Asset Management & Recovery: July 2007

Many of the properties an REO specialist comes across have been abandoned.  If you have been inside one, you also know that most of the former occupants will leave a considerable amount of their belongings when they vacate.

If they leave the refrigerator, it should be managed with extreme caution.  If the occupants are not going to take their clothes, they not going to take the cottage cheese out of the refrigerator.

DO NOT OPEN THE REFRIGERATOR DOOR.                 

The smell that comes out may make you gag.  Why do you want to look inside anyway?  Are you there to make a sandwich?  No.

The best thing to do is to wrap the doors closed with duct tape and remove the entire unit.

I was talking with an agent yesterday who is considering joining our firm.  In the middle of the conversation, he opened the fridge in a house we were inspecting.  This did 2 things.  1, made me re-think bringing him on and 2, made me remember to give this advice to the Rain.

There have been a few posts lately about bad odors in properties and how to get them out.  This is a continuous fight in our rentals and reo listings here in Columbus.

Sometimes it is an overpowering pet smell and there is no way to get rid of it other than to rip out the carpet and pad and start over.  If you are going to do this, I strongly suggest that you take a few additional steps.

1. 1. Wash the decking with water and Pine Sol.  Let it dry.
2. 2. Paint the entire floor with Kilz primer.  I like 2 coats.

If you are trying to freshen up a property I like to use a product called OdorXit.  It costs about $25 for a small bottle, but you can get about 4 houses out of a single bottle.  Mix with water according to the instructions and apply with a garden sprayer.  Just spray it on the carpet or other flooring.  It will kill smells and leave a faint odor of bubble gum.

This is not the magic bullet as you also need to clean the place!!

Vicki Watzlawick recently wrote a blog asking about going into partnership with someone who approached her.

I have been involved in 2 formal partnerships over the past 5 years and looked very seriously at one other.  None worked out for various reasons.  

At the same time, I have been involved in quite a few Temporary Joint Ventures that have worked out very, very well.  There is also the broker/owner and agent relationship that can be kind of like a partnership in a team setting.  I'm not going to get in to that here as the blog could go on forever looking at all the different types of relationships.

One of my very good friends and very trusted advisors once told me "Rich, employees are better than partners.  When you don't have any work for them or when they are not pulling their weight, fire them."

Good advice!!

For the purposes of this post, I am going to define "Partner" as a co-owner.

If I were to look at a potential partnership with anyone for my current and main business, here is a short list of things to look at.  Please don't take this as me seeking a partner, but only answering a question through past experiences.

1. What will this partner bring to the table that makes me more money, makes my job easier and increases business?  This is business and about money.
2. Why do you want to go into business with each other?  If the partner is approaching me, what is the reason?  There needs to be a joint benefit.  The whole needs to be worth more than the parts.
3. How much money will both of us be putting into the venture?  Anyone I go into business with needs to have cash in and have skin in the game.  No skin, no partnership.
4. Are they willing to value their business and value mine?  There might not be a cash investment, but a stock investment.  This could be equal or not and will determine if cash is needed by one party.
5. Who is in control?  Who makes the final decision?  50-50 does not work.
6. How does the partner feel about spending?  Are they tripping over pennies in their current business?  If you don't think the same about finance and spending, you are doomed.
7. If your partner suggests downloading a partnership agreement from the internet, this is a sign of other bad things to come.  Each one of you needs to have your own attorney.  Don't trip over pennies.
8. Figure out an exit strategy up front.
9. Figure out an operating budget up front.  I investigated a partnership that would include a significant expansion.  Once the partner saw the budget, he didn't want to be a partner anymore.
10. Background checks.  If the partner is a drug addict and credit criminal you need to know up front.
11. Growth.  You need to have the same vision about where you are headed.  Small business or world domination.  This understanding will help answer many of the other questions.

There are more, but I am not writing a novel.

If these questions are not answered satisfactorily and give you a warm and fuzzy, hire someone you can fire if things don't work out.  It's a lot cheaper.

