Love Austin Homes Investing Blog

Is it possible to get access to comparable sales without a realtor?

ANSWER

By design, the Multiple Listings Service keeps sales data exclusive to Realtors and Appraisers. Publicizing this data would fundamentally change the realtor value proposition.

You can get approximates from web sites like HYPERLINK “http://www.zillow.com/”www.zillow.com.
You can also look up the tax records at TCAD (For example Travis: HYPERLINK “http://www.traviscad.org/”http://www.travisca­d.org/ ). These, however, may be quite inaccurate because they rarely take into consideration condition, additions, recent market trends, etc.

See the Investor links at: www.LoveAustinHomes.com for several other ideas

If you are going to be a real investor, you have to have access to the MLS. The best way to do this is to have a realtor on your team. I use Shenoah Peck, for example. Shenoah is investor friendly, savvy, and experienced, and will reimburse or discount the purchase commission, in exchange for an agreement to list a property after renovation. This reduces the property cost basis (when you need it most). Teaming up with a realtor early in the process also insures you know what the house is worth as-is, and after repaired. Also, a good realtor can offer suggestions that might help you make renovation choices, and a realtor that has renovation experience might even be able to help you budget the renovation itself.

It seems like many investors avoid realtors. I think this is out of interest in cost savings. Personally, I have up to 60 or more properties for sale, at any time, and almost all of them are sold by realtors, because it’s the best proven way to get full value for retail sales, and it frees up time for me to do other things…

Phill

Sir,
You always seem happy to help newbies in real estate business. I can really appreciate this. Helping others. Your information has been “right on” in most cases.

I have been in the real estate business all my life. I’m 63 years tired. I live in the hill country. On Lake Buchanan to be exact. In my past I’ve been very active in investment Real Estate but am too far from the Austin market to become actively involved. Too young to retire, but do want to slow down. So I have been toying around with the idea of becoming a “hard money lender.” This is a problem, because I’ve never been involved in this type of lending. I have bought several discounted mortgages in the past, but never loaned out money.

To keep it simple, I’m looking for a Mentor, someone to teach me the business, hold my hand, lead me thru a couple of deals. I don’t want to get burned. Been there done that. Can’t find much information, and no books or tapes. I guess the business is too state specific.

I operate using LP’s and LLC’s so i am familiar with how they work. I’ve never seen a partnership agreement as you mentioned above. I would be very interested in reading such a document or examples of such a document. It would give me some guidance in what issues need to be addressed before checks are cut.

Any suggestions as to where I can get some information would be greatly appreciated.

Thanks in advance for any guidance in this area.

Thank You
Philip

ANSWER

Philip
I do these frequently with other investors. Partner find deals, I fund them, we split the profits.

I use a simple Limited Partnership Agreement that we customize for each deal. It defines the responsibilities of each party, what is considered as profit and expense, and how profits/losses are to be divided, etc. It also has other boilerplate needed in limited partnership agreements.

The actual buying and selling is generally done in the name of the person/company funding the deal, or in an LLC created to hold the property (if it will be held for a long time), or in an LP created to flip properties (this is what I use). Most people don’t care who’s name the property is in, they just want their fair share of the profits.

CONTINUED

Regarding you question on lending:

Philip,

I’ve come to know a lot of people that do various types of lending. Most fall into the category of ‘hard money lenders’ and ‘private money lenders’.

Hard Money lenders get higher interest rates, but also have to work a lot harder for the money. The work is in the form of responding to lots of calls from yahoos and newbies that want to borrow money on shaky deals, and having to do a lot of homework and sorting though a lot of deals in order to find the ones worth funding. Most of the private individuals that I know that have gone this route, have either backed away from this to become private money lenders or given their money over to established hard money lending institutions, like Funding Partners, among many others. Jules Caplan is an example of a local investor that also does hard money lending. Jules has lots of stories about the frustration of running down deals from people that exaggerate values, underestimate repairs, and simply don’t know what they are doing.

