Real Estate Investing

I grew up a military brat moving from place to place in what was mostly middle America.  Like the hobbits of middle Earth who were amazed at the new sites they saw as they returned the ring to the fires of Mount Doom, I am constantly astonished when I hear what people pay for real estate in other parts of the country.  A 900 square foot cottage in California for how many hundreds of thousands - and it needs some work!?   Ay yi yi.

Today, the news is out that values of apartments in Manhatten continue to climb though there are many job losses, causing concern that the prices will soon begin to erode. 

After the stock market crash of 1987, it took two years for Manhattan real estate prices to drop… When they did drop, the market became more troubled because the slowdown coincided with developers taking advantage of tax incentives to build thousands of new apartments. At the same time, thousands of rentals were being converted into co-ops. Many builders had concentrated on building only smaller apartments that were attractive to investors looking to rent them out. All of this inventory meant that it took until the mid-1990s for prices to recover from overbuilding.

Meanwhile, the average price of an apartment in Manhattan rose to $1.5 MILLION in the third quarter of this year.  I wonder what the price per square foot is there.

If you’re interested in finding an expensive place to live, Miami rates at #10.  Other cities include Seattle, Sacramento, Boston, Washington, DC, San Diego, Los Angeles, New York, San Francisco, and #1 is SAN JOSE. 

Of course, there are countless great reasons to live in these cities ranging from cultural to educational opportunities, recreation, entertainment, jobs.

And now that the massive bailout plan for the financial markets has passed and been signed into law today, perhaps people can again afford to buy homes.  According to Forbes, it’s unclear when credit-crunched banks can begin selling their troubled loans to the Fed.   Some of the fodder of the bill include,

–Provides the government with warrants to obtain an equity stake in companies. This helps ensure that taxpayers share in future gains of companies that are bailed out.

–Limits excessive executive compensation for some companies. Any firm that sells more than $300 million in troubled assets to the government is also subject to more taxes.

–Establishes an oversight board and special inspector general to act as a watchdog.

–Requires the Treasury secretary to regularly report to Congress the details of all financial transactions under the bailout.

–Allows federal agencies to modify troubled mortgage loans.

We’ll see the results of the bill flesh out in the coming months.  But for this next week, I’m going to try to forget about it all as I take a vacation to the white sandy beaches of Destin, Florida, sipping cold drinks and reading a good book.  See you October 13th unless I can find a wireless connection!

I know one should never talk about certain things, but today’s office conversation turned to politics.  It centered around term limits for lifetime politicans in Washington, D.C.  My view is simple: while I often don’t like the decisions people in other states make about who they have in Congress, I don’t want someone to tell me that I can’t have my gal or guy serve if they’re doing a good job for me thanks to term limits.  Don’t take away my right to pick who I want to represent me.   My friend’s view was the polar opposite: get rid of them all after six to eight years so their work won’t be tainted with the power that corrupts, a natural occurance after so many terms.

I drew the parallel about how Realtors can also lose sight of their ethics and good intentions.  We are bound by a code of ethics and we *must* take continuing education ethics classes to ensure that we don’t forget them.  Yet I still find agents who are quick to sweep the guidelines under the rug. 

For example, I introduced a buyer to a property earlier this summer and performed due diligence (regular follow-up contact, etc.).  About a month later, a contract appeared in my office - an offer on my listing.  Lo and behold, it was a contract from the buyer I had been working with, as presented by another agent.

I called the agent who said, “I asked if they were working with someone else and they said you’d shown the property.  But when I asked if they signed the buyer agreement with you and they hadn’t, I knew it was okay to work with them.”

No, the buyer hadn’t signed so it was my own fault.  Live and learn.  Technically, the agent had committed no wrong and I knew it, she knew it.  However, it really wasn’t okay … you know, the golden rule.  Would she have wanted me to do that to her?  The kicker was she picked up the client because they had applied for their mortgage at the bank where she worked.  Hindsight is a glorious thing, no?

My point in this ramble is that there ARE PLENTY of Realtors out there who ARE ethical.  The friend I was talking politics with earlier - as we talked about politicians forgetting their ethics and how even Realtors do it - told me about his phone call yesterday.  The caller said, “I’m afraid I might have stepped on your toes.  I was given a referral from a lender and when I called the buyers, they said they’d been working with you.”  My colleague confirmed his customer/client relationship, and the other agent apologized then promised to walk away.  That, my friends, was impressive and restored my confidence in my fellow agents.

Today Matthew Rathbum of the Virginia Association of Realtors reminded us about “Do Unto Others…”

When decisions are made, are you asking yourselves about the long term consequence of those actions? We’ve all heard that “With Great Power Comes Great Responsibility” but do we really understand, as an industry, what that means? Just because you can do something, doesn’t make it right. Hurting someone, regardless if it’s in the name of “politics”, “client representation” or “self preservation” is still hurting someone.

Well said, Matthew.  I encourage everyone, no matter what business they’re in or the situation, to think first about whether their action is something they can be proud of the next day.  It’s not always about the money, but your decision can have a real impact on your reputation.

As I flipped open my monthly ”The Real Estate Professional” magazine, I read about a foreclosed home in Detroit, Michigan selling - literally - for $1.  One dollar.  100 pennies.  10 dimes.  According to the magazine, the home is in one of the most distressed parts of Detroit.  After the homeowners were evicted,

“Thieves ripped off the siding, stole the fencing, ripped out the copper tubig and even got the furnace. The home was boarded up, but the boards were soon stolen to board up another porperty nearby.”

Once the property price, originally listed at $1,100, was dropped to $1, it sold in 19 days.

Then today I saw that a home in Saginaw, Michigan sold on eBay for $1.75.  The buyer who had not personally seen the home plans to pay the back taxes (a little more than $800) and try to resell it.

These are the deals people want to find in this sagging housing market.  While the “best” deals are directly related to where they are located, HUD also offers homes for $1.  I’ve been asking my community’s city officials to consider buying some of the homes in what has become the biggest subdivision in the state and turning them into studios - for example for pottery, music, art, dance.  It looks like this HUD program could work for this type of initiative.

HUD’s Dollar Homes initiative helps local governments to foster housing opportunities for low to moderate income families and address specific community needs by offering them the opportunity to purchase qualified HUD-owned homes for $1 each.

The folks over at Wisebread caution against some $1 homes because - with some - you’re only buying the home, not the land under it,

The catch is that if you buy the home you do not buy the land underneath it and you are required to move the home. It generally costs $10000 or more to move an entire home, but if you already have a plot of land it might not be such a bad deal. For those who do not have land, some homes might have antique finishings and raw materials that can be salvaged.

May the buyer beware.

Photo of a home purchased for $1 from here.