What’s a buyer to do?

Posted on June 24, 2006 by Eileen

[photopress:frustration.JPG,thumb,alignright] In the under $500,000 market, good properties are flying off the shelf. In the last two weeks, we were chasing properties with our client in multiple offer situations from Bellevue to Edmonds. It’s a tough market to work in and gets very discouraging to our buyers. When a market is this hot it always requires an accelerator clause if you want to be in the game.

I was thinking about how typical this chase was and want to share this little history with you. Two deals we lost, one where we bid higher and one where we bid the same and the last one that we got, we paid less than the highest bid. Here’s what we did and how we finally got a happy ending!

Offer 1:condo in Sandpoint, priced $325,000. We were the high bid on this one at $375,000. We used an accelerator clause because we knew we had to and in fact, there were 10 offers. We knew we’d have to waive inspection and form 17 and be pre-approved and we did all that, but the seller, rather than selling for the highest price, sold the condo at 5000 below our offer because the seller had met the other buyer and liked him. Our buyer, by the way, has great credentials.

Offer 2: condo in the north end priced at $330,000. we did an accelerator to 350,000 and we were beat at the same price because the other buyer was all cash. This was smart of the seller, since there’s always the problem of appraisals, which are tougher on condos than single family homes

Offer 3: condo in Roosevelt district, this one was listed at $320,000 and we put in an accelerator clause up to $365,000, no inspection, waive 17 and pre-approved. This time our buyer was in town and met with the sellers and, as usual, we found something in common with the two of them, and we got the condo for $5000 less than the highest offer.

Lesson learned: Always always try to get some connection with the seller if at all possible. It’s best, if you have a likable buyer, to have them meet and chat a bit. Even if you’re working with a sour personality, you can still coach them a bit and I’m right there with them to act as a catalyst. If the seller or buyer are out of town I write an interesting summary of how much the buyer likes the house, their strengths and I always try to find something really touching about them, some sort of volunteer, a special hobby, etc. Knowing the listing agent and/or treating them really well is a great asset, too. I’ve been known to bring a Starbucks when arriving with an offer. Sellers like to know who they’re selling to and often their home is not just a financial investment but something with soul and they want the “right” person to buy it.

So, you just never know. Selling a home is an emotional venture and there are as many reasons for who they’re going to sell to as their are people!

Why I Don’t Want to Be Young Again

Posted on June 20, 2006 by Eileen

These days when I pass the mirror, I always wonder whose looking back at me cuz it’s sure not the 30 something person I think I am. I guess the answer to that problem, is not look into the mirror!

So, I’m looking for the good things about getting older. Know what the best thing is (given that I have no grandchildren yet)? For me it’s the day when I turn 59.5 and can take money out of my retirement fund and start spending it!

For those of you who can’t even think that far ahead, at least give some thougt to tax planning. Remember a dollar saved in taxes is a dollar you don’t have to earn! Real estate as an investment vehicle works for me, becuase of the leverage involved and the control I have and the great tax incentives. When you combine a good real estate investment with good tax planning, you can grow your wealth faster since you have some great tax free or tax deferred IRS sanctioned programs to take advantage of. Here’s a quick rundown of three of these programs to shelter real estate investment income. I’ve been using two of them for years.

Self Directed IRAs Investing in Real Estate

If you have a retirement account from a job you’ve left, did you know that you can self direct that money and invest it in real estate? Or, if you have IRAs, you can also self direct and invest them in Real Estate. First, you need a custodian to handle the transactions. Simply set up self directed IRA’s and self directed Keogh’s and 401K’s through a custodian such as Entrust or Pensco Trust. I use Pensco Trust out of San Francisco. They’re great at making sure you handle all the details and they can help you through the process. There are tricky issues to work through like needing non recourse debt financing and working through the UBIT taxes can be a challenge.

But for every roadblock there is a solution and if you have a Roth IRA and invest right, then your money can grow tax free! There are lenders willing to finance the necessary non recourse loans, and the UBIT tax is only on the leveraged portion and can be as low at 15%. Be sure to check out your particular situation with a tax professional.

In the next couple of days, I’ll write about the 1031 and the Family Foundations.

So, give it some thought. Don’t be afraid of getting older becuase it’s a blast!

What’s hot and what’s not in Seattle?

Posted on June 7, 2006 by Eileen

Where to invest next in Seattle/Eastside neighborhoods? I’ve been thinking about the list Seattle Metropolitan Magazine came up in April (see below). With gas prices up, rapid transit going in, I think the next hot spots will be along those rapid transit routes like what happened in San Francisco and Portland.

