People Matter

Heart makes [the redevelopment] business rewarding. Money only makes it possible.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-03-22.

We like to say we are “redevelopers” instead of “flippers” for a couple of reasons:

1. We are not dolphins.
   By the most common measures of animal intelligence (brain weight and the ratio of brain cells to body cells), dolphins are probably more intelligent than humans are. That would make Flipper smarter than me.
2. Flippers have something of a bad reputation.
   Deserved or not, many people think of flippers as preying on the weak or just taking advantage of other people’s misfortune. After all, we buy below market and sell at the top of the market.

While some do take advantage, most of us want to do good in the world. We will even walk away from a deal if we don’t feel we are doing right by the seller. To that end, I want to share a story from a fellow redeveloper, Cheryl Thompson. I met Cheryl though FortuneBuilders, an investor group to which we both belong. She posted this story on the group’s closed Facebook page and gave me permission to reproduce it here.

Last week I got an opportunity to spend time with a woman who was selling her parents’ home. Three bedroom/1 bath. Amazing hardwood floors. She walked me through the impeccable and memory filled home that her father had built in the 1950s. The property in top condition would be worth $90,000. My MAO (maximum allowable offer) would have been $30,000 – $36,000.

She told me how her father had died four years ago, and she bought her mother a condo that would be easier for her to get around in after she had a stroke two years earlier. Now this kind and love-filled daughter had to sell the house. For most, this is the OPTIMUM opportunity. She explained how she was going to use the funds to keep her mom comfortable and safe in her condo with nursing staff and how she was managing all this single-handedly.

As I walked through the house, my rehab hat was making a detailed list of items that would have to be done to the house to get top dollar. My heart hat was listening to the woman’s goals and knowing deep down that I had to use my knowledge to help her, not to fatten my own bank account.

I stopped in the middle of the basement and said to her, “I can’t buy your house. You have too much capital here to be able to take care of your mother with. I’m going to show you how to get top dollar for this house and put the money in your bank account for your mom.”

The tears in her eyes said it all.

We started the walk through again and I pointed out exactly what she needed to do to be able to list the property with a realtor. I told her what to pay attention to and what to let go. I gave her my favorite realtor team’s name and number.

She mentioned that even though her parents had had insurance with State Farm for over 50 years that State Farm had dropped her because the house was now vacant. I asked her who was insuring it…she said, “No one.” I panicked. An uninsured vacant house. At that moment I begged her to call my company, who insures vacant houses before the end of the day. She had 1 hour and 15 minutes to get it done…and $90,000 to lose if something happened to the house while she was getting it ready to sell.

When I was getting ready to leave, we hugged and agreed to stay in touch. I felt like I had run a victory lap knowing that this woman was going to be able to take better care of her mother for at least 1-2 years because of our 30-minute meeting. She would insure it, get it ready for sale, hire a realtor, and feel a little bit less overwhelmed because our paths had crossed.

This is one of the most beautiful things about FortuneBuilders. We have knowledge (lots of it) that we can put to work for great good.

I love deals. All kinds. But the best deal you can ever make is one that will make another person’s life a whole lot better.

Since we started Hermit Haus Redevelopment, I have not had the opportunity to help someone like this. The people we have talked to have many reasons for just wanting out of the house. Either they don’t have the money to do the rehab themselves, or they don’t have the time, energy, and patience an extended rehab requires. Giving these people what they want is not taking advantage of them. Sometimes they see the what’s in their best interest in terms other than financial gain—like my father did when he sold the house he and my mother had lived in for $20,000 less than its “as-is” value. He felt it was worth $20,000 to move out of a house with too many memories and move where he could begin to rebuild his life after Mom died.

If you know of someone who wants out from under a house that has become a burden for them, we are happy to help by buying that house. If you know someone who wants to know how to get top dollar for their house, we can help with that, too.

How the Win-Win Creates Wealth

Larry, Lee, Sue Ann, and Valerie at an event in Houston. If you live life with a service mentality, everyone you meet is your partner.

