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Open House
Bulk Investing - One is Fun, Why Not Two?; Avoid Seller Scams and Hidden Household Problems; Frank Lloyd Wright Homes Have Trouble in the Market; Weekend Project: Fix Your Lawn
Aired May 07, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BETTY NGUYEN, CNN ANCHOR: And we have some stories now in the news for you right now.
It a historic visit as President Bush met with the leaders of three Baltic countries who are celebrating their democracy with economic progress. Bush's visit to Latvia is not, though, sitting well with Russian President Vladimir Putin. The former Soviet Union had seized control of those countries after World War II. Now, Bush travels to Moscow on Monday for its V-E Day celebrations.
Two Americans are among the dead in this morning's suicide car bombing in Baghdad. In all, at least 15 people died when the car bomb targeted a convoy of SUVs at a busy intersection. The Americans worked for a U.S. contractor. And according to early reports, at least two American colleagues were also injured.
We are following a developing story that is rooted in the Atlanta child murders that riveted the nation a quarter-century ago. Police are reopening the investigation of four of those killings, citing concerns that Wayne Williams may have been wrongly implicated. Williams was convicted of two murders, and police declared the other murders solved, presuming Williams was responsible. Well, we are working this story and will bring you more throughout the day.
I'm Betty Nguyen. "OPEN HOUSE" starts right now.
GERRI WILLIS, HOST: Buying one house is a good thing. Is buying a whole block even better? It's not as crazy as it sounds.
ANNOUNCER: Today on OPEN HOUSE, become a home detective before that next open house. Sellers often try to hide all sorts of problems. We have home-buying tips.
Then, Frank Lloyd Wright, he's known as one of the greatest architects of the 20th century. So why are his homes difficult to sell?
And our weekend project. We're rescuing your lawn. Banish brown spots and rid your yard of weeds, next on OPEN HOUSE.
WILLIS: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis. From buying and selling to renovation and design, we show you how to make the most of your biggest investment, your home.
Investing in a house is obviously a good thing. But have you ever thought of investing in a hotel? Or your own block of apartments? How about the Empire State Building?
Well, that may be a little bit ambitious, but you can invest beyond your means with a real estate partnership.
That's when two or more people get together and pool their money to buy property.
(BEGIN VIDEO CLIPS)
UNIDENTIFIED FEMALE: An apartment in the Alps.
UNIDENTIFIED MALE: Give me land, lots of land.
UNIDENTIFIED MALE: I'd say a building, a nice residential apartment building.
(END VIDEO CLIPS)
WILLIS: Usually, the founders become the managing partners charged with making the decisions. Of course, pooling your money with loved ones can have a downside.
(BEGIN VIDEO CLIPS)
UNIDENTIFIED MALE: With family, it's a little difficult.
UNIDENTIFIED FEMALE: I would not advise it with family. (INAUDIBLE) not.
(END VIDEO CLIPS)
WILLIS: But if there's trust, there can also be a lot of opportunity.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Bought an old brownstone on the East Side of Manhattan and was able to pool it between me and my in-laws.
(END VIDEO CLIP)
WILLIS: So partnerships are one solid way to get in on real estate, even though property values are soaring. We can show you how to do it.
For help, we're turning to Glenn Sonnenberg in Los Angeles. He's president of Legg Mason Real Estate Investors.
Glen, welcome.
GLENN SONNENBERG, PRESIDENT, LEGG MASON REAL ESTATE INVESTORS: Hi, it's good to be here.
WILLIS: So describe for our viewers exactly what you mean by a real estate partnership. SONNENBERG: A real estate partnership is when a professional, who presumably knows the market and knows the asset, finds an asset that they think has good value, they want to invest in it, and they go to other people and say, I'd like you to contribute to the partnership and join me in this venture.
WILLIS: Glen, and these are things you probably couldn't afford on your own, right?
SONNENBERG: Yes, generally they're larger properties. They can be apartment buildings, shopping centers, office buildings, where a group of investors together can go buy something that's much more significant in size and opportunity.
WILLIS: How much money do I need to play?
SONNENBERG: I think generally, it's going to be a -- you're going to have a hard time if you're trying to invest less than $25,000. Generally, it's above that, per unit of investment.
WILLIS: Well, that's no small thing. Tell me how much I can make investing in a partnership.
SONNENBERG: Well, depends on the property and the general partner. Whenever these ventures start, the sky's the limit. But I think generally, you can expect to make kind of mid-teen returns is an appropriate level of return.
WILLIS: Mid-teens, so 18 percent, 10 percent? What are you thinking about here?
SONNENBERG: Well, depends on what the opportunity is. If it's a stabilized property that has stable cash flow and there's not a lot going on, then it's going to be in the lower end of that range. If it's an asset that's underperforming the market and trading at a discount, where you're really going to put in a lot of effort, maybe a lot of capital into improving the asset, then the expected return should go up, but so does the expected risk.
WILLIS: All right, let's talk about some of the downsides with these partnerships, among them, the fees. Glenn, these things really add up fast. Describe for us the fees that anybody investing in one of these things is likely to encounter.
SONNENBERG: Well, it's not unlike a mutual fund, really. There's a fee associated to get into the investment, and often the general partner will charge a fee that can range anywhere from one point all the way up to, I've seen 10 percent of the investment.
Then, over the course of the investment, the general partner is going to charge a fee for managing the affairs of the partnership and managing the property, and...
