What Is Real Estate Wholesaling?

This is a very large sad house offered to us by a wholesaler. We will see…. Photo by: Suna

This post originally appeared on the Hermit Haus Redevelopment website on 2016-05-23.

Yesterday, Carol, Russell, Sue Ann, and I went to look at a prospective wholesale deal we’re calling either the Antelope House or the Home on the Range because of the toy deer in the front yard. This was a frustrating trip. The wholesaler didn’t have the three things you expect a good wholesaler to have when asking you to meet at the property:

• The keys
• A firm idea about what he wants to sell the house for
• An understanding of the redevelopment business model

But there are newbies in everything, and I’m going to put down his performance to a lack of experience rather than to a lack of respect for the business or us.

In real estate investing, wholesaling is a process whereby the wholesaler:

1. Finds a (hopefully good) deal on a sad house
2. Negotiates with the current owner to establish the purchase price of the house
3. Signs a contract to purchase the sad house
4. Markets the contract to other investors at a premium
5. (Hopefully) finds another investor who is willing to pay the price the wholesaler needs for the property
6. Assigns the contract to the new investor who actually closes on the deal

Some people will tell you this process is illegal if the wholesaler is not a licensed real estate agent, It is, in fact, illegal in some states unless the wholesaler actual takes title to the property. This strategy is called a double-close because the title changes hands twice: once when the wholesaler buys it from the original owner and once when the final investor buys it from the wholesaler. In Texas, sale and assignment of the contract is legal because the wholesaler is marketing an equitable interest in contract itself, not the real estate.

You can find blank assignment contracts on the Web. I recommend paying the money to have a good lawyer in your area draw one up.

In this case, Sue Ann and I drove 40 miles each way (Russell and Carol drove farther!) only to waste our time with a wholesaler who was at best unprepared. He offered us the contract at nearly full retail prices without giving us the opportunity to look at the inside of the house. He said it would take about $15-thousand to repair the house, which would place the total cost of acquisition just north of what we could expect to sell it for—if his numbers were right. He said he would fix every flaw we found on the exterior of the house.

Now, there are ways to make an offer on a house sight-unseen. To do so, you must know your market extremely well. You can make the offer based on average cost per square foot of a sad house and your average cost to repair. Then you add in an allowance for worst case.

Also, never trust the wholesaler to make the repairs for you. There are two reasons for this:

• You are responsible for the quality of the repairs that the wholesaler makes without having any control over costs, materials,contractors, or corners cut. What’s the old adage? “If you want something done right, do it yourself.”
• The profit of a redevelopment company comes from the difference in value before and after redevelopment. Needless to say, allowing the wholesaler to reap these profits makes the deal too thin to think about.

The wholesaler wants us to meet back at the house on Thursday, at which time he promises to have the keys. If he still wants to sell us the house and act as a contractor, he will have read our contractor materials by then and understand the way we do business. If not, we will have other things to do on Thursday.

The bottom line is never be afraid to walk away from a “deal.” As my friend Larry says, “Some of the best deals I’ve done are the ones I walked away from.” It’s always better to walk away than to lose money.

I’d Rather Be…

Worse weather has passed, but more is coming. No trip to San Antonio today.

Okay. This picture is from a week in the future (when the post published on this site). The Walker’s Creek bank is normally on the other side of those trees. The fence going up from the left is our property line.

This post originated on the Hermit Haus Redevelopment blog on 2016-05-19.

In one of her songs, Mary Chapin Carpenter says, “Sometimes you’re the windshield; sometimes you’re the bug.” And while I don’t relish the idea of being the windshield, I work very hard not to be the bug. Very hard, indeed.

So despite my previous statement about redevelopment and wimps, I’m wimping out. Larry and I decided to cancel our trip to San Antonio to review progress on St. John’s house. Even the GC who lives there said traveling hundreds of miles under a flash flood advisory was not a good idea. I’m staying dry and (hopefully) safe in Round Rock today, and Larry is doing the same in Cameron.

We’ll go to San Antonio another day, and you’ll get to see more pictures then. Until then, I’m going to parrot Paul Simon: “I’d rather be….”

A Joint Venture in San Antonio?

Yes, there are two dumpsters in front of the house. The GC for this project actually filled and hauled off three dumpsters before she could safely start work.

A successful joint venture is a win-win.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-05-17.

Yes, we work anywhere we can find the right deal. Even as far away as San Antonio—where the newest deal brought to us by our friend and joint venturer Larry is located.

St. John’s house isn’t really a hoarder house. It’s just been very neglected for a very long time. It may be the dirtiest house we’ve attempted to redevelop to date. I’m glad Larry is taking the lead on this one.

