Real Estate Wheelings and Dealings

I listen to an offer from a real estate investor and learn a lot about buying and selling real estate.

Back when I first started making real money as a writer, I invested in real estate. The first year, I bought a two bedroom condo in town as a rental. The second year, I bought a property that included a 2 bedroom/2 bath house and a small apartment building with four furnished studio apartment units. The third year, I realized that there was far more fun things to do with my money so I bought a helicopter.

I still own all that real estate, although I don’t really want to. I hate being a landlord. I hate dealing with tenants and cleaning up after them. I hate showing the apartments. I hate evicting tenants who can’t seem to pay on time. I just hate the whole thing.

I moved my office into the condo about three years ago. It’s more space than I need, but at least I don’t have to deal with tenants there anymore.

A few years ago, I half-heartedly put the five-plex on the market. I gave the Realtor I listed with strict instructions: only show the place to qualified buyers. Give the tenants at least 24 hours notice and get their permission before showing their units. Unfortunately, a local Realtor who was too lazy to show the property properly gave the address to a potential buyer. The buyer didn’t do just a drive by. He drove in. And he started knocking on doors. When one of my tenants told me about this, I wigged out and took the property off the market.

This year, I needed to upgrade my helicopter from a 2-place Robinson R22 to a 4-place Robinson R44. To do this, I needed to either take out a huge aircraft loan or pull equity out of some real estate. So I put the five-plex back on the market.

It’s been shown a few times and I’ve gotten some low offers. One of the potential buyers was extremely obnoxious about it. He didn’t want the house. He just wanted the four-plex. So he offered an insultingly low amount. I didn’t even bother to counter.

I arranged helicopter financing another way, so I’m not desperate to make the sale. But I do want to sell. And I’d like to sell sometime before next summer.

The other day, my Realtor (a different one from last time) called to ask if I’d be interested in carrying 20% on the property. I thought about it a while and said yes. And yesterday, I met with someone who made me an official offer, one that shows exactly how much wheeling and dealing someone can do in the world of real estate.

This buyer wanted me to finance the 25% the lender would normally require him to come up with as a down payment. He wanted to pay me only 5% on the amount I’d carry (when his lender was getting 6.5%) and amortize that over 30 years, with a balloon payment in 3 years. He wanted me to pay all closing costs. He was, in essence, trying to buy a property listed for $324,000 for only $290,000 without any out-of-pocket costs. I’d basically be financing part of his investment, with a high-risk loan that had little collateral.

The deal got weirder as the meeting progressed. He said he worked very closely with his lender and appraiser and could get the property appraised for just about anything he needed it to. So to make the numbers work, he could pay up to $350,000 for the property. I’d still have to carry 25% — which was now over $80,000 — and I’d also have to give him a “seller rebate” of $20,000 so he could make some improvements on the property. So not only am I financing the investment for him, but I’m making the improvements, too. And hanging a lot of money out there for possible loss.

I came to the meeting prepared with a spreadsheet. I punched the numbers in and saw that it was possible for it to work. On paper (or pixels). But was I willing to risk $80,000+ on someone who wasn’t willing to put up any of his own money? No way!

This morning, I came up with a counteroffer that I know he’ll turn down. I e-mailed it to my Realtor. Hopefully, this buyer will just go away. My head is still spinning from his scheme.

But I did learn one thing: I can separate the two properties and refinance them with two loans. I can pull my equity out and be in a good position to sell either property on its own. That’s something I hadn’t thought about going into this and it’s a damn good idea.

SpongeBob SquarePants and Other Highlights of the Week

A review of a somewhat trying week.

It’s Friday at about 5 AM. I’m sitting at the kitchen table with my laptop and cup of coffee. Alex, my parrot, is having his breakfast atop his cage. He’s quiet right now, except for the sound of his beak hitting the ceramic bowl each time he picks out a piece of scrambled egg and his tiny footsteps as he moves into his favorite eating position at the edge of the cage top where he can watch me. The refrigerator is humming and the heat is on. Other than that, and the sound of the laptops keys as I hit them, the house is completely quiet.

The last of our house guests are gone. They left on Wednesday morning. I feel an incredible amount of freedom. “Free at last” was the way Mike put it when he got home on Wednesday afternoon. I don’t think we’ll have back-to-back house guest groups again.

