You've Got to be Kidding


I was browsing blog and found this strange home.  When on earth was this permitted? Could we ever do this here in Seattle?  Just plop a home right in the driveway? Sort of the original zero lot line!

Must have been prior to zoning, building,permitting codes. I think the minimum size for a permitted bedroom is 88 sq feet so maybe it works. Gotta be skinny to live here. And I thought the Moda condos were tiny!

Are Short Sales Affecting our Home Prices?


This downturn in real estate is so much different than the one we ‘older than dirt’ agents experienced in 1980’s. Then, with inflation over 12% and interest rates over 20%, we knew why we were in so much trouble and saw only long term effects since it was a problem with our national economy. We were using rubies, horses, businesses, anything we could use for exchange for a down payment and doing ‘mushroom closings’ where the sale wasn’t recorded to avoid paragraph 17 of the note to kick in. (before you judge, let me mention that this was with attorney guidance!)

This time, it’s been very very confusing since our national economy is healthier, inflation appears under control and here in the Puget Sound area, there is low unemployment and signing bonuses are again being offered for qualified high tech employees.

So, the big question here in the northwest (I’m only referring to the NW, specifically King, Pierce and Snohomish County and of course, there’s Wenatchee), is, is this a short term or a long term correction.

And, is the effect of the short sale inventory going to be a drag on our home prices. There are phenomonal discounts right now in short sale properties. However, are they really affecting the price of normally marketed properties? Do buyers see these short sale properties as good homes for them to purchase, or are we only attracting fix and flippers and other investors to these properties.

The nwmls statistics show that in King County, there are 71 short sales, trustee, or foreclosures in the entire county. Of these, 27 are active, with an average price of $397,000 and average days on the market of 134.

21 are under contract either sti or pending and only 1 is sold in the last 6 months. So, with 27 active, and 22 sold or under contract in all of King County, compared to 8355 active, 1731 sti or pending and 10126 sold in the last 6 months, is there really a measurable effect? or is this just a temporary hiccup?

There Are Still a Few Days to Do Tax Planning

Don’t forget to set up your new solo401K by December 31.  You can set one up at in just a matter of hours.  Probably take a lot longer than that if you’re using your solo401K to invest in real estate, but you’ll be glad you did.[photopress:fat_cat.jpg,thumb,alignright]

Check with your CPA or Attorney. PenscoTrust or Guidantfinancial have excellent educational sites for good strategies for self directed retirement planning.  It’s well worth learning and understanding if good tax planning is your goal.

An Early Holiday Present

Yesterday, The Mortgage Foregiveness Act of 2007 was passed effectively getting rid of the question, “will I be taxed on a short sale?”

Prior to this action, the forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure was potentially taxable to the borrower. As agents we always have had to warn our clients in short sale positions about the potential of receiving a 1099 from the shorted mortgage lender, thus triggering a potential tax.  In one situation I’m involved in, the potential deficiency is 1 million and the tax hit would have been devastating.

Now however, those owners in that situation, at least until 2009, are having their taxes waived, too (at least up to 35%).  For those in this situation, this is really great news and likely the best holiday present they could hope for.

On their behalf, thank you congress [photopress:applause.jpg,thumb,alignright]

The Baby or the Bathwater



Are we throwing out a program that works, the FHA Down Payment Assistance Program, in this case the baby, while trying to fix the sub prime mess, the bathwater? I guess it all boils down to how valuable home ownership is and how well it helps drive a healthy economy.

A lot of realtors, including myself, have used an FHA non profit down payment assistance program (NDPA) with borrowers that want to own a home but can’t save a down payment fast enough to keep up with rising home prices. FHA programs, like Nehemiah or AmeriDream,  allow more options for buyers, including the gifted down payment portion, and now that zero down payments are hard to find, this program is needed even more. 

The non profit down payment assistance programs are going to be stopped in February unless Congress votes to extend the program.  In the HUD Appropriations bill, congressional members are being influenced by a study done by HUD that shows that the default rate from the non profit down payment programs is 1% higher than other down payment assisted loan programs. 

However, there is a further study by George Mason University that contradicts the HUD study and calls into question the validity of that statistics.  For instance, the HUD sampling was limited to four  US cities that had a higher than normal use of the programs and decreasing home values. Because of this study, the bill extending the programs may not pass.