WILLIS: How much is that?
SONNENBERG: Well, that, generally, will relate to the amount of income the property produces. So it's a percentage of income, generally in range of 3 to 5 percent per year.
WILLIS: Wow. We're getting up to some big numbers here, Glenn. How do you actually make money?
SONNENBERG: Well, these general partners have got to make a living. But generally, these are opportunities where there is some amount of effort involved on the part of the general partner. You're trying to stabilize an asset, you're trying to increase rents, improve the property so that there will generate more cash flow, and you're paying that general partner for the use of their expertise in managing your money to get those returns.
WILLIS: So if I don't like what we invest, and if I have a problem with it, can I get out fast?
SONNENBERG: It's a lot like the Hotel California. You can check in, but it's pretty hard to check out.
WILLIS: Well, that's not good news, Glenn. But there are upsides to this, right? I mean, a lot of these kinds of investments, I couldn't even touch if I was doing it on my own. What are the other positives?
SONNENBERG: Well, I think a number of positives. I think people go into real estate because it diversifies one's portfolio. Real estate has generally a predictable current cash flow, as opposed to a lot of other investment options. And being able to get into real estate that's of institutional-type quality, with a general partner who knows what they're doing, gives you the opportunity to get diversification and cash flow and a hedge against inflation. So it can be a great investment.
WILLIS: Well, you said it. Get a general partner who knows what they're doing. How do you find a good one?
SONNENBERG: Boy, that's tough, because there's a lot of syndications out there. I like to tell people that your financial adviser, your accountant, your lawyer, somebody like that, who sees these sorts of things, and can go through the terms and decide whether the general partner's being fair in splitting up the profits, and whether or not this person has the experience necessary to manage the partnership, is going to be really important.
WILLIS: Is it a good idea to look at their track record?
SONNENBERG: Oh, absolutely. You do really want to get somebody who is -- has familiarity with the market that you're talking about. So if you're buying an asset in Austin, Texas, you really don't want to be investing with a guy in Seattle that has never done a deal in Austin.
By the same token, if you're investing in shopping centers, you really don't -- you really want to look for somebody who has experience in shopping centers, not necessarily just in office buildings. So the track record is very important. WILLIS: Well, that's one of the benefits too, is that you can actually invest close to home in a way that you might not be able to do on your own or even in a REIT.
SONNENBERG: Correct.
WILLIS: So, Glenn, tell us, what are the best categories of real estate to invest in when you're investing in a partnership? Is it hotels? Is it apartments? What generally works best?
SONNENBERG: I would generally stay close to home, and generally something that you know something about. And so for me, if I were a novice investor, I'd be looking at things like apartment buildings versus hotels or senior living, or something that's out there on the risk factor much more.
WILLIS: All right, Glenn Sonnenberg, thanks so much for helping us today. We appreciate it.
SONNENBERG: Thank you.
WILLIS: Coming up on OPEN HOUSE, soft music, low lights. Sounds like a scene for a seduction. But it's you who's being seduced. We show you how to see through sellers' staging tricks.
Then, Frank Lloyd Wright homes are one of a kind, and often require a one-of-a-kind homebuyer. Find out why.
And our weekend project. They say the grass is always greener, but not after we give you a hand. We're taking on your biggest lawn problems.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
ANNOUNCER: Your home is probably your biggest and most valuable asset. But to protect its value, continuous maintenance of the house is important.
Here's how to safeguard your home. Get your home inspected every five years. That will help you catch small problems early on. Keep a maintenance log. Record the dates of each job so you'll know when to check for wear and damage. And keep a record of the costs too.
Make upkeep routine. Try making it a part of your spring cleaning. And start a repair fund. Budget 1 to 3 percent of the home's value for annual repairs and maintenance.
And that's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: (INAUDIBLE) that sellers often try disguise their home's shortcomings. If you've been in the market, you know just how tricky it can be.
One buyer's agent shows us how to be your own home detective.
(BEGIN VIDEOTAPE)
WILLIS: Let's start here in the kitchen.
(voice-over): Walk into the kitchen. Take a deep whiff. Do you smell apple pie? Watch out if you do. That sweet smell of an open house could be covering something up.
TOM EARLY, NATIONAL ASSOCIATION OF EXCLUSIVE BUYERS AGENTS: A lot of times, sellers will be advised by their agent to quarter an apple, stick it in the oven, sprinkle a little cinnamon on it. It creates a nice, fresh apple pie smell in the home.
That could be for two different reasons. One is to create a nice atmosphere for you to look at the home in. The other might be to mask smells that you don't want to smelling, such as pet odors or smoke.
WILLIS: Sophisticated home sellers use staging companies to help entice buyers. But all that extra eye candy could divert your attention from problem areas in the home.
Your best defense as a buyer, put your five senses to work. After you've sniffed out the kitchen, use your eyes to look for irregularities in cabinetry, appliances, and deferred maintenance. And remember, checking out a home should also be a hands-on experience.
EARLY: Well, what you're looking at is a kitchen that's made to look like it's been completely remodeled. But in fact, you're looking at the older, original cabinets. Nothing's been replaced here. They've got new hardware on the cabinets.
WILLIS: Dressing it up with just a small investment here, right?
EARLY: Small investments in handles. One of the things that we do in a kitchen, basically throughout the house, is what we call the touch test. We put our hands on things, we open up doors, we pull out the slides.
