Portland Real Estate Blog

Everyone wants a property that they can put little or no money down (leverage), rent out for more than it costs (cash flow) and will be worth a ton more than they paid for it when it sells (appreciation).

Putting the three together determines if you have a good investment. Not all three have to be favorable to have a good investment.

Let’s say we buy a $200,000 house. We put $20,000 down (10%) and have a loan calculated over 30 years at 6%. That’s a monthly principle and interest payment of $1079. Add $221/ month for taxes and insurance (all these numbers are fictional). Our monthly payment is $1300.

The property closes and now we have two different rental scenarios. First, the renter moves in and happily pays $1500/mo. Gross cash flow, providing there were no other expenses is nearly $200 per month. The other is that it only rents for $1100. Now we’re writing a check for $200/mo. Not so fun!

If we had put more money down, say 30%, our payment drops by $240. Now we’re making money on a monthly basis. Sounds great but we have lost our leverage. Now were using our money instead of someone else’s.

After five years, we sell the property for $255,000. It has appreciated 5% per year. Let’s say the loan cost you $4,000 and it cost you another $13,000 to sell the property in commissions, escrow & title fees, and minor repairs the buyer asked for. You’ve made only a small dent in the principle so you pay off the $180,000 loan and are left with approximately $60,000 on your $20,000 investment. This assumes the whole time we were cash flow neutral. If we’ve made a payment for $200/mo for the last 60 months, we’re out $12,000. Now we’ve “only” got $48,000 on our $20,000 investment. If the same $20,000 had sat in the bank earning 5% interest, we’d be sitting on $25,525.

Again, all these numbers are fictional on one cup of coffee. There are so many other variables that need to be considered in the overall picture but this is a good primer on the basics. we don’t have to have positive cash flow to have a good investment (but it sure is nice). We’ve always got to consider what we could have done with the money for another use.

I know better than to think that I have seen it all when it comes to owning homes and being a landlord. Actually, I know I am fortunate because one subject I have no firsthand experience with is meth. It’s hard to watch or listen to the news today without being very aware that most of the crime around Portland is meth related. The manufacturing of meth turns the production facility (usually some unknowing landlord’s house) into a hazard material’s clean-up site! Instantly uninhabitable.

By law, Oregon property owners are responsible for cleaning up the mess left behind when a meth lab is raided. Most property owners comply with the law, using one of 24 state-licensed firms to clean and decontaminate the former labs.

It’s a hardship for owners who are often unaware of the drug activity. They end up paying a cleanup bill which can range between $3,000 to $100,000, said Horton.

Read the rest of “In Oregon cleaning up meth labs is a costly process.”

On April 10, 2005, The Oregonian published, “Did you buy a meth house?” Since the owner of a house is responsible for its cleanup, a new buyer could be stuck with the bill if the house doesn’t have a clean bill of health from the Department of Human Services!

The Drug Lab Cleanup Program has lots of valuable information about the problem and cleaning it up.

Perhaps more important is the list maintained by The Department of Consumer & Business Services, Buildings Codes Division:
List of Current Drug Lab Properties. In Multnohmah County, there is only one property on the list on the west side of the Willamette.

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Today’s Sunday Oregonian’ front page story in the Home sections features one of our listings. The story is all about living in golf course communities. Read Living on the Links.

This is now a pending sale.

A couple of weeks back, our blog was featured in a Portland Business Journal story.

Buyers looking for a bargain often turn to foreclosures and bankruptcies as the promised land of the great real estate deal. They’re not for everyone and they’re don’t necessarily play by the rules that we are used to with the typical real estate transaction.

This is what recently happened with one of our buyers. Long story short, they don’t get the house. Read on for the rest.

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Home Sales Heat Up in Summer Months
Whether it’s because all those blossoming flowers make people reconsider the American Dream or the fact that moving on a warm afternoon beats hauling moving boxes in the rain, summer is the most popular time for home sales. So, if you’re thinking about becoming a buyer during the next few months, here are a few strategies to get ahead:

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In 2001, we decided that we wanted to buy a fixer and flip it (resell it) when we were done. We knew that the properties that we were interested in could not be financed because of their condition. Banks won’t lend on something in critical condition. Our plan was to find a seller that would sell the house on contract and use the equity line from our home as the source of cash.

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Portland is a seller’s market. The “rules” that we’ve used in the past for comparitive market analysis tend to leave us with an estimated sales price lower than the current market will bare. One way we can address the issue is through Prudential Value Range Marketing. Download pvrm_flyer.pdf Click for Virtual Tour

The idea is that the property is not listed at a fixed price but within a range. The seller will respond to all offers within the range. We have just listed our personal house at 9610 SW Boones Ferry Rd. between $299,900 and $338,876. The 876 at the top range indicates that it is a PVRM listing. The listing price goes into RMLS at the high end of the range.

Wouldn’t the buyer just offer the lower end of the range? Maybe. But the buyer could expect the offer to be countered at a price somewhere within the range, just like an offer on a fixed priced listing and the buyer could lose the property to a better offer. The idea is that there is an open negociation, which is better for both the buyer and the seller. During an open negociation either party can walk away. It isn’t until notification that the offer or counter offer has been signed and accepted by all parties, in writing, that the contract is binding. This means that the seller could get another offer, walk away from the open negociation and accept the better offer. This is true for any real estate transaction in Oregon.

There is nothing preventing the listing from selling for a price above the range. An over-priced property is not going to sell. A low-ball offer is not going to get accepted. If the listing doesn’t sell, the price can be dropped to fixed price within the range which will show as a price drop in the listing’s history. Ultimately, the market determines the sales price.

The concept seems so simple. Buy a house. Do some work. Sell the house. Make some money. Repeat. The devil is in the details. Skip some of the steps and you could find yourself staring into a money pit with no end in site. This will be the first post regarding the matter since there are whole books written on the subject. I’m going to write based on a home in Portland (each city has its own requirements). Let’s start with permits and licensing.

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