As 2012 draws to a close, it’s been a wonderful year in Austin for me, Sylvia and our family. Shelly is doing well in her sophomore year at TCU. Caroline is doing well in her (also) sophomore year at Westlake High School. Our business finally picked up in 2012 to our busiest since 2008. And I, Steve lost 30 lbs! More on that below.
Thanks goes out to all of our friends, family, clients, customers, acquaintances and others. Without you, our lives would not be as wonderful as they are. We end 2012 with much gratitude.
Now for my shameless plug and request for support. No, it’s not about business or leads or referrals. Something much more important. It’s about health, fitness and curing cancer. Please read on …
I spent most of 2012 getting into better shape. I was becoming a fatty again, and as I approached age 50 in 2012, I wanted to get serious about my fitness and health. I started cold turkey in March 2012 getting up at 5AM (yes, 5AM!), 5 days a week, and going to the gym for morning workouts. I have continued that schedule ever since. Through exercise and better eating, I’ve lost 30 pounds and feel great as 2012 comes to an end.
But as 2013 begins, I feel like I hit a fitness plateau. The routine is getting old, and I feel myself slipping back to old habits. I want to push myself to another level. I need a new challenge for 2013.
I was not sure what that challenge would be, until New Years Eve, 2012. I’m going to run the LiveStrong half marathon in Austin this February!
Ever wonder what the “We Buy Houses” signs really mean? You see them all over Austin, usually in middle to lower priced neighborhoods, and older transitional areas with a lot of fixers. Often the signs seems homemade and haphazardly placed. The words “fast” and “cash” are on most. If you were to call this sign, would you really receive an offer to close fast, for cash?
Maybe, but probably not.
The signs, called “bandit signs”, are actually a lead generation tool used by real estate wholesalers and flippers. Some of these guys are actually legitimate real estate investors looking for motivated sellers with dumpy homes who want or need to sell fast. Most of the sign placers are “bird dogs”, who find the motivated sellers then turn the deal over to the investor for a finder’s fee.
Either way, the main goal is to make you an offer and get the home under contract at a price that will produce a profit on either a wholesale resell (selling the contract) or a rehab/flip.
What sort of offer will these guys (or gals) make you?
The formula is fairly universal and straight forward. 70% of market value minus repair costs. Market Value, also known in the business as “After Repair Value” (ARV), is the value of the home if it were in retail sales condition and able to sell to a buyer using a conventional mortgage.
So, let’s say you inherited an old junker in South Austin that would sell for $225,000 in good condition, but it has a bad slab, bad roof, major plumbing problems, severe neglect and multiple trailer loads of junk to haul out of the rat infested back yard. And let’s say it would cost $100K to bring the home up to par, including the investor’s holding time costs, interest, insurance, utilities, risk factors, etc.
That home would be worth (0.70*225,000) – $100,000 = $57,500.
I’m over-simplifying the formula, and there are a lot of other components that go into the “repair costs” part, but this is an accurate “quick and dirty” computation. Also, the terms of the deal will often not be “all cash”, but instead some sort of creative financing. And, these deals are very, very hard to find.
Will this investor make money if he can buy such a house at this price, owner financed? Maybe, maybe not. Many don’t.
Steve and I took a GRI class last week in pursuit of more knowledge about current real estate trends and practices. I always find these educational courses to be informative and helpful.
My biggest “take away” from this class was when one of my fellow classmates, who drove over 900 miles from El Paso for the 4-day class, shared with us the current landscaping requirements in El Paso. ALL new homes there are now being required to use xeriscape landscaping in the front yards because of the water shortage.
I wonder how long before the same requirement comes to Austin?
So Saturday as I was taking my buyer clients around looking at different houses, I was pointing out features that I may have overlooked in the past. One home had full gutters and a rain barrel capture system in place which I highlighted as a plus. Also, in the very small fenced in front yard where there was mostly Bermuda grass, I suggested, “You can take this grass out and put in xeriscape with native Texas landscaping”.
This whole idea of “no grass” front yards has really got me thinking.
Sylvia and I just refinanced our Austin home. When we bought the home in 2010, 4.75% interest on a 30 year loan was the lowest interest rate we’d ever had on any real estate loan, ever. Yesterday we refinanced at 2.75% for 15 years. Bottom line, this will save us about $40K in interest payments and chop 13 years off the life of the loan. Let’s take a look at some numbers:
|Refinancing from 4.75% 30yr to 2.75% 15yr|
|Old Loan||New Loan||Diff|
The above numbers are taken from my October mortgage statement for the old loan, and the first December payment for the new loan, so they will actually grow more favorable over time.
OK, first let’s look at the bottom right box where you’ll see that our monthly payment increases $444 over the previous payment. I don’t care about that, and neither should you, unless you can’t afford the increase. All I care about is my Net Worth spreadsheet that I update monthly, tracking our progress toward financial freedom aka retirement. Everyone should have one of these spreadsheets and update it monthly. It helps you focus on what really matters, which is the growth of your net worth.
