Warren Buffett on the Real Estate Market

When Warren Buffett speaks about investing, people listen. Here is what he had to say in a recent letter to shareholders regarding the housing market:

" Last year, I told you that "a housing recovery will probably begin within a year or so." I was dead
wrong. We have five businesses whose results are significantly influenced by housing activity. The
connection is direct at Clayton Homes, which is the largest producer of homes in the country,
accounting for about 7% of those constructed during 2011.

Additionally, Acme Brick, Shaw (carpet), Johns Manville (insulation) and MiTek (building products,
primarily connector plates used in roofing) are all materially affected by construction activity. In
aggregate, our five housing-related companies had pre-tax profits of $513 million in 2011. That's
similar to 2010 but down from $1.8 billion in 2006.

Housing will come back - you can be sure of that. Over time, the number of housing units necessarily
matches the number of households (after allowing for a normal level of vacancies). For a period of
years prior to 2008, however, America added more housing units than households. Inevitably, we
ended up with far too many units and the bubble popped with a violence that shook the entire economy.
That created still another problem for housing: Early in a recession, household formations slow, and in
2009 the decrease was dramatic.

That devastating supply/demand equation is now reversed: Every day we are creating more households
than housing units. People may postpone hitching up during uncertain times, but eventually hormones
take over. And while "doubling-up" may be the initial reaction of some during a recession, living with
in-laws can quickly lose its allure.

At our current annual pace of 600,000 housing starts - considerably less than the number of new
households being formed - buyers and renters are sopping up what's left of the old oversupply. (This
process will run its course at different rates around the country; the supply-demand situation varies
widely by locale.) While this healing takes place, however, our housing-related companies sputter,
employing only 43,315 people compared to 58,769 in 2006. This hugely important sector of the
economy, which includes not only construction but everything that feeds off of it, remains in a
depression of its own.

I believe this is the major reason a recovery in employment has so severely
lagged the steady and substantial comeback we have seen in almost all other sectors of our economy.
Wise monetary and fiscal policies play an important role in tempering recessions, but these tools don't
create households nor eliminate excess housing units. Fortunately, demographics and our market
system will restore the needed balance - probably before long. When that day comes, we will again
build one million or more residential units annually. I believe pundits will be surprised at how far
unemployment drops once that happens. They will then re awake to what has been true since 1776:
America's best days lie ahead."

House Visit: Wrapping Things Up

What a difference a few weeks can make. We're in the home stretch on the house that we were working on a few weeks ago, where we were stuck in vanity mirrors, countertops and cabinets. Well, as you can see, most of these hurdles have been cleared and we're finishing up the last few bits of work, including the countertop and faucet for the vanity, as you will see below.

We're also still waiting on the installation of the back splash but otherwise, the kitchen is all but done. The countertops are granite and I personally love how the swirls of reddish brown in the stone accent the orange of the divider and the dark browns of the cabinets. We finished the wood-paneled pocket for the stainless steel refrigerator and the grout on the porcelain tile flooring. We modified the cabinets above the cook top and installed the undercounted stainless steel sink, as well. 

Like I said, we're still waiting on the granite countertops in the bathroom and the bowl sink but overall, I'm really happy with how this turned out, and the customer has been very flattering about the entire project. More later this week. 

Job Visit: New Shades

We went out on a paint job today and I thought it'd be good to get some practice in as I have been slacking on the photos from other sites; this will be rectified. This was a pretty generic paint job on a nice apartment in midtown, around Lexington Ave., medium-sized room with just some minor spackle work and repairs. Not a huge show-off project but it was nice to get some photos up on here and get some of our more unsung workers on camera. And check out that awesome chandelier!

HUD called

well actually, the contract administrator for HUD called. They say they made a mistake, and that they should never have authorized an "And/Or Assigns" contract on the Lakewood house I am buying.

They are willing to return my $1000 earnest money if I cannot close on it in my name alone. They want me to sign an amendment deleting my "and/or Assigns." I told them I would seek legal counsel on that.

There is no contingency whatsoever for investors once they bid on a HUD home. I gave him an earful (respectfully, of course) on that baloney. He says they are trying to promote home ownership. I asked him who he thinks buys my HUD home from me once I fix it up? How many homeowners are going to put $100K into fixing up a home before they move in???

