Striving to create a better life for everyone by sustainably solving real estate problems

(512) 807-8777

Tag Archives: exit strategies

How Do We Make Sad Houses Happy?

Hermit with a heart

Heart makes this business rewarding. Money only makes it possible. We really do want to help.

Our mascot Hermann says, “We buy sad houses and make them happy again.” But I want to point out that we do much, much more than that to make sad houses happy again. We offer a wide range of services that helps us ensure we find the right solution to whatever is making each house we look at sad. Solving the wrong problem isn’t really helpful at all.

So the first thing we have to do is figure out why this particular house is sad. Some of the sadifiers we encounter include:

  • Financial problems
  • Deferred maintenance
  • Estates
  • Job transfers

Financial Problems

Financial problems can include job loss, tax problems, medical costs, or anything else that keeps a family from making timely mortgage payments. The closer a house gets to foreclosure, the fewer options we have to solve the problem. If there is enough time and the family is willing (and able) to do the work to repair the house enough to sell, we can refer the owners to our network of contractors and help them find a helpful Realtor®, like Carol. Continue reading →

Hermann says please like and share!
0Shares

Exit Strategies and Taxes

A cartoon house with exit strategies: walk away, refer, wholesale, double close, prehab, rehab, hold (rent), owner finance, and homestead

Our eight…er…nine Exit Strategies. When you’re evaluating a house, you must always consider what you’re going to do with it after you have it.

As I’m writing this post, it’s been exactly a year since I posted our eight exit strategies. You may notice there are nine thought balloons around the house in the graphic. I’ll get to that later.

Exit strategies are simply plans to get out of your situation. When I was writing on tax day, I got to thinking about how our tax situation affects which exit strategy on any given deal or series of deals. That’s what caused me to add the ninth strategy to the list.

Continue reading →

Hermann says please like and share!
27Shares

Two Out of Three Ain’t Bad

The project management triangle shows how you balance the three aspects that comprise project scope.

Project Scope is the work that needs to be done in a project. Without changing the scope, you can only control two of the three aspects of the scope.

The other day, I was talking to one of our bankers, Richard, about getting an appraisal on a project we were refinancing as a rental. (Remember fix and rent is one of our six exit strategies and the one that does the most for building wealth over time.) Richard said that he looks for two qualities in an appraiser:

  • Who can get it done the fastest?
  • Who is the cheapest?

That statement took me back to my days of studying the Project Management Professional (PMP) curriculum from the Project Management Institute (PMI), a professional organization that educates and supports project managers around the world. As when I became a Certified Apartment Manager (CMA), I never intended to become a project manager. Never mind that my instructor noted, “No child daydreams of becoming someone with no real power other than influence but ultimate responsibility for a project.” My intent with both of these programs: I really wanted to understand what project managers and apartment managers do, how they approach their jobs and accomplish their responsibilities.

One of the tools of a project manager is the project management triangle. Project Scope is the total amount of work to be done on a project. It is comprised of three aspects:

  • Quality—how well the work gets done
  • Cost—how much it costs to complete the project
  • Duration—how long it takes to complete the project
Project Manager's responsibilities visualized as a six pointed star.

Some project managers prefer a more complex model. I believe this model is both more complex and less useful than the single triangle.
Source: Wikipedia

Managing a project means choosing which two of these aspects is most important to the current project. That means if you change the scope of the project, you affect all three aspects of the project. Otherwise, you can pick two out of the three aspects to control:

  • You can have it fast and cheap, but the quality will suffer.
  • You can have it cheap and good, but it won’t be fast.
  • You can have it fast and good, but it won’t be cheap.

Of course, all three aspects are variables that you have to balance. Moving toward one point of the triangle, moves away from at least one of the other points.

For example, one way to speed up a project is to pay additional people to work on it. Three people can paint a house faster than one person can. But then you’re paying three people, not one. Obviously, that is more expensive. The other caveat is that some tasks can’t be sped up by throwing more resources at them. The classic example is that you can’t bring nine women together to make a baby in a month.

So what Richard was telling me when we talked was that he had a clear understanding of what he was asking for. He needed an appraisal to make a loan on the property. Because he knew my business relies on moving quickly, he was willing to go with an appraiser who might not spend as much time as another to identify all of the market conditions and weighing how they affect the present value of the property. He also favors cost effective appraisers over those who spend days thinking about all aspects of the project. In short, he was saying the same thing my managers at a large computer manufacturer used to tell me: “Sometimes good enough is good enough.”

What are your experiences with different types of appraisers? Would you like to share?

Hermann says please like and share!
10Shares

What Do You See?

Closed Sonic Drive-In

What do you think of when you see something like this? If you’re first thought is, “I wonder how I can use this location to make money,” you may be an entrepreneur.

What do you see when you spot an abandoned building or a closed business?

The trick of being a successful entrepreneur, especially a commercial real estate investor, is to see opportunity where others see failure.

This fact was brought home to me by the recent closing of the Sonic Drive-In in the small town where I spend most of my time these days. This being a Small Town, the closure was a big deal and sent the small town grapevine into overtime. All kinds of reasons for the failure were floated until another business closed for failure to pay sales taxes to the state. (We know this because the state is auctioning off all their assets.)