The refrigerator has just clicked off.

Last Friday at this time, I was preparing for the first day’s breakfast for the second group of house guests, Mike’s mom and her friend Mildred. I wake up very early and need coffee quite soon after getting out of bed. Once I’m awake and in the kitchen, Alex is awake. And once Alex is awake, he’s talking and whistling just like any self-respecting parrot. At least he doesn’t scream. But some of those whistles can be pretty bad. If I can put his breakfast in front of him quickly, I can minimize the noise, since he’s generally very quiet while eating. But sometimes he just doesn’t want to come out of his cage and other times he eats quickly to get on with the noisier part of his morning routine. As a result, any house guest who is not deaf is likely to wake up not long after we do. Then he or she wanders into the kitchen and comments about how early it is. This week, I prepared the coffee pot for my guests when I made my own coffee. They drink decaf, I don’t. I have a Black and Decker Cup at a Time coffee maker which brews one cup of coffee at a time, right into the serving cup. This is my third one; I’ve had one for about fifteen years now. Mike doesn’t usually drink coffee in the morning and I won’t drink coffee unless it’s very fresh. I mean, it has to be brewed just before I drink it. (That’s the reason I’m willing to pay $3 for a latte; at least it’s made fresh for me.) I also have a 12-cup Braun coffee maker. That’s what I fixed up for Julia and Mildred every morning. As soon as one of them appeared — normally Julia; Mildred is hard of hearing so she doesn’t hear Alex in the morning — I turned on the pot and let it do its thing. Whether they finished the eight cups I brewed them every morning was up to them. (Of course, 8 coffee pot cups only equals 4 real cups.)

Julia & Mildred at the Grand CanyonI went to work on Friday, Monday, Tuesday, and Wednesday, so I didn’t spend much time with this group of house guests. That was probably a pretty good idea, since I was already suffering from house guest burnout. Mike took them to the Grand Canyon on Sunday, since Mildred had never seen it before. Mildred, like Julia, is in her 80s and was born and raised in New York. They live in the same apartment building in Queens, with lovely views of the Throgs Neck Bridge. They’re New Yorkers, through and through. (Who else would arrive with two dozen real bagels, lox, cream cheese, and white fish?) This trip to the west was a real eye-opener for Mildred.

She told me that she wanted to see the Grand Canyon because of something her grandson had said. He told her that he’d had all kinds of religious training, but he’d always had small doubts about the existence of God. But when he went to the Grand Canyon, he said he knew there had to be a God because there was no other way something that beautiful could exist.

Mike had reservations for two rooms on the rim for Sunday night, so that’s when they had to go. But on Sunday morning, when they left, snow showers were forecasted for that day with snow predicted for Monday. Temperatures were in the low thirties during the day. Julia didn’t want to go, but left it up to Mildred.

“We’ll give you some time to think about it,” Mike said to her on Sunday morning.

“How much time?” Mildred wanted to know.

“How much do you need?”

“Twelve minutes.”

“Okay, let us know in twelve minutes.”

“I want to go,” she immediately replied.

So they went. We advised them to bring warm clothing, but when it didn’t seem as if what they’d packed was warm enough, Mike packed a few extra coats, hats, and pairs of socks. I watched them drive away, knowing I had just over 24 hours to myself.

Unfortunately, I really needed that time off. Earlier in the week, I’d stepped foot into my rental house to learn that the previous tenant and her son had trashed the place. The carpet, which was soiled throughout with dog poop and urine, right down to the padding, had to be replaced. The walls had to be repainted. Celia, my cleaning person, had spent about six hours trying to clean the kitchen and needed another day to finish the house. I’d spent about two hours with her that Thursday, just dumping trash left in the kitchen and throughout the house. The painter’s prep guy had been there on Friday, taking down the window coverings and prepping walls and window sills. I’d stopped by that day with two friends of mine to remove the 1,100 AOL CD ROM discs the tenant’s brat had thumb-tacked to the ceiling.

I spent Sunday just lazing around the house. I read, I even watched a few movies on TV. The weather was rainy and not very pleasant. I didn’t really want to be outside anyway. And I certainly didn’t want to go into the house on Jackson Street.