The George Mason University study as well as the HUD bill is available by emailing me.  It is long and takes time to get through, but here are the key findings, extremely edited!
1.  627,000 NDPA loans in 5 years.
2.  National economic benefits as a result of these loans in the same time period is 4 times the estimated costs.
3.  Those using this program had total wealth growth of 9.6 billion of this period.
4.  NDPA homeowners contributed 228 million in property taxes in that time period.
5.  NDPA homeowners generated 7293 jobs just in using more utilities due to their home ownership
6.  Spending on household items created 60794 jobs, 1.8 billion in personal income, and 5.8 billion in total economic output.
Senator Patty Murray has voted against this bill possibly because of the influence of the HUD study.  I hope she changes her mind. Since over 95% of all homebuyers using this program have not defaulted, we would be punishing those hopeful buyers and throwing out a wonderful and productive program.

Self-Directed IRA's with Checkbook Control

I’ve blogged a couple of times here at RCG about the benefits of using a self-directed IRA as an investment vehicle in Real Estate. When I originally set up my self-directed IRA I loved that I could control my retirement funds not only in securities but also in real estate.  I had to educate myself by going to seminars and talking to the very few professionals that understood the process.  However, being the do-it-yourselfer that I am, I traveled around the country attending lectures and symposiums until it started sinking in.

I set up the necessary entity and rolled over my IRAs and Seps into a Roth IRA (paid the taxes), created an LLC to buy real estate and then had my Roth IRA buy shares of my LLC.  This has been a great way to grow my retirement without ever paying taxes on the profit.

However, the process was cumbersome, I never thoroughly understood all the scary laws that would cause my self-directed IRA to loose it’s status and it was not always as fluid as I’d like. Such as, had I not attended the classes and done the research, I wouldn’t have even known where to go for the custodian that is required for the self directed retirement accounts.  Then, I had to find an accountant and an attorney who specialized in them.  Again, hard to find. Additionally, although I had good services in my chosen Custodial firm, I didn’t have the ability to have instant access to my money, and in fact, last month when I tried to take a distribution, it took over a week to get the cash out.  What if I’d wanted to purchase a home on the court house steps? not possible with my custodian.  I have no access to cash, nor do I have a checkbook.

Recently, I’ve learned of a completely different way of investing with self-directed IRA’s that’s being offered here in our own backyard in Bellevue. The company is Guidant Financial and they’ve developed a product called ‘Auriga’, (Auriga means the helsman of one’s ship).  Although I’m just learning about this product, it appears to provide a solution to problems inherent in custodial accounts by giving you checkbook control over your retirement account.  Additionally, Auriga allows the retirement plan to invest in more than one vehicle, and in my case, where my LLC sometimes is the owner of the property and sometimes is the lender, it allows for that flexibility.  Guidant is not the Custodial account for the IRA’s but has negotiated a very low fee thru a custodial business relationship that is not based on increasing the fee as the account increases in value.  The way they do this is to provide all the legal, accounting and guidance as Guidant Financial, streamlining the custodial role. My experience is that the custodian cannot give legal, accounting or much of any assistance in setting up the account, but it does charge an annual fee based on the size of the account.  Guidant Financial charges a one time up front fee for the setup and continued operation of the IRA account.  As your account value grows, the costs are still minimal since the custodian fees are not based on the size of the asset.

For more information there will be a webinar on Wednesday November 28 at 12pm.  I know that I’m not alone out there with my self-directed real estate investing.

A Thanksgiving Real Estate Story

I’m greatful that I get to work in this wonderful world of real estate sales.  Every family that is buying or selling a home has a story to tell me.  Every investor renting, buying or selling a building or entrepreneur buying or selling a business brings the agent into their lives during the transaction and often long lasting friendships are forged. What I love is that every deal is different, every buyer and seller brings new and interesting lives with them.  I’ve learned about nearly every religion in the world (I ask a lot of questions).  I’ve learned why people come to the Greater Seattle area.  I’ve learned all about the books and operations of the businesses I represent and their hopes and dreams and I get to share these dreams.

But I want to share the story of Stacy Bannerman who is The Founder/Director of a Foundation called The Sanctuary For Veterans & Families, with whom one of my agents, Brian Borgen and I are currently working. 

This summer I co-listed with Brian a fabulous waterfront home/retreat/spa/B&B in Vaughn, about  ½ hour west of Gig Harbor with 900 feet of salt waterfront, 11,000 sq ft home and 5 acres.  Working with interested buyers has been fascinating and fun, seeing the property through the eyes of different buyers, such as a retreat for Hollywood stars and a Bed and Breakfast business supported by Social Entrepeurs from Europe.

