Saturday, December 26, 2015

Villa Park Nanny Suite Update

It's almost a house again.
This post originally appeared on the Hermit Haus Redevelopment website on 2015-12-23.
Those windows look so much better than what was there before. This won't even REMOTELY resemble its before state!

The Villa Park nanny suite is starting to look like a building again. As of this morning, it is officially dried in. Our GC will finish wrapping the building in Tyvek (or a similar plastic) to prevent any damage to the OSB siding. Then the city inspectors will give us the go-ahead to continue building the structure. What a wonderful Christmas present that will be.

If all goes well, the nanny suite will be on the rental market by the end of January.

Tuesday, December 22, 2015

Streams of Income from Rental Properties: The Two Examples and Cash Flow

Cash flow is not the same thing as return on investment.
This post originally appeared on the Hermit Haus Redevelopment website on 2015-12-20.

Ten days ago, I told you I would give you two examples of how to make money from rental properties and that I would use these examples in a series this series of articles. Things got busy after that, but here is the article laying out the two examples. We’ll also talk about how these two examples cash flow.

I could use real-life examples for this series, but the math would not be consistent between the examples, which could be confusing. So I’m going to use hypothetical examples for clarity. It will be much easier to get the basic principles across if the underlying assumptions are the same.

First, a couple of definitions. Investors talk of two kinds of cash flow:

Positive cash flow
Your rental brings in more money each month than your mortgage payment, including taxes, interest, and insurance (You don’t usually consider maintenance and depreciation at this point.)
Negative cash flow
Your rental brings in less money than its mortgage. (We’ll talk about why negative cash flow is not necessarily a deal breaker as this series progresses.)
Positive Cash Flow Negative Cash Flow
Purchase price
Down payment (25%)
Monthly payment
Monthly rent
Gross cash flow

It should be fairly obvious that these examples make a couple of unrealistic assumptions.

  • Why pay 25% down? You don’t have to, unless you’re getting conventional financing, which is probably the only way you’d get a 5%, 30-year mortgage today.
  • What about other closing costs? We’ve conveniently ignored them to keep the math simple.
  • Why would anyone take on a property with a negative cash flow? Like I said, we’ll get to that.
  • Negative Cash Flow
  • Cash flow can be the least important reason to buy a rental property. In some cases, it can even be advantageous to buy a property with negative cash flow—that is, at least initially. In our example, losing $10 each month on rent returns about -1.9% on your initial $25,000 investment. Kinda scary, huh?

Positive Cash Flow

But let’s take a more common example, one with moderate positive cash flow. If you could rent our example house house for $950 (or $400 more than your payments), you would make $4,800 profit on that house every year, assuming no expenses other than the taxes, insurance, and interest wrapped into the mortgage payment. (It can happen easier in Central Texas than in some other markets.) That’s a 19% annual return on the $25,000 you invested to buy the house.

For some investors, that return is good enough.


This negative cash flow example, could be a perfect example of applying the martial arts concept of winning by losing. Over time, the other advantages of ownership can overcome the initial cash flow deficit.

Wouldn’t it be worthwhile to lose $480 (or even $1,200) per year for five years if you would realize a $10,000 profit at sale? While we can’t say with perfect certainty that a given property will appreciate, history says it will if you can afford to hold it long enough.

What if you inherited the low rent with the property but you could increase the rent at the end of the lease? Maybe next year, the property would be able to generate $600 month without spending any more money on it. Then you’d be making $60 a month instead of losing $10. And what about inflation? Over time, inflation will probably push up the rent, but your mortgage payments won’t go up except to cover the inflationary effects on your taxes and insurance. Your cost of money is locked in for 30 years.

So the important thing is not necessarily positive cash flow today, but a cash flow you can comfortably live with knowing that it will probably improve with time.

I’ve been guilty of looking only at cash flow, and I have erroneously sold properties because of that shortsighted view. I’m focusing now on buying in growing areas where population density will increase the value of my holdings. That will improve my bottom return on investment even before I take tax reduction, appreciation, and debt reduction into account.

I’ll talk about these income streams in future articles.

Posts in this series:

  1. Streams of Income from Rental Properties
  2. The Two Examples and Cash Flow
  3. Tax Reduction Through Depreciation
  4. Equity Growth

Sunday, December 20, 2015

The Importance of Due Diligence

Wall Art, AKA graffiti The wall art was the most interesting thing about the house. Other than the artwork, the interior of the hose was a disaster.
Pretty graffiti Even well-done pretty graffiti scares off retail buyers and drives down the price of an investment property. You can paint over it. It may take several coats of Killz, but you can.
This post originally appeared on the Hermit Haus Redevelopment website on 2015-12-18.

