It’s 10am, do you know where your building inspector is? You certainly know where he isn’t, he isn’t approving the most recent work so that you can move on with your project. Your inspection was scheduled for first thing in the morning and the inspector finally shows up near the end of the day.  On the one hand you want to yell, scream and complain, on the other hand you know that you need him to sign off on the work so that you can proceed.  Outwardly you are respectful and cordial, inside you are seething and thinking, “next time I’m doing this without permits!”

Do I Really Need Permits?

It’s very tempting to do renovations without pulling permits.  You can save time, money and a big hassle, but at what cost?  The primary reason that municipalities require permits is so that they can be sure that work is performed to acceptable standards and that it meets all building codes.  The codes are created to set minimum standards for safety and appearance.  These standards give home buyers a reasonable level of assurance that a home is safe for them to live in. 

A lot of cosmetic work can be done without permits.  Installing new carpets, painting and simple changes do not normally require any kind of approval.  Major renovations involving plumbing, electric, foundations, extensions etc. almost always will.  A good starting point is the local building department.  They can give you an idea of what the local requirements are.  When in doubt, give them a call.

We Don’t Need No Stinkin Permits!

When working with contractors you need to be careful.  If they tell you that they don’t need permits to do the project you should check to be sure.  It could be that they are unlicensed or they may be looking to cut corners.  Be especially wary if they say that you can save money by not pulling permits, you may end up paying a lot more in the end.

Big City vs. Small Town

When working with a building department in a large city you a probably dealing with a bureaucracy and may not see the same inspector twice.  In a small town the local inspector may be the entire building department.  You need to adapt to whatever the situation is.  In a large city you want to develop a good reputation so that inspectors know that you are easy to deal with.  In a small town you need to make the inspector your friend.  Making an enemy of a small town inspector can be the kiss of death for your business as can a bad reputation in a big city.

Permits, inspectors and inspections can be a big hassle.  However, they are a part of the business and learning to deal with them can make your life a lot easier.

Tact is the ability to describe others as they see themselves. - Abraham Lincoln

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I made my first foray into small town real estate back in 2005.  Having been used to large suburban markets, I soon discovered that this was a different animal.  Many large markets had run amok with rampant speculation that was driving real estate prices into the stratosphere and I wanted no part of the risk associated with investments in those areas.  Through networking connections I had learned of a Nevada mining town that was experiencing an economic revival and, as a result, had a severe housing shortage. Despite the demand, prices had not climbed much but rents were high.  An investor’s paradise, or so it seemed.

The Perfect Storm

The town of Ely, Nevada had gone through years of economic decline when a mine, its primary industry, had shut down.  People left the area in search of work and houses were abandoned because there were no buyers.  Many of those who remained did not have the money to maintain their houses and they fell into a state of disrepair.  The future looked bleak for the area.

Fortune eventually shined on the area when the mine was bought by a much larger operation and re-opened.  Other industry came to the area in the form of a state prison and, not one but two, proposed power plants.  Suddenly workers were in demand but there was very little available housing.  I was one of the first rehabbers to enter the area and others soon followed.  Opportunity was everywhere.

Learning To Adapt

 On the surface you would think that people would be happy to see investment in their town.  However, it soon became apparent that outsiders were resented.  The townspeople were looking to protect their way of life and didn’t like the intrusion of the city slickers.  In many ways I could understand how they felt.

Many investors had come to the area and attempted to use their big city tactics and quickly found that they didn’t work.  The pace is slower and there wasn’t much competition between contractors since there were so few of them. To be successful in this area you had to learn how to fit in.  Those who were able to adapt thrived, those who couldn’t soon left the area.  The small town way of life isn’t for everyone.

A Different Atmosphere

It took a little getting used to but I came to love the area. The way of life is much more relaxed, the air is cleaner and the people have turned out to be terrific.  The area has seen tremendous changes in the three years that I have known it, yet in many ways it is the same as it must have been fifty years ago.  [See an article that I had published in The Ely Times ]  

Experience is the one thing you can’t get for nothing. - Oscar Wilde 

Another one bites the dust…

A major Las Vegas construction project was halted last week.  The $4.8 billion Echelon Place development on the Las Vegas strip had been hailed as a sign that the city will survive the current economic woes.  Construction on the 87 acre project began in June 2007.  The developer, Boyd Gaming Inc., expects the construction to be halted for up to a year. 