As part of our service to our clients, we routinely conduct site inspections on our listings.  This is done for security purposes, of course, but we also conduct maintenance on the properties as needed.

During the warm months we are at the properties more often that we would be during the winter as we are responsible for the lawn care.

The last inspection of the problem property was last Thursday.  This morning I received a call from our field guy that he needed to cease cutting lawns for a few hours and board up some windows and a door on one of the houses.

Apparently, the rear door was kicked in and about 50% of the vinyl replacement windows had been de-installed.  Some were still in the house near the rear door.

This raises two points:

1. Thieves are getting smarter.  Windows are worth more than scrap copper.
2. The neighbors are idiots.  Why wouldn't someone, anyone, call the number on the for sale sign in front when they saw this?

One of the neighbors told Andy that there have been people over there "working" every evening for the last 3 days.  Are you kidding me?  That wasn't a contractor !!!!  Anybody know a window contractor or any contractor for that matter who doesn't show up with  a TRUCK???

This reminds me of a scene in a movie called Lord of War where Nicholas Cage sits handcuffed to a milk crate overnight watching locals strip his cargo plane down to the frame.

Windows.  Get Your Windows.  Any Size, Slightly Used.

Yep.  One of the fun parts of REO is that every day is interesting and different.

Now I need to go change MLS to identify that the property has a brand new, alternative, cooling system.  It will probably include a price reduction too.

I have a Columbus Ohio auction listing right now that has an opening bid of $10,500.  Over the past 2 days I have received over 15 calls asking "what is the lowest offer you will take" or "if I offer the minimum, where can I expect the counter to be at?"

Huh?

This is an auction listing.  There is no list price and we reserve the right not to counter anything.  I can't tell you what to offer.  Figure out market value and make one based on your clients buying criteria. 

If you want to make an offer, make one.  If not, show up at the auction.

What is killing me are all of the agents that are pissed because we won't accept a pre-auction offer at the minimum bid WHEN WE HAVE 15 PEOPLE OFFERING THE MINIMUM.

If I have 15 people offering the same amount before the auction, there will be one of them that will offer a little more at the auction.  Trust me.  Play the Vegas odds on this.

Please people....If you want me to cancel the auction and take your offer, please offer something that makes me say OHHHHH.

Please ??!!??!!??!!

If you elect not to follow these very simple instructions, then the answer to your question is......

YES, YOU ARE WASTING YOUR TIME......MINE TOO.....

In my last two posts I have talked about getting into the investment game now instead of waiting.  If you are a buyer here in the Columbus Marketplace you should be looking and offering.  Nuff said on that.

In the event you are a seller of investment property here in Columbus, did you know that many out of state investors are coming to Columbus and are paying more than the local investors will?

Why is this?  Because property in some other states is extremely expensive.  Some property has limited short term profit growth potential on re-sale and limited cash flow.

Properties here in Columbus are lower cost and have extremely good cash flow potential if purchased correctly.

Likewise, many local agents are now increasing their marketing efforts outside the local area and seeking buyers statewide and even nationally.  Our staff, for example, markets to buyers and agents in Texas, California and Florida in addition to Ohio.  These are direct efforts instead of passive website ones.  More on that later, maybe :)

Point here, I suppose, is that if you are a buyer or seller of real estate maybe it is time to think a little out of the box with your selling methods or buying areas.  Look outside your area.  If you want, come to Columbus and we can show what I mean.

This has been a question floating around for the last few days.

First of all, nobody knows where the bottom is.  Some say it is 6 months.  I doubt it after speaking to my banker clients.  Some say 18 months to two years.  Some areas may be trending downward for the next 8-10 years if you believe everything you read.

So why buy now if now is not the bottom?

How about this answer.....Cost averaging.

This is where you might buy one unit at $47,000 and another one at $53,000.  Your average cost per unit is $50,000.  As you continue to buy on the way down, assuming you are buying similar property in similar neighborhoods, your cost average goes down.