WILLIS: What are you looking for, Tom?
EARLY: We're looking for looseness. I mean, if the thing jiggles in your hand, I mean, it's a sign of deferred maintenance.
WILLIS: Not good.
EARLY: And if they're not taking care of the little things, what are they doing about the big things?
WILLIS (voice-over): Another trick of the trade is trying to create the illusion of extra space. Watch out for lighted corners and undersized furniture. EARLY: What it's hiding is the size. This is a standard-size table that would normally have a leaf or two in it. If you expanded this table out and you put six chairs or eight chairs around it, how large would this room be?
WILLIS (on camera): (INAUDIBLE), it would feel awfully tight.
EARLY: Exactly.
WILLIS: And, you know, it's only going to really be comfortable for a table of four in here.
(voice-over): Don't be afraid to bring measuring tape when scoping out a home.
Next, check out what happens when the walls have ears.
EARLY: The ear test.
WILLIS (on camera): The ear test?
EARLY: The ear test. I walk up to the wall and put my ear on the wall, and I look directly down the wall.
WILLIS: What do you see?
EARLY: Every single blemish that's ever been in that wall, every plaster repair that's ever been done to that wall, is going to jump out like a sore thumb.
WILLIS (voice-over): When heading into the bedroom, don't just look for closet space. Check out what's inside the closet. It can give you insight as to why the home is for sale.
EARLY: The thing that stands out for me is, it's a one-gender closet.
WILLIS (on camera): There's only a fellow here, right? I mean, what does that tell you? I think I know what it says. But we're looking at just shirts and ties and men's belts. I mean, (INAUDIBLE)...
EARLY: It's either a divorce situation, or it's a trailing spouse situation. But one way or another, it creates a little urgency. It's a sign of urgency on the sale of the property. Which a good buyer, a good buyer's agent, can take advantage of.
WILLIS: It's opportunity if you're in the market to buy.
EARLY: You betcha.
(END VIDEOTAPE)
WILLIS: Don't forget to look in out-of-the-way places too. One spot you definitely want to check out, the basement. It's here where you'll find out whether the foundation is sound or prone to leaks. Examine the walls. Look for cracks, especially those running between the wall and the floor. It could mean the house and the slab it sits on are separating.
Later this month, fans of legendary architect Frank Lloyd Wright can tour nine of his private residences in an annual tour held in Oak Park, Illinois. The event draws hundreds of people from all over the country.
But interest in the architect doesn't always translate into eager buyers for his home.
Ceci Rodgers has the story from Oak Park.
(BEGIN VIDEOTAPE)
CECI RODGERS, CNN CORRESPONDENT (voice-over): Imagine living in this early 20th century Frank Lloyd Wright home, known as the Tomic (ph) House, with its Tiffany glass ceiling lights and art glass windows. It's been like a dream come true for Aberdeen (ph) and Tim Ozga.
TIM OZGA, FRANK LLOYD WRIGHT HOMEOWNER: On the exterior, these beautiful iridescent colors of the art glass. It's very nice. Makes it almost look like crystal.
RODGERS: But for the previous owner, it was anything but a dream, trying to sell the house. It was on and off the market for six years before selling for just under a million dollars.
OZGA: She was looking for someone who's young, enthusiastic,, wanted to raise a family like she had raised a family in the house. And I think some people that came out here in the door didn't fit those qualifications, and she turned them away.
RODGERS: Part of the problem is the reputation of Frank Lloyd Wright's homes as beautiful but high maintenance. The Ozga, for example, have spent more than $100,000 on updating their home. A labor of love for them, but it's not for everyone.
HON SCHERUBEL, FRANK LLOYD WRIGHT CONSERVANCY: The large mass of what we would call new homebuyers would probably not be interested in Frank Lloyd Wright houses. I mean, the ones that want these great big live-in kitchens and huge master bathrooms and master bedrooms there are not going to find that in a Wright house, but they're not going to find it in any house that's probably 75 to 100 years old.
So what you're going to find is, the market will be limited to those people who like historic houses and like older homes.
RODGERS: This Frank Lloyd Wright home in Chicago was on the market for more than a year when the frustrated seller put it up for auction at less than half the original asking price.
This coach house in Oak Park has been on the market nearly a year. The price was just lowered. JAN KERR, REALTOR: Pricing is a real big issue. If a property is priced appropriately for the marketplace at a given time, then will sell in a relatively short period of time.
RODGERS: Kerr, who has sold the most Frank Lloyd Wright homes of any single real estate agent, says owners tend to overestimate the value of their historic homes.
(on camera): The Frank Lloyd Wright Conservancy conducted a survey several years ago and found that most of these homeowners expect a 30 to 50 percent premium when they go to sell their homes. But the reality is more like 10 to 15 percent.
(voice-over): Ed and Dawn McGee (ph) bought Frank Lloyd Wright's Freaky (ph) House last summer. They say they're more interested in the history and the legacy of the home than in the return in their investment.
DAWN MCGEE, FRANK LLOYD WRIGHT HOMEOWNER: We know that six other families have owned this house prior to us, six or five, (INAUDIBLE)...
ED MCGEE, FRANK LLOYD WRIGHT HOMEOWNER: (INAUDIBLE).
DAWN MCGEE: (INAUDIBLE) six, exactly. But and that's really kind of neat to know that. You know, we have a certain dynasty going here, you know, that we're just next in the line.
