If you're new here, you may want to subscribe to my buyers list to get wholesale deals and investing tips. Click the button to the right. Thanks for visiting!
It’s been a little while since I last posted because this is a busy time of year for me. One of the things I do is buy tax liens at the Baltimore tax sale. This is not really a direct investment in real estate but it is a way to get passive interest. In very rare cases you can foreclose and actually get a property but it is much more rare that the late night TV gurus would have you believe.
One important thing you should do if you bid at tax auctions is inspect the properties. Especially in Baltimore it is important to make sure there is actually a building there. A case in point, this last weekend my partner and I were out looking at properties. We saw a property in a very nice single family home neighborhood. It was assessed at $100K but the neighborhood is worth double that. It would be a very desirable neighborhood to own or do a rehab in. There is just one problem. It was an empty lot. Clearly the building had just been demolished because we could see fresh grass seed growing.
There was a $900 lien on the property. Without looking at the property it would be easy to bid $50-100K or more. Of course an MT lot is not worth anywhere near that much, so you would be throwing away your money.
It will be interesting to see if someone bids for this. I’m going to watch this property and I will report back after the sale next week what someone bid.
As real estate investors we often hear about how we need a “team”. You know, the contractors, lawyers, accountants, real estate agents etc. that we need to do this business.
How do you find good team members? The best way is referrals from other successful real estate investors. This is the age old problem of which comes first the chicken or the egg. The bigger your network the easier it is to find these people. The problem is when you are new, you don’t have a big network and you don’t know who to trust.
One important member of your team is a good CPA. It is key to get an accountant that understands real estate investing. This is one team member that I am very happy to recommend. My CPA is Jeffrey Stoller from Goodwich, Stoller and Associates. He has done a great job for me. He knows real estate and has many real estate clients. He understands, real estate investing, the strategies we use, and how to structure our businesses to minimize taxes.
If that was all he did, he would be a good accountant. But the reason I am writing this is the outstanding service I have gotten from him and his staff. In person he is always patient with my questions (and I ask a lot of questions!) and he responds quickly to my e-mails.
Recently I applied for an equity line on one of my properties. The bank wanted tax returns. I called Jeff’s office to get copies. The receptioninst Alice Reinhold got them out to me in 2 minutes via e-mail. As the bank kept asking for more info, this process was repeated three times over a period of days. The last time was on April 15th. With a smile in her voice, on the busiest day of the year, Alice got that e-mail out while I was still on the phone.
In Today’s world where poor service is the norm, I just had to give credit where it was due.
Today I was in court for a receiver action; or as the city calls it a “Show Cause Hearing”. I have to show cause why a receiver (see What is a Receiver?) should NOT be appointed to auction off my property.
I had a tax lien on 526 N Arlington Ave 21223. The city took the owner to court. Well the last court date was postponed because they did not get proper service on the owner. That was a good thing. In the mean time I received a court decree for my tax lien. So today I was in court as the new owner.
So I spent most of the day yesterday well into the evening preparing for court. I had pictures with captions of properties I have renovated. I also had printed out pictures and permit lists of houses I have sold to other investors. I had 27 pages of well organized materials to show the judge.
I never showed it to the judge. When the City attorney saw what I had, he realized I was a responsible owner. We mutually agreed to delay the case for an month and a half to give me time to take some action.
The lesson here is; being prepared is invaluable. Based on what I saw in the other cases, I was the most prepared owner. Probably the ONLY one with pictures or other documentation. Most including me were not represented by lawyers. A few attorneys showed up without their client. The judge did not like that. If you get called into court I suggest you come prepared with more than just a slick excuse. The judge has heard them all.
Now that I know I get to keep it, I want to sell it. Does anyone want to buy a great rental? Leave a comment or click the button on the upper right to sign up for my buyers list.
In the fight against blight, former Baltimore Mayor Martin O’Malley instituted project 5000, where the goal was to acquire 5000 houses and sell them to investors and home owners. Most of these properties were acquired through tax foreclosures. These houses were sometimes sold as packages to developers or as SCOPE properties (Selling City Owned Properties Efficiently).
Well the Scope turned out to be anything but efficient. It is a failed program with few of the houses sold actually getting renovated at all much less on the schedule set by the city. Most real estate investors don’t like SCOPE because it is too cumbersome and too many hoops to jump through.
So it’s a new Mayor and a new plan. Rather than take over the properties themselves, they are taking the owners to court to appoint a receiver to auction off the property and put it in the hands of a qualified bidder who can rehabilitate the property. The authority to do this is in the Fire Codes. A vacant building is considered a nuisance and hazard to the health and safety of neighbors and the community.
As a personal note I am not too excited about this as it smacks of Eminent Domain. It also interferes with part of my business model. They are going after the same properties I have tax liens on.
Tomorrow I go to court for one of these proceedings. Over the phone the City Solicitor didn’t sound like he was going to cut me any slack in court even though I have only owned the property for a less than a week.
