The good deal: building salvage

Bet this owner got a great deal on those windows...

Have you ever walked in to a friend’s house that they just finished remodeling and nothing matches? Your friend will then proceed to tell you about the “good deal” they got on everything.

Most of what you will find in your typical "building salvage" stores falls in to this category, quality tile but not enough for the entire bathroom. High end light fixtures but just one of them. Individually, these items might indeed be a good deal, the problem is that they will look chaotic and uncoordinated.

Building salvage stores often have lots of items that “just need a little work”. The door with the damaged casing, the cabinets with the miss-matched hardware. While individually these all seem like a good deal, the problem is they inevitably turn into a time suck tracing down replacement pieces and hardware that has a corrosive effect on your schedule.

While there are many products that lend themselves to E commerce, books, music, electronics, building materials do not fall into this category.

Case in point, plumbing fixtures, especially high-end brands like Grohe are notoriously confusing to order.  The chances of getting this wrong are high, and then you’ll have delays, re-orders and an aggravated plumber.

When an owner supplies materials to the contractor, the contractor will not warrantee them and if there is a defect or you ordered the wrong thing, then it’s the owner’s problem to resolve.

BuildSmart take away: Building salvage isn't always the "good deal" it seems. With BuildSmart, we can turn you into an informed buyer when it comes to your remodeling project. Contact us today.

Understanding transaction costs

The question is often asked, how long to hold should I hold on to my property. It’s impossible to answer this question without first understanding the concept of transaction costs.  Transaction costs are part of every economic exchange, if you’re selling some stocks that you own, when you sell them, the brokerage (on-line, in person it doesn't matter) deducts their fees from what you sell.

So, unless the stock price increases more than what you paid, including the transaction cost value, you would not make money on the sale of your stock (we will ignore the tax consequences at this point).

While there are more components to real estate transaction cost, the concept is still the same. Unless your gain is more than the value of the transaction costs, you will not make any money.

When prices were steadily rising every quarter, the appreciation would help offset the transaction costs, making it possible to profitably sell. In our current environment of flat prices, this obviously isn’t the case.

The only way to predictably account and mitigate transaction costs is to create value when you buy.

We’ve never seen a real estate transaction where the transaction costs came in less than the estimate. Seems like they are always more. The temptation is to ignore them as a “cost of doing business” but this is precisely what you don’t want to do. In fact, on any project you work on, you should include a contingency on these items also.

The other items that should figure into any analysis of how long to hold your property are the tax consequences of selling and rate of appreciation in the market area.

More about this important topic to come.

Let BuildSmart help you analyze the market for your home and help you make good choices around building value in your property.

Your friendly neighborhood bank?

Since, the old model of building value in real estate relied on appreciation or long term holding of a property, and neither of those conditions exists in the current market, then there needs to be a new model to take its place: a new paradigm to participate and win in the new real estate market.

Is your bank looking out for your interests?

If life were life a marketing piece from one of the national banks:

• The college kids are all quietly reading in the sun drenched library alcove - not outside smoking while they check their iPhones
• Every new car would come with a giant red bow attached
• Smiling families would be moving into their sparkling new home, as opposed to inside with the lights out, wondering how long they cannot stop paying their mortgage before going into default

As an industry, the financial services industry spends over $10 billion on advertising. This is on par with the auto industry. The reason they can spend this much on advertising is how insanely profitable this industry is.

Think about it, you deposit your money at 1.5 %(maybe) and meanwhile the fees on your credit card are 23%, with that kind of spread they can pay for a lot of feel good advertising. The financial services industry is implicit in the financial meltdown. Looking for them for a solution is ridiculous.

With BuildSmart, we'll help you understand all the options available to you as a home buyer and home owner - options that are helping you build value - not lining the pockets of millionaires.

Why you should care about Zip Car

Zip Car is the name of a car sharing service. For a fixed monthly fee, Zip Car subscribers have guaranteed use of a car. For their monthly fee, subscribers can reserve a car on line, and pick it up at various conveniently sited locations. Cars are located in neighborhoods throughout a city; say in the parking lot of a supermarket or transit center. Once you’ve paid for a monthly subscription, the only cost is for the gas you use. Insurance, maintain ace, tabs, etc. are included in the monthly subscription cost. In some ways, this is the best of both worlds; you have access to a newer car when you need it, without the headaches and all the expenses of owning your own car.

