I’ve spent most of the past 22 years as a director of the Apartment Association of Southeastern WI, yet I feel this is a question that must be asked often so that the Association continues to add value.
Category: Strategy
A member writes on ApartmentAssoc@YahooGroups:
I’m curious how many of our members are aggresively buying right now. I just did a quick check of Milwaukee neighborhoods I already own in and there are lots of decent looking properties out there cheap.
You are correct, there are a lot of very cheap properties on the market. The lowest prices I’ve seen in my career (1977 to date) Money is also the cheapest I’ve ever seen. Vacancies are very low as well. The best time ever to buy… perhaps not.
So why aren’t these things flying off the market into the hands of new owners as soon as they are listed?
There are a few reasons.
- If you buy a foreclosure DNS (building inspection) will make you get an occupancy permit. Somehow this always turns into a painfully expensive experience, with you having to do a bunch of things that result in really limited benefit to anyone. We had one occupancy permit that the plumbing inspector made us replace the 1 1/2 drains with 2″. These were clearly original or near original pipes as they were steel with cast iron fittings. So $2200 later the tenant can drain their bathtub 10 seconds faster?
- Another issue for most owners is that it is a cash market today. Many banks will not even accept an offer that includes any financing contingency. If you can’t show you have all the funds in the bank the day you make the offer, oh well take a walk.This is all over the nation.We bought a commercial property in Florida last month. Original asking was 450,000, which was lowered after six months to $395,000. In the month prior to us purchasing the bank had an offer of $375,000 with the bank financing 70%, another offer of $350,000 with a 14 day third party finance contingency also based on a 70% loan. Both offers were rejected. We paid $210,000. So the bank could have gotten $165,000 more if they financed or $140,000 more had they waited 14 days for someone to get a loan commitment.
- Rental housing is harder than its ever been. This, despite some of the best occupancy rates in the last 25 years and as a result, rents that are finally rising a bit. Why?
Cost just keep spiraling out of control. I was talking to a good friend today who has been in the business for twenty years. Neither he nor I could figure out how any owners that have much of a mortgage could survive today.Look at a water bill on a duplex with NO USAGE. Today, it is 131.75 for three months. Add some sewer and water and your quickly up to $300 or $400.Let’s say you pay $40,000 for the house. You’ll be taxed as though the house was worth $100,000-$140,000 or more. I bought one in 2009 for $20,000. The place was listed with a broker . I never met the seller prior to closing and have never seen him since. I appealed the $112,000 assessment. They lowered it to $104,000, claiming it was not an arm’s length transaction.
Maintenance costs have gone up as well. For example a couple of years ago you replaced one or two smoke detectors at $5 a piece. Today they have to be the more expensive hush units and you have to add a CO detector or two or three. But these are one time costs… right. On an average unit prep we have to replace far more than half the detectors.
- “Smart” economist are say the bottom in our market still is six months to a year away.
Many of you know how I raved about JOTT.com, a service that allowed you to call in from your cell phone and leave yourself a message. When you returned to your office you had an email with a fairly accurate text of the note you just left yourself.
This was one of the greatest boost to my field effectiveness in years. No more little scraps of paper, no more forgetting something – it was near perfect.
Then Bam! They discontinued the service as of May 3rd. I felt like I lost half of my brain.
Over the weekend I tried a new service. ReQall.com. I like it. In fact I like it a lot. It’s like having the other half of my brain back!
Wells Fargo v. Sandra A. Ford is a NJ case that started as a pro se defense to a foreclosure. It ends with Wells Fargo getting spanked by the NJ court of Appeals in what will be a published decision.. At appeal the defendant was represented by Legal Services of NJ, which is similar to Legal Action of WI.
My great interest in foreclose defense cases is twofold.
First I see some of these cases holding the potential of unraveling the entire real estate market by creating hundreds of thousands of “free” homes across the nation. I fear this will cause a second and more dramatic drop in housing prices as once the mortgages are wiped people can sell for practically nothing and make a profit.
Secondly, on a personal level, absent this new legal trend I feel that we are nearing the time to buy again in the two markets I’m interested in (Milwaukee and Miami) I am very concerned that these cases could proceed to a point that properties previously foreclosed upon could revert to the original owner if cases are allowed to be reopened on the basis of fraud on Court by the banks and/or MERS. Wisconsin §806.07(1)(c) or 806.07(1)(g) would appear to allow cases to be reopened if there were to be a major Wisconsin, Florida or Federal ruling on this in the future. (Florida is one of the states that has a high number of foreclosure cases being lost by the banks)
While title insurance would should cover the cost of the property, would you be able to recover the cost of repairs and improvements?
I wish to throw this question out for discussion:
What is the most important thing you know?
We all come from different backgrounds and have had different experiences. Individually we know what we know, but no more.
