Metropolitan Rural

For years growing up I always wanted to be an architect. I LOVE houses. For the last several years I have considered getting my Real Estate License. I finally decided I want to do this.

Earlier this year I was beginning to meet and talk with Marti Frumhoff about how to make a transition from a full-time job into a career in real estate. She was very generous with her time and comments. We had actually planned on getting together just a few days after her untimely death. Since then, I’ve kind of put off thinking about it.

With the new year coming, I want to see about getting my license sometime next year. I’d like to start by just working part-time and getting my feet wet before I would consider a jump to full-time (which could be several years or never). That being said, I would love to find someone who is knowledgable in city real estate to help me get started.

So, if there is anyone out there like that, just leave a comment or drop me a line. My e-mail address should be in my profile.

There were 2 open houses down the street from me over the weekend. Everyone I met at them were basically just nosey neighbors like myself trying to see what other homes in the neighborhood look like for the price. I’ve always figured that was the majority of the traffic at them. That being said, we found our current house because of an Open House, so they can work.

One of the houses we looked at was recently put on the market as a foreclosure. My wife and I had went to look at it to consider it as an investment. Back then it was listed for about 80k (which was a great price for the amount of space, the great garage and big yard). As an investment we weren’t that hip on it. I could easily see 80k-100k of improvements that would be needed to finish the conversion form a 2 family to 1. And that mount would leave you with a 2+ bedroom or 3 small bedrooms. It made more sense to leave it as a 2 and we didn’t want to hold onto the property, so we passed.

So, I walked through the finished conversion yesterday. They did an amazing job and have the 2+/3 bedroom scenario we had considered. We passed because we figured to sell it in our neighborhood you’d need to be around the 200k mark, and that didn’t leave much room for profits. This house is now listed at nearly 275k! Of course, as a neighbor whose home value depends on comps, I sincerely hope they get that price. But, with almost nothing in the are selling for over 200k, I think they will have a tough sell ahead of them.

While the house looks really nice, I just don’t see places in the area getting to that kind of price just because of a few nice upgrades. It hasn’t happened yet and the market is so depressed I can’t imagine there are loads of people out there waiting to overpay for a home.

All of that brings me to my point. When you are working on a house for profit, the first consideration should be other local houses. Few people want the biggest or most expensive house on the block. If you’re on top, you have the farthest to fall and the most to lose if home values go down. You also don’t have as far to go up when prices rise. Those around you are more likely to catch up rather than lag behind. In my time looking around for a house, I saw a lot of poor rehabbing jobs, and I also saw a lot of over improvement.

It’s tough to sell a wine and granite house in a beer and laminate neighborhood!

I found this book on Amazon, was highly recommended, and borrowed it from the library. It’s called “Start Small, Profit Big in Real Estate.” I’m about halfway through the book by now and it’s vaguely interesting.

The author, Jay DeCima, instructs you to buy run down, ugly rental properties, fix them up some, and keep them rented for years. At first I thought it was refreshing to see a perspective that wasn’t about buy it cheap, pay nothing down, put paint on it and sell it for big profits. But then I got further into the book. He talks a lot about how to finance these deals and assuming mortgages and seller financing.

I’ve never noticed too many properties out there that have assumable mortgages or that many owners willing to finance (though that may be a little up now a days with the poor market). So, I have a few questions for my readers (hopefully a few of you will answer).

Are there really assumable mortgages out there any more?

Do you have any recommended reading on rehabbing and managing properties?

I wish I had the money to do this, but that’ not an option. I’m posting this to encourage some investment down in my neck of the woods. I’m in Southampton which is a pretty stable area with long term residents and strong home values. The one exception is the 49xx block of our streets right next to S. Kingshighway (particularly the area near Chippewa). The area has seen some poor choices of tenants over the years by landlords that aren’t as involved in the are as they should be. There are several 2-4 family units for sale on the 49xx-50xx blocks of Chippewa at present. There is also some Mixed Use properties available near by on Kingshighway as well.

If you stop by and have a look you will find some decent properties that keep their value well despite themselves. Should you decide to make the leap and invest, you would also get lots of moral support from the neighborhood association and it’s members as well as the Southtown Business District.

Anyway, here’s a list of some properties you might consider:

4975 Chippewa ($75,900). This 2 family was just dropped about $40k in price yesterday. It won’t last long. No other 2/4 family’s nearby are listed for less than about $170k.

4954 Chippewa ($379,900). This is a 12 unit apartment building that has been condemned and boarded up by the city. I don’t know much else of it’s story, but it sure doesn’t help the rest of the area.