I got an email from a wholesaler today offering a property in Round Rock for $90-thousand. I performed the desktop analysis quickly and became very excited. While I couldn’t find anything that had sold on the street in the last year, two houses on the next street over had sold for just north of $200-thousand. That left a lot of room in the deal to cover whatever redevelopment the house might need.

I told the wholesaler I wanted to make an offer contingent on a walkthrough of the property. The wholesaler said we had to close by Christmas, and I agreed to the stipulation. He mentioned that he had a bid for $7,000 to cover foundation repair. Other than that, he said, all the house needed was paint.Even allowing another $5,000 to cover accidental damage to the plumbing during the foundation repair, I was still happy with the deal.

Front view of the house. The house looked pretty good from the outside. The schools across the street made it feel welcoming.

Boots Are Made for Walkin’

Russell and I met at the house during his lunch hour. The first red flag went up as I drove to the house. The comps on the next street turned out to be at least 20 years newer, and all of the houses on that street were much more appealing than any of the houses on the subject property’s street. My comps were not really comparable, but I couldn’t tell that without seeing where the main street had been extended for the newer development. Even the pictures on Google Maps made the houses look comparable.

Location, Location, ... Or Not!

On the other hand, the subject property was across the street from two schools. Location and location.

We walked the property and found that the exterior would need more than just paint. A dog had trashed the back door. Some of the eves and facia were rotten. No big problems but enough to start adding up.

Inside the house was in really bad condition, but the demo had already been started. All the carpets had been removed when a water pipe broken and flooded the house. A note on the kitchen cabinet said that repair was in process.

I won’t go into all the details, but the repair estimate came in at between $35- and $40-thousand.

Table of best and worst case scenarios The final analysis showed that we were likely to lose money on this deal. So we walked away.

To Buy or Not to Buy

When I got back to the office, Carol had run a much more accurate CMA than what I had pulled for the desktop analysis. She estimated the ARV of the house at between $140- $160-thousand. We determined that the deal was just too risky, even if we could get the house for $80-thousand. One of our mentors, Shenoah Grove, agreed. So we walked away from another property.

But the wholesaler said he had two other investors willing to take the property at full price. I wish them good luck. There are plenty of people with money to chase these deals—many of them are too willing to take on a project without fully understanding the numbers. No matter what you see on shows like Flip or Flop, those people are professionals. They almost always know what they are getting into before they buy the house, and they walk away from 20 or more deals for every project they take on.

Here is what I want you to take away from this article:

While I won’t accuse any wholesaler for outright lying, their numbers are almost always overly optimistic. This business is risky enough without walking into a deal without doing your own due diligence. Always include a contingency for unknown factors. Every project has them, but you can’t know what they are before it’s too late.

I’m going to keep my eye on this property to see what happens to it.

Friday, December 18, 2015

Dogs and Doors

Brody tugs my sock while the other dogs look on. Harvey can’t believe Brody would attack my foot. Rose watches Harvey.
Door lined up in the garage to dry after being stained. The garage provides enough space to stain all the doors and let them dry.
The doors installed in Suna’s office. The stain on the doors matches the bookcases and trim in Suna’s office. It contrasts well with the green walls.
It’s a tug of war.
We expected more.
But with one thing and another,
We were trying to outdo each other.

—Paul McCartney

Rose and Brody have accepted Harvey. Rose is so easy going, she was never at question. I was more concerned with how the two mail adolescents would get along.

Brody, who has been with me since he was six weeks old, is comfortable enough with me to use me as chew toys—especially my socks...especially when they’re still on my feet. Harvey looks on in disbelief every time. Sometimes he looks at me as if to say, “I would never treat you like that, New Daddy.”


The painter lined up the new doors in the garage to stain. They looked almost like they were floating if you ignored the bits of wood at the top and bottom that held them together.

The garage made the perfect place to stain the doors. It had plenty of room to work, and it didn’t matter if the overspray hit the floor or the walls, not that there seemed to be that much overspray. Finally, leaving the doors open a bit provided plenty of airflow to encourage drying.

Once the stain dried, it is a perfect match for the bookcases and trim installed throughout the house. It stands out nicely against the green Suna chose for her office. It’s darker than the caucasian color of the downstairs, but it may be a bit too close of a match for the bamboo we installed upstairs. It does stand out somewhat against the chocolate color of the master bedroom and the orange of the master bath.


