See that little link on the right that says we have a house for sale for $399? Well, now it’s $384,900! (We have since fixed the link.)
We have another open house this weekend, too, Sunday October 2, from 1-4pm.
The kitchen is huge and also light, thanks to the new window
One thing I’ve always strongly believed is that it’s very important to give back to your community. That’s why, every year for the past 6 years, I’ve done the Austin Heart Walk, sponsored by the company I work for during the day. My son usually joins me and my coworkers as we enjoy a beautiful day in downtown Austin, gaze at parrots flying around, and raise money for a worthy cause. Many organizations bring hundreds of people. Our company brings a couple of dozen. But we have fun, and people can see that our company cares.
Rosie can’t run and play, but she is still full of love.
I march because my husband’s mother dealt with heart issues, and lately our sweet dog, Rosie has been diagnosed with a heart murmur, which affects her quality of life. She now is on more medications than any of us humans. I hope research on people also helps doggies!
This year, I’ll have my HermitsBuyHouses.com bumper sticker on the back of my shirt, so people will see that our company also cares.
Next year, this company plans to participate in more local charity events. Another one I care deeply about is NAMI, in support of people with mental illnesses.
What do you care deeply about enough to support with your time and money? Make sure your real estate redevelopment company or other rehab business is also known for caring. It creates a positive impression of you AND the company you work so hard for.
Want to contribute? I’m adding ten dollars to my personal contribution for each one I receive. Here’s the link to my page.
As I mentioned in my last post, 0ne of the easiest mistakes to make in renovating houses is to overestimate their After Repair Value (ARV). In this post, I’m not going to delve into motivations for inflating a house’s ARV. After all, I’ve done it to myself, so far be it for me to cast asparagus on anyone else. I’m just going to talk about how it happens, and there are only a few ways:
I originally planned to talk about all three of these risks in one post, but I soon figured out it would be way too long. Click here to open all posts on this topic.
Just looking at the map, which set of houses looks more attractive? The ones facing the park or the ones facing other houses?
We rely on comparable properties—”Comps,” for short—to make our educated guesses at a house’s ARV. If we base our estimate on the wrong comps, we can really screw up. The rule of thumb is to only use comps within a mile of the subject property. But even if all the comps are within a half mile, they may not be appropriate to our estimate. We must always consider:
Neighborhood boundaries are often marked by major streets. Any time you cross a major street, you’re likely to find the character of the neighborhoods surrounding the properties vastly changed, and the neighborhood influences property values. We looked at two houses in Temple that were on opposites sides of a road. The neighborhood on the north was 20 years younger than the one on the south, but the properties in the older, established neighborhood were higher than the newer houses to the north where it turns out the ground was more mobile, leading to more foundation problems (condition).
But we also evaluated a house in Round Rock where a very similar floor plan in the house directly behind the subject house—a privacy fence separated the two back yards—was worth about $20k more. Why? The subject house had once been the edge of development. All the houses one street over were 25 years newer and in much better shape thanks to a stronger neighborhood association. The subject house was worth considerably less after renovation than the house directly behind it. This was despite the subject’s proximity to a park and an elementary school. The numbers on the subject property were very attractive if we used the more newer, more appealing houses as comps but not when we only used houses on the same street.
A novice investor once showed me a map very similar to this one to justify the price being asked for a house. I pointed out that the so-called comps were in completely different neighborhoods from the subject. In fact, the only thing the “comps” had in common with the subject was that they were in the same ZIP code.
When evaluating another house in Belton, we were given comps that were on the other side of the Interstate from our subject property. Even though the “comps” had sold for more than $200k, our subject would have been overpriced at half that. Given that we were looking at a renovation budget of at least $60k, the $50k asking price was way beyond what we could reasonably pay.
The condition of the properties makes a big difference, too. When buying, if you only look at houses in similar condition to your subject’s current state, you can under value the ARV. But if the houses you use to price your purchase have already been renovated, you could end up paying way too much. The tricky part of buying a house to renovate is keeping both of these numbers in mind when you decide how much to pay.
Here are some basic tactics that will help you ensure you pay the right price for the houses you buy:
Last year, Paul Esajian invited Sue Ann and me (and some other investors) to watch the San Diego Chargers from the Fortunebuilders skybox. Paul has given us some great advice in the time we’ve known him.
One of my mentors, Paul Esajian, says, “Always trust the numbers.” By that he means your numbers. Phill Grove, another mentor, emphasizes this concept. He says, “Always do your own due diligence. Run your own CMA. Do your own repair estimate.” In other words, buying real estate is a perfect opportunity to follow the advice of the old Russian adage, “Doveryai no proveryai”—trust but verify.