So how can I be adding to my net worth if I just increased my payment by $444 per month? Aren’t I “losing” $444 per month now? I assume most readers (hopefully) think that’s a stupid question after looking at the chart, and you already know the answer. But I’m surprised by the number of otherwise pretty smart people who do in fact think of a monthly payment as just one number. So, the explanation is that the interest portion of the payment decreased drastically (by $420/mo) while the equity paydown portion of the payment increased drastically (by $864).
So, almost the entire extra $444 monthly payment is actually saved with a smaller interest payment while the equity paydown is accelerated and the loan will be fully paid off in 2027 when I’m 65 years old instead of 2040 when I’m 78 years old. This is the $40K in interest savings and 13 year sooner “free and clear” date.
But I want to talk about the concept of “monthly payment” a bit more, because it bothers me that we live in such a payment driven society and that so many consumers, including real estate buyers and owners, think in terms of monthly payment instead of wealth building.
One of my favorite pastimes while driving in Austin is listening to Bloomberg News on my XM Radio. More specifically, I enjoy hearing interviews and discussions with people who explain and justify the positions they take on a wide range of (mostly) business topics. This includes small business, the economy, politics, real estate, etc., but also more specific micro topics such as the current and future outlook for farm tractor sales. And, thankfully, Bloomberg Radio is free of the bluster, yelling and arguing heard on the other XM Radio news stations. These are, for the most part, reasoned subject matter experts giving their honest take on things.
Call me nerdy, wonky, or whatever, but I really dig listening to this sort of stuff. When not listening to it, I’m reading about it. I believe it helps me better understand my own life and business. And it helps fulfill one of my ongoing goals, which is to never stop learning.
Recently, a dating expert was being interviewed about the business of match making sites and the state of modern “mate seeking”. She also discussed the mistakes she sees made by most aspiring romantics. Turns out there are a lot of frustrated romantics unable to find what they want in a mate. This despite the fact that finding and “connecting” with good, quality candidate dates has never been easier. I was struck by how similar her points were to the typical “match seeking” efforts of real estate buyers looking for the “perfect” home.
The quote that stuck with me most was related to how many daters reject someone who actually possesses more than 85% of what the seeker says she “must have” in a mate. To that point, she said. “Do you know how hard it is to get to 85%? If you find someone who meets 85% of your most important criteria, you should be running, not walking, to the alter with that person”. That’s what she said. Run, don’t walk to the alter.
Daters, apparently, allow too many small, picky “deal breaker” distractions into the evaluation process. “I don’t want to date a guy with thin hair” or “I can’t see myself with a guy who would wear a checkered shirt”. But if the guy loves horses, wants kids, and appreciates and “gets” her sarcastic irreverent humor, he’s going to make the great husband she says she wants because he meets the most important set of criteria. Even if he’s only average looking and a little too short.
Dating is more complicated than house hunting because the three (and only three) most important criteria a mate seeker should be evaluating will differ from person to person. House hunters, on the other hand, have had the same three static criteria forever – Location, Price and Condition (which includes age/size). It’s really not complicated at all. But modern buyers have made it so, by allowing too much information and data into the equation.
So, why do so many Austin buyers reject homes that are priced right, in the desired location, and of acceptable condition/size? Are Austin real estate buyers too picky? Yes. And many are just as frustrated as the single 34-year-old gals that dating expert was talking about.
As a general rule, I don’t forward emails from other agents to my clients. Instead, I filter the communication and distill it into what my client needs to know. I rephrase, reframe, boil down and summarize. This benefits my clients by keeping them focused on the relevant information and protecting them from irrelevant, irrational and emotional dialogs that can derail and harm the progress of a real estate transaction.
Not every Austin Realtor follows this approach. In fact, so many forward emails directly to clients that, when composing an email, I automatically assume the other agent’s client will read it unfiltered, as a forwarded message. Thus, when writing emails to other agents, I do so assuming that the agent’s client will read it also. This benefits my clients by allowing me to state the case directly to the other party in a way I hope will seem reasonable, unemotional and persuasive.
My refusal to forward emails to and from my own client so infuriated another agent once, that she accused me of “not presenting” a proposed Amendment. This was a typical listing, under contract after multiple offers. Then came the post-inspection proposed Amendment from the buyer’s agent, which said in the email.
Attached please find the amendment for the above transaction. We have asked for additional closing costs in lieu of repairs as we know your seller is out of state. I have also attached the inspection for your seller to review. There are many delayed maintenance concerns that need attention, for example: trees have not been cared for and have caused damage to the roof, missing smoke detectors, front door lock is broken, many areas of wood rot, air conditioner needs servicing and the sprinkler system needs repair.
Please feel free to call me in the morning if you have any questions otherwise we look forward to moving to the next step.