Sarita Is Sold and Closed!

There are lots of ways to get free advertising. Doing a great job like Dana Wissink, the Realtor® who handled the transaction for us, is the most reliable way.

My mom always said, “Everything always works out for the best.” Even the flooded pasture I used for the background of this meme.

This post originally appeared on the Hermit Haus Redevelopment website on 2019-12-05 and on the Hearts, Homes, and Hands blog on 2019-12-04.

We have learned a lot from the Sarita project. It feels like almost everything that could have gone wrong did…but that’s not really how it was. We had one major pain in the ass, and that was the buyer’s lender. Even the buyer’s agent said she will never use that lender again. Here is a brief rundown of what we learned.

You never know where you’ll find a deal.

I never expected to find a good deal on a property in my own family, but my brother and his wife just wanted out from under a house they could no longer maintain.

People first.

We ended up making a little money outright for handling the sale and taking over the debt, but most of the profits are going into a fund to help take care of my brother and sister-in-law going forward. As I said, they would have been happy to let us take it all, but that’s not how we roll. They actually objected to taking a promissory note to cover their future care, but we insisted on taking care of them.

You need a local team.

Redevelopment is a team sport. You can’t do it all yourself. You need good contractors, which we didn’t have in the Brazosport area.

Since this house is well outside our area of operations, we decided on the prehab exit strategy. We cleaned up the house and maintained the laws to keep the HOA happy. But we did not go looking for contractors. Instead, we offered the house at a substantial discount to its after repair value (ARV).

We offered the listing to an old Realtor friend, but she had also moved out of the area. (I may have mentioned, I grew up there but left as soon as I could.) While we were trying to find a Realtor, we were approached by an investor who found the house while driving for dollars. We couldn’t find a place where the numbers worked for both of us, but we did list the house with her. She turned out to be a great person to work with, and I hope we can do stuff together in the future.

There is a new type of FHA loan.

FHA now offers a loan—the FHA 203(k) Rehab—for homeowners wanting to renovate, either to make the home more affordable or to participate in a homestead flip. I don’t believe the loan is available for investors since it is an FHA vehicle.

Because FHA allows for up to 100% financing, FHA lenders are notoriously hard to deal with. So, we usually don’t accept offers with FHA financing, but we were intrigued with helping someone obtain a family home for renovation, instead of just turning the project over to another investor.

It’s not closed until it’s closed.

We learned that this type of financing doesn’t make the FHA any easier to deal with. In fact, the lender arbitrarily delayed closing now fewer than five times. One of these times caused me to miss a trip to Hilton Head we had planned for more than a year. The next one, move closing out of that trip window and came the day after going on the trip became impossible for me to arrange.

They also refused to authorize closing until seconds before it was schedule for the penultimate time, knowing I had to travel four hours to close. We thanked them very much, and I drove down the next day anyway.

Okay. We’ve already talked about most of that, but it never hurts to go over lessons learned. And as of now, the deal is done. The money is in the bank. We have helped a homeowner get a (soon-to-be very) nice home. We have helped and can continue to help my brother’s family. And we have additional resources to start hiring staff to help others stay in their homes.

Austin’s “Affordability Crisis”

High prices mean more people, especially young people, are renting again. Pricedoutforever.com argues that this is a good thing. I’m not certain if its good for them, but it is a good thing for investors. Photo by Pricedoutforever.com

This post originally appeared on the Hermit Haus Redevelopment website on 2016-07-23.

The median price of a single family home in the City of Austin rose 3% to $350,000 in June. When you take the surrounding cities into account, the median price was up 8% to $295,000. This sounds like great news to investors, but it actually makes our game riskier. Just as the higher prices are denying many first-time home buyers and lower income families the opportunity to buy a home in Greater Austin, they make it harder for investors to find the margins we need to sustainably run our businesses. Not impossible, just harder.

If you talk to a real estate agent, they’ll say, “Buy high, sell higher.“ But remember agents are motivated by commissions, and they get paid no matter which way the market trends. They get paid more if it goes up, but they still get paid if it goes down, assuming it doesn’t collapse and they can still sell something.

The more people get priced out of the market, the fewer people there are to buy any given home. That doesn’t seem to be a problem yet—along with the "affordability crisis" the ABOR article mentions, we have a supply crisis. Our inventory levels remain at historical lows, less than two months. I’ve even heard speculation we may see a one month inventory in the near future. That means, despite the price, someone is buying all the houses that are for sale, and it’s not just investors.

