Tuesday, May 11, 2010
Property Investors Mark the High Point of the Hawkman's Weekend
Post and photos by the Hawthorne Hawkman
About a year ago, Connie Nompelis and I spoke to a group of investors about what the real estate market in NoMi was like at the time. We also told them how our community had been burned by predatory investors. I remained on someone's mailing list from that event, and had received invitations to go on "foreclosure bus tours." This weekend, I finally did go on such a tour, led by the High Point Group. The pictures above come from my Blackberry and are of an interior of one property we toured.
I was skeptical before I even got to the event. For one thing some emails said that they would be willing to write up offers as soon as the bus tour was over. This kind of (potential) buying almost sight-unseen brought to mind recent mortgage activity in the EcoVillage. I expected one of two things from this tour. I'd either remain silent, taking copious notes in anticipation of a scandalous - albeit mortgage geeky - tell-all blog post, or I'd call out the scuzzy, slummy behavior that was harming our communities and be such a killjoy that the investors would drop me off at a gas station and make me find my own way home.
What I DIDN'T expect, and what REALLY happened, was...
...that I was rather impressed with what I saw.
This is a partial post, due to the technical difficulties with the JNS pdf support site. I consider the pdf documents from the event to be crucial to this post, but can't sit on it any longer.
Let's get what I DID NOT like out of the way first, shall we? I still prefer to view houses as HOMES and not as vehicles for investment opportunities. Too much of the latter is exactly what got this country into a mortgage crisis, and north Minneapolis was suffering from such irresponsible behavior long before it caught on nationwide.
Group leaders explained in great detail how they recommend purchasing properties where the loan-to-value ratio is low enough to allow them to pull their cash out using a commercial line of credit. Then, with that property "cash flowing," they can use the proceeds to pick up another property or few, and repeat as needed. While this may be a sound business strategy, we've seen it explode on us here in NoMi all too often. So I remain cautious at best regarding High Point.
But the first house on the tour, 922 Minnehaha Ave E in St. Paul began to put me at ease. First off, what do we have here?
A RAINBOW CEILING FAN!!!
I wasn't taking many pictures at this point because I was still thinking I'd be "under cover." As we drove to this house, I looked at the High Point Group's analysis of the property. They claimed that there were five bedrooms, even though the MLS listing said there were seven. Once we arrived, it was clear that there was no way this house had seven real bedrooms. The exterior needs some touching up, as the place is full of "kludges." But there were hardwood floors throughout much of the place, and once the makeshift closets were removed from living room areas, the house would be quite appealing.
The leader of the tour, Michael Mangan, was asked if he would put carpet down, and said "absolutely not." He might give his tenants a carpet allowance for area rugs, but he would keep the hardwood floors. They're a better investment and tenants tend to mess up carpeting when moving in or out. Furthermore, as the investment analysis indicated, he said he would pare down the number of bedrooms because some spaces clearly were not meant to be used that way.
It's not clear if the investors on the tour agreed with him entirely, but I was thrilled to hear these things being articulated. Other conversations around specific rehab options, while perhaps not optimal, were far better than the kind of work we've seen from the likes of Paul Koenig, Mahmood Khan, Bashir Moghul, and even better than the "not the best, not the worst" line we get from time to time.
It was around this time that Michael recognized me from last year's presentation. Seeing as how my cover was blown, I was now free to take pictures at other properties.
Next, we went to 1807 Reaney Ave E, in St. Paul. This was a small crackerbox of a house, and so nondescript that I didn't even bother with pictures. I did, however, remember in great detail a few of the conversations I had with Mangan and others.
Mangan said that he prefers section 8 tenants because he has their section 8 eligibility as leverage over them. If the tenants are damaging the property, causing problems in the neighborhood, or otherwise being a nuisance, he can contact their case worker and perhaps have their section 8 eligibility revoked. I have no proof of how he manages his properties and tenants, but this is the first time I'd heard a landlord/property manager talk about section 8 as anything but a means to produce a steady income stream.
I also spoke with one of Michael's co-workers who said that High Point has properties in the Hawthorne neighborhood. I invited her to come to our next housing committee meeting to get to know the residents, and she accepted the invitation.
Another woman talked to me about she prefers to buy homes and sell them on contract for deed. In NoMi and other parts of Minneapolis, we've seen landlords employ this tactic as a way to get around the rental licensing and inspections requirements. Instead, this woman said she used the contract for deed as a way to give her renters/clients/tenants a vested interest in the property. She selected only people that had a realistic chance of refinancing, and set up the contract terms in a way that encouraged success. In her experience, this was the best way to make sure she got good tenants.
Mangan also strongly advocated against buying and quickly turning the property for a profit. Instead, he recommended carefully selecting which properties to buy and hold over the long term.
Our third and final house was 277 Annapolis St E, in St. Paul. The pictures before the jump were of the woodwork inside and the foolishness of the previous owners, who covered the hardwood floor with cheap tile.
Do you ever wonder what it would look like if a rainbow ceiling fan were to somehow explode and cover a room in hideous combinations of every color imaginable? Well, wonder no more.
Pretty much every room in this house looked like that.
The other conversation of note that took place at this property was when one of the investors asked Mangan if he would convert anything into more bedroom space. The basement was already partially split up in the middle of an attempt to do just that. The response was, "This house is solid as a three-bedroom home. Why try to make it something that it's not?" Music to my ears.
High Point also provided a list of their "Metro 100" properties they felt were good potential investments. Once the pdf site memory issue is fixed, that list will be posted. I'll use my special Hawkman vision to look for mortgage and real estate connections that are invisible to the untrained eye. The third pdf addition will be High Point's "best buy list," in which they explain in detail what kinds of returns can be expected from specific investments. No addresses are attached to that list, presumably so that investors will go through High Point for those services.
When slumlords have been profiled on JNS, the question has often been asked, "When are you going to profile the GOOD landlords?" Based on much of what was SAID during this tour, High Point Worldwide may give us a chance to do just that. I've said from day one as housing director that it's simply not realistic to think we'll get out of this housing crisis without landlords and other investors. I've also said that I hope landlords and investors who do right by my neighborhood find ways to be incredibly profitable.
(That being said, I'd rather have a good owner-occupant in a single-family house instead of having more places be investor-owned.)
But the proof of whether High Point fits that profile depends not on what they say, but on what they do. So we'll put them under the microscope here on JNS and hopefully we like what we see. More posts are forthcoming as pdf site issues get resolved.