RODGERS: For the McGees, being the next in line means making sure that when it comes time to sell, the home will go to another owner with what you might call the right stuff.
For OPEN HOUSE, Ceci Rodgers, CNN, Oak Park, Illinois.
(END VIDEOTAPE)
WILLIS: Beautiful homes.
Coming up on OPEN HOUSE, forget keeping up with the Joneses. We want your lawn to top theirs. Tips on getting the best lawn in town in our weekend project.
(COMMERCIAL BREAK)
WILLIS: OK, so you're used to seeing him in a suit and tie reporting on big business stories. But this time, he's taking care of business in his own backyard.
Our own Allan Chernoff took charge of his lawn for our weekend project.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT: Gerri, this is what my back yard looked like a year and a half ago when we bought the house, totally overgrown. We had five huge trees filling up the backyard. I had those trees chopped down, and then I split the wood. As you can see, plenty of firewood here, so come on over if you need any.
Then we had a landscaper come in who laid down some topsoil and seeded. The lawn did come in, and from afar, it looks pretty good. But close up, you can see that my lawn definitely has some trouble.
JOHN BLECHNER, DIRECTOR OF TECHNICAL SERVICES, LAWN DOCTOR: I think there's hope for your lawn.
CHERNOFF: I thought it was hopeless.
BLECHNER: Well, you're looking at an immature lawn. It's been in about a year. You're concerned about it's a little thin, it's a little off color. It's the time of the year. You haven't fertilized yet, and I haven't done a thing yet.
Yes, we're going to do that for you today. And I think in a week or so, you're going to see it brighten up, and you start to grow, and some of this thinness will start to go away.
CHERNOFF: We also do tend to get weeds here, of course. That's typical problem right over here, you see. I mean, you know, the weeds pop up in the middle of the summer. I'm yanking those weeds all the time.
BLECHNER: Well, we're going to run a little weed control today also. Your lawn is not that bad a shape, though. You're going to see a tremendous improvement just with the fertilization and thickening it up.
Weeds are a common occurrence. And, you know, what you call a weed, to one man it's a flower. It's a plant out of place. And you're saying, That's a plant I don't want in my lawn.
CHERNOFF (voice-over): My neighbor has an absolutely gorgeous lawn, the best on the block. Take two steps over to my lawn and have a look at the difference. Do I have lawn envy? No question about it. But I'm not willing to put in the amount of work that he puts in.
BLECHNER: But I think we have to get your lawn in sync with your neighbor's. Get it on a fertilization program, get it looking the same, getting all the textures to match a little bit.
You've got a great start here, Allan. You have very few weeds, you've got nice, thick grass. We just got to get it green and growing. And we're going to take care of that today with a little fertilizer.
CHERNOFF (on camera): Let's get to it.
BLECHNER: Allan, what he's doing now, he's starting your fertilization application, and he's also spraying spot weeds at the same time. We have a machine that's ground metered and it puts out the exact amount of materials we need to get your lawn looking great.
CHERNOFF: John, if I want to do this by myself, what's involved? BLECHNER: Well, there's basically three things you need to do. You need to fertilize it, you need to mow your lawn, and you need to water your lawn.
Fertilization is going to require about four pounds of nitrogen a year, and (INAUDIBLE) growing (INAUDIBLE) season grass, I said we're going to put a heavy amount on in the spring and a heavy amount in the fall. We don't want to burn the grass in the summertime with high nitrogen.
As far as mowing, you're probably going to mow once a week. But we really want to follow the one-third rule. We don't want to remove more than one-third of the length of the grass blade in the mowing, because we don't want to scalp the lawn. We want to keep it a little bit higher, because that's going to help control your weeds.
And then watering, every other day in the summer is fine. You want to add about three-quarters to an inch of water a week. Maybe we get some help from Mother Nature, maybe we don't. So that's going to be dependent on how much you have to get out here with the sprinkler.
It's very important in the spring of the year to get down your preemergents for crabgrass control. So we're going to do an application about this time. We can do one around Memorial Day, May 30. And then we're going to wait and come back in September, and then we're going to hit it hard again with nitrogen, so the grass stores up nutrients over the winter in November.
CHERNOFF: These, of course, are my big customers, Betsy and Alana (ph), and my wife, Robin. And hopefully, they're going to enjoy many years on a beautiful lawn.
Gerry, back to you.
(END VIDEOTAPE)
WILLIS: What a beautiful family. Yes, that was a great story. Thanks to Allan for sharing his lawn story with us.
Not all lawns need big mowers. The rule of thumb, if your lawn is less than 4,000 square feet, you can probably get away with a manual mower. It's a cheaper and a quieter alternative.
Coming up, a look at next week's show.
But first, the mortgage snapshot.
(COMMERCIAL BREAK)
WILLIS: Coming up next week on OPEN HOUSE, don't have 20 percent to put down on your dream home? We'll take a look at interest-only mortgages and other creative financing options.
Then, foreclosures -- they're on the rise and they can make good investments. We'll show you how to find the right one. And, our "Weekend Project": create a container garden. We'll head to the home of gardening expert Alan Smith (ph) for tips on gardening in small spaces.
Plus, we want to hear from you. Send us your comments, your questions, to OpenHouse@CNN.com. Thanks for watching OPEN HOUSE. We'll see you here next Saturday. Coming up, "DOLANS UNSCRIPTED," but first, a look at the day's headlines. Have a great weekend.