When you think about it, given how car-centric we are as a country, car sharing is a quietly radical idea. Five years ago, you probably never heard of Zip Car, or for that matter, urban farmers markets, 100-mile menu sourcing, and walk scores. Now, at least in larger cities, these things are all ubiquitous. When seen individually, these might seem like random data points, not really connected to anything. When seen collectively, however, they paint a far different picture.

So, back to Zip car and why it matters, these are all indications of a changing American lifestyle and preferences. In a sense, the chicken and the egg. Not being tied to a car, not needing one every day frees you up your housing choices, allowing you to live in a denser neighborhood, where you don’t necessarily need car for trips to the store etc.

You see, ultimately, the real estate market (your real estate market) is just a reflection of America.  America has grown and changed over the last century and houses and housing patterns reflect this. At the turn of the 19th century somewhere around 60% of the population lived on and worked on farms. Transportation consisted of walking or horses. How things have changed!

BuildSmart can help you navigate the changes in the housing market and help you make decisions that will add value to your home, whether you are remodeling, buying a distressed property or contemplating a renovation. Call us today.

Alphabet Soup or learning to love alphabet soup

Vast.

It’s the only word that can describes the government’s role in the housing industry. This support is both direct and indirect.

Indirect support consists of the mortgage interest deduction that gives home owners the ability to deduct the cost of mortgage interest from their taxes.

Direct support incudes programs administered through the Department of Housing and Urban Development (HUD) and loan guarantees made by the GSE’s (Government sponsored enterprises) of Fannie Mae, Ginne Mae & Fredie Mac. In addition to these federal programs, most states have some kind of “office of housing”.

In case you hadn’t noticed, the federal government isn’t known for its transparency. This is especially true in the opaque world of these programs. So, although there exist many benefits for home buyers through these programs, they are hard to identify and hard to access. So, where do you begin?

The government, like any large organization tends to operate in silos, what this means is that there is virtually no connection from one program to the other. So, just because you applied for one program and maybe you didn’t qualify, there is no one “connecting the dots” with other programs to see if they work for you instead. Since these various housing programs are organized on an agency by agency basis, I think a good place to understand what’s available, is to look at them on an agency by agency basis.

We'll cover that in an upcoming post. In the meantime, contact BuildSmart and we'll help you understand the alphabet soup that is government housing programs, and how the might be applied to your specific home buying, or home renovation need.

Intelligent participation

If we were academics, we’d be content with the analysis of the roots of the current housing crisis and then participate in the obligatory hand wringing over the future of, home ownership, the middle class, America, apple pie, etc.

While all these topics make for interesting speculation and some idle chatter at your next cocktail party, the problem with stopping there, is that you really haven’t solved anything have you? The goal of BuildSmart is to empower you with the insight and knowledge to participate intelligently in the housing market. To understand both some of the bigger trends that affect real estate and knowledge specific to take advantage of them on the ground.

The problem with the collective handwringing about the future of the housing market, the country, the middle class, etc. is that while your wringing your hands about how bad it is, etc. someone else is sizing the opportunity and that person should be you.

So we ask you to stop worrying and to start thinking about how you can position yourself as a homeowner or investor with a solid strategy that actually results in being on top. Call BuildSmart today and let's discuss your path to building your value and equity.

Yes, flipping IS gambling

The economist Keynes once remarked, that in the long term, everyone is dead. How does this apply to the BuildSmart approach you ask? Well, in the old model of steadily rising home prices and an active market, home buyers were curiously uninterested in the actual price they paid for their home. What was more important was the initial monthly payment. The assumption was that whatever you paid for the home was unimportant since it would quickly be worth more.

The most radical form of this was the practice of flipping. In flipping, you could tie up a property say a new condo under construction with a small deposit, once completed, you could resell the condo and pocket the difference between what you paid for it and the new (higher) price.

This was speculation, pure and simple. If you made money flipping properties, you no-doubt felt pretty clever. Speculation however assumes an environment of rapidly rising prices. Without this environment it makes’ difficult, if not impossible to make money speculating in real estate.

BuildSmart's approach focuses on creating long term value that can ride out market fluctuations - it's not a model for flippers looking to make a fast buck. If you are a home buyer or owner who is in it for the long run, then BuildSmart is for you. Our approach focuses on understanding how a property can be enhanced for maximum value, in the most affordable way imaginable for the home owner.

When we say we "turn owners into builders", we also mean a number of things: professional builders look at home renovation remodeling differently than the public - we'll help you see your project through those same eyes; and with BuildSmart, you'll also become a "builder" of value and equity. Call us today to explore how we can help you.