by people renting or living in their parent's basements instead of purchasing homes of their own.

At some point in the future, this gap will be made up and sales will be boosted just to return back to historical norms.  Since the market is troughing right now, look for that correction upwards to come over the next several years.  This is just one more reason that now is a great opportunity to buy a home or invest in real estate.

JUST SOLD! Beautiful Bargain Bungalow

I just closed with a buyer on this fantastic bargain.  Located in Ogden, this home was a Freddie Mac foreclosure.  It was originally listed in February of 2011 for $77,900.  Over the last year, the price has slowly come down and in November the price dropped to $50,000.  We entered a competitive bid situation and adjusted our offer to $56,000 financed with $2,000 earnest money.  Several of the offers we were competing against were cash and very close to our price.  Fortunately, our offer was selected as the winning bid.

The home is in excellent condition and will require some carpet in the basement and a good cleaning upstairs.

  
Once we placed the home under contract we experienced our December Wind Storm.  Unfortunately, the roof on the garage suffered some unsightly damage.

 
We used this to renegotiate the purchase price down to $53,800.  The seller also agreed to pay about $1,000 in my buyer's closing costs. 

Congrats to my clients on a super bargain purchase.  Repairs are estimated around $2,000 to make it rent ready.  Rents are anticipated to be $750-800/mo. 

Rental Repair: When Does It Make Sense?

One of the big questions facing landlords is when to make repairs and what kind to make.  Let me share a recent example.

I accepted a new client in November who wanted to rent his home while he moved out of area.  Like many folks, his home was worth less than what he owed but it wasn't so upside-down to warrant just walking away from the property.  He estimated that he could liquidate the home in about 5 years if he rented it and he could still maintain his good credit in the meantime.  Rents would be slightly less than the mortgage payment but that would beat paying for two homes or sacrifice his good credit.

One of the issues I thought might be an issue was that my client had pets previously.  As they were moving out of the home the carpets were freshly cleaned.  However, I could still tell that pets had been there.  After not receiving any applications for a while we reduced the rent price by $100.  Ultimately, several tenants applied and I was able to approve an application.  The tenants also noticed the pet odor and asked if the carpets could be cleaned again.  We agreed to clean them and have it treated for the odor.  The tenants moved in.

Depending on the kind of pets someone has, carpet odor can be a simple fix or require a complete do-over.  In this case, the carpet cleaning didn't work.  The odor actually got worse and now the tenants were very unhappy.  They had signed a year lease but now were contemplating leaving the premises.

A bid to replace the carpet came in at $1,500.  We received a similar bid for the laminate flooring.  Rents are $1095 a month.  There were a couple scenarios that could have played out:

A.  One option would be to tell the tenants: "You signed the lease.  You knew what this was before you moved in. We aren't fixing anything."  This option would definitely have created some stress for all parties involved.  If the tenants balked and broke their lease, the owner would keep the deposit.  But, we would have more vacancy and still have a house that would not meet the market's needs because of the odor issue.

B.  Another option would be: "We want you to enjoy your stay here.  Let's see what we can do to fix the problem."  This option would involve figuring out a way to fix the problem and do it affordably.

Option A is the slumlord business model.  Option B is the professional business model.  We went for Option B and negotiated a year extension of the lease with the tenants if we would agree to pay for the installation of new flooring.  The tenants agreed to tear out the old carpet and treat the floors with Clorox and Kilz.  I estimated that the floor repair would be paid for by a reduction in vacancy when the tenants signed on for another year.  The scenario is win-win.

Don't ever be afraid to make sensible improvements to your property.  Vacancy, tenant quality, and rents all improve when you put a little money back in to your investment.    

Winter Water Woes

I colleague of mine emailed some photos to me recently of homes that were not prepared for the winter weather.

Swamp coolers are a notorious water problem for homes, no matter which season of the year.  They can also be very ugly. When not coating your roof in ice, they can be found ruining the appearance of your shingles with unsightly hard water deposits.