Thursday, December 17, 2015

Raising the Roof

There is a really big gap between the wall and the second floor that demonstrates how far Ruben’s crew had to raise the building to level it for the new foundation. That gap shows how much the house was raised.
The 6x6 was used to raise the second floor during reconstruction. It is not part of the reengineered building. That’s one of the big old beams poking out!
There was really a lot of work being done here. I will probably never see all of this money again. Foundation in process
This post originally appeared on the Hermit Haus Redevelopment website on 2015-12-15. This is Sue Ann’s post. I’m including it here because it talks about one of our personal projects, and I wish I had written it.

Between (among?) all of us, we’ve done a fair number of remodels and rehabs. However, the one we are currently working on, Villa Park, has to be unique. We are literally having to raise the roof on this house!

We knew all about the drainage issues (see our post on November 25), so we knew we’d have to do something. Turns out we have had to completely remove the foundation, which was crumbling, and put in a nice, new up-to-code one. And for that to happen, the house had to be 8 inches taller! Take that, poor drainage!

This required some engineering consultation and careful planning. They literally had to cut the house horizontally and prop it up, then reinforce it so that it will be stable (and meet code, cause we’re in Austin and they care! We also don’t want it falling down on people.) The gap in the photo at left shows how much higher the house is now. The one at right shows the beam, and what has to be repaired on the exterior for it to look like a real dwelling again.

Once the house was all stable and the right height, a great deal of work was done to create a new, stable foundation. All the pipes for the plumbing were put in first. Road base and other material was placed at the bottom, plus lots of rebar. The third photo shows that in progress. The vapor barrier has been placed over half of the foundation. Now it’s all covered.

I hear the concrete was poured already, or is being poured as we speak.

Wet concrete foundation The foundation is poured. This is a step.

EDIT: Yes we have a foundation. I’ll put that picture at the end. FINALLY we can turn the shell of a building into a really nice 3 bedroom, two bath dwelling! This is definitely not a rehab that is quick and easy! But, it will last and last, and most importantly cash flow!

PS: Lee or one of the contractors would have a lot more technical detail to add to this. Also, thanks to Tony G. for the photos.

Sunday, December 13, 2015

A New Harvey

Sara pets Harvey Sara pets Harvey at the Annex
Harvey gives Brody a look. “What’s that other dog doing over there. He looks nice.”
Harvey looks up into the camera. “Thank you for feeding me. Will you be my new daddy?”
Harvey sits at Suna's feet. You can see the poor boy’s ribs through his coat from the front. There are also two wounds on his side where he was either shot or impaled by something.
Harvey sits at Suna's feet again I don’t know how anybody could abandon such a sweet boy to starve to death. There must have been something serious going on in their life.
That’s just the way it is
Some things will never change
That’s just the way it is
Ah, but don’t you believe them

—Bruce Hornsby

When we went to our friend Janet’s house for Thanksgiving, our neighbors were there, too. Ralph and Sara told Suna and me about this dog someone had dumped at the Rattlesnake Annex.

People dump dogs in the country all the time. I guess they think the dogs can survive by hunting or something. But most abandoned dogs are shot when they try to get at someone’s livestock or chickens. Almost all of the others starve to death because they have to learn how to hunt. If they’re abandoned, they don’t have time to learn before they starve. Only a few get rescued.

I didn’t think too much about another abandoned dog. Ralph or someone would probably put him out of his misery before he suffered too much. So I was surprised when Ralph called this morning to tell me I needed to “come get this dog.” He was still at the Annex, and Ralph had apparently been feeding him enough scraps to keep him going. Ralph explained, “He waits at the gate everyday for his people to come back and get him. He only leaves long enough to find some water or maybe a little to eat.” Ralph said the dog was understandably shy and hard to get close to. It had taken him a couple of weeks to get him to take food without waiting for Ralph to leave.

When I pulled up at the Annex, Sara was petting him. They had given him a bone with some meat on it to chew. I talked to them a bit. When he saw me leaving, he walked calmly to the car. When I opened the door, he jumped in, crawled into the passenger seat, and sat down looking at me like he was trying to say, “Okay. Let’s go home now.”

I took him home, and Brody accepted him without question. Suna calls him Harvey. Or Starvey Harvey because he’s so starved (only 19.2 pounds, although his frame will support at least twice that). To keep from making him sick, I fed him only about half a cup of dog food, which he ate greedily. When he was done, he jumped on the couch, laid his head down on my lap, and went to sleep.

That is not normal behavior for a rescue. I’ve spent the better part of a week getting a rescue to let me see them. I’ve never been accepted so quickly.

I guess Harvey is home.