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Aired May 7, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BETTY NGUYEN, CNN ANCHOR: And we have some stories now in the news for you right now.
It a historic visit as President Bush met with the leaders of three Baltic countries who are celebrating their democracy with economic progress. Bush's visit to Latvia is not, though, sitting well with Russian President Vladimir Putin. The former Soviet Union had seized control of those countries after World War II. Now, Bush travels to Moscow on Monday for its V-E Day celebrations.
Two Americans are among the dead in this morning's suicide car bombing in Baghdad. In all, at least 15 people died when the car bomb targeted a convoy of SUVs at a busy intersection. The Americans worked for a U.S. contractor. And according to early reports, at least two American colleagues were also injured.
We are following a developing story that is rooted in the Atlanta child murders that riveted the nation a quarter-century ago. Police are reopening the investigation of four of those killings, citing concerns that Wayne Williams may have been wrongly implicated. Williams was convicted of two murders, and police declared the other murders solved, presuming Williams was responsible. Well, we are working this story and will bring you more throughout the day.
I'm Betty Nguyen. "OPEN HOUSE" starts right now.
GERRI WILLIS, HOST: Buying one house is a good thing. Is buying a whole block even better? It's not as crazy as it sounds.
ANNOUNCER: Today on OPEN HOUSE, become a home detective before that next open house. Sellers often try to hide all sorts of problems. We have home-buying tips.
Then, Frank Lloyd Wright, he's known as one of the greatest architects of the 20th century. So why are his homes difficult to sell?
And our weekend project. We're rescuing your lawn. Banish brown spots and rid your yard of weeds, next on OPEN HOUSE.
WILLIS: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis. From buying and selling to renovation and design, we show you how to make the most of your biggest investment, your home.
Investing in a house is obviously a good thing. But have you ever thought of investing in a hotel? Or your own block of apartments? How about the Empire State Building?
Well, that may be a little bit ambitious, but you can invest beyond your means with a real estate partnership.
That's when two or more people get together and pool their money to buy property.
(BEGIN VIDEO CLIPS)
UNIDENTIFIED FEMALE: An apartment in the Alps.
UNIDENTIFIED MALE: Give me land, lots of land.
UNIDENTIFIED MALE: I'd say a building, a nice residential apartment building.
(END VIDEO CLIPS)
WILLIS: Usually, the founders become the managing partners charged with making the decisions. Of course, pooling your money with loved ones can have a downside.
(BEGIN VIDEO CLIPS)
UNIDENTIFIED MALE: With family, it's a little difficult.
UNIDENTIFIED FEMALE: I would not advise it with family. (INAUDIBLE) not.
(END VIDEO CLIPS)
WILLIS: But if there's trust, there can also be a lot of opportunity.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Bought an old brownstone on the East Side of Manhattan and was able to pool it between me and my in-laws.
(END VIDEO CLIP)
WILLIS: So partnerships are one solid way to get in on real estate, even though property values are soaring. We can show you how to do it.
For help, we're turning to Glenn Sonnenberg in Los Angeles. He's president of Legg Mason Real Estate Investors.
Glen, welcome.
GLENN SONNENBERG, PRESIDENT, LEGG MASON REAL ESTATE INVESTORS: Hi, it's good to be here.
WILLIS: So describe for our viewers exactly what you mean by a real estate partnership. SONNENBERG: A real estate partnership is when a professional, who presumably knows the market and knows the asset, finds an asset that they think has good value, they want to invest in it, and they go to other people and say, I'd like you to contribute to the partnership and join me in this venture.
WILLIS: Glen, and these are things you probably couldn't afford on your own, right?
SONNENBERG: Yes, generally they're larger properties. They can be apartment buildings, shopping centers, office buildings, where a group of investors together can go buy something that's much more significant in size and opportunity.
WILLIS: How much money do I need to play?
SONNENBERG: I think generally, it's going to be a -- you're going to have a hard time if you're trying to invest less than $25,000. Generally, it's above that, per unit of investment.
WILLIS: Well, that's no small thing. Tell me how much I can make investing in a partnership.
SONNENBERG: Well, depends on the property and the general partner. Whenever these ventures start, the sky's the limit. But I think generally, you can expect to make kind of mid-teen returns is an appropriate level of return.
WILLIS: Mid-teens, so 18 percent, 10 percent? What are you thinking about here?
SONNENBERG: Well, depends on what the opportunity is. If it's a stabilized property that has stable cash flow and there's not a lot going on, then it's going to be in the lower end of that range. If it's an asset that's underperforming the market and trading at a discount, where you're really going to put in a lot of effort, maybe a lot of capital into improving the asset, then the expected return should go up, but so does the expected risk.
WILLIS: All right, let's talk about some of the downsides with these partnerships, among them, the fees. Glenn, these things really add up fast. Describe for us the fees that anybody investing in one of these things is likely to encounter.
SONNENBERG: Well, it's not unlike a mutual fund, really. There's a fee associated to get into the investment, and often the general partner will charge a fee that can range anywhere from one point all the way up to, I've seen 10 percent of the investment.
Then, over the course of the investment, the general partner is going to charge a fee for managing the affairs of the partnership and managing the property, and...
WILLIS: How much is that?
SONNENBERG: Well, that, generally, will relate to the amount of income the property produces. So it's a percentage of income, generally in range of 3 to 5 percent per year.