Here are 2 lists, one from last month and one from 3 years ago. My clients usually make a decision where to buy based on either the commute or schools, sometimes as specific as a certain grade school. What about home age and style. It has been suggested that buyers like the homes their grandparents lived in, not the ones they grew up in, so Will the next batch of buyers want the 50’s and 60’s houses as has been suggested and if so, should we be buying in those areas? There was supposed to be a trend away from large homes, and that’s probably the case considering home prices are so high most can’t have the size home the buyers of the 90’s did.

Here is the Seattle Metropolitan Magazine list of 15 of the hottest neighborhoods in it’s April issue.

[photopress:bill_gates_residence.jpg,full,aligncenter]
Grandes Dames: established and well rooted neighborhoods:

Medina: (recognize the house above?)
Madison Park
Admiral

The Rock Stars: fast rising districts surging with glamour and vitality.

Ballard
Pike/Pine Corridor
Moss Bay, Kirkland

Cinderellas: Formerly neglected areas now traipsing to the ball

South Lake Union (courtesy of Paul Allen)
Columbia City
Georgetown
Westwood

Sleeping Beauties: Location, economy and neighborliness drawing overdue attention

Upper Rainier Beach
North Greenwood
Monroe
Stadium district, Tacoma
Cape George Colony, Port Townsend

This is a dramatic change from 2003, when SeattleMagazine.com had their list of hot neighborhoods

Bryant
Montlake
Sunset Hill
North Beach
Blue Ridge
Olympic Manor
Phinney Ridge
Greenwood Manor
North Admiral
Westwood

Almost all of these were north of the U District.

Does this mean that our citizens are fickle and don’t have favorites more than 3 years in a row? Or was it this kind of story that drove the prices up in those neighborhoods so that they are now not affordable? Is it possible in 3 years that even Georgetown will be sizzling? I’d love to tap into the collective minds of RCG bloggers and see what you think.

I think Burien is an up-and-coming area and it’s not on either list. Any other hidden gems out there?

The Tax Man Cometh and Stayed and Stayed

Posted on June 4, 2006 by Eileen

I hated to be so absent on RCG the last couple of weeks, (took me several hours to catch up on posts. Ardell, you’ve outdone yourself, as usual, plus all those deals!Dont’ know how you do it). Here’s my excuse, I’ve had two audits this spring and they’ve both buried me. Plus I’ve been on two investment fact finding trips and hired two new agents for LTD just this week. (hmm, something about 2’s) I’ve been buried but wanted to share something that I thought my 2 (there it is again) tax attorneys and one real estate attorney should have prepared me for and had never heard of.

You try to listen to your attorney when he or she tells you to protect yourself and set up an LLC. but, if you’re like me and didn’t give much thought to how you share staff, leases, assets like office furniture, holdings, like real estate holdings, etc, etc, etc, please avoid the following that can cost thousands if found in an audit.

[photopress:taxman_1_2_3_4_5.JPG,full,alignright]For example, if I own two companies, a construction company and a company that buys property, subdivides, remodels, build new, etc., and if an employee from the construction company (where the liabiltiy and stop gap insurance is) builds for the venture company, then I must charge sales tax to myself!. Yes, I know the LLC’s and the Inc.s are their own entities, but it never occurred to me that I’d have to charge myself sales tax and give it to the state even if I’ve already paid sales tax at the point of sale. Similarly, if I bring my computer from home (or office furniture or ANYTHING and GIVE it to one of my companies, I must again pay sales tax. I own the computer, I own the company, I paid sales tax when I bought the computer. However, the state wants it’s $ so they consider that I sold the computer and therefore must pay sales tax.

Another example. If the construction company pays an architect for plans for the venture company, then I must charge tax and pay it to the state, even though architects are a service industry and don’t incur sales tax. I could elaborate but it’s just more of the same. Reminds me of my restaurants I had in the 80’s. I had a similar audit and because I gave free meals to my employees(100 of them at $2/day for 5 years), I had to pay sales tax to the state on those FREE meals. Go Figure.

So, I’m now much poorer and hope I’ve alerted at least someone out there to watch this on your books. I have 11 LLC’s, I’m just glad the audit is done and I won’t get in trouble next time. There is the possiblility that there will be some relief for this injustice in July, but it would probably only affect some of the issues.

But, lesson learned and I’m now cutting paychecks out of 4 different companies. Four sets of W-2’s, etc for each employee. Yuck

I’m going to start blogging on some cool strategies to invest 401K, Seps, IRA, Roth IRA in real estate when I get the time, but I wanted to alert you to a webinar that is excellent being given by a great custodial company, Pensco, in case you want to hear how to invest one of those entities in real estate and use leverage, even though most accountants will tell you you can’t. There will be many upcoming webinars about similar subjects. Click here for a description and to register.