  
Drippy spicket?  Or cool work of art?

I am not sure what is making the water form brown icy goo.  But, whatever it is, it isn't good.

The moral of the story is take care of your exterior plumbing features BEFORE winter comes.  It looks like the plumbers and handymen will be busy come spring.  

The Ghost of Christmas Present: Death at My Doorstep

One of the properties that I manage is a freaky five-plex next door to me.  One of the units is a little hut that sits in the backyard of an old Victorian era subdivided house. When I took over management from the owners, I made sure to introduce myself to all the tenants.  In the hut, I met Allen, a 60-something veteran.  Our meeting was congenial and polite but could I tell Allen appreciated his privacy.

Joel, one of the other tenants in the neighboring building, was a friend of Allen's and would check in on him from time to time.  Earlier this week, Joel called me saying that he hadn't seen Allen in a few days.  His mail was starting to pile up in the box and he didn't answer his door when he knocked to check in on him.  Given the time of year I told Joel to watch the place for a couple more days in case Allen had gone to visit family.  I typically try to avoid barging in on tenants unless there is an obvious emergency. 

We opened Christmas presents this morning as a family.  After enjoying our family time together I got a call around noon from Joel.  He was very concerned and felt like something was wrong since Allen hadn't shown himself.  Something in my gut told me that this situation wasn't going to end well.  I dressed in my grubbies and headed over.

Joel and I walked to the back hut and knocked on the door.  No answer.  Allen's dog mildly barked...a lot less enthusiastically than the few days prior.  Joel was concerned something had happened to Allen.  I reached for my keys to unlock the door and, as I put the key in the lockset, I caught the smell of death. My heart sank and I stepped back. I didn't open the door but told Joel that I believed that Allen was no longer with us.  I called 911.

The police arrived, and as it turns out, Allen had changed the locks so the only way to access the property was via kicking in the front door.  The officer's legwork got us in the unit.  Sure enough, Allen had expired, probably about seven or eight days prior based on the condition of his body.  He was laying on a futon casually with his legs crossed.  Unfortunately, putrification and the decomposition process had already begun in earnest.  It was quite overwhelming to the senses.  Interestingly, Allen's dog stayed close to protect his body.

The police and CSI began to process the scene and Allen's body was finally removed.  Now we have the exciting chore of cleaning the unit.  Any volunteers?

There is a great take away lesson from this experience for everyone:  Remember how your mother and church leaders told you not to look at naughty magazines or watch naughty movies?  There is a good reason.  You never know when you are going to die.  Your last act on this earth could be watching a naughty movie when your heart fails, and your landlord has to call the police a week later to kick in the door so they can take care of your body, and your naughty movie is still playing on the television that never got turned off because you died.  There are better ways to be found dead.     

  

JUST SOLD! Super Bargain Breadbox Cottage

I just closed with a buyer on this super bargain home.  This was another exasperating HUD home experience.  Look for a post soon with all the mind blowing details of the journey to close this house.

To show you the intrinsic value of this property here is some background history.  The home sold in 2006 for $98,000.  Then it went into foreclosure and it was listed for sale in August 2011 for $65,000.  We viewed the property in October and the next day the sellers reduced the price to $58,500.  We immediately placed an offer for $56,000 and our offer was accepted.

With 4 Beds 2 Bath and a 2 Car garage, the home retails for about $120,000 in the market place.  Rents are estimated around $850-$900/mo.  My clients plan to repair and rent the home for positive cash flow.  Repairs are estimated at less than $10,000.

Congratulations to my buyers on an excellent purchase! 

If you are in the market for a bargain investment property like this one, contact me today.   

Video: Interview with a Perspective Tenant

Ever wondered what it is like to be a property manager?  Being a property manager is both a science and an art.  Here is a humorous video I made looking inside the all-too-important perspective-tenant interview.




Being able to ask probing questions and assess risk while being courteous and professional at the same time are important skills for any landlord.

