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Archives for December 2013

How Your Property Manager Can Cost You

A major lesson to be learned

A story of local interest in my area just got me shaking my head when I read property managerabout it.  It’s sad and alarming at the same time, and it only points out how the selection of  a stupid property manager can cost a property investor dearly.  But of even more concern, is that state taxpayers here in New York are also on the hook for one property manager’s lack of professionalism.  This may be the most sobering part of this horrible, but true, recent event of property investing woe.  It is a story that all property investors should take heed and learn from…both beginners and experienced pros alike.  You’re never too experienced to learn some form of a lesson that could benefit you.

The story begins…

Once a proud and certainly imposing structure in the lake resort community of Saranac Lake, New York, the Hotel Saranac fell upon hardproperty manager times in recent years.  This mid-rise brick structure, built over a hundred years ago, was a thriving vacation spot, as well as used by members of the community as a chief nightspot for much of it’s existence.  But over the past decade, and through the recession of the recent few years, the owners let it fall into disrepair.

In rides a white knight of a property investor this past Spring.  A part-time resident of the community with a large family investment business in property managerconstruction and hotels, albeit in Vermont.  The Roedel family business agrees to purchase the hotel with the caveat that they obtain state assistance in the form of an economic government grant.  These grants are hard to win – especially since they are awarded based on economic merit to the community, and are given out in a quasi-political atmosphere of back room dealings to see which municipalities from which districts within New York State will be awarded the most money in the form of grants.  Bottom line:  it’s all about what awards can produce the biggest bang for the buck.  Read:  jobs.

And the hotel is sold…

So a few weeks ago, the Hotel Saranac is sold to the Roedel family’s company.  Within a week later, New York State announces that the project has just won five million dollars in state economic grant awards for the refurbishment of the hotel.  A boon for the community and the Roedels as the white knight investors, to be sure.  Are you with me so far?

Now comes the fun part…

The Roedels, who are not local, as mentioned before, and are not about to begin the renovation for another month, hire a local property manager toproperty manager oversee the building until part one – cleanout of the building, begins.  In most towns, a property manager checking in on an empty, closed down hotel in the middle of the commercial district should be pretty straightforward a task. In Saranac Lake, with temperatures in the winter months approaching some of the coldest in the continental United States, due to its location in the middle of the Adirondack Mountains, a property manager’s job is critical. (Temperatures there last week went down in one overnight period to minus 27 degrees.)

Guess what befell the hotel…

Unfortunately, as reported in the local paper, the Adirondack Daily Enterprise of 12/24/13, in an article entitled “Hotel Saranac Basement property managerFloods” by Chris Knight, “firefighters and village workers spent Christmas Eve pumping out the basement of the Hotel Saranac after it flooded with at least 6 to 10 feet of water. The source of the flooding, it was later determined, was a sprinkler line that froze and broke.”  Mr. Knight goes on to say “Fred Roedel III, whose family business bought the hotel earlier this month, said that’s what he was told by a plumber…who was on the job.  “The building was being heated,” Roedel said. “Evidently, this pipe was out by a loading dock door, and it got cold. This is one of those embarrassing, ugly things, and I hate to put the village through it.”

Mr. Knight then goes right to the source of the mess:  “”It’s probably not the last fun thing this building is going to do for me,” he added ruefully.  John Wamsganz, who’s been overseeing the property since it was bought earlier this month by Roedel Companies, said he went to check the hotel’s basement this morning because “the fire alarm wasn’t reacting the way it was supposed to.” That’s when he discovered all the water.”

But wait – the story gets better…

The printed story also noted : “Wamsganz said he’s been checking the building every day but didn’t discover the water in the basement until this morning. He said it had probably been filling up for at least 24 hours.”  (Saranac Village Manager John) “Sweeney speculated it may have been going on for longer than that.  “Our guess is late Friday night,” he said. “That’s when we started to notice that our water consumption had popped up.”

What the experienced property investor should know

But you have to give Mr. Roedel credit.  As an experienced property investor, he knows how to put on a brave face.  Mr. Knight continued:  “After the water is pumped out of the basement, Roedel said, “We’re goingproperty manager to get some heaters in and some dryers and start getting it cleaned out.”  The company will continue its plan for a serious cleaning effort in January.”  That’s the entrepreneurial spirit, I say!  Stiff upper lip and all that…But wait there’s more!  Mr. Knght also noted:  “Roedel said the sprinkler system was one of the things his company planned to assess for possible replacement. “I think everything in the building is subject to being replaced,” he said. Roedel said the basement structure is “solid as a rock” and he doesn’t know of anything damaged by the flood that would set back his plans, although he added, “We’ll know soon enough.”