I should have more pictures later this week when I go to see it first hand for the first time.

This house is in an area that is undergoing substantial gentrification. Several houses with a few blocks and on the same street have been bulldozed to make room for McMansions. We won’t go that far with this house, but the house won’t be recognizably the same when we’re done.

So What Is a Joint Venture Any Way?

Simply put, a joint venture is a contractual arrangement between two or more entities (people, corporations, or some combination) to undertake a specific project through a Joint Venture Agreement (JVA). The JVA specifies how much each entity is responsible for the project in terms of money, time, or effort. In real estate redevelopment or construction, joint ventures often enable the venturers to pursue more or different deals than they could on their own.

In this case, the joint venture is between Hermit Haus Redevelopment, LLC and Andress & Three, LLC.

When Hermit Haus enters into a joint venture with another company, we always spell out who is responsible for managing the project and who is responsible for managing the money. Since there is considerable overlap between these two responsibilities, we end up with some level of checks and balances.

We split the costs and rewards evenly between the venturers. The JVA states that the money manager has to publish state of the venture reports at least once a month. That way the venturers all have an opportunity to see where the money is going and with more eyes, the project, hopefully, has a better chance of success.

Is joint venturing with other investors the way to go for you? Maybe. There are a lot of considerations, and only you can decide for you. And as with any legally binding contract, have your own lawyer look over the contracts before signing.

Ash House Update

Front of the house, repainted and slightly landscaped. Mismatched chimney cleverly disguised by a tree.

Here you can see the three colors we are using. All from a Frank Lloyd Wright collection.

Back view, showing new doors, sparing you the sight of the actual yard.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-05-16.

A group of us went by the Buffalo Trail house to check on the renovation work on Saturday. We even braved a flash flood warning to do so. Rehabbing is not for wimps.

All-in-all, I’m pleased with the progress the contractors are making on the place. They have the yard mostly cleaned up. That makes a tremendous difference when you consider how jungle-like the house was at purchase. If my kids were still kids, I’d no longer be afraid to let them play in the front yard. The back yard is still another matter.

Mowing the lawn did show how little grass grows under the dense canopy. So even cleaned up, the yard is still a little foreboding. We may have to put more effort into thinning the forest that we had originally anticipated.

The exterior brick has been power washed and painted—mostly. Thanks to the weather, the painter missed the chimney cap. The rains kicked in again about the time they finished painting the body of the house. So we have this reddish-brown chimney sticking out of a white roof on a gray house. Details. But the painter assures me it’s “on his list.”

Working Through It

My dad used to say, “If it was easy, everybody would do it.” It turns out he was right. Solving real estate problems is rewarding because it’s difficult. When obstacles arise, you just have to work through them.

The good news is being unable to straighten that middle finger without a little pain makes it more difficult to tell someone they’re number one. (I am trying to straighten all my fingers in this picture. When the middle finger does straighten, it kinda clunks into formation.)

This post originally appeared on the Hermit Haus Redevelopment website on 2016-05-14.

We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard; because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win, and the others, too.

—John F. Kennedy

I’ve reached the age where I’m starting to develop a little arthritis in my hands, especially my left hand. It’s gotten to the point where I often have to force a finger on each hand to unbend when I wake up in the morning. I can’t just open my hands like I could when I was twenty.

On my left hand, it’s my middle finger that gives me fits. The index finger isn’t much better. Any of you who play the guitar know just how important these fingers are to your chording and picking technique. Losing control of them made songs that of been easy for decades suddenly difficult to play. It undermined my confidence to the point where I began to doubt whether or not I could actually still play at all. I left my favorite guitar in the closet for months.

But here’s the deal: I took that guitar down off the shelf the other night, and I began to play. I was clumsy and slow. I had problems with the transition between chords—much more than I would have from simple rustiness.

But I kept playing, and I got better again. I wasn’t as good as I was when I was thirty and in practice. Those fingers thunked some of the bar chords instead of letting them ring true. I missed transitions as I moved up and down the neck. Runs were slower and clumsier than I was used to, even after a hiatus. It was physically (and euphoniously) painful at first, but I kept playing for the better part of an hour. The pain eased to a dull throb and then to a soft ache I could ignore.

When I got up the next morning, my hands both unclenched easily. After a week, I can say my hands are in much better shape on the mornings after I play my guitar for a half hour or more than on the mornings where I didn’t get a chance to play the night before. My hands may never let me return to the point where I could make a living playing again, but I can live with that.

So what does this story have to do with real estate or being an entrepreneur and running a small business? That’s easy. Just ask yourself one question. “Which part of the business am I most uncomfortable with?” Is it door-knocking? Negotiating the deal? Asking for private money? The rehab process? It doesn’t matter. Just answer the question and make yourself practice it a few times. You’ll get better and move past your fear.

