Random Real Estate Thoughts

How I beat Bitcoin

by John Rice

Bitcoin would have been nice to have bought earlier this year.  But wouldn’t any stock be nice to buy that you knew was going to appreciate?  Wouldn’t it be nice to not worry about it all crashing tomorrow?

Imagine an investment that has consistently beat inflation for hundreds of years.  An investment that has only taken two major hits in the past 89 years?

It is called real estate.

I’ve often wondered why so many people are skiddish about investing in real estate.  Sure, it takes a little more time than buying/selling stocks.  And it isn’t as liquid either, but part of what makes stocks so volatile IS how easy they are to buy and sell.

And then there is my favorite part of real estate investing:  OPM (Other people’s money.)

When you buy a stock, you use 100% of your money.  When you invest in real estate, you can end up with 0-20% of your own money in the deal and let tenants pay the rest for you.  You end up owning 100% of the asset without paying anywhere near that much to acquire it.  Anything you make in rent that is above paying your mortgage and maintenance costs is like a dividend.

Here is one of my examples of how to do it:

I bought a house for $100k.  I spent $45k fixing it up.  Now I have a house with new roof, windows, furnace, air conditioner, water heater, hardwood floors, etc.  All brand new.  It appraisers for $180k.  I get a loan for 80% of that, which is $144k.  So, I now have spent some time and effectively $1000 of my own money.  I have a house that is practically new AND $36k in equity as soon as I am done.  The rent covers the mortgage and maintenance.  Life is good.  That is a 3600% return on the investment in about 6 months.

Fast forward a few years and the house is now worth about $210k.  It is on it’s second tenant, so the rent is higher.  More equity too through appreciation and through the tenant paying down the principle.

Rinse.  Wash.  Repeat.  I’ve done it several times.  You can too.

Better than Bitcoin.

 

 

 

Why I let my sellers stay home 2-4 on Sundays

by John Rice

The house across the street from me recently sold.  There had been open houses almost every week that it was listed.  It had tons of people come see it.

Sounds great, right?

Doing a little research, there had been 82 sales of houses priced $50k less and $50k more than this house’s list price.  That is 82 sales all year.  In ALL of Lexington. And there had probably been about half that many people come to the open houses.  I know because I was home every Sunday between 2 and 4, usually washing my cars.  Could it be that there were half as many buyers out there looking as we have had sales all year?  Doubtful.  I bet most of those people are just out on a Sunday between 2 and 4 for entertainment.

Which gets me to my point.  No offense at all to the agent who had this house listed.  The agent did a great job.  The pictures looked great.  Great marketing too.  I just don’t think open houses really help sell a house.  In the internet age, exposure is never the problem.  I think they are one of the few tasks an agent can do that a seller can see.  It makes a seller feel good.

Selling a house is a lot like fishing.  You bait the hook with quality pictures and an attractive price, drop it in the water we call the internet, and wait for a bite.  Sellers don’t like that.  Sellers want action.  An open house is something they can see.  Even if at 4:05 when you are pulling the open house sign out of the yard and telling the seller the house didn’t sell, they are happier because they saw you do something.

I often have sellers ask about doing an open house.  I guess I could do one and make them feel happy, but I normally tell them how it really works.

I tell them that open houses are the 8 track player of the real estate world.  They hark back to the days when there were no pictures except maybe a black and white thumbnail of the front of the house in the newspaper.  An open house was the only chance a buyer had to see the inside.  Now we have multiple quality pictures, inside and out, and some even have pictures to show you what the house looks like to passing airplanes.

I tell them that most people that come to an open house are either just beginning their search and not ready to pull the trigger, or are neighbors, or bored, or even thieves.

I tell them that to believe the house will sell due to an open house means that we have to believe there is a buyer out there who wants to buy the house but is too afraid to call their own agent or the listing agent to schedule a time to see it.  And in this market, doesn’t mind the risk that it will sell before the open house.

I tell them I know all this because I use to do open houses all the time until I realized all I was doing was kicking them out of their home in the middle of one of their days off work.

And they always tell me they didn’t realize all that and to skip the open house.

In my opinion, the best thing you can do when your house hasn’t sold is to listen to the market.  If you get feedback from showings and most of the buyer’s thought the price was high, the house needed paint, or there was some other negative, you should fix the issues or reduce the price.  Remember my fishing analogy?  Not responding to the negatives is like fishing with the wrong bait.  Inviting all the fish to come see your bait will get you an audience, but they won’t bite if they don’t like it.

Oh, about that house across the street.  How did the buyer see the house?  They scheduled a private showing with their own agent.

Why isn’t that house selling? I thought it was a HOT market?

by John Rice

You’d think in a time where there are not a lot of houses on the market, buyers would be less picky.

Not the case at all.

Back when the market and economy were bad, few people were updating or renovating their homes.  I mean, why would they when they didn’t know if they were going to remain gainfully employed as they watched the value of their home decrease?

Flash forward a few years and people are feeling great about the economy, home values have gone up, all is swell.  After all those years of watching HGTV, it’s time to pull out some cash on a refi or HELOC and spend spend spend.

Not so long ago, most of the houses for sale were just very ho-hum.

Now it seems like most of the houses I show have been updated or extensively renovated…..cooler, lighter colors, lots of white cabinets.  Marble and quartz have replaced granite.