Also the city does not like the idea of people “flipping houses” They don’t see the value in a wholesaler. I am primarily a wholesaler. I see myself as an important part of the process of getting vacant property back into productive use. Some in the city see people like me as “greedy investors” taking advantage of the system.
Stagflation is a term from the 70s. It is when we have inflation (higher prices) but do not have economic growth (higher wages). This is one of the worst possible economic scenarios. We could be headed that way now.
Without the higher wages of economic growth we can’t pay the higher prices of inflation. If nobody buys anything then we have even less economic growth. It is not a good cycle to be in. This article posted on AOL Bernanke Warns of Possible Recession talks about these opposing forces.
Bernanke said “a recession is possible” yet two other members of the Fed are still concerned about inflation. These competing forces could lead to stagflation. So what dos this mean to real estate? I figure tough times mean better real estate deals. Good economic times are good for sellers. Bad economic times are good for buyers.
If you want a more humorous look at Bernanke check out this video. It’s been around a while but if you haven’t seen it it is a hoot. It was created by the Columbia Business School
Can you do this business without money? Many late night TV gurus and seminar instructors seem to pitch this angle of real estate. In fact there are many people who have been deeply in debt or even homeless that have had success in real estate investing. But is this realistic? These people are the rare exception. My problem with this type of talk is it sets up unrealistic expectations. I think it is simply a way to get unqualified people to buy expensive programs and classes.
A better way to think about it.
Yes you can do this without money, but you can’t do this without resources. I does take money to do this business, but it doesn’t have to be YOUR money. We often talk about OPM - Other Peoples Money. This is an example of what I mean by resources, OPM is a resource. Some other examples of resources you may have are; time, partners, knowledge, a strong work ethic, credit lines, a good credit score, mentors, employees (kids?), private lenders, team members, or business equipment like a computer and Internet connection.
What Resources do You Have?
Think about the resources you have. Do you have no money but you have time and a willingness to learn? You could leverage that by being an apprentice to an experienced mentor. I work with interns and I am sure many full time investors would love to have a helper willing to learn the business or bird dogs to feed them leads or great deals. If you have no time you can put your kids to work addressing and stuffing mailer to motivated buyers.
The Two Key Resources.
Do you have more time than money or more money than time? These are the two most vital resources you have in any business. Think about these two key resources in particular. Ask yourself which you have more of; time or money. Some investing strategies take more time, some take a lot of cash. Knowing the resources you have, will help you decide the best real estate strategies for you.
Do you know what drives real estate values? (OK besides the silly speculation we saw over the last few years). It is jobs. Jobs drive population growth. Population growth fuels demand. More demand drives up prices.
Pretty simple huh? Jobs also drive the demand for office and industrial space. More rooftops drives the demand for retail space. Those homeowners, renters and office workers need places to shop.
All of these classes of real estate do not go up at the same time however. Retail space for example is likely the last to appreciate because retail is not developed until a critical mass of people (demand) is there. But as homeowners move in one at a time more homes need to be built. The effect of housing demand is almost immediate.
So with a simple understanding of economic cycles and population shifts you can make a lot of money in real estate. One of my partner’s best friends made a fortune in real estate. He knew where the Capital beltway was going to be built and bought up property long before others saw the value.
I am currently negotiating with some partners for an apartment building out of state. Some have identified the area as one that is in an ideal part of the business cycle to buy. Economic growth and new jobs will fuel demand. I will have guaranteed windfall profits . . . Ah, if it were only that easy.
The Wall Street Journal recently had an online article that said formerly fast growing areas have slowed. The article starts out “Population increases in many fast-growing counties, particularly in the South and West, started slowing last year, suggesting that the housing crunch may be forcing many Americans to stay put.” People can’t buy a new house if they can’t sell their old house. They can’t move to an area with more jobs if they can’t sell what they have. This is just another example of how the current housing crunch can affect the economy in ways we wouldn’t expect.
Here is PowerPoint explaining the sub-prime mortgage problems and how they came about. It is quite funny but contains language that some may find objectionable.
Again, I caution about the language. Imagine the type of language you might use if your house was foreclosed upon. I found this on Cass Tyson’s blog MarylandRealEstatePage
Tenant screening is one of the keys to being a successful landlord. Sadly many landlords do a poor job of this. Sometimes it’s lazyness, sometimes ignorance, sometimes simply desperation to get someone tenant back in the property to help make mortgage payments. Trust me on this one, it is time well spent. You simply can’t make up the time and expense of a bad tenant by filling your rental a few days or even weeks faster.
So how do you screen a tenant. Here’s a great checklist. Tenant Screening
Surfing the web lead me to Scott Ficek’s Minnesota Investment Real Estate Blog. He has a number of tips about landlording. He had an interesting post about a tenant that claimed that the rent was no longer due on the first because the landlord regularly accepted rent later. He includes a link to the court case.