We're On The Cusp: Charts Show Prices to Rise or Massive Overcorrection

I had a conversation on Friday with a client about house prices and how the market "feels" like such a good value.  My client remarked: "Houses are a better value than they were in 1999 when I got in the business!"

This comment caused me to reflect on market dynamics for a moment.  The housing market in Utah peaked in 1999 but the peak we experienced in 2007 was leaps and bounds better.  Time has a way of distorting perceptions because of economic changes and inflation. So, to verify if my client's gut feeling was correct, I decided to do some heavy analysis and compare sticker prices with Consumer Price Index "Inflation-Adjusted" prices.

The findings are shocking in my opinion:

First, lets review the above market history since 1979.  Let's follow the brown line for a moment. If you purchased a home in 1979 worth $100,000, that home today would be worth approximately $340,000.  Between then and now, your home would have declined in value five separate times from five separate market peaks.  However, each successive market peak exceeds the previous one which brings you to today's price point. 

Now lets look at the blue line.  In real "inflation-adjusted" terms, your home would have declined in value for 12 years even though its sticker price was increasing during that same time. Your home's value lagged abnormally behind inflation quite a bit from 1979 to 1992.  Then, in the early nineties, this distortion corrected and there was a tectonic increase (both real and nominal) in the value of your home.  After peaking in 1999, the real price plateaued and stabilized again until our most recent housing bubble . 

The lesson to take away from this is that, when adjusted for inflation, housing is a fairly stable and predictable store of value.  Is it any wonder then that it has been such an excellent tool for creating and maintaining wealth?

Now lets look at the latest housing bubble to measure the local market's progress in finding equilibrium. 

This chart is the same as the first except we zoom in on the years 1997-2011.  Again, here we are looking at inflation adjusted prices.  A quick glance at the chart confirms my client's assertion that homes today are indeed a better bargain than they were in 1999.  In fact, we are very close to the market trough of 2004.  Keep in mind that this data is six months old.  Today we may already be at parity with the previous inflation adjusted market trough.  We won't know until a few months when today's data is finally released.

Regardless, what we are seeing is that we are at or very near the natural equilibrium point for housing.  There are a couple questions now that need answering:

1.  Will the market over-correct?

If it does, that will set up the market for another scenario like the early 1990's when real and sticker price values vaulted after lagging behind inflation.  I don't know anyone who bought real estate in the early nineties who is doing poorly.  It may be wise to watch this metric.  An over-correction is a boon for investors and new home owners. 

2.  If the market does not over-correct, what's next?

Once the market hits its natural equilibrium point, which on this inflation adjusted chart is around the $100,000 mark, will it hit bottom and plod sideways again?  If it does, with inflation increasing, that means that house prices will have to increase with it to maintain that equilibrium.  This very well might be the case.    

Either way, we are at an important junction.  We will either enter a super-bargain phase of the market. Prices hold.  And it becomes nearly impossible to go wrong purchasing investment real estate because of its relative value to the dollar. Or, the market will start to see rising sticker prices as nominal values try to keep up with inflation.

Whatever happens, it appears that brighter days are just around the corner.

Real Estate Investment: Getting the Good Deal

I am working with some clients right now who have been mentored by another investor to cast a broad net over the market to find bargains.  Their methodology is to follow a specific formula to derive an offer price and then submit that offer regardless of list price. 

My experience has taught me that even though a property may be worth of a specific value, the list price for that same property may or may not reflect its value.  In many cases, the list price may be too high.  Does this mean that a low ball offer should be submitted to such a property?

A couple of years ago I wrote Blacklisted at 10%: Betting Against The Seller.  The article has a very interesting chart showing you the List Price-to-Sale Price rations for single family home transactions in Davis County.  What we discovered was that back then most transactions happened at 90% of list price of above.  Therefore, the chances of success offering a price below that threshold were very small...something we discovered to be on the order of a 1-out-of-33 chance.   My advise then: Don't low ball because it's a waste of time.