On Monday morning, I went to work. I’m between books right now. That doesn’t mean I don’t have a book lined up yet, though. I actually have two of them. One is a revision of my Mac OS X book for the next version, called Tiger. The other is a revision of my QuickBooks for Mac book. I’m under contract for one book and will soon be under contract for the second. Both books are for Peachpit Press. But I’m also working with an eBook publisher to do a pair of PDF format books for a new eBook imprint called SpiderWorks. And I usually spend the time between books writing articles for Informit.com and FileMaker Advisor.

That’s not all that’s on my plate. I’m also doing work for Flying M Air, my helicopter tour company. I’m waiting for the delivery of my Robinson Raven II helicopter. I got the bad news on Monday: the helicopter’s delivery date had been pushed back three weeks and would not be until the first week in January. That meant I’d have to cancel the gig I’d tentatively scheduled for December 31 at Stanton. One of the things I needed to do for Flying M Air was line up other flying gigs. There’s the potential to make a lot of money at these gigs and I’m trying to schedule at least two a month to cover the cost of the helicopter. Lining up gigs meant finding events that helicopter rides would work at, contacting the organizers, and getting permission to fly. I had about a 50% acceptance rate among those people who responded, but not everyone could be contacted by e-mail. I also needed to finish up the paperwork for my Single Pilot Part 135 certificate. This would enable me to offer air taxi services, which is not possible under my current Part 91 status. (This is all FAA stuff.) Finally, I needed to get permission from the BLM and state land offices to land my helicopter at the remote locations I wanted to fly passengers to.

So I had a lot to do on Monday and for the rest of the week. But I was in full procrastination mode. I get like that sometimes. I keep busy doing things that need to be done, but I somehow avoid doing the high priority things. For example, I really needed to get together an outline for my Mac OS X book. I had the beta software installed and had spent some time looking at it. But it wasn’t until Wednesday that I finally submitted an outline. Apparently, my editor is also in procrastination mode, because although he promised to get back to me the next day with comments, I never heard from him.

The whole week went like that at work, keeping busy from the time I arrived — normally around 7 AM — to the time I left — about 2 to 3 PM. In between, I made lots of trips to Jackson Street, to check on the painters, let in the carpet guys, and measure the place. Measuring was for a special project. I’d gotten a phone call from someone at ADOT (Arizona Department of Transportation). She was looking for unfurnished rentals for some of the people who’d be working on the bypass project in Wickenburg over the coming years. Holy cow! Is it possible that I could get the place rented that quickly? When she asked for square feet, I made a special trip to measure the place for her. I now know it’s 1,400 square feet. I also measured the condo my office is in. Heck, if they’re willing to rent that, too, I’ll move out into one of the studio apartments I own (something I’ve been considering for a while) and let them have it. It would be nice to get some regular income from that place again.

I also had to begin the process that would take my former tenant to small claims court in an attempt to get back some of the $4,300 I spent to restore the house to rentable condition. The limit for small claims court is $2,500 and I’m going for all of it. It cost me $2,200 to replace the carpet she destroyed and the back bedroom definitely required professional repainting. I took a lot of pictures. Unfortunately, the painters tore out the carpet (because of the smell) before they painted, so I didn’t get as many photos of the carpet while still on the floor as I would have liked. No matter. My friends John and Lorna helped me photograph carpet sections, including the underside, outside on the driveway. I printed the photos yesterday and they do a fine job of documenting the damage. I also took a few carpet sections that I could display in court. I wonder if the judge will want to sniff them.

The rental house is coming along nicely. The carpet guys, who were supposed to come next Tuesday, had a cancellation and were able to do the job yesterday. They very kindly used some vinyl tile leftover from another job to retile the front bathroom, charging me just $30 for labor. I can’t blame the damage there on the tenant — it was already pretty worn — but it’s nice to get the place fixed up a bit more. At this point, I’ve already replaced all of the floor covering in the house and I’ve only owned it for four years. I replaced the back bedroom’s floor covering twice. Today’s the day when I write the big checks to pay for all of this work.