However, Stacy Bannerman called us from an online ad this fall and thinks the property will be perfect for their needs as the Sanctuary they have been looking for.  Working with Stacy has humbled me and made me realize how thankful I am for our Veterans who have been in harm’s way.

Stacy shared with us her vision for this Sanctuary and explained to me why she was willing to spend countless hours volunteering her time so that veterans could have a place of retreat from the world while they get the special services they need to get back on their feet.

ChavezShe states that “at least 1.6 million American military personnel have served in Iraq and Afghanistan, and Iraq war veterans are exhibiting higher rates of post-combat mental health problems than veterans of any other war in this nation’s history.  

Due to repeat, extended tours, an unprecedented wound-to-kill ratio of 16 to 1, and the high incidence of civilian casualties in a war without front lines, the most conservative estimates now are that at least 30 percent of troops will suffer some post-combat mental health problems. While post-combat mental health issues affect an individual veteran, the aftermath of war impacts the whole family and reverberates across communities.”

Stacey is going through the hoops to get this property under contract, she already has set up work schedules for the operation and arranged to have Bastyr University  handle the rehab portion of the week to help with mental and physical recovery.  The foundation will also be setting up a children’s dayschool so that the veterans can find a safe place to bring their families and get special counseling for a week at a time.

So, today an architect is drawing up the changes to be made to submit to an appraiser and then we get under contract and she’s out raising money.  All this and she has a full time job herself.

I will be so proud to be part of this and sure hope it comes together.  It all feels right and I’m excited and once again, so grateful to be in this business.


Update on 'Fix and Flip'

Last Thursday night at the monthly REIA meeting, Than Merrill from A&E’s Flip this House presented an informative glance into his working business model. Than does more than 120 flips a year at an average of $27,000 each.  Although he just started 3 years ago, Than is making millions using a system that he partially nabbed from other fix and flip coaches and partially created himself.  Than acknowledged up front that he would have something to sell, otherwise he says there would be no point in his flying out here from Conneticut to talk to a real estate investment club.  And sell he did.  What my husband and I heard prompted us to attend an all day (9 to later than 6!) on Sunday.  The cost was relatively inexpensive and anything for more education, right?

In case you’re wondering who attends a real estate investing club, I noticed a lot of people with jobs looking for a way to become self employed, and I also found many who had already made that transition using real estate investment as monthly income.  Others are there to build a retirement using real estate investing as a vehicle. Some using sefl-directed vehicles and others doing 1031’s to defer taxes. 

Finding the right investment opportunity is key to good real estate investing. The investments we have been buying are properties that can be subdivided or converted to condos or in some other way create equity through development.  I hate fix and flips because there have been such a small margin in them because we didn’t knowi how to find below market inventory consistently.  We only do the fix and flips if we can increase the value of an adjacent lot or new construction home we sell by increasing the value of the original home. 

However, working with distressed sellers to find below market inventory is a business that is very specialized and can by itself be a full time occupation.  And there are a lot of investment buyers looking to buy discounted properties.  Finding these discounted properties has always eluded me. We have tried the foreclosure route and bought on the court house steps, but too many investors were chasing these properties and they still got bid up, squeezing that profit margin.  Then there are title issues and the fact that you can’t really inspect the properties among other things, like needing cash!

Than has been successful finding these sellers and I wanted to know how. He has multiple sources and mutliple campaigns aimed at finding anyone willing to sell at a discount. His program is a highly developed marketing and operation.  We were impressed, So, we decided to invest in the systems thinking that if he can make them work, so can we (I know, pretty egotistical). The cost of the program is pretty reasonable, the bigger cost being the time to attend a one week boot camp and implement the multiple marketing systems. But we’re looking forward to it and hope soon to have a source of ‘cents on the dollar’ real estate to offer our buyers.  Keep tuned.

BTW, still nothing definitive on the Contractor’s issue, i.e., an owner needing a contractor’s license to perform work on real estate prior to a sale if within one year. We’re all waiting for clarification. 

Home Owner Quicksand

If you own real estate beware. Last Wednesday, Russ Cofano wrote of new changes to the Washington Contractor’s Registration law that were made this summer. The real estate investment community is in shock that a change in definition of who must be a contractor with ramifications this drastic, slipped by in the guise of consumer protection. 