Sometimes despite best intentions, rehabilitating your house turns out to be more than you are up for. We can help.Dominic’s company found a very sad house in one of the best neighborhoods in Temple, but it was too far north for them to manage the redevelopment. So they sold the contract to Hermit Haus and made a tidy profit on the deal!

This post originally appeared on the Hermit Haus Redevelopment website on 2016-03-16.

We at Hermit Haus Redevelopment focus on finding situations where everybody wins. I’m often asked how that can work. “Doesn’t somebody have to lose out?”

The answer is that not everybody measures their success in financial terms. When my mom died, Dad just wanted out of a house with too many memories. When he sold it for 70% of what it was worth in its as-is state, he was ecstatic to be free of it. He could put money in his pocket and start living life on his own terms.

Here’s how a group of people can work together to improve a neighborhood, create wealth, and build a situation where everybody benefits:

• I will admit that I wasn’t involved in the original transaction. So I don’t know what the original seller’s motivation was, but I’m going to assume their best interest was served by selling a house that was too much for them to renovate for sale. Maybe, like my dad, they were happy to sell the house for more than they paid for it, even if it wasn’t what it would have been worth if they worked to rehabilitate it.
• Another redeveloper Larry met at the Houston Summit last month is financing the project in return for two points (2% of the money he’s lending) plus 12% APR on the note.
• I put the project together, will manage the finances and be responsible for the mortgage, and will front most of the renovation budget not covered in the initial mortgage. In return, Hermit Haus will retain half of the profit at sale.
• Larry’s contractor friend will do most, if not all, of the work—or rather, his company will. He will retain a fair profit on what currently stands at a $70K redevelopment budget while his employees benefit from a living wage.
• Larry’s company is responsible for managing the day-to-day operations of the redevelopment project. It keeps the other half of the profits at sale.
• The neighborhood where the house is located gets a nice home where there is currently an eyesore that isn’t currently habitable. Everyone’s property values should increase as a result of this project.

Number Three

Temple (magenta circle) is pretty far north of Hermit Haus’s focus area (magenta glob).
 

Here is the house with the pile of ashes featured.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-03-11.

My mentor Phill Grove always says, “Your Net Worth equals your NetWork.” Here’s an example.

A few days ago, I got a call from Dominic G, another redeveloper working in Central Texas. He was checking references on a General Contractor with whom I’ve worked for many years. As we chatted, we found out we have a lot in common, including the back office system both our companies use. Then Dominic mentioned he had a house under contract in Temple. Since Temple is well outside of his normal range of operations, he wanted to know if I would be interested in buying the contract from him.

Now Temple is also pretty far north for Hermit Haus to go. We don’t usually get much farther north than Georgetown. But the numbers looked good on the surface, so I said I was.

Last month, I met yet another redeveloper at the Houston Summit who has done roughly 20 houses over the last 20 months in the “Greater Temple” area. We’ve been chatting a bit, so I called Larry and asked if he’d like to JV (form a joint venture) with Hermit Haus to get the deal done. He did. We did an onsite evaluation with Larry’s lead contractor, revisited the numbers, and came to an agreement on how to proceed. Hermit Haus is now under contract to buy its third house since December.

We’re calling this project “The Ash House” because the previous occupants appear to have heated the house with a lovely wood-burning fireplace for several years. Unfortunately for the neighbors, they just dumped the ashes in a flowerbed until the pile is at least 36 inches tall and a couple of feet in diameter. One of the first items to clean up on the list!

Everybody wins!

Sad Houses and a Service Mindset

I still try to live by the words of cultural icon and personal hero John Lennon, who said, “There are no problems, only solutions.” Photo by: Unknown

This post originally appeared on the Hermit Haus Redevelopment website on 2016-03-09.

Hermit House Redevelopment approaches every unique situation with a service mindset. We ask the question, “How can we help,” and we put our mission statement out there on everything we do:

We buy sad houses and make them happy again.