Private money lenders work more through relationships with a smaller number of experienced investors. Private money lenders can do recourse loans (where the borrower in personally liable for the money), can choose to work only with borrowers with good credit, and sometimes even choose to invest at lower LTVs for lower risk.

For example, I’ve got perfect credit and a personal net worth of more than a couple million dollars. That said, I can’t personally afford to finance all of the projects that I manage. I prefer to buy at 70-80% (minus repairs) and then fund about 20% of the project myself, so that my own money goes 5x as far. This means I need to borrow 80% of the project costs, but the lender is only loaning money at 50% or so loan-to-value to someone with experience, perfect credit, and personal liability (and their one $$) in the deal. This is about as easy and low-risk as a loan can get. For this sort of loan, I might pay 10% interest, but no points. Obviously, that’s not as good of a deal to a lender as a hard money loan, but it’s also virtually risk free and work free.

So, are you looking to be more of a hard money lender or private money lender?
Phill

I’m studying REI full-time currently, and am learning that, with the
many REI strategies one can employ, there are some that work better in
some markets and some that don’t work well in some markets at certain
times.

My question is this: would flipping be an advisable short-term
strategy in the Austin market at this time?

Some would say it’s too hard to find decent deals in a market that’s
seeing rapid appreciation, as Travis county has begun to see. Some
would say flipping is too popular right now, further increasing the
number of competitors looking for deals. To those who know the REI
game in Austin, what do you think?

Thanks for your insights.
Andrew

ANSWER

Andrew,
I guess I would have to say I am an experienced investor in Austin. My personal perspective is that the market is petty saturated with investors. There are always deals to be found, but with so much competition, there are frequently too many people willing to pay too much for properties. A lot of these are newbies that underestimate costs and pay too much, get burned, and eventually drop out of the business. But, they are quickly replaced by a new crop the next month.

Info books and tapes making it sound easy and TV shows like “Flip That House” fuel the fire. I especially have a pet peeve with Flip That House, because they show an inaccurate profit made on every deal, and they purposely don’t include closing costs, carry costs, or cost of sales (which can easily add up to 15% of the finished product) in the profit calculation. I can prove that several of the featured deals they illustrated as profitable actually LOST money…

Personally, I’m also NOT big on books and tapes. The authors are in the business of selling books and tapes – and telling the truth that this is a business, and that the businesses that are successful require hard working smart people with resources, is not going to sell as many books and tapes as spinning a version of the truth illustrating how to get rich in real estate.

What I am big on is networking and partnering. If you are serious about investing, find some smart, experienced, hard-working people with resources that have been doing this for a while and work with them. At least half of the many projects I’m funding these days, came to me from another investor looking for an experienced partner…

Phill

Hi,
I’m new to the RE investor field. First, I spent a considerable amount
of time learning, reading, attending local REIA meetings and
educational seminars. I plan to continue learning but I wanted to get
started ASAP. I have been actively seeking houses to buy for about 3
weeks now. I created my 1st direct mailer (postcard). The post cards
were over sized and an extra thick card stock to get attention.
The card was sent out MLS listing, in the NW side of San Antonio,
which met one or more of the following criteria.
Over 90 days listing
Price reduction
Expired/canceled

I feel like I got positive responses, 5 out of the 190 I sent out
called back. After talking to them, I set up 3 appointments. Of the
3 meetings one is interested in a subject to deal, but wants to try
and sell on MLS for one more month. If it does not sell, I feel like
he will do the deal. The other two were not very motivated to sell
and were fine with over pricing their house and waiting for a buyer.
Over all I feel like I did not reach/find very motivated sellers.

I figure I need to find motivated sellers. I have seen
somelists/systems advertised, but I wonder how many of these have
value. Seems like they re too good to be true. IE they advertise,
“Sellers will com knocking on your door.” They will call you begging
to buy their house, etc.