But the one thing that nobody talked about in either case was: “What’s going to happen to the building?” Okay. Nobody talked about the loss of a handful of sub-minimum-wage jobs, either, and they certainly should have. Finding new jobs in a rural small town is no easy matter.

In kind of a combination of those two thoughts, my initial reaction on seeing the sign at the Sonic (I learned about the other closure much later) was, “I wonder what kind of business could go in that location.” You see, a drive-in is a very special-purpose building. There aren’t a lot of other options for using it. In fact, there are so few options and it is so costly to build that Sonic has a program to repurpose other commercial buildings as drive-ins.

Continue reading →

Hermann says please like and share!
34Shares

Lessons Learned—Be Willing to Rethink Your Strategy

Anita's little house in Baltimore once was the kitchen, or servant's quarters, or something.

Anita’s little house in Baltimore once was the kitchen, or servant’s quarters, or something.

First, Hermit Haus Redevelopment is happy to announce that we will be joined by a new team member next week. Anita McCabe will be moving to Austin from Baltimore, Maryland next week. She will work as a project manager, and at least at first, as an all-around assistant to Lee. Like Lee, Anita grew up in the construction industry, and has many years of experience doing her own home renovations. We can’t wait to see what her energy brings to our company now that she will be in the same physical area with us (she’s been on our calls daily for a year or so now).

Anita’s Saga

So, what about these lessons learned? Well, Anita decided to move to Austin a year ago, so she could work with us and be around one of her oldest buddies (Sue Ann). But first, she “just” had to finish renovating her little historic row house (over 200 years old!). Because of her experience with construction and renovations, and to save money, she decided to do it herself…while working full time as an editor and doing freelance work. Hmm, this doesn’t sound like a speedy process, does it?

All this had to be scraped and repaired.

All this had to be scraped and repaired.

Yep, Anita spent months scraping paint on the exterior trim and repairing damaged wood all by herself, then she painted all those beautiful old window frames and dentil-covered trim. Well, until she got to the ONE place she simply couldn’t reach. Have we mentioned she is not exactly a tall person? So, one tiny section had to wait.

Her initial goal was to arrive in Texas by June. June came and went as she kept very busy. Inside she completely re-did the bathroom and kitchen fixtures and tile, painted every single interior wall, and scraped all the interior stairs. Herself. She also revitalized the landscaping. That took muscle and time!

At some point, Anita was exhausted. She had left her job to concentrate on the renovation, but there was just some stuff she needed help with. Hooray for us; we helped her hire contractors for the last few things (ceiling painting, a window issue, that little space on the trim that she couldn’t reach, etc.). There was light at the end of the tunnel.

Why All This Work?

So many beautiful old stairs to revitalize.

So many beautiful old stairs to revitalize.

The reason Anita was doing this was that her model was to get the house in pristine condition to get the best price for a retail buyer. All her decisions were based on making the house look appealing to the buyer who wants to see a lot of white and gray, subway tiles, and all that. This house represented her life savings, so she wanted to get the most for it.

Towards the end of her process, she finally talked to a real estate person. While he said the house was very much improved since she bought it, his estimate of what it would bring on the retail market wasn’t as great as she had hoped. It can’t help where it’s located!

So, Here’s the Thing…

Turns out, it may well be that Anita didn’t need to make all those changes. She happened to see her next-door neighbor, who shares a wall with her, and mentioned she was moving and putting the house on the market. The neighbor said, “How much do you want for it? I’ll buy it.” He had barely looked at it. She named the price and he gave her enough earnest money to pay for her move.

Anita quickly realized that this sale would save her all the real estate agent fees, so she was actually going to net what she’d hoped for in the first place. A Win!

Here you can see that little bit of trim Anita couldn't reach.

Here you can see that little bit of trim Anita couldn’t reach.

The nagging question is, would he have bought it 6 months ago, before all the renovation? Could Anita have made it by June, saved 6 months of mortgage payments and started her new life sooner? It could be! The buyer wants to turn the house in to a short-term rental, so it might have been fine in its older state.

The lesson is this: always have multiple exit strategies. Anita was so focused on the retail sale strategy that she didn’t think of talking to the neighbor any earlier. Perhaps she could have considered renting the house out herself…even if renting wouldn’t work out, our models tell us to consider all the possibilities, because something non-traditional might work out for the best.

In any case, all her hard work (and endless packing) has paid off. She’s getting some good money out of her house, and the movers come tomorrow to pack her stuff. She will arrive next week to join Sue Ann in the Villa Park casita, right next to Carol and Russell temporarily camped out in the Villa Park main house, while we await the adventure of FINALLY doing the Bobcat house transformation.

Whew, as if all our business deals aren’t enough, we can’t even keep up with our own houses.

Anita and Sue Ann anticipating the big move, at their high school reunion in June.

Anita and Sue Ann anticipating the big move, at their high school reunion in June.

Hermann says please like and share!
18Shares