For me, it was my hands. I was afraid that my hands would not let me play the guitar well enough even for my own enjoyment anymore. But I found that by just doing it I got better. I’m not afraid anymore. I’m still uncomfortable, but I’m not afraid.

Working through mental discomfort is no different than working through physical discomfort. It requires effort and persistence. Now the trick is to apply that lesson to other areas of my business—to cherish the discomfort until it no longer impedes me.

Wish me success. Qapla’!

We Occasionally Get to Kick Back

I am so pleased with how good a dog Brody is turning out to be. His loyalty is beyond question. Photo by: Suna

Suna enjoys a cold, funny-flavored Shiner. I prefer beer that tastes like beer.

Brody and Harvey pretend to be so ferocious. They play like predators.

After the stresses of the last week—the floods, worrying about if any of our projects were damaged in the storms (They weren’t.), and keeping up with life in general, it’s nice to be able to take a few minutes to relax and enjoy ourselves. So that is exactly what we did.

Suna and I sat on the back porch at the ranch and enjoyed the natural beauty around us. We enjoyed each other’s company. Oh, yeah. A few adult beverages were involved in the enjoyment, too.

The dogs enjoyed being able to get out and have fun. Brody and Harvey act like human brothers. They play hard. They beat each other bloody, although they are very careful not to really hurt each other. Then they curl up for a nap together. I love watching them, and they are such good companions.

Power Washing Cleans Up

Power washing the brick of your project can really make a difference in its appearance.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-05-09.

I won’t be long today. This post is just a quick tip.

Power washing the brick of your project can really make a difference in its appearance. I know that sounds self-evident, but it’s easy to forget about because of that. Just look at the difference between the two shots of the Buffalo Trail house before and after power washing. I know these aren’t perfectly comparable pictures because we don’t have a continuity department tracking the angle of every shot we take. Still, I think you can get the gist. Power washing the brick and fascia prior to painting makes a big difference. On some projects, it may even be enough.

We’re not finished yet. We will paint the brick to give the house that elegant, modern feel. We’ll have more pictures when that’s done.

Tracking Mileage: Two Apps Reviewed

You can summon the power of the Cloud to save on your tax bill. I tell you which app works best for me and why. Image by: Bitmoji

This post originally appeared on the Hermit Haus Redevelopment website on 2016-05-04.

Everyone pays taxes. Business people can deduct expenses related to generating the income their business produces, including expensing a corporate or personal car used in the business. In fact, most companies reimburse their employees' car expenses. So you don’t even have to own a business to be reimbursed for or deduct the use of your car in your or your employer’s business.

But the IRS requires you to keep records of how and when you used your car, and most of us are not very good at remembering to keep track of that. So most people under or over report the use of their car. Both are bad. If you under report, you’re paying more in taxes than is fair. If you over report (meaning you can’t substantiate your usage), you could face penalties in addition to the loss of deductions if you are audited.

Historically, I have erred on the side of caution and under reported. That is, I reported only what I remembered to document.

Wouldn’t it be great if your smart phone—something you have with you all the time—could document your car use for you? Apparently, some clever programmers thought the same thing. In this post, I’ll review two apps that keep track of your mileage for you. It’s no big secret; I wasn’t satisfied with the first one, so I bought the second one. I’ll talk about them in order.

Disclaimer Time!

Both of these are iPhone apps, but they are also available for other platforms. Since the iPhone is almost idiot proof, it’s what I use. I can’t tell you if the Android or Windows versions of these apps are available or if they differ from the iPhone versions. Future versions of these apps may address some of the shortcomings of the versions I review here.

Both apps provide usable mileage reports and estimates of your mileage deductions. I paid the full subscription price for both apps, and I have no investment in either company.

Mile IQ 1.7.1

The terminal points of the trip are all that appear. In this case, Barrington Oaks is in North Austin. Oak Brook sometimes shows up as Austin or the neighborhood name.