4517-4525 S. Kingshighway ($599,000). This is a mixed use building just a couple blocks south of Chippewa and I believe just a couple blocks south of the infamous Avalon Theatre that is still standing. Check out the pictures on this one, it’s about the only building for several blocks that doesn’t have a payday loan place in it already! At least there is a Home Vestors Franchise (the Ug Buys Ugly Houses people) that you could kick out if you are so inclined. It’s 5 commercial spaces and 4 residential units. Seems like a bargain to me.

Total listing prices of these 3 properties… $1,054,800 (which is approximately the current asking price for the badly deteriorated Avalon Theatre). For that measly sum you could be an instant slum lord, or better yet, a neighborhood visionary! You would get 18 residential units and 5 commercial units. Of course, I’m sure there’s another few hundred thousand needed to spruce things up, but what’s a few hundred thou between friends… right!

Uggh… it’s been about a year already and my neighbors house is still for sale! They lived there for over 40 years and listed the house with their son as the agent. For some unknown reason, they decided it was worth way more than our house, even though it is considerably smaller, and hasn’t been updated since the 80’s.

Oh, and not to mention the fact they have it listed as a 5 bedroom house. Whatever, 2 of the bedrooms you have to walk through to get to the 5th. I really wish they would wise up and list it as a 3 bedroom with 2 bonus rooms. Imagine the good feeling someone looking for 3 BR house would get to find the extra space. Now, imagine the disappointment someone looking for a 5 BR would get when they find out there is no way they can get an occupancy permit for everyone in that house!

Well, at least they have dropped the price about 40k from their first listing. If you read this, stop by, make a low ball offer… any offer, I just want neighbors again!

LISTING

LINK

The link above from CNN Money shows the most recent report for Median Home values in the US. Now, before we go to far, let’s remember what median denotes. It means that 1/2 of all homes are more than this price and 1/2 are less. An average can be skewed by a few really expensive properties while the median is not affected.

The NAR is showing the median price has fallen 1.5% from the end of June last year (now down to $223,800). However, that represents 149 metropolitan areas around the country. St. Louis individually actually showed growth of 2.7%.

NAR is predicting the median price to begin rising again by next spring. I would tend to agree with them. The current mortgage market is starting to look better as Countrywide is getting some loans from Bank of America and even the Oracle of Omaha himself (Warren Buffet) is rumored to be considering an investment in Countrywide. All that adds up to a stronger footing for the mortgage companies and should lead to more decreases in mortgage rates within the next year. As rates go down, more people will borrow and buy a house, thus causing home prices to go back up. I tend to believe we are at or near the bottom of the pendulum.

Okay, so it’s not just people who don’t think, sometime businesses get so caught up in stuff they lose sight of reality too. The combination of these two things have lead to the huge mess we have in the mortgage industry.

People:
Got to caught up looking at that pot of gold at the end of the rainbow to realize they have bills to pay between now and then. If you spend all your gold before you get to the pot, you’re going to owe interest on it and end up owing in the end.

Take my advice, save yourself a heartache and do your own math before you apply for a mortgage. Know how much you are going to spend BEFORE you go see a bank. Don’t let them talk you into spending more!

Banks:
Or lenders/mortgage brokers to be more specific. These people saw a way to make a quick buck. The, “Heck, anyone can make money in real estate” attitude left them turning their heads and allowed multiple frauds to occur in giving people money they couldn’t afford. They were selling them off elsewhere and making a commission, so they didn’t have to worry about the long term risk of the mortgage. But, why worry, the market was going up so fast even if they defaulted the bank will still come out ahead… right?

Wrong! When people start defaulting that puts 1 more house on the market with 1 fewer buyers. If you look at the supply and demand curves from economics you would have an increase in supply (prices fall, quantity goes up) and a decrease in demand (prices fall and quantity goes down). Notice both of those lead to a decrease in price, and it’s hard to say what will happen with the quantity. Well, because prices don’t adjust downward very quickly (called sticky prices, no really!), they don’t come down fast enough to equal out the quantity and we are stuck with a huge amount of homes on the market.

All told, that means that in order to clear the current inventory, there has to be further depression of prices to induce buyers back into the market. That’s bad news for a lot of people who need to get out of their houses before they loose them. It’s good news for the real, smart investors. They will be poised to snatch things up as we continue down. They have the capital to hold and maintain property until things start to revive (which they eventually will).

So, what got me on this subject today? I read this blog by Dawn Griffin about Casey Serin and his “10 Flippin Mistakes.” The links to his stuff is on Dawn’s site. Basically, somehow, this young 20 something wannabe bought a bunch of houses with stated income loans (lying about his income mind you) and now has $140,000 in debt and 5 houses in foreclosure. The combination of the 2 mistakes above lead to his eminent demise.