WILLIS: Wow. We're getting up to some big numbers here, Glenn. How do you actually make money?
SONNENBERG: Well, these general partners have got to make a living. But generally, these are opportunities where there is some amount of effort involved on the part of the general partner. You're trying to stabilize an asset, you're trying to increase rents, improve the property so that there will generate more cash flow, and you're paying that general partner for the use of their expertise in managing your money to get those returns.
WILLIS: So if I don't like what we invest, and if I have a problem with it, can I get out fast?
SONNENBERG: It's a lot like the Hotel California. You can check in, but it's pretty hard to check out.
WILLIS: Well, that's not good news, Glenn. But there are upsides to this, right? I mean, a lot of these kinds of investments, I couldn't even touch if I was doing it on my own. What are the other positives?
SONNENBERG: Well, I think a number of positives. I think people go into real estate because it diversifies one's portfolio. Real estate has generally a predictable current cash flow, as opposed to a lot of other investment options. And being able to get into real estate that's of institutional-type quality, with a general partner who knows what they're doing, gives you the opportunity to get diversification and cash flow and a hedge against inflation. So it can be a great investment.
WILLIS: Well, you said it. Get a general partner who knows what they're doing. How do you find a good one?
SONNENBERG: Boy, that's tough, because there's a lot of syndications out there. I like to tell people that your financial adviser, your accountant, your lawyer, somebody like that, who sees these sorts of things, and can go through the terms and decide whether the general partner's being fair in splitting up the profits, and whether or not this person has the experience necessary to manage the partnership, is going to be really important.
WILLIS: Is it a good idea to look at their track record?
SONNENBERG: Oh, absolutely. You do really want to get somebody who is -- has familiarity with the market that you're talking about. So if you're buying an asset in Austin, Texas, you really don't want to be investing with a guy in Seattle that has never done a deal in Austin.
By the same token, if you're investing in shopping centers, you really don't -- you really want to look for somebody who has experience in shopping centers, not necessarily just in office buildings. So the track record is very important. WILLIS: Well, that's one of the benefits too, is that you can actually invest close to home in a way that you might not be able to do on your own or even in a REIT.
SONNENBERG: Correct.
WILLIS: So, Glenn, tell us, what are the best categories of real estate to invest in when you're investing in a partnership? Is it hotels? Is it apartments? What generally works best?
SONNENBERG: I would generally stay close to home, and generally something that you know something about. And so for me, if I were a novice investor, I'd be looking at things like apartment buildings versus hotels or senior living, or something that's out there on the risk factor much more.
WILLIS: All right, Glenn Sonnenberg, thanks so much for helping us today. We appreciate it.
SONNENBERG: Thank you.
WILLIS: Coming up on OPEN HOUSE, soft music, low lights. Sounds like a scene for a seduction. But it's you who's being seduced. We show you how to see through sellers' staging tricks.
Then, Frank Lloyd Wright homes are one of a kind, and often require a one-of-a-kind homebuyer. Find out why.
And our weekend project. They say the grass is always greener, but not after we give you a hand. We're taking on your biggest lawn problems.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
ANNOUNCER: Your home is probably your biggest and most valuable asset. But to protect its value, continuous maintenance of the house is important.
Here's how to safeguard your home. Get your home inspected every five years. That will help you catch small problems early on. Keep a maintenance log. Record the dates of each job so you'll know when to check for wear and damage. And keep a record of the costs too.
Make upkeep routine. Try making it a part of your spring cleaning. And start a repair fund. Budget 1 to 3 percent of the home's value for annual repairs and maintenance.
And that's your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: (INAUDIBLE) that sellers often try disguise their home's shortcomings. If you've been in the market, you know just how tricky it can be.
One buyer's agent shows us how to be your own home detective.
(BEGIN VIDEOTAPE)
WILLIS: Let's start here in the kitchen.
(voice-over): Walk into the kitchen. Take a deep whiff. Do you smell apple pie? Watch out if you do. That sweet smell of an open house could be covering something up.
TOM EARLY, NATIONAL ASSOCIATION OF EXCLUSIVE BUYERS AGENTS: A lot of times, sellers will be advised by their agent to quarter an apple, stick it in the oven, sprinkle a little cinnamon on it. It creates a nice, fresh apple pie smell in the home.
That could be for two different reasons. One is to create a nice atmosphere for you to look at the home in. The other might be to mask smells that you don't want to smelling, such as pet odors or smoke.
WILLIS: Sophisticated home sellers use staging companies to help entice buyers. But all that extra eye candy could divert your attention from problem areas in the home.
Your best defense as a buyer, put your five senses to work. After you've sniffed out the kitchen, use your eyes to look for irregularities in cabinetry, appliances, and deferred maintenance. And remember, checking out a home should also be a hands-on experience.
EARLY: Well, what you're looking at is a kitchen that's made to look like it's been completely remodeled. But in fact, you're looking at the older, original cabinets. Nothing's been replaced here. They've got new hardware on the cabinets.
WILLIS: Dressing it up with just a small investment here, right?
EARLY: Small investments in handles. One of the things that we do in a kitchen, basically throughout the house, is what we call the touch test. We put our hands on things, we open up doors, we pull out the slides.
WILLIS: What are you looking for, Tom?
EARLY: We're looking for looseness. I mean, if the thing jiggles in your hand, I mean, it's a sign of deferred maintenance.