Due diligence?

Sounds like they really did their due diligence on this vacant hotel, as any smart property investor would.  Too bad they hired the wrong property manager.  I just wonder what Mr. Roedel’s private phone conversation with his property manager, Mr. Wamsganz must have been like after hearing the news of such a colossal screw-up by Mr. Wamsganz.  Must have been very entertaining, I’m sure…

The moral of the story

Absentee property investing is hard.  Absentee commercial property property managerinvesting is even harder (especially with single-use type buildings)…and not something left to beginners. Clearly, Mr. Roedel is an experienced property investor, with a very successful company.  But, to paraphrase a song line from “The Music Man,” “you got to know the territory.”  Entrusting your newly-purchased property (for 1.4 million dollars at that, along with the public’s trust as engendered by the five million dollar economic grant they were awarded for the hotel’s refurbishment) to a local property manager who claims he checked the building daily for problems, was quite obviously, a mistake that Mr. Roedel would like to take back.

Insurance issues?  You bet!

I won’t even begin to speculate what sorts of insurance claim problems (and potential lawsuits) await all parties involved (including New York State maybe).  It’s quite a literal, and figurative mess.  I don’t know theproperty manager property manager, Mr. Wamsganz.  Maybe he had a stellar property managing reputation.  Maybe this was simply an oversight.  Or, to the casual property investor observer, maybe this was a mistake that could have been easily avoided.

Where was the engineering report study that would have pointed out that an active sprinkler system left unprotected (and clearly without proper insulation for an area next to a loading dock) would represent a major potential problem?  Where was the property manager’s inventory of potential problem areas for a vacant hotel building in one of the coldest climates in the country?  Any good property manager always creates a property inventory checklist for every building he manages, for his clients, the property investors that hire him.

Property Managing 101

The simplicity of basic property management standards is paramount to avoid problems like this one.  And of course, to have a property manager go on record (to a reporter) saying he was checking his client’s building daily, only to have another source (in this case, the Village Manager) say the pipe had burst days earlier, is beyond belief.  Think you or I would have heard a little whoosh of running water whilst we were checking the building each day?  Unbelievable.

You are your asset’s chief protector

property managerAlways remember, as your building’s chief protector, when you make the decision to hire a property manager, do so with a vigor and due diligence that is as extreme as possible.  Not only should you check references, and any previous “mishaps” a manager may have had under their watch, but also check with their insurance agent regarding any problems or claims they have triggered in the past,  as an independent source of information about someone you’re going to entrust your prized asset with protecting.  I bet Mr. Roedel wishes he had…

 

photos courtesy of  propertymanagementinsider.com, ohiorealtors.org, franklinhistorian.blogspot.com, northcountrypublicradio.org, propertymanagementinsider.com, brisbaneinvestor.com.au, money.cnn.com,  landlordspecialists.com.au, budgetsaresexy.com

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Filed Under: Current Events Tagged With: commercial real estate, commercial real estate advice, commercial real estate information, commercial real estate management, commercial real estate manager, commercial real estate managing, commercial real estate mistakes, commercial real estate strategies, commercial real estate tips, commercial rental property, commercialk real estate manager selection, investment property, investment property advice, investment property information, investment property strategies, investment property tips, investments, property investing advice, property investing information, Property Investing Mistakes, property investing strategies, Property Investing Tips, property investiung, property management, property management selection, property manager, property managing, property maner selection, Real estate, real estate investing, real estate investing advice, real estate investing information, real estate investing strategies, real estate investing tips, rental property, rental property advice, rental property information, rental property mistakes, rental property strategies, rental property tips

‘Twas The Night Before Christmas…

And all through the investment property house 

Something was definitely stirring, and it sure was no mouse.  Probably a burglar.  Or a backed up sewer line.  Maybe ‘twas a short in the old electrical property investment insurancewiring in the wall.  Whatever it was – it’s certainly gonna cost you.  Damage done to your investment property from unexpected events is something  all good property investors must take into account when acquiring any new property.  Sound property investing advice tells us to properly plan for the unexpected.  That’s where property investment insurance comes in – and it’s so integrally important to have whenever acquiring a new investment.  But, it needs to be the right kind of insurance protection.

Finding the right insurance for your needs

Selecting the right property investment insurance starts with having an excellent, trusted property investment insurance agent as part of your overall crew of experts on your property investing team of professionals.  As mentioned in prior articles here, your crew has to be selected well before you even begin searching for new properties to acquire.  Once you find a suitableproperty investment insurance property to invest in, make an offer, negotiate, then are able to close on it, you’ll need to trust your insurance agent with helping you select the best insurance for that particular property.

