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.

Inflated ARV: Massaging the Numbers

When calculating ARV, you have to think like a buyer, a contractor, an appraiser, a seller, and an investor…all at the same time. Any question you can ask yourself is probably important.

This post originally appeared on the Hermit Haus blog on 2016-10-07.

One of the easiest mistakes to make in renovating houses is to overestimate their After Repair Value (ARV). In this post, I’m not going to delve into motivations for inflating a house’s ARV. After all, I’ve done it to myself, so far be it for me to cast asparagus on anyone. I’m just going to talk about how it happens, and there are only a few ways:

• Use the wrong comps.
• Make the numbers fit the model.
• Mis-time the market.

I originally planned to talk about all three of these risks in one post, but I soon figured out it would be way too long. Click here to open all posts on this topic.

There are are many ways to tip the scale in favor of something you want to do. Be honest with yourself and let the numbers make your decision.

Make the Numbers Fit the Model

As I mentioned before, wholesalers know our requirements, so it’s easy for them to (intentionally or not) make the numbers fit that model. Most wholesalers understand that their long-term survival depends on their reputation, but there are exceptions to every rule. Rely on your own or a third party for your numbers.

You also have to honest with yourself. We’ve all seen (and some of us have been) someone who says, “My house has to be worth $200,000,” with the implication being “because I need it to be worth $200,000.” Buyers don’t care, and they are the ones who make the final decision about how much a house is worth. If every other house like yours is selling for less than $150,000, nobody will pay $200,000 just because you need that much.

It’s very easy to convince yourself to pay more than you should. “I can pay another $10,000. If I fix it up to be the nicest house in the neighborhood, I should be able to get $20,000 more than those other houses have sold for.” Wrong. You may be able to push the market a little. You may even find a buyer who is willing to pay that $20,000 above market, but, unless the buyer is paying cash, the house still has to appraise. And appraisers work for the bank, not you. They aren’t going to ignore the comps just because you and the buyer agree on a higher price.

Suggestions

Here’s how to avoid these traps:

• Always run your own comps and trust your formulas. Never take the word of a wholesaler, especially when you haven’t done business with them before. Be conservative with your estimates of ARC and overestimate the repair costs. It’s much better to come in under budget and sell the house for more than the inverse.
• Keep your emotions out of it. Whether you are buying, selling, or renovating, your emotions will lead you astray. If you have to, keep a disinterested professional on your team to give you value advice in each stage of the project.
• When selling, it’s okay to be near the top of the market, but don’t try to push the market higher. Price your house just below the top, and let buyers push the price higher if they want to compete for it. Depending on your project, it can cost considerably less to discount a house than to hold it for even a couple of extra months.

Open House: Ash

We added a few plants to the front walkway. I like how the colors pop against the gray brick.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-07-10.

We had our first open house at the Ash House today. Sue Ann promoted it on all our media outlets for a couple of days, but because I'm not the Social Media thinker, I forgot to mention it anywhere until it was over. Sigh!

Carol and I worked it, and we had a pretty good turnout that included a lot of our neighbors. One even followed Carol from where she put out the open house sign to the house! All of our neighbors were grateful for the project and seem genuinely enthused to help us sell it. This is one case where you really can pick your neighbor.

Another thing I love is Fredericksburg peaches. One of our neighbors gave us these to say thanks for fixing up the Ash House. I forgot to give Carol any. Wonder if there will be any left for the next meeting. Hmmm... Still life by Suna

We only had a couple of serious buyers, and one of them said the split level was a deal breaker. Even with only two steps, they were concerned about frailty and balance as they age. But they were really nice people who are looking to downsize and relocate to Temple. Carol may be able to help them with selling their home and finding the right place in Temple.

That’s one of the things I love about this business. You meet really interesting people if you take the time to learn their stories. There are so many ways to help others. Another thing is making the houses happy again. We had nothing but good comments on all of the selections. Preserving the character of this house instead of redeveloping it was the right choice. The most common comment was, "I can't believe how beautiful it is! Did you see it before?"

We learned that there is a fault line running through the neighborhood at the bottom of the hill. The neighbors all told us that the houses on top of the hill (like the Ash House) are fine, but all of the houses farther downhill have foundation problems because of the constantly shifting soil. I will have to understand the issue better and find a solution before we take on a project in the more mobile part of the neighborhood.

Finally, we also made a couple of good contacts. One of the neighbors is a probate attorney, and another buys furniture from estate sales. We find it rewarding to help families through the hurdles of probate and selling a house.

And It’s Gone Again

Selling a house can feel like shooting a rapids. It takes patience, stamina, and skill to get to the smooth waters at the end.

This post originally appeared on the Hermit Haus Redevelopment website on 2016-04-17.

The Blue Ridge house falling out of escrow is one of the forms of turbulence Carol writes about in her free handout “88 Forms of Turbulence.” Turbulence is anything that can make a deal go sour. It’s one of the things we protect sellers against when we buy a house. When we put a house under purchase contract, it stays sold. Unfortunately, we can’t protect ourselves against turbulence on the part of our buyers.

Within a couple of days after officially putting the Blue Ridge house back on the market, we again had multiple offers, and once again we accepted a full-price offer. Hopefully, it will stay sold this time. But when I was a kid, my mom used to tell me you had to sell a house three times to get it to close. So, who knows?

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.