Any one know were I can get reliable Pre-foreclosure, divorce,
probate, etc list for the San Antonio area?

Sunil

ANSWER

Sunil,
Everyone here is looking for motivated sellers…

My own experience is that you are doing some of the right things by marketing to FSBOs and foreclosure lists, however, remember that these are the same people everyone else is marketing to, so competition is stiff.

5 responses is a good start, however, my advice is to wait until you find a real deal. I frequently look at 10-20 deals to find a good one. I sometimes see newbies get frustrated and try to force a deal where there is not one to be had.

Phill

I wanted to get the opinion of some of the licensed realtors out
there. I have a situation where I submitted a full price offer on a
piece of property and they came back and rejected it. Not only was I
surprised, I asked if the reason was that they had another but higher
contract and they said no. The reason was that the seller decided
that since he was now getting offers he wanted to raise the price and
try to get more. This property has been on the market for almost a
year and a half.

Does anyone know of any type of recourse either on the seller or the
agent for what I think as possible fraud?

Thanks,
Tim

ANSWER

Tim,
I had a similar situation once where I found a property offered and listed for $250K that I knew from my experience was worth easily $350K. The property was just put on the market that morning, and I was the first to see it.

I made an immediate full-price $250K offer, cash, close immediately, zero contingencies, no option, as-in, no questions asked. It scared the crap out of the seller, and he immediately pulled the home off the market and re-listed it with a different realtor for something closer to $350K.

I asked my attorney if I had any recourse, and I was told that because I had honored every conceivable request of the seller, that I could sue to force him to accept my contract, but, that it would cost lots of money to litigate and could drag on for a long time, and might end up being settled, and given all that, he suggested I go on my way…

Phill (not a licensed realtor)

Hi, this is Nirav, I need some advice.
I am actually going to place my first bid within the
next 24 hrs. The house is listed at 93,000, I looked
at the CMA’s and all of them are going from 110,000 to
127,000. I have done a walk thru inspection on the
house, and needs very little work. I was just
wondering where I should start my bid at. It is a HUD
home owned by the bank. Appreciate any response.

ANSWER

Nirva,
I always suggest the classic formula of 70% ARV (After Repaired Value) – repairs. If this home should be worth an average of around $120K ARV, and it’s going to take you $5K to renovate, you would bid $120K x .7 = $84K – $5K repairs = $79K.

This formula assumes a relatively conservative 15% cost of sale and carry/money (C&C), 5% contingency, and 10% profit. Obviously, if you have estimated your renovation costs well, and the home sells in a timely fashion (because it is a fairly ‘resalable’ home), you won’t use up your contingency. Also, if you have cheap money and/or you use discount realtor services or sell it yourself, some the 15% C&C costs can be reduced, though it may not actually be worth it for a newbie to cut these corners.

In this example,

In a best case resale scenario, your profit might be: $127K (resale) – $79K (buy) – $5K (reno) – $7.5k (C&C) = $35.5K (profit)

In a worse case resale scenario, your profit might be: $110K (resale) – $79K (buy) – $10K (reno + contingency) – $16.5K (C&C) = $4.5K (profit)

Something in-between is much more likely.

The truth is, however, it’s pretty hard to actually find and get 70% deals. Because of this, most people take a gamble and bid closer to 80% or even more. At those margins, you would bid up to $91K for this home, and cut your best case profit to $23.5K and your worst case to, gulp, a LOSS of $7500. As you get better and better at doing this, you will be able to tighten up your ARV, reno, and C&C estimates and feel more secure about what you can afford to bid. I just negotiated a 75% deal this week, for example, that I’m pretty excited about. $235K (ARV) x .75 = $176K – $25K (reno) = $151K (buy price). Would I love to get this down to 70%? Sure, but I also realize that pigs get fat and hogs get butchered, and I’d rather just be a fat pig

The biggest mistakes I see newbies make is going into deals too rosy-eyed. They overestimate what homes will really resale for, by overlooking problems the home has, like being on a busy street or having a funky layout. Sometimes these problems are the reason the home is available at a screaming price today. Newbies also underestimate renovation costs and don’t take into consideration that once you start pulling walls down, etc. more problems are likely to show up. The real ‘cash and burns’ occur when a newbie borrows too much money at a high interest rate and runs out of $$, or has to price the home above what someone will really pay and the project starts going into the red. I just bought one of those, from a newbie, in midtown last week. He had to cut and run.