A good property investment insurance agent will factor in the condition of the property, and where it’s physically located (for example, is it in a flood zone or not; or, is it prone to other natural disasters that could harm it?).  In addition, they will take into account tenant’s being foolish, and starting accidental kitchen fires, or slipping and falling on ice on a walkway, and then suing you.  Having the right amount of coverage is essential:  too much means you’re overpaying for your insurance, whereas too little leaves you with a personal exposure that could ruin you.  Of course, any good property investment insurance agent will recommend personal liability insurance as well as property insurance.  This personal liability insurance is an absolute necessity when dealing with tenants in such a litigious society as ours.

Choose wisely

property investment insuranceMake sure you shop around for insurance agents, and go over with them how they would handle various negative occurrences that might befall any investment property.  Remember, you need an agent that understands very well that insurance for a business like property investing is far different than standard homeowner’s insurance.  And they need to protect you at all costs, at the best price.  So make sure you take the time to shop around for a property investment insurance agent you trust to place amongst your crew of valued professionals, before you begin searching for your next property.

 

photos courtesy of  homeschoolcommons.com,  773hotcold.com, debtoutof.com, giulioruffini.ifunnyblog.com

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Filed Under: Tools & Resources Tagged With: choosing investment property insurance, choosing property insrance, investment property, investment property advice, investment property information, investment property insurance, investment property insurance agent, investment property strategies, investment property tips, investments, property insurance, property investment, property investment advice, property investment information, property investment insurance, property investment tips, property investmet strategies, prperty investment insurance needs, Real estate, real estate inesting insurance, real estate investing, real estate investing advice, real estate investing information, real estate investing strategies, real estate investing tips, real estate rental information, real estate rentals, real estate rentals advice, real estate rentals informaton, real estate rentals nsurance, real estate rentals strategies, real estate rentals tips, real estate renting advice, real estate renting information, real estate renting insurance

Property Investing Financing News

The Coming Borrowing Crunch

All property investors need to be aware of a potential disaster in the next property investing financingseveral years that could make obtaining mortgage funds increasingly difficult.  Lenders may find themselves in such a downward spiral of red ink, that the current credit crunch will pale in comparison to what lies ahead.  And what would the cause of this downward spiral be?  None other than the simple home equity line of credit.  A line of credit that I have consistently advocated here as a solid way to raise funds for increased property buying opportunities, as well as leverage, with some of the lowest interest rates and best terms available.

A recent article from Reuters (“Insight: A New Wave of U.S. mortgage trouble threatens,” by Peter Rudegeair, 11/26/13) notes the coming potential for property investing financingdisaster striking the U.S. banking industry:  “U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country’s biggest banks.”  The article goes on to explain that “the loans are a problem now because an increasing number are hitting their 10-year anniversary, at which point borrowers usually must start paying down the principal on the loans as well as the interest they had been paying all along. More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding.”

The chilling effect on property investors

If, as experts are predicting, default rates go up, even a small amount, on the property investing financingvast majority of home equity lines as they hit their 10 year re-set years, and the monthly repayment nut goes up substantially because of the double-whammy of adding principal to the payment, as well as anticipated higher interest rates being rolled in beginning in 2015, the overall repayment amount may be unaffordable to many who took out their equity lines.  Banks holding these second mortgage loans may not be able to recoup the losses in any default because the first mortgage would need to be paid of first, and the lender holding the equity second mortgage may not see a dime in any default scenario.  Now, maybe the housing market will increase its robust performance of late.  But I wouldn’t bet on it.

Over the next several years, as these equity line 10 year anniversaries roll out, and many are defaulted on, lenders will need to hunker down even more – and will curtail their lending – not only of equity loans, but first mortgages as well.  Overall, credit will become increasingly tighter.  Not overnight…but much like stepping in quicksand, slowly, and over several years credit markets will begin to tighten up even more.

Just how bad could things get?

The Reuters article also points out just how bad things could get:  “What is happening with home equity lines of credit illustrates how the mortgage bubble that formed in the years before the financial crisis is still hurtingproperty investing financing banks, even seven years after it burst. By many measures the mortgage market has yet to recover: The federal government still backs nine out of every ten home loans, 4.6 million foreclosures have been completed, and borrowers with excellent credit scores are still being denied loans.

