Seattle Real Estate, Fixer, Real Estate Seattle

The federal government has come out with a new program of allocating billions of dollars to help local government, and non profits buy foreclosed properties. My guess is that these properties would be used for low income people, and families. There again low income housing is in great demand, so with high demand will there be short supply? I don’t think so.

Our goal is to own property free and clear. One of the ways to do that is by maximizing the income. Renting rooms will bring more money than renting an entire house. There may be damage to the property, but the income will be greater. College housing is a good example. Individuals can cover a $3800 a month rent at $475 per room.  

The going rate for a room, per month, is $400. A gentleman, very behind in his mortgage, is renting rooms by the day, at $40 a night, $200 per week, $600 per month. That is extreme, but the idea that foreclosed homes will be something more than flop houses is pretty extreme.

My point is that we will probably be looking at a lower return in rental income as time goes by. More properties will be rentals, and more aggressive renting will be done. All these properties need to have an income, some one will be owning them, and as home owners walk away from high mortgage payments, more properties will be rentals.

A home owner will always pay more.

Our company A Spring Cleaning has been on the preferred provider list for banks, and HUD, for about twenty years. What that means is that we submitted our license, and proof of insurance, got on a list, and that our bids would be accepted. A couple of years ago agents began complaining about the condition of bank owned properties. They are still complaining, just not as much, because the system is settling down. The system, is the Third Party Vendors, that entered the business to provide service to banks, and Asset Management companies.

I’m just going to share with you a story about the last bank owned property we worked on over a year ago, maybe two years. We were called in to bid, which we did, the house was clean, but I was smart enough to note that the garage was paddle locked. The window was covered, with no way to see inside. The lock was new.

We talked with the Third Party Vendor in North Carolina, took the pictures of our work, and e-mailed, the photos, with a bill for the time we spent. Great!

Then we get a call from the bank, Bank of America, asking us to get the lock removed from the garage. We said we can’t, then a local Real Estate agent calls us to tell us that a lock smith will meet us at the property. Great!

By now, you must know that the garage was packed floor to ceiling with stuff from inside the house. The Third Party Vendor, in North Carolina, was owned by a gentleman from England who was billing banks, and not performing work well.

We were called as a follow up to the initial cleaning, which was paid for, there was another cleaning company that was paid to check our work, and Bank of America paid us directly for the cleaning we did, and hauling the stuff in the garage.

We are going to go do a place today, which will be the first in these two years. The system as I noted is supposed to be settled down, but we have asked for payment on completion.

Real Estate is a business. Owning, or controlling property can be both an asset, and a liability. For many people, today, owning a property isn’t working out. Many Real Estate agents are taking the opportunity to use a short sale as an opportunity to earn a commission. In my opinion in many cases there has been less than a full disclosure on what the heck you are doing.

The idea of a short sale is to cut your losses. If you bought a house for $400K, and short sale it for $300K, you now only owe the bank $100K. People seemed confused when Bank of America started inserting an addendum that said the seller still owed the difference, but really that’s the way it is.

A foreclosure on the other hand is the bank’s right. They can either foreclose judiciously, by going to court, or simply take the asset. After all they lent on the value of the asset, and that’s how this is going to play out. Those that sell short, though, should have really understood the game. You all, owe the short, if that’s how you sold.

OK, I’ll go the next step, and say that you need to consult an attorney who deals in bankruptcy before you decide how to dispose of a property, if it is anything other than a direct sale. If you are thinking to send the house back, or allow a foreclosure, or sell short, you need to have a strategy.

Really, I’ll write more about this another time, but for right now, just remember, Real Estate is a business. Real Estate is a multi billion dollar business, that the United States government found it necessary to infuse with close to a Trillion dollars. That makes this a very serious business, and you should act accordingly.

This is not a time to go to some yahoo with a Real Estate license who just wants to make a commission check off of you, get informed.

Here is a link to a great resource about Bank Owned Properties: http://ceforward.com/?p=376#comments 

This list was compiled by Jillayne Schlicke a Real Estate educator for Real Estate agents. I’m going to write more about Jillayne this week because she has filled in some of the gaps that Real Estate education never had before.

Bank owned properties, mean those properties that have been determined to be in a banks growing inventory. Banks have the options after foreclosure to sell at auction, list with an agent, wholesale to a Broker (LLC), or sell direct to you, the problem solver.

What Jillayne has done is make the list of banks. People are always confused about why there is no resource for foreclosed homes, and the reason is the discretion of the banks to do what they chose with properties they now own free, and clear. There is a whole reasoning about where the bank is with a property, how much has been taken in, and how much they have to pay to keep a property. A savvy buyer can make determinations about what they want to offer based on some common sense.