Assuming again that rents are consistent, your cost is going down and by extension your monthly profit is going up.

Average cost down.  Average profit up.

This is a practice that can't really be employed if you are only planning to buy one property, but if you plan to get into the market and stay in, then there is no reason to wait for the perfect time.

It is likely that you will even continue to buy as prices start to rise again if you are continuing to create a reasonable margin on your rental income.    

As lending continues to tighten, less and less people will be able to obtain loans.  This means that the rental market will continue to strengthen.

What is going on in the Columbus Ohio investment market right now is a terrible thing.  Terrible, that is, if you are overextended.  Terrible if you are trying to sell investment property at retail prices.  Terrible if you don't have a source of funds.

What I am trying to say is that now is a great time to buy investment real estate in the 1-4 market.  What is a 1-4??  That means 1 to 4 units.  This can be a single family home, a double, a three unit or a 4 plex.  These types of real estate investments are the ones most usually made by beginning investors and experienced investors alike.  Some investments can be made for as little as $25,000 (some lower) and on up in price.  Some are spending hundreds of thousands on single family homes for use as executive rentals.

I am sure you are asking "why now?"  Answer: Because the market is terrible.  Yes.  Terrible!  In my opinion, it is getting worse and that is a good thing for investors.

Why is it so bad?  The number 1 reason that I see is that money is tight.  If you have bad credit, little cash and need really creative financing to do deals, then you might just be on the sidelines for a while.  60% of the investors that were buying last year are on the sidelines.  Many people can't refinance out of ARM's, others have different financial problems and the market is flooding with more property every day.

This is very simple economics.  60% less qualified investors and significantly more inventory creates a downward cycle in prices.  This cycle is creating opportunity for those interested in getting into the market.

Buyers are driving the bus these days in Columbus. If you can buy and hold for two years, then you should be buying.  For first timers, buy something with a tenant or that is ready to rent.  More experienced investors should be taking the next step into the deeper water.

The great thing about swimming in this pool is that it has both a deep and a shallow end.  Pick an end, put on your trunks and jump in.  The water is just about right.  Don't mind the sharks.  There's enough chum to go around !!!

Life is stranger than fiction. 

Short story....

One of our staff arrived at the office with a fairly large, covered, bowl of what we all believe to be crystal meth found in one of our properties.  Apparently he collected it from places all over the house.  It was in little piles to start and now collected in a bowl. 

We called the Sheriffs Office who referred us to Columbus Police and they sent over two officers to pick it up.  I estimate the total volume to be about 2 cups.  A little research (I am an appraiser too after all) indicates that this substance, if pure meth, could be worth approximately $800 per ounce.

Our staff is joking that it is worth more than the house we found it in!!

I don't know if it was meth or if it wasn't.  Nobody had a handy dandy meth tester laying around and we don't have any addicts near the office to ask.  The consensus of the 3 reo folks in my office and the two police officers was "looks like meth to us".

Instead of making it to the Blogger Party set for today at HER and finally meeting Maureen, Elaine and Toby, all of the dedicated folks at Gryphon USA decided to keep our streets safe by waiting for the police and foregoing the party in Worthington. 

Maybe next year ya'll will realize where the real action is and stop by our office !!!!!!!

In a very interesting meeting today, members of the Columbus Ohio (CBR) MLS Committee and some REO / Short Sale Specialists met to discuss how to properly disclose real estate commissions thorough MLS.  The issue is that in many short sale transactions, a listing agent will offer one compensation only to have the lender "knock down" the gross fees in order to accept the short sale deal.  In some cases, the total fee ends up being less for one side than is expected for the entire transaction.  Another issue is that the listing agent probably does not know what the short sale lender is going to do when the MLS compensation is presented by that brokerage. 

The solution discussed is to notice agents up front in the agent comments section that the transaction is a short sale where compensation MAY be reduced by the lender as a condition to close.  Not great, but what are we to do?  Some agents may not show property if they risk getting less than their "full fee".

Anyone have any suggestions on this?  What is being done in other areas?