Saturday, December 12, 2015

Dogs Get Ready for Yule

Scunchie the Pug with a bone in his mouth (like a cigar) “Yeah. I’m a big shot real estate developer, too. Mnya!”
Brody hangs his head off the couch. “I got this thing around my neck. Sigh.”
Brody eats by the fireplace. “Hey! My food is here, but the action’s over there. I’m torn.”
Suna pets Brody. Suna pets Brody.

Not a lot to say today. I just wanted to share some pix of the dogs, especially since Suna dressed Brody up for Yule.


Monday, December 07, 2015

Streams of Income from Rental Properties

Rental properties build your wealth through four different income streams: cash flow, tax reduction, equity growth, and appreciation.
This post originally appeared on the Hermit Haus Redevelopment website on 2015-12-05

I seem to always be talking about redeveloping distressed properties, but I also have a portfolio of rental properties. Owning rental properties is the surest way to build wealth that will outlast your lifetime and ensure your family’s well being should something stop your ability to earn a living.

Notice in the last paragraph, I said, “wealth building” and talked about legacy. I specifically didn’t say, “Cash Flow” because that is only one benefit of owning rental properties, even if it’s the one most investors focus on.

Rental properties can provide the following ways to create wealth:

Cash flow
The amount of money the property takes in over the cost of ownership on a monthly or annualized basis
Tax reduction
The amount of income you can shelter simply by owning properties
Equity growth
The increase in the net worth of your properties over time through debt reduction (paying off the mortgage)
The increase in the value of your property through inflation or market dynamics

Over the next few posts, I’ll talk about each of these benefits. We’ll use an oversimplified example of a rental property you purchase for $100,000 to show how simply owning and renting a house can make you much, much more money than you’d think—certainly more than by leaving $25,000 in the bank. The next post in this series sets forth the two examples I use and talks about cash flow. You may not believe it, but I’ve had these conversations with my tenants. Unlike many “landlords,” I really don’t want long-term tenants in my houses. There are sensible reasons to rent for a year or two, but I really believe in the win-win situation. I prefer tenants who have a long-term plan to secure their future. I realize not everyone wants to be a home owner, but I want my tenants to understand their options. I believe they respect me and my properties more if I tell them the truth and try to help them succeed.

If, after reading this series of blog posts, you don’t believe you should be finding ways to invest in rental properties, talk to me about buying your house.

Posts in this series:

Saturday, December 05, 2015

Villa Park Progress

Slow progress on the foundation Still only slow progress on the foundation.
Working on the footer on the exterior walls by the temporary wall. The exterior walls are still all temporary, but we’re making progress on preparing the footing to receive the permanent ones.
I wish I could get Ruben to clean up. I have too much money in this to fire him mid stream. The site looks good—from a distance. When you get up close, you see what a mess it is.
Brody looks over the back seat. Brody doesn’t like being in the back. He’d rather ride in my lap, but that’s not happening.

Work continues on the Villa Park foundation. The piers are mostly done, and the exterior footings are down. That means we were able to set the building down.

It’s a relief not to have the building floating in the sky—even if we don’t have the “real walls” in place.


Friday, December 04, 2015

We Have a New Project!

Blue Ridge House Blue Ridge on the day we closed on the purchase.
This post originally appeared on the Hermit Haus Redevelopment website on 2015-12-03.

This afternoon, we closed on a new project, Blue Ridge. A Realtor® friend of ours let us know about the house, and we negotiated the contract on it while we were in San Diego. The purchase was financed by HR Equity Holdings, LLC, and we will be paying for the renovation out of pocket because private money for the renovation backed out just before closing. If you or some one you know would like to make significant low-risk interest on a short term loan backed by real estate, please let me know.

In the mean time, you can follow the project right here. If you can’t tell, there are few things I love talking about more than real estate projects: yours, mine, ours, or anybody’s.

Friday, November 27, 2015

Always Pay Attention to Your Inspector

You can see the three pieces of undersized rebar that supported the foundation in the two-story duplex.
This post originally appeared on the Hermit Haus Redevelopment website on 2015-11-25.

We bought the Villa Park property almost two years ago because there was a nice house and a duplex behind it for a total of three rental units. It was one of the last properties Sue Ann and I bought before forming Hermit Haus with Carol and Russell.

At first blush, it was going to cash flow really nicely. The previous owner had done a bunch of cosmetic work to make the property more presentable. Curb appeal was absolutely gorgeous.

I hired my friend, Bob Smith, to do the home inspection. I’ve worked with Bob on several other houses, and I’ve even walked away from deals based on his recommendation. This time I didn’t listen, and it bit me in the butt.