The Project

The project includes four hotels totalling almost 5,000 rooms.  The plans also call for a 300,000 square foor shopping venue, 750,000 square foot convention center, 140,000 square foot casino, 4,000 seat theater and approximately 30 restaurants and bars.  It was a major piece in the development of the north strip area.

The shutdown has approximately 800 construction workers heading to the unemployment lines  Economic forecasts for Las Vegas had been pointing at 2009  as the year of recovery.  Echelon Place was prepared to hire 10,000 workers when it opened.  This would have provided a major spark to the local economy and helped to revive a stagnant housing market.

 While this is a major project, it is not the largest in the area.  The City Center project is slated to cost a staggering $9.2 billion and provide an even greater number of jobs in the area.  The developer of City Center, MGM Mirage and Dubai World, have had their share of problems but have, so far, managed to keep their project on track.

Credit Markets to Blame  

Boyd Gaming CEO, Keith Smith, had this to say: “It was a decision based on the economic climate for capital.  A lot has changed in the past year.  The financing is just not there.”  It certainly can’t be an easy decision to mothball a project of this size and scope.

While they claim to be halting the project for a year, it remains to be seen if and when it actually starts again.  There have been many projects in Las Vegas that never get off the ground for various reasons, but this one is halfway done. 

Las Vegas is a city that prides itself on fantasy and illusions.  As you travel the strip you can see the New York city skyline, pyramids of Egypt, a volcano, and the Eiffel Tower.  We now have a monument to the real estate bubble as a $4.8 billion construction project gathers dust.  

Man, I really like Vegas. - Elvis Presley

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The housing , bubble, sub-prime meltdown and the bubble in the oil markets.  Like a witches brew straight out of Macbeth, it all comes together like an evil potion to make life miserable for all.  Hindsight being 20-20, we can look back and see how one thing led to another to bring our economy to the painful point at which we now find ourselves.

For a charm of powerful trouble…

The days of ridiculously easy money, creative loan products and a total lack of oversight led to a real estate bubble of historic proportions.  People with no experience thought that they were going to become the next Donald Trump by flipping houses.  We know how that turned out.  The rate of appreciation was totally unsustainable and, like a game of musical chairs, the music stopped and the bubble deflated.  We now have a different kind of bubble, one filled with an extraordinary number of foreclosures. 

Like a hell-broth boil and bubble…

When the runaway appreciation came to a screeching halt, we were left with the sub-prime mortgage crisis.  There have been over 260 failures of lending institutions since late 2006.  Those who invested in these risky loans have been left holding the bag.  Major institutions have been brought to their knees.  Bear Stearns and Countrywide were the prominent names, but there have been many other casualties as well.  The FBI is now investigating hundreds of cases of fraud in the financial markets by lenders, brokers and borrowers.  Although it may be a case of shutting the barn door after the horses have escaped, heads are going to roll here.

Double, double toil and trouble…

Former Federal Reserve Chairman Alan Greenspan called, “The current financial crisis in the US is…the most wrenching since the end of the Second World War.“  The Government was not going to sit idle while people were screaming for them to do something.  In an effort to stimulate the economy and, at the same time, mitigate the effect of rate adjustments on mortgages, the Federal Reserve slashed interest rates.  The idea was that adjustable rate mortgages (ARMs) that were adjusted based on treasury rates would not rise as much.  The hope was that the rate of foreclosures would slow enough to avoid a total collapse of the economy. This has worked to a degree and , while still a huge number, the number of foreclosures is nowhere near where it could have been.

Fire burn, and cauldron bubble…

In physics there is a law that states: every action has an equal and opposite reaction.  The flip side of the interest rate cut is that the dollar plummeted in relation to other currencies.  The slowing of our economy only made the dollars plunge more pronounced. A weaker dollar makes the cost of imported goods more expensive and our number one import is oil.  While well down from its all-time high, oil prices have gone through the roof.  Gas prices effect just about everything we do and have an impact on almost everything that we buy. 

