Archive for the ‘Brokerage’ Category
Seriously, it exists, despite the fact that East Hollywood is really far from any bodies of water.
Because the Army Corps of Engineers created a flood zone around the intersection of Santa Monica and Hoover, banks will require that properties in the area carry flood insurance during the time the property is mortgaged.
The problem is that, due to the insane Biggert-Waters Flood Insurance Bill (which Congress thankfully toned down today!), you need to get an elevation certificate before you can get a reliable quote on flood insurance.
And, to get an elevation certificate, you need to get a survey, which is pretty expensive.
Fortunately, because this particular problem bit me in the ass on my last deal in the flood zone, I have a guy willing to do the surveys on a contingent basis, where you only pay a small portion of the fee upfront and the balance if/when you close on the deal.
Brokerage, it turns out, is mostly about coming up with creative ways to solve the niggling little problems that come up on every deal.
We have a buyer inspecting one of the properties from Fund 1 today, so I thought this would be a good opportunity to discuss how you ought to behave when you, as a seller, attend a buyer’s inspection of your property.
Here are the key things to keep in mind:
- Be honest. You never, ever want to lie during a sale process. If you get caught, the buyer instantly loses all faith in what you’ve told him through the entire process, making it much harder to make a deal. If you don’t get caught, you’re setting yourself up for a lawsuit later on, once the buyer finds what you’ve hidden from him.
- Admit when you don’t know something. It’s ok not to remember something about the property. A perfectly fine response to a question about, say, whether you replaced the sewer line in addition to the drain lines is to say “I don’t know. Let me get back to you in writing by tomorrow afternoon.” That’s a much, much better answer than lying.
- Don’t ramble. I’m guilty of this one all the time. When someone asks you a question, answer it. But there’s no need take off on a major lecture. The buyer is there to see the property, not interview the seller.
- Give the buyer privacy with his inspector(s). Don’t hover / eavesdrop. It makes everyone uncomfortable and possibly causes the buyer to doubt the veracity of what his inspector tells him (“maybe he was holding back because the seller was there…”). If there’s something wrong with the property, believe me, you’ll hear about it in writing from the buyer or his agent.
- Don’t take things personally. Some buyers like to spend the inspection period pointing out niggling little issues with the property. That’s their trip; you don’t need to go on it with them. Just smile, nod, and move on.
- Be personable, but not overly friendly / jocular. You would be amazed at how many deals go bad because buyer and seller interact and decide they hate each other. It’s hard enough to make a deal without that kind of interpersonal nonsense getting in the way. So, keep it calm and friendly, but also business-like. No need to risk screwing up a deal by rubbing the other guy the wrong way.
- Honest (this is 100% non-negotiable; you have to be able to put other peoples’ interests above your own)
- Smart (book- and street-)
Did you launch into a creative career after college and then find yourself with less cash than you wanted / needed as you entered your mid- to late-20′s?
We have had amazing success training people like you to broker real estate deals. It’s pretty simple: If you’re the right kind of person, we mentor you through the relevant classes (takes around 2-3 months, part-time). Then, you go through training with me. Then, you ride shotgun on a few deals with me. Then, once we’re confident that you know what you’re doing, we start to refer clients to you.
At first, you work on small deals. You call me pretty much every day with questions. After you go through the ringer a few times, you call me less and less often as you start to work on bigger and bigger deals.
If you hustle your butt off and treat your clients like gold, your annual income will look something like this:
- Year 1: $30,000 (2-3 small deals)
- Year 2: $60,000 (2-4 deals)
- Year 3: $90,000 (5-6 deals)
After that, your income is pretty much limited by how hard you work.
Interested? Get in touch.
Right now, our agents have three deals in escrow for various clients. Generally speaking, these are deals in emerging neighborhoods where the in-place cashflow is reasonable and there are good reasons to think that rents can be increased dramatically over the coming years.
It is not easy to find these kinds of deals, but they are out there. All it takes is some expertise and a bunch of elbow grease on our part and some confidence on yours.
Interested in finding a good place to park some of your savings? Get in touch. It’s definitely not fish in a barrel (like 2009-10), but it’s not exactly needle in a haystack, either (yet!).
We get this a lot: We help a client write on a building. Someone else wins the auction and goes into escrow. The winner cancels during his contingency period. The listing agent comes back to us, offering to go into escrow on the terms we offered previously.
Very often, our client gets cold feet at that moment. The thought process is something like this: “Why did the first buyer back out? What’s wrong with the property? What if I buy the property and then find out I missed something and got a bad deal?”
While these feeling are natural, they’re totally unhelpful.
If you want to act like a professional investor, which is basically why our clients hire us, then you have to trust the process. The process is:
- Find a deal that looks like the numbers might work
- Offer a price such that the numbers do work
- If you get the property, conduct an extremely thorough diligence process
- Assuming everything checks out, close
Notice that nowhere in the above list do I mention what anyone else is doing. Why? Who cares?!!
Other people do stupid deals all day long. They also fail to do good deals for equally stupid reasons. If you’re going to make investment decisions based on what other people do, then you’re setting yourself up to achieve the same results other people achieve.
Being good at this game is about being cautious, calculating, unsentimental, and, most importantly, confident enough in your own preparation and judgment to ignore other people and pull the trigger when a deal looks right.
This blog usually covered apartment buildings. Today, however, I want to say something about single family homes.
Generally speaking, I’m not a fan of single family homes as investments. Buying one is really a consumption decision and you really ought to do it only when you’re very confident that you will be able to generate the income necessary to carry the mortgage.