WILLIS: Not good.
EARLY: And if they're not taking care of the little things, what are they doing about the big things?
WILLIS (voice-over): Another trick of the trade is trying to create the illusion of extra space. Watch out for lighted corners and undersized furniture. EARLY: What it's hiding is the size. This is a standard-size table that would normally have a leaf or two in it. If you expanded this table out and you put six chairs or eight chairs around it, how large would this room be?
WILLIS (on camera): (INAUDIBLE), it would feel awfully tight.
EARLY: Exactly.
WILLIS: And, you know, it's only going to really be comfortable for a table of four in here.
(voice-over): Don't be afraid to bring measuring tape when scoping out a home.
Next, check out what happens when the walls have ears.
EARLY: The ear test.
WILLIS (on camera): The ear test?
EARLY: The ear test. I walk up to the wall and put my ear on the wall, and I look directly down the wall.
WILLIS: What do you see?
EARLY: Every single blemish that's ever been in that wall, every plaster repair that's ever been done to that wall, is going to jump out like a sore thumb.
WILLIS (voice-over): When heading into the bedroom, don't just look for closet space. Check out what's inside the closet. It can give you insight as to why the home is for sale.
EARLY: The thing that stands out for me is, it's a one-gender closet.
WILLIS (on camera): There's only a fellow here, right? I mean, what does that tell you? I think I know what it says. But we're looking at just shirts and ties and men's belts. I mean, (INAUDIBLE)...
EARLY: It's either a divorce situation, or it's a trailing spouse situation. But one way or another, it creates a little urgency. It's a sign of urgency on the sale of the property. Which a good buyer, a good buyer's agent, can take advantage of.
WILLIS: It's opportunity if you're in the market to buy.
EARLY: You betcha.
(END VIDEOTAPE)
WILLIS: Don't forget to look in out-of-the-way places too. One spot you definitely want to check out, the basement. It's here where you'll find out whether the foundation is sound or prone to leaks. Examine the walls. Look for cracks, especially those running between the wall and the floor. It could mean the house and the slab it sits on are separating.
Later this month, fans of legendary architect Frank Lloyd Wright can tour nine of his private residences in an annual tour held in Oak Park, Illinois. The event draws hundreds of people from all over the country.
But interest in the architect doesn't always translate into eager buyers for his home.
Ceci Rodgers has the story from Oak Park.
(BEGIN VIDEOTAPE)
CECI RODGERS, CNN CORRESPONDENT (voice-over): Imagine living in this early 20th century Frank Lloyd Wright home, known as the Tomic (ph) House, with its Tiffany glass ceiling lights and art glass windows. It's been like a dream come true for Aberdeen (ph) and Tim Ozga.
TIM OZGA, FRANK LLOYD WRIGHT HOMEOWNER: On the exterior, these beautiful iridescent colors of the art glass. It's very nice. Makes it almost look like crystal.
RODGERS: But for the previous owner, it was anything but a dream, trying to sell the house. It was on and off the market for six years before selling for just under a million dollars.
OZGA: She was looking for someone who's young, enthusiastic,, wanted to raise a family like she had raised a family in the house. And I think some people that came out here in the door didn't fit those qualifications, and she turned them away.
RODGERS: Part of the problem is the reputation of Frank Lloyd Wright's homes as beautiful but high maintenance. The Ozga, for example, have spent more than $100,000 on updating their home. A labor of love for them, but it's not for everyone.
HON SCHERUBEL, FRANK LLOYD WRIGHT CONSERVANCY: The large mass of what we would call new homebuyers would probably not be interested in Frank Lloyd Wright houses. I mean, the ones that want these great big live-in kitchens and huge master bathrooms and master bedrooms there are not going to find that in a Wright house, but they're not going to find it in any house that's probably 75 to 100 years old.
So what you're going to find is, the market will be limited to those people who like historic houses and like older homes.
RODGERS: This Frank Lloyd Wright home in Chicago was on the market for more than a year when the frustrated seller put it up for auction at less than half the original asking price.
This coach house in Oak Park has been on the market nearly a year. The price was just lowered. JAN KERR, REALTOR: Pricing is a real big issue. If a property is priced appropriately for the marketplace at a given time, then will sell in a relatively short period of time.
RODGERS: Kerr, who has sold the most Frank Lloyd Wright homes of any single real estate agent, says owners tend to overestimate the value of their historic homes.
(on camera): The Frank Lloyd Wright Conservancy conducted a survey several years ago and found that most of these homeowners expect a 30 to 50 percent premium when they go to sell their homes. But the reality is more like 10 to 15 percent.
(voice-over): Ed and Dawn McGee (ph) bought Frank Lloyd Wright's Freaky (ph) House last summer. They say they're more interested in the history and the legacy of the home than in the return in their investment.
DAWN MCGEE, FRANK LLOYD WRIGHT HOMEOWNER: We know that six other families have owned this house prior to us, six or five, (INAUDIBLE)...
ED MCGEE, FRANK LLOYD WRIGHT HOMEOWNER: (INAUDIBLE).
DAWN MCGEE: (INAUDIBLE) six, exactly. But and that's really kind of neat to know that. You know, we have a certain dynasty going here, you know, that we're just next in the line.
RODGERS: For the McGees, being the next in line means making sure that when it comes time to sell, the home will go to another owner with what you might call the right stuff.
