Wednesday, March 24, 2010

When asked "What to do with $500k I just received"?

Hello all, I am a frequent contributor to real estate websites like Trulia, Activerain and Zillow. These sites are great for the general public to ask real estate related questions without fear of being hounded by zealous agents with bad manners. Someone posted on that they had $500,000 in cash and wondered if they should pay off their existing mortgage or invest the money. It's a good question, and hopefully some of you reading this will one day find yourselves in this situation. This was my reply to the person:

"If it were me, I would go pick up one or two multi-unit properties in Los Angeles that will rent quickly. I am particularly fond of Section 8 Properties in the lower income areas of the city. Before you wince and disregard this answer, let me explain why. The ghetto is feared by many thus the prices are lower and the Cap rates are higher. (Cap rate is annual rent/purchase price-usually I advise to go for 8 or higher but most multifamily properties on the west side or Pasadena are 5 or less). Section 8 is an LA county program that subsidizes rent to people, so you have the government paying most of your tenant's rent. They always pay on the 1st of every month. The downside is that your unit has to pass a Section 8 inspection once a year, but that's best practices anyway to keep your rental property in good condition. With larger units (3 or more bedrooms) you tend to get families with lots of stuff. We all know that moving is a pain when you have alot of kids and stuff so they tend to stay put. A multiunit building with section 8 tenants is a cash machine. The tenants will never give you any problems because if they do, you just contact their section 8 adviser and they lose their benefits.

I would advise putting 50% down and getting a 30 year fixed mortgage so that you can leverage your funds a bit and also take advantage of the very low interest rates at the moment. When the rates rise, and they will, your 5% mortgage will be just peachy. I know of several buildings right now that are above a 10 percent cap rate and are under $300,000. All you would have to do is sign the loan docs and you would make about $3000 a month income from each. That's a no-brainer IF you have the stomach for the hood.

If not, rental properties in nicer areas are also a solid investment, but they won't spit off the tremendous income that you can get in less desirable areas. For more on this concept, please contact me."

Serious buy and hold for cashflow investors already know about the rough areas and section 8, perhaps some of you reading this may venture down there. If so you'll probably see me, evaluating another potential building. We can meet up and get some really great Tacos on MLK. See you in the field?

-Sky Minor, Not-afraid-of-the-slums broker.

Thursday, March 11, 2010

Checklist for increasing your houses' curb appeal.

When I was starting out in the business a great real estate agent once told me that houses are bought or sold as soon as the car door slams shut. Now that I'm getting up there in number of closed escrows, I can see that she was right. "Curb Appeal" is the term to describe that magic feeling that people get when they first set eyes on a property. It's not always a quantifiable thing, more of a "vibe", a feeling. Curb Appeal is the most valuable thing any home seller can have. Here's a basic checklist of things that I have noticed contribute to Curb Appeal that can be done for free to any home being marketed for sale.

Sky's Curb Appeal Checklist (abridged)-

Inspect the outside ground. Remove any building materials, scrap wood, discarded household items, etc. from the property. Store garbage cans in the garage. Remove weeds from the sidewalk.

Check the home from the roof line down.
- Is the roof free and clear from obstructions and moss?
- Are the gutters clear and neatly hung?
- Are the windows clean and free from obstructions (such as overgrown bushes or trees)?
- Are bushes, trees and shrubs neatly pruned?

Inspect the condition of the paint or siding?
- Is it time to power wash the siding?
- Is touch up paint needed?
- Is the front door in good shape?

Do flower beds need an upgrade?
- Are plants neatly pruned?
- Is the bed free and clear of weeds?
- Is the bed properly mulched?
- Are flowers in bloom? For $50, one can purchase many wildflower seeds that will cover much more ground than the same dollar amount of plants.

Keep the lawn neatly groomed.
- Is the lawn free from weeds?
- Is the lawn free from grass clippings?
- Is the lawn neatly edged?

With just a little bit of elbow grease, home owners can make their home prettier. The bottom line is that clean, well kept houses have more curb appeal. If you want to sell the house make sure it looks more like this: Than this:

Wednesday, March 3, 2010

Houses in Detroit for $1. Yes, $1.

This house was sold for one dollar. Driving through Detroit neighborhoods is an empty shell of the once vibrant metropolis once clogged with the cars that made the city the envy of America and there are homes to be had for a single dollar.

You find these houses among boarded-up, burnt-out and rotting buildings lining deserted streets, places where the population is shrinking so fast entire blocks are being demolished to make way for urban farms.