In light my new client's methodology, I wanted to revisit the data and see if there were any new trends.  I also narrowed the focus to the multi-unit market in Weber County.  I present you with today's chart:

 What we see here is interesting. Surprisingly, given market conditions, we discover that 13% of all transactions are occurring ABOVE list price.  How can this be?  Well, remember that list price and sale price are not necessarily the same thing.  If a property is listed lower than its current value, which happens 13% of the time according to this chart, then the price will be bid up. Nearly half of all transactions are occurring between 90% and 99% of list price.  16% of transactions are happening between 80% and 89% of list price.  And finally, only 8% of transactions are happening below 80% of list price.  That means you have to submit over 10 offers at 80% or less of ask price to get one to stick.  That is a lot of offers.

So, is it worth the time and effort?  That is up to the agent and the client to decide.  My preference is to be more analytical and hone in on the deals based on experience and subjective research.  However, some folks do things differently. 

So, whatever it is you choose to do...happy bidding!
  

Real Estate Investment: Creating Win-Win Deals

I recently sold an investment property that I had acquired a couple months ago.  The sale was unanticipated, but when the opportunity presented itself, I thought that it would be best to move forward.

You might recall my post from earlier Super Bargain: The $10 Real Estate Transaction.  I had received a call from a gentleman in Kansas who had obtained a parcel at the County Tax Sale back in 2008.  The parcel happened to have a four car garage sitting on it.  However, the lot was tucked way back behind some other properties and adjacent to a bombed out fourplex.  The county did not know that the parcel had a garage on it until this year and his tax burden increased 5-fold because of the new higher valuation.  The garage had been taken over by squatters and looked like a tent city. 

There were several factors that contributed to purchasing this property at such a low price:

1.  The market value of the garage was tough to determine because of non-existent comparables.  The county assessed it at $16,000 but it needed some repair. 
2.  At such a low price point, marketing it with a realtor would be a non-starter.  Most agents would not want to put up with the hassle of marketing this property for the paltry commissions involved.
3.  Property managers would be equally disinterested because the total rental income from the garage would be around $180/mo.  Most property managers charge 10% of gross rents.  Being paid $18/mo. for dealing with four separate tenants wasn't a winning option either.
4.  The seller was absentee and the property was a liability rather than an asset to him.  It cost him money each month rather than generating revenue.

So, with this in mind I agreed to eliminate his problem and pay his property taxes.  That is when I got to work.  I dressed up in my church clothes, typed up a serious sounding vacate notice, and marched over to the garage to post it on the premises.  For good measure, I also notified all the tenants in the fourplex just in case they happened to know who might be using the space.  Of course, many of them denied knowing anything about the stuff in the garage.  I also offered to rent the space to them for $45/mo. if they didn't want to move their stuff. 

To my surprise, as the deadline approached for vacating, I got a call from a tenant and she agreed to pay the rent.  We signed a lease and I collected rents for two months.  That is when a good friend of mine called and out of the blue asked if I had a garage for sale. 

My original plan was to sell the garage in a few months when the fourplex came up for sale in an effort to piggy back on the interest and hopefully have the buyer of the fourplex purchase my garage also.  However, my friend needed some storage space today and didn't want to pay out the nose for rent on a storage shed he didn't own.

We put a deal together.  I agreed to sell the garage for $10,000 with seller financing for 5 years on a 6.25% note.  He put $1,000 down which covered property taxes, title insurance, and closing fees.  The monthly payment is about $175/mo.

This is a classic win-win deal for both transactions.  I didn't want the headache of fixing up the garage and my friend didn't want to pay for something he wasn't going to own in the end.  Based on rent-to-value ratios, I sold the garage for about half of its retail market value on a generous seller finance contract.  The payments I receive will be nearly equal to what I could rent the garage out for each month.  Everyone is happy.  When I acquired the garage, I cured someone's headache who did not have the time or money to cure the problem himself.

These are the types of transactions you want to put together.