Blog Carnivals are a great resource to discover new voices writing about topics that you care about. 

• MoneySmartLife is hosting the Carnival of Personal Finance, and the EquityScout.com entry on Real Estate Investing vs. Speculating was featured as an editor's choice. 
• Real-Real Estate Investing is hosting the Carnival of Real Estate Investing, and the EquityScout.com entry on real estate investors working with Realtors took first place. 

When you start reading a lot of articles in the general news media about real estate investors it’s usually a sure bet that they’re not going to be flattering.

When the market was flying it would seem that everyone was making big bucks, if you took media coverage at face value. That led to a big increase in speculative buying. This hasn’t painted a pretty picture in many areas, and an ugly convergence of flattening/declining prices, declining sales, and a collapsing sub-prime lenders has turned many a get-rich-quick scheme into a sob story.

How about the Florida couple – an administrative assistant and a carpenter with a combined household income of $90,000 – who took out $750,000 in financing to buy three investment properties. Now that the market has tanked and they’re facing foreclosure they’re suing the lender – claiming that the bank never should have trusted them with the money in the first place.

These sordid stories aren’t hard to dig up, and they highlight a fundamental truth: There’s a difference between investing and speculating. Either approach may be right for you…but the danger comes when you think you’re doing one but you’re actually doing the other.

Investors and speculators have fundamentally different objectives and risk profiles, and consequently require two distinct skill sets. I’d argue that in today’s economy we all need to be investors. The job-for-life-guaranteed-pension world of previous generations has evaporated in recent years, and social security is looking increasingly rickety as it prepares to bear the weight of the retiring baby boomers. Many Americans are waking up to the fact that they’re gong to be responsible for their own future livelihoods.

Few of us, on the other hand, are cut out to be speculators. What’s the difference? Well there’s been no shortage of ink and pixels spent on the subject, but here’s my take:

Most people can easily place themselves in one category or the other.

There’s a lot to be said for having the speculator personality and skill set in a market that is hot, but smart speculators know when to sit on the sidelines. Flipping and pre-construction investing are, almost without exception, speculative activities. Many of us have talked to people who purchased an ugly starter home, slapped a new coat of paint and fixed up the landscaping, and the sold it for a big profit. Here’s a news flash: it wasn’t the paint or the shrubs that pushed up the price of the house – it was the rising market. This is a strategy that only works in bull markets. It’s a speculative play.

Most of us, myself included, belong on the left column.

Which side are you on?

Hey landlord:  here's something that real estate investing courses don't mention...

It’s honey bee season here in Houston. If your'e a real estate investor in a  bee-prone city then you’ll know what I’m talking about.  Or you will soon.

Every colony has a queen, who rules the roost. Every now and again she’ll get a wild hair and decide to relocate. And it seems, for whatever reason, that Houston honeybee queens like to relocate to rental properties that I own. Go figure.

Getting rid of a hive is a three step process. First, you have to kill the bees. Second, you have to extract the hive, and third you have to seal up the house – caulking whatever cracks the bees were using to get into the structure. If you skip a step that’s ok, it just means that you’ll get to repeat the whole process the following year because the bees will come back.

Here’s something that I’ve found out: a lot of landlords ‘round here do this on the cheap, which means that I buy a nice bee-free property only to find that an infestation pops up when summer arrives and a colony returns that had been there the previous year. I got a call just this week about one of my single family homes in Katy, a Houston suburb. I met the bee guy out there and we took care of it this afternoon. (note: you have to get yourself a “bee guy”…when you’re calling around for exterminators you’re just as likely as not to get the response “oh we don’t do bees.”) This was a quick job and relatively cheap.

I wasn’t so lucky last year when a colony took up residence in the siding of a townhouse that I own. Seems these guys were returning to a large honeycomb that had been left a year or two back, and the guy had to do a significant amount of work to get the whole thing out.

sidenote: a second drawback to not extracting the hive is a rotting honeycomb which a) stinks and b) will attract every raccoon, rat, and miscellaneous critter for miles.  Not good.