For OPEN HOUSE, Ceci Rodgers, CNN, Oak Park, Illinois.
(END VIDEOTAPE)
WILLIS: Beautiful homes.
Coming up on OPEN HOUSE, forget keeping up with the Joneses. We want your lawn to top theirs. Tips on getting the best lawn in town in our weekend project.
(COMMERCIAL BREAK)
WILLIS: OK, so you're used to seeing him in a suit and tie reporting on big business stories. But this time, he's taking care of business in his own backyard.
Our own Allan Chernoff took charge of his lawn for our weekend project.
(BEGIN VIDEOTAPE)
ALLAN CHERNOFF, CNN CORRESPONDENT: Gerri, this is what my back yard looked like a year and a half ago when we bought the house, totally overgrown. We had five huge trees filling up the backyard. I had those trees chopped down, and then I split the wood. As you can see, plenty of firewood here, so come on over if you need any.
Then we had a landscaper come in who laid down some topsoil and seeded. The lawn did come in, and from afar, it looks pretty good. But close up, you can see that my lawn definitely has some trouble.
JOHN BLECHNER, DIRECTOR OF TECHNICAL SERVICES, LAWN DOCTOR: I think there's hope for your lawn.
CHERNOFF: I thought it was hopeless.
BLECHNER: Well, you're looking at an immature lawn. It's been in about a year. You're concerned about it's a little thin, it's a little off color. It's the time of the year. You haven't fertilized yet, and I haven't done a thing yet.
Yes, we're going to do that for you today. And I think in a week or so, you're going to see it brighten up, and you start to grow, and some of this thinness will start to go away.
CHERNOFF: We also do tend to get weeds here, of course. That's typical problem right over here, you see. I mean, you know, the weeds pop up in the middle of the summer. I'm yanking those weeds all the time.
BLECHNER: Well, we're going to run a little weed control today also. Your lawn is not that bad a shape, though. You're going to see a tremendous improvement just with the fertilization and thickening it up.
Weeds are a common occurrence. And, you know, what you call a weed, to one man it's a flower. It's a plant out of place. And you're saying, That's a plant I don't want in my lawn.
CHERNOFF (voice-over): My neighbor has an absolutely gorgeous lawn, the best on the block. Take two steps over to my lawn and have a look at the difference. Do I have lawn envy? No question about it. But I'm not willing to put in the amount of work that he puts in.
BLECHNER: But I think we have to get your lawn in sync with your neighbor's. Get it on a fertilization program, get it looking the same, getting all the textures to match a little bit.
You've got a great start here, Allan. You have very few weeds, you've got nice, thick grass. We just got to get it green and growing. And we're going to take care of that today with a little fertilizer.
CHERNOFF (on camera): Let's get to it.
BLECHNER: Allan, what he's doing now, he's starting your fertilization application, and he's also spraying spot weeds at the same time. We have a machine that's ground metered and it puts out the exact amount of materials we need to get your lawn looking great.
CHERNOFF: John, if I want to do this by myself, what's involved? BLECHNER: Well, there's basically three things you need to do. You need to fertilize it, you need to mow your lawn, and you need to water your lawn.
Fertilization is going to require about four pounds of nitrogen a year, and (INAUDIBLE) growing (INAUDIBLE) season grass, I said we're going to put a heavy amount on in the spring and a heavy amount in the fall. We don't want to burn the grass in the summertime with high nitrogen.
As far as mowing, you're probably going to mow once a week. But we really want to follow the one-third rule. We don't want to remove more than one-third of the length of the grass blade in the mowing, because we don't want to scalp the lawn. We want to keep it a little bit higher, because that's going to help control your weeds.
And then watering, every other day in the summer is fine. You want to add about three-quarters to an inch of water a week. Maybe we get some help from Mother Nature, maybe we don't. So that's going to be dependent on how much you have to get out here with the sprinkler.
It's very important in the spring of the year to get down your preemergents for crabgrass control. So we're going to do an application about this time. We can do one around Memorial Day, May 30. And then we're going to wait and come back in September, and then we're going to hit it hard again with nitrogen, so the grass stores up nutrients over the winter in November.
CHERNOFF: These, of course, are my big customers, Betsy and Alana (ph), and my wife, Robin. And hopefully, they're going to enjoy many years on a beautiful lawn.
Gerry, back to you.
(END VIDEOTAPE)
WILLIS: What a beautiful family. Yes, that was a great story. Thanks to Allan for sharing his lawn story with us.
Not all lawns need big mowers. The rule of thumb, if your lawn is less than 4,000 square feet, you can probably get away with a manual mower. It's a cheaper and a quieter alternative.
Coming up, a look at next week's show.
But first, the mortgage snapshot.
(COMMERCIAL BREAK)
WILLIS: Coming up next week on OPEN HOUSE, don't have 20 percent to put down on your dream home? We'll take a look at interest-only mortgages and other creative financing options.
Then, foreclosures -- they're on the rise and they can make good investments. We'll show you how to find the right one. And, our "Weekend Project": create a container garden. We'll head to the home of gardening expert Alan Smith (ph) for tips on gardening in small spaces.
Plus, we want to hear from you. Send us your comments, your questions, to OpenHouse@CNN.com. Thanks for watching OPEN HOUSE. We'll see you here next Saturday. Coming up, "DOLANS UNSCRIPTED," but first, a look at the day's headlines. Have a great weekend.
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