Remember, a stable market has around six months of inventory. So we are still in a really hot market.

While the trend in median home price continues upward, it is not a straight line. You can’t count on appreciation to save your donkey. Data source: Austin Board of Realtors^®

But consider this: this business is cyclical, and it can turn on a dime. Add to that what our mentor Shenoah Grove says: "We’re currently eight years into a five year cycle," and you can begin to see why some investors are starting to talk about bubbles. And finally, I’ve seen a market correction in the first year of every new administration since I can remember, regardless of which party was involved. So you have to ask yourself if we are approaching the crest of the wave.

Over time, real estate has always appreciated. But that appreciation isn’t a straight line, unless your talking about the very long run. It’s downright bumpy. And as I’ve always said, to reap the long term benefits, you have to survive the short term. Or as I once heard Alan Greenspan quote John Maynard Keynes when asked why investors don’t plan for the long term, "In the long run, we’re all dead."

So how do we continue to help people and make money in times like these? We have to stick to basics.

• Don’t buy assuming appreciation will fix our mistakes. I think it will...in the long run—if we survive the short run.
• Know your end buyers well enough to improve the house to the right level, neither over improving nor under improving.
• Remember your time lines and try to eliminate slack from your schedules. This one is really hard right now when contractors and subs still have more work than they can handle. Why do should they care about your schedule?
• Manage your holding costs. Use private money rather than hard money. Use bank money rather than private money.
• Partner up to spread the risk. You only shoulder half the risk with a seasoned partner, but you only get half the profit.

That said, don’t forget the motto I learned from my mentor Than Merrill: “People first, profits second.“ This business revolves around solving other people’s problems. Even in these high-priced times, even when the market turns down, if you can help people solve their problems, this business will continue to be rewarding and profitable.

For the full report on the June market from the Austin Board of Realtors, see Austin-Round Rock home sales on pace to surpass 2015 record levels amidst affordability crisis

Philanthropy and Networking

This ad will appear in the playbill for every performance by the Milam Community Theater this season. Consider sponsoring a community group in your area. It is “doing good” that does good for you, too.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-04-02.

Sue Ann and I attended the Milam Community Theater’s (MCT) “Night on the Town” tonight. It included a nicely catered dinner of roast beast and veggies followed by MCT’s presentation of Agatha Christie’s The Unexpected Guest. I won’t comment on the play here, but Suna was asked to write a review for the local newspaper.

So why am I mentioning dinner out on a business blog? I wanted to point out the power of networking and advertising at these otherwise “social events.” For dinner and the play, we were seated with the Cameron city manager, the host of a local radio broadcast, and two other business owners. In the audience was our insurance broker, a real estate broker, a lawyer, and several other Milam County elites.

All of these local big wigs had at least one thing in common: we had all helped sponsor MCT’s season this year. And we got to mingle with them and revel in that commonality.

While this kind of networking inevitably brings about new business contacts, that isn’t why you do it. As our mantra says, “People first, profits seconds.” In large cities or small towns, relationships are how you get things done. You have to be nice to people first, and you have to be nice to them because they are people—not because of “who they are.” I actually enjoyed the company we were in and only mentioned our business when someone else brought it up. But now when people see my name on a permit application, they have a friendly face to associate with it. When they know someone who needs help selling or buying a home, they know someone who (I hope) made a good impression on them to refer.

And there is the sponsorship aspect. Our ad will appear in every playbill for the current MCT theater season. It is a very low cost form of advertising and networking.

The Win-Win Works

Proof of a Win-Win!!

This post originally appeared on the Hermit Haus Redevelopment website on 2016-04-01.

Independent proof of a win-win came through my Facebook feed today. The screen shot to the right is from the Realtor® who represents the buyers of the Blue Ridge property.

Love having my buyers come out on top in this crazy sellers market.

Those with a scarcity mindset might interpret McKinsey’s statement to mean that we sold too low. We didn’t. Even after negotiating with the buyer to establish a fair price, the house sold at the high end of the comparables. This is one of the best examples of a win-win scenario I’ve encountered to date.

We made money—just not as much as we might have had we not learned some valuable lessons about working with contractors. We can keep the lights on, pay the contractors, repay the loan to purchase the property, and put a little in our pockets.

I’m also very glad the buyers got a good deal. “People first.” I hope they will be really happy in the house.

Why I Want To Stop All Foreclosures

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.

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.