The bank is a good place to start, but financing is also essential. Getting a loan in place is a good idea, and never get involved with the banks loan process. There are very few times a bank can make a deal on a loan on a property. Most of the time though there would be a conflict of interest.

I will check to see if I published an article about how to buy a bank owned property. If not it will be my next post.

Over on the Rain City Guide Ardell made a statement that struck me, ”Any day a buyer can have a mortgage payment less than what the property will rent for, it’s a good day.” That sounded right, but in thinking about it, there could be a flaw in that logic.

In the 1970s Real Estate prices declined, greatly in some areas. Of course if you bought as much property as you possibly could, and held on to it, you would be a millionaire, or better today. We saw massive inflation in the 1980s, and if you bought all you could and held on to it, you’d be rich today. If you bought pre bubble in 1995, and held on, you would be doing well.

Today, with mortgage interest rates so low, it’s kind of easy to have a low monthly payment. The price may be a little high, but that payment makes it more affordable to hold onto. For sure if the property will rent for that payment that is a good thing.

Then I started thinking about how much property has gone up in price. Next my thought was that prices have come down a lot since the peak of 2007. After that I was looking at 2008 Real Estate prices, and reading that prices were going up in some areas. Lastly I was looking at how much rents have gone up.

My thinking is that rents, in comparison to mortgage payments, have creeped up also with the appreciation of property. It kind of seems normal to pay a per cent of income for rent. Let’s say 25% of your income would go to rent. When I really thought about that I was thinking $500 in rent is $2000 a month in income, $1000 is $4000, $2000 is $8000.

Where would you find a $500 a month studio in Seattle? I checked incomes for Seattle, and they are high for the country. I was surprised by the number of $80K to $100K jobs. How about the future? What will jobs, income, rents, and housing prices look like in 5 years.

You all know that I have a crystal ball. In five years everything will be less than it is today. Wages, pricing, profits, and values will be less than they are today. This may be good news for those thinking long term, but for those that are coming into retirement age, that may be difficult.

I went to bid a place for rent that needed a good, general cleaning, inside, and out. It also needed paint, flooring, carpets, tile work, appliances, actually the refrigerator was fairly new, but cheap. It could use some walls moved to make it more functional, and it is a kit house from the 1950s, in a great neighborhood. By rough estimate the houses needed, just needed, about $7K to make it rent ready. The owner balked at my inside cleaning estimate of $180. She had already had the carpets cleaned, and they looked like heck.

Then today, a long time client of ours called to say that rather than sell their house they were going to rent it, I guess until the market improves. The problem they have is that they were transferred by the company the husband worked for. They had LP siding which no relocation sale will touch so they resided the house, painted, cleaned, refinished the floors, and put the house in tip top condition for sale. Even though the rent is covering the mortgage it’s a shame to leave all of that good work to renters.

What I hear a lot is, that sellers don’t want to “give” a property away. My opinion is that, yes, they do.

Owning property is a job. It’s a dollars, and sense business that is a long term investment before it’s profitable. My suggestion would be for buyers to look at the rental market for a source of bargains. Some of these properties have equity that will only be realized in a sale. Even though intellectually there is a case for lowering the mortgage payment, and increasing cash flow, the fact is that property prices may be stagnant, or decline further. Those people who want a return in their life time, may be persuaded to let some one else have a turn with the property.

Wednesday morning I was at a networking that includes contractors, a real estate agent, financial planner, and a mortgage representative. The Mortgage rep, made a side comment that balloon payments on apartment building loans are being extended, to pretend the market will return to a “normal.” He also said his company only lends on A, and B class buildings. The financial planner said that C class building can actually cash flow better. Then yesterday I read an article about a building in Burien that is having it’s tenant evicted because the buildings are in such poor condition. All of which sets the stage for this article.

A class C building, or sets of buildings, are commonly referred to as a slum. There are always pockets of run down properties where a low element of renters shows up, pays rent, and trashes the place. I started my career in one of those buildings, doing the work. My partner and I joked that we had been working on the same building for ten years, for three owners.

It was very simple, the first owner bought the building for the cash flow. He had an on site manager who was slow. The place remained run down, my partner, and I did some odd jobs, but never very much. The owner sold the building to a young couple who were going to “turn the property around.”

We redid every unit, one at a time, over about three years. Our first unit was the managers unit, and it was a mess. As units became available we would paint, and replace appliances, carpet, tubs, vanities, counter tops, as needed. The breaking point for them was the managers unit, that after three years we were called to paint. It was a mess. We replaced the carpet, vinyl, appliances, bath tub, toilet, and vanity. It looked the same as when we first reworked the unit.