What does that mean? Or as one of our private money lenders put it, “Lee, what the hell is a sad house?”

A sad house is one that is not living up to its true potential. As with people, lots of things can make a house sad. Between the four of us on the Hermit Haus leadership team, we’ve probably seen them all at least once.

It all comes down to how you look at things. There are no opportunities without problems. You can focus on the problem or the solution. Granted, sometimes the solutions require more resources than you have. That’s where we come in. At Hermit Haus Redevelopment, we specialize in finding the resources that enable us to provide solutions.

Without going into too many details, here are a few examples:

Neglect

A couple of our recent projects involved deferred maintenance—repairs that were put off so long that their volume became overwhelming. One house stood vacant for more than a decade. Another was ignored by its owner until there was more wrong with it than he cared to address, even though he had the money to renovate it before he sold it.

In both of these cases, we gave the owners what they wanted: a quick sale without having to go through the trouble of dealing with contractors and hoping they would get the money the spent on renovation back out of the house.

Changing needs

We are currently acquiring a beautiful house, one that I would be happy to move into without doing any renovation whatsoever. The owners tried to sell it once before, but couldn’t get any traction in a down market. Now their needs have changed. and they don’t have time to wait for it to sell, and they were leery of trying given their previous experience.

What the owners of this house wanted most was to be out from under it. Even though we couldn’t give them what the house was worth (at least in their eyes), we could free them from a crushing two-hour commute to work after a job chance and the worry of another failed attempt to sell the house.

From personal experience, I know that if someone I’ve talked to loses their house to foreclosure, I have failed them.

Financial problems and foreclosure

As Carol and I have both mentioned, foreclosure is only the start of a nightmare that can last more than seven years. The consequences of foreclosure can sometimes return decades after the event.

Although we’ve purchased bank-owned houses, we haven’t been as successful in helping people avoid foreclosure as we want. After hearing the saddest sentence in the English language too many times, I’ve made it my mission to help as many people as will let me help them. If someone I’ve talked to loses their house to foreclosure, I have failed them. I obviously haven’t explained how I can help well enough.

Probate

We bought a house Sue Ann and I plan to homestead after it had been tied up in an estate for more than 20 years, vacant for much, if not all, of that time. During all those years, the estate had paid almost $10K each year in real estate taxes and more than $200 each month in HOA fees. I have no idea how much the insurance on the house ran. Luckily, the house was owned free and clear, so the estate didn’t have to make mortgage payments on an empty house. Even so, the estate spent almost $250K maintaining a house nobody wanted to live in. To be fair, there was an easement encroachment that scared off many potential buyers and their banks.

We freed the estate from future expenses on this house and paid cash for the house. In fact, we got the house even though our offer wasn’t the highest because the estate’s attorney realized we would be less likely to back out of the deal than buyers without our experience. Since then, we spent more than a year working with the City of Austin to resolve the easement issue and are in the process of finalizing the renovation so we can move into the house. I know the people moving into this house will be proud of it because they are us and we are proud of all the work.

Sometimes you have to tear something down to make it right again.

Poor workmanship

Another of our current projects involves an almost complete teardown and rebuild. The original owners did things on the cheap without regard to quality. We had to completely jackhammer the foundation and start from scratch. In the process of demolition, we found only three pieces of rebar in the original foundation. We also found electrical runs that were spliced together with electrician’s tape in the walls—a fire waiting to happen.

We bought this house from an estate, thinking that we were helping the heirs divest themselves of a property nobody wanted to manage. Instead, our primary service turns out to be making the house safe for anyone who lives there in the future.

Some people have said it sounds like we’re preying on other people whose problems have gotten the better of them. We’re not, but there are those in this industry who do. We don’t want to be vultures picking at the corpse of failure. We really do approach every deal with a service mindset. There is no Kobayashi Maru. We will buy your house or help you find some other solution. We want you to be as thrilled with the solution you choose as we are.