The only way banks would have to alleviate the stress on the system would be to take proactive measures.  The Reuters article goes on to explain:  “Banks have some options for reducing their losses. They can encourage borrowers to sign up for a workout program if they will not be able to make their payments. In some cases, they can change the terms of the lines of credit to allow borrowers to pay only interest on their loans for a longer period, or to take longer to repay principal.”

A return to cash as king

property investing financingUltimately, like in the last several years, cash investors will rule.  Be aware of this as you plan your long-term acquisition strategy.  The belt-tightening by lenders will come slowly, as more equity lines go into default when they hit their respective 10 year anniversary re-sets.  Like a python squeezing it’s victims to death, property investors need to know that they too can be squeezed out of mortgage opportunities in the coming years.

 

photos courtesy of propertymanagersandiego.com, money.cnn.com, moneylicious.org, psdgraphics.com,  infrawindow.com, mathforgrownups.com

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Filed Under: Current Events Tagged With: Home equity, home equity line of credit, investment loans, investment property advice, Investment Property Financing, investment property information, Investment Property Loans, investment property mortgage loans, investment property mortgages, investment property strategies, investment property tips, loans, Mortgage loan, mortgages, property investing advice, property investing information, property investing loans, property investing mortgages, property investing strategies, Property Investing Tips, propertyt investing mortgage loans, Real estate, real estate bubble, real estate investing, real estate investing financing, real estate investing loans, real estate investing mortgage loans, real estate investing mortgages, real estate investment loans, real estate investments, Reuters

More Investment Property Buying Tips

investment property buyingThe savvy investor

I’ve always advocated for self-understanding before leaping into any investment property acquisition.  Coming up with the reasons why you want to utilize this class of investment over others is key to ultimately being successful in the business.  You need to be self-aware of your own temperament and abilities before jumping in headfirst to the arena of property investing.

You’ll also need to ask yourself what you want to accomplish.  Are you interested in creating a steady income stream from your investments, or are you trying to flip a property for quick cash flow profits?  In other words, are you in it for the short or long term?  Knowing the answers will help you determine your overall investing direction.

Use the seller for owner-financing

The ever-popular “other people’s money” is usually attributed to family members or friends.  However, it can also be a desperate seller that wants to move his property sale along that can offer some amount of financing.  It may be in the form of a large first mortgage, usually at slightly higher than going bank rates, and for a shorter period of time, with a balloon payment built in.  However, owner-financing is a great way to keep your initial costs of borrowing low.  (An owner will not charge you points on his loan, for example…)

Using the seller in other ways

investment property buyingAlong the same lines as owner financing, you can sometimes find a seller willing to pay for some of your closing costs.  If they won’t make a first mortgage loan to you directly, you should always ask if they can pay for part of the closing costs your bank will be charging you.  Sometimes these costs can be folded into the total mortgage amount – so you’ll be able to bump up the purchase price slightly to have the seller recoup these closing costs he’ll be affording you at closing.  You end up financing the closing costs as part of your mortgage, paying for them over time.

The real estate agent route

If you’ve worked with a real estate agent, you probably have already figured out that Realtors have the inside track on most deals.  They can see when new properties come oninvestment property buying the market each day, and are privvy to a great deal of “inside” data most buyers are not aware of.  If you plan on making regular property acquisitions, getting your real estate license makes a great deal of sense.  With each transaction for your own property (be it buying or selling) you get to partake in some of the commission.  This can save you thousands of dollars each year.  In addition, as mentioned above, you’ll have access to more info about any given property, including when a hot property may come on the market.  In addition, there are many tax breaks you can take advantage of by being a real estate agent.

Getting your feet wet

One great way to get started in property investing is to become an owner-occupant.  You simply purchase a two (or more) family home that you will rent the other units out while you live there.  You’ll get tax breaks, as well as the ability to finance the mortgage with an FHA, HUD or VA type loan.  You would not be able to do so if you did not live there.  In addition, it’s a good way to learn to manage your property – with your tenants on site, you’ll get very accustomed to hearing about any complaints with their units.  And you can stay on top of any maintenance issues when they arise.

Pulling it all together

Make sure you do proper due diligence , and research any potential acquisition first.  You’ll also have to be sure your own finances are in order, you have excellent credit, and can obtain the financing needed for any given project.  Also take into account all the expenses that will gobble up your cash flow monthly (including taxes and insurance), and don’t forget your total financing and closing costs as part of your overall nut on the property.  If you decide you have the finances, temperament and spirit to undertake an acquisition in real estate, then jump in like there’s no tomorrow.

 

photos courtesy of prw.net.au, davidcares.com, realtor.co, allmandlaw.com

 

 

 

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