Trust but verify. Especially when dealing with wholesalers.
We expect homeowners to lie through acts of commission, omission, and ignorance. They, after all, are in dire straits. They really need to get out of a problem house, and they often know what they need to accomplish that goal down to the penny. We expect them to over-emphasize their house’s strong points and ignore or hide its deficits. Further, they may not even know about a termite infestation, a leak in a wall pipe, or countless other problems that can drive a renovation over budget and into red ink. And, to be fair, homeowners expect investors to lie to them, too.
But wholesalers are a different animal. They speak Investor, so it’s easy for investors to let their guard down too much. For example, wholesalers know how to get our attention with numbers. They know the secret formula we use to make sure we have some cushion for the unforeseen issues that arise in every project: .7ARV – R = O. Our Offer should be in the neighborhood of 70% of the After Repair Value of the property less the cost of Repairs.
| Asking Price | $100,000 | |
|---|---|---|
| Repairs | $40,000 | |
| ARV | $200,000 |
So when we see an opportunity like the one shown to the right, our immediate tendency is to short-circuit our processes and jump to the conclusion, “That’s a good deal!” Why? Because .7 of $200,000 is $140,000. Subtract $40,000 in repairs and we should be comfortable paying $100,000 for the house. I mean, what could go wrong? Well, there are only three possible reasons why the numbers match our formula so well:
We don’t need to talk much about what happens in the first outcome, where the numbers are correct. Everybody is happy. Everybody wins. But I reckon each of the other two outcomes deserves its own post. As I write them, you can find them gathered here.
Most wholesalers are hard-working, honest people. But especially with the growth of HGTV, DIY, and similar networks, vast numbers of newbies are coming into this profession, and wholesaling is the logical starting point. (We can discuss why in another post some other time.) People in our profession follow the distribution of the general population with roughly 2% falling somewhere along the psychopathy scale.
It’s like one of my favorite bosses (she hired me three times in the corporate world) once said, “Figures don’t lie, but liars figure.”
Edwin Prince “Never Met a Stranger” Kendall – King of Networking
Someone asked me this once. She sincerely wanted to know why my partners in this business and I spend so much of our time networking. It’s a good question, because networking can be a lot of work, and it can intimidate people sometimes.
I guess it doesn’t intimidate me. I’m my father’s daughter. My dad, a real “Prince” of a man (actually went by Prince, his middle name), had a long career in which he met thousands of people, and somehow he never forgot a name or a face. And he usually had a funny story to go with everyone he knew. My siblings and I each have stories of going to some random spot with Dad (say, the top of a mountain), only to have someone come up and say, “I know you!” Dad would say, “Oh yes, an old baseball umpire!” or wherever he knew the person from. And off he’d go, talking about something he cared about passionately with the random person.
I am not as good at connecting names with faces ad Dad was, but in my career I’ve worked with people all over the world, and while Dad networked in person, I have the advantage of being able to network in real life AND on the Internet. Heck, I’ve been chatting it up on the Internet since before the World Wide Web (anyone else remember Usenet groups? I’m still friends with people I met on misc.kids). In fact, an online friend in Michigan told me last week that she had a dream that I was following her down the hallway trying to get her to buy a house. Wow, I’ve networked so hard that I infiltrated this poor woman’s subconscious! (She actually loves our housing tales, so it’s all good.)
The key to all this networking, at least for me, is having a passion for something and sharing it in person, online, and any other way you can think of. I’m truly passionate about the mission of Hermit Haus Redevelopment, and want to make as many sad houses happy again as I possibly can. The only way to do that is to FIND those sad houses and the people who are unable to take care of them, or simply feel burdened by them. All of us on our team are passionate about helping folks out of a housing jam, then making that house a good fit for someone else. Whatever we do (marketing, project management, sales, accounting, acquisitions, etc.) is something we know is contributing to A Good Thing.
That’s all networking really is. Just sharing what you care about with people you know, or new folks you meet.
Larry, Lee, Sue Ann, and Valerie at an event in Houston. If you live life with a service mentality, everyone you meet is your partner.
Networking about your business is not as straightforward as letter writing, ads in publications, or your website content. Connections can be quite indirect. Here are some examples of how networking has helped us in the past year or so:
Basically, all we do is talk to people we meet about what we do. Admittedly, we have practiced our “elevator speech” a few times, so we know how to quickly explain what we do and why, so that if someone’s not fascinated, we can move on. But, even if someone doesn’t find what we do relevant to them at the time, they will remember us and that funny little hermit mascot, and when they or a loved one needs an experienced group to talk to about their sad house, and they will contact us.
And that’s why we network. It’s the heart of our business. And to be honest, it’s fun.