The new owners moved in, painted the outside, got rid of the manager, and ran a tight ship. They lowered the cash flow expectations, lowered rents, and did a thorough screening of renters. We actually painted the outside twice while they owned the building.

This building, in an odd location, cash flowed, it brought in more rent than the mortgage payment. Even with the work being done, the rents paid for most of it. The young couple paid out of pocket, for sure, but the appreciated value broke them better than even.

This article got a little long. Over on www.BuyingSeattle.com I have a post about Professor Wheaton who pointed out that in the economic drive of home ownership fewer apartment buildings were being built. My only point is that Apartment Buildings may be a good investment right now. We’ll explore it more in a future articles, but this has been on my mind.

Over on my other blog at www.BuyingSeattle.com I talk about the good Real Estate agents we have in the Seattle area, and there are a bunch of them. Here on the Fixer Fixer site I can express some of the under belly of Real Estate, and a big area of under belly is idiot agents.

I have been asked not to do business with one such agent, by our mutual Brokers. I targeted, and sold three of his listings. One was so under priced, in a great area, that it got no offers in an extremely hot market when everything was selling. My buyer offered even less than asking price, and was the only offer on the table. Every one else assumed there was some thing terribly wrong with the place, and the agent was refusing to answer any questions.

The same thing is going on today, and yet I don’t have a buyer. We aren’t in a hot market, but there is a property that is sitting there unsold that I wish we could have. In both cases there were, or are, foundation issues that can be fixed for less than $10K. In the case we have today, the agent spent about $7K making the place pretty.

The idiot agent is also the wild card, in the mix of Real Estate sales. You just never know when some buyer will be convinced by an agent that spending too much on a property is a good idea. We have had a lot of that lately.

As soon as you tell a seller they will never get that kind of money, for that listing price, some idiot agent will come in with an offer. The classic is that you have vultured a property forever, written a low offer, that can actually be a fair price, and some idiot will come in with a higher, much higher, offer before mutual acceptance.

It’s a give, and take, that makes the Real Estate business exciting, and profitable.

We have been debating for a long time now about granite. I like it at a reasonable price, but the price got out of hand.

What hasn’t come up is the cabinets that the counter top sat on. We cleaned a place yesterday that is in keeping with the way I would do things. The foundation is tons of concrete and steel, but the finish is more utilitarian. It’s all good stuff, but you can tell price was a consideration on the finish. Another builder who I admire greatly did the same thing. At the end of his construction he hired a lower end designer to finish the project. That doesn’t sound right, I’ll do another article about finish design.

Anyway, I noticed that in this project the cabinet work was really first rate. The counter tops were fine materials, but the stone was lower end. The cabinets, and the way they were configured must have cost a fortune. The turn arounds were wood in the corner cabinets. It was really pretty spectacular, while the counter tops kind of faded away.

We noticed in a project we did for a property for sale that the Real Estate agent replaced the counter tops with granite on top of pretty crumby cabinets. On another project we were doing the owner questioned my taste in putting on a cheaper, more utilitarian counter top, onto a custom cabinet. 

The point is, counter tops can come, and go, and they will, but the cabinets pretty much stay as they are for a longer period. I would opt for cabinets as the place to put my money, and leave the counter tops with the idea they will be replaced as decoration, over time.

I put up a post some months ago about a house on Queen Anne that was being redone. It was gutted down to the studs inside, and out.

http://seattlerealestatefixer.com/wp-admin/post.php?post=258&action=edit 

The point was, to ask the question why some one would go to this expense rather than just jack the framing up. My conclusion was that they were trying to preserve the fire place, but today I saw the finished product. Holy Cow!

When you walk in you are walking up an incline to the middle of the house. On the right is the fire place with the window on the right tilted about a half of an inch, just enough to notice. In the middle of the house is a distinct hump.

I could go on for a long time about the odd feel of the property, but let me get to my real concern. The house has been turned into a triplex. Each floor has a kitchen, bath, and bedroom, or two. The floor issue is only one of a set of issues that I would have. Let’s say the owner has spent $120K, maybe less, but the work is extensive. Let’s say the purchase price was around $225K. Let’s say the whole project comes in at $325K, or maybe $100 per square foot, and will rent for $3600 a month. Let’s say it’s a brilliant move all the way around.

Now you still have the foundation that has settled 4 and 1/2 inches in the South East corner. So even if you are holding the property to reuse the dirt in the future, you still have a tear down. A bigger concern to me is that some one, or entity, has tied up that amount of money, for that long. Even if, over time, the property pays for itself, it’s funky.

Obviously this is a smarter person than I am, but still, if you’re going to have funky, why spend a bunch of money to do it? If you’re going to rework a property you should at least make the attempt to do it right. In this case it was a matter of about $5K, maybe $10K, but probably a lot less.