Collectively we could be pretty smart and achieve more. That is part of the power of a discussion list like the list I moderate ApartmentAssoc or the ones I participate on such as MadisonApartmentOwners, LandlordAssociationOrg or the hundreds of other groups on Yahoo Groups or Google Groups. You ask a question and get an answer.
But what about the question that you do not even know you should ask? So go ahead add what you think is the most important thing you have learned about landlording to the comment section.
[Note I am importing replies from the above Yahoo Groups into this comment section for all to read]
Seems like a way to increase revenue a bit but there is one big gotcha to be aware of. In WI if parking is charged separately or an additional charge then you must collect and pay sales tax on it.
A couple of years ago the Wisconsin Department of Revenue went around checking for owners who were charging extra for tenants to park or offering a lower rate to those who did not want parking. The landlords involved had to pay sales tax that they should have collected plus interest and penalties.
See the WI Administrative Code Revenue §11.48 (1) (b) (text below):
Tax 11.48 Landlords, hotels and motels. (1) LANDLORDS.
(b) The sales price from providing parking space for motor vehicles and aircraft and from providing docking and storage space for boats are taxable. If a separate charge is made for the parking, docking, or storage space, the charge is taxable. However, if a separate charge is not made and the price of a rental unit includes a charge for a
parking, docking, or storage space, and if similar units are rented at a reduced price if the parking, docking, or storage space is not utilized, the difference between the rental price of the 2 similar units is taxable as a charge for parking, docking, or storage.
Fellow landlords
What services, tools, resource, supplies, innovations, changes in laws, grants, education, support from fellow owners etc. do you find lacking, unavailable, too expensive, too difficult to obtain, change etc.?
You get the idea…what do you see as the three, four or twenty things that would make your business more successful? Skies the limit. If it has to do with landlording or real estate investing throw it on the list.
Don’t worry if you think it is “doable” or not, Wild Ideas welcome and encouraged. But also don’t put off posting the more pedestrian needs and wants either.
You can leave comments, here or via private email to me at Tim [at] JustAlandord.com (makes sending the truly wild and innovative stuff easier for shy folks like me.) I’ll compile the list for all to see.
Some will have readily available solutions that will be posted and shared, I’m sure. Others are things our industry should be working on finding, changing, designing etc.
Some rather thought provocative comments below. Many of these were sent via email or posted on one of the list serves and reposted here as a central collection place. Please throw yours into the mix — Thanks Tim
It appears that the Wisconsin Legislature snuck their version of the SAFE Mortgage Licensing Act into the 2009 budget, effectively making seller financing illegal for 1-4 family buildings. Exceptions to this rule are sellers who are owner occupants, people who hold an expensive mortgage broker license and a few other limited exceptions that will not effect most of us.
The effective date of the law was 1/1/2010. Yet nearly seven months into it none of the real estate pros I spoke to knew about it.
I accidentally stubbled upon the WI law while researching the HUD proposal to prohibit seller financing. Low and behold on one of the HUD pages WI and TX were listed as states that had enacted their own version of the Safe Mortgage Act.
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You say “Okay, this is a scam!’ … but it is not. Rather it is another way of looking at purchasing, perceptions and true cost
A month ago Jeff, a buddy of mine who also uses an iPhone, tells me to try out a new app called Red Laser. This $2 app allows you to use the iPhone/ iPod Touch camera as a barcode scanner. The application then looks for the best price for that product locally as well as on the Internet.
I have since used it to price out both business supplies as well as stuff we personally use. Some of the better prices I found were more than 30% less than what I was going to buy. The first few day’s savings exceed the $200 that the phone cost. Over the rest of the month the savings well exceeded a year’s worth of cell phone service.
And the savings that you can achieve with the iPhone and other similar technology isn’t limited to purchasing. Using your phone’s camera to document tenant damage and be able to support your deposit claim. Take another photo to show a contractor or employee what you want fixed and save the hassle of miscommunications. I even use the camera to take quick notes such as taking a picture of a for sale sign to get the broker’s number or while shopping to text a photo to my wife to make sure that I am getting the thing she wanted.
All of this makes you more efficient. If utilized to its potential tools such as an iPhone saves you, rather than costs you. I would make the same argument about hiring employees, but that is another story for another day.
Every year around this time people focus a bit more on planning, all part of that New Year’s Resolution thing. While planning should ongoing and not be restricted to the last month of the year, I too kick off the beginning of every year with a “big” project with the intent of fundamentally changing some aspect of our business.
This is the first of a handful of ideas that you could use to make 2010 more productive than 2009.
Document Imaging / Scanning instead of paper files
One of the biggest changes in the operation of our business occurred at the end of 2007 when we went from paper filing systems to full document scanning and digital storage.
The scanning project is so cool that I couldn’t help but share it with the readers of the ApartmentAssoc email list. It is a project that a mom and pop operation working from their kitchen table to large multi person offices. And it’s relatively cheap. You can get into it for under $200 and quickly save more than that in time and aggravation.