There was a seemingly innocuous line about the duplex in the inspection report. It said something like, “Have a foundation professional inspect the foundation.” I thought, “Yeah, I know the foundation is bad. No problem will just have it leveled.”

Well, the first time it rained we had water coming up through the foundation into the duplex. Luckily we hadn’t rented it yet because we wanted to level it first. When we ripped up the carpet, we found that the foundation was not just unlevel; it was crumbling. That lead to our first experience with the Wall of Dis. I mean trying to get permits in Austin.

But this post is about the foundation.

To dismantle and repour the foundation, we had to lift the building off of it. When we started demolition, we found out that none of the electrical work in the duplex was to code. We found bare wires spliced with electrical tape inside the walls and numerous other problems that could have caused a fire at any time.

Thank God we had a bad foundation.

With the second round of permits in hand—the first having been “erroneously issued”—we begin demolishing the original foundation. It turns out there were only three pieces of rebar in the entire slab. (Rebar is the thin metal poles that run through concrete to give it its strength.) No wonder our foundation crumbled. There was nothing to hold it together.

We’re finally back on track. The trenches are dug, and we will pour the beams that will support the main slab. Once that’s done we can reattach the building to the foundation.

The moral of the story remains, “Always listen to what your inspector tells you.” If I had brought in the foundation company before closing on the house, I could’ve saved around $150,000 in rebuilding the duplex. I might have at least been able to negotiate the purchase price down a little. Maybe not, there were three backup offers on the property.

When we’re done we will have a three-bedroom home instead of a duplex behind the main house at Villa Park. It will take about 10 years of rental income to recoup the expense.

I’ve learned an expensive lesson. But it’s one I’m glad to share with you.

Friday, November 20, 2015

Technology at Work

This image from Google Maps is literally the only picture we had to work from while we were in San Diego. Would you buy a house this way?
This post originally appeared on the Hermit Haus Redevelopment website on 2015-11-18.

While we were in San Diego learning how to change lives, we were able to put a house under contract in Cedar Park, Texas. The house was brought to us by our network, proving Phill Grove right when he told me, “Your Net Worth equals your NetWork.”

Docusign, the MLS, and cell phones enabled us to make this offer within a few hours after learning of it. What did we do before technology shrank the world?

Carol and I were able to look at the house yesterday. It needs a little more work than we were originally told, but that’s not unusual. The bones of the house are good. My friend Bob Smith, who has been my go-to guy for years, performed a very thorough home inspection. We’re going through the report today.

I will post more as we progress through the purchase and redevelopment.

Tuesday, November 17, 2015

Home Again

The Hermit Haus team in San Diego The Hermit Haus team: Carol, Russell, Suna, and me Suna on the stairs at the hotel. Suna is ready to go home.
Than and Me Here I am with Than Merrill of Flip That House, CT Homes, and Fortunebuilders Blurred faces in the Fortunbuilders skybox Grand Coast Capital took a few investors to see the San Diego Chargers play. Suna is in the front. Paul Esajian stands behind her, and I’m peeking over his shoulder. I blurred all the face except for us and employees of GCC.
Traveling at night, the headlights were bright
And we’d been up many an hour
And all through my brain
Came the refrain of home and its warming fire

— Karla Bonoff

We’re finally home. It was a long weekend in San Diego, but we survived and we learned. A lot. I’ll be posting about what we learned on the Hermit Haus blog over the next couple of months.

More importantly, we came together as a team and had a good time. Thankfully Russell and Carol rented a car, so we were not stuck eating the dreadful hotel cooking. We were able to get away for a few quiet meals, including on nice sushi meal somewhere in SD proper.

Fortunebuilders put on a mixer for those of us who joined the “Inner Circle,” which gives us better access to the big three: Than Merrill, JD Esajian, and Paul Esajian. From what I can tell, Than is the CEO of Fortunebuilders and its subsidiary companies. JD runs the renovation business, and Paul runs the financials, including Grand Coast Capital, a national hard-money lender.

Because Suna and I invested in Grand Coast, we got invited to see the San Diego Chargers play a home game and network with other investors. They put us on a bus and led us up to the Fortunebuilders skybox, where they put on a board of finger foods and booze. We had to leave before the game was over, but that’s okay. I wasn’t really interested in the Chargers. Apparently, nobody else was, either.

But the important thing is that I survived flying there and back again. I’ve never been a fan of airports and airlines, but now TSA seems to be actively everyone to drive to their destinations. If only Suna had the time. I love seeing the country at ground level. What I can see now may all be overly familiar, but that is comforting. At least I don’t have to worry about “special screening” at home or in my car.