Meanwhile, that entire property is up for sale. It includes the house and four studio apartments in a separate building. The studios are fully furnished and quite nice. The house will be wonderful when it’s done. There’s a potential buyer lined up, and he’ll be presenting a formal offer today. But I already know that his price is low and he wants me to finance part of the purchase. I’m probably going to have to say no. When I’m finished typing this, I’ll crunch some numbers to see what I need in case I need to present a counter-offer.

Plan B is already in the works. I’m getting a separate water and gas meter for the house. If the rental with ADOT falls through, I’ll officially split the house property from the apartment property — they’re already on two separate tax parcels. I’ll sell the house and use the money from that transaction to pay off the mortgage on the whole property. Then I’ll move my office into Apartment #4, which is bright and airy and has excellent views of the mountains. I’ll fix up the condo and sell that. That won’t get me as much money as the sale of the house and apartments, but I will own the apartments free and clear. Income on the three remaining apartments is $1200/month. Expenses are less than $400/month. So that’s a nice little income each month. And if I need cash, I can always refinance the apartments and take out a loan on it.

So that gives you an idea of what’s going through my mind. A lot. Too much, maybe.

Last night, we went out to dinner at the Mecca with John and Lorna. I’m getting to be a regular at the Mecca. They make excellent margaritas. Afterwards, we talked John and Lorna into coming to see The SpongeBob SquarePants Movie, which was playing at Wickenburg’s oneplex next door. I’d heard good reviews about the movie on NPR. But those reviewers must either have kids or undeveloped brains. The movie did have a few jokes that only an adult could pick up, but there weren’t enough of them to sustain me. Seeing a movie like that makes me glad I don’t have kids. Thank heavens the movie was short. Fortunately, National Treasure starts today and I think that’ll be a bit more enjoyable for the over-six crowd.

So it’s Friday morning, at about 6 AM. Alex is in full talking mode. “Hey now!” That’s his favorite new thing to say. And “Are you a duck?” Mike will be down shortly and Jack the Dog will be with him. Mike will have tea and Jack will eat up all the egg Alex dropped on the floor. I’ll put this away and clean up around Alex’s cage. In an hour, I’ll go to the office and try not to procrastinate any more than I already have this week. And, with luck, the meeting with the possible buyer will go well and I’ll sell my rental property once and for all.

But at least the house guests are gone.

Three-Niner-Lima is Gone

I deliver my old helicopter to its new owner with one last scenic flight.

On Monday, I delivered N7139L to its new owner, John, in Mesa, AZ.

Normally, it’s about a 50-60 minute flight to Falcon Field. With the high winds from the north that day, I probably could have made it in 45 minutes. But I admit I didn’t take the fastest route to Falcon Field. Instead, I decided to visit a few of the GPS waypoints I’d accumulated during the four years Three-Niner-Lima was in my possession.

The first waypoint I visited was added just this year. It’s an abandoned, partially constructed house north of Lake Pleasant. Jim Wurth had taken me to see it a few months ago. It was quite amazing. On Monday, I simply flew over. No time to stop.

From there, I visited one of my favorite destinations, the landing strip at Red Creek and the Verde River. We’d done a heli group outing there a few years ago on New Year’s Day. There were four helicopters that day and I’m sure I’ve shown off the photos somewhere in the Web. On Monday, I flew over, then dropped down into the Verde Valley. I followed the Verde River south, crossing over marshes, lakes, and dams along the way.

When I got to the Verde’s confluence with the Salt, I went up the Salt River just a little bit, then crossed some mountains east of Falcon Field and approached from the southeast. The wind was howling when I set Three-Niner-Lima down for the last time in a big open taxiway area south of Falcon’s tower. John drove up just as I was cooling down the engine.

We wheeled Three-Niner-Lima to its new home, a T-hangar among the hundreds there. I showed John everything I’d brought for him. I told him about a few of Three-Niner-Lima’s quirks. I watched him slide the hangar door shut, hiding Three-Niner-Lima from view. I remained dry-eyed, despite the fact that I was leaving a good friend.

The money and title changed hands. John drove me up to the shopping center at 74 and I-17. Keri picked me up at the McDonald’s there. We went for lunch at a sports bar in the shopping center, then came back to Wickenburg.

Three-Niner-Lima’s parking space in my hangar is empty. But in about a month, it should be occupied again.