So when you’re buying ask the sellers if they’ve ever had a bee problem. If so go check it out, and even if there’s not a bee in sight make sure you caulk up the crime scene, otherwise you’re gonna get to deal with it later.

I always love talking to exterminators; maybe I just attract exterminators with good attitudes, but in my experience they tend to be enthusiastic about their jobs and love what they do.  The guy that came out today told me that in the past you would be able to get a beekeeper to come out and instead of killing the bees they'd extract the hive for free.  They'd  they'd collect the comb, the queen, and as many bees as they could gather up and transport the whole lot out to the farm to produce honey.  But nowadays with aggressive Africanized bees popping up they're nervous about harvesting wild colonies and introducing them to thier farms.  So much for that angle... 

Recently I was looking for a new tenant for a single family home that was going to be vacant in about a month’s time. The house is in the back of a quiet cul-de-sac, so I spoke to a neighbor a couple of houses over on a busy corner and paid her $20 bucks to put a “For Rent” sign with my phone number in her front yard.

It’s a popular area so I got lots of calls. Some of them, of course, were from Realtors who wanted to help me lease the house. I like developing relationships with Realtors (as I’ll explain below) so I agreed to meet one. She rolled up on Saturday afternoon in a massive shiny SUV with a magnetized sign featuring a large glossy portrait of her smiling face.

She took a look at the place, declared that she thought she could help me, and explained that the charge would be one month’s rent plus a $150 listing fee. And free of charge she offered me lots of advice, like check the applicant’s credit and make sure the property is clean before you show it and call the applicant’s references before signing a contract.

She called me the following Tuesday to see if I was ready to list the property with her, but by then I already had it leased out myself.  This particular unit rented for $1,250/month, so I saved myself a total of $1,400.  Well, $1,380, including the $20 bucks I gave the neighbor to allow me to put the sign up. 

Realtors can offer a lot of value to investors…

…it’s just that your needs are different than the needs of standard consumers.

Bottom line: your needs, as an investor, are different than Joe Homebuyer’s needs.

There are three ways that Realtors will tend to react to this:

• Offer the same package of “value” that they offer to the general consumer and insist that you pay what the general consumer pays. You’ll get the “my services are worth it” angle from these Realtors. But that’s like arguing that a circular saw is worth fifty bucks: it might be worth that and more, but if the job calls for a drill then you’re paying for the wrong tool. Verdict: wrong answer.
• Offer you the “investor services” that fit the value drivers on the right hand side of the table above, but insist that you pay the same rate that they charge for the suite of services on the left. This is an “entitlement” mentality; the agent feels that his fee isn’t for service rendered, it’s for having his expertise supporting your deal. If you’re an investor this isn’t reasoning that you should accept. You should pay for the time and effort that agent puts into the deal; if you’re doing much of the heavy lifting then you shouldn’t pay the same as the next guy who buys a property once every other decade and needs his hand held through the entire transaction. Verdict: wrong answer.

• Offer you the “investor services” that fit the value drivers on the right hand side of the table above, and charge you appropriately. This…by process of elimination…is the “right answer.”

So, what does “charge you appropriately” mean? You’re the negotiator and so is your Realtor – sit down and work it out!

Don't miss the article in today's New York Times about three Atlanta ladies who got together to expose rampant mortgage fraud in their leafy suburban Atlanta subdivisions.  Conventional wisdom has always held it that the primary loser in these deals is the lender, but these three crusaders helped show that there are real quality of life issues that are the colateral casualties of these crimes.  One woman joined the fight when illegal flipping contributed to an artificial 30% rise in the tax assessment of her primary residence.

The article does not take any pains to discriminate between illegal fraud-based flipping and the the perfectly legal brand practiced by ethical real estate investors, but it was an interesting article nonetheless.