Bottom line: the original listing agent is pissed that I have another listing under-pricing his; and the NWMLS is backing me up on this....The NWMLS apparently allows listings for "equitable interest," even when there is another active listing for the same property.

It's been an interesting day....

A Customer Testimonial

Hey everybody! We were able to cut a clip from a set of upcoming customer testimonials we recorded earlier this month. They all came out really great and they'll all be on the site (www.clickandimprove.com), YouTube and this blog eventually but we wanted to show what we've been working on a bit. This is one of our first customers, Gladys. Enjoy!

Investment Opportunity: Oakbrook Fixer in Lakewood!

Bedrooms: 5
Bathrooms: 2.75
Building Sq Ft: 3702
Tax Assessed (2011): $309,300
Lot Sq Ft: 11,683
Year Built: 1964 (effective year 1975)
Garage: attached 2 car

This property is in the desirable Oakbrook golf course community, surrounded by three golf courses, near Lake Steilacoom and two nearby parks. Houses like this do not come on the market very often. Currently this property needs a little work to get it market or rental ready:
- Roof
- Windows
- Refinish Hardwoods
- Install Kitchen
- Update bathrooms
- Interior / Exterior Paint
- Trim / Mill Work
- Spruce garage
- Landscaping
I have licensed, bonded contractor bids for $60,000 - $73,000 to do this work. House has been inspected and sewer scoped, and those reports are also available to investors/buyers.

Total Investor Acquisition = $160,000

PHOTOS – Click on link or cut and paste into browser
https://plus.google.com/photos/111966577552026249795/albums/5710289489418080257

Fixed Up Value = $315,000

Comps Used:
$314,000 - 7814 76th St Sw, Lakewood 98498 5br/2.75ba 3603sf YBT: 1964 Lot sz:9355sf sold 07/29/11 slightly smaller house and yard; but same Oakbrook neighborhood and builder
The four other (all smaller) sales sold in the last six months within 1/4mi went for $108.95/sf on average. That would make the value of this property $403,332.
NWMLS Realist places the fixed-up value at $330,521 (range is $281K -$381K).

Exit Strategies:
Flip: If $75,000 is spent to remodel the house completely, the investment will be into the property for $235,000. At a sales price of $315,000 - $28,350 (selling cost) - $235,000 = a net profit of $51,650.00!

¬Rental Income: Median rent is $1650 / month, depending on upgrades.

Based on a mortgage of $1536/month (a loan amount of $225,000 dollar loan with a rate of 5% with tax and insurance), the potential is to cash flow $114 a month.

If interested in purchasing or investing in this opportunity, please message me privately at HomeLandInvestment@gmail.com

Shower Power

We’ve been dealing with a bit of shower drama the last few days, but things to be on the right track, quite literally. We spent most of today measuring and cutting track and getting everything ready to install with ze caulk. As you can see by the pictures below, we’ve finished a great deal of the electrical work in the bathroom, including three outlets and a light switch. And yet, negotiations on what exactly we’re going to do with the vanity are still ongoing, making the choice of lighting in that particular area a bit of a sore thumb.

Still, I’m very excited how the tiles came out and the fixtures we have for the shower itself are on their way. An original concept had us adding a soaking tub to the side of the shower but those plans were abandoned upon further investigation of the budget we were working with. Plus, I’ve always enjoyed an open bathroom with space to spare, and that looks like what we’ll have at the end of this project. We’re also finishing up the divider tonight, if all goes according to plan. I will put up more information and pictures as I can get to them, ladies and gents. 

Home Visit: Step-by-Step in the Kitchen

As I mentioned last week, we’re working on a kitchen as well as a bathroom in the house that we’re currently working on. We’ve honestly just started the groundwork for the kitchen but I thought they were worth a look. As in the bathroom, we used mud setting underneath the tiling for the floors and have yet to finish the grouting completely. 

The room has a doorway entrance as well as an open entrance with divider coming off of a planned dining room that is nearly finished. You can see the paint tests being done in the dining room area and the dangling light that makes it look almost like where you would perform an interrogation. You can also see all the tiresome spackling that went on over the studs, the electrical work and, below, some of the plumbing going on underneath.