There is no easy fix for this.  The politicians point fingers at each other and the candidates claim to have the solution.  I’ll vote for the first one to admit that they don’t have a clue about what to do next.  The road has been rocky and it’s going to get worse before it gets better.  As investors we need to watch for the opportunities that arise while exercising caution and restraint.  The foolish among us have lost a great deal of money, but those of us who have the nerve to take calculated risks can profit handsomely from this turmoil.

Formula for success: Rise early, work hard, strike oil.
J.Paul Getty

In his landmark book, The 7 Habits of Highly Effective People, Stephen R. Covey calls the second habit: Begin With The End In Mind. Nowhere is that more true than in today’s real estate market. When investing in real estate, the End in Mind is your exit strategy. Unless you just like to wander aimlessly down a highway, you know where your exit is before you get on the interstate. When entering into a real estate investment you also need to know how you plan to exit.

Novice and veteran investors alike tend to get caught up in the excitement of finding a great deal. However a veteran will be more likely to think a deal through. Finding a property with a ton of equity is only good if you have a way to realize that gain.

Possible Exits

There are a number of different ways to dispose of a real estate investment in order to collect your profits.  These may include:

• Wholesale
• Sell/Flip
• Long Term Rental
• Lease Option
• Seller Finance

These are the most common ways of exiting an investment.  Each one has its own advantages and disadvantages. The current market conditions will play a large part in determining which method is best.

 If it was a great deal and you are just looking to make a quick profit, then wholesaling the deal may be your best bet.  If you aren’t in as much of a hurry you may want to rehab and flip the property.  If your goals are to build a large rental income, then you may wish to add the property to your rental portfolio.  If the market is not favoring the seller you might use a creative technique such as lease option or seller financing.  A strategy that works well in one set of market conditions may not be good for another.  You need to know this going in.

Analyzing A Deal

Investors have a myriad of different ways to analyze a deal before making a decision to purchase.  They may look at the cash flow and built in equity as well as any repairs that may be required.  However, one of the most important things to determine is when and how they are going to dispose of the property.  If it is going to be a long-term rental they need to be sure that the income will be sufficient to cover the cost associated with holding the property.  As long as you are making money every month you can sell the property when the market conditions favor the seller.

Looking to flip or wholesale a property requires that you look at the deal differently.  How long does it take to sell a property in the area?  Can you price it low enough to assure a fairly quick sale?  Recent comps may indicate that the property you are evaluating has a lot of equity, but does that mean anything if you can’t find a buyer? 

 Eat Dessert First

You may make the bulk of your profits by buying a property at a great price, but you realize those gains when you sell.  While planning your exit strategy before you buy may seem like starting a meal with dessert, it can prevent you from getting into a bad deal.   

I buy when other people are selling.
J. Paul Getty

Tags: exit strategy, flip, landlord, real estate investing, real estate investor, rehab, steven covey, successful people, wholesale

Those who run real estate investment clubs have a big challenge in lining up speakers for each meeting.  Clubs do not usually have the kind of budget that would allow them to pay for speakers, therefore they need to do their best to locate those that will speak for free.  This invariably results in the talk being given by someone who has a specific agenda or something to sell.  This is not necessarily a bad thing, you just need to keep the speakers ultimate motivation in mind when you listen to the spiel.

Some of these speakers are quite good and their knowledge is obvious.  On the other hand, some of the speakers leave you scratching your head and wondering if they have ever owned an investment property.  Investing veterans have little difficulty in separating the fakes from those who are the real deal.  Novice investors may mistakenly assume that if someone is speaking to a group he must know something.  Hopefully they will learn before they are burned by one of these phonies. 

 My primary purpose for attending monthly club meetings is for the networking and resulting connections ( see: Getting the Most From Your Real Estate Club ), however I do enjoy hearing from good presenters. My local real estate club had two very well qualified speakers at a couple of recent meetings.  While both were very obviously qualified to speak about real estate investing, their styles and agendas were a world apart.  