When I first started using Mile IQ, I was impressed. I would have finally an automatic, accurate record of my business miles. The app works very well at the basic level of detecting when you start moving and when you stop. But the more I used it, the more dissatisfied I became:

• Categorizing trips is easy. Swipe the map right for business, left for personal. Those are you only options.
• Mile IQ only tracks your starting and ending locations. Then it calculates the most direct route between them, regardless of the actual route you traveled. Worse, if you start and end at the same location as you often do when driving for dollars, it doesn’t think you have gone anywhere, so it doesn’t record the trip. The way Mile IQ calculates your mileage almost guarantees you’ll underreport despite using the app to capture your data.
• The app only records the name of the city where you start and stop—not necessarily the city you would think and not necessarily the same name for every trip. This idiosyncrasy makes it easy to misidentify trips because you don’t recognize your terminal points. The map is shows isn’t detailed enough to help you identify the points either.
• In Texas, there is only one season: construction. Roads are always under construction, which backs up traffic—especially on two-lane roads that are reduced to one lane for miles during rush hour. I’ve had Mile IQ break up a single trip into three because it logged each time I had to wait for traffic to clear. (Unfortunately, there are times when even the Googles can’t route you around construction.)
• But my biggest problem with the app is that the IRS requires you to list the business purpose of each trip. Mile IQ has no way to record that in real time. Instead, you have to wait until you can download an .CSV file and manually add the purpose to each recorded leg of each trip. If you can identify the leg by its esoteric termini. If you can then remember why you stopped in BFE three times on the way from Burlington to McNeil on a day you thought you traveled from Cameron to Austin. [I did find out later that you can add notes to each leg, but I don’t know where these notes show up on the reports.]

Basically, Mile IQ has a lot of unrealized potential. Unless it drastically improves, stay away from it. It will waste your time and money while taxing your memory in the false promise of making your life easier.

Taxbot 6.2

You can see the actual route I drove was not the most direct. And the bathroom break mid trip did not force me to explain if I went #1 or #2.

A salesman at the AT&T store who sold me a replacement iPhone told me about Taxbot. He said he had used it for his sideline business selling health supplements, and his accountant loved the report it provided at the end of every year. I was intrigued. Not only did Taxbot overcome all of the shortcomings of Mile IQ, it also tracked income and expense. But I’m getting ahead of myself.

• Taxbot uses more bandwidth, because it tracks your actual route, giving you an accurate measure of the mileage you traveled, including round trips.
• As you categorize each trip as business or personal, you can enter the business purpose, the company name, and the vehicle you drove.
• Taxbot has a longer wait to determine the end of a trip, so it may actually combine trips for different purposes. To overcome this minor irritant, you can tap an End Trip button if you need to. I’d much rather do that than explain that I was stopped in traffic three times on the same trip leg.
• Besides all that, Taxbot lets you record income and expense transactions. You can even attach pictures of your receipts to the transaction. (I haven’t actually figured out how to get these pictures back, so I’m still keeping manual duplicates.)
• The only problem I encountered was that it failed to recognize the paid subscription from the iTunes Store. But it’s hardly the only app that has problems in that regard. A quick call to support straightened the biling out.

At twice the price ($9.99/month or $99/year), Taxbot provides eight times the value of Mile IQ. If you don’t save many times over the cost, you’re either too organized or not working hard enough. Now if it only talked to Quickbooks.

Everything Changes

There were three sliding glass doors in this project: one in the master bedroom and two in the family room. All will become French doors and picture windows.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-04-27.

There is nothing so constant in this world as change…change and the value of collaboration.

We found out today that the walls we were planning to remove at the Ash House so we could “open up” the kitchen to the dining room are load bearing. The cost of engineering the LVLs to replace the walls and the delay in the project for engineers, permits, and inspection would cost more than we could expect to get from the change. So, we’re going to revise our thinking a bit and scale back to renovation instead of redevelopment on this project.

We’ll still have a really nice kitchen with a breakfast bar, just not the open concept we’d hoped for.

We have already removed the ugly and questionable built-in sideboard in the dining room, and we can still make better use of that space. We’re going to remove the (non load-bearing) wall that separated it from the shallow pantry to make a really nice pantry that will be accessible from the kitchen. From the dining room, the former sideboard will become a smooth wall. It will be a good place for an antique sideboard or maybe just some art.

Removing the plywood from the broken sliding door brought an amazing amount of natural light into the family room. We’ll replace all those sliding doors with French doors. In the family room, the two sliding glass doors will have one set of French doors and huge picture windows. That combination should let in as much light as the two sliding doors do now.

White roofs are more energy efficient, because they reflect back much of the brutal Texas sun.

As you can see from the photo, the roof is being replaced as I type. We went with a white shingle for aesthetics and to save on energy costs for our new homeowners.

The replacement windows are still about six weeks out. I’m glad we ordered them up front. The good news is that means we don’t have to spend time and energy masking or cleaning the windows when we paint the outside of the house. We’ll just paint the old windows and have a nice, clean look when we replace them.

All-in-all, we’re continuing to make progress. As with everything, flexibility is key. We’re not letting obstacles like load-bearing walls stop progress on this project. We’re being flexible and moving along. When we’re done, this will still be one of the nicest houses in the neighborhood.