Category Archives: Real Estate

When the Ceiling Caves In

Ceiling collapses after drywall nails fail.

When the ceiling caves in…

It was a late summer evening, a Friday night at around 8 o’clock. The phone rang. It was Lorraine. There was a hesitation in her voice, like she was going to deliver bad news and she didn’t want to make it sound like bad news.

But I already knew. After all, as far as I could remember she had never called before. Ever. All of our exchanges had been via email. She worked for a property management company. I was one of their clients. Until that point all of our exchanges were rather mundane. Taxes needed to be paid, the additional parties added to the insurance policies and the property inspections conducted. All routine activities.

To receive a call at that hour, it couldn’t have been good. This time it was about a ceiling in a rental property. Specifically, the ceiling had come crashing down for no obvious reason.

“Was anyone hurt?”, I asked.

“No one was home”, came the reply.

A sigh of relief. It was in a little girl’s bedroom. As one can see from the photo above, the entire ceiling of the room ended up on the floor, exposing the rafters in the attic. As many people can attest, owning rental property isn’t always a bed of roses.

Lorraine wanted to know what I wanted them to do. I asked if they had ever had this happen with other properties under management. Somewhat surprisingly, it had happened a couple of times among their 650 homes. So what did they do about it?

Stuff Happens

The ceiling caving in is a problem. But it’s not the only problem. Things fail all the time, some times catastrophically. Cars breakdown. Buildings fail. People of off the deep end. Entire societies can breakdown. I’m not apocalyptic but the reality is it takes vigilance to prevent or at least counter the chaotic nature of the world.
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Do Shantytowns Have Condo Fees?


Of shantytowns and homeowners associations.

There’s usually a sizable difference in the purchase price of single family homes and condominiums of similar grade. Adjusting for differences in square footage and certain amenities, the required condo fees are usually higher than single family homeowner association (HOA) fees.

Could that difference in fees make up for the difference in purchase prices? How much more property could you buy if, instead of acquiring a property with a condo fee, you bought one without? Here’s one way to look at it.

I have a condo where the fee is over $300 per month. That includes trash service, water and electricity, as well as maintenance of common areas and all that good stuff. But let’s suppose I had instead bought a home nearby that didn’t have a homeowner association. How much more home would that $300 condo fee buy?

First, realistically it would be more like a $200 difference since I would have to pay for utilities and such any way. Assuming a 30 year mortgage and 5% annual interest, that extra $200 per month works out to a little more than $37,000 – an amount that will, unlike fee increases, appreciate in the owner’s favor.

In other words, if I had put that extra $200 per month toward buying a bigger property, I could have bought a home that cost about $37,000 more. Would that have been likely in that area? No. But that doesn’t mean that’s always the case.
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You Have A Spare House, Now What?

If you find yourself with a condo, townhouse or house you will no longer live in, what should you do with it?

Rental townhouse

If you find yourself in a situation where you’ll have an extra home you won’t be living in, and assuming it’s safe to inhabit and can be spruced up without too much investment, what should you do? I’ve been there a couple of times due to job changes. Here’s how I dealt with it.

Two main factors, of course, are usually financial: How long and secure is the financing (if any), and what’s the expected cash flow?

When Would You Need the Money?

Do you have a lot of equity tied up in the home, and how soon will you need the money? My time line has so far been indefinite so there has not been a need to sell.

Most residential mortgages are backed by Freddie Mac or Fannie Mae with decent interest rates fixed for 15 or 30 years (who else could or would give such a sweet deal?) so that’s as straightforward as it gets.

If you have a floating or adjustable rate mortgage you might want to consider getting out of that loan whether by selling or refinancing, especially if it’s due for an adjustment soon.
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Warren Buffett’s Words of Wisdom

Warren Buffett, CEO of Berkshire Hathaway and the world’s most successful investor, writes a much anticipated annual letter to shareholders. He has done so each year since 1965. His letter about the company’s 2013 performance (published March 2014), provides enlightening insight through two successful real estate investments he made.

One is a farm in Nebraska he purchased in 1986 for one of his sons to operate. The other is a retail property in New York City he purchased in 1993 as part of a partnership. He has been to the farm twice, and has never been to the NYC property.

The gist of his advice is to buy investments at a discount to their intrinsic value. And by intrinsic value he means value based on what it is expected to earn or produce over the coming years. Those with steady earnings, low potential downside and high potential upside are solid investments. Once those aspects have been evaluated, with emphasis on future productivity or earnings relative to today, then it comes down to purchasing them at attractive prices.
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REITs May Be The Single Easiest Way to Invest In Real Estate

Real Estate Investment Trusts (REITs) invest in a variety of real estate and related asset-backed securities.

Office space is one type of commercial property that REITs invest in.

While buying real estate can be a great investment, there are also ways to invest in it without actually directly acquiring property. It’s a little easier than buying property, renting it out and managing tenants.

In this case I’m talking about a vehicle called a Real Estate Investment Trust (REIT). REITs are akin to partnerships, and were created as a result of legislation in the 1960s to provide investors with additional opportunities to invest in real estate, and receive advantageous tax treatment compared with how they would be taxed as shareholders of a corporation.

REITs buy and operate real estate in a variety of sectors, with some specializing in office space, warehouses, shopping centers or apartments. Others, known as mortgage REITs (mREITs) invest primarily in securities backed by pools of mortgages. Some REITs are publicly traded just like conventional stocks.

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One Way to Get A Mortgage Without A Bank

Hard money lenders and private lenders will lend on a handyman special or a fixer-upper when banks won't. The numbers just have to make sense.

Most banks won’t lend on a “handyman special” but hard money lenders will

Fannie Mae and Freddie Mac, quasi-government entities that primarily buy and securitize mortgages originated by banks, help provide financing for traditional “steady state” situations. These are relatively low risk, long term term residential loans of up to 30 years in duration.

That form of lending is what most banks offer. Their underwriting criteria are based in large part on the borrower’s income and creditworthiness. However, those types of loans don’t work for certain situations such as when a vacant, dilapidated house needs to be completely rehabbed. These “transient” situations are where non-traditional, private lenders come in.

Often referred to as hard money lenders, they operate toward the opposite end of the risk/reward spectrum, and do so for shorter periods of time, often six to 12 months. Faced with far fewer rules and requirements, private lenders typically base their loans on the value of the property used as collateral rather than the buyer’s qualifications.

Because of this loans can be approved very quickly instead of reviewing a mountain of documents about the borrower’s creditworthiness, such as tax returns and personal financial statements. The main thing they want to know is are they going to get their capital back, and are they going to earn the desired returns? These are the key questions they will ask:

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Let Your Cash Hit the Road

Successful investing requires vision and strategy for the long road ahead

Develop your investment strategy for the long haul – Photo courtesy Chance Buell

Investments are like passenger seats in which to passively park money while receiving a solid return, more so than a place to actively drive it on a day-to-day basis like a business or occupation. Of course no investment is completely passive, but the idea is that it should only require a small degree of time and attention relative to the return.
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How I Started Investing In Real Estate

Real estate investment: From fixer upper to rental home.

A former handyman special after receiving lots of TLC

Two of my friends had bought a few houses and rented them out. Then they tried to buy another but needed an additional guarantor to qualify for another mortgage. This was 2008. The economy had tanked and the housing party was over. The media painted a pretty bleak picture, and I wasn’t sure the world wasn’t on the brink of economic collapse.

At the time I owned the house I lived in and knew little else about real estate. I just had the same common misconceptions that many people have (including those in media) about what a pain it is to own rental property. I didn’t want anything to do with it but I agreed to go in as a silent partner.
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