Love Austin Homes Investing Blog

Just wanted to be sure everyone was aware of this. Even Lonnie Scruggs
(of Deals on Wheels fame) was caught in this guy’s scams!
See
HYPERLINK “http://www.mobilehomeuniversity.com/forum/read.php?f=1&i=2433&t=2433″http://www.mobileho­meuniversity.­com/forum/­read.php?­f=1&i=2433&­t=2433
for more info.

ANSWER

I have personally run across a number of people that have been scammed, and left with nothing, through my short sale business. A few simple things to look out for are:

1) A deal that is too good to believe

2) A partner that asks you to put your name on a loan (because they can’t, for any of a number of different believable reasons)

3) The partner finds the house, and hires their own appraiser that says it’s worth $X, when it’s really worth < $X

How to protect yourself:

1) Get your own appraiser, or better yet, realtor, and possibly a contractor (people you know and trust) to help you determine the as-is value of something before you buy it.

2) Close your deals at a title company, and get the insurance.

3) Deals that seem too good to believe, probably are. Most scams rely on people’s greed. Always remember that pigs get fat, and hogs get slaughtered. Don’t be a hog…

You don’t have to cut corners to get rich in real estate.

Phill

I’m looking for referrals for a home inspector, particularly one who
is experienced in inspecting high-end property.

Also, the property has a septic system. Should the inspector be
capable of inspecting this, or would you recommend a separate septic
inspection. The system is only about 5 years old.

Thanks,
Iain

ANSWER

Iain,

I suggest you call several and hire the one you like the best.

My own experience is that I have found inspectors to be pretty un-helpful with the high-end homes. They are really good at finding the long list of little things that go wrong with typical homes, but getting a list of $5-10K worth of broken toilet handles, missing collar vents, bent flashing, and cracked windows is probably not going to give you much helpful information regarding what will really affects the resale value of the very high end home.

When you interview these guys, see if they will give you a flat rate. The last one I hired charged by the hour and it took him two full days because of the size of my home.

Phill

I am selling a house in Austin in the Avery Ranch development. House is 2 years old and has been rented the entire time I have owned it. Current tenant is on a 2 year lease and rent is $1450/mo. Rent increases to $1550/mo Dec 1. Leased through Dec 2007. House is great condition. 3 bed, 2 ba, Den, 1985 sq. ft. Asking $240k. Property appraised at $235k last year.

Thanks!
Melissa

ANSWER

Melissa,
It does not take a math genius to calculate that $1550 rent is not going to come anywhere close to covering costs on a $240K property. I typically own $120K rental properties that I rent for ~ $1000/mo, and I’m lucky to come close to breaking even after factoring everything in.

Why anyone would pay $240K for such a rental property escapes me, unless the property is absolutely worth $300K, and the massive negative cash flow is temporary (yes, I have taken deals like that).

Phill

I thought I might share with the group a startling trend I have been observing… Mistakes!

Obviously, we all make mistakes from time to time, however, over the last several weeks, an increasing high number of deals have rolled across my desk, from investors that got into trouble, and are now looking for a way out. It feels like a trend, possibly from the vast influx of newbies into investing, or perhaps just from too many people trying too hard, or maybe it’s the more sophisticated investor market?

Here are some examples (and warnings) from lessons learned:

High-End Remodels:
I’ve come across 4 deals where a so-called ‘experienced investor’ convinces a ‘newbie investor’ to get the loan (presumably because newbie has better credit). In one deal, they buy home for $720K (more than asking) and take some equity out on the buy (supposedly for the remodel and a hefty assignment fee). Then the experienced investor splits. Newbie goes on to spend $65K on remodel and finds out home is only worth $700K ARV. Loss: ~$155K! Investor is toast. I’ve picked up 4 of these deals as short-sales. I think this is basically a scam.

Lesson learned: Don’t put your credit on the line unless you REALLY know what you are doing.

Short Sales and Foreclosure/­REOs:
I’ve come across several deals where an investor buys an REO or short sale to renovate and resell. In one case a guy bought two homes for $115K each, spent $5-10K remodeling, and discovered he could only resell them for around $115K each. Loss: ~ $20K/deal. Investor is toast. This usually happens to newbie investors that rely on newbie realtors to find their deals, and a belief that making even modest improvements in any home will always magically make the home worth much more than the cost of the improvements. (I call this HGTV syndrome)

Lesson Learned: If there are lots of Short Sales and REOs to choose from before you buy, there will be lots of REOs and short-sales to compete with when you sell. Do your homework.

Rushed Deals:
I’ve come across several deals where an investor buys a home, usually in a hurry, without fully sorting out what the remodel needs. In two cases an obvious foundation problem existed ($20K!). In one case the investor never saw the inside – which was trashed ($30K). In another case, several hundred feet of space could not be utilized ($50K+). Despite the fact that these deals had margin in them, the investors made no money or lost a lot of time and a little money because they under analyzed.

Lesson Learned: Do your homework and don’t cut corners.