We’re still waiting on a word of what exact kind of oven will be put in but other wise, the plan for the room is set. I’ll be able to go into more detail once the countertops and shelves have been put in and are worth a look. But I am happy that this customer decided on a garden window, which is an amenity I’ve always enthusiastically suggested to customers. They always brighten up the room and I love the sense of extra space you get from them; perfect place for cactuses and other smaller plotted plants to give your room some more personality. Once these rooms have more personality themselves, I’ll be sure to post here.   

House Visit: My Name is Mud

We’ve been working on a house in the outer boroughs this past week, remodeling both a kitchen and bathroom from scratch. We were lucky enough to start with a blank slate and allowed to just go in and work with the homeowner on the design. The bathroom was the more urgent job in this situation, as you might expect – you can always order in, but you can’t always use your neighbor’s shower.

As you can see below, we just finished laying the tile in the bathroom and are awaiting the drying process to finish up before we get into the grout. You’ll see the separators keeping the tiles even in some of these pictures. We opted for mud setting over wonder board on this job, which is best for any tile work. A wonder board setting will often lead you to more cracks in your tiles and a lack of even pitching all around. The mud setting, for those who don’t know, is essentially a layer of cement with wire mesh and tends to make for solid, long-lasting floors in bathrooms especially.

We’re also waiting on some decisions to be made regarding the vanity mirror. As you can see, we already have made the recess but, to be completely honest, the vanity tends to be the least urgent part of the job in situations like this, as it is one of the few things where plumbing is not directly involved. Still, it would nice to get this done in the upcoming week and get some pictures on here of the finished project. Will update soon with under-construction kitchen work. Also, check out these tiles! Not too shabby, ay?    

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On Paint Jobs - Kitchen Cabinet Doors

Today’s subject comes to us thanks to my cousin’s college roommate, who just recently bought a home upstate and sent me a kind e-mail telling me about some projects he was thinking about undertaking. Being a chef, most of his major wants surround the kitchen and his first idea was to repaint his kitchen cabinet doors before putting on a set of designs; we spit-balled and decided that cooking utensils and accessories would make a great theme.

Removing the doors with a screwdriver is, of course, the first step. If the cabinets are unvarnished, you can begin by wiping down the cabinet with a sponge and cloth to remove any dirt and specks; if it is varnished, sand down the door until the finish has been dulled and then wipe it down. In the case of my friend, it would be best to do the painting first and the stencil or design afterwards, especially if you’re still in the midst of making the stencil design.

Lay down some drop clothes and get to painting. Stained cabinets should be prepped with an oil-based primer, whereas bare wood works best with latex-based primers; it’s also suggested to use a synthetic polyester paintbrush while working with oil-based primers. To ensure a good finish, make sure you only apply a thin coat of primer to your chosen door(s), as using too much primer will likely cause a lackluster finish. Let the primer dry for a few hours and then get your paint buckets out.

For more open, sunlit kitchens, lighter colors (whites, yellows, light blues and greens) are usually recommended but I’ve seen some really excellent distinct connections that favor darker colors; a very close friend went cherry red with his cabinets and wooden countertops, despite my constant pleas for him to get black or dark laminate countertops. In the summer months, you could paint outside but in the winter, a well-sealed garage, basement or open living room is best for this sort of work. I await pictures of my friend’s cabinets (he’s putting a frying pan and a plate on two of them, respectively) and will post them here promptly after receiving them.

Lakewood Fix and Flip

This is my latest fix and flip: 7830 78th Ave SW in Lakewood, which I am buying from HUD, closing 3/12/12. I am purchasing it for $146,405 with HUD covering up to $2980 of closing costs. NWMLS puts the After Repair value at $311K-$357K. Virtually the identical house in move-in ready condition sold last summer for $314,000, the same time of year I will be putting this house on the market after it is remodelled.

This property is in a golf course community, surrounded by three golf courses, near Lake Steilacoom and two nearby parks. Houses like this do not come on the market very often. My contractor bids are coming in between $50-$75K so far.

I have done a home inspection and sewer inspection. All looks good.

I am looking for investment partners, financing, or a wholesale buyer on this, and open to ideas any investors may have. Please message me privately at HomeLandInvestment@gmail.com if you are interested!

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