And on a better note, sold a 1.3 million piece of waterfront land on Beach Dr.near Alki today. Gotta pay for those taxes somehow!

Seattle in Top Ten for Continued Appreciation- Want to know Why?

Posted on April 7, 2006 by Eileen

We’ve talked alot on RCG about whether we’re in a bust or a bubble real estate market and we in the Pacific NW have been watching the rest of the country and wondering, Why all the gloom? Bankrate.com and today’s Seattle times have some explanation that can provide perspective:

Last week, Bankrate.com unveiled its forecast for the changing real estate market in the U.S. over the next few years – ten markets where housing prices and values will continue to remain strong, ten markets where appreciation will pretty much top out and the ten markets that are most likely to experience a decline. They talked to experts, studied public and private databases, analyzed market trends and examined the analysis of many others.

The ten “bubble blowers,” where appreciation should continue to grow, are:

Boise (ID);
El Paso (TX);
Albuquerque (NM);
Seattle (WA)/Portland (OR);
Salt Lake City (UT);
Raleigh (NC);
Philadelphia (PA);
Atlanta (GA);
Little Rock (AR); and
Cincinnati (OH)/Birmingham (AL) (they were too close to call).

Just why this is happening in the Pacific NW is the subject of this mornings Seattle Times article by Elizabeth Rhodes. She sheds light on why Seattle is breaking the national trend toward stagnating or dropping home prices. Her article notes that the average home prices have taken a steep hike in the last year and appear to be continuing the rise.

Citing the NWMLS statistics that came out on Thursday, median closed price of King County single-family homes has shot up almost 12 percent in the past year, reaching $405,000 last month (and up from $392,950 in February).

Interestingly, sales are down, but so is inventory. In March 2004, there were 7,156 homes for sale countywide. March 2005’s inventory was 5,244 homes. This March recorded a further drop, to 5,100. This is the pinch that causing the rise in prices.

At the same time, the local economy is growing and employers are adding jobs, bringing more potential buyers to the area. So the competition for available homes is strong and prices are reacting accordingly.

We agents have been experiencing this hot market all spring as we did through most of last year, possibly feeling the market fluctuations first. We’re out there in it, pricing homes to reflect the low inventory and coaching buyers for the best positioning in a multiple offer situation. I just watched the price of an Eastside condo jump $20,000 in a two week period!

Can Real Estate ever ‘Bust’?

Posted on March 27, 2006 by Eileen

Last week an investor called me from LA who is a stock broker. Our conversation got me thinking about the rich investment opportunity real estate provides, in spite of all the talk of a bubble burst. I’ve played the stock market for years and have won some and lost some but I’ve never been able to get it down to a predictable outcome. I invest in stocks because I’m told by financial advisors that I need to diversify. However, there is a way to invest that has many more controllable and dependable outcomes – Real Estate! Real Estate will never go out of business, never merge, never have problems with DOJ, never be outdone by the overseas manufacturing industry, never worry about ever changing technologies. There’s always supply and there’s always demand. With the exception of mother nature simply obliterating the landscape, real estate will always be there.

I don’t mean to paint an overly rosy picture here, but having been in the business for, gulp, nearly 30 years, and watching the ups and downs and downs and ups, (I once sold a home to a client with financing at 22%! not to mention using precious gems as a down payment!), I just don’t see the glass as half empty but rather half full. I have been a restaurant and marina owner and a real estate developer and investor, throughout the various market ups and downs. I suggest you look at real estate values over those last 30 years and see how many times they’ve multiplied. And we’ve had 5 or 6 ‘busts’ in that time. As a new licensee, I sold my first home for $32,500 in 1978 and today that home is listed at $495,000 – a multiple of 15 times. We all know this is true, so why are we all sitting around worrying? All this talk about real estate busting like the stock market did is just ridiculous. We’re not comparing apples with apples and even if the prices do go down, it will most likely be short term creating a great buying opportunity, and when prices bounce back we’ll all sit back and have a good laugh at all those naysayers with dour predictions.

I wish I’d taken my own advice in 1986 when I could have purchased 150 homes from a bank for 20 cents on the dollar. I didn’t have the foresight at that time to know what I am telling you now; real estate bounces back and prices rise even higher. Had I bought those homes that year, I’d be writing this from my estate in Maui! I’ve learned my lesson and now I want to share my perspective with you.