So where does that leave the house that needs paint, flooring, has too much travertine or has that Tuscan vibe that was so popular earlier this century?  It leaves them sitting on the market, collecting dust each and every day as they get overlooked online.  The ones in more desirable neighborhoods do better because a good location can make a buyer more forgiving.

You’d think in a time where there are not a lot of houses on the market, buyers would be less picky.

Not the case at all.

The best place I have ever lived

by John Rice

HK for blog

 

Of all the places I have ever lived, this house was my favorite.

Somebody once told me that people either are moving away from pain or moving towards pleasure.

We were definitely moving from pain.  We were miserable at our old house due to two neighbors.  One held poker games several nights a week.  40-50 guys gambling and drinking until the middle of the night was going to eventually erupt into something scary.  The other problem neighbor was an animal hoarder who kept multiple dogs outside 24/7.

We had a contract to build a brand new house.  Then it turned out that the Army Corp of Engineers had not issued a required permit the developer needed.

My wife told me I had better find her a house fast!

I had shown the house we eventually bought to another client.  It didn’t really impress me.

The price had just been reduced so I told my wife we could go see this place but I had been in it and didn’t think she would like it.

She did though.

I wasn’t too excited about it, but it was better than where we were living.  We bought it on my oldest son’s birthday.  I remember having to leave his party early to go drop off the signed contract to the listing agent.  This was a few years before we all used electronic signatures.  Today, I would have been out in the backyard with he and all his friends doing it from my phone.

We moved in.  I woke up the next morning and it felt so good to have all the natural light flooding the two story foyer.    It also felt good being on a dead end street.  And knowing my boys were safe.

We had no idea what an awesome time was ahead of us.

There were lots of boys the same age as our two.  A family across the street was in the same magnet program our boys were in.  We carpooled a lot.  We didn’t realize it when we bought the place, but it was just down the road from my oldest son’s best friend.  My wife’s roommate from college lived about 200 feet down the road too.

It just felt like home.  We knew our neighbors.  Everybody was friendly.  Our kids and all the other boys could play outside.  The floor plan really worked well too.

It was…….perfect.

This is what I hope to find for all of my clients.  It feels really good when you touch base with somebody after they have moved in and they tell you they are loving everything about their new home.

 

My first lesson about real estate

by John Rice

1669 Elliot

 

This was my grandparents house.  1669 Elliot Avenue in Ashland Ky.

I have lots of good memories of this place.  See that lonely window on the right?  That use to be a screened in porch.  My grandfather made it into a bedroom and the house’s 2nd full bath.  I helped him build it.  Well, as much as a 6 year old can help.  I remember trying to help him do something with the new toilet.  Using a hammer on porcelain turned out not being the right tool.  The house use to have white asbestos siding and diamond shaped shingles.  It had much more of the 40s character back then.

See that gray house on the left?  It use to be white too.  The neighbors added an in-ground pool in about 1975 or so.  It has since been filled in.  That driveway is shared.  It use to have two concrete strips with grass in the middle.  It has now been filled in too.  Not only was this the location of my first real estate lesson, it is also where I discovered my love for cars.  The neighbor with the shared driveway had a red Camaro with white stripes.  Probably a 1971-1973.  Car was super loud.  Then I guess the gas crisis hit and one day it was replaced with a yellowish MG Midget.  I loved that car.  Probably why I love my Miata and M Roadster so much.  The car smelled so good inside.  It had that great British car smell, which I have since realized is probably a combination of leather, dust and mold from a leaking top.   My grandfather had a series of old Datsun Z cars too, so I would hang out in the driveway and just look at the cars, counting down my days until I could drive.

This house is also where the “Incident” occurred.  I was trying to get a garden rake that was hanging on two nails off the garage wall.  I was a little kid and could only reach the very bottom of the rake handle.  I was successful at getting it off the nails, but not successful at preventing it from falling, tines down, on the hood of my grandfather’s car.  So, if anybody sees a brown 1975 Datsun 280z with 5 little dents right in the middle of the hood, please apologize to the owner for me.

The only bad memory of this place was the morning of May 29th 1977.  I remember my grandmother crying and not knowing why.  The lady across the street, who we called Tink, had died the night before in the Beverly Hills Supper Club fire.   I didn’t know that it was one of the deadliest fires in history.  I just knew my grandmother’s friend wasn’t ever coming home.  It was strange to be outside playing and see her red Olds Cutlass still in her driveway.  I thought that was a cool car and always remember her every time I see one.

I guess I better get to real estate now.

My grandparents decided to move to Florida.  I was so unhappy about this.  They used an agent with ERA.  Being the 70s, I had no idea WHY the Equal Rights Amendment people were selling my grandparent’s house.

My grandparents timing was fantastic on this sale.  The house was in Ashland.  Like, when Ashland Oil was in Ashland.  It sold quickly and for top dollar.

A few years later interest rates went though the ceiling and Ashland Oil left town.  It was a double whammy for the local real estate market.  It took well over a decade for the house to be worth more than the buyers paid for it.

Supply and demand.  How interest rates and the local economy impact value.  What happens when more people are leaving town than moving in from another town…..Lessons I learned as a kid that benefit my clients today.  Other lessons I learned at this place?  Don’t throw a baseball through the neighbor’s window.  Don’t jump off the roof of a detached garage.  Every neighborhood has a grumpy old lady.   Your parents are the tooth fairy.