The second biggest mistake I see newbies make is being too cautious and never doing anything…

Good Luck!
Phill

Hi,

I was wondering if you can recommend a few “investor friendly”
agents for Austin. What I mean is that the agents should be
knowledgeable on the areas good for rental as well as resale. As all
of you know, we, the investors, look at properties differently than
home owners. Preferably, the agent would be an investor him or
herself.

I’ve been working with one agent who solely works with new houses…
I’m looking for resale at this point.

Thanks in Advance,
Autumn

ANSWER

Autumn,
I do a lot of short sales and normally have 25-35 homes listed at any one time. I also have 6 renovations going and several rental properties. As such, I have searched and searched for the best and brightest “investor friendly” realtors in Austin. Investor friendly is especially necessary in short sales where the deals can get vary hairy and many many entities are involved in the negotiations. These realtors have lots of experience and really know what things are worth.

Here’s my list:

Terry Moore, Avalar (Formally RE/MAX) – 512-619-1229

Shenaoh Peck, Property Consultants of Austin – 512-913-3718 (Shenoah is also an investor)

All of these agents work extensively with investors, including California buyer snatching up rental properties, and locals like me doing shorts, renovations, and rentals. If you hook up with one of them, let me know.

Phill

UPDATE: My full-time patner is Shenoah Peck and works almost exclusively with Investors.

Hello,
I am thinking of buying a condominium to use as an interim place to live for about a year while I build my dream home. However, I have heard mixed reviews about buying condominiums as an investment. The way I look at it is if it has room for increasing value in the near future and the HOA fees are not exceedingly high, then why the hell not? Does anyone have any experiences with purchasing condominiums as investment property that you would like to share so I can make an educated decision?? Thank you in advance.
David

ANSWER

David,
Maybe with low HOA and in a good location… but, in general I say – pass…

As an investor who FLIPS a lot of homes (especially short sales), I can tell you that condo’s are absolutely the hardest things to sell. I have never successfully flipped one, because they take too long to sell. The big problem is the condo fee. As a home seller, I’ve discovered that most buyer’s don’t really care about anything other than monthly cost. As ridiculous as this is, time and time again, the buyer’s don’t care about actual property cost, actual interest rate, fees, etc. All they want to know as their eyes glaze over with detail is “What’s the monthly cost”. With condo’s you pay PITI PLUS condo fee, which at $150/mo +/- often pushes the monthly cost over what an equivalent single family home would cost. I know there are exceptions, and all the folks who love or own condo’s will scream, but I still don’t buy them…

Why not pick up a little house in east or central that has a good shot to appreciate 10% over the next year? Buy the right house, and you live for free

Phill

I Got a house with an existing alarm system that the wiring looks like a
spagetti western…….does anyone have a reasonable alarm technician that
won’t cost more than the break-ins they are preventing?

thanks much!
Richard

ANSWER

Richard,
You my find a handy man with these skills, however, my experience is that most alarm companies will fix the wiring and the rest of the system FOR FREE if you sign up for their monthly monitoring service. Additionally, most companies won’t service a system that they don’t monitor.

Phill

We have a couple of properties wer’e going to
wholesale in Austin area within the next 3-6 weeks.
Are you a cash buyer?

Danny

ANSWER

Danny,
I am a fast + CASH buyer!

Phill Grove