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Category Archives: Strategies

See, We TOLD You It Wasn’t Easy

I really wish it was as easy to buy and sell sad houses as some folks make it out to be.

Yesterday morning, the news told us that Zillow is having a hard time making money on its new house flipping business. What a surprise. Actually, not surprising at all. It’s not easy to find properties at a price that will allow you to actually make money after you renovate and sell it.

With rising home prices all over the US, rising prices in materials (wood has gone WAY up), increased holding costs (paying someone high interest to finance your rehab, which seems to always take longer than budgeted), and fees and more fees, we are not shocked that others, even big corporations, find the residential redevelopment business challenging.

CNN described the model Zillow is using as follows, in the article linked above:

Zillow buys houses directly from homeowners, pays for minor repairs and resells them. It makes cash offers to buy from homeowners and charges them a slightly higher fee, at 7.5%, than a traditional real estate agent selling a house would. The perk for sellers? They don’t have to go through the home showing process and have a more flexible move out period.

I had to laugh about the “pays for minor repairs” part. If it’s anything like our recent experience, minor repairs won’t cut it. Buyers now expect every little flaw in a home found during ispection to be repaired, which adds to your costs and lowers your profits. If you don’t fix a house up to better-than-new standards, be prepared!

Here’s something else that sounds familiar:

CEO Richard Barton said on a call with analysts Wednesday that during the quarter, 69,000 homeowners submitted requests for cash offers on their homes from Zillow; the company actually only purchased 1,500 of those homes. And Zillow re-sold just 800 homes during the quarter.

That’s a much larger scale than our business, but it’s the same result: very few homes people want to sell actually fit into the model that allows them to feel good selling the house and the real estate redeveloper to be able to make repairs and profits. The sad thing is, they pass on all these potential homes to real estate professionals (for a fee), which means all these houses are lost to small-time folks like us. Not to whine, or anything.

Hmm, are these rotten gutters minor repairs?

The CEO claimed that all they have to do is get up to scale and they’ll make profits on this business. Well, I’ll just have to see how it works out. It appears to me that, with their brand-name recognition and ability to advertise on their other platform, they will reach lots and lots of people. That means we will just have to work harder and use our personal networking skills. And we will have to look at the houses that are too “sad” to be fixable with just a few minor repairs, like we are doing now!

What do you think?

Do you know of a house we might be able to buy and save the owner the hassle of making a lot of repairs? Call Carol at 512-807-8777!

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Considering Solar?

Here’s the fancy solar installation truck. These guys are making money.

Lee and I thought long and hard about it, but we eventually decided it was worth the investment to add solar panels to both our house in Austin and the house at the Hermits’ Rest ranch. It’s been a long road, but we finally got them installed at the Bobcat Lair house in Austin yesterday.

The fact that we wanted it for two houses in two different counties was hard on poor Ralph, our sales consultant, but by gosh, he persisted and we have been able to move forward. He and Lee did a LOT of negotiating, philosophizing, and drinking whiskey (off the clock). I’ll miss Ralph. But then, the ranch isn’t done yet. If you’d like to read more of the story of how the installation went, I wrote it up in the Hermits’ Rest blog. Here, I’m just re-using a few of my photos.

Can We Have Some Facts, Please?

Guys thinking about putting up panels.

We haven’t thought of adding solar panels to any of the houses we renovated, and none of them so far have had them already installed, which got me to wondering whether having solar electric panels on a house increases or decreases your ultimate sale price. So, I looked into it. I’d like to point out before I get much further that most of the information I found was put out by solar vendors, so I am taking it with a grain of salt.

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Q&A: OPM and Effort

Argue for your limitations and you get to keep them.

Mindset plays a big role in business. What you can do is most limited by what you think you can do.

I try to answer your questions openly and honestly. This post originated with a reader question:

Is there a way to buy into the market of homes that are up for auction an or tax liens without using my own money and doing the remodel myself and having a real estate agent do the marketing for it?

There are really three—maybe four—questions expressed here:

  • Can I have a real estate agent do the marketing for me?
  • Can I buy a house at auction or from tax liens without using my own money?
  • Can I renovate a house using other people’s money if I don’t do the renovation work myself?
  • Can I renovate a house myself using other people’s money?

The answer to each of these questions individually is a resounding “Yes!” The answer when you start stacking them becomes increasingly less certain until it finally results in, “Well…maybe?” I don’t like to argue for limitations, but it depends on your reputation and how persuasive you can be. Luck does not play a big role in business. Continue reading →

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Where Do You Work Best? Why?

Many people work better with music playing.

Many of us in the real estate investment world do not work in traditional offices. A good number of us, from what I’ve observed, work in  wide variety of settings, depending on the day and what’s going on.

As for me, I have what many might think of as too many “offices.”

  • I have a very small cubicle in an open corporate office in Austin, where I work four days a week (and yeah, even our VP has a tiny cubicle, but he hides in a tiny “focus room” much of the day so he can do phone calls in private). This office has a high noise level much of the time, especially since there are one or two people in our area with loud phone voices and another who turns her ringer on to top volume, which ruins concentration. It does have a nice window.
  • I have an office in the basement of my Austin house, which I share with Anita. That office is very quiet, other than some weird air conditioning noise and a rare dog noise. I work there mornings and evenings, as well as some afternoons when the above office is too much for me. I can work so well there that I forget the time when I’m writing. No windows distract me.
  • Then there is the office at The Hermit Haus, which is a “real” office with a door and a fan for white noise. I also work well there. This one also has no windows.
  • AND I’ve got an office at the ranch house, which is a large and pleasant room with a window and a door, and even my own bathroom. I’d work better there if it weren’t for three dogs who want attention. This room even has a comfy reading area.
  • When traveling, I like to work in hotel lobbies. Secretly, I think I’m people watching.

This open office resembles where I work in Austin way too much.

I bring this up, because as I was perusing LinkedIn this morning (yep, I peruse it to see if anyone’s read my social media stuff), I ran across an article that talks about the effect of sound on productivity. This was just a short blurb that said the “coffee shop effect” may have something to it, that people work better with a certain level of background noise. Since this was just a short blurb, I went off and read the original article.by Otto van der Groen, the researcher who studied the effect of background noise on productivity.

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Another Secret Formula

Weighing the Options

Opportunity cost means that you can’t do everything. You can’t be in two places at the same time, and you can’t spend the same dollar twice. This post explains a system for choosing between competing demands on your resources.

One of the ongoing questions entrepreneurs face is, “Should I do this myself or should I hire it done.” The conservative (read “cheap”) side says what my dad used to always say: “I’d rather have the money in my pocket than in theirs.” But that pat answer ignores opportunity costs. Yes, there are opportunity costs with your time. Would you rather fix a toilet or watch your kid perform in sports or theater (well, maybe), or something? Would you make more money fixing that toilet or finding another deal?

But the thing about opportunity costs is they cut both ways. You always have to give up something to get something.

Luckily, there is a secret formula—I love secret formulas!—that ensures you always make the right economic decision. It can even help with the kid dilemma.

To get started, you have to know three things: Continue reading →

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