All of that said, if you are going to buy a single family home and you like Northeast LA, you really ought to be thinking about Mt. Washington.
This won’t be news to those of you who spend a lot of time on the Eastside. But, for those of you who don’t, here’s what Mt. Washington offers:
- Relatively large homes suitable for families
- Big lots (most on slopes, some flat)
- Views (it’s a mountain, after all)
- A very strong elementary school with amazing parent involvement
- Proximity to all of the interesting retail along York Blvd. in Highland Park
About the only downsides I can see are the fact that it’s not walkable at all and you need to be careful that your small pets aren’t eaten by coyotes.
Most importantly, from my perspective, is the pricing. You can buy a big, nice house in Mt. Washington with all of the advantages I set out about for around $800k. For that price, you basically get a shack in Silver Lake these days.
So, while I continue to strongly discourage buying a SFR as a first home, if you’re going to ignore me anyway and you like Northeast LA, check out Mt. Washington.
One of the saddest things about my business is watching people do deals which are undeniably stupid.
Want an example: How about paying 13x rent for a 5+ unit deal with a bunch of leverage and no plan for removing the tenants / raising the rents?
If you do a deal like that, here’s what happens:
- Your cashflow going in is very low or, if there are any maintenance issues, zero;
- You can raise rents by 3% / year, but it’s going to be a while before those increases begin to add up;
- You loan is locked for, say, 5 years, after which your interest rate will likely float up;
- When your monthly payments float up, any cashflow you had started to generate off the rent increases is gone, and you’re likely back to breaking even or having to pay to own the building;
- When you try to refinance to lock in a rate, you probably find that, with the new, higher interest rates, you don’t have enough equity to get a new bank to loan as much as the old bank did, leaving you a choice between living with the floating rate and putting more money into the deal to make a new loan work
We talk to a lot of owners who are in precisely this situation. They’re usually trying to sell their property for just enough more than they paid for it to cover transfer taxes, escrow and title, and brokers. And, often, they’re out of luck, because the property is basically worth what they bought it for (or less).
In light of the above, it continues to astonish me that people do these insane deals. I guess there are plenty of people in LA with sufficient money not to care about having to pay to own buildings that are supposed to be paying them. I’m not one of those people, and my clients aren’t either!
Building owners are usually some of the least informed market participant regarding the value of their own properties.
Why? Well, compare them to:
- Brokers are in the market all the time, checking the MLS and Loopnet, looking at which properties sell and which don’t, etc. As long as they focus on a particular property type in a particular area, they’re likely to be extremely knowledgable about pricing.
- Buyers are not in the market all the time, but they are in the market right now. That means they’ve probably been looking at tons of deals online and, maybe, writing unsuccessful offers. So, they too are likely to know approximately what a building is worth.
In contrast, Sellers are in the dark. Here’s what they don’t know:
- Valuations. Owners are probably not out there looking at deals and making offers. So, they have no idea what a fair price per square foot, GRM, or CAP rate would be. And, to make matters worse, they don’t even know the…
- Rents. In general, building owners do a terrible job of keeping abreast of market rents in their areas. They just kind of raise or lower their rents based on “feel”. So, they usually have no idea if the rents they’re getting from the building reflect fair market value.
Simply put, almost all Sellers enter the market at a significant information disadvantage relative to the people looking to buy their properties and/or broker their deals. Being at an information disadvantage is the surest way to be taken advantage of in what is, after all, a pretty ruthless market.
How do you protect yourself from being an ignorant seller? You need to educate yourself. Read this and other blogs. Look online at what is selling in your area (and what is not!). Best of all, set up informal “state of the market” meetings with 3-4 relevant brokers and ask a bunch of questions.
Apologies for the long gap in posts. As you will see in a moment, it’s been a busy run-up to the holidays for us here at Adaptive.
On Friday, we closed on the sale of 1947 Clinton St., the fourplex we bought in October of 2012, renovated, and put on the market right at the end of October 2013.
It was not our intention to sell the property when we renovated it; indeed, the yield we were getting on the funds invested was extraordinarily attractive.
But, like any rational owner, we had a price and, a few weeks ago, we found an aggressive investor willing to pay it. The deal closed on Friday at $1.57MM, with $20k held back as a credit for a few upgrades the owner intends to make.
This was the first building we renovated through the first investment fund raised by Adaptive. For that reason, it will always hold a very important place in our hearts. So, we’re sad to see it go.
That said, we’re excited for the new owners and excited to either return proceeds to our investors or, if we can find another great deal to do, buy something else.
Have been mulling over an idea for a few months that I’d like some feedback on.
Here goes: I would like Adaptive to help one deserving family which currently rents become owners of a small apartment complex.
Here’s how it would work:
- We identify a family to help
- We help the family find and offer on a sensible building
- We cover all of the costs associated with inspections, appraisal, etc.
- We help the family arrange an FHA loan
- We rebate our buy-side commission (typically 2.5%) to cover most of the down-payment, with the family contributing the rest (likely to be around $3-5k)
The effect of this project would be to give a deserving family a chance to go from being permanent renters to being small-time landlords with a stake in the city. That’s how my immigrant family and countless others got into the middle class.
Here’s my problem: I have no idea how to identify a deserving family. I think I have the following criteria:
- A family born and raised in LA
- Need to come from a working-class background without access to family capital (rich people don’t need more help!)
- Need at least one member to be working at an above-board job for at least two years and to have filed tax returns
- Need the working family member to have reasonable credit
- Need the family to be of good character – I’m not helping criminals, gangsters, etc.
- Need the family to be willing to have the whole process documented on this blog
If you know a family that fits the above criteria, get in touch.