Houses on sale for a few dollars are something of an urban legend in the US on the back of the mortgage crisis that drove millions of people from their homes. But in Detroit it is no myth.

One in five houses now stand empty in the city that launched the automobile age, forged America’s middle-class and blessed the world with Motown.

Detroit has been in decline for decades; its falling population is now well below a million – half of its 1950 peak. But the recent mortgage crisis and the fall of the big car makers into bankruptcy has pushed the town into a realm unique among big cities in America.

A third of the population are unemployed. Property prices have fallen 80% or more in large parts of Detroit over the last three years. The average price of a home sold in the city last year has been put at $7,500 (£4,900).

The recent financial crash forced wholesale foreclosures among people unable to pay their mortgages or who walked away from houses that fell to a fraction of the value of the loans they had taken out on them.

Banks are selling off properties in the worst neighbourhoods, which are usually surrounded by empty and wrecked housing, for a few dollars each. But even better houses can be had at a fraction of their former value.

Local contractor/investor Jim Feltner and his workers were clearing out a property seized by a bank. “I used to be a building contractor. I was buying up places and doing them up. Now I empty out foreclosures. I do one or two of these a day all over the city,” he said. “I’ve been in Detroit 40 years and I’ve watched the peak up to $100,000 for houses that right now aren’t worth more than $20,000 tops. I own a bunch of properties. I have 10 rentals and I can’t get nothing for them, and they’re beautiful homes.”

Feltner’s workers are dragging clothes, boots and furniture out of the bedrooms and living room, and dumping them in the front yard until a skip arrives. Kicked to one side is a box of 1970s Motown records. A teddy bear lies spreadeagled on the floor.

“You could get about five grand for this place,” said Feltner. “Nice house once you clean it out. All the plumbing and electricals are in it. Roof don’t leak.”

It’s a story replicated across Detroit.

Joan Wilson, an estate agent in the north-west of the city, whose firm is offering a three-bedroom house on Albany street for $1, says that more than half of the houses she sells are foreclosures in the tens of thousands of dollars. “The vast majority of people that call to enquire, almost the first thing out of their mouth is that they want to buy a foreclosure. I have had telephone calls from people looking online that live, for example, in England or California, who’ve never set foot in the area. They’re calling about one specific house they see online. I tell them they need to look at the neighbourhood. Is it the only house standing within a mile?”

But what is blight to some is proving an opportunity to remake parts of the city for others living there. The Old Redford part of Detroit has suffered its share of desolation. The police station, high school and community centre are closed. Yet the area is being revitalised, led by John George, a resident who began by boarding up an abandoned house used by drug dealers 21 years ago and who now heads the community group Blight Busters. They are pulling down housing that cannot be saved and creating community gardens with fresh vegetables free for anyone to pick.

“There’s longstanding nuisance houses, been around seven, eight, nine years. We will go in without a permit and demolish them without permission,” said George. “If you, as an owner, are going to leave something like that to fester in my neighbourhood, obviously you either don’t care or aren’t in a position to take responsibility for your property, so we’re going to take care of it for you.” Blight Busters has torn down more than 200 houses, including recently an entire block of abandoned housing in Old Redford. “We need to right-size this community, which means removing whole blocks, and building farms, larger gardens, putting in windmills. We want to downsize – right-size – Detroit,” George said.

Houses that can be rescued are done up with grants from foundations.

“Detroit has some of the nicest housing stock in the country. Brick, marble, hardwood floors, leaded glass. These houses were built for kings,” George added. “We gave a $90,000 house to a lady who was living in a car. She had four children. It didn’t cost her a dime. We had over a thousand people apply for it. It’s probably worth $35,000 now.”

Old Redford is seeing piecemeal renewal. One abandoned block of shops has been converted to an arts centre and music venue with cafes. One of the few remaining cinemas in Detroit – and one that’s among the last in the US with an original pipe organ – has been revived and is showing Breakfast at Tiffany’s.

Brumit calculates that he has spent $1,500 to buy and do up his house, principally by scavenging demolition sites. He will move in with his wife and four-month-old child once it is complete, probably in the summer.

He said: “The Americans we know got ripped off by the American dream. But [the renovation] is the most like moving out of the country that we can actually do. We’re the minority in terms of ethnicity and this is a rich environment … there’s 30% open space in the city and that doesn’t include the buildings that should be torn down. You’re in a city riding your bike around and you hear birds and stuff. It’s incredible.”