 Guru #1

At our May 2008 club meeting we had a speaker who specialized in foreclosures.  Certainly a timely topic and on that I was looking to learn more about.  I had seen this speaker once before and knew that he was a good presenter and very knowledgeable.  After introducing himself and providing his background, he openly stated his agenda.  He was not there to sell books, tapes or home-study courses, in fact he didn’t have any of that.  The business model for his company was to purchase bank REO (foreclosures) properties in bulk.  He then sold these properties as-is or after light rehab to investors at wholesale prices.  To do that he needed two things, properties to buy from banks and investors to sell them to.

What he was pitching was a two day seminar on how to locate, buy and finance the acquisition of these properties.  He was charging $1800 for the seminar with the guarantee that he would refund your money after the first day if you didn’t feel it was worth it.  He then proceeded to spend the next hour sharing some of his knowledge of the subject.  He was truly impressive and it was a great example of what you would get in his workshop.  He had over twenty people sign up and most of them were veteran investors who are not easily impressed.

 Guru #2

At our most recent club meeting we had another speaker with impressive credentials.  He is currently featured on one the house flipping shows and has a real estate company on the east coast.  The club heavily promoted the meeting because they do not usually have a name speaker and the resulting attendance was much larger than normal.  Many of the regular meeting segments were cut short to allow this speaker to have as much time as possible.

This speaker had an array of tapes and course material displayed, so his agenda was obvious to anyone who was paying attention.  He began his talk with his background in real estate and talked about all of the mistakes he made when he began.  He kept telling us that he was going to teach us how to do this, that, and the other thing during his talk.  I kept waiting for him to actually “teach” something but all he really did was talk about what he was going to tell us.

As the talk progressed it was laced with sales pitches for a computer program, home-study courses and his five-day boot camp.  Some of the pitches were very subtle while others were blatant commercials.  After 90 minutes he closed with a final pitch for his boot camp.  The regular price was $5,000, but is you signed up now it was only $2,497.  But wait, there’s more! He would include a $500 credit for your travel expenses and the first few people to sign up would receive the $2,000 computer program for $1!

A handful of people did sign up.  From what I saw they were newcomers to the club or novice investors.  None of the veterans were impressed enough to part with their cash. 

The Bottom Line

Both of the gurus were qualified to speak about real estate.  However their value was very different.  One was geared to marketing courses and boot camps to novice investors.  Those who sign up would most likely gain valuable knowledge, but would it really be worth the price?  The second guru was targeting experienced investors with a desire to participate in the foreclosure market.  I spoke to several of the attendees who agreed that there was definite value, but it was not for everyone.

If you are ever inclined to sign up for some gurus course, do so with your eyes wide open.  Is the course geared to someone with your level of experience?  What do you hope to gain from the seminar or boot camp?  Will you be able to implement what you learn or are you just falling for a sales pitch from a smooth-talking speaker? Buyer beware.

The great difficulty in education is to get experience out of ideas.
George Santayana

Tags: guru, Learn Real Estate, real estate club, real estate guru, real estate investing

Okay I admit it… I used to be an active “chatter” in a local chat room on Yahoo. It was a room where many people from the Dallas area met up to…Chat. Many of us had met outside of the cyber room at local restaurants, clubs and the like.

Yahoo had recently shut down a lot of the member created chat rooms in the wake of all the negativity and sponsor lawsuits. Lets face it…The public opinion of chat rooms was not good. I was a virtual unknown person to most chatters because I stayed away from the “in person” socials but, that all changed one morning. Here is what happened:

A room regular was talking on “voice” and venting about his house early one morning and I was listening a few steps away making my breakfast. This is what “Monte” said, “I got this letter from some attorney who says he is going to sell my house! How does he think he can do that? He doesn’t own MY house so, how can he sell MY house?” My head spun around so fast that I almost gave myself whiplash. I ran to the computer and grabbed the microphone to speak in the room and here is what was said…

Jim: Monte, what is the name of the law firm that sent you that letter?
Monte: Uhmmm, it says ummm.. Barnett, Burke & Associates.
Jim: Would that be BARRETT Burke?
Monte: Yeah, that’s it.
Jim: Monte, email me your number. I need to talk to you NOW.
(That law firm processes nearly 40% of all foreclosures in the state of Texas)

Within a few minutes I was on the phone with him and I told him that I was a local foreclosure expert and taught classes at Foreclosure Listing Service in Addison. I told him I needed to meet with him and his wife right away because, the letter he got was his notice that his house was in foreclosure and he had less than three weeks left before it would go to the auction. He was shocked and claimed he had no idea (I didn’t know how he could be shocked after missing nine payments). Two hours later I was at his house and explained all about the foreclosure process to him and his wife and what options he may have to save his house.