So, keep on investing. You may not be able to live off the profits from a short term flip but if you invest with someone that understands the market and the profit potential, you won’t have to worry about any ‘busts’ now or in the future.

Raising the Bar

Posted on March 23, 2006 by Eileen

Since Real Estate Sales is a unique beast and over the years has gotten more and more complicated and litigious, I thought it would be interesting to follow up on Robert’s post about the education needed to become a real estate agent. There are so many fields of knowledge that are needed to practice adequately, and requirements to get a license don’t even skim the surface. I’ve never understood why the standards for entering this profession are so low given the magnitude of the effect an agent’s knowledge has on a customer.

Every real estate contract I’ve ever written has had potential to blow up into a legal battle. None have so far, but that’s probably because my errors mostly went unnoticed, were negotiated away or didn’t do any financial damage. Agents can get in trouble when first opening their mouths to talk to a client about buying or selling real estate and I know that the average agent doesn’t even know what he or she doesn’t know. Despite the many years as I’ve been in the business, I learn something scary on nearly every deal.

When I wrote my first contracts in 1978, I didn’t even know what title insurance was and yet I was HANDWRITING a title insurance contingency (I had language that I copied). Things have changed, the contracts are now boilerplate, but most agents still don’t understand that boilerplate well. Experienced agents understand a whole lot more than the newbies since most of us learned it by doing it wrong at one time or another.

For instance, my buyers were under contract on a vacant house last year and I brought in a heating contractor to get a bid for replacing the furnace. Oh oh, the CO level was at 92%, according to the technician and guess what, he had to decommission the furnace (a state law, apparently) in the middle of a very cold January. The seller was livid, my broker was stumped, the other broker was stumped, but we negotiated our way out of it. The seller (an attorney by the way) paid for the furnace and my buyers refunded him at closing since they wanted to install a new furnace anyway. I got lucky.

That’s just one of hundreds of stories. The scope of a real estate transactions is so broad, that experience in construction, architecture, inspections, repairs, real estate contract law, title and escrow issues, Fair Housing, underground storage tanks, septic systems, well water, lead paint, mold, radon, multi-cultures, finance, accounting, a working knowledge of condominium law and association lawsuits, and all the lawsuits relating to OSB siding, Cadet heaters, etc etc almost seems to mandatory..

Before you think I’m being dramatic here, these issues all come up during a normal realtors practice on one level or another. If an agent isn’t scared of saying or doing the wrong thing, then they’re not aware enough of what can go wrong. Since attorneys aren’t in the showing and listing business, it’s not practical to have one tag along with the agent all day to make sure that every written and spoken word is legally correct.

The only cure for at least raising the odds of being competent is to require a higher level of education. To sell real estate, I don’t think you need English grammer (would be nice) or calculus or History of the World, but you do need to know how to compute fractions, percentages, and know how to qualify a buyer for a home or at least understand how the lender does it. You need to understand the accounting basics of the normal transaction, some basic understanding of 1031 exchanges and for sure, understand all of the multiple forms, what they mean and how to fill them out legally. We’re supposed to say “I’m not an accountant (attorney, etc) and I can’t give you advice in that matter

If you must flip, flip responsibly!

Posted on March 18, 2006 by Eileen

(Editor’s Note: I’m extremely excited to announce a new contributor to Rain City Guide. Eileen Tefft is a Managing Partner with Ltd Real Estate and has over two decades of experience in the real estate industry.)

Hello Rain City Guide community,

This is a first for me. First post, first time ‘published’. I’m excited and feel it’s about time I got into blogging as a way to share information to readers interested in real estate. As a kid, my parents bought and held real estate as an investment. My uncle was a contractor, my grandfather a carpenter… In fact, my dear 82 year-old mother was still hanging off rafters, pounding in 2X4’s in her 60’s (she still would be if someone needed a rafter built! Today she’s cutting down trees with her new chainsaw!). I bought my first property when I was 22 and subdivided it at 32. It was fun and it felt natural.

I got 3 calls this week from past clients wanting to begin buying real estate as an investment. After several hours of discussions, I decided to write about the nuts and bolts of my experiences, the mistakes I’ve made and where I found the most success.

There seem to be two types of investment buyers. One that wants to ‘flip’ real estate (turn a quick profit by buying low and selling high) and one that wants to purchase and hold for the long term. I will address the first question here and save the second for another post which will include buying for cash accumulation vs. buying for a positive cash flow, buying using 1031’s and buying using Self-Directed IRA’s.

So, let me start first with the question I get asked most… “How can I buy a house, fix it up, make a profit, quit my job and live off the real estate returns like I’ve seen on T.V.?

Rain City Guide

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