Second Liens:
I’ve come across several deals where investors bought homes (subject-to) without title insurance (and only having done a quick title search) only to find out later that additional liens existed. In one case, taxes were owed. In another a Genesis tax lien existed ($14K – interest baring). In another a Neighborhood Gold down-payment assistance lien existed ($8K). And finally, in one situation a past tenant showed up with a lease-option contract that said he had the right to buy at a price $50K below market value. Owch!

Lesson Learned: Get title insurance and/or don’t do transactions beyond your skill level.

Is this a trend? Not sure, but it sure feels that way… Is anyone else seeing this sort of thing?

Phill

Does anyone have any thoughts on how having a high voltage power
pole/line in the backyard would affect the sale of the house?

Thanks,
Rob

ANSWER

Rob,
It’s pretty subjective. Most people find them unsightly. Like being on a busy street or having a view of a power plant.

There are many web sites that tout that power lines are a health hazard and even cause cancer. There are many studies that say that that’s all a bunch of baloney. Regardless, there is some health stigma around power lines that will reduce your market a bit.

I think with all of the these issues – in a hot sellers market, these sorts of things get overlooked. In a buyer’s market some will care and some won’t causing the home to sit around a little longer and perhaps requiring a bigger discount to get it sold. If you are buying one of these – make sure you get the ‘additional’ discount on the buy.

Phill

I have found what I think is a good deal on a house
for my personal residence. It is a KB home. Has
anyone ever purchased a KB home? Please give me your
HONEST opinions.

Thanks,
Michael

ANSWER

Michael,
I have bought and sold dozens and dozens of KB homes though my short sales. As a general rule, they are the least expensively built homes of any homebuilder and therefore offer the highest size per dollar. They are generally a low-end builder, however, they do have several ‘grades’ of homes, some being higher quality than others. Although there are some web sites that claim that KB is low quality, I would say that the quality is average.

The fact that they are cheap, does not in itself mean they are low quality. Most of the cost savings comes from the fact that they have streamlined the building process - their costs are lower.

The bigger problem I have with KB homes is that they DO NOT HOLD VALUE well at all. KB sells to first time home buyers, people with less than perfect credit, and has several zero-down purchase options. While this seems great for buyers, it results in neighborhoods full of people that have credit problems - resulting in extremely high foreclosure rates in KB neighborhoods. Obviously this means everyone in the hood is toast because resales are constantly competing with foreclosures and REOs.

I know of a KB neighborhood, for example, where 100% of all homes sold are foreclosures/­REOs. This is not an exaggeration. The non-foreclosure homes are priced so much higher than the foreclosure homes (because they are priced to the loan pay-off), that they never sell (causing some of them to eventually fall into foreclose).

Now, would I buy a KB home? Yes, I would, but it would have to be significantly discounted (NOT NEW!!!) to typically $45 to $55/ft or whatever the cheapest REOs have sold for in that neighborhood. I would also prefer their higher-end neighborhoods – you can tell these immediately by the amount of brick/stone on the exterior. Lower end KB is 100% hardy plank or vinyl, while the higher grades go up to 3 to 4 sides brick on the exterior with upgrades on the interior.

- LAH Blog

I have a unique opportunity available for someone who would like to pick up a million and a half dollars in equity AND live next door to David Robinson. The deal involves the ability to put down $100,000 RIGHT NOW and the ability to close by October 20th.

1) You will get a property with at least 1.5 Million Dollars in equity (perhaps more). A full appraisal is available to document this figure.

2) This San Antonio home is about 14,000 sq/ft on a beautiful 2.0 acre hilltop with an amazing view. It has 7 bedrooms/ 8 bathroom/ 5 car garage / 3 Fire places and Elevator.

3) Your next door neighbor would be David Robinson.

TIMING IS PARAMOUNT. ANYONE WHO DELAYS OR WANTS TO THINK IT OVER WILL LOSE OUT. Call Ken at (512) 444-7653. Do not waste my time with inquiries if you cannot do the terms as outlined above as they are non-negotiable.

Brenda,

ANSWER

Ken, Brenda,

Brenda,
After running some comps, this house looks to be about 1.5-2x the size of anything else on the market. At $200/ft it’s worth $2.4M. At $250/ft it’s worth $3M. I guess it could be worth a little more or less, but usually when you are the biggest house, you get less per ft. That puts the cash or ‘quick-buy’ value at $1.7 to $2.1M less repairs. That’s what I would expect to see the bank ultimately sell it for. An appraisal on a house like this could say just about anything – it’s fairly subjective depending on what comps the appraiser uses, and how he factors in the huge size differential. If an appraiser used the highest square foot calculation and multiplied it by the highest $/ft comps, they could claim $5M, for example, but good luck getting that…

Usually these deals bounce around for a while because nobody can come up with the $$ and/or the wholesalers that broker these deals don’t know how to price and pitch these to the people that do have $$. I’m currently working on a similar deal in west Austin where I bought a $2.9-3.6M home for $1.35M that I am finishing out. That deal was repackaged several times, and fell apart several times, before I got it.

What’s the current sales price?

Phill