I remember how bad I felt while explaining the situation because his wife just sat there, staring at me with her eyes wide open, not able to say a word. She had no idea the mortgage was past due at all. She had not seen any letters from the lender or taken any call from them. Monte never told her early on and the situation only got worse as the missed payments added up.

After going over all of the possible solutions, I decided that bankruptcy was likely the best option for them and they agreed. I made a call to Hariett Langston, a friend of mine who is a bankruptcy lawyer in Dallas. Monte and his wife were overwhelmed with the situation and asked if I would go with them when they met with the attorney and I told them I would.

We met with Hariett that same week and everything appeared to be set to stop the foreclosure. All Monte needed to do was pay the bankruptcy filing fee.

A week before the foreclosure sale I went to their house and was a bit surprised to learn that he had not paid the filing fee. I asked him when he was going to file and he just shook his head and said he didn’t know. I remember pausing for a few seconds and it dawned on me why he had not filed. I said, “Monte… You don’t have the money to file, do you?” In a very humble manner, he looked down at the floor and shook his head. ($500 was the amount he needed to get the bankruptcy filed)

As I drove home I thought to myself that it would be simple if I just wrote a check for the $500 but, I thought that he really needed to pay something so important himself. I got an idea about that time and sent an email to one of the chat room regulars who organized the chat room socials. I recall stating in that email that online chat rooms have such a negative public image and went on to tell her about Monte, his situation and I asked her if she could set up a fund raising get together. It would be our way of proving that normal, everyday people go to chat rooms and this was a chance to show at least one chat room could do something good. I told her that he only needed $500 and all it would take is $5 here, $10 there and a $20 from a few… $500 could be raised.

She arranged to have a Dallas chat fundraiser social for that coming Saturday night. I called Monte and told him about the fundraiser. He asked me to not do it (his pride was the obstacle) but, I told him that we were going to do it anyway and it would be nice if he attended. He later told me he was so choked up that he couldn’t say anything but, he did finally say he would attend.

I expected a handful of people to show up for the fundraiser but, I was wrong. Much to my surprise… At least 50 to 60 regulars from that chat room showed up and contributed. At the end of the night, ordinary people from a Yahoo chat room donated more than $700 to help save someone from losing their house.

The next day I gave the proceeds to Monte & his wife and they quickly paid the attorney the fee to file their bankruptcy and their house…No…Their “home” was saved.

The story got another interesting twist a few days later. I got a call from a reporter who wrote for a well known local media outlet. They had heard about the fundraiser and thought it was a great community effort story that should be told and asked if I wanted them to write about it.

It took only a few seconds for me to process my answer but, I remember thinking that such publicity would be great for business and my classes would see a boost in attendance. Then I thought about the possibility of other homeowners that would read the story and what would my answer be to them if they contacted me and asked me to do a fundraiser for them as well?

I told the reporter that as wild as the story was, I never expected things to unfold as they did. I told them that I had to pass on their offer because, I had done it to help someone and wouldn’t feel right about profiting off of someone else’s stressful and humbling foreclosure experience. They understood and that was the end of it.

I have to admit . . . Of all the positive experiences I have had in real estate, helping Monte might rank as number one. What stands out in my mind was the fact that so many people pitched in to help save a family from losing their home and they did it for someone most had never met or only knew of by screen name…That’s what made it so great.

This happened in 2005 and two days ago I got a phone call from Monte. He just wanted to give me an update and I was happy to hear they still have their home.

During the call I told him about the reporter. He was surprised I hadn’t told him and more surprised that I turned them down. At the end of the call, Monte told me that three years was long enough and he encouraged me to tell the story of how a bunch of chatters from a Yahoo chat room, came together and did something good.

Thanks Monte.

Tags: bankruptcy, chat room, foreclosure, foreclosure rescue, home owner, NOD