Although this applies to the ‘fix and flippers’ and you may think they need to become contractor’s in order to protect the public as they make a profit on the real estate they buy, fix and sell, don’t be too quick to applaud this new change.

In fact, ALL real estate owners, including owners of only a primary residence, should be equally as shocked as this definition appears to affect all property owners and not just investors.

The repercussions of this law go deep and have dire consequences.  As many of us understand the law, any homeowner that does any repairs and maintenance or remodeling to a home in anticipation of a sale within 1 year MUST BE A CONTRACTOR. Suppose you have a sale on your home, you have an inspection and you must now repair a few items.  What we believe this new definition maintains is that you, the homeowner, MUST BE A CONTRACTOR.  How impractical is this given that a contracto’s license requires a $12,000 bond, unless the homeowner has sterling credit in the area of 760 and can get insurance for the bond.  Even with that, the cost of the contractor’s license, insurance and bond  would be around $3000 or higher not to mention, the time that would be required to get a contractor’s license.

At the REIA (Real Estate Investors Association) monthly meeting on Monday night, even the 2 attorneys invited to explain the consequences of this new definition, were at a loss.  Neither wanted to take a position as neither had yet spoken with the Department of Labor and Industries who will enforce the law.

Can you imagine every homeowner needing a contractor’s license who a: has work orders persuant to a sale or b: remodels their, say bathroom, prior to putting their home on the market, or c: does maintenance or remodeling work on their home prior to renting it out within the year. Any of these instances could require a contractor’s license.

The investment community is wondering what this all means. Many investors purchase homes through their retirement accounts through self directed IRA’s or other LLC’s or corporations.  Does this law mean that the LLC must be a contractor, or does it mean that the owners of the LLC must be a contractor or both.  In the case of the self-directed IRAs buying real estate, there may be prohibited transactions if either the LLC or the owner of the IRA become a contractor.

My question is, where was the Realtor’s Association when this was enacted and why didn’t they alert us all.  I will find that out. It’s my understanding that they were directed to take a no opposition stand.

I hope this all works out in a reasonable manner. We’ll see.

From 'A&E's Flip This House' to You!

[photopress:REIA__Image_Download__flip_this_house_logo_jpeg_from_mhv_reia_1_.jpg,thumb,alignright]Have you been watching the current real estate market and wondering how  to find the pot of gold in it? Fix and Flip guru Than Merrill from A&E’s Flip this House will show you how right here in Seattle on October 11. Than, like many other saavy investors, is building his business taking advantage of sellers in trouble.  Even though Seattle seems to be somewhat insulated from the current trend across the nation, there are still great opportunities to grab up distressed properties. Banks are looking to unload properties as are many homeowners on the brink of foreclosure.  These often become the inventory and raw product for the ‘fix and flippers’. But how do you find these elusive properties?

My husband and I have been involved with about 2 dozens ‘fix and flip’ properties, but finding the right properties at the right price, i.e., below market, is a challenge. As a realtor, I live and breathe the mls, but once a property hits the mls, it’s generally going to be sold at retail, and paying retail is not the way to make a profit on a ‘fix and flip’.

There are several real estate investment groups in the Puget Sound area that will help you get started and offer advice in marketing, legal issues (recently, state law passed requiring a flip in less than one year to require a contractor’s license.  More about that later) and tips of the trade. Says Shirley Henderson, President of REIA, ” flipping is profitable and a lot of fun if it’s done right”.  And the members want to help you do it right.  Usually they have monthly meetings and from time to time offer educational events to help their members. Members are happy to share their knowledge and are there to help each other.

On October 11, The Real Estate Investors Association of Washington (REIA) is hosting a fabulous Special Event straight from television land.  Than Merrill of A&E’s ‘Flip This House’ will be speaking at a this very low cost event ($15)  to show you how he and his team did 30 deals his first year and after that, double each year over the next 2 years.  The team has 260 deals under it’s belt at an average of $27,000 profit per deal.  $7,000,000 in three years, I could live with that!

If you’re interested in learning how he did it, join REIA on October 11 from 6-9pm to hear about Than’s systems and marketing to find those distressed properties and fix them for the best financial return.  This will be my first ‘fix and flip’ seminar and I’m anxious to hear from the best. Of those 2 dozen flips my husband and I have done, we’ve had varied results (yes, some were losses) because we didn’t have the systems in place to find the bargains.

Hope to see investors from Seattle turn out in big numbers. Make some great connections. Maybe you will decide that this could be your next career.