Wednesday, November 11, 2015

Why I Want To Stop All Foreclosures

Stop Sign with Foreclosure I want to stop all foreclosures.
This post originally appeared on the Hermit Haus Redevelopment website on 2015-11-10.

Growing up in a real estate household, I was an early bloomer. I bought my first house at 19. It was a 2-1, built in the 1940s. Being so young, I didn’t have enough credit to get traditional financing, so I bought it with a Contract for Deed—a vehicle that is now illegal in Texas because of abuses by unscrupulous lenders.

Everything was going great until one day I did what many people do. I lost my job and couldn’t make the payments on my little house. I tried to make partial payments, and the contract holder accepted the first two. When I found work again, he refused to accept anymore payments and foreclosed on the house.

Luckily, I had an “unfair” advantage. My mom was a Realtor®, and she knew a good real estate lawyer. The contract holder was surprised to see me in court and even more surprised to see I had a lawyer. Most of the people in my situation apparently just walked away from the house.

The judge (justice of the peace, actually) ruled in my favor because I had the money to catch up the back payments plus interest. My lawyer didn’t even have to speak. The contract holder protested, “I don’t want the money. I want the house back! It’s worth more now than when I sold it to him.” The JP picked up his gavel to say something else, but the contract holder’s wife pushed him away from the bench, telling her husband, “Shut up, Harry. We lost.”

Even though almost 40 years have past and Contract for Deeds are now illegal in Texas—as are lease purchase options of any substantial duration… Even though we had the Crash of 2008 and the resultant Dodd-Frank legislation is in place…predatory lending still goes on.

While I’ve been working to save the credit of the homeowners I’ve seen banks do everything in their power—from repeatedly “losing” paperwork to intentionally dragging out the process for months—to force houses into foreclosure. It still makes me as angry as it did the time I almost lost my own house. I understand the home owners’ frustration and sense of powerlessness. I really want to help in the only way I can, by trying to salvage what’s left of their credit. I have more than one tool at my disposal to help, and I feel really frustrated every time I see a big bank take a fellow human being’s house away.

That’s why I work so hard to stop every foreclosure I can.

Don’t go through a foreclosure yourself without at least looking at the options. And don’t let anyone you know go through an unnecessary foreclosure. Learn how you can stop foreclosure by downloading our free booklet.

Tuesday, November 10, 2015

San Diego

Selfie of Suna and me Suna and I waiting to fly out of ABIA yesterday Suna smiling at dinner Suna having dinner in the hotel restaurant
A bite of meat, one piece of broccolli, and three sweet potatoe sticks Does this look like a $30 meal
I never saw my hometown until I stayed away too long
I never heard the melody until I needed the song

—Tom Waits

Suna, Carol, Russell and I are in San Diego for a Fortunebuilders “bootcamp.” It turns out they have a special meaning for that word that goes far beyond my previous usage. A Fortunebuilders Bootcamp is a large educational event that offers a range of classes to hundreds, if not thousands, of investors and potential investors. Russell is attending the “Internet Intensive” while Suna, Carol, and I are in the “Rental Intensive.”

The Internet Intensive focuses on using the Internet, including a proprietary system called Realeflow, to market to a range of buyers and sellers. Russell is a good choice for that since he is in charge of our back office systems and website.

I’m looking forward to the Rental Intensive and hope I learn a bunch of stuff about managing my rental portfolio.

I can’t say I’m impressed by the hotel hosting the event. The restaurant is overpriced as only a “artistic” or “trendy” place can be. Unfortunately, the quality of the food was not up to the pricing, once again demonstrating the difference between confidence and arrogance. I also wonder if the leadership isn’t looking at the hotel as a distressed commercial property that they can add value to.


Sunday, November 08, 2015

Perseverance Pays Off

The back of the Bobcat Run house at sunset. The back of the Bob Cat house showing the two porches that overhang the utility easement.
This post originally appeared on the Hermit Haus blog on 2015-11-06.

Some projects take longer than others.

Different cities have different cultures.

I think everyone will agree to those two statements, and I, too, would’ve agreed when we started the Bob Cat Run project more than a year ago. I just didn’t realize how much the second statement could affect the first.

When we purchased Bob Cat Run in September of 2014, everything looked great on paper. We approached it from the standpoint of a homestead flip for Sue Ann and me. (I’ll explain the concept of homestead flipping in a future blog post. For now, the important consideration is that we planned to make Bob Cat our primary residence for at least two years.)

There was only one small problem. One small corner of the house protruded into the utility easement, and the back porches overhung it.

The view from the upper porch. This killer view from the main (upper) wrap-around porch is one of the reasons we know we will eventually have a winner.

Everywhere else I’ve worked, this would not be a big deal for a house that was built in the 1980s and stood vacant for more than a decade, especially since it was built in an unincorporated area.  Most county inspectors (where they exist at all) would simply have noted the encroachment on the paperwork, and we would have moved on.  At worst, we would have paid some kind of “fee” or “fine,” and that would have been the end of the problem. I have never seen this kind of problem take longer than a few weeks and a couple of thousand dollars to work around.

The real problem started when the City of Austin annexed the subdivision. It got much worse when Austin implemented a Geographic Information System (GIS) a few years back. As one city employee put it, “Until then, we knew that these problems existed, but we didn’t have a way to track them.  Now, we have to do something about it.”

Well, when a city decides it has to “do something about it,” havoc ensues. The easement “belongs to” 13 separate city departments. Twelve of them looked at the degree of encroachment, not even enough for a closet, and agreed with us that it was no big deal. The water department, however, went into a tizzy and stopped the permitting progress. We have been negotiating with the city ever since. In the interim, we have accrued more than $12,000 in additional holding costs, almost all of it in city taxes. We were literally paying them to screw us over. And let’s not even think about opportunity costs.

A city manager who is part of this process explained it thus, “We know of thousands of people in the same boat as you are. You are just the first ones who have gone all the way through the process legally to enable us to develop a procedure for handling it.”  Great.  No good deed goes unpunished.

But, in the gripping hand, my dad used to say, “If it was easy, everybody would do it.” Persistence really does pay off...eventually.

The good news is that yesterday, we signed paperwork with the city that should bring this nightmare to an end.  I would like to thank the team at the city who have been working with us to resolve this issue.  I hope I will soon be reporting on the progress we’re making on Bob Cat.

Thursday, November 05, 2015

The Saddest Sentence in the English Language

This is how foreclosure feels. First there’s the dread of the inexorably rising debt as the event draws near. Then your house gets swept away in an impersonal flood of legal procedure. Photo by Carsten Knoche
This post originally appeared on the Hermit Haus blog on 2015-11-04.

Foreclosure is a financial tsunami.  It sweeps away years of good credit practices into a black hole of future agony.  For years, up to a decade, after a foreclosure,  foreclosed persons can’t escape the enormous gravitic pull of the black hole as it stretches pulls, stretches, and tears at them, trying to suck them down into a pit of financial oblivion.

Losing a house to foreclosure is just the start of a decade-long nightmare that makes Freddy Kruger look cuddly.

  • It will be years before they can buy another car or truck, except at a “note lot” that specializes in taking advantage of people with poor credit—often by requiring them to come up with an astronomical down payment that covers the seller’s total investment in the vehicle.
  • They won’t be able to buy another house, and since most apartment communities use credit score to qualify prospective tenants, they may not even be able to get a nice apartment.
  • The foreclosing bank can file a 1099 showing the unpaid balance of the mortgage plus fees and additional interest as income, which causes the IRS to come after them for unpaid taxes on that income.
  • Even in states that don’t allow creditors to garnish wages, the IRS can.

It’s a process that can be avoided. One of our primary goals at Hermit Haus Redevelopment is to help distressed homeowners avoid foreclosure. We have several tools to chip shore up against foreclosure in our tool box (buying the house for cash money is only one of them). And, of course, we make money doing it.  If we didn’t make money, we couldn’t continue to help more people.  And our whole reason for existing is to help as many people as we can.

But people have to let us help.  And that brings us to the saddest sentence in the English language.

Are you ready for it? Here it is:

“No, I trust my bank.”

Carol and I had been working to get a family to allow us to help them avoid a foreclosure.  Last Thursday, the homeowner said, “No, I trust my bank.  They said they would help us with the loan.”  Yesterday, the house sold at foreclosure auction.  The bank’s opening bid was higher than the after repair value of the house.  They really wanted it.

Please don’t trust the bank.  And please don’t let anyone you know suffer through the financial nightmare that is foreclosure.  Call us.  Call our competition!  Please, call someone who can help.

Tuesday, November 03, 2015

The Heart of the Business

This guy is just so cute! How could we not recycle him into another post or two.
This post originally appeared on the Hermit Haus website on 2015-11-02.

Carol, Russell, and I invested three days in an intensive real estate business development seminar lead by Austin real estate guru Phill Grove. Like many of these seminars, I found myself suffering from retention exhaustion before each day was over. There is just so much information a brain can process without a break. On the other hand, there was more useful information and actual strategies in Phill’s seminar than in any two other seminars I’ve been to combined. No wonder I couldn’t absorb it all at one (or even three) sittings. Phill is a masterful presenter who actually practices what he preaches. He and his wife Shenoah are also among the nicest human beings I’ve ever sat down to dinner with.

So what was my number one takeaway from this event? It’s simple. The head makes the money, but the heart gets the deal. If you’re not doing this business for the right reasons, it will eat you alive. Sure, you can bully your way into a deal or two, but that won’t get you far. To be successful you have to really want to solve people’s problems. It’s good to have your fundamental values reinforced.

Phill and Shenoah gave me a half-dozen new problem solving tools for my toolbox this weekend. Now it’s time to put those tools to work.

Thursday, October 29, 2015

This Week at Hermit Haus: October 28, 2015

Sue Ann posted an update on how we are progressing in our Hermit Haus business. Our marketing materials, including our Facebook page, are progressing.

Sunday, October 25, 2015

It Rained

Insufficient rain chains Once again, the rain chains were overpowered. Need more chains or a different solution. Mantle decorated for Halloween I forgot to mention that Jaime installed the mesquite mantle. Suna has it decorated for Halloween.
Used pallets in the mud make an unstable sidewalk. I need more pallets and a better way to get to the garage. front pond is full The front pond is full and cleaner after the deluge.
But I’ll know my song well before I start singin’
And it’s a hard, it’s a hard, it’s a hard, it’s a hard
It’s a hard rain’s a-gonna fall

—Bob Dylan

I don't really know how much rain we got since the rain gauges overfilled, but we have at least 7 inches over the last two days, and it's still raining. If it had come earlier, we might not have had the cigarette induced grass fire earlier this month. But it is what it is.

Once again our climate model held up: mainly drought broken by flood. The front pond was low enough to capture all the runoff, so the dam wasn’t breached this time. But the ground is very soggy. I spread a bunch of pallets between the garage and the front porch. I could use a couple more. At the height of the rain, they were just tall enough to keep our feet out of the water.

The ponds are all full again. The cattle will like that. The flow of fresh water also cleaned out most of the pond scum growing in the front pond.


Investing With Hermit Haus

This post was originally published on the Hermit Haus site on 2015-11-23. I should also mention that we don’t accept investments unless we already have an established relationship with the investor.

I am excited to say that people are already asking how to invest with us. I'm humbled. We've put together a little package that explains the whole process for you, and you can download it for free and with no obligation. At this point, we won't even know you're looking at it. You can find the booklet on the "Investors" page. Please check it out.

Helping our investors make money is just one of the ways we help people. We also help stress-out owners solve their real estate problems and improve our community by redeveloping distressed properties into homes to be proud of. If you know of someone we can help, please let us know.

Sunday, October 18, 2015


Cattle, Suna, and Ralph [with the truck] Suna helps Ralph with the cattle.
[Q: If three identically-dressed men are in a pickup, which one is the real cowboy?]
“The real cowboy’s the one in the middle
He ain’t there just by fate
Cause first he don’t have to drive
And then he don’t have to mess with the gate”

—Michael Martin Murphey

Ranch life has been really good for Suna. He love of animals encourages her to get out there and learn all about working cattle and dealing with horses. Not to mention that she knows every bird around here by name.

Today she’s out helping Ralph with the cattle. Her own description is that she looks very “rancher-ish.” She may still be more hat than cattle, but it won’t be long now.


Friday, October 16, 2015

Smoking Kills Others

A fire truck in a smoking field after the fire. The local volunteer fire department helped put out the fire. Photo by: Suna Smokey the Bear …can prevent grass fires. Photo source: Wikipedia
Smoldering grass. Here’s the field still smoldering. Photo by: Suna
Smoke, smoke, smoke that cigarette
Puff, puff, puff and if you smoke yourself to death
Tell St. Peter at the Golden Gate
That you hate to make him wait
You’ve gotta have another cigarette

Merle Travis and Tex Williams

Here is more proof that second-hand smoke is more dangerous that smoking. Someone threw a lit cigarette out while driving down our road. It got the neighbor ranch pasture on fire. Our contractor spotted the fire. Ralph says he didn’t do anything about it except talk, which really upset Ralph.

Authorities were called and neighbors alerted. Cathy took care of the horses. All are well. Their house and cabin are fine. All in all, more than a dozen acres burned. That’s a lot of fodder for the animals that will now have to come from somewhere else. But it could have been worse.

Ever since the drought started, there have been lots of fires around here. We’re finally getting some rain, but we’re not safe yet.

Please, if you smoke, extinguish your butts! Don't burn your neighbors’ houses down. As one commenter on